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EX-32.1 - EXHIBIT 32.1 - Venture Lending & Leasing VI, Inc.vll609302012ex321.htm
EX-32.2 - EXHIBIT 32.2 - Venture Lending & Leasing VI, Inc.vll609302012ex322.htm
EX-31.2 - EXHIBIT 31.2 - Venture Lending & Leasing VI, Inc.vll609302012ex312.htm
EX-31.1 - EXHIBIT 31.1 - Venture Lending & Leasing VI, Inc.vll609032012ex311.htm


FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

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

For the quarterly period ended September 30, 2012

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

For the transition period from ___________ to ______________

Commission file number 814-00799

Venture Lending & Leasing VI, Inc.
(Exact Name of Registrant as specified in its charter)
Maryland
27-1682622
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
 
 
104 La Mesa Drive, Suite 102
Portola Valley, CA 94028
(Address of principal executive offices)
(Zip Code)

(650) 234-4300
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [x]  No [ ]
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [ ]   No [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer”, “accelerated filer”, and 'smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer [ ]
Accelerated filer [ ]
Non-accelerated filer [x]
Smaller reporting company [ ]
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes [ ]  No [x]

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date:
Class
 
Outstanding as of November 9, 2012
Common Stock, $.001 par value
 
100,000




VENTURE LENDING & LEASING VI, INC.
INDEX

PART I — FINANCIAL INFORMATION
 
 
Item 1.
Financial Statements
 
 
 
Condensed Statements of Assets and Liabilities (Unaudited)
 
As of September 30, 2012 and December 31, 2011
 
 
 
Condensed Statements of Operations (Unaudited)
 
For the three and nine months ended September 30, 2012 and 2011
 
 
 
Condensed Statements of Changes in Net Assets (Unaudited)
 
For the nine months ended September 30, 2012 and 2011
 
 
 
Condensed Statements of Cash Flows (Unaudited)
 
For the nine months ended September 30, 2012 and 2011
 
 
 
Notes to Condensed Financial Statements (Unaudited)
 
 
Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations
 
 
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
 
 
Item 4.
Controls and Procedures
 
 
PART II — OTHER INFORMATION
 
 
Item 1.
Legal Proceedings
 
 
Item 1A.
Risk Factors
 
 
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
 
 
Item 3.
Defaults Upon Senior Securities
 
 
Item 4.
Mine Safety Issues
 
 
Item 5.
Other Information
 
 
Item 6.
Exhibits
 
 
SIGNATURES




VENTURE LENDING & LEASING VI, INC.

CONDENSED STATEMENTS OF ASSETS AND LIABILITIES (UNAUDITED)
AS OF SEPTEMBER 30, 2012 AND DECEMBER 31, 2011

 
September 30, 2012
 
December 31, 2011
ASSETS
 
 
 
Loans, at estimated fair value
 
 
 
   (Cost of $284,362,803 and $175,676,073)
$
280,085,085

 
$
174,777,564

Cash and cash equivalents
9,708,100

 
27,115,044

Other assets
5,387,576

 
4,164,698

 
 
 
 
Total assets
295,180,761

 
206,057,306

 
 
 
 
LIABILITIES
 
 
 
Borrowings under debt facility
123,000,000

 
70,000,000

Accrued management fees
1,844,880

 
1,837,500

Accounts payable and other accrued liabilities
3,456,869

 
2,810,346

 
 
 
 
Total liabilities
128,301,749

 
74,647,846

 
 
 
 
NET ASSETS
$
166,879,012

 
$
131,409,460

 
 
 
 
Analysis of Net Assets:
 
 
 
 
 
 
 
Capital paid in on shares of capital stock
$
199,525,000

 
$
152,525,000

Return of capital distributions
(23,478,635
)
 
(16,096,766
)
Distributable income (accumulated deficit)
(9,167,353
)
 
(5,018,774
)
Net assets (equivalent to $1,668.79 and $1,314.09 per share based on 100,000 shares of capital stock outstanding - See Note 5)
$
166,879,012

 
$
131,409,460




See notes to condensed financial statements



3



VENTURE LENDING & LEASING VI, INC.

CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2012 AND 2011

 
For the Three Months Ended September 30, 2012
 
For the Three Months Ended September 30, 2011
 
For the Nine Months Ended September 30, 2012
 
For the Nine Months Ended September 30, 2011
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
INVESTMENT INCOME:
 
 
 
 
 
 
 
Interest on loans
$
11,679,874

 
$
6,106,596

 
$
31,564,664

 
$
11,931,107

       Other interest and other income
25,785

 
311

 
185,747

 
15,063

Total investment income
11,705,659

 
6,106,907

 
31,750,411

 
11,946,170

 
 
 
 
 
 
 
 
EXPENSES:
 
 
 
 
 
 
 
Management fees
1,844,880

 
1,837,500

 
5,519,133

 
5,512,500

Interest expense
1,160,296

 
455,984

 
2,976,056

 
948,404

Banking and professional fees
69,908

 
80,497

 
261,428

 
152,345

Other operating expenses
27,243

 
43,908

 
86,849

 
82,303

Total expenses
3,102,327

 
2,417,889

 
8,843,466

 
6,695,552

Net investment income (loss)
8,603,332

 
3,689,018

 
22,906,945

 
5,250,618

 
 
 
 
 
 
 
 
Net realized gain (loss) from investments
(24,561
)
 

 
(24,561
)
 
360,960

Net change in unrealized gain (loss) from investments
(1,198,871
)
 
(435,000
)
 
(3,379,209
)
 
(435,000
)
Net realized and change in unrealized gain (loss) from hedging activities
(505,935
)
 
(538,891
)
 
(1,211,547
)
 
(1,284,037
)
Net realized and change in unrealized gain (loss) from investments and hedging activities
(1,729,367
)
 
(973,891
)
 
(4,615,317
)
 
(1,358,077
)
 
 
 
 
 
 
 
 
Net increase (decrease) in net assets resulting from operations
$
6,873,965

 
$
2,715,127

 
$
18,291,628

 
$
3,892,541

Net increase (decrease) in net assets resulting from operations per share
$
68.74

 
$
27.15

 
$
182.92

 
$
38.93

Weighted average shares outstanding
100,000

 
100,000

 
100,000

 
100,000


See notes to condensed financial statements


4



VENTURE LENDING & LEASING VI, INC.

CONDENSED STATEMENTS OF CHANGES IN NET ASSETS (UNAUDITED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2012 AND 2011

 

        
 
For the Nine Months Ended September 30, 2012
 
For the Nine Months Ended September 30, 2011
Net increase (decrease) in net assets resulting from operations:
 
 
 
Net investment income (loss)
$
22,906,945

 
$
5,250,618

Net realized gain (loss) from investments
(24,561
)
 
360,960

Net change in unrealized gain (loss) from investments
(3,379,209
)
 
(435,000
)
Net realized and change in unrealized gain (loss) from hedging activities
(1,211,547
)
 
(1,284,037
)
 
 
 
 
Net increase (decrease) in net assets resulting from operations
18,291,628

 
3,892,541

 
 
 
 
Distributions of income to shareholder
(22,440,207
)
 
(5,487,610
)
Return of capital to shareholder
(7,381,869
)
 
(4,056,056
)
Capital contributions
47,000,000

 
67,000,000

  Increase (decrease) in capital transactions
17,177,924

 
57,456,334

 
 
 
 
Total increase (decrease)
35,469,552

 
61,348,875

 
 
 
 
Net assets
 
 
 
Beginning of period
131,409,460

 
33,106,540

 
 
 
 
End of period
$
166,879,012

 
$
94,455,415







See notes to condensed financial statements


5



VENTURE LENDING & LEASING VI, INC.

CONDENSED STATEMENT OF CASH FLOWS (UNAUDITED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2012 AND 2011

 
For the Nine Months Ended September 30, 2012
 
For the Nine Months Ended September 30, 2011
CASH FLOWS FROM OPERATING ACTIVITIES:
 
 
 
Net increase (decrease) in net assets resulting from operations
$
18,291,628

 
$
3,892,541

Adjustments to reconcile net increase (decrease) in net assets resulting from operations to net cash provided by (used in) operating activities:
 
 
 
Net realized (gain) loss from investments
24,561

 
(360,960
)
Net change in unrealized (gain) loss from investments
3,379,209

 
435,000

Net change in unrealized (gain) loss from hedging activities
769,370

 
1,160,069

Receipt of equity securities as payment for waiver
(85,603
)


       Amortization of deferred costs related to borrowing facility
366,125

 
159,786

Net decrease (increase) in other assets
(1,572,217
)
 
(1,473,610
)
Net increase (decrease) in accounts payable, other accrued liabilities, and accrued management fees
(115,465
)
 
257,452

Origination of loans
(167,000,882
)
 
(122,585,448
)
Principal payments on loans
57,866,317

 
17,260,929

Acquisition of equity securities
(10,843,200
)
 
(8,047,192
)
Net cash provided by (used in) operating activities
(98,920,157
)
 
(109,301,433
)
CASH FLOWS FROM FINANCING ACTIVITIES:
 
 
 
Cash distribution to shareholder
(18,470,000
)
 

Contribution from shareholder
47,000,000

 
67,000,000

  Borrowings under debt facility
53,000,000

 
60,000,000

Payment of bank facility fees and costs
(16,787
)
 
(1,553,446
)
Net cash provided by (used in) financing activities
81,513,213

 
125,446,554

       Net increase (decrease) in cash and cash equivalents
(17,406,944
)
 
16,145,121

CASH AND CASH EQUIVALENTS:
 
 
 
Beginning of period
27,115,044

 
5,240,446

End of period
$
9,708,100

 
$
21,385,567

SUPPLEMENTAL DISCLOSURES:
 
 
 
CASH PAID DURING THE PERIOD:
   

 
 
Interest
$
2,211,435

 
$
486,786

Settlement under interest rate swap agreement
$
442,177

 
$
123,968

NON-CASH ACTIVITIES:
   

 
 
Distributions of equity securities to shareholder
$
11,352,076

 
$
9,543,666

Receipt of equity securities as repayment of loans
$
423,273

 
$
642,719

Conversion of receivable to stock
$

 
$
1,595


See notes to condensed financial statements


6



VENTURE LENDING & LEASING VI, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

1.
ORGANIZATION AND OPERATIONS OF THE FUND

Venture Lending & Leasing VI, Inc. (the “Fund”), was incorporated in Maryland on January 11, 2010 as a nondiversified closed-end management investment company electing status as a business development company (“BDC”) under the Investment Company Act of 1940, as amended ("1940 Act") and is managed by Westech Investment Advisors, LLC, formerly known as Westech Investment Advisors, Inc. (“Manager” or “Management”). One hundred percent of the stock of the Fund is held by Venture Lending & Leasing VI, LLC (the “Company”).  Prior to commencing its operations on June 29, 2010, the Fund had no operations other than the sale to the Company of 100,000 shares of common stock, $0.001 par value for $25,000 in January 2010.  This issuance of stock was a requirement in order to apply for a finance lender's license from the California Commissioner of Corporations, which was obtained on April 13, 2010.

In the Manager's opinion, the accompanying financial statements include all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of financial position and results of operations for interim periods. Certain information and note disclosures normally included in audited annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been omitted; however, the Fund believes that the disclosures made are adequate to make the information presented not misleading. The interim results for the three and nine months ended September 30, 2012 are not necessarily indicative of what the results would be for a full year. It is suggested that these financial statements be read in conjunction with the financial statements and the notes included in the Fund's Annual Report on Form 10-K for the year ended December 31, 2011.

2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Accounting

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires Management to make estimates and assumptions 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 period.  Actual results could differ from those estimates.

Cash and Cash Equivalents

Cash and cash equivalents consist of cash on hand and money market funds in banks with maturities of 90 days or less.

Interest Income

Interest income on loans is recognized using the effective interest method including amounts from the amortization of discounts attributable to equity securities received as part of the loan transaction.  Additionally, fees received as part of the transaction are added to the loan discount and amortized over the life of the loan.

Valuation Procedures

The Fund accounts for loans at fair value in accordance with the “Valuation Methods” below.  All valuations are determined under the direction of the Manager, in accordance with these methods.

The Fund's loans are valued in connection with the issuance of its periodic financial statements, the issuance or repurchase of the Fund's shares at a price equivalent to the current net asset value per share, and at such other times as

7



required by law.  On a quarterly basis, Management submits to the Board of Directors (“Board”) a “Valuation Report,” which details the rationale for the valuation of investments.

Valuation Methods

As of September 30, 2012 and December 31, 2011, the financial statements include nonmarketable investments of $280.1 million and $174.8 million (or approximately 95% and 85% of total assets, respectively) with fair values determined by the Manager in the absence of readily determinable market values.  Because of the illiquidity of the Fund's investments, a substantial portion of its assets are carried at fair value as determined by the Manager in accordance with the Fund's policy as approved by the Board of Directors. Because of the inherent uncertainty of these valuations, estimated fair values of such investments may differ significantly from the values that would have been used had a ready market for the securities existed, and the differences could be material. Below is the information used by the Manager in making these estimates.

Loans

Fair value is the price that would be received to sell an asset or paid to lower a liability in an orderly transaction between market participants. There is no secondary market for the loans, hence Management determines fair value based on hypothetical markets. Venture loans are generally held to maturity and are recorded at estimated fair value. The determination of fair value is based on a number of factors including the amount for which an investment could be exchanged in a current sale, which assumes an orderly disposition over a reasonable period other than in a forced sale. Management considers the fact that no ready market exists for substantially all of the investments held by the Fund. Management determines whether to adjust the estimated fair value of a loan based on a number of factors including but not limited to the borrower's payment history, available cash and “burn rate,” revenues, net income or loss, the likelihood that the borrower will be able to secure additional financing in the future, as well as an evaluation of the general interest rate environment. The amount of any valuation adjustment is determined based upon a credit analysis of the borrower and an analysis of the expected recovery from the borrower, including consideration of factors such as the nature and quality of the Fund's security interests in collateral, the estimated value of the Fund's collateral, the size of the loan, and the estimated time that will elapse before the Fund achieves a recovery. We have evaluated these factors and have concluded that the effect of deterioration in the quality of the underlying collateral, increase in the size of the loan and increase in the estimated time to recovery would have the effect of lowering the value of the current portfolio of loans.

Nonaccrual Loans

The Fund's policy is to place a loan on nonaccrual status when the loan stops performing and Management deems that it is unlikely that the loan will return to performing status.  When a loan is placed on nonaccrual status, all interest previously accrued but not collected is reversed for the quarter in which the loan was placed on nonaccrual status.  Any uncollected interest related to quarters prior to when the loan was placed on nonaccrual status is added to the principal balance, and the aggregate balance of the principal and interest is evaluated in accordance with the policy for valuation of loans in determining Management's best estimate of fair value. Interest received by the Fund on non-accrual loans will be recorded on a cash basis.
If a borrower of a non accrual loan resumes making regular payments and Management deems that the borrower has sufficient resources that it is unlikely the loan will return to non accrual status, the loan is re-classified back to accrual or performing status.  Interest that would have been accrued during the non accrual status will be added back to the remaining payment schedule, and thus changing the effective interest rate.

As of September 30, 2012, loans with a cost basis of $8.9 million and a fair value of $4.6 million, have been classified as non-accrual. As of December 31, 2011, loans with cost basis of $1.5 million and a fair value of $0.7 million, have been classified as non-accrual.


8



Cash Equivalents

Money market funds held as cash equivalents are valued at their most recently traded net asset value.

Interest Rate Swap Agreements

Interest rate swaps are primarily valued on the basis of quotes obtained from brokers and dealers and adjusted for counterparty risk. The valuation of the swap agreement also considers the future expected interest rates on the notional principal balance remaining which is comparable to what a prospective acquirer would pay on the measurement date. Valuation pricing models consider inputs such as forward rates, anticipated interest rate volatility relating to reference rate, as well as time value and other factors underlying swap instruments. The contracts are recorded at fair value in either other assets or accounts payable and other accrued liabilities in the Condensed Statement of Assets and Liabilities, depending on whether the value of the contract is in favor of the Fund or the counter party. The changes in fair value are recorded in net realized and change in unrealized gain (loss) from hedging activities in the Condensed Statements of Operations.  The quarterly interest paid or received on the interest rate swap contracts is also recorded in net realized and change in unrealized gain (loss) from hedging activities.

Warrants and Stock

Warrants and stock that are received in connection with loan transactions generally will be assigned a fair value at the time of acquisition. These securities are then distributed by the Fund to the Company at the assigned value. Warrants are valued based on a modified Black-Scholes option pricing model which takes into account underlying stock value, expected term, volatility, and risk-free interest rate, among other factors.  
Underlying asset value is estimated based on information available, including information regarding recent rounds of funding of the portfolio company, or the publicly-quoted stock price at the end of the financial reporting period for warrants for comparable publicly-quoted securities.
Volatility, or the amount of uncertainty or risk about the size of the changes in the warrant price, is based on an index of publicly traded companies grouped by industry and which are similar in nature to the underlying client companies issuing the warrant (“Industry Index”). The volatility assumption for each Industry Index is based on the average volatility for individual public companies within the client company's industry for a period of time approximating the expected life of the warrants. For the three months ended September 30, 2012, the Fund is using the volatility rate ranging from 37% to 71%. A hypothetical increase in the volatility calculated from the indexes used in the modified Black-Scholes option pricing model would have the effect of increasing the value of the warrants.
The remaining expected lives of warrants are based on historical experience of the average life of the warrants, as warrants are often exercised in the event of acquisitions, mergers, or initial public offerings and terminated due to events such as bankruptcies, restructuring activities, or additional financings. These events cause the expected term to be less than the remaining contractual term of the warrants. The remaining expected lives of warrants may be adjusted from time to time to reflect new facts and circumstances. For the three months ended September 30, 2012, the Fund is assuming the average duration of a warrant is 3 years. A hypothetical increase in the estimated initial term of the warrants used in the modified Black-Scholes option pricing model would have the effect of increasing the value of the warrants.
The risk-free interest rate is derived from the constant maturity tables issued by the U.S. Treasury Department. For the three months ended September 30, 2012, the Fund is using risk free rate of 0.41%. A hypothetical increase in the estimated risk free rate used in the modified Black-Scholes option pricing model would have the effect of increasing the value of the warrants.
On an annual basis, the Fund engages an independent valuation company to provide valuation assistance. This company evaluates the Fund's valuation methodology and makes sure that the assumptions made in the valuation model remain reasonable from the perspective of a market participant. The independent third party also calculates several of the inputs used such as volatility and risk free rate. Upon the receipt of such data, a sample test is performed to ensure the accuracy of the third party calculations and that the source of data is reliable and consistent

9



with the way in which the calculations were made in prior periods. Such inputs are entered into the database with a second review to ensure the accuracy of the input information. All calculations of warrant values are performed by one employee and reviewed by a second party. The inputs of the modified Black-Scholes option pricing model are reevaluated every quarter.

Other Assets and Liabilities
Other Assets include costs incurred in conjunction with borrowings under the Fund's debt facility and are stated at initial cost. The costs are amortized over the term of the facility.
As of September 30, 2012 and December 31, 2011, the fair values of Other Assets and Liabilities are estimated at their carrying values because of the short-term nature of these assets or liabilities.
As of September 30, 2012 and December 31, 2011, based on borrowing rates available to the Fund, which are Level 2 inputs, the estimated fair values of the borrowings under the debt facility were $123.0 million and $70.0 million, respectively.

Commitment Fees

Unearned income and commitment fees on loans are recognized using the effective interest method over the term of the loan. Commitment fees are carried as liabilities when received for commitments upon which no draws have been made. When the first draw is made, the fee is treated as unearned income and is recognized as described above.  If a draw is never made, the forfeited commitment fee less any applicable legal costs becomes recognized as other income after the commitment expires.

Deferred Bank Fees

Through September 30, 2012, the deferred bank fees and costs associated with the debt facility have been allocated
over the estimated life of the facility, which currently is through September 2014. The amortization of these costs are recorded in interest expense in the Condensed Statement of Operations (see Note 6).

Recently Issued Accounting Pronouncements
In May 2011, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2011-04 , Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS, which amends guidance on fair value measurements to clarify the FASB's intent about the application of existing fair value measurement and disclosure requirements (e.g., to require entities to disclose quantitative information about the unobservable inputs used in a fair value measurement that is categorized within Level III of the fair value hierarchy) and to change a particular principle or requirement for measuring fair value or for disclosing information about fair value measurements. The guidance also requires enhanced disclosures about fair value measurements, including, among other things, (a) for fair value measurements categorized within Level III of the fair value hierarchy, (1) quantitative information about the significant unobservable inputs used in the measurement, and (2) a description of the valuation processes used by the reporting entity, and (3) a narrative description of the sensitivity of the fair value to changes in unobservable inputs and interrelationships between those inputs if a change in those inputs would result in a significantly different fair value measurement, and (b) the categorization by level of the fair value hierarchy for items that are not measured at fair value in the statement of assets and liabilities but for which the fair value is required to be disclosed.
The amended guidance is to be applied prospectively and is effective for public entities (like the Fund) for interim and annual periods beginning after December 15, 2011, with early application permitted (but not earlier than interim periods beginning after December 15, 2011). The Fund adopted this guidance on January 1, 2012. The impact of the guidance is primarily limited to enhanced disclosures, and the adoption had a material impact on the Fund's 2012 disclosures.



10



Tax Status

As long as the Fund qualifies as a Regulated Investment Company ("RIC") it will not pay any federal or state corporate income tax on income that is distributed to its shareholder (pass-through status).  Should the Fund not qualify as a RIC or lose its qualification as a RIC, it could be taxed as an ordinary corporation on its taxable income for that year (even if that income is distributed to its shareholder), and all distributions out of its earnings and profits would be taxable to its shareholder as ordinary income.  As of September 30, 2012 the Fund had no uncertain tax positions.

The Fund's tax years open to examination by major jurisdictions are 2010 and forward.

3.
SUMMARY OF INVESTMENTS

Loans generally are made to borrowers pursuant to commitments whereby the Fund agrees to finance assets and/or provide working or growth capital up to a specified amount for the term of the commitment, upon the terms and subject to the conditions specified by such commitment. As of September 30, 2012, the Fund's investments in loans are primarily to companies based within the United States and are diversified among borrowers in the industry segments shown below.  The percentage of net assets that each industry group represents is shown with the industry totals below  (the sum of the percentages does not equal 100 percent because the percentages are based on net assets as opposed to total loans).  All loans are senior to unsecured creditors except where indicated.

The Fund defines fair value as the price that would be received to sell an asset or paid to settle a liability in an orderly transaction between market participants at the measurement date; that is, an exit price. The exit price assumes the asset or liability was exchanged in an orderly transaction; it was not a forced liquidation or distressed sale.

Loan balances are summarized by borrower.  Typically a borrower's balance will be composed of several loans drawn under a commitment made by the Fund with the interest rate on each loan fixed at the time each loan is funded. Each loan drawn under a commitment may have a different maturity date and amount.  For the three and nine months ended September 30, 2012, the weighted-average interest rate on the performing loans was 17.56% and 18.54%.  These rates were inclusive of both cash and non-cash interest income. For the three and nine months ended September 30, 2012, the weighted-average interest rate on the cash portion of the interest income was 13.28% and 13.87%, respectively. For the three and nine months ended September 30, 2011, the weighted-average interest rate on the performing loans was 19.60% and 18.74%, respectively. Interest is calculated using the effective interest method, and rates earned by the Fund will fluctuate based on many factors including early payoffs, volatility of values ascribed to warrants and new loans funded during the year.

The risk profile of a loan changes when events occur that impact the credit analysis of the borrower and loan as described in our loan accounting policy. Such changes result in the fair value being adjusted from par value of the individual loan. Where the risk profile is consistent with the original underwriting, which is primarily the case for this loan portfolio, the par value of the loan will approximate fair value.

Loans as of September 30, 2012 are to non-affiliates and consist of the following:
 
Percentage of
Estimated Fair
Par Value
Final
Borrower
Net Assets
Value 9/30/12
9/30/2012
Maturity Date
Biotechnology
 
 
 
 
Stem CentRx, Inc.
 
$
490,197

$
490,197

1/1/2014
Subtotal:
0.3%
$
490,197

$
490,197

 
 
 
 
 
 
Carrier Networking
 
 
 
 
VocalNet, LLC
 
$
370,180

$
370,180

5/1/2015
Subtotal:
0.2%
$
370,180

$
370,180

 

11



 
 
 
 
 
Computers & Storage
 
 
 
 
D-Wave Systems, Inc.
 
$
470,667

$
470,667

1/1/2014
Veloxum, Inc.
 
316,093

416,093

*
Subtotal:
0.5%
$
786,760

$
886,760

 
 
 
 
 
 
Enterprise Networking
 
 
 
 
BurstPoint Networks, Inc.
 
$
302,055

$
302,055

7/1/2015
Subtotal:
0.2%
$
302,055

$
302,055

 
 
 
 
 
 
Internet
 
 
 
 
Blekko, Inc.
 
$
2,337,330

$
2,337,330

9/1/2015
Bloomspot, Inc.
 
4,480,061

4,480,061

1/1/2015
Care2, Inc.
 
1,575,866

1,575,866

9/1/2014
Catch.com, Inc.
 
1,017,485

1,017,485

5/1/2014
CloudTalk, Inc.
 

135,871

*
Central Desktop, Inc.
 
3,711,854

3,711,854

8/1/2015
DailyFeats, Inc.
 
478,113

478,113

5/1/2015
Direct Media Technologies, Inc.
 
2,550,820

2,550,820

12/1/2014
EDO Interactive, Inc.
 
2,421,914

2,421,914

11/1/2014
EyeView, Inc.
 
1,879,766

1,879,766

3/1/2015
FanBridge, Inc.
 
773,822

773,822

11/1/2014
FlipTop, Inc.
 
935,790

935,790

6/1/2015
Identified, Inc.
 
2,795,959

2,795,959

9/1/2015
Ignighter, Inc.
 
351,839

351,839

6/1/2014
Insider Guides, Inc.
 
1,093,238

1,093,238

9/1/2014
isocket, Inc.
 
880,929

880,929

1/1/2015
Juice in the City, Inc.
 
603

943,603

*
Julep Beauty, Inc.
 
1,354,346

1,354,346

9/1/2015
Jun Group, LLC
 
1,163,024

1,163,024

11/1/2014
Just Fabulous, Inc.
 
4,645,459

4,645,459

6/1/2015
Kanjoya, Inc.
 
642,950

642,950

4/1/2014
Komli Media, Inc.
 
7,114,283

7,114,283

11/1/2015
Kulbyt, Inc.
 
377,002

377,002

8/1/2015
LifeShield, Inc.
 
1,350,053

1,350,053

6/1/2015
Lightside Games, Inc.
 
368,279

368,279

5/1/2015
LiveMocha, Inc.
 
2,334,829

2,334,829

6/1/2015
LOLapps, Inc.
 
519,834

519,834

1/1/2014
ModeWalk, Inc.
 
444,023

444,023

1/1/2015
Mojo Motors, Inc.
 
199,864

199,864

6/1/2014
Monetate, Inc.
 
5,680,860

5,680,860

5/1/2015
Navigating Cancer, Inc.
 
648,736

648,736

9/1/2015
PerformLine, Inc.
 
379,163

379,163

1/1/2015
Philotic, Inc.
 
52,314

52,314

8/1/2013
Piryx, Inc.
 
1,510,106

1,510,106

8/1/2014
PixelFish, Inc.
 
1,106,360

1,106,360

8/1/2014
Playstudios, Inc.
 
982,380

982,380

9/1/2015

12



Quantcast Corp.
 
13,774,338

13,774,338

4/1/2015
Radius Intelligence, Inc.
 
1,299,311

1,299,311

8/1/2015
Relay Network, LLC
 
1,894,498

1,894,498

7/1/2015
Rivet Games, Inc.
 
452,796

1,052,796

*
Santa.com, Inc.
 
721,227

802,227

*
The SavvySource For Parents, Inc.
 
854,946

854,946

1/1/2015
Sittercity, Inc.
 
2,995,398

2,995,398

6/1/2015
SocialChorus, Inc.
 
1,170,130

1,170,130

9/1/2014
Spotlight Ticket Management, Inc.
 
425,843

425,843

9/1/2015
StitchFix, Inc.
 
445,649

445,649

1/1/2015
StumbleUpon, Inc.
 
1,529,553

1,529,553

12/1/2015
TangoCard, Inc.
 
458,015

458,015

3/1/2015
TapMe, Inc.
 
445,692

445,692

4/1/2015
Thecomplete.me, Inc.
 
211,106

211,106

9/1/2015
Topsy Labs, Inc.
 
2,917,111

2,917,111

8/1/2015
UserVoice, Inc.
 
461,838

461,838

5/1/2015
Vertical Acuity, Inc.
 
296,108

586,107

*
WeddingWire, Inc.
 
497,978

497,978

2/1/2014
Youku.com, Inc.
 
836,507

836,507

7/1/2013
Subtotal:
53.8%
$
89,847,298

$
91,897,168

 
 
 
 
 
 
Medical Devices
 
 
 
 
Avedro, Inc.
 
$
4,924,523

$
4,924,523

4/1/2015
C8 Medisensors, Inc.
 
4,582,599

4,582,599

2/1/2015
Cellscape Corp.
 
549,012

549,012

5/1/2015
ConforMIS, Inc.
 
3,415,326

3,415,326

5/1/2014
Fluxion Biosciences, Inc.
 
789,406

789,406

12/1/2013
HourGlass Technologies, Inc.
 
424,587

850,587

*
MimOSA, Inc.
 
457,629

457,629

2/1/2015
NasoForm, Inc.
 
366,104

366,104

2/1/2015
O2 MedTech, Inc.
 
173,385

696,385

*
Oculus Innovative Sciences, Inc.
 
2,113,114

2,113,114

2/1/2015
Sonoma Orthopedic Products, Inc.
 
4,208,007

4,208,007

9/1/2015
Spinal Kinetics, Inc.
 
617,579

617,579

10/1/2013
Xlumena, Inc.
 
696,251

696,251

5/1/2014
Zipline Medical, Inc.
 
1,889,429

1,889,429

9/1/2015
Subtotal:
15.1%
$
25,206,951

$
26,155,951

 
 
 
 
 
 
Other Healthcare
 
 
 
 
Counsyl, Inc.
 
$
4,521,141

$
4,521,141

5/1/2015
Ekso Bionics, Inc.
 
4,332,503

4,332,503

5/1/2015
First Life, Ltd.
 
1,170,230

1,170,230

6/1/2015
Health Guru Media, Inc.
 
2,933,965

2,933,965

12/1/2014
NABsys, Inc.
 
4,700,063

4,700,063

5/1/2015
Pathway Genomics Corp.
 
2,052,652

2,052,652

12/1/2014
Quantia Communications, Inc.
 
4,652,272

4,652,272

9/1/2014
Wellfount Corp.
 
2,233,073

2,233,073

10/1/2014

13



Subtotal:
15.9%
$
26,595,899

$
26,595,899

 
 
 
 
 
 
Other Technology
 
 
 
 
Coulomb Technologies, Inc.
 
$
505,863

$
505,863

6/1/2013
Daylight Solutions, Inc.
 
3,590,472

3,590,472

7/1/2015
Demand Every Networks, Inc.
 
692,560

692,560

7/1/2014
EcoSMART Technologies, Inc.
 
864,054

864,054

3/1/2014
Kabbage, Inc.
 
2,159,779

2,159,779

9/1/2015
LanzaTech New Zealand, Ltd.
 
4,470,604

4,470,604

1/1/2016
Laurus Energy, Inc.
 
691,930

921,930

*
Lehigh Technologies, Inc.
 
2,487,558

2,487,558

2/1/2015
Myine Electronics, Inc.
 
862,300

862,300

4/1/2015
Pinnacle Engines, Inc.
 
2,749,655

2,749,655

3/1/2015
PlantSense, Inc.
 
94,534

183,044

*
Relume Technologies, Inc.
 
1,503,745

1,503,745

8/1/2014
Solaria Corp.
 
2,395,721

2,395,721

9/1/2014
Svaya Nanotechnologies, Inc.
 
780,483

780,483

12/1/2014
Thoughtful Media Group, Inc.
 
764,856

1,014,856

*
ZeaChem, Inc.
 
6,395,420

6,395,420

4/1/2015
Subtotal:
18.6%
$
31,009,534

$
31,578,044

 
 
 
 
 
 
Security
 
 
 
 
Kinamik, Inc.
 
$
525,072

$
525,072

7/1/2014
Pandesa Corp.
 
394,658

394,658

2/1/2015
Uplogix, Inc.
 
3,010,152

3,010,152

7/1/2015
Subtotal:
2.4%
$
3,929,882

$
3,929,882

 
 
 
 
 
 
Software
 
 
 
 
AcousticEye, Ltd.
 
$
490,481

$
660,481

*
Appconomy, Inc.
 
3,047,752

3,047,752

5/1/2015
Artificial Solutions ASH AB
 
1,312,292

1,312,292

2/1/2015
ClearPath, Inc.
 
899,879

899,879

11/1/2014
Corduro, Inc.
 
215,684

305,684

*
D Software, Inc.
 
222,825

222,825

12/1/2014
gloStream, Inc.
 
1,232,310

1,232,310

1/1/2015
Image Vision Labs, Inc.
 
245,627

245,627

6/1/2014
Innerworkings Holdings, Ltd.
 
598,276

598,276

10/1/2014
Innotas, Inc.
 
573,408

573,408

3/1/2014
Intalio, Inc.
 
844,390

844,390

2/1/2014
Kareo, Inc.
 
3,896,615

3,896,615

6/1/2015
KIT Digital, Inc.
 
11,625,684

11,625,684

7/1/2014
Knowledge Adventure, Inc.
 
2,652,958

2,652,958

12/1/2014
Krux Digital, Inc.
 
267,167

267,167

12/1/2013
Lending Stream, Ltd.
 
4,835,559

4,835,559

12/1/2014
Lex Machina, Inc.
 
307,620

307,620

4/1/2014
Mantara, Inc.
 
1,787,862

1,787,862

2/1/2015
Medsphere Systems Corp.
 
1,970,180

1,970,180

6/1/2014

14



NewVoiceMedia, Ltd.
 
2,826,723

2,826,723

2/1/2015
Nolio, Inc.
 
1,652,227

1,652,227

1/1/2015
Palantir Technologies, Inc.
 
6,138,835

6,138,835

3/1/2014
PivotLink, Inc.
 
3,500,465

3,500,465

12/1/2014
Pursway, Inc.
 
1,899,634

1,899,634

7/1/2015
Quantisense, Inc.
 
1,402,226

1,402,226

6/1/2015
Queplix Corp.
 

350,338

*
Riskonnect, Inc.
 
681,991

681,991

6/1/2015
SoundHound, Inc.
 
451,115

451,115

9/1/2013
STG-Impact Holdings Corp.
 
10,580,242

10,580,242

3/1/2016
Target Data, Inc.
 
523,654

523,654

6/1/2015
The Cloudscaling Group, Inc.
 
2,357,853

2,357,853

9/1/2015
Validare, Inc.
 
110,380

110,380

10/1/2013
Vizit, Inc.
 
452,061

452,061

11/1/2014
Vyumix, Inc.
 
279,346

279,346

8/1/2015
WebLink International, Inc.
 
1,322,616

1,322,616

4/1/2015
Xceedium, Inc.
 
896,214

896,214

4/1/2015
XOS Technologies, Inc.
 
1,759,829

1,759,829

10/1/2014
Subtotal:
44.3%
$
73,861,980

$
74,472,318

 
 
 
 
 
 
Technology Services
 
 
 
 
BountyJobs, Inc.
 
$
2,314,547

$
2,314,547

7/1/2015
DigitalPath, Inc.
 
2,091,667

2,091,667

7/1/2015
Perfect Market, Inc.
 
1,825,813

1,825,813

6/1/2015
The New Orleans Exchange, Inc.
 
5,615,369

5,615,369

1/1/2016
Subtotal:
7.1%
$
11,847,396

$
11,847,396

 
 
 
 
 
 
Wireless
 
 
 
 
Azumio, Inc.
 
$
1,414,232

$
1,414,232

8/1/2015
Cellfire, Inc.
 
841,393

841,393

12/1/2014
GPShopper, LLC
 
139,518

139,518

2/1/2014
July Systems, Inc.
 
1,855,458

1,855,458

10/1/2014
Meru Networks, Inc.
 
10,361,162

10,361,162

8/1/2015
StarMaker Interactive, Inc.
 
413,499

413,499

2/1/2015
Zipit Wireless, Inc.
 
811,691

811,691

10/1/2014
Subtotal:
9.5%
$
15,836,953

$
15,836,953

 
 
 
 
 
 
Total (Cost of $284,362,803):
167.8%
$
280,085,085

$
284,362,803

 


*As of September 30, 2012, loans with a cost basis of $8.9 million and a fair value of $4.6 million have been classified as non-accrual. These loans have been accelerated from original maturity and are due in their entirety. During the period for which the loans has been on non-accrual status, no interest income has been recognized.


15



Loans as of December 31, 2011 are to non-affiliates and consist of the following:

 
Percentage of
Estimated Fair
Par Value
Final
Borrower
Net Assets
Value 12/31/11
12/31/2011
Maturity Date
Biotechnology
 
 
 
 
Stem CentRx, Inc.
 
$
751,244

$
751,244

1/1/2014
Subtotal:
0.6%
$
751,244

$
751,244

 
 
 
 
 
 
Computers & Storage
 
 
 
 
D-Wave Systems, Inc.
 
$
674,688

$
674,688

1/1/2014
Nexenta Systems, Inc.
 
1,682,407

1,682,407

3/1/2014
Veloxum, Inc.
 
411,505

411,505

9/1/2014
Subtotal:
2.1%
$
2,768,600

$
2,768,600

 
 
 
 
 
 
Internet
 
 
 
 
Aditive, Inc.
 
$
440,426

$
440,426

5/1/2014
Bloomspot, Inc.
 
4,648,333

4,648,333

1/1/2015
Care2, Inc.
 
2,020,234

2,020,234

9/1/2014
Catch.com, Inc.
 
1,360,178

1,360,178

5/1/2014
CloudTalk, Inc.
 
86,148

121,148

10/1/2013
Vision Media International, Ltd.
 
2,714,042

2,714,042

12/1/2014
DisplayLink, Ltd.
 
907,901

907,901

6/1/2013
EDO Interactive, Inc.
 
2,641,537

2,641,537

11/1/2014
Experience Project, Inc.
 
894,959

894,959

4/1/2014
EyeView, Inc.
 
302,687

302,687

6/1/2014
FanBridge, Inc.
 
944,738

944,738

11/1/2014
Halogen Media Networks, Inc.
 
1,393,318

1,393,318

9/1/2014
Hexify, Inc.
 
373,745

373,745

11/1/2014
Ignighter, Inc.
 
464,941

464,941

6/1/2014
incuBET, Inc.
 
252,002

252,002

11/1/2014
Insider Guides, Inc.
 
1,548,162

1,548,162

9/1/2014
Involver, Inc.
 
618,434

618,434

6/1/2014
Juice in the City, Inc.
 
1,204,214

1,204,214

10/1/2014
Jun Group, LLC
 
1,234,305

1,234,305

11/1/2014
LOLapps, Inc.
 
786,437

786,437

1/1/2014
Mojo Motors, Inc.
 
278,899

278,899

6/1/2014
PerformLine, Inc.
 
269,414

269,414

10/1/2014
Philotic, Inc.
 
84,575

84,575

8/1/2013
Piryx, Inc.
 
1,871,911

1,871,911

8/1/2014
PixelFish, Inc.
 
659,231

659,231

8/1/2014
Quantcast Corp.
 
14,469,460

14,469,460

4/1/2015
Rivet Games, Inc.
 
1,415,200

1,415,200

8/1/2014
Santa.com, Inc.
 
894,056

894,056

10/1/2014
The SavvySource For Parents, Inc.
 
437,397

437,397

11/1/2014
Sittercity, Inc.
 
1,643,578

1,643,578

2/1/2014
Topsy Labs, Inc.
 
1,038,963

1,038,963

12/1/2014
Totsy, Inc.
 
1,738,293

1,738,293

3/1/2014

16



Ustream, Inc.
 
3,061,079

3,061,079

1/1/2014
WeddingWire, Inc.
 
757,101

757,101

2/1/2014
Youku.com, Inc.
 
1,489,072

1,489,072

7/1/2013
Subtotal:
41.8%
$
54,944,970

$
54,979,970

 
 
 
 
 
 
Medical Devices
 
 
 
 
C8 Medisensors, Inc.
 
$
2,186,727

$
2,186,727

4/1/2014
Cayenne Medical, Inc.
 
1,693,997

1,693,997

3/1/2014
Cellscape Corp.
 
468,667

468,667

6/1/2014
ConforMIS, Inc.
 
4,654,016

4,654,016

5/1/2014
CV Ingenuity Corp.
 
667,574

667,574

4/1/2014
Fluxion Biosciences, Inc.
 
1,158,583

1,158,583

12/1/2013
HourGlass Technologies, Inc.
 
849,947

849,947

11/1/2014
O2 MedTech, Inc.
 
864,917

864,917

7/1/2014
Oculus Innovative Sciences, Inc.
 
2,264,620

2,264,620

2/1/2015
Oseeon Therapeutics, Inc.
 
739,059

739,059

5/1/2014
Spinal Kinetics, Inc.
 
1,066,967

1,066,967

10/1/2013
Xlumena, Inc.
 
974,529

974,529

5/1/2014
Subtotal:
13.4%
$
17,589,603

$
17,589,603

 
 
 
 
 
 
Other Healthcare
 
 
 
 
Counsyl, Inc.
 
$
4,337,661

$
4,337,661

11/1/2014
Health Guru Media, Inc.
 
1,851,467

1,851,467

10/1/2014
Pathway Genomics Corp.
 
2,158,714

2,158,714

12/1/2014
PlantSense, Inc.
 

453,509

*
Quantia Communications, Inc.
 
5,677,125

5,677,125

9/1/2014
Wellfount Corp.
 
1,339,894

1,339,894

5/1/2014
Subtotal:
11.7%
$
15,364,861

$
15,818,370

 
 
 
 
 
 
Other Technology
 
 
 
 
Coulomb Technologies, Inc.
 
$
890,910

$
890,910

6/1/2013
Demand Every Networks, Inc.
 
909,216

909,216

7/1/2014
EcoSMART Technologies, Inc.
 
1,230,420

1,230,420

3/1/2014
eIQ Energy, Inc.
 
308,653

308,653

6/1/2013
Ekso Bionics, Inc.
 
1,337,856

1,337,856

10/1/2014
Laurus Energy, Inc.
 
1,149,098

1,149,098

5/1/2014
Lehigh Technologies, Inc.
 
2,974,107

2,974,107

10/1/2014
Myine Electronics, Inc.
 
458,770

458,770

4/1/2014
Relume Technologies, Inc.
 
1,966,714

1,966,714

8/1/2014
Solaria Corp.
 
3,094,938

3,094,938

9/1/2014
Svaya Nanotechnologies, Inc.
 
989,230

989,230

12/1/2014
Thoughtful Media Group, Inc.
 
1,322,514

1,322,514

6/1/2014
ZeaChem, Inc.
 
3,115,900

3,115,900

7/1/2013
Subtotal:
15.0%
$
19,748,326

$
19,748,326

 
 
 
 
 
 
Security
 
 
 
 
Kinamik, Inc.
 
$
438,633

$
438,633

7/1/2014

17



Pandesa Corp.
 
225,018

225,018

9/1/2014
Uplogix, Inc.
 
2,508,151

2,508,151

12/1/2014
Subtotal:
2.4%
$
3,171,802

$
3,171,802

 
 
 
 
 
 
Software
 
 
 
 
AcousticEye, Ltd.
 
$
490,481

$
660,481

*
Appconomy, Inc.
 
887,458

887,458

9/1/2014
ClearPath, Inc.
 
957,109

957,109

6/1/2014
Corduro, Inc.
 
247,565

337,565

12/1/2013
D Software, Inc.
 
54,630

54,630

1/1/2013
EnPrecis, Inc.
 
94,320

94,320

11/1/2013
Gazillion, Inc.
 
1,348,862

1,348,862

8/1/2014
gloStream, Inc.
 
1,306,878

1,306,878

5/1/2014
Image Vision Labs, Inc.
 
337,251

337,251

6/1/2014
Innerworkings Holdings, Ltd.
 
626,718

626,718

10/1/2014
Innotas, Inc.
 
788,115

788,115

3/1/2014
Intalio, Inc.
 
1,254,570

1,254,570

2/1/2014
Kareo, Inc.
 
287,673

287,673

2/1/2014
KIT Digital, Inc.
 
14,727,074

14,727,074

7/1/2014
Knowledge Adventure, Inc.
 
3,445,759

3,445,759

12/1/2014
Krux Digital, Inc.
 
392,575

392,575

12/1/2013
Lending Stream, Ltd.
 
4,782,498

4,782,498

12/1/2014
Lex Machina, Inc.
 
420,446

420,446

4/1/2014
Medsphere Systems Corp.
 
2,654,347

2,654,347

6/1/2014
NewVoiceMedia, Ltd.
 
1,757,906

1,757,906

7/1/2014
Palantir Technologies, Inc.
 
8,701,780

8,701,780

3/1/2014
PivotLink, Inc.
 
3,736,844

3,736,844

12/1/2014
Queplix Corp.
 
196,838

346,838

*
SoundHound, Inc.
 
712,638

712,638

9/1/2013
Validare, Inc.
 
172,028

172,028

10/1/2013
Vizit, Inc.
 
452,433

452,433

11/1/2014
Vyumix, Inc.
 
59,564

59,564

12/1/2014
WebLink International, Inc.
 
1,104,630

1,104,630

10/1/2014
XOS Technologies, Inc.
 
2,392,461

2,392,461

10/1/2014
Subtotal:
41.4%
$
54,391,451

$
54,801,451

 
 
 
 
 
 
Technology Services
 
 
 
 
DigitalPath, Inc.
 
$
1,068,954

$
1,068,954

10/1/2014
Perfect Market, Inc.
 
381,555

381,555

12/1/2014
Subtotal:
1.1%
$
1,450,509

$
1,450,509

 
 
 
 
 
 
Wireless
 
 
 
 
Cellfire, Inc.
 
$
927,008

$
927,008

12/1/2014
GPShopper, LLC
 
196,750

196,750

2/1/2014
July Systems, Inc.
 
2,315,847

2,315,847

10/1/2014
StarMaker Interactive, Inc.
 
236,242

236,242

1/1/2015
Zipit Wireless, Inc.
 
920,351

920,351

10/1/2014

18



Subtotal:
3.5%
$
4,596,198

$
4,596,198

 
Total: (Cost of $175,676,073)
133.0%
$
174,777,564

$
175,676,073

 

*As of December 31, 2011, loans with cost basis of $1.5 million and a fair value of $0.7 million have been classified as non-accrual.

The Fund provides asset-based financing primarily to start-up and emerging growth venture-capital-backed companies.  These loans are generally secured by assets of the borrowers.  As a result, the Fund is subject to general credit risk associated with such companies.  As of September 30, 2012 and December 31, 2011, the Fund had unexpired unfunded commitments to borrowers of $108.9 million and $85.6 million.

Valuation Hierarchy
 
The Fund categorizes its fair value measurements according to a three-level hierarchy. The hierarchy prioritizes the inputs used by the Fund's valuation techniques. A level is assigned to each fair value measurement based on the lowest level input that is significant to the fair value measurement in its entirety. The three levels of the fair value hierarchy are defined as follows:

Level 1
 
Unadjusted quoted prices for identical assets or liabilities in active markets that are accessible at the measurement date.
Level 2
 
Prices or valuations based on observable inputs other than quoted prices in active markets for identical assets and liabilities.
Level 3
 
Prices or valuations that require inputs that are both significant to the fair value measurement and unobservable.

Transfer of investments between levels of the fair value hierarchy were recorded on the actual date of the event or change in circumstances that caused the transfer. There were no transfers in and out of Level 1, 2, and 3 during the period ended September 30, 2012.

The Fund's cash equivalents were valued at the traded net asset value of the money market fund. As a result, these measurements are classified as Level 1. The Fund's investments in the interest rate swap is based on quotes from the market makers and therefore, is classified as Level 2. The Fund uses estimated exit values when determining the value of its investments.  Because these transactions are individually negotiated and unique, and there is no market in which these assets trade, the inputs for these assets, which are discussed in the Valuation Methods listed above, are classified as Level 3.  

The following table presents the balances of assets and liabilities as of September 30, 2012 and December 31, 2011 measured at fair value on a recurring basis:

As of September 30, 2012
Level 1
 
Level 2
 
Level 3
 
Total
ASSETS:
 
 
 
 
 
 
 
Loans to borrowers
$

 
$

 
$
280,085,085

 
$
280,085,085

Cash equivalents
9,708,100

 

 

 
9,708,100

Total
$
9,708,100

 
$

 
$
280,085,085

 
$
289,793,185

 
 
 
 
 
 
 
 
LIABILITIES
 
 
 
 
 
 
 
Interest rate swap agreements
$

 
$
1,981,379

 
$

 
$
1,981,379

Total
$

 
$
1,981,379

 
$

 
$
1,981,379


19



As of December 31, 2011
Level 1
 
Level 2
 
Level 3
 
Total
ASSETS:
 
 
 
 
 
 
 
Loans to borrowers
$

 
$

 
$
174,777,564

 
$
174,777,564

Cash equivalents
27,115,044

 

 

 
27,115,044

Total
$
27,115,044

 
$

 
$
174,777,564

 
$
201,892,608

 
 
 
 
 
 
 
 
LIABILITIES
 
 
 
 
 
 
 
Interest rate swap agreement
$

 
$
1,212,010

 
$

 
$
1,212,010

Total
$

 
$
1,212,010

 
$

 
$
1,212,010


The following table provides a summary of changes in Level 3 assets measured at fair value on a recurring basis:
 
For the Three Months Ended September 30, 2012
 
 
Loans to
borrowers
 
Warrants
 
Stock
Beginning balance
$
260,453,972

 
$

 
$

Acquisitions and originations
39,334,541

 
2,469,065

 
251,389

Principal reductions
(18,479,996
)
 

 

Distribution to shareholder

 
(2,469,065
)
 
(251,389
)
Net change in unrealized gain (loss) from investments
(1,198,871
)
 

 

Net realized gain (loss) from investments
(24,561
)
 

 

Ending balance
$
280,085,085

 
$

 
$


 
For the Nine Months Ended September 30, 2012
 
 
Loans to
borrowers
 
Warrants
 
Stock
Beginning balance
$
174,777,564

 
$

 
$

Acquisitions and originations
167,000,882

 
10,824,957

 
527,119

Principal reductions
(58,289,591
)
 

 

Distribution to shareholder

 
(10,824,957
)
 
(527,119
)
Conversion of note to stock

 

 

Conversion of receivable to stock

 

 

Net change in unrealized gain (loss) from investments
(3,379,209
)
 

 

Net realized gain (loss) from investments
(24,561
)
 

 

Ending balance
$
280,085,085

 
$

 
$



20



 
For the Three Months Ended September 30, 2011
 
 
Loans to
borrowers
 
Warrants
 
Stock
Beginning balance
$
114,247,202

 
$

 
$

Acquisitions and originations
26,304,552

 
1,601,499

 
625,000

Principal reductions
(6,798,307
)
 

 

Distribution to shareholder

 
(1,601,499
)
 
(625,000
)
Conversion of note to stock

 

 

Conversion of receivable to stock

 

 

Net change in unrealized gain (loss) from investments
(435,000
)
 

 

Net realized gain (loss) from investments

 

 

Ending balance
$
133,318,447

 
$

 
$


 
For the Nine Months Ended September 30, 2011
 
 
Loans to
borrowers
 
Other Investment
 
Warrants
 
Stock
Beginning balance
$
29,312,847

 
$
250,000

 
$

 
$

Acquisitions and originations
122,585,448

 

 
8,047,192

 
642,719

Principal reductions
(17,903,648
)
 

 

 

Distribution to shareholder

 

 
(8,047,192
)
 
(1,496,474
)
Conversion of note to stock

 
(250,000
)
 

 
250,000

Conversion of receivable to stock

 

 

 
1,595

Net change in unrealized gain (loss) from investments
(435,000
)
 

 

 

Net realized gain (loss) from investments
(241,200
)
 

 

 
602,160

Ending balance
$
133,318,447

 
 
 
$

 
$


4.
EARNINGS PER SHARE

Basic earnings per share are computed by dividing net increase in net assets resulting from operations by the weighted average common shares outstanding.  Diluted earnings per share are computed by dividing net increase in net assets resulting from operations by the weighted average common shares outstanding, including the dilutive effects of potential common shares (e.g., stock options).  The Fund has no instruments that would be potential common shares; thus, reported basic and diluted earnings per share are the same.

5.
CAPITAL STOCK

As of September 30, 2012 and December 31, 2011, there were 10,000,000 shares of $0.001 par value common stock authorized, and 100,000 shares issued and outstanding.  Total committed capital of the Company, as of September 30, 2012 was $294.0 million.  Total contributed capital to the Company through September 30, 2012 and December 31, 2011 was $227.9 million and $169.1 million, respectively, of which $199.5 million and $152.5 million was contributed to the Fund, respectively.  




21



The chart below shows the distributions of the Fund for the nine months ended September 30, 2012 and September 30, 2011.
 
For the Nine Months Ended September 30, 2012
 
For the Nine Months Ended September 30, 2011
Cash distributions
$
18,470,000

 
$

Distributions of equity securities
11,352,076

 
9,543,666

 
 
 
 
Total distributions to shareholder
$
29,822,076

 
$
9,543,666


Final classification of the distributions as either a return of capital or a distribution of income is an annual determination made at the end of each year dependent upon the Fund's current year and cumulative earnings and profits.

6. DEBT FACILITY

On January 14, 2011, the Fund entered into agreements with Union Bank, N.A. that established a secured revolving loan facility in an initial amount of up to $40 million. On May 26, 2011, the Fund increased the size of the amount available under the debt facility to $60 million.  On September 23, 2011, the Fund entered into agreements with Union Bank, N.A., Wells Fargo Bank, N.A. and Bank Leumi USA, which amended and restated the Loan Agreement in its entirety, and increased the size of the facility to $160 million.  Pursuant to the Loan Agreement, as so amended, the Fund has the option to request that the lenders providing such facility increase the borrowing availability thereunder to no more than $170 million in the aggregate, as commitments may be obtained. Loans under the facility may be, at the option of the Fund, either Reference Rate loans (as defined in the agreement) or LIBOR loans.

The facility will terminate on September 23, 2014, but can be accelerated under an event of default such as failure by the Fund to make timely interest or principal payments. As of September 30, 2012, $123 million is outstanding under the facility.

Borrowings under this facility are collateralized by receivables under loans advanced by the Fund with assignment to the financial institution, plus other assets of the Fund. The amortization schedule for each borrowing under the facility is expected to correspond to the amortization of the loans supporting each borrowing. The Fund pays a commitment fee of 0.325 percent (annual fee paid quarterly) based on the total commitment related to the facility.  The Fund pays interest on its borrowings and also pays a fee on the unused portion of the facility.

Prior to the close of the $160 million facility in late September 2012, bank fees of $750,000 were incurred in connection with the facility. The bank fees and other costs incurred had been capitalized and amortized to interest expense on a straight line basis over the original expected life of the facility (January 2014).  The remaining unamortized fees of $983,597 as well as the additional $680,169 in bank fees and other costs required to upsize the facility are being amortized over the new expected life of the facility (September 2014).

The facility is revolving and as such does not have a specified repayment schedule, though advances are secured by the assets of the Fund and thus repayments will be required as assets decline. The facility contains various covenants including financial covenants related to: (i) Debt to Net Worth Ratio, (ii) Minimum Debt Service Coverage Ratio, (iii) Interest Coverage Ratio, (iv) Asset Coverage, (v) Asset Coverage Under Investment Company Act, (vi) Maximum Loan Loss Reserves, and (vii) Unfunded Commitment Ratio. There are also various restrictive covenants, including limitations on (i) the incurrence of liens, (ii) consolidations, mergers and asset sales, and (iii) capital expenditures. As of September 30, 2012, the Fund was in compliance with these covenants.


22



The following is the summary of the outstanding facility draws as of September 30, 2012:
Roll-Over Date
Amount
Maturity Date
Interest Rate
July 18, 2012
$
123,000,000

10/18/2012*
3.21%
TOTAL OUTSTANDING
$
123,000,000

 
 
* Loan was subsequently rolled for a 90-day LIBOR loan, maturing on January18, 2013.

7. INTEREST RATE SWAP AGREEMENTS

On February 18, 2011, the Fund entered into an interest rate swap transaction with Union Bank, N.A.with a notional principal amount of $20 million, to convert floating rate liabilities to fixed rates. The purpose of the interest rate swap agreement is to protect the Fund against rising interest rates. The Fund continues to adjust the notional principal amount as the outstanding balance under the debt facility changes. As of September 30, 2012, the notional principal amount was $102 million. The Fund pays a fixed rate of 1.277 percent and receives from the counterparty a floating rate based on 90-day LIBOR. Payments are made quarterly and will terminate on September 23, 2014.

On June 26, 2012, the Fund entered into an interest rate swap transaction with Wells Fargo Bank, N.A.with a notional principal amount of $21 million, to convert floating rate liabilities to fixed rates. The purpose of the interest rate swap agreement is to protect the Fund against rising interest rates. The Fund continues to adjust the notional principal amount as the outstanding balance under the debt facility changes. As of September 30, 2012, the notional principal amount was $21.0 million. The Fund pays a fixed rate of 0.571 percent and receives from the counterparty a floating rate based on 90-day LIBOR. Payments are made quarterly and will terminate on September 23, 2014.

As of September 30, 2012, the total fair value of the interest rate swaps was $(2.0) million and is recorded as accounts payable and other accrued liabilities in the Condensed Statement of Assets and Liabilities. Change in unrealized gain (loss) from hedging activities of $(0.3) million and $(0.8) million, and net realized gain (loss) from hedging activities of $(0.2) million and $(0.4) million, for the three and nine months ended September 30, 2012, respectively, are included in net realized and change in unrealized gain (loss) from hedging activities in the Condensed Statements of Operations.

8.  FINANCIAL HIGHLIGHTS

Accounting principles generally accepted in the United States of America require disclosure of financial highlights of the Fund for the periods presented.  The total rate of return is defined as the return based on the change in value during the period of a theoretical investment made at the beginning of the period.  The total rate of return assumes a constant rate of return for the Fund during the period reported and weights each cash flow by the amount of time held in the Fund.  This required methodology differs from an internal rate of return.

The ratios of expenses and net investment income to average net assets, calculated below, are annualized for the three and nine months ended September 30, 2012 and are computed based upon the aggregate weighted average net assets of the Fund for the periods presented.  Net investment income is inclusive of all investment income net of expenses, and excludes realized or unrealized gains and losses.

Beginning and ending net asset values per share are based on the beginning and ending number of shares outstanding.
Other per share information is calculated based upon the aggregate weighted average net assets of the Fund for the periods presented.







23



The following per share data and ratios have been derived from the information provided in the financial statements.

 
For the Three Months Ended September 30, 2012
 
For the Three Months Ended September 30, 2011
 
For the Nine Months Ended September 30, 2012
 
For the Nine Months Ended September 30, 2011
 
 
 
 
 
 
 
 
Total return**
4.25
%
 
11.56
%
 
12.95
%
 
6.05
%
 
 
 
 
 
 
 
 
Per share amounts:
 
 
 
 
 
 
 
   Net asset value, beginning of period
$
1,609.26

 
$
939.67

 
$
1,314.09

 
$
331.07

   Net investment income (loss)
86.03

 
36.89

 
229.07

 
52.51

   Net change in unrealized and realized gain (loss) from investments
(17.29
)
 
(9.73
)
 
(46.15
)
 
(13.58
)
   Net increase (decrease) in net assets from operations
68.74

 
27.16

 
182.92

 
38.93

   Distributions of income to shareholder
(83.63
)
 
(36.10
)
 
(224.40
)
 
(54.89
)
   Return of capital to shareholder
(25.58
)
 
13.82

 
(73.82
)
 
(40.56
)
   Capital contributions
100.00

 

 
470.00

 
670.00

 


 
 
 
 
 
 
Net asset value, end of period
$
1,668.79

 
$
944.55

 
$
1,668.79

 
$
944.55

 
 

 
 
 
 
 
 
Net assets, end of period
$
166,879,012

 
$
94,455,415

 
$
166,879,012

 
$
94,455,415

 
 
 
 
 
 
 
 
Ratios to average net assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Expenses*
7.60
%
 
10.29
%
 
7.92
%
 
13.45
%
Net investment income (loss)*
21.06
%
 
15.70
%
 
20.51
%
 
10.55
%
* Annualized
 
 
 
 
 
 
 
**Historically, the Fund has disclosed total return on an annualized basis.  Beginning with the three month period and six month period ended June 30, 2012, the Fund does not disclose total return on an annualized basis.  If the total return had not been annualized for the three and nine months ended September 30, 2011, the total return for the Fund would have been 2.89% and 4.54%, respectively.

24



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

The information in this Quarterly Report on Form 10-Q contains certain “forward-looking statements” within the meaning of the securities laws.  These forward-looking statements reflect the current view of Venture Lending & Leasing VI, Inc. (the “Fund”) with respect to future events and financial performance and are subject to a number of risks and uncertainties, many of which are beyond the Fund's control.  All statements, other than statements of historical facts included in this report, regarding the strategy, future operations, financial position, estimated revenues, projected costs, prospects, plans and objectives of the Fund are forward-looking statements.  When used in this report, the words “will”, “believe”, “anticipate”, “intend”, “estimate”, “expect”, “project” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words.  All forward-looking statements speak only as of the date of this report.  The Fund does not undertake any obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise.

General

The Fund is 100% owned by Venture Lending & Leasing VI, LLC (the “Company”).  The Fund's shares of Common Stock, $.001 par value were sold to its shareholder under a stock purchase agreement.  The Fund has issued 100,000 of the Fund's 10,000,000 authorized shares.  The Fund's shareholder may make additional capital contributions to the Fund.

In addition to the historical information contained herein, this Quarterly Report on Form 10-Q contains certain forward-looking statements.  The reader of this Quarterly Report should understand that all such forward-looking statements are subject to various uncertainties and risks that could affect their outcome.  The Fund's actual results could differ materially from those suggested by such forward-looking statements.  Factors that could cause or contribute to such differences include, but are not limited to, variances in the actual versus projected growth in assets, return on assets, loan losses, expenses, rates charged on loans and earned on securities investments and competition.  This entire Quarterly Report should be read to put such forward-looking statements in context and to gain a more complete understanding of the uncertainties and risks involved in the Fund's business.

Overview

The Fund is a financial services company primarily providing financing and advisory services to a variety of carefully selected venture-backed companies primarily located throughout the United States with a focus on growth oriented companies.  The Fund's portfolio is expected to become well diversified and consists of companies in the communications, information services, media, and technology, including software and technology-enabled business services, bio-technology, and medical devices industry sectors, among others.  The Fund's capital is generally used by our portfolio companies to finance acquisitions of fixed assets and/or for working capital.  On June 29, 2010, the Fund completed its first closing of capital contributions, made its first investments, and became a non-diversified, closed-end investment company that elected to be treated as a business development company under the Investment Company Act of 1940.  The Fund elected to be treated for federal income tax purposes as a regulated investment company (“RIC”) under the Internal Revenue Code with the filing of its federal corporate income tax return for 2010.  Pursuant to this election, the Fund generally will not have to pay corporate-level taxes on any income it distributes to the stockholder as dividends, allowing the Fund's shareholder to substantially reduce or eliminate its corporate-level tax liability.

The Fund will seek to meet the ongoing requirements, including the diversification requirements, to qualify as a RIC under the Internal Revenue Code.  If the Fund fails to meet these requirements, it would be taxed as an ordinary corporation on its taxable income for that year (even if that income were distributed to the Company) and all distributions out of its earnings and profits would be taxable to the Members of the Company as ordinary income; thus, such income will be subject to a double layer of tax.  There is no assurance that the Fund will meet the ongoing requirements to qualify as a RIC for tax purposes.


25



The Fund's investment objective is to achieve a superior risk adjusted investment returns.  The Fund seeks to achieve its investment objective by providing debt financing to portfolio companies.  Since inception, the Fund's investing activities have focused primarily on private debt securities.  The Fund generally receives warrants to acquire equity securities in connection with its portfolio investments.  The Fund distributes these warrants to its shareholder upon receipt.  The Fund also has guidelines for the percentages of total assets which will be invested in different types of assets.

The portfolio investments of the Fund will primarily consist of debt financing to venture capital backed technology companies.  The borrower's ability to repay its loans may be adversely impacted by a number of factors, and as a result, the loan may not fully be repaid.  Furthermore, the Fund's security interest in any collateral over the borrower's assets may be insufficient to make up any shortfall in payments.
 
Critical Accounting Policies

We identified and determined the most critical accounting principles upon which our financial statements depend by considering accounting policies that involve the most complex or subjective decisions or assessments. Such critical accounting policies relate to the valuation of loans and treatment of non-accrual loans.  

Loans are held at estimated fair value as determined by Management, in accordance with the valuation methods described in the valuation of loans section of Note 2 of the Fund's financial statements (Summary of Significant Accounting Policies).  Critical factors in determining the fair value of a loan include payment history, collateral position, financial strength of the borrower, prospects for the borrower's raising future equity rounds, likelihood of sale or acquisition of the borrower, and length of expected holding period of the loan, as well as an evaluation of the general interest rate environment.  The actual value of the loans may differ from Management's estimates, which would affect net income as well as assets.

Results of Operations -For the three and nine months ended September 30, 2012 and September 30, 2011

Total investment income for the three months ended September 30, 2012 and September 30, 2011 was $11.7 million and $6.1 million, respectively, which primarily consisted of interest on the venture loans outstanding. Total investment income for the nine months ended September 30, 2012 and September 30, 2011 was $31.8 million and $11.9 million, respectively, which primarily consisted of interest on the venture loans outstanding. The remaining income consisted of interest and dividends on the temporary investment of cash, forfeited commitment fees, and fees earned from waivers to loan agreements. The increase was primarily due to the increase in the average loans outstanding from $124.6 million for the three months ended September 30, 2011 to $266.1 million for the three months ended September 30, 2012; and from $84.9 million for the nine months ended September 30, 2011 to $227.0 million for the nine months ended September 30, 2012. This was partially offset by decreasing interest rates, as average interest rates decreased from 19.60% for the three months ended September 30, 2011 to 17.56% for the three months ended September 30, 2012; and from 18.74% for the nine months ended September 30, 2011 to 18.54% for the nine months ended September 30, 2012. Interest is calculated using the effective interest method, and rates earned by the Fund will fluctuate based on many factors including early payoffs, volatility of values ascribed to warrants, and new loans funded during the year.

Management fees for the three months ended September 30, 2012 and September 30, 2011 were $1.8 million and $1.8 million, respectively. Management fees for the nine months ended September 30, 2012 and September 30, 2011 were $5.5 million and $5.5 million, respectively. Prior to June 29, 2012, management fees are calculated as 2.5 percent of the committed capital of the Company. Starting on June 29, 2012, management fees are calculated as 2.5 percent of the total assets.

Total interest expense was $1.2 million and $0.5 million for the three months ended September 30, 2012 and September 30, 2011, respectively. Total interest expense was $3.0 million and $0.9 million for the nine months ended September 30, 2012 and September 30, 2011, respectively. Interest expense increased primarily due to the increased borrowings, which rose from an average of $52.5 million for the three months ended September 30, 2011

26



to $123.0 million for the three months ended September 30, 2012; and from $32.4 million for the nine months ended September 30, 2011 to $100.8 million for the nine months ended September 30, 2012.

The banking and professional fees was less than $0.1 million for the three months ended September 30, 2012 and September 30, 2011, respectively. The banking and professional fees was $0.3 million and $0.2 million for the nine months ended September 30, 2012 and September 30, 2011, respectively. The banking and professional fees was comprised of legal, audit, banking and other professional fees. These fees rose in 2012 primarily because of increased professional fees as the Fund matured.

Total other operating expenses was less than $0.1 million for the three months ended September 30, 2012 and September 30, 2011, respectively. Total other operating expenses was less than $0.1 million for the nine months ended September 30, 2012 and September 30, 2011, respectively.

Net investment income (loss) for the three months ended September 30, 2012 and September 30, 2011, was $8.6 million and $3.7 million, respectively. Net investment income (loss) for the nine months ended September 30, 2012 and September 30, 2011, was $22.9 million and $5.3 million, respectively.

Net realized gain (loss) from investments was less than $0.1 million and $0 for the three months ended September 30, 2012 and September 30, 2011, respectively. Total net realized gain (loss) from investments was less than $(0.1) million and $0.4 million for the nine months ended September 30, 2012 and September 30, 2011, respectively.

Net change in unrealized gain (loss) from investments was $(1.2) million and $(0.4) million for the three months ended September 30, 2012 and September 30, 2011, respectively.  Net change in unrealized loss from investments was $(3.4) million and $(0.4) million for the nine months ended September 30, 2012 and September 30, 2011, respectively. The unrealized loss consists of fair market value adjustments taken against loans.  

Net change in realized and unrealized gain (loss) from hedging activities was $(0.5) million and $(0.5) million for the three months ended September 30, 2012 and September 30, 2011, respectively. Net change in realized and unrealized gain (loss) from hedging activities was $(1.2) million and $(1.3) million for the nine months ended September 30, 2012 and September 30, 2011, respectively. The realized and unrealized loss consist of the unrealized losses from hedging activities and the net interest received or paid on the interest rate swap transaction. The Fund entered an interest rate swap transaction with Union Bank, N.A to convert floating rate liabilities to fixed rates on February 18, 2011 (see Note 7). The Fund also entered into an interest rate swap transaction with Wells Fargo Bank, N.A. to convert floating rate liabilities to fixed rates on June 26, 2012 (see Note 7).

Net increase (decrease) in net assets resulting from operations for the three months ended September 30, 2012 and September 30, 2011 was $6.9 million and $2.7 million, respectively. On a per share basis, the net increase (decrease) in net assets resulting from operations was $68.74 and $27.15 for the three months ended September 30, 2012 and September 30, 2011, respectively. Net increase (decrease) in net assets resulting from operations for the nine months ended September 30, 2012 and September 30, 2011 was $18.3 million and $3.9 million, respectively. On a per share basis, the net increase (decrease) in net assets resulting from operations was $182.92 and $38.93 for the nine months ended September 30, 2012 and September 30, 2011, respectively.

Liquidity and Capital Resources – September 30, 2012 and December 31, 2011

Total capital contributed to the Fund was $199.5 million as of September 30, 2012. Committed capital to the Company at September 30, 2012 was $294.0 million, of which $227.9 million has been called.  The remaining $66.1 million in committed capital as of September 30, 2012 is due to expire in June 2015 as the five year anniversary will have passed, at which time no further capital can be called.

On January 14, 2011, the Fund entered into agreements with Union Bank, N.A. that established a secured revolving loan facility in an initial amount of up to $40 million. Loans under the facility may be, at the option of the

27



Fund, either Reference Rate loans (as defined in the agreement) or LIBOR loans. The Fund pays interest on its borrowings and also pays a fee on the unused portion of the facility. On May 26, 2011, the Fund increased the size of the amount available under the debt facility to $60 million. On September 23, 2011, the Fund entered into agreements with Union Bank, N.A., Wells Fargo Bank, N.A. and Bank Leumi USA, which amended and restated the Loan Agreement, and increased the size of the facility to $160 million. The facility will terminate on September 23, 2014, but can be accelerated under an event of default such as failure by the Fund to make timely interest or principal payments. As of September 30, 2012, the Fund has a balance of $123 million under the facility.

As of September 30, 2012 and December 31, 2011, 3.3% and 13.2%, respectively, of the Fund's assets consisted of cash and cash equivalents.  The Fund invested its assets in venture loans during the nine months ended September 30, 2012