commercial banks and other sources of financing. Additionally, because competition for investment opportunities generally has increased among alternative investment vehicles, such as hedge funds, those entities have begun to invest in areas they have not traditionally invested in, including making investments in lower middle-market companies. As a result of these new entrants, competition for investment opportunities in lower middle-market companies may intensify. Many of the entities that compete with us have greater financial and managerial resources. We believe we are able to be competitive with these entities primarily on the basis of our ~~willingness to make smaller investments,~~focus on the underserved lower middle market, the experience and contacts of our management team, our responsive and efficient investment analysis and decision-making processes, our comprehensive suite of customized financing solutions and the investment terms we offer.

We believe that some of our competitors make senior secured loans, junior secured loans and subordinated debt investments with interest rates and returns that are comparable to or lower than the rates and returns that we target. Therefore, we do not seek to compete primarily on the interest rates and returns that we offer to potential portfolio companies. For additional information concerning the competitive risks we face, see “Risk Factors — We may face increasing competition for investment opportunities.”

EMPLOYEES

As of December 31, ~~2007,~~2008, we had 1217 employees, each of whom was employed by the Investment Manager. These employees include investment and portfolio management professionals, operations professionals and administrative staff. In ~~January~~ 2008, we hired aseveral investment professionals, as well as our Chief Accounting Officer and ~~we intend to~~General Counsel. We will hire additional investment professionals ~~as well as~~and additional administrative personnel, as necessary. All of our employees are located in our Houston office.

REGULATION

Regulation as a Business Development Company

We have elected to be regulated as a BDC under the 1940 Act. The 1940 Act contains prohibitions and restrictions relating to transactions between BDCs and their affiliates, principal underwriters and affiliates of those affiliates or underwriters. The 1940 Act requires that a majority of the members of the board of directors of a BDC be persons other than “interested persons,” as that term is defined in the 1940 Act. In addition, the 1940 Act provides that we may not change the nature of our business so as to cease to be, or to withdraw our election as, a BDC unless approved by a majority of our outstanding voting securities.

The 1940 Act defines “a majority of the outstanding voting securities” as the lesser of (i) 67% or more of the voting securities present at a meeting if the holders of more than 50% of our outstanding voting securities are present or represented by proxy or (ii) 50% of our voting securities.

Qualifying Assets

Under the 1940 Act, a BDC may not acquire any asset other than assets of the type listed in Section 55(a) of the 1940 Act, which are referred to as qualifying assets, unless, at the time the acquisition is made, qualifying assets represent at least 70% of the company’s total assets. The principal categories of qualifying assets relevant to our business are any of the following:

	~~(1)~~		Securities purchased in transactions not involving any public offering from the issuer of such securities, which issuer (subject to certain limited exceptions) is an eligible portfolio company (as defined below), or from any person who is, or has been during the preceding 13 months, an affiliated person of an eligible portfolio company, or from any other person, subject to such rules as may be prescribed by the SEC.

	~~(2)~~		~~Securities of any eligible portfolio company that we control.~~

	~~(3)~~		(1) Securities purchased in transactions not involving any public offering from the issuer of such securities, which issuer (subject to certain limited exceptions) is an eligible portfolio company (as defined below), or from any person who is, or has been during the preceding 13 months, an affiliated person of an eligible portfolio company, or from any other person, subject to such rules as may be prescribed by the SEC. (2) Securities of any eligible portfolio company that we control. (3) Securities purchased in a private transaction from a U.S. issuer that is not an investment company or from an affiliated person of the issuer, or in transactions incident thereto, if the issuer is in bankruptcy and subject to reorganization or if the issuer, immediately prior to the purchase of its securities was unable to meet its obligations as they came due without material assistance other than conventional lending or financing arrangements.

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	~~(4)~~		Securities of an eligible portfolio company purchased from any person in a private transaction if there is no ready market for such securities and we already own 60% of the outstanding equity of the eligible portfolio company.

	~~(5)~~		~~Securities received in exchange for or distributed on or with respect to securities described in (1) through (4) above, or pursuant to the exercise of warrants or rights relating to such securities.~~

	~~(6)~~		~~Cash, cash equivalents, U.S. government securities or high-quality debt securities maturing in one year or less from the time of investment.~~

(4) Securities of an eligible portfolio company purchased from any person in a private transaction if there is no ready market for such securities and we already own 60% of the outstanding equity of the eligible portfolio company.

(5) Securities received in exchange for or distributed on or with respect to securities described in (1) through (4) above, or pursuant to the exercise of warrants or rights relating to such securities.

(6) Cash, cash equivalents, U.S. government securities or high-quality debt securities maturing in one year or less from the time of investment.

In addition, a BDC must have been organized and have its principal place of business in the United States and must be operated for the purpose of making investments in the types of securities described in (1), (2) or (3) above.

An eligible portfolio company is defined in the 1940 Act as any issuer which:


	(a)		is organized under the laws of, and has its principal place of business in, the United States;


	(b)		is not an investment company (other than a small business investment company wholly owned by the ~~business development company)~~BDC) or a company that would be an investment company but for certain exclusions under the 1940 Act; and


	(c)		satisfies any of the following:

	~~(i)~~		(i) does not have any class of securities that is traded ~~on a national securities exchange;~~

	~~(ii)~~		is controlled by a business development company or a group of companies including a business development company and the business development company has an affiliated person who is a director of the eligible portfolio company; or

	~~(iii)~~		~~is a small and solvent company having total assets of not more than $4.0 million and capital and surplus of not less than $2.0 million.~~

In October 2006, the SEC re-proposed rules providing for an additional definition of eligible portfolio company. As re-proposed, the rules would expand the definition of eligible portfolio company to include certain public companies that list their securities on a national securities ~~exchange. The SEC is seeking comment regarding the application~~exchange or has a class of ~~these proposed rules to companies with: (1)~~securities listed on a ~~public float~~national securities exchange but has an aggregate market value of ~~less than $75 million; (2) a market capitalization of less than $150 million; or (3) a market capitalization~~outstanding voting and non-voting common equity of less than $250 ~~million. There~~million;

(ii) is ~~no assurance that such proposal will be adopted~~controlled by a BDC or ~~what~~a group of companies including a BDC and the ~~final proposal will entail.~~BDC has an affiliated person who is a director of the eligible portfolio company; or

(iii) is a small and solvent company having total assets of not more than $4 million and capital and surplus of not less than $2 million.

Managerial Assistance to Portfolio Companies

In order to count portfolio securities as qualifying assets for the purpose of the 70% test, we must either control the issuer of the securities or must offer to make available to the issuer of the securities (other than small and solvent companies described above) significant managerial assistance; except that, where we purchase such securities in conjunction with one or more other persons acting together, one of the other persons in the group may make available such managerial assistance. Making available managerial assistance means, among other things, any arrangement whereby the BDC, through its directors, officers or employees, offers to provide, and, if accepted, does so provide, significant guidance and counsel concerning the management, operations or business objectives and policies of a portfolio company.

Idle Funds Investments

Pending investment in other types of “qualifying assets,” as described above, our investments may consist of ~~cash, cash equivalents,~~ U.S. government securities, orinvestments in high-quality debt ~~securities maturing in one year or less from the time of investment,~~investments and diversified bond funds, which we refer to, collectively, as idle funds investments, so that 70% of our assets are qualifying assets. Typically, we will invest in securities issued by the U.S. government or its agencies. We may also invest in repurchase agreements. A repurchase agreement involves the purchase by an investor, such as us, of a specified security and the simultaneous agreement by the seller to repurchase it at an agreed-upon future date and at a price that is greater than the purchase price by an amount that reflects an agreed-upon interest rate. There is no percentage restriction on the proportion of our assets that may be invested in such repurchase agreements. However, if more than 25% of our total assets constitute repurchase agreements from a single counterparty, we would not meet the asset diversification requirements in order to qualify as a RIC for federal income tax purposes. Thus, we do not intend to enter into repurchase agreements with a single counterparty in excess of this limit. Our management team will monitor the creditworthiness of the counterparties with which we enter into repurchase agreement transactions.

Senior Securities

We are permitted, under specified conditions, to issue multiple classes of debt and one class of stock senior to our common stock if our asset coverage, as defined in the 1940 Act, is at least equal to 200% of ~~the~~all debtand/or senior stock immediately after each such issuance. In addition, while any senior securities remain outstanding (other than senior securities representing indebtedness issued in consideration of a privately arranged loan which is not intended to be publicly distributed), we must make provisions to prohibit any distribution to our stockholders or the repurchase of such securities or shares unless we meet the applicable

asset coverage ratios at the time of the distribution or repurchase. We may also borrow amounts up to 5% of the value of our total assets for temporary or emergency purposes without regard to asset coverage. For a discussion of the risks associated with leverage, see “Risk Factors — Risks Relating to Our Business and ~~Structure” and~~Structure,” including, without limitation, “— Because we borrow money, the potential for gain or loss on amounts invested in us is magnified and may increase the risk of investing in us.”

In January 2008, we received an exemptive order from the ~~Securities and Exchange Commission~~SEC to exclude debt securities issued by the Fund from the asset coverage requirements of the 1940 Act as applicable to Main Street. The exemptive order provides for the exclusion of all debt securities issued by the Fund, including the $55 million of currently outstanding debt related to its participation in the SBIC program. This exemptive order provides us with expanded capacity and flexibility in obtaining future sources of capital for our investment and operational objectives.

Common Stock

We are not generally able to issue and sell our common stock at a price below net asset value per share. We may, however, sell our common stock, warrants, options or rights to acquire our common stock, at a price below the current net asset value of the common stock if our board of directors determines that such sale is in our best interests and that of our stockholders, and our stockholders approve such sale. In any such case, the price at which our securities are to be issued and sold may not be less than a price which, in the determination of our board of directors, closely approximates the market value of such securities (less any distributing commission or discount). On June 17, 2008, our stockholders approved proposals that (1) authorize us to sell shares of our common stock below the then current net asset value per share of our common stock in one or more offerings for a period of one year ending on the earlier of June 16, 2009 or the date of our 2009 annual meeting of stockholders and (2) authorize us to issue securities to subscribe to, convert to, or purchase shares of our common stock in one or more offerings. We may also make rights offerings to our stockholders at prices per share less than the net asset value per share, subject to applicable requirements of the 1940 Act. See “Risk Factors — Risks Relating to Our Business and Structure — Stockholders may incur dilution if we sell shares of our common stock in one or more offerings at prices below the then current net asset value per share of our common stock or issue securities to subscribe to, convert to or purchase shares of our common stock.”

Code of Ethics

We have adopted a code of ethics pursuant toRule 17j-1 under the 1940 Act that establishes procedures for personal investments and restricts certain personal securities transactions. Personnel subject to the code may invest in securities for their personal investment accounts, including securities that may be purchased or held by us, so long as such investments are made in accordance with the code’s requirements.

Proxy Voting Policies and Procedures

We vote proxies relating to our portfolio securities in a manner in which we believe is consistent with the best interest of our stockholders. We review on acase-by-case basis each proposal submitted to a stockholder vote to determine its impact on the portfolio securities held by us. Although we generally vote against proposals that we expect would have a negative impact on our portfolio securities, we may vote for such a proposal if there exists compelling long-term reasons to do so.

Our proxy voting decisions are made by the deal team which is responsible for monitoring each of our investments. To ensure that our vote is not the product of a conflict of interest, we require that: (i) anyone involved in the decision-making process to disclose to our chief compliance officer any potential conflict of which he or she is aware of and any contact that he or she has had with any interested party regarding a proxy vote and (ii) employees involved in the ~~decision-making~~decision making process or vote administration are prohibited from revealing how we intend to vote on a proposal in order to reduce any attempted influence from interested parties.

Stockholders may obtain information, without charge, regarding how we voted proxies with respect to our portfolio securities by making a written request for proxy voting information to: Chief Compliance Officer, 1300 Post Oak Boulevard, Suite 800, Houston, Texas 77056.

Other 1940 Act Regulations

We may also be prohibited under the 1940 Act from knowingly participating in certain transactions with our affiliates without the prior approval of our Board of Directors who are not interested persons and, in some cases, prior approval by the SEC. In June 2008, we received an exemptive order from the SEC to permitco-investments in portfolio companies among Main Street and certain of its affiliates, including MSC II, subject to certain conditions of the order.

We are required to adopt and implement written policies and procedures reasonably designed to prevent violation of the federal securities laws, review these policies and procedures annually for their adequacy and the effectiveness of their implementation, and to designate a chief compliance officer to be responsible for administering the policies and procedures.

We may be periodically examined by the SEC for compliance with the 1940 Act.

Small Business ~~Administration~~Investment Company Regulations

The Fund is licensed by the SBA to operate as a SBIC under Section 301(c) of the Small Business Investment Act of 1958. As a part of the Formation Transactions, the Fund became a wholly-owned subsidiary of MSCC, and continues to hold its SBIC license. The Fund initially obtained its SBIC license on September 30, 2002.

SBICs are designed to stimulate the flow of private equity capital to eligible small businesses. Under ~~SBA~~SBIC regulations, SBICs may make loans to eligible small businesses, invest in the equity securities of such businesses and provide them with consulting and advisory services. The Fund has typically invested in secured debt, acquired warrantsand/or made equity investments in qualifying small businesses.

Under present ~~SBA~~SBIC regulations, eligible small businesses generally include businesses that (together with their affiliates) have a tangible net worth not exceeding ~~$18.0~~$18 million and have average annual net income after federal income taxes not exceeding ~~$6.0~~$6 million (average net income to be computed without benefit of any carryover loss) for the two most recent fiscal years. In addition, an SBIC must devote 20% of its investment activity to “smaller” concerns as defined by the SBA. A smaller concern generally includes businesses that have a tangible net worth not exceeding ~~$6.0~~$6 million and have average annual net income after federal income taxes not exceeding ~~$2.0~~$2 million (average net income to be computed without benefit of any net carryover loss) for the two most recent fiscal years. ~~SBA~~SBIC regulations also provide alternative size standard criteria to determine eligibility for designation as an eligible small business or smaller concern, which criteria depend on the primary industry in which the business is engaged and are based on such factors as the number of employees and gross revenue. However, once an SBIC has invested in a company, it may continue to make follow on investments in the company, regardless of the size of the portfolio company at the time of the ~~follow-on~~follow on investment, up to the time of the portfolio company’s initial public offering.

The SBA prohibits an SBIC from providing funds to small businesses for certain purposes, such as relending and investment outside the United States, to businesses engaged in a few prohibited industries, and to certain “passive” (non-operating) companies. In addition, without prior SBA approval, an SBIC may not invest an amount equal to more than ~~20%~~approximately 30% of the SBIC’s regulatory capital in any one portfolio company and its affiliates.

The SBA places certain limitations on the financing terms of investments by SBICs in portfolio companies (such as limiting the permissible interest rate on debt securities held by an SBIC in a portfolio company). Although prior regulations prohibited an SBIC from controlling a small business concern except in limited circumstances, regulations adopted by the SBA in 2002 now allow an SBIC to exercise control over a small business for a period of seven years from the date on which the SBIC initially acquires its control position. This control period may be extended for an additional period of time with the SBA’s prior written approval.

The SBA restricts the ability of an SBIC to lend money to any of its officers, directors and employees or to invest in affiliates thereof. The SBA also prohibits, without prior SBA approval, a “change of control” of an SBIC or transfers that would result in any person (or a group of persons acting in concert) owning 10% or more of a class of capital stock of a licensed SBIC. A “change of control” is any event which would result in the transfer of the power, direct or indirect, to direct the management and policies of an SBIC, whether through ownership, contractual arrangements or otherwise.

An SBIC (or group of SBICs under common control) may generally have outstanding debentures guaranteed by the SBA in amounts up to twice the amount of the ~~privately raised~~privately-raised funds of the SBIC(s). Debentures guaranteed by the SBA have a maturity of ten years, require semi-annual payments of interest, do not require any principal payments prior to maturity, and, historically, were subject to certain prepayment penalties. Those prepayment penalties ~~do not~~no longer apply ~~to debentures issued after~~as of September 2006. As of December 31, ~~2007,~~2008, we, through the Fund, had issued ~~$55.0~~$55 million of SBA-guaranteed debentures, which had an annual weight-averaged interest rate of approximately 5.8%. ~~SBA regulations currently limit~~

The recently enacted American Recovery and Reinvestment Act of 2009 (the “2009 Stimulus Bill”) contains several provisions applicable to SBIC funds, including the ~~dollar~~Fund, Main Street’s wholly owned subsidiary. One of the key SBIC-related provisions included in the 2009 Stimulus Bill increases the maximum amount of ~~outstanding SBA-guaranteed debentures that may be issued by any one~~combined SBIC leverage (or ~~group of SBICs under common control)~~SBIC leverage cap) to ~~$130.6~~$225 million ~~(which amount is subject to increase on an annual basis based on cost of living increases). Because of our investment team’s affiliations with Main Street Capital II, a separate~~for affiliated SBIC ~~which commenced investment operations in January 2006, the Fund and Main Street Capital II may be deemed to be a group of SBICs under common control. Thus, the dollar~~funds. The prior maximum amount of ~~SBA-guaranteed debentures that can be issued collectively by the Fund and Main Street Capital II may be limited~~SBIC leverage available to ~~$130.6~~affiliated SBIC funds was approximately $137 million, ~~absent relief from the SBA. Currently, we, through the Fund, do not intend to borrow SBA-guaranteed indebtedness in excess of $55.0 million~~as adjusted annually based upon changes in the ~~Fund’s existing equity capital.~~

~~In June 2007,~~Consumer Price Index. Due to the Small Business Venture Capital Act of 2007 (the “2007 Act”) was proposed for congressional approval. The proposed 2007 Act provides for, among other things, (i) the re-authorization of the SBIC program through December 31, 2010, (ii) an increase in the maximum amount of SBIC leverage available to ~~$150.0 million for each~~affiliated SBIC ~~and~~funds, Main Street, through the Fund, will now have access to ~~$225.0 million for any two or more SBICs under common control, and (iii) an~~incremental SBIC leverage to support its future investment activities. Since the increase in the ~~limit on amounts invested~~SBIC leverage cap applies to affiliated SBIC funds, Main Street will allocate such increased borrowing capacity between the Fund and MSC II, an independently owned SBIC that is managed by anMain Street and therefore deemed to be affiliated with the Fund for SBIC ~~in any one portfolio company from 20%~~regulatory purposes. It is currently estimated that at least $55 million to $60 million of ~~equity capital~~additional SBIC leverage is now accessible by Main Street, through the Fund, for future investment activities, subject to ~~30% of equity capital. At this time, it is not clear whether~~ the ~~proposed provisions~~required capitalization of the ~~2007 Act will be approved in their current form, or if they will be approved at all.~~Fund.

SBICs must invest idle funds that are not being used to make loans in investments permitted under ~~SBA~~SBIC regulations in the following limited types of securities: (i) direct obligations of, or obligations guaranteed as to principal and interest by, the United States government, which mature within 15 months from the date of the investment; (ii) repurchase agreements with federally insured institutions with a maturity of seven days or less (and the securities underlying the repurchase obligations must be direct obligations of or guaranteed by the federal government); (iii) certificates of deposit with a maturity of one year or less, issued by a federally insured institution; (iv) a deposit account in a federally insured institution that is subject to a withdrawal restriction of one year or less; (v) a checking account in a federally insured institution; or (vi) a reasonable petty cash fund.

SBICs are periodically examined and audited by the SBA’s staff to determine their compliance with SBIC regulations and are periodically required to file certain forms with the SBA.

We requested that the SEC allow us to exclude any indebtedness guaranteed by the SBA and issued by ~~Main Street Mezzanine~~the Fund from the 200% asset coverage requirements applicable to us as a ~~business development company.~~BDC. In January 2008, we received an exemptive order from the SEC to exclude such debt securities issued by ~~Main Street Mezzanine~~the Fund, including the $55 million of currently outstanding debt related to the Fund’s participation in the SBIC program.

Neither the SBA nor the U.S. government or any of its agencies or officers has approved any ownership interest to be issued by us or any obligation that we or any of our subsidiaries may incur.

Securities Exchange Act of 1934 and Sarbanes-Oxley Act Compliance

We are subject to the reporting and disclosure requirements of the Securities Exchange Act of 1934 (the “Exchange Act”), including the filing of quarterly, annual and current reports, proxy statements and other required items. In addition, we are subject to the Sarbanes-Oxley Act of 2002, which imposes a wide variety of regulatory requirements on publicly-held companies and their insiders. For example:


	•	pursuant toRule 13a-14 of the Exchange Act, our Chief Executive Officer and Chief Financial Officer are required to certify the accuracy of the financial statements contained in our periodic reports;

	•	pursuant to Item 307 ofRegulation S-K, our periodic reports are required to disclose our conclusions about the effectiveness of our disclosure controls and procedures;

	•	pursuant toRule 13a-15 of the Exchange Act, our management is required to prepare a report regarding its assessment of our internal control over financial reporting, and separately, our independent registered public accounting firm audits our internal controls over financial reporting; and

	•	pursuant to Item 308 ofRegulation S-K andRule 13a-15 of the Exchange Act, our periodic reports must disclose whether there were significant changes in our internal control over financial reporting or in other factors that could significantly affect these controls subsequent to the date of their evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

The Nasdaq Global Select Market Corporate Governance Regulations

The NASDAQ Global Select Market has adopted corporate governance regulations that listed companies must comply with. We believe we are in compliance with such corporate governance listing standards. We intend to monitor our compliance with all future listing standards and to take all necessary actions to ensure that we stay in compliance.

Taxation as a Regulated Investment Company

~~We will elect~~

MSCC has elected to be treated for federal income tax purposes as a ~~RIC~~regulated investment company (“RIC”) under Subchapter M of the Internal Revenue Code (the “Code”) commencing October 2, 2007. As a RIC, we generally do not have to pay corporate-level federal income taxes on any income that we distribute to our stockholders as dividends. To qualify as a RIC, we must, among other things, meet certain source-of-income and asset diversification requirements (as described below). In addition, in order to obtain RIC tax treatment, we must distribute to our stockholders, for each taxable year, at least 90% of our “investment company taxable income,” which is generally our net ordinary income plus the excess of realized net short-term capital gains over realized net long-term capital losses (the “Annual Distribution Requirement”).

For any taxable year in which we qualify as a RIC and satisfy the Annual Distribution Requirement, we will not be subject to federal income tax on the portion of our income we distribute (or are deemed to distribute) to stockholders. We will be subject to U.S. federal income tax at the regular corporate rates on any income or capital gains not distributed (or deemed distributed) to our stockholders.

We will be subject to a 4% nondeductible federal excise tax on certain undistributed income unless we distribute in a timely manner an amount at least equal to the sum of (1) 98% of our net ordinary income ~~for each calendar year, (2) 98% of our~~and capital gain net income for ~~the one-year period ending October 31 in that~~each calendar year, and ~~(3)~~(2) any income recognized, but not distributed, in preceding years (the “Excise Tax Avoidance Requirement”). Dividends declared and paid by us in a year will generally differ from taxable income for that year as such dividends may include the distribution of current year taxable income, less amounts carried over into the following year, and the distribution of prior year taxable income carried over into and distributed in the current year. For amounts we carry over into the following year, we will be required to pay the 4% excise tax based on 98% of our annual taxable income in excess of distributions for the year.

In order to qualify as a RIC for federal income tax purposes, we must, among other things:

~~continue to qualify as a BDC under the 1940 Act at all times during each taxable year;~~

derive in each taxable year at least 90% of our gross income from dividends, interest, payments with respect to certain securities, loans, gains from the sale of stock or other securities, net income from certain “qualified publicly traded partnerships,” or other income derived with respect to our business of investing in such stock or securities (the “90% Income Test”); and

~~diversify our holdings so that at the end of each quarter of the taxable year:~~


	•	continue to qualify as a BDC under the 1940 Act at all times during each taxable year;

	•	derive in each taxable year at least 90% of our gross income from dividends, interest, payments with respect to certain securities, loans, gains from the sale of stock or other securities, net income from certain “qualified publicly traded partnerships,” or other income derived with respect to our business of investing in such stock or securities (the “90% Income Test”); and

	•	diversify our holdings so that at the end of each quarter of the taxable year:


•	at least 50% of the value of our assets consists of cash, cash equivalents, U.S. Government securities, securities of other RICs, and other securities if such other securities of any one issuer do not represent more than 5% of the value of our assets or more than 10% of the outstanding voting securities of the issuer; and

•		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 RICs, of one issuer, of two or more issuers that are controlled, as determined under applicable Code rules, by us and that are engaged in the same or similar or related trades or businesses or of certain ~~“qualified~~��qualified publicly traded partnerships” ~~(the~~(collectively, the “Diversification Tests”).

In order to comply with the 90% Income Test, we ~~created~~formed MSEI, a wholly-owned subsidiary of MSCC, for the primary purpose of permitting us to ~~hold~~own equity interests in portfolio companies which are “pass through” entities for tax purposes. Absent MSEI, is a ~~taxable entity which holds certain~~portion of the gross income from such portfolio ~~investments~~companies would flow directly to us for purposes of ~~ours.~~the 90% Income Test. To the extent such income did not consist of investment income, it could jeopardize our ability to qualify as a RIC and, therefore cause us to incur significant federal income taxes. MSEI is consolidated with Main Street for generally accepted accounting principles in the United States, or U.S. GAAP purposes, and the portfolio investments held by MSEI are included in our consolidated financial statements. MSEI is not consolidated with Main Street for income tax purposes and may generate income tax expense as a result of its ownership of the portfolio investments. This income tax expense, if any, is reflected in our Consolidated Statement of Operations.

We may be required to recognize taxable income in circumstances in which we do not receive cash. For example, if we hold debt obligations that are treated under applicable tax rules as having original issue discount (such as debt instruments ~~with PIK interest or, in certain cases, increasing interest rates or~~ issued with warrants), 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. We may also have to include in income other amounts that we have not yet received in cash, such as PIK interest and deferred loan origination fees that are paid after origination of the loan or are paid in non-cash compensation such as warrants or stock. Because any original issue discount or other amounts accrued will be included in our investment company taxable income for the year of accrual, we may be required to make a distribution to our stockholders in order to satisfy the Annual Distribution Requirement, even though we will not have received any corresponding cash amount.

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 1940 Act, we are not permitted to make distributions to our stockholders in certain circumstances while our debt obligations and other senior securities are outstanding unless certain “asset coverage” tests are met. See ~~“Regulation~~“— Regulation — Regulation as a Business Development Company — Senior Securities.” Moreover, our ability to dispose of assets to meet our distribution requirements may be limited by (1) the illiquid nature of our portfolioand/or (2) other requirements relating to our status as a RIC, including the Diversification Tests. If we dispose of assets in order to meet the Annual Distribution Requirement or the Excise Tax Avoidance Requirement, we may make such dispositions at times that, from an investment standpoint, are not advantageous.

~~Other~~

We may also be prohibited under the 1940 Act from knowingly participating in certain transactions with our affiliates without the prior approval of our Board of Directors who are not interested persons and, in some cases, prior approvalPursuant to a recent revenue procedure issued by the ~~SEC. We have applied to~~Internal Revenue Service, or the ~~SEC for exemptive relief to permit us to co-invest with Main Street Capital II. Although~~IRS, the ~~SEC~~IRS has ~~granted similar relief~~indicated that it will treat distributions from certain publicly traded RICs (including business development companies) that are paid part in cash and part in stock as dividends that would satisfy the ~~past, we cannot be certain that our application for such relief will be granted or what conditions will be placed on such relief.~~RIC’s annual

~~We will be periodically examined by~~distribution requirements. In order to qualify for such treatment, the ~~SEC for compliance with the 1940 Act.~~

We are required to provide and maintain a bond issued by a reputable fidelity insurance company to protect us against larceny and embezzlement. Furthermore, as a BDC, we are prohibited from protecting any director or officer against any liability to us or our stockholders arising from willful misfeasance, bad faith, gross negligence or reckless disregardrevenue procedure requires that at least 10% of the ~~duties involved~~total distribution be paid in cash and that each stockholder have a right to elect to receive its entire distribution in cash. If too many stockholders elect to receive cash, each stockholder electing to receive cash must receive a proportionate share of the ~~conduct~~cash to be distributed (although no stockholder electing to receive cash may receive less than 10% of such ~~person’s office.~~stockholder’s distribution in cash). This revenue procedure applies to distributions made with respect to taxable years ending prior to January 1, 2010.

Our capital expenditures relating to environmental matters were not material in 2007. We currently do not anticipate any material adverse effect on our business, financial condition, results of operations or cash flows as a result of our future compliance with existing environmental laws.


Item 1A.		*Risk Factors*

Investing in our common stock involves a number of significant risks. In addition to the other information contained in this Annual Report onForm 10-K,, investors should consider carefully the following information before making an investment in our common stock. The risks set out below are not the only risks we face. Additional risks and uncertainties not presently known to us or not presently deemed material by us might also impair our operations and performance. If any of the following events occur, our business, financial condition and results of operations could be materially and adversely affected.

RISKS RELATING TO ECONOMIC CONDITIONS

The current state of the economy and financial markets increases the likelihood of adverse effects on our financial position and results of operations. Continued economic adversity could impair our portfolio companies’ financial positions and operating results and affect the industries in which we invest, which could, in turn, harm our operating results.

Beginning in late 2007, the United States entered a recession. Throughout 2008, the economy continued to deteriorate and many believe that the current recession could continue for an extended period. During 2008, banks and others in the financial services industry reported significant write-downs in the fair value of their assets, which has led to the failure of a number of banks and investment companies, a number of distressed mergers and acquisitions, the government take-over of the nation’s two largest government-sponsored mortgage companies, and the passage of the $700 billion Emergency Economic Stabilization Act of 2008 in October 2008 and the $787 billion 2009 Stimulus Bill. In addition, the stock market has declined significantly, with both the S&P 500 and the NASDAQ Global Select Market (on which our stock trades), declining by nearly 40% between December 31, 2007 and December 31, 2008. As the recession deepened during 2008, unemployment rose and consumer confidence declined, which led to significant reductions in spending by both consumers and businesses.

Although we have been able to secure access to additional liquidity, including the recently obtained $30 million investment credit facility and the increase in available leverage through the SBIC program as part of the 2009 Stimulus Bill, the current turmoil in the debt markets and uncertainty in the equity capital markets provides no assurance that debt or equity capital will be available to us in the future on favorable terms, or at all.

The deterioration in consumer confidence and a general reduction in spending by both consumers and businesses has had an adverse effect on a number of the industries in which some of our portfolio companies operate. In the event that the United States economy remains in a protracted period of weakness, the results of some of the lower middle-market companies like those in which we invest, will continue to experience deterioration, which could ultimately lead to difficulty in meeting their debt service requirements and an increase in their defaults. In addition, the end markets for certain of our portfolio companies’ products and services have experienced, and continue to experience, negative economic trends. We can provide no assurance that the performance of certain of our portfolio companies will not be negatively impacted by economic or other conditions which could have a negative impact on our future results.

RISKS RELATING TO OUR BUSINESS AND STRUCTURE

~~A significant portion of our~~Our investment portfolio is and will continue to be recorded at fair value, ~~as determined~~with our Board of Directors having final responsibility for overseeing, reviewing and approving, in good faith, by our ~~Board~~estimate of ~~Directors~~fair value and, as a result, there is and will continue to be uncertainty as to the value of our portfolio investments.

Under the 1940 Act, we are required to carry our portfolio investments at market value or, if there is no readily available market value, at fair value as determined by us with our Board of ~~Directors.~~Directors having final responsibility for overseeing, reviewing and approving, in good faith, our estimate of fair value. Typically, there is not a public market for the securities of the privately held companies in which we have invested and will generally continue to invest. As a result, we value these securities quarterly at fair value ~~as determined~~based on inputs from management, a third party independent valuation firm and our audit committee and with the oversight, review and approval of our Board of Directors.

The determination of fair value and consequently, the amount of unrealized gains and losses in ~~good faith~~our portfolio, are to a certain degree, subjective and dependent on a valuation process approved by our Board of Directors.

Certain factors that may be considered in determining the fair value of our investments include ~~the nature~~external events, such as private mergers, sales and ~~realizable value of any collateral, the portfolio company’s earnings and its ability to make payments on its indebtedness, the markets in which the portfolio company does business, comparison to~~acquisitions involving comparable ~~publicly traded companies, discounted cash flow and other relevant factors.~~companies. Because such valuations, and particularly valuations of private securities and private companies, are inherently uncertain, may fluctuate over short periods of time and may be based on estimates, our determinations of fair value may differ materially from the values that would have been used if a ready market for these securities existed. Due to this uncertainty, our fair value determinations may cause our net asset value on a given date to materially understate or overstate the value that we may ultimately realize on one or more of our investments. As a result, investors purchasing our common stock based on an overstated net asset value would pay a higher price than the value of our investments might warrant. Conversely, investors selling shares during a period in which the net asset value understates the value of our investments will receive a lower price for their shares than the value of our investments might warrant.

Our financial condition and results of operations depends on our ability to effectively manage and deploy capital.

Our ability to achieve our investment objective of maximizing our portfolio’s total return by generating current income from our debt investments and capital appreciation from equity and our equity-related investments, including warrants, convertible securities and other rights to acquire equity securities in a portfolio company, depends on our ability to effectively manage and deploy capital, which depends, in turn, on our investment team’s ability to identify, evaluate and monitor, and our ability to finance and invest in, companies that meet our investment criteria.

Accomplishing our investment objective on a cost-effective basis is largely a function of our investment team’s handling of the investment process, its ability to provide competent, attentive and efficient services and our access to investments offering acceptable terms. In addition to monitoring the performance of our existing investments, members of our investment team are also called upon, from time to time, to provide managerial assistance to some of our portfolio companies. These demands on their time may distract them or slow the rate of investment.

Even if we are able to grow and build upon our investment operations, any failure to manage our growth effectively could have a material adverse effect on our business, financial condition, results of operations and prospects. The results of our operations will depend on many factors, including the availability of opportunities for investment, readily accessible short and long-term funding alternatives in the financial markets and economic conditions. Furthermore, if we cannot successfully operate our business or implement our investment policies and strategies as described ~~in this Annual Report on Form 10-K,~~herein, it could negatively impact our ability to pay dividends.

We may face increasing competition for investment opportunities.

We compete for investments with other ~~BDC~~BDCs and investment funds (including private equity funds, mezzanine funds and ~~mezzanine funds)~~other SBIC’s), as well as traditional financial services companies such as commercial banks and other sources of funding. Moreover, alternative investment vehicles, such as hedge funds, have begun to invest in areas they have not traditionally invested in, including making investments in lower middle-market companies. As a result of these new entrants, competition for investment opportunities in lower middle-market companies may intensify. Many of our competitors are substantially larger and have considerably greater financial, technical and marketing resources than we do. For example, some competitors may have a lower cost of capital and access to funding sources that are not available to ~~us.~~us, including from federal government agencies through federal rescue programs such as the U.S. Department of Treasury’s Financial Stability Plan (formerly known as the Troubled Asset Relief Program). In addition, some of our competitors may have higher risk tolerances or different risk assessments than we have. These characteristics could allow our competitors to consider a wider variety of investments, establish more relationships and offer better pricing and more flexible structuring than we are able to do. We may lose investment opportunities if we do not match our competitors’ pricing, terms and structure. If we are forced to match our competitors’ pricing, terms and structure, we may not be able to achieve acceptable returns on our investments or may bear substantial risk of capital loss. A significant part of our ~~business is based on~~competitive advantage stems from the fact that the market for investments in lower middle-market companies is underserved by traditional commercial banks and other financing sources. A significant increase in the numberand/or the size of our competitors in this target market could force us to accept less attractive investment terms. Furthermore, many of our competitors have greater experience operating under, or are not subject to, the regulatory restrictions that the 1940 Act imposes on us as a BDC.

We are dependent upon our key investment personnel for our future success.

We depend on the members of our investment team, particularly Vincent D. Foster, Todd A. Reppert, Rodger A. Stout, Curtis L. Hartman, Dwayne L. Hyzak and David L. Magdol, for the identification, review, final selection, structuring, closing and monitoring of our investments. These employees have significant investment expertise and relationships that we rely on to implement our business plan. Although we have entered into employment agreements with Messrs, Reppert, Stout, Hartman, Hyzak and Magdol and a non-compete agreement with Mr. Foster, we have no guarantee that they will remain employed with us. If we lose the services of these individuals, we may not be able to operate our business as we expect, and our ability to compete could be harmed, which could cause our operating results to suffer.

~~Additionally, our~~

Our success depends on attracting and retaining qualified personnel in a competitive environment.

Our growth will require that we retain new investment and administrative ~~personnel. We believe our future success will depend,~~personnel in ~~part,~~a competitive market. Our ability to attract and retain personnel with the requisite credentials, experience and skills depends on several factors including, but not limited to, our ability to ~~identify,~~offer competitive wages, benefits and professional growth opportunities. Many of the entities, including investment funds (such as private equity funds and mezzanine funds) and traditional financial services companies, with which we compete for experienced personnel have greater resources than we have.

The competitive environment for qualified personnel may require us to take certain measures to ensure that we are able to attract and retain ~~sufficient numbers~~experienced personnel. Such measures may include increasing the attractiveness of ~~highly skilled employees.~~our overall compensation packages, altering the structure of our compensation packages through the use of additional forms of compensation, or other steps. The inability to attract and retain experienced personnel would have a material adverse effect on our business.

Our business model depends to a significant extent upon strong referral relationships, and our inability to maintain or develop these relationships, as well as the failure of these relationships to generate investment opportunities, could adversely affect our business.

We expect that members of our management team will maintain their relationships with intermediaries, financial institutions, investment bankers, commercial bankers, attorneys, accountants, consultants and other individuals within our network, and we will rely to a significant extent upon these relationships to provide us with potential investment opportunities. If our management team fails to maintain its existing relationships or

develop new relationships with sources of investment opportunities, we ~~do not succeed in identifying, attracting and retaining these personnel, we may~~will not be able to ~~operate~~grow our ~~business as we expect.~~investment portfolio. In addition, individuals with whom members of our management team have relationships are not obligated to provide us with investment opportunities, and, therefore, there is no assurance that such relationships will generate investment opportunities for us.

We have a limited operating history as a BDC and as a RIC.

The 1940 Act imposes numerous constraints on the operations of BDCs. Prior to the completion of the ~~Offering,~~IPO, we did not operate, and our management team had no experience operating, as a BDC under the 1940 Act or as a RIC under Subchapter M of the Code. As a result, we have limited operating results under these regulatory frameworks that can demonstrate either their effect on our business or our ability to manage our business under these frameworks. Our management team’s limited experience in managing a portfolio of assets under such constraints may hinder our ability to take advantage of attractive investment opportunities and, as a result, achieve our investment objective. Furthermore, any failure to comply with the requirements imposed on BDCs by the 1940 Act could cause the SEC to bring an enforcement action against us. If we ~~fail to operate~~do not remain a BDC, we might be regulated as a registered closed-end investment company under the 1940 Act, which would further decrease our ~~business so as to maintain~~operating flexibility.

Regulations governing our ~~status~~operation as a BDC will affect our ability to, and the way in which we raise additional capital.

Our business will require capital to operate and grow. We may acquire such additional capital from the following sources:

Senior Securities. We may issue debt securities or preferred stockand/or borrow money from banks or other financial institutions, which we refer to collectively as senior securities. As a ~~RIC, our operating flexibility~~result of issuing senior securities, we will be ~~significantly reduced.~~exposed to additional risks, including the following:


	•	Under the provisions of the 1940 Act, we are permitted, as a BDC, to issue senior securities only in amounts such that our asset coverage, as defined in the 1940 Act, equals at least 200% immediately after each issuance of senior securities. If the value of our assets declines, we may be unable to satisfy this test. If that happens, we will be prohibited from issuing debt securities or preferred stockand/or borrowing money from banks or other financial institutions until such time as we satisfy this test.

	•	Any amounts that we use to service our debt or make payments on preferred stock will not be available for dividends to our common stockholders.

	•	It is likely that any senior securities or other indebtedness we issue will be governed by an indenture or other instrument containing covenants restricting our operating flexibility. Additionally, some of these securities or other indebtedness may be rated by rating agencies, and in obtaining a rating for such securities and other indebtedness, we may be required to abide by operating and investment guidelines that further restrict operating and financial flexibility.

	•	We and, indirectly, our stockholders will bear the cost of issuing and servicing such securities and other indebtedness.

	•	Preferred stock or any convertible or exchangeable securities that we issue in the future may have rights, preferences and privileges more favorable than those of our common stock, including separate voting rights and could delay or prevent a transaction or a change in control to the detriment of the holders of our common stock.

Additional Common Stock. We are not generally able to issue and sell our common stock at a price below net asset value per share. We may, however, sell our common stock, warrants, options or rights to acquire our common stock, at a price below the current net asset value of the common stock if our Board of Directors determines that such sale is in the best interests of our stockholders, and our stockholders approve such sale. See “— Stockholders may incur dilution if we sell shares of our common stock in one or more

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offerings at prices below the then current net asset value per share of our common stock or issue securities to subscribe to, convert to or purchase shares of our common stock” for a discussion of proposals approved by our stockholders that permit us to issue shares of our common stock below net asset value. We may also make rights offerings to our stockholders at prices per share less than the net asset value per share, subject to applicable requirements of the 1940 Act. If we raise additional funds by issuing more common stock or senior securities convertible into, or exchangeable for, our common stock, the percentage ownership of our stockholders at that time would decrease, and they may experience dilution. Moreover, we can offer no assurance that we will be able to issue and sell additional equity securities in the future, on favorable terms or at all.

Our wholly-owned subsidiary, the Fund, is licensed by the SBA, and therefore subject to SBIC regulations.

The Fund, our wholly-owned subsidiary, is licensed to act as a small business investment company and is regulated by the SBA. The SBA also places certain limitations on the financing terms of investments by SBICs in portfolio companies and prohibits SBICs from providing funds for certain purposes or to businesses in a few prohibited industries. Compliance with SBIC requirements may cause the Fund to forego attractive investment opportunities that are not permitted under SBIC regulations.

Further, the SBIC regulations require that a licensed SBIC be periodically examined and audited by the SBA to determine its compliance with the relevant SBIC regulations. The SBA prohibits, without prior SBA approval, a “change of control” of an SBIC or transfers that would result in any person (or a group of persons acting in concert) owning 10% or more of a class of capital stock of a licensed SBIC. If the Fund fails to comply with applicable SBIC regulations, the SBA could, depending on the severity of the violation, limit or prohibit its use of debentures, declare outstanding debentures immediately due and payable,and/or limit it from making new investments. In addition, the SBA can revoke or suspend a license for willful or repeated violation of, or willful or repeated failure to observe, any provision of the Small Business Investment Act of 1958 or any rule or regulation promulgated thereunder. Such actions by the SBA would, in turn, negatively affect us because the Fund is our wholly owned subsidiary.

Because we borrow money, the potential for gain or loss on amounts invested in us is magnified and may increase the risk of investing in us.

Borrowings, also known as leverage, magnify the potential for gain or loss on invested equity capital. As we ~~intend to~~ use leverage to partially finance our investments, you will experience increased risks of investing in our common stock. We, through the Fund, issue debt securities guaranteed by the SBA and sold in the capital markets. As a result of its guarantee of the debt securities, the SBA has fixed dollar claims on the assets of the Fund that are superior to the claims of our common stockholders. We may also borrow from banks and other lenders, including under the $30 million, three-year investment credit facility we entered into in October 2008. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Capital Resources” for a discussion regarding the ~~future.~~two credit facilities into which we have entered. If the value of our assets ~~also~~ increases, then leveraging would cause the net asset value attributable to our common stock to increase more sharply than it would have had we not leveraged. Conversely, if the value of our assets decreases, leveraging would cause net asset value to decline more sharply than it otherwise would have had we not leveraged our business. Similarly, any increase in our income in excess of interest payable on the borrowed funds would cause our net investment income to increase more than it would without the leverage, while any decrease in our income would cause net investment income to decline more sharply than it would have had we not borrowed. Such a decline could negatively affect our ability to pay common stock dividends. Leverage is generally considered a speculative investment technique.

As of December 31, ~~2007,~~2008, we, through the Fund, had ~~$55.0~~$55 million of outstanding indebtedness guaranteed by the SBA, which had a weighted average annualized interest cost of approximately 5.8% (exclusive of deferred financing costs). The debentures guaranteed by the SBA have a maturity of ten years and require semi-annual payments of interest. We will need to generate sufficient cash flow to make required interest payments on the debentures. If we are unable to meet the financial obligations under the debentures, the SBA,

as a creditor, will have a superior claim to the assets of the Fund over our stockholders in the event we liquidate or the SBA exercises its remedies under such debentures as the result of a default by us.

~~On December 31, 2007, we entered into a two year, $100 million Treasury Secured Revolving Credit Agreement (the “Credit Agreement”) with Wachovia Bank, National Association~~

Illustration. The following table illustrates the effect of leverage on returns from an investment in our common stock assuming various annual returns, net of expenses. The calculations in the table below are hypothetical and ~~Branch Banking and Trust Company, as administrative agent for the lenders. As~~actual returns may be higher or lower than those appearing below.

Assumed Return on Our Portfolio(1)
(net of December 31, 2007, we did not have any outstanding borrowings under the Credit Agreement. The Credit Agreement bears interest, at our option, at either LIBOR or a published prime rate plus 25 basis points. The Credit Agreement requires payment of 15 basis points per annum in unused commitment fees based on average daily unused balances under the facility.expenses)


	(10.0)%			(5.0)%			0.0%			5.0%			10.0%
Corresponding net return to common stockholder		(18.0	)%		(10.4	)%		(2.8	)%		4.8	%		12.3	%


(1)		Assumes $170.6 million in total assets, $55 million in debt outstanding, $112.4 million in net assets, and an average cost of funds of 5.8%. Actual interest payments may be different.

Our ability to achieve our investment objective may depend in part on our ability to achieve additional leverage on favorable terms by issuing debentures guaranteed by the SBA, through the Fund, or by borrowing from banks or insurance companies, and there can be no assurance that such additional leverage can in fact be achieved.

~~SBA~~SBIC regulations limit the outstanding dollar amount of SBA-guaranteed debentures that may be issued by an SBIC or group of SBICs under common control.

The ~~SBA~~SBIC regulations currently limit the dollar amount of SBA-guaranteed debentures that can be issued by any one SBIC or group of SBICs under common control to ~~$130.6 million (which~~$225 million. Moreover, an SBIC may not generally borrow an amount ~~is subject to increase on an annual basis based on cost~~in excess of ~~living increases).~~two times its regulatory capital. Because of our investment team’s affiliations with ~~Main Street Capital~~MSC II, a ~~separate~~privately owned SBIC which commenced investment operations in January 2006, the Fund and ~~Main Street Capital~~MSC II may be deemed to be a group of affiliated SBICs under common control. Thus, the dollar amount of SBA-guaranteed debentures that can be issued collectively by the Fund and ~~Main Street Capital~~MSC II may be limited to ~~$130.6~~$225 million, absent relief from the SBA. ~~Currently,~~While we cannot presently predict whether or not we, through the Fund, ~~do not intend~~will borrow the maximum permitted amount, if we reach the maximum dollar amount of SBA guaranteed debentures permitted, and thereafter require additional capital, our cost of capital may increase, and there is no assurance that we will be able to ~~issue SBA-guaranteed debentures in excess of $55.0 million based upon the Fund’s existing equity capital.~~obtain additional financing on acceptable terms.

The Fund’s current status as an SBIC does not automatically assure that it will continue to receive SBA-guaranteed debenture funding. Receipt of SBA leverage funding is dependent upon the Fund continuing to be in compliance with ~~SBA~~SBIC regulations and policies. Moreover, the amount of SBA leverage funding available to SBICs is dependent upon annual Congressional authorizations and in the future may be subject to annual Congressional appropriations. There can be no assurance that there will be sufficient debenture funding available at the times desired by the Fund.

~~Our ability to enter into and exit investment transactions with our affiliates will be restricted.~~

Except in those instances where we have received prior exemptive relief from the SEC, we will be prohibited under the 1940 Act from knowingly entering into certain investment transactions with our affiliates. Prior to the Offering, the Fund had co-invested with Main Street Capital II in a number of lower middle-market companies. Each co-investment was made at the same time and on the same terms. In connection with our election to be regulated as a BDC, neither we nor the Fund are permitted to co-invest with Main Street Capital II in certain types of negotiated investment transactions unless we receive an exemptive order from the SEC permitting us to do so. Moreover, we may be limited in our ability to make follow-on investments or liquidate our existing equity investments in such companies. Although we have applied to the SEC for exemptive relief to permit such co-investment and liquidity transactions, subject to certain conditions, we cannot be certain that our application for such relief will be granted or what conditions will be placed on such relief if granted.

~~There are significant potential conflicts of interest which could impact our investment returns.~~

The members of our investment team serve or may serve as officers, directors or principals of entities that operate in the same or a related line of business as we do or of investment funds managed by our affiliates. Accordingly, they may have obligations to investors in those entities, the fulfillment of which might not be in the best interests of us or our stockholders. For example, Messrs. Foster, Reppert, Hartman, Hyzak, Magdol and Stout, each of whom are members of our investment team, are and will continue to have responsibilities for and an economic interest in Main Street Capital II, a separate SBIC which commenced investment operations in January 2006. Importantly, Main Street Capital II has overlapping investment objectives with those of Main Street and, accordingly, makes loans to, and invests in, companies similar to those targeted by Main Street. As a result of their responsibilities for and economic interest in Main Street Capital II, the members of our investment team will face conflicts in the allocation of investment opportunities to Main Street Capital II. Although the members of our investment team will endeavor to allocate investment opportunities in a fair and equitable manner, it is possible that we may not be given the opportunity to participate in certain investments made by Main Street Capital II. Pending receipt of exemptive relief from the SEC to permit co-investment as described above, investments will be allocated between us and Main Street Capital II based upon established internal guidelines in conformity with the applicable SBA regulations.

We may experience fluctuations in our quarterly results.

We could experience fluctuations in our quarterly operating results due to a number of factors, including our ability or inability to make investments in companies that meet our investment criteria, the interest rate payable on the debt securities we acquire, the level of portfolio dividend and fee income, the level of our expenses, variations in and the timing of the recognition of realized and unrealized gains or losses, the degree to which we encounter competition in our markets and general economic conditions. As a result of these factors, results for any period should not be relied upon as being indicative of performance in future periods.

Our Board of Directors may change our operating policies and strategies without prior notice or stockholder approval, the effects of which may be adverse.

Our Board of Directors has the authority to modify or waive our current operating policies, investment criteria and strategies without prior notice and without stockholder approval. We cannot predict the effect any

changes to our current operating policies, investment criteria and strategies would have on our business, net asset value, operating results and value of our stock. However, the effects might be adverse, which could negatively impact our ability to pay you dividends and cause you to lose all or part of your investment.

We will be subject to corporate-level income tax if we are unable to qualify as a RIC under Subchapter M of the Code.

To ~~obtain and~~ maintain RIC tax treatment under the Code, we must meet the following annual distribution, source income ~~source~~ and asset diversification ~~requirements.~~requirements:


	•	The annual distribution requirement for a RIC will be satisfied if we distribute to our stockholders on an annual basis at least 90% of our net ordinary income and realized net short-term capital gains in excess of realized net long-term capital losses, if any. Depending on the level of taxable income earned in a tax year, we may choose to carry forward taxable income in excess of current year distributions into the next tax year and pay a 4% excise tax on such income. Any such carryover taxable income must be distributed through a dividend declared prior to filing the final tax return related to the year which generated such taxable income. For more information regarding tax treatment, see “Business — Regulation — Taxation as a Regulated Investment Company.” Because we use debt financing, we are subject to certain asset coverage ratio requirements under the 1940 Act and are (and may in the future become) subject to certain financial covenants under loan and credit agreements that could, under certain circumstances, restrict us from making distributions necessary to satisfy the distribution requirement. If we are unable to obtain cash from other sources, we could fail to qualify for RIC tax treatment and thus become subject to corporate-level income tax.

	•	The source income requirement will be satisfied if we obtain at least 90% of our income for each year from distributions, interest, gains from the sale of stock or securities or similar sources.

	•	The asset diversification requirement will be satisfied if we meet certain asset diversification requirements at the end of each quarter of our taxable year. To satisfy this requirement, at least 50% of the value of our assets must consist of cash, cash equivalents, U.S. Government securities, securities of other RICs, and other acceptable securities; and no more than 25% of the value of our assets can be invested in the securities, other than U.S. government securities or securities of other RICs, of one issuer, of two or more issuers that are controlled, as determined under applicable Code rules, by us and that are engaged in the same or similar or related trades or businesses or of certain “qualified publicly traded partnerships.” Failure to meet these requirements may result in our having to dispose of certain investments quickly in order to prevent the loss of RIC status. Because most of our investments will be in private companies, and therefore will be relatively illiquid, any such dispositions could be made at disadvantageous prices and could result in substantial losses.

The annual distribution requirement for a RIC will be satisfied if we distribute to our stockholders on an annual basis at least 90% of our net ordinary income and realized net short-term capital gains in excess of realized net long-term capital losses, if any. We will be subject to a 4% nondeductible federal excise tax, however, to the extent that we do not satisfy certain additional minimum distribution requirements on a calendar-year basis. Because we use debt financing, we are subject to an asset coverage ratio requirement under the 1940 Act and may in the future become subject to certain financial covenants under loan and credit agreements that could, under certain circumstances, restrict us from making distributions necessary to satisfy the distribution requirement. If we are unable to obtain cash from other sources, we could fail to qualify for RIC tax treatment and thus become subject to corporate-level income tax.

~~The income source requirement will be satisfied if we obtain at least 90% of our income for each year from distributions, interest, gains from the sale of stock or securities or similar sources.~~

The asset diversification requirement will be satisfied if we meet certain asset diversification requirements at the end of each quarter of our taxable year. To satisfy this requirement, at least 50% of the value of our assets must consist of cash, cash equivalents, U.S. Government securities, securities of other RICs, and other acceptable securities; and no more than 25% of the value of our assets can be invested in the securities, other than U.S. government securities or securities of other RICs, of one issuer, of two or more issuers that are controlled, as determined under applicable Code rules, by us and that are engaged in the same or similar or related trades or businesses or of certain “qualified publicly traded partnerships.” Failure to meet these requirements may result in our having to dispose of certain investments quickly in order to prevent the loss of RIC status. Because most of our investments will be in private companies, and therefore will be relatively illiquid, any such dispositions could be made at disadvantageous prices and could result in substantial losses.

If we fail to ~~qualify for or~~ maintain RIC tax treatment for any reason and are subject to corporate income tax, the resulting corporate taxes could substantially reduce our net assets, the amount of income available for distribution and the amount of our distributions.

We may not be able to pay you dividends, our dividends may not grow over time, and a portion of dividends paid to you may be a return of capital.

We intend to pay ~~quarterly~~monthly dividends to our stockholders out of assets legally available for distribution. We cannot assure you that we will achieve investment results that will allow us to pay ~~our initial dividend or thereafter make~~ a specified level of cash dividends, previously projected dividends for future periods, or year-to-year increases in cash dividends. Our ability to pay dividends might be adversely affected by, among other things, the impact of one or more of the risk factors described ~~in this Annual Report on Form 10-K.~~herein. In addition, the inability to satisfy the asset coverage test applicable to us as a BDC ~~can~~could limit our ability to pay dividends. All dividends will be paid at the discretion of our Board of Directors and will depend on our earnings, our financial condition, maintenance of our RIC status, compliance with applicable BDC regulations, the Fund’s compliance with applicable SBIC regulations and such other factors as our Board of Directors may deem relevant from time to time. We cannot assure you that we will pay dividends to our stockholders in the future.

When we make ~~quarterly~~monthly distributions, we will be required to determine the extent to which such distributions are paid out of current or accumulated earnings, recognized capital gains or capital. To the extent there is a return of capital, investors will be required to reduce their basis in our stock for federal tax purposes. In the future, our distributions may include a return of capital.

We may have difficulty paying our required distributions if we recognize income before or without receiving cash representing such income.

For federal income tax purposes, we will include in income certain amounts that we have not yet received in cash, such as original issue discount, which may arise if we receive warrants in connection with the origination of a loan or possibly in other circumstances, or contractualpayment-in-kind, or PIK, interest, which represents contractual interest added to the loan balance and due at the end of the loan term. Such original issue discounts or increases in loan balances as a result of contractual PIK arrangements will be included in income before we receive any corresponding cash payments. We also may be required to include in income certain other amounts that we will not receive in cash. Approximately 2.7% of our total investment income for the year ended December 31, 2008 was attributable to paid in kind interest.

Since, in certain cases, we may recognize income before or without receiving cash representing such income, we may have difficulty meeting the annual distribution requirement necessary to ~~obtain and~~ maintain RIC tax treatment under the Code. Accordingly, we may have to sell some of our investments at timesand/or at prices we would not consider advantageous, raise additional debt or equity capital or forgo new investment opportunities for this purpose. If we are not able to obtain cash from other sources, we may fail to qualify for RIC tax treatment and thus become subject to corporate-level income tax. For additional discussion regarding the tax implications of a RIC, please see “Business — Regulation — Taxation as a Regulated Investment Company.”

We may in the future choose to pay dividends in our own stock, in which case you may be required to pay tax in excess of the cash you receive.

We may distribute taxable dividends that are payable in part in our stock. Under a recently issued IRS revenue procedure, up to 90% of any such taxable dividend for 2009 could be payable in our stock. Taxable stockholders receiving such dividends will be required to include the full amount of the dividend as ordinary income (or as long-term capital gain to the extent such distribution is properly designated as a capital gain dividend) to the extent of our current and accumulated earnings and profits for United States federal income tax purposes. As a result, a U.S. stockholder may be required to pay tax with respect to such dividends in excess of any cash received. If a U.S. stockholder sells the stock it receives as a dividend in order to pay this tax, the sales proceeds may be less than the amount included in income with respect to the dividend, depending on the market price of our stock at the time of the sale. Furthermore, with respect tonon-U.S. stockholders, we may be required to withhold U.S. tax with respect to such dividends, including in respect of all or a portion of such dividend that is payable in stock. In addition, if a significant number of our stockholders determine to sell shares of our stock in order to pay taxes owed on dividends, it may put downward pressure on the trading price of our stock.

The Fund, as an SBIC, may be unable to make distributions to us that will enable us to meet or maintain RIC status, which could result in the imposition of an entity-level tax.

In order for us to continue to qualify for RIC tax treatment and to minimize corporate-level taxes, we will be required to distribute ~~on an annual basis~~ substantially all of our ~~taxable~~net ordinary income and net capital gain income, including income from certain of our subsidiaries, which includes the income from the Fund. We will be partially dependent on the Fund for cash distributions to enable us to meet the RIC distribution requirements. The Fund may be limited by the Small Business Investment Act of 1958, and ~~SBA~~SBIC regulations governing SBICs, from making certain distributions to us that may be necessary to enable us to ~~qualify for RIC tax treatment.~~maintain our status as a RIC. We may have to request a waiver of the SBA’s restrictions for the Fund to make certain distributions to maintain our eligibility for RIC ~~tax treatment.~~status. We cannot assure you that the SBA will grant such waiver and if the Fund is unable

to obtain a waiver, compliance with the ~~SBA~~SBIC regulations may result in loss of RIC tax treatment and a consequent imposition of an entity-level tax on us.

Because we intend to distribute substantially all of our income to our stockholders ~~in connection with~~to maintain our ~~election to be treated~~status as a RIC, we will continue to need additional capital to finance our growth, and regulations governing our operation as a BDC will affect our ability to, and the way in which we, raise additional capital.

In order to satisfy the requirements applicable to a RIC and to minimize corporate-level taxes, we intend to distribute to our stockholders substantially all of our net ordinary income and net capital gain income. ~~Our policy is to~~We may carry forward excess undistributed taxable income into the next year, net of the 4% excise tax. Any such carryover taxable income must be distributed through a dividend declared prior to filing the final tax return related to the year which generated such taxable income. As a BDC, we generally are required to meet aan asset coverage ratio, ~~of total assets to total senior securities, which includes all of our borrowings and any preferred stock we may issue~~as defined in the ~~future,~~1940 Act, of at least 200%. immediately after each issuance of senior securities. This requirement limits the amount that we may borrow. ~~If the value of~~Because we will continue to need capital to grow our ~~assets declines, we~~investment portfolio, this limitation may ~~be unable~~prevent us from incurring debt and require us to ~~satisfy this test. If that happens, we may be required to sell a portion of our investments or sell~~raise additional ~~shares of common stock and, depending on the nature of our leverage, to repay a portion of our indebtedness~~equity at a time when ~~such sales~~it may be ~~disadvantageous. In addition, issuance of additional securities could dilute the percentage ownership of our current stockholders in us.~~disadvantageous to do so.

While we expect to be able to borrow and to issue additional debt and equity securities, we cannot assure you that debt and equity financing will be available to us on favorable terms, or at all. In addition, as a BDC, we generally ~~will~~are not be permitted to issue equity securities priced below net asset value without stockholder approval. If additional funds are not available to us, we could be forced to curtail or cease new investment activities, and our net asset value could decline.

At our 2008 annual meeting of stockholders, our stockholders approved two proposals designed to allow us to access the capital markets in ways that we were previously unable to as a result of restrictions that, absent stockholder approval, apply to BDCs under the 1940 Act. Specifically, our stockholders approved proposals that (1) authorize us to sell shares of our common stock below the then current net asset value per share of our common stock in one or more offerings for a period of one year ending on the earlier of June 26, 2009 or the date of our 2009 annual meeting of stockholders and (2) authorize us to issue securities to subscribe to, convert to, or purchase shares of our common stock in one or more offerings. Any decision to sell shares of our common stock below the then current net asset value per share of our common stock or securities to subscribe to, convert to, or purchase shares of our common stock would be subject to the determination by our Board of Directors that such issuance is in our and our stockholders’ best interests.

If we were to sell shares of our common stock below net asset value per share, such sales would result in an immediate dilution to the net asset value per share. This dilution would occur as a result of the sale of shares at a price below the then current net asset value per share of our common stock and a proportionately greater decrease in a stockholder’s interest in our earnings and assets and voting interest in us than the increase in our assets resulting from such issuance. In addition, if we issue securities to subscribe to, convert to or purchase shares of common stock, the exercise or conversion of such securities would increase the number of outstanding shares of our common stock. Any such exercise would be dilutive on the voting power of existing stockholders, and could be dilutive with regard to dividends and our net asset value, and other economic aspects of the common stock.

Because the number of shares of common stock that could be so issued and the timing of any issuance is not currently known, the actual dilutive effect cannot be predicted; however, the example below illustrates the effect of dilution to existing stockholders resulting from the sale of common stock at prices below the net asset value of such shares.

Illustration: Example of Dilutive Effect of the Issuance of Shares Below Net Asset Value. Assume that Company XYZ has 1,000,000 total shares outstanding, $15,000,000 in total assets and $5,000,000 in total liabilities. The net asset value per share of the common stock of Company XYZ is $10.00. The following table

illustrates the reduction to net asset value, or NAV, and the dilution experienced by Stockholder A following the sale of 40,000 shares of the common stock of Company XYZ at $9.50 per share, a price below its NAV per share.


	Prior to Sale			Following Sale			Percentage
	Below NAV			Below NAV			Change

*Reduction to NAV*
Total Shares Outstanding		1,000,000			1,040,000			4.0	%
NAV per share	$	10.00		$	9.98			(0.2	)%
*Dilution to Existing Stockholder*
Shares Held by Stockholder A		10,000			10,000	(1)		0.0	%
Percentage Held by Stockholder A		1.00	%		0.96	%		(3.8	)%
Total Interest of Stockholder A in NAV	$	100,000		$	99,808			(0.2	)%


(1)		Assumes that Stockholder A does not purchase additional shares in the sale of shares below NAV.

Changes in laws or regulations governing our operations may adversely affect our business or cause us to alter our business strategy.

We, the Fund, and our portfolio companies ~~will be~~are subject to ~~regulation at the~~applicable local, state and federal ~~level.~~laws and regulations, including, without limitation, federal immigration laws and regulations. New legislation may be enacted or new interpretations, rulings or regulations could be adopted, including those governing the types of investments we are permitted to make, any of which could harm us and our stockholders, potentially with retroactive effect. In addition, any change to the SBA’s current ~~Debenture~~debenture SBIC program could have a significant impact on our ability to obtain lower-cost leverage, through the Fund, and therefore, our ability to compete with other finance companies.

Additionally, any changes to the laws and regulations governing our operations relating to permitted investments may cause us to alter our investment strategy in order to avail ourselves of new or different opportunities. Such changes could result in material differences to the strategies and plans set forth ~~in this Annual Report on Form 10-K~~herein and may result in our investment focus shifting from the areas of expertise of our investment team to other types of investments in which our investment team may have less expertise or little or no experience. Thus, any such changes, if they occur, could have a material adverse effect on our results of operations and the value of your investment.

~~Efforts to comply with~~Terrorist attacks, acts of war or natural disasters may affect any market for our common stock, impact the ~~Sarbanes-Oxley Act will involve significant expenditures,~~businesses in which we invest and ~~non-compliance with the Sarbanes-Oxley Act may adversely affect us.~~harm our business, operating results and financial condition.

~~We are subject to~~

Terrorist acts, acts of war or natural disasters may disrupt our operations, as well as the Sarbanes-Oxley Act of 2002, and the related rules and regulations promulgated by the SEC. Under current SEC rules, beginning with our fiscal year ending December 31, 2008, our management will be required to report on our internal control over financial reporting pursuant to Section 404operations of the ~~Sarbanes-Oxley Act of 2002~~businesses in which we invest. Such acts have created, and ~~rules~~continue to create, economic and ~~regulations of~~political uncertainties and have contributed to global economic instability. Future terrorist activities, military or security operations, or natural disasters could further weaken the ~~SEC thereunder. We will be required to review on an annual basis our internal control over financial reporting,~~domestic/global economies and ~~on a quarterly and annual basis to evaluate and disclose changes in our internal control over financial reporting. As a result, we expect to incur significant~~create additional ~~expenses in the near term,~~uncertainties, which may negatively impact ~~our financial performance~~the businesses in which we invest directly or indirectly and, ~~our ability to make distributions. This process also will result~~ in turn, could have a ~~diversion of management’s time and attention. We cannot be certain as to the timing of completion of our evaluation, testing and remediation actions or the~~material adverse impact ~~of the same~~ on our ~~operations~~business, operating results and ~~we may not be able to ensure that the process is effective or that our internal control over~~ financial ~~reporting is or will be effective in a timely manner. There can be no assurance that our quarterly reviews will not identify additional material weaknesses. In the event that we~~condition. Losses from terrorist attacks and natural disasters are ~~unable to maintain or achieve compliance with the Sarbanes-Oxley Act and related rules, we may be adversely affected.~~generally uninsurable.

RISKS RELATED TO OUR INVESTMENTS

Our investments in portfolio companies ~~may be risky,~~involve higher levels of risk, and we could lose all or part of our investment.

Investing in lower middle-market companies involves a number of significant risks. Among other things, these companies:


	•	may have limited financial resources and may be unable to meet their obligations under their debt instruments that we hold, which may be accompanied by a deterioration in the value of any collateral

~~may have limited financial resources and may be unable to meet their obligations under their debt instruments that we hold, which may be accompanied by a deterioration in the value of any collateral~~


		and a reduction in the likelihood of us realizing any guarantees from subsidiaries or affiliates of our portfolio companies that we may have obtained in connection with our investment, as well as a corresponding decrease in the value of the equity components of our investments;


	•	may have shorter operating histories, narrower product lines, smaller market sharesand/or significant customer concentrations than larger businesses, which tend to render them more vulnerable to competitors’ actions and market conditions, as well as general economic downturns;

	•	are more likely to depend on the management talents and efforts of a small group of persons; therefore, the death, disability, resignation or termination of one or more of these persons could have a material adverse impact on our portfolio company and, in turn, on us;

	•	generally have less predictable operating results, may from time to time be parties to litigation, may be engaged in rapidly changing businesses with products subject to a substantial risk of obsolescence, and may require substantial additional capital to support their operations, finance expansion or maintain their competitive position; and

	•	generally have less publicly available information about their businesses, operations and financial condition. We are required to rely on the ability of our management team and investment professionals to obtain adequate information to evaluate the potential returns from investing in these companies. If we are unable to uncover all material information about these companies, we may not make a fully informed investment decision, and may lose all or part of our investment.

may have shorter operating histories, narrower product lines, smaller market shares and/or significant customer concentrations than larger businesses, which tend to render them more vulnerable to competitors’ actions and market conditions, as well as general economic downturns;

are more likely to depend on the management talents and efforts of a small group of persons; therefore, the death, disability, resignation or termination of one or more of these persons could have a material adverse impact on our portfolio company and, in turn, on us;

generally have less predictable operating results, may from time to time be parties to litigation, may be engaged in rapidly changing businesses with products subject to a substantial risk of obsolescence, and may require substantial additional capital to support their operations, finance expansion or maintain their competitive position; and

generally have less publicly available information about their businesses, operations and financial condition. If we are unable to uncover all material information about these companies, we may not make a fully informed investment decision, and may lose all or part of our investment.

In addition, in the course of providing significant managerial assistance to certain of our portfolio companies, certain of our officers and directors may serve as directors on the boards of such companies. To the extent that litigation arises out of our investments in these companies, our officers and directors may be named as defendants in such litigation, which could result in an expenditure of funds (through our indemnification of such officers and directors) and the diversion of management time and resources.

The lack of liquidity in our investments may adversely affect our business.

We invest, and will continue to invest in companies whose securities are not publicly traded, and whose securities will be subject to legal and other restrictions on resale or will otherwise be less liquid than publicly traded securities. The illiquidity of these investments may make it difficult for us to sell these investments when desired. In addition, if we are required to liquidate all or a portion of our portfolio quickly, we may realize significantly less than the value at which we had previously recorded these investments. As a result, we do not expect to achieve liquidity in our investments in the near-term. Our investments are usually subject to contractual or legal restrictions on resale or are otherwise illiquid because there is usually no established trading market for such investments. The illiquidity of most of our investments may make it difficult for us to dispose of them at a favorable price, and, as a result, we may suffer losses.

We may not have the funds or ability to make additional investments in our portfolio companies.

We may not have the funds or ability to make additional investments in our portfolio companies. After our initial investment in a portfolio company, we may be called upon from time to time to provide additional funds to such company or have the opportunity to increase our investment through the exercise of a warrant to purchase common stock. There is no assurance that we will make, or will have sufficient funds to make, follow-on investments. Any decisions not to make a follow-on investment or any inability on our part to make such an investment may have a negative impact on a portfolio company in need of such an investment, may result in a missed opportunity for us to increase our participation in a successful operation or may reduce the expected yield on the investment.

Our portfolio companies may incur debt that ranks equally with, or senior to, our investments in such companies.

We invest primarily in secured term debt as well as equity issued by lower middle-market companies. Our portfolio companies may have, or may be permitted to incur, other debt that ranks equally with, or senior

to, the debt in which we invest. By their terms, such debt instruments may entitle the holders to receive payment of interest or principal on or before the dates on which we are entitled to receive payments with respect to the debt instruments in which we invest. Also, in the event of insolvency, liquidation, dissolution, reorganization or bankruptcy of a portfolio company, holders of debt instruments ranking senior to our investment in that portfolio company would typically be entitled to receive payment in full before we receive any distribution. After repaying such senior creditors, such portfolio company may not have any remaining assets to use for repaying its obligation to us. In the case of debt ranking equally with debt instruments in which we invest, we would have to share on an equal basis any distributions with other creditors holding such debt in the event of an insolvency, liquidation, dissolution, reorganization or bankruptcy of the relevant portfolio company.

There may be circumstances where our debt investments could be subordinated to claims of other creditors or we could be subject to lender liability claims.

Even though we may have structured certain of our investments as secured loans, if one of our portfolio companies were to go bankrupt, depending on the facts and circumstances, ~~including the extent to which we actually provided managerial assistance to that portfolio company,~~and based upon principles of equitable subordination as defined by existing case law, a bankruptcy court ~~might recharacterize our debt investment and~~could subordinate all or a portion of our claim to that of other ~~creditors.~~creditors and transfer any lien securing such subordinated claim to the bankruptcy estate. The principles of equitable subordination defined by case law have generally indicated that a claim may be subordinated only if its holder is guilty of misconduct or where the senior loan is re-characterized as an equity investment and the senior lender has actually provided significant managerial assistance to the bankrupt debtor. We may also be subject to lender liability claims for actions taken by us with respect to a borrower’s business or instances where we exercise control over the borrower. It is possible that we could become subject to a lender’s liability claim, including as a result of actions taken in rendering significant managerial ~~assistance.~~assistance or actions to compel and collect payments from the borrower outside the ordinary course of business.

Second priority liens on collateral securing loans that we make to our portfolio companies may be subject to control by senior creditors with first priority liens. If there is a default, the value of the collateral may not be sufficient to repay in full both the first priority creditors and us.

Certain loans that we make ~~to portfolio companies will be~~are secured onby a second priority ~~basis~~security interest in the same collateral pledged by a portfolio company to secure senior debt owed by the portfolio company to commercial banks or other traditional lenders. Often the senior lender has procured covenants from the portfolio company prohibiting the incurrence of additional secured debt without the senior lender’s consent. Prior to and as a condition of permitting the portfolio company to borrow money from us secured by the same collateral ~~securing~~pledged to the senior ~~secured~~lender, the senior lender will require assurances that it will control the disposition of any collateral in the event of bankruptcy or other default. In many such cases, the senior lender will require us to enter into an “intercreditor agreement” prior to permitting the portfolio company to borrow from us. Typically the intercreditor agreements we are requested to execute expressly subordinate our debt instruments to those held by the senior lender and further provide that the senior lender shall control: (1) the commencement of ~~such companies. The first priority liens~~foreclosure or other proceedings to liquidate and collect on the collateral; (2) the nature, timing and conduct of foreclosure or other collection proceedings; (3) the amendment of any collateral ~~will secure~~document; (4) the ~~portfolio company’s obligations~~release of the security interests in respect of any collateral; and (5) the waiver of defaults under any ~~outstanding~~security agreement. Because of the control we may cede to senior ~~debt and~~lenders under intercreditor agreements we may ~~secure certain other future debt that~~enter, we may be ~~permitted~~unable to ~~be incurred by~~realize the ~~company under the agreements governing the~~proceeds of any collateral securing some of our loans. The holders of obligations secured by the first priority liens on the collateral will generally control the liquidation of and be entitled to receive proceeds from any realization of the collateral to repay their obligations in full before us. In addition,

Finally, the value of the collateral ~~in the event of liquidation~~securing our debt investment will ultimately depend on market and economic conditions, the availability of buyers and other factors. ~~There~~Therefore, there can be no assurance that the proceeds, if any, from the sale or sales of all of the collateral would be sufficient to satisfy the loan obligations secured by ~~the~~our first or second priority ~~liens after payment~~liens. There is also a risk that such collateral securing our investments will decrease in ~~full~~value over time, will be difficult to sell in a timely manner, will be difficult to appraise and will fluctuate in value based upon the success of ~~all obligations secured by~~ the ~~first priority liens on the collateral.~~portfolio company and market conditions. If such proceeds are not sufficient to repay amounts outstanding under the loan obligations secured by ~~the~~our second

priority liens, then we, to the extent not repaid from the proceeds of the sale of the collateral, will only have an unsecured claim against the company’s remaining assets, if any.

The rights we may have with respect to the collateral securing the loans we make to our portfolio companies with senior debt outstanding may also be limited pursuant to the terms of one or more intercreditor agreements that we enter into with the holders of senior debt. Under such an intercreditor agreement, at any time that obligations that have the benefit of the first priority liens are outstanding, any of the following actions that may be taken in respect of the collateral will be at the direction of the holders of the obligations secured by the first priority liens: the ability to cause the commencement of enforcement proceedings against the collateral; the ability to control the conduct of such proceedings; the approval of amendments to collateral documents; releases of liens on the collateral; and waivers of past defaults under collateral documents. We may not have the ability to control or direct such actions, even if our rights are adversely affected.

If we do not invest a sufficient portion of our assets in qualifying assets, we could fail to maintain our qualification as a BDC or be precluded from investing according to our current business strategy.

As a BDC, we may not acquire any assets other than “qualifying assets” unless, at the time of and after giving effect to such acquisition, at least 70% of our total assets are qualifying assets. We believe that substantially all of our investments will constitute qualifying assets. However, we may be precluded from investing in what we believe are attractive investments if such investments are not qualifying assets for purposes of the 1940 Act. If we do not invest a sufficient portion of our assets in qualifying assets, we could lose our status as a BDC, which would have a material adverse effect on our business, financial condition, and results of operations. Similarly, these rules could prevent us from making follow-on investments in existing portfolio companies (which could result in the dilution of our position).

We are a non-diversified investment company within the meaning of the 1940 Act, and therefore we are not limited with respect to the proportion of our assets that may be invested in securities of a single issuer.

We are classified as a non-diversified investment company within the meaning of the 1940 Act, which means that we are not limited by the 1940 Act with respect to the proportion of our assets that we may invest in securities of a single issuer. ToAlthough we seek to maintain a diversified portfolio in accordance with our business strategies, to the extent that we assume large positions in the securities of a small number of issuers, our net asset value may fluctuate to a greater extent than that of a diversified investment company as a result of changes in the financial condition or the market’s assessment of the issuer. We may also be more susceptible to any single economic or regulatory occurrence than a diversified investment company. Beyond our RIC asset diversification requirements, we do not have fixed guidelines for diversification, and our investments could be concentrated in relatively few portfolio companies.

We generally will not control our portfolio companies.

We do not, and do not expect to, control ~~most~~the decision making in many of our portfolio companies, even though we may have board representation or board observation rights, and our debt agreements may contain certain restrictive covenants. As a result, we are subject to the risk that a portfolio company in which we invest ~~may~~will make business decisions with which we disagree and the management of such company, as representatives of the holders of their common equity, ~~may~~will take risks or otherwise act in ways that do not serve our interests as debt investors. Due to the lack of liquidity for our investments in non-traded companies, we may not be able to dispose of our interests in our portfolio companies as readily as we would like or at an appropriate valuation. As a result, a portfolio company may make decisions that ~~could~~would decrease the value of our portfolio holdings.

~~Economic recessions or downturns could impair our portfolio companies and harm our operating results.~~

Many of our portfolio companies may be susceptible to economic slowdowns or recessions and may be unable to repay our debt investments during these periods. Therefore, our non-performing assets are likely to increase, and the value of our portfolio is likely to decrease during these periods. Adverse economic conditions also may decrease the value of collateral securing some of our debt investments and the value of our equity investments. Economic slowdowns or recessions could lead to financial losses in our portfolio and a decrease in revenues, net income and assets. Unfavorable economic conditions also could increase our funding costs, limit our access to the capital markets or result in a decision by lenders not to extend credit to us. These events could prevent us from increasing investments and harm our operating results.

Defaults by our portfolio companies will harm our operating results.

A portfolio company’s failure to satisfy financial or operating covenants imposed by us or other lenders could lead to defaults and, potentially, termination of its loans and foreclosure on its secured assets, which could trigger cross-defaults under other agreements and jeopardize a portfolio company’s ability to meet its obligations under the debt or equity securities that we hold. We may incur expenses to the extent necessary to seek recovery upon default or to negotiate new terms, which may include the waiver of certain financial covenants, with a defaulting portfolio company.

Any unrealized losses we experience on our loan portfolio may be an indication of future realized losses, which could reduce our income available for distribution.

As a BDC, we are required to carry our investments at market value or, if no market value is ascertainable, at the fair value as determined in good faith by our Board of Directors. Decreases in the market values or fair values of our investments will be recorded as unrealized depreciation. Any unrealized losses in our loan portfolio could be an indication of a portfolio company’s inability to meet its repayment obligations to us with respect to the affected loans. This could result in realized losses in the future and ultimately in reductions of our income available for distribution in future periods.

Prepayments of our debt investments by our portfolio companies could adversely impact our results of operations and reduce our return on equity.

We are subject to the risk that the investments we make in our portfolio companies may be repaid prior to maturity. When this occurs, we will generally reinvest these proceeds in temporary investments, pending their future investment in new portfolio companies. These temporary investments will typically have substantially lower yields than the debt being prepaid and we could experience significant delays in reinvesting these

amounts. Any future investment in a new portfolio company may also be at lower yields than the debt that was repaid. As a result, our results of operations could be materially adversely affected if one or more of our portfolio companies elect to prepay amounts owed to us. Additionally, prepayments could negatively impact our return on equity, which could result in a decline in the market price of our common stock.

Changes in interest rates may affect our cost of capital and net investment income.

~~Most~~

Some of our debt investments will bear interest at ~~fixed~~variable rates and the ~~value of~~interest income from these investments could be negatively affected by ~~increases~~decreases in market interest rates. In addition, an increase in interest rates would make it more expensive to use debt to finance our investments. As a result, a significant increase in market interest rates could ~~both reduce the value of our portfolio investments and~~ increase our cost of capital, which would reduce our net investment income. Also, an increase in interest rates available to investors could make an investment in our common stock less attractive if we are not able to increase our dividend rate, a situation which could reduce the value of our common stock. Conversely, a decrease in interest rates may have an adverse impact on our returns by requiring us to seek lower yields on our debt investments and by increasing the risk that our portfolio companies will prepay our debt investments, resulting in the need to redeploy capital at potentially lower rates. A decrease in market interest rates may also adversely impact our returns on idle funds, which would reduce our net investment income.

We may not realize gains from our equity investments.

Certain investments that we have made in the past and may make in the future include warrants or other equity securities. Investments in equity securities involve a number of significant risks, including the risk of further dilution as a result of additional issuances, inability to access additional capital and failure to pay current distributions. Investments in preferred securities involve special risks, such as the risk of deferred distributions, credit risk, illiquidity and limited voting rights. In addition, we may from time to time make ~~direct~~non-control, equity investments in portfolio companies. Our goal is ultimately to realize gains upon our disposition of such equity interests. However, the equity interests we receive may not appreciate in value and, in fact, may decline in value. Accordingly, we may not be able to realize gains from our equity interests, and any gains that we do realize on the disposition of any equity interests may not be sufficient to offset any other losses we experience. We also may be unable to realize any value if a portfolio company does not have a liquidity event, such as a sale of the business, recapitalization or public offering, which would allow us to sell the underlying equity interests. We often seek puts or similar rights to give us the right to sell our equity securities back to the portfolio company issuer. We may be unable to exercise these puts rights for the consideration provided in our investment documents if the issuer is in financial distress.

RISKS RELATING TO OUR COMMON STOCK

Shares of closed-end investment companies, including BDCs, may trade at a discount to their net asset value.

Shares of closed-end investment companies, including BDCs, may trade at a discount from net asset value. This characteristic of closed-end investment companies and BDCs is separate and distinct from the risk that our net asset value per share may decline. We cannot predict whether our common stock will trade at, above or below net asset value. In addition, if our common stock trades below net asset value, we will generally not be able to issue additional common stock at the market price unless our stockholders approve such a sale and our Board of Directors makes certain determinations. See “Risk Factors — Risks Relating to Our Business and Structure — Stockholders may incur dilution if we sell shares of our common stock in one or more offerings at prices below the then current net asset value per share of our common stock or issue securities to subscribe to, convert to or purchase shares of our common stock” for a discussion of proposals approved by our stockholders that permit us to issue shares of our common stock below net asset value.

We may be unable to invest a significant portion of the net proceeds from an offering on acceptable terms, which could harm our financial condition and operating results.

Delays in investing the net proceeds raised in an offering may cause our performance to be worse than that of other fully invested BDCs or other lenders or investors pursuing comparable investment strategies. We cannot assure you that we will be able to identify any investments that meet our investment objective or that any investment that we make will produce a positive return. We may be unable to invest the net proceeds of any offering on acceptable terms within the time period that we anticipate or at all, which could harm our financial condition and operating results.

We anticipate that, depending on market conditions and the amount of any particular offering, it may take us a substantial period of time to invest substantially all of the net proceeds of any offering in securities meeting our investment objective. During this period, we will invest the net proceeds of any offering primarily in cash, cash equivalents, U.S. government securities and high-quality debt instruments, which may produce returns that are significantly lower than the returns which we expect to achieve when our portfolio is fully invested in securities meeting our investment objective. As a result, any distributions that we pay during such period may be substantially lower than the distributions that we may be able to pay when our portfolio is fully invested in securities meeting our investment objective. In addition, until such time as the net proceeds of any offering are invested in securities meeting our investment objective, the market price for our common stock may decline. Thus, the initial return on your investment may be lower than when, if ever, our portfolio is fully invested in securities meeting our investment objective.

Investing in our common stock may involve an above average degree of risk.

The investments we make in accordance with our investment objective may result in a higher amount of risk than alternative investment options and a higher risk of volatility or loss of principal. Our investments in portfolio companies ~~may be highly speculative,~~involve higher levels of risk, and therefore, an investment in our shares may not be suitable for someone with lower risk tolerance.

The market price of our common stock may be volatile and fluctuate significantly.

Fluctuations in the trading prices of our shares may adversely affect the liquidity of the trading market for our shares and, if we seek to raise capital through future equity financings, our ability to raise such equity capital. The market price and liquidity of the market for ~~shares of~~ our common stock may be significantly affected by numerous factors, some of which are beyond our control and may not be directly related to our operating performance. These factors include:

~~significant volatility in the market price and trading volume of securities of BDCs or other companies in our sector, which are not necessarily related to the operating performance of these companies;~~


	•	significant volatility in the market price and trading volume of securities of BDCs or other companies in our sector, which are not necessarily related to the operating performance of these companies;

	•	changes in regulatory policies, accounting pronouncements or tax guidelines, particularly with respect to RICs, BDCs or SBICs;

	•	inability to obtain any exemptive relief that may be required by us in the future from the SEC;

	•	loss of our BDC or RIC status or the Fund’s status as an SBIC;

	•	changes in our earnings or variations in our operating results;

	•	changes in the value of our portfolio of investments;

	•	any shortfall in our investment income or net investment income or any increase in losses from levels expected by investors or securities analysts;

	•	loss of a major funding source;

	•	fluctuations in interest rates;

	•	the operating performance of companies comparable to us;

~~changes in regulatory policies or tax guidelines, particularly with respect to RICs, BDCs or SBICs;~~


	•	departure of our key personnel;

	•	global or national credit market changes; and

	•	general economic trends and other external factors.

~~inability to obtain certain exemptive relief from the SEC;~~

~~loss of RIC status or the Fund’s status as an SBIC;~~

~~changes in earnings or variations in operating results;~~

~~changes in the value of our portfolio of investments;~~

~~any shortfall in our revenue or net income or any increase in losses from levels expected by investors or securities analysts;~~

~~departure of our key personnel; and~~

~~general economic trends and other external factors.~~

Provisions of the Maryland General Corporation Law and our articles of incorporation and bylaws could deter takeover attempts and have an adverse impact on the price of our common stock.

The Maryland General Corporation Law and our articles of incorporation and bylaws contain provisions that may have the effect of discouraging, delaying or making difficult a change in control of our company or the removal of our incumbent directors. The existence of these provisions, among others, may have a negative impact on the price of our common stock and may discourage third-party bids for ownership of our company. These provisions may prevent any premiums being offered to you for ~~shares of~~ our common stock.


Item 1B.		*Unresolved Staff Comments*

None.


Item 2.		*Properties*

We do not own any real estate or other physical properties materially important to our operations. Currently, we lease office space in Houston, Texas for our corporate headquarters.


Item 3.		*Legal Proceedings*

Although we may, from time to time, be involved in litigation arising out of our operations in the normal course of business or otherwise, we are currently not a party to any pending material legal proceedings.


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

During the fourth quarter of ~~2007,~~2008, there were no matters submitted to a vote of our security holders through the solicitation of proxies or otherwise.

PART II


Item 5.		*Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities*

PRICE RANGE OF COMMON STOCK AND HOLDERS

Our common stock began trading on the NASDAQ Global Select Market under the symbol “MAIN” on October 5, 2007. Prior to that date, there was no established public trading market for our common stock.

The following table sets forth, for each fiscal quarter since our common stock began trading, the range of high and low closing prices of our common stock as reported on the NASDAQ Global Select Market.


	High		Low		High		Low

Fiscal year 2008
Fourth quarter					$	11.95	$	8.82
Third quarter					$	14.40	$	11.38
Second quarter					$	14.40	$	10.90
First quarter					$	14.10	$	12.75
Fiscal year 2007
Fourth quarter (from October 5, 2007)	$	15.02	$	13.60	$	15.02	$	13.60

On March ~~17, 2008,~~11, 2009, the last sale price of our common stock on the NASDAQ Global Market was ~~$13.20~~$9.69 per share, and there were approximately ~~104~~119 holders of record of the common stock which did not include shareholders for whom shares are held in “nominee” or “street name.”

~~SALES OF UNREGISTERED SECURITIES~~DIVIDENDS

~~On October 2, 2007,~~

Since our IPO we ~~issued a total~~have paid quarterly dividends, but in the fourth quarter of ~~4,525,726 shares of our common stock to the limited partners of the Fund, the members of the General Partner~~2008 we began paying, and the members of the Investment Manager in connection with the Formation Transactions. The issuance of such shares of our common stock were deemed to be exempt from registration under the Securities Act of 1933 in reliance on Section 4(2) of the Securities Act as transactions by an issuer not involving a public offering. In each such transaction, the limited partners of the Fund, the members of the General Partner and the members of the Investment Manager represented their intention to acquire the shares of common stock for investment only and not with a view to or for sale in connection with any distribution thereof and appropriate legends were affixed to the certificates representing such shares of common stock issued in such transactions.

~~During the three months ended December 31, 2007,~~ we issued a total of 132,992 shares of our common stock under our dividend reinvestment plan pursuant to an exemption from the registration requirements of the Securities Act of 1933. The aggregate offering price for the shares of our common stock sold under the dividend reinvestment plan during the three months ended December 31, 2007 was approximately $1,903,116.

~~DIVIDENDS~~

We intend to ~~pay quarterly~~continue paying, monthly dividends to our stockholders. Our ~~quarterly~~monthly dividends, if any, will be determined by our Board of ~~Directors. In November 2007, we~~Directors on a quarterly basis.

The following table summarizes our dividends declared and paid an initial quarterly dividend of $0.33 per share. On February 7, 2008, we declared an additional quarterly dividend of $0.34 per share. This quarterly dividend will be paid based upon the accumulated taxable income recognized by us, including excess undistributed taxable income from 2007 that was carried forward for distribution during 2008. The quarterly dividend will be payable on March 21, 2008 to ~~stockholders of record on February 15, 2008.~~date:


Date Declared	Record Date	Payment Date	Amount(1)

Fiscal year 2009
December 3, 2008	February 20, 2009	March 16, 2009	$	0.125
December 3, 2008	January 22, 2009	February 16, 2009	$	0.125
December 3, 2008	December 19, 2008	January 15, 2009	$	0.125	(2)

Total			$	0.375

Fiscal year 2008
September 3, 2008	November 19, 2008	December 15, 2008	$	0.125
September 3, 2008	October 17, 2008	November 14, 2008	$	0.125
September 3, 2008	September 18, 2008	October 15, 2008	$	0.125
July 31, 2008	August 14, 2008	September 12, 2008	$	0.36
May 1, 2008	May 12, 2008	June 12, 2008	$	0.35
February 6, 2008	February 15, 2008	March 21, 2008	$	0.34

Total			$	1.425	(2)

Fiscal year 2007
November 5, 2007	November 16, 2007	November 30, 2007	$	0.33	(3)


(1)		The determination of the tax attributes of Main Street’s distributions is made annually, based upon its taxable income for the full year and distributions paid for the full year. Ordinary dividend distributions from a RIC do not qualify for the 15% maximum tax rate on dividend income from domestic corporations and qualified foreign corporations, except to the extent that the RIC received the income in the form of qualifying dividends from domestic corporations and qualified foreign corporations.

(2)		These dividends attributable to fiscal year 2008 were comprised of ordinary income of $0.95 per share and long term capital gain of $0.60 per share and included dividends declared during fiscal year 2008 and dividends declared and accrued as of December 31, 2008 and paid on January 15, 2009, pursuant to the Code.

(3)		This quarterly dividend attributable to fiscal year 2007 was comprised of ordinary income of $0.105 per share and long term capital gain of $0.225 per share.

To obtain and maintain RIC tax treatment, we must, among other things, distribute at least 90% of our net ordinary income and realized net short-term capital gains in excess of realized net long-term capital losses, if any. We will be subject to a 4% nondeductible federal excise tax on certain undistributed income unless we distribute in a timely manner an amount at least equal to the sum of (1) 98% of our net ordinary income ~~for each calendar year, (2) 98% of our~~and capital gain net income for ~~the one-year period ending October 31 in that~~each calendar year, and ~~(3)~~(2) any income recognized, but not distributed, in preceding years (the “Excise Tax Avoidance Requirement”). Dividends declared and paid by us in a year will generally differ from taxable income for that year, as such dividends may include the distribution of current year taxable income, less amounts carried over into the following year, and the distribution of prior year taxable income carried over into and distributed in the current year. For amounts we carry over into the following year, we will be required to pay a 4% excise tax based on 98% of our annual taxable income in

excess of distributions for the year. We may retain for investment some or all of our net capital gains (i.e., realized net long-term capital gains in excess of realized net short-term capital losses) and treat such amounts as deemed distributions to our stockholders. If we do this, our stockholders will be treated as if they had received actual distributions of the capital gains we retained and then reinvested the net after-tax proceeds in our common stock. In general, our stockholders also would be eligible to claim a tax credit (or, in certain circumstances, a tax refund) equal to their allocable shares of the tax we paid on the capital gains deemed distributed to them. We can offer no assurance that we will achieve results that will permit the payment of any cash distributions and, if we issue senior securities, we ~~will~~may be prohibited from making distributions if doing so causes us to fail to maintain the asset coverage ratios stipulated by the 1940 Act or if distributions are limited by the terms of any of our borrowings.

Pursuant to a recent revenue procedure issued by the Internal Revenue Service, or the IRS, the IRS has indicated that it will treat distributions from certain publicly traded RICs (including business development companies) that are paid part in cash and part in stock as dividends that would satisfy the RIC’s annual distribution requirements. In order to qualify for such treatment, the revenue procedure requires that at least 10% of the total distribution be paid in cash and that each stockholder have a right to elect to receive its entire distribution in cash. If too many stockholders elect to receive cash, each stockholder electing to receive cash must receive a proportionate share of the cash to be distributed (although no stockholder electing to receive cash may receive less than 10% of such stockholder’s distribution in cash). This revenue procedure applies to distributions made with respect to taxable years ending prior to January 1, 2010.

We have adopted a dividend reinvestment plan (“DRIP”) that provides for the reinvestment of dividends on behalf of our stockholders, unless a stockholder has elected to receive dividends in cash. As a result, if we declare a cash dividend, our stockholders who have not “opted out” of the DRIP by the dividend record date will have their cash dividend automatically reinvested into additional shares of MSCC common stock. We have the option to satisfy the share requirements of the DRIP through the issuance of new shares of common stock or through open market purchases of common stock by the DRIP plan administrator. Newly-issued shares will be valued based upon the final closing price of MSCC’s common stock on a valuation date determined by our Board of Directors. Shares purchased in the open market to satisfy the DRIP requirements will be valued based upon the average price of the applicable shares purchased by the DRIP plan administrator, before any associated brokerage or other costs.

SALES OF UNREGISTERED SECURITIES

During 2008, we issued a total of 15,820 shares of our common stock under our dividend reinvestment plan pursuant to an exemption from the registration requirements of the Securities Act of 1933. The ~~following table summarizes~~aggregate offering price for the shares of our ~~dividends declared to date:~~common stock issued under the dividend reinvestment plan during 2008 was approximately $213,729.


~~Date Declared~~	~~Record Date~~	~~Payment Date~~	~~Amount~~

~~Fiscal year 2008~~
~~February 7, 2008~~	~~February 15, 2008~~	~~March 21, 2008~~	~~$0.34~~⁽¹⁾


~~Fiscal year 2007~~
~~November 5, 2007~~	~~November 16, 2007~~	~~November 30, 2007~~	~~$0.33~~⁽²⁾


⁽¹⁾		This quarterly dividend will be paid based upon the accumulated taxable income recognized by Main Street, including excess undistributed taxable income from 2007 that was carried forward for distribution during 2008. It is estimated that approximately 80% of this quarterly dividend will be designated as ordinary taxable income, with the remainder designated as long-term capital gain.

⁽²⁾		This quarterly dividend was comprised of ordinary income of $0.105 per share and long term capital gain of $0.225 per share. Ordinary dividend distributions from a RIC do not qualify for the 15% maximum tax rate on dividend income from domestic corporations and qualified foreign corporations except to the extent that the RIC received the income in the form of qualifying dividends from domestic corporations and qualified foreign corporations (which Main Street did not receive in 2007).

30
35

PURCHASES OF EQUITY SECURITIES

On November 13, 2008, we announced that our Board of Directors authorized our officers, in their discretion and subject to compliance with the 1940 Act and other applicable law, to purchase on the open market or in privately negotiated transactions, an amount up to $5 million of the outstanding shares of our common stock at prices per share not to exceed our last reported net asset value per share. The share repurchase program is authorized to be in effect through the earlier of December 31, 2009 or such time as the approved $5 million repurchase amount has been fully utilized. We can not assure you the extent that we will conduct open market purchases, and to the extent we do conduct open market purchases, we may terminate them at any time. As of December 31, 2008, we had purchased 34,700 shares of our common stock for $331,006 in the open market pursuant to the program. The following chart summarizes repurchases of our common stock under the stock repurchase program through December 31, 2008.


							Maximum Number
							(or Approximate
					Total Number of		Dollar Value) of
					Shares Purchased		Shares that May
					as Part of Publicly		Yet be Purchased
	Total Number of		Average Price Paid		Announced Plans		Under the Plans or
Period	Shares Purchased		per Share		or Programs		Programs

October 1, 2008 through October 31, 2008		—	$	—		—
November 1, 2008 through November 30, 2008		8,500	$	9.29		8,500
December 1, 2008 through December 31, 2008		26,200	$	9.62		26,200

Total		34,700	$	9.54		34,700	$	4,668,994

STOCK PERFORMANCE GRAPH

The following graph compares the stockholder return on our common stock from October 5, 2007 to December 31, ~~2007~~2008 with the Russell 2000 Index and the Main Street Peer Group index. This comparison assumes $100.00 was invested on October 5, 2007 (the date our common stock began to trade on the NASDAQ Global Select Market in connection with our initial public offering) in our common stock and in the comparison groups and assumes the reinvestment of all cash dividends prior to any tax effect. The comparisons in the graph below are based on historical data and are not intended to forecast the possible future performance of our common stock.

COMPARISON OF STOCKHOLDER ~~RETURN~~⁽¹⁾RETURN(1)
Among Main Street Capital Corporation, the Russell 2000 Index
and Main Street Peer Group
(For the Period October 5, 2007 to December 31, ~~2007)~~2008)


⁽¹⁾		Total return includes reinvestment of dividends through December 31, ~~2007.~~2008.

⁽²⁾		The Main Street Peer Group index is composed of Triangle Capital Corporation, Prospect Capital Corporation, TICC Capital ~~Corp,~~Corp., Kohlberg Capital Corporation and Patriot Capital Funding, Inc.

31
37

~~SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS~~

~~As of December 31, 2007, we had no outstanding awards under any equity incentive plan pursuant to which shares of our common stock were authorized for issuance.~~

Number of Securities
Remaining Available for
Number of Securities to be Weighted-Average Future Issuance Under
Issued Upon Exercise of Exercise Price of Equity Compensation Plans
Outstanding Options, Outstanding Options, (Excluding Securities
Plan Category Warrants and Rights Warrants and Rights Reflected in Column(a))
(a) (b) (c)
Equity compensation plans approved by security holders — $ — —
Equity compensation plans not approved by security holders — $ — 2,200,000 (1)

Total — $ — 2,200,000


~~(1)~~		These shares of our common stock were authorized by our stockholders prior to the Offering. In accordance with a regulatory order we obtained from the SEC subsequent to the Offering, we intend to seek stockholder approval for the equity compensation plans pursuant to which these shares may be issued.

~~Equity Incentive Plan~~

Our Equity Incentive Plan is intended to attract and retain the services of executive officers, directors and other key employees. Under our Equity Incentive Plan, with the approval of our Board of Directors, our Compensation Committee may award stock options, restricted stock, or other stock-based incentive awards to our executive officers, employees and directors.

Our Compensation Committee will administer the Equity Incentive Plan and has the authority, subject to the provisions of the Equity Incentive Plan and the approval of our Board of Directors, to determine who will receive awards under the Equity Incentive Plan and the terms of such awards.

Upon specified covered transactions (as defined in the Equity Incentive Plan), all outstanding awards under the Equity Incentive Plan may either be assumed or substituted for by the surviving entity. If the surviving entity does not assume or substitute similar awards, the awards held by the participants will be subject to accelerated vesting in full and then terminated to the extent not exercised prior to the covered transaction.

Awards under the Equity Incentive Plan will be granted to our executive officers and other employees as determined by our Compensation Committee and approved by our Board of Directors at the time of each issuance.

Under current SEC rules and regulations, a BDC may not grant options or restricted stock to directors who are not officers or employees of the BDC. We have received exemptive relief from the SEC to permit us to grant restricted stock to our independent directors as a portion of their compensation for service on our Board of Directors, subject to stockholder approval. Similarly, under the 1940 Act, business development companies cannot issue stock for services to their executive officers and employees other than options, warrants and rights to acquire capital stock. As a result, we have received exemptive relief from the SEC to permit us to grant restricted stock in exchange for or in recognition of services by our executive officers and employees, subject to stockholder approval.


Item 6.		*Selected Financial Data*

The selected financial and other data below reflects the combined operations of the Fund and the General Partner for the years ended December 31, ~~2003,~~ 2004, 2005 and 2006 and the consolidated operations of Main Street and its subsidiaries for the ~~year~~years ended December 31, ~~2007.~~2007 and 2008. The selected financial data at December 31, 2005, 2006, 2007 and ~~2007~~2008 and for the years ended December 31, 2004, 2005, 2006, 2007 and ~~2007,~~2008, have been derived from combined/consolidated financial statements that have been audited by Grant Thornton LLP, an independent registered public accounting firm. The selected financial data at December 31, ~~2003 and~~ 2004 ~~and for the years ended December 31, 2003 have~~has been derived from unaudited combined financial statements. You should read this selected financial and other data in conjunction with our “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the financial statements and related notes included in this Annual Report onForm 10-K.


	Years Ended December 31,
	2004			2005			2006			2007			2008
	(Dollars in thousands)

Statement of operations data:
Investment income:
Total interest, fee and dividend income	$	4,452		$	7,338		$	9,013		$	11,312		$	15,967
Interest from idle funds and other		9			222			749			1,163			1,328

Total investment income		4,461			7,560			9,762			12,475			17,295

Expenses:
Interest		(869	)		(2,064	)		(2,717	)		(3,246	)		(3,778	)
General and administrative		(184	)		(197	)		(198	)		(512	)		(1,684	)
Expenses reimbursed to Investment Manager		—			—			—			—			(1,007	)
Share-based compensation		—			—			—			—			(511	)
Management fees to affiliate		(1,916	)		(1,929	)		(1,942	)		(1,500	)		—
Professional costs related to initial public offering		—			—			—			(695	)		—

Total expenses		(2,969	)		(4,190	)		(4,857	)		(5,953	)		(6,980	)

Net investment income		1,492			3,370			4,905			6,522			10,315
Total net realized gain from investments		1,171			1,488			2,430			4,692			1,398

Net realized income		2,663			4,858			7,335			11,214			11,713
Total net change in unrealized appreciation (depreciation) from investments		1,764			3,032			8,488			(5,406	)		(3,961	)
Income tax benefit (provision)		—			—			—			(3,263	)		3,182

Net increase in net assets resulting from operations	$	4,427		$	7,890		$	15,823		$	2,545		$	10,934

Net investment income per share — basic and diluted		N/A			N/A			N/A		$	0.76		$	1.15
Net realized income per share — basic and diluted		N/A			N/A			N/A		$	1.31		$	1.31
Net increase in net assets resulting from operations per share — basic and diluted		N/A			N/A			N/A		$	0.30		$	1.22
Weighted average shares outstanding — basic		N/A			N/A			N/A			8,587,701			8,967,383
Weighted average shares outstanding — diluted		N/A			N/A			N/A			8,587,701			8,971,064

32
38


	As of December 31,
	2004			2005			2006			2007			2008
	(Unaudited)
	(Dollars in thousands)

Balance sheet data:
Assets:
Total portfolio investments at fair value	$	37,972		$	51,192		$	73,711		$	105,650		$	127,007
Idle funds investments		—			—			—			24,063			4,390
Cash and cash equivalents		796			26,261			13,769			41,889			35,375
Deferred tax asset		—			—			—			—			1,121
Other assets		262			439			630			1,576			1,101
Deferred financing costs, net of accumulated amortization		984			1,442			1,333			1,670			1,635

Total assets	$	40,014		$	79,334		$	89,443		$	174,848		$	170,629

Liabilities and net assets:
SBIC debentures	$	22,000		$	45,100		$	45,100		$	55,000		$	55,000
Deferred tax liability		—			—			—			3,026			—
Interest payable		354			771			855			1,063			1,108
Accounts payable and other liabilities		422			194			216			610			2,165

Total liabilities		22,776			46,065			46,171			59,699			58,273
Total net assets		17,238			33,269			43,272			115,149			112,356

Total liabilities and net assets	$	40,014		$	79,334		$	89,443		$	174,848		$	170,629

Other data:
Weighted average effective yield on debt investments(1)		15.3	%		15.3	%		15.0	%		14.3	%		14.0	%
Number of portfolio companies(3)		14			19			24			27			31
Expense ratios (as percentage of average net assets):
Operating expenses(2)		13.7	%		9.0	%		5.5	%		4.8	%		2.8	%
Interest expense		5.7	%		8.8	%		7.0	%		5.7	%		3.3	%

Years Ended December 31,
2003 2004 2005 2006 2007
(Unaudited)
(dollars in thousands)

Statement of operations data:

Investment income:
Total interest, fee and dividend income $ 3,397 $ 4,452 $ 7,338 $ 9,013 $ 11,312
Interest from idle funds and other 7 9 222 749 1,163

Total investment income 3,404 4,461 7,560 9,762 12,475

Expenses:
Management fees to affiliate (1,722 ) (1,916 ) (1,929 ) (1,942 ) (1,500 )
Interest (113 ) (869 ) (2,064 ) (2,717 ) (3,246 )
General and administrative (135 ) (184 ) (197 ) (198 ) (512 )
Professional costs related to initial public offering — — — — (695 )

Total expenses (1,970 ) (2,969 ) (4,190 ) (4,857 ) (5,953 )

Net investment income 1,434 1,492 3,370 4,905 6,522
Total net realized gain (loss) from investments (225 ) 1,171 1,488 2,430 4,692

Net realized income 1,209 2,663 4,858 7,335 11,214
Total net change in unrealized appreciation (depreciation) from investments 300 1,764 3,032 8,488 (5,406 )
Income tax provision — — — — (3,263 )

Net increase in net assets resulting from operations $ 1,509 $ 4,427 $ 7,890 $ 15,823 $ 2,545

Net investment income per common share – basic and diluted N/A N/A N/A N/A $ 0.76
Net realized income per common share – basic and diluted N/A N/A N/A N/A $ 1.31
Net increase in net assets resulting from operations per common share – basic and diluted N/A N/A N/A N/A $ 0.30
Weighted average shares of common stock outstanding – basic and diluted N/A N/A N/A N/A 8,587,701

As of December 31,
2003 2004 2005 2006 2007
(Unaudited) (Unaudited)

Balance sheet data:

Assets:
Total portfolio investments at fair value $ 19,920 $ 40,733 $ 53,795 $ 76,209 $ 108,025
Accumulated unearned income (1,972 ) (2,761 ) (2,603 ) (2,498 ) (2,375 )

Total portfolio investments net of accumulated unearned income 17,948 37,972 51,192 73,711 105,650
Idle funds investments — — — — 24,063
Cash and cash equivalents 1,537 796 26,261 13,769 41,889
Other assets 266 262 439 630 1,576
Deferred financing costs, net of accumulated amortization 416 984 1,442 1,333 1,670

Total assets $ 20,167 $ 40,014 $ 79,334 $ 89,443 $ 174,848

Liabilities and net assets:
SBIC debentures $ 5,000 $ 22,000 $ 45,100 $ 45,100 $ 55,000
Deferred tax liability — — — — 3,026
Interest payable 60 354 771 855 1,063
Accounts payable and other liabilities 139 422 194 216 610

Total liabilities 5,199 22,776 46,065 46,171 59,699
Total net assets 14,968 17,238 33,269 43,272 115,149

Total liabilities and net assets $ 20,167 $ 40,014 $ 79,334 $ 89,443 $ 174,848

Other data:

Weighted average effective yield on debt investments(1) 16.2 % 15.3 % 15.3 % 15.0 % 14.3 %
Number of portfolio companies (3) 8 14 19 24 27
Expense ratios (as percentage of average net assets):
Operating expenses(2) 12.3 % 13.7 % 9.0 % 5.5 % 4.8 %
Interest expense 0.7 % 5.7 % 8.8 % 7.0 % 5.7 %


(1)		Weighted-average effective yield is calculated based on our debt investments at the end of each period and includes amortization of deferred debt origination fees and accretion of original issue ~~discount.~~discount, but excludes debt investments with non-accrual status.

(2)		The ratio for the year ended December 31, 2007 reflects the impact of professional costs related to the Offering. These costs were ~~25.7 %~~25.7% of operating expenses for the year.

(3)		Excludes the investment in affiliated Investment Manager, as referenced in “Formation Transactions” and in the notes to the financial statements elsewhere in this Annual Report onForm 10-K.

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Item 7.		*Management’s Discussion and Analysis of Financial Condition and Results of Operations*

The following discussion should be read in conjunction with our financial statements and the notes thereto included elsewhere in this Annual Report onForm ~~10-K~~10-K..

Statements we make in the following discussion which express a belief, expectation or intention, as well as those that are not historical fact, are forward-looking statements that are subject to risks, uncertainties and assumptions. Our actual results, performance or achievements, or industry results, could differ materially from those we express in the following discussion as a result of a variety of factors, including the risks and uncertainties we have referred to under the headings “Cautionary Statement Concerning Forward-Looking Statements” and “Risk Factors” in Part I of this report.

ORGANIZATION

Main Street Capital Corporation (“MSCC”) was formed on March 9, 2007 for the purpose of (i) acquiring 100% of the equity interests of Main Street Mezzanine Fund, LP (the “Fund”) and its general partner, Main Street Mezzanine Management, LLC (the “General Partner”), (ii) acquiring 100% of the equity interests of Main Street Capital Partners, LLC (the “Investment Manager”), (iii) raising capital in an initial public offering, which was completed in October 2007 (the ~~“Offering”~~“IPO”), and (iv) thereafter operating as an ~~internally-managed~~internally managed business development company (“BDC”) under the Investment Company Act of 1940, as amended (the “1940 Act”). The transactions discussed above were consummated in October 2007 and are collectively termed the “Formation Transactions.” Immediately following the Formation Transactions, Main Street Equity Interests, Inc. (“MSEI”) was formed as a wholly owned consolidated subsidiary of MSCC. MSEI has elected for tax purposes to be treated as a taxable entity and is taxed at normal corporate tax rates based on its taxable income. Unless otherwise noted or the context otherwise indicates, the terms “we,” “us,” “our” and “Main Street” refer to the Fund and the General Partner prior to the ~~Offering~~IPO and to MSCC and its subsidiaries, including the Fund and the General Partner, subsequent to the ~~Offering.~~IPO.

~~On October 2, 2007, prior to the Offering, the following transactions were consummated (collectively, the “Formation Transactions”):~~

MSCC acquired 100% of the limited partnership interests in the Fund, which became a wholly- owned consolidated subsidiary of MSCC — the Fund retained its SBIC license, continued to hold its existing investments, and will make new investments with available funds;

OVERVIEW

~~MSCC acquired 100% of the equity interests in the General Partner, which became a wholly owned consolidated subsidiary of MSCC; and~~

MSCC acquired 100% of the equity interests in the Investment Manager. The Investment Manager became a wholly owned portfolio company of MSCC as the Investment Manager does not conduct substantially all of its investment management activities for Main Street and its subsidiaries.

The Offering consisted of the public offering and sale of 4,300,000 shares of common stock, including the underwriters’ exercise of the over-allotment option, at a price to the public of $15.00 per share, resulting in net proceeds of approximately $60.2 million, after deducting underwriters’ commissions totaling approximately $4.3 million.

Immediately following the Formation Transactions, Main Street Equity Interests, Inc. (“MSEI”) was created as a wholly-owned consolidated subsidiary of MSCC. MSEI has elected for tax purposes to be treated as a corporation and is taxed at normal corporate tax rates based on its taxable income. The taxable income of MSEI may differ from its book income due to deferred tax timing differences as well as permanent differences. MSEI provides for any current taxes payable and deferred tax items in its separate financial statements.

~~OVERVIEW~~

We are a ~~specialty~~principal investment ~~company~~firm focused on providing customized debt and equity financing to lower middle-market companies, which we generally define as companies with annual revenues between ~~$10.0~~$10 and ~~$100.0~~$100 million that operate in diverse industries. We invest primarily in secured debt instruments, equity investments, warrants and other securities of lower middle-market companies based in the United States. Our principal investment objective is to maximize our portfolio’s total return by generating current income from our debt investments and capital appreciation from our equity and equity-related ~~investments.~~investments, including warrants, convertible securities and other rights to acquire equity securities in a portfolio company. Our investments generally range in size from ~~$2.0~~$2 million to ~~$15.0~~$15 million.

Our investments are made through both MSCC and the Fund. Since the IPO, MSCC and the Fund have co-invested in substantially every investment we have made. MSCC and the Fund share the same investment strategies and criteria in the lower middle-market, although they are subject to different regulatory regimes. See “Business — Regulation.” An investor’s return in MSCC will depend, in part, on the Fund’s investment returns as the Fund is a wholly owned subsidiary of MSCC.

We seek to fill the current financing gap for lower middle-market businesses, which, historically, have had limited access to financing from commercial banks and other traditional sources. Given the current credit environment, we believe the limited access to financing for lower middle market companies is even more pronounced. The underserved nature of the lower ~~middle-market~~middle market creates the opportunity for us to meet the financing needs of lower middle-market companies while also negotiating favorable transaction terms and equity participations. Our ability to invest across a company’s capital structure, from senior secured loans to equity securities, allows us to offer portfolio companies a comprehensive suite of financing solutions, or “one stop” financing. ~~Since commencing investment operations~~Providing customized, “one stop” financing solutions has become even more relevant to our portfolio companies in ~~2002,~~the current credit environment. We generally seek to partner directly with entrepreneurs, management teams and business owners in making our investments. Main Street believes that its core investment strategy has ~~invested primarily~~a lower correlation to the broader debt and equity markets.

Due to the uncertainties in ~~secured debt instruments, equity investments, warrants~~the current economic environment and our desire to maintain adequate liquidity, we intend to be very selective in our near term portfolio growth. However, we anticipate that our net investment income will continue to grow as we deploy our existing lower yield cash and cash equivalents into higher yielding portfolio investments. During 2008, we paid approximately $1.425 per share in dividends. In September 2008, we declared monthly dividends for the fourth quarter of 2008 totaling $0.375 per share representing a 13.6% increase from the dividends paid in the fourth quarter of 2007. In December 2008, we declared monthly dividends for the first quarter of 2009 totaling $0.375 per share representing a 10.3% increase from the dividends paid in the first quarter of 2008. For tax purposes, the monthly dividend paid in January 2009 was applied against the 2008 taxable income distribution requirements since it was declared and accrued prior to December 31, 2008. Excluding the impact for the tax treatment of the January 2009 dividend, we estimate that we generated undistributed taxable income (or “spillover income”) of approximately $4 million, or $0.44 per share, during 2008 that will be carried forward toward distributions paid in 2009. For the 2009 calendar year, we estimate that we will pay dividends in the range of $1.50 to $1.65 per share representing an increase of 5.3% to 15.8% over the total dividends per share paid during calendar year 2008. The estimated range for total 2009 dividends is based upon projections of 2009 taxable income, anticipated 2009 portfolio activity, and the $4 million of 2008 spillover income which will be utilized to pay dividends during 2009. We will continue to pay dividends on a monthly basis during 2009 and will continue to provide quarterly updates related to our 2009 dividend guidance.

At December 31, 2008, we had $39.8 million in cash and cash equivalents plus idle funds investments. During October 2008, we closed a $30 million multi-year investment line of credit. Due to our existing and available cash and other ~~securities~~resources, we expect to have sufficient cash resources to support our investment and operational activities throughout all of ~~lower middle-market companies based~~2009 and well into 2010. However, this projection will be impacted by, among other things, the pace of new and follow on investments, investment redemptions, the level of cash flow from operations and cash flow from realized gains, and the level of dividends paid in cash.

The recently enacted American Recovery and Reinvestment Act of 2009 (the “2009 Stimulus Bill”) contains several provisions applicable to Small Business Investment Company (“SBIC”) funds, including the Fund, our wholly owned subsidiary. One of the key SBIC-related provisions included in the ~~United States.~~2009 Stimulus Bill increases the maximum amount of combined SBIC leverage (or SBIC leverage cap) to $225 million for affiliated SBIC funds. The prior maximum amount of SBIC leverage available to affiliated SBIC funds was approximately $137 million, as adjusted annually based upon changes in the Consumer Price Index. Due to the increase in the maximum amount of SBIC leverage available, we will now have access to incremental SBIC leverage to support our future investment activities. Since the increase in the SBIC leverage cap applies to affiliated SBIC funds, we will allocate such increased borrowing capacity between our wholly owned SBIC subsidiary and Main Street Capital II, LP (“MSC II”), an independently owned SBIC that is managed by Main Street and therefore deemed to be affiliated for SBIC regulatory purposes. It is currently estimated that at least $55 million to $60 million of additional SBIC leverage is now accessible by Main Street for future investment activities, subject to the required capitalization of our wholly owned SBIC subsidiary.

In our view, the SBIC leverage, including the increased capacity, remains a strategic advantage due to its long-term, flexible structure and a very low fixed cost. The SBIC leverage also provides proper matching of duration and cost compared with our portfolio debt investments. The weighted average duration of our portfolio debt investments is 3.5 years compared to a weighted average duration of over 6 years for our SBIC leverage. This duration on our SBIC leverage does not consider the opportunity to revolve or refinance our existing SBIC leverage into new10-year tranches upon contractual maturity. Approximately 85% of portfolio debt investments bear interest at fixed rates which is also appropriately matched by the long-term, low cost fixed rates available through our SBIC leverage. In addition, we believe the embedded value of our SBIC leverage would be significant if we had adopted the provisions of Statement of Financial Accounting Standards (“SFAS”) No. 159,The Fair Value Option for Financial Assets and Financial Liabilities(“SFAS 159”) relating to accounting for debt obligations at their fair value.

CRITICAL ACCOUNTING POLICIES

Basis of Presentation

The financial statements are prepared ~~on an accrual basis~~ in accordance with ~~U. S.~~accounting principles generally accepted ~~accounting principles~~in the United States of America (“U.S. GAAP”). For the ~~year~~years ended December 31, 2008 and 2007, the consolidated financial statements of Main Street include the accounts of MSCC, the Fund, MSEI and the General Partner. ~~For the years ended December 31, 2006 and 2005, the combined financial statements include the combined accounts of the Fund and the General Partner.~~The Investment Manager is accounted for as a portfolio investment. The Formation Transactions involved an exchange of ~~shares~~equity interests between companies under common control. In accordance with the guidance on exchanges of ~~shares~~equity interests between entities under common control contained in ~~Statement of Financial Accounting Standards~~SFAS No. 141,Business Combinations (“(“SFAS 141”), Main Street’s results of operations and cash flows for the year ended December 31, 2007 are presented as if the Formation Transactions had occurred as of January 1, 2007. Main Street’s results of operations for the years ended December 31, 2008 and 2007, cash flows for the years ended December 31, 2008 and 2007 and financial ~~position~~positions as of December 31, 2008 and 2007 isare presented on a consolidated basis. In addition, the results of Main Street’s operations and its cash flows for the ~~years~~year ended ~~December 31, 2006 and 2005 and Main Street’s financial position as of~~ December 31, 2006 have been presented on a combined basis in order to provide comparative information with respect to prior periods. The effects of all intercompany transactions between Main Street and its subsidiaries have been eliminated in ~~consolidation/combination. Certain~~consolidation. As a result of adopting the provisions of SFAS No. 157,Fair Value Measurements(“SFAS 157”), in the first quarter of 2008, certain reclassifications have been made to ~~the 2006 and 2005~~prior period balances to conform with the ~~2007~~current financial statement presentation. ~~The total assets of the General Partner after eliminations as of December 31, 2007 and 2006 were immaterial.~~

Under the investment company rules and regulations pursuant to Article 6 ofRegulation S-X and the Audit and Accounting Guide for Investment Companies issued by the American Institute of Certified Public Accountants ~~Main Street is~~(the “AICPA Guide”), we are precluded from consolidating portfolio company investments, including those in which ~~it has~~we have a controlling interest, unless the portfolio company is another investment company. An exception to this general principle in the AICPA Guide occurs if ~~Main Street owns~~we own a controlled operating company that provides all or substantially all of its services directly to ~~Main Street~~us, or to an investment company of ~~Main Street.~~ours. None of the investments made by ~~Main Street~~us qualify for this exception. Therefore, ~~the~~our portfolio investments are carried on the balance sheet at fair value, as discussed further in ~~more detail below,~~Note B to our consolidated financial statements, with any adjustments to fair value recognized as “Net Change in Unrealized Appreciation (Depreciation) from Investments” on ~~the~~our Statement of Operations until the investment is disposed of, resulting in any gain or loss on exit being recognized as a “Net Realized Gain ~~or Loss From~~(Loss) from Investments.”

Portfolio Investment Valuation

The most significant estimate inherent in the preparation of our financial statements is the valuation of our portfolio investments and the related amounts of unrealized appreciation and depreciation. ~~We are required to report our investments at fair value.~~

As of December 31, 2008 and December 31, 2007, approximately ~~62%~~74% and 60%, respectively, of our total assets represented investments in portfolio companies valued at fair value ~~(excluding unearned income and including a $17,625,000~~(including the investment in the Investment Manager). We ~~base~~are required to report our investments at fair value. We adopted the provisions of SFAS 157 in the first quarter of 2008. SFAS 157 defines fair value, establishes a framework for measuring fair value, establishes a fair value hierarchy based on the quality of inputs used to measure fair value, and enhances disclosure requirements for fair value measurements. With the adoption of this statement, we incorporated the income approach to estimate the fair value of our debt investments principally using a yield-to-maturity model, resulting in the recognition of $0.7 million in unrealized appreciation from ten debt investments upon adoption.

Our business plan calls for us to invest primarily in illiquid securities issued by private companiesand/or thinly traded public companies. These investments may be subject to restrictions on resale and will generally have no established trading market. As a result, we determine in good faith the fair value of our portfolio investments pursuant to a valuation policy in accordance with SFAS 157 and a valuation process approved by our Board of Directors and in accordance with the 1940 Act. We review external events, including private mergers, sales and acquisitions involving comparable companies, and include these events in the valuation process. Our valuation policy is intended to provide a consistent basis for determining the fair value of the portfolio.

For valuation purposes, control investments are composed of equity and debt securities for which we have a controlling interest in the portfolio company or have the ability to nominate a majority of the portfolio company’s board of directors. Market quotations are generally not readily available for our control investments. As a result, we determine the fair value of these investments using a combination of market and income approaches. Under the market approach, we will typically use the enterprise value methodology to determine the fair value of ~~the portfolio companies in which we invest.~~these investments. The enterprise value is the fair value at which an enterprise could be sold in a transaction between two willing parties, other than through a forced or liquidation sale. Typically, private companies are bought and sold based on multiples of earnings before interest, taxes, depreciation and amortization, or EBITDA, cash flows, net income, revenues, or in limited cases, book value. There is no single methodology for ~~determining~~estimating enterprise ~~value and for~~value. For any one portfolio company, enterprise value is generally described as a range of values from which a single estimate of enterprise value is derived. In ~~determining~~estimating the enterprise value of a portfolio company, we analyze various factors, including the portfolio company’s historical and projected financial results. We allocate the enterprise value to investments in order of the legal priority of the investments. We will also ~~generally prepare and analyze discounted cash flow models~~use the income approach to determine the fair value of these securities, based on ~~the portfolio company’s~~ projections of the discounted future free cash flows that the portfolio company or the debt security will likely generate. The valuation approaches for our control investments estimate the value of the ~~applicable business~~investment if we were to sell, or exit, the investment, assuming the highest and best use of the investment by market participants. In addition, these valuation approaches consider the value associated with our ability to control the capital structure of the portfolio company, ~~specific capital costs. We review external events, including private mergers~~as well as the timing of a potential exit.

For valuation purposes, non-control investments are composed of debt and ~~acquisitions, and include these events~~equity securities for which we do not have a controlling interest in the ~~enterprise valuation process.~~portfolio company, or the ability to nominate a majority of the portfolio company’s board of directors. Market quotations for our non-control investments are not readily available. For ~~a discussion of a new accounting pronouncement that may impact how~~our non-control investments, we use the market approach to value our equity investments and the income approach to value our debt instruments. For non-control debt investments, we determine the fair value primarily using a yield approach that analyzes the discounted cash flows of interest and principal for the debt security, as set forth in the associated loan agreements, as well as the financial position and credit risk of each of these portfolio investments. Our estimate of the expected repayment date of a debt security is generally the legal maturity date of the instrument, as we generally intend to hold our loans to maturity. The yield analysis considers changes in leverage levels, credit quality, portfolio company performance and other factors. We will use the value determined by the yield analysis as the fair value for that security; however, because of our ~~investments, see “Recently Issued Accounting Standards.”~~general intent to hold our loans to maturity, the fair value will not exceed the face amount of the debt security. A change in the assumptions that we use to estimate the fair value of our debt securities using the yield analysis could have a material impact on the determination of fair value. If there is deterioration in credit quality or a debt security is in workout status, we may consider other factors in determining the fair value of a debt security, including the value attributable to the debt security from the enterprise value of the portfolio company or the proceeds that would be received in a liquidation analysis.

Due to the inherent uncertainty in the valuation process, our estimate of fair value may differ materially from the values that would have been used had a ready market for the securities existed. In addition, changes in the market ~~environments~~environment, portfolio company performance and other events that may occur over the lives of the investments may cause the gains or losses ultimately realized on these investments to be different than the valuations currently assigned. We determine the fair value of each individual investment and record changes in fair value as unrealized appreciation or depreciation.

If there is adequate enterprise value to support the repayment of the debt, the fair value of our loan or debt security normally corresponds to cost plus accumulated unearned income, unless the borrower’s condition or other factors lead to a determination of fair value at a different amount. The fair value of equity interests in portfolio companies is determined based on the various factors described above.

Revenue Recognition

Interest and Dividend Income

~~Interest~~

We record interest and dividend income ~~adjusted for amortization of premium and accretion of original issue discount, is recorded~~ on the accrual basis to the extent ~~that such~~ amounts are expected to be collected. ~~We stop accruing interest on investments and write off any previously accrued and uncollected interest when it~~Dividend income is ~~determined that interest is not collectible. Distributions from portfolio companies are~~ recorded as dividends are declared or at the point an obligation exists for the portfolio company to make a distribution. In accordance with our valuation policy, we evaluate accrued interest and dividend income ~~when~~periodically for collectibility. When a loan or debt security becomes 90 days or more past due, and if we otherwise do not expect the ~~distributions are received.~~debtor to be able to service all of its debt or other obligations, we will generally place the loan or debt security on non-accrual status and cease recognizing interest income

on that loan or debt security until the borrower has demonstrated the ability and intent to pay contractual amounts due. If a loan or debt security’s status significantly improves regarding ability to service the debt or other obligations, or if a loan or debt security is fully impaired or written off, we will remove it from non-accrual status.

Fee Income

We may periodically provide services, including structuring and advisory services, to our portfolio companies. ~~We recognize~~For services that are separately identifiable and evidence exists to substantiate fair value, income ~~from fees for providing such structuring and advisory services~~is recognized as earned, which is generally when the ~~services are rendered~~investment or ~~the transactions are completed. We also receive up-front debt origination or closing fees~~other applicable transaction closes. Fees received in connection with ~~our~~ debt ~~investments. Such up-front~~financing transactions for services that do not meet these criteria are treated as debt origination fees, net of direct loan origination costs, and ~~closing fees~~ are ~~capitalized as unearned income~~amortized, based on ~~our balance sheet and amortized~~the effective interest method, as additional interest income over the life of the related debt ~~investments.~~investment.

Payment-in-Kind (“PIK”) Interest ~~(PIK)~~

While not significant to our total debt investment portfolio, we currently hold several loans in our portfolio that contain a PIK interest ~~provision.~~provisions. The PIK interest, computed at the contractual rate specified in each loan agreement, is added to the principal balance of the loan and recorded as interest income. To maintain ~~RIC~~regulated investment company (“RIC”) tax treatment (as discussed below), this non-cash source of income will need to be paid out to stockholders in the form of distributions, even though we ~~have~~may not ~~yet~~have collected the cash. We will stop accruing PIK interest and write off any accrued and uncollected interest when it is determined that PIK interest is no longer ~~collectable.~~collectible.

~~Income Taxes~~Share-Based Compensation

~~Main Street~~

We account for our share-based compensation plan using the fair value method, as prescribed by SFAS No. 123R,Share-Based Payment. Accordingly, for restricted stock awards, we measured the grant date fair value based upon the market price of our common stock on the date of the grant and will amortize this fair value to share-based compensation expense over the requisite service period or vesting term.

Income Taxes

MSCC has elected and intends to qualify ~~and elect~~ for the tax treatment applicable to a RIC under Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”), and, among other things, intends to make the required distributions to ~~its~~our stockholders as specified therein. ~~In order to qualify as~~As a RIC, ~~Main Street is required to timely~~we generally will not pay corporate-level federal income taxes on any net ordinary income or capital gains that we distribute to ~~its~~our stockholders ~~at least 90% of investment company taxable income,~~ as ~~defined by the Code, each year.~~dividends. Depending on the level of taxable income earned in a tax year, ~~Main Street~~we may choose to carry forward taxable income in excess of current year distributions into the next tax year and pay a 4% excise tax on such income. Any such carryover taxable income must be distributed through a dividend declared prior to filing the final tax return related to the year which generated such taxable income.

MSCC’s ~~wholly-owned~~wholly owned subsidiary, MSEI, is a taxable entity which holds certain of our portfolio ~~investments of Main Street.~~investments. MSEI is consolidated with Main Street for U.S. GAAP reporting purposes, and the portfolio investments held by MSEI are included in ~~Main Street’s~~our consolidated financial statements. The principal purpose of MSEI is to permit ~~Main Street~~us to hold equity investments in portfolio companies which are “pass through” entities for tax purposes in order to comply with the “source income” requirements contained in the RIC tax ~~requirements.~~provisions. MSEI is not consolidated with Main Street for income tax purposes and may generate income tax expense as a result of ~~their~~MSEI’s ownership of ~~the~~certain portfolio investments. This income tax expense, if any, is reflected in ~~Main Street’s Consolidated Statement~~our consolidated statement of ~~Operations.~~operations.

MSEI uses the liability method in accounting for income taxes. Deferred tax assets and liabilities are recorded for temporary differences between the tax basis of assets and liabilities and their reported amounts in the financial statements, using statutory tax rates in effect for the year in which the temporary differences are expected to reverse. A valuation allowance is provided against deferred tax assets when it is more likely than not that some portion or all of the deferred tax asset will not be realized.

PORTFOLIO COMPOSITION

Portfolio investments principally consist of secured debt, equity warrants and direct equity investments in privately held companies. The debt investments are secured by either a first or second lien on the assets of the portfolio company, generally bear interest at fixed rates, and generally mature between five and seven years from the original investment. We also receive nominally priced equity warrants and make direct equity investments, usually in connection with a debt investment in a portfolio company.

The Investment Manager is a wholly owned subsidiary of MSCC. However, the Investment Manager is accounted for as a portfolio investment of Main Street, since it is not an investment company and since it conducts a significant portion of its investment management activities outside of MSCC and its subsidiaries. To allow for more relevant disclosure of our “core” investment portfolio, our investment in the Investment Manager has been excluded from the tables and amounts set forth below.

Summaries of the composition of our core investment portfolio at cost and fair value as a percentage of total portfolio investments are shown in the following ~~table. The following table excludes the investment in the Investment Manager.~~table:


	December 31,
Cost:	2006			2007			December 31, 2008			December 31, 2007

First lien debt		77.1	%		81.7	%		76.2	%		81.5	%
Equity								11.0	%		10.7	%
Second lien debt		11.8			6.3			7.4	%		6.1	%
Equity		7.6			10.3
Equity warrants		3.5			1.7			5.4	%		1.7	%

		100.0	%		100.0	%		100.0	%		100.0	%


	December 31,
Fair Value:	2006			2007			December 31, 2008			December 31, 2007

First lien debt		63.9	%		70.6	%		67.0	%		70.1	%
Second lien debt		9.7			3.5
Equity		12.6			18.1			15.7	%		18.6	%
Equity warrants		13.8			7.8			10.2	%		8.0	%
Second lien debt								7.1	%		3.3	%

		100.0	%		100.0	%		100.0	%		100.0	%

The following table shows the core investment portfolio composition by geographic region of the United States at cost and fair value as a percentage of total portfolio ~~investments, excluding the investment in the Investment Manager.~~investments. The geographic composition is determined by the location of the corporate headquarters of the portfolio ~~company.~~company:


	December 31,
Cost:	2006			2007			December 31, 2008			December 31, 2007

Southwest		39.9	%		31.9	%		50.2	%		31.9	%
West		24.8			36.9			36.3	%		37.1	%
Northeast		14.7			11.4
Southeast		13.8			13.9			5.1	%		11.4	%
Midwest		6.8			5.9			4.7	%		5.8	%
Northeast								3.7	%		13.8	%

		100.0	%		100.0	%		100.0	%		100.0	%


	December 31,
Fair Value:	2006			2007			December 31, 2008			December 31, 2007

Southwest		47.2	%		41.0	%		56.0	%		41.2	%
West		20.8			32.9			31.1	%		32.9	%
Midwest								5.1	%		6.5	%
Southeast								4.1	%		10.3	%
Northeast		11.1			9.1			3.7	%		9.1	%
Southeast		13.1			10.4
Midwest		7.8			6.6

		100.0	%		100.0	%		100.0	%		100.0	%

37
45

Main Street’s portfolio investments are generally in lower middle-market companies conducting business in a variety of industries. Set forth below are tables showing the ~~industry~~ composition of ~~our~~Main Street’s core investment portfolio by industry at cost and fair value as of December 31, ~~2006~~2008 and ~~2007 (excluding unearned income and excluding the~~2007:


Cost:	December 31, 2008			December 31, 2007

Industrial equipment		12.0	%		6.6	%
Precast concrete manufacturing		11.3	%		—
Custom wood products		9.3	%		8.4	%
Agricultural services		8.3	%		11.6	%
Electronics manufacturing		7.6	%		9.5	%
Transportation/Logistics		6.6	%		6.7	%
Retail		6.5	%		3.3	%
Restaurant		6.1	%		3.4	%
Health care products		5.8	%		4.2	%
Mining and minerals		4.8	%		9.1	%
Manufacturing		4.7	%		12.0	%
Health care services		4.2	%		5.9	%
Professional services		4.1	%		3.3	%
Metal fabrication		3.4	%		4.6	%
Equipment rental		2.1	%		2.6	%
Infrastructure products		1.7	%		2.4	%
Information services		0.9	%		1.2	%
Industrial services		0.5	%		0.4	%
Distribution		0.1	%		2.2	%
Consumer products		—			2.6	%

		100.0	%		100.0	%


Fair Value:	December 31, 2008			December 31, 2007

Precast concrete manufacturing		13.7	%		—
Industrial equipment		10.2	%		6.0	%
Agricultural services		8.1	%		10.5	%
Electronics manufacturing		7.7	%		9.6	%
Retail		7.0	%		3.4	%
Custom wood products		6.8	%		7.5	%
Restaurant		6.7	%		4.5	%
Transportation/Logistics		6.5	%		6.6	%
Health care services		6.1	%		6.0	%
Health care products		5.8	%		4.1	%
Professional services		5.4	%		4.1	%
Manufacturing		5.1	%		9.5	%
Metal fabrication		4.3	%		4.2	%
Industrial services		2.8	%		2.9	%
Equipment rental		2.0	%		2.4	%
Information services		0.9	%		1.2	%
Infrastructure products		0.5	%		2.2	%
Distribution		0.4	%		2.4	%
Mining and minerals		—			12.9	%

		100.0	%		100.0	%

Our core investment ~~in the Investment Manager):~~

December 31,
Cost: 2006 2007

Manufacturing 15.1 % 12.4 %
Agricultural services — 11.4
Electronics manufacturing 5.2 9.6
Construction/industrial minerals 11.7 9.0
Custom wood products 6.3 8.3
Transportation/logistics 9.6 6.6
Industrial Equipment — 6.5
Health care services 5.0 5.9
Metal Fabrication — 4.7
Health care products 8.2 4.3
Restaurant 5.3 3.4
Professional services 4.8 3.3
Retail 4.3 3.2
Consumer products 3.2 2.6
Equipment rental 2.9 2.6
Building products 3.9 2.4
Distribution 11.6 2.2
Information services 2.4 1.2
Industrial services 0.5 0.4

Total 100.0 % 100.0 %

December 31,
Fair Value: 2006 2007

Construction/industrial minerals 15.9 % 12.8 %
Agricultural services — 10.4
Manufacturing 14.1 9.8
Electronics manufacturing 4.9 9.7
Custom wood products 5.2 7.5
Transportation/logistics 9.7 6.6
Health care services 4.1 6.0
Industrial Equipment — 5.9
Restaurant 5.3 4.4
Metal Fabrication — 4.3
Health care products 8.3 4.1
Professional services 4.4 4.1
Retail 3.6 3.4
Industrial services 2.4 2.8
Distribution 12.3 2.4
Equipment rental 2.3 2.4
Building products 3.2 2.2
Information services 1.8 1.2
Consumer products 2.5 —

Total 100.0 % 100.0 %

~~Our~~ portfolio ~~investments carry~~carries a number of risks including, but not limited to: (1) investing in lower middle-market companies which have a limited operating history and financial resources; (2) holding investments that are not publicly traded and which may be subject to legal and other restrictions on ~~resale~~resale; and (3) other risks common to investing in below investment grade debt and equity investments in private, smaller companies.

PORTFOLIO ASSET QUALITY

We utilize an internally developed investment rating system for our entire portfolio of investments. Investment Rating 1 represents a portfolio company that is ~~used for investments that have exceeded~~performing in a manner which significantly exceeds our original expectations and ~~with respect to which return of capital invested, collection of all interest, and a substantial capital gain are expected.~~projections. Investment Rating 2 represents a portfolio company that is ~~used for investments that are~~ performing ~~in accordance with or~~ above ~~expectations and with respect to which the equity component, if any, has the potential to realize capital gain.~~our original expectations. Investment Rating 3 ~~is used for investments~~represents a portfolio company that ~~are~~is generally performing in accordance with ~~expectations and with respect to which a full return of~~our original ~~capital invested and collection of all interest is expected, but no capital gain can currently be foreseen.~~expectations. Investment Rating 4 represents a portfolio company that is ~~used for investments that are~~ underperforming ~~have the potential for~~our original expectations. Investments with such a ~~realized loss~~rating require increased Main Street monitoring and ~~require closer monitoring.~~scrutiny. Investment Rating 5 represents a portfolio company that is ~~used for investments performing~~ significantly ~~below expectations~~underperforming. Investments with such a rating require heightened levels of Main Street monitoring and ~~where we expect a loss.~~scrutiny and involve the recognition of unrealized depreciation on such investment.

The following table shows the distribution of our investments on our 1 to 5 investment rating scale at fair value as of December 31, ~~2006~~2008 and ~~2007:~~2007 (excluding Main Street’s investment in the Investment Manager):


	December 31, 2006					December 31, 2007					December 31, 2008					December 31, 2007
	Investments at		Percentage of			Investments at		Percentage of			Investments at		Percentage of			Investments at		Percentage of
Investment Rating	Fair Value		Total Portfolio			Fair Value		Total Portfolio			Fair Value		Total Portfolio			Fair Value		Total Portfolio
											(Dollars in thousands)

1	$	31,686		41.6	%	$	25,153		27.8	%	$	27,523		24.9	%	$	24,619		28.0	%
2		23,581		30.9			35,771		39.6			23,150		21.0	%		35,068		39.8	%
3		15,094		19.8			24,714		27.3			53,123		48.1	%		24,034		27.3	%
4		5,848		7.7			—		—			6,035		5.5	%		—		0.0	%
5		—		—			4,762		5.3			500		0.5	%		4,304		4.9	%

Totals	$	76,209		100.0	%	$	90,400		100.0	%	$	110,331		100.0	%	$	88,025		100.0	%

Based upon our investment rating system, the weighted average rating of our portfolio as of December 31, ~~2006~~2008 and ~~December 31,~~ 2007 was approximately ~~1.9~~2.4 and 2.2 respectively. As of December 31, ~~2006, we had no debt investments that were on non-accrual status. As of December 31,~~2008 and 2007, we had one debt investment ~~that~~in each period representing 0.5% and 3.1%, respectively, of total portfolio fair value (excluding Main Street’s investment in the Investment Manager) which was on non-accrual ~~status, representing 3.1%~~status.

In the event that the United States economy remains in a prolonged period of weakness, it is possible that the ~~total~~financial results of small- to mid-sized companies, like those in which we invest, could experience deterioration, which could ultimately lead to difficulty in meeting their debt service requirements and an increase in defaults. In addition, the end markets for certain of our portfolio ~~investments~~companies’ products and services have experienced, and continue to experience, negative economic trends. We are seeing somewhat reduced operating results at ~~fair value as~~several portfolio companies due to the general economic difficulties. We expect the trend of ~~December 31, 2007 (excluding~~reduced operating results to continue throughout 2009. Consequently, we can provide no assurance that the ~~investment in~~performance of certain of our ~~affiliated Investment Manager).~~portfolio companies will not be negatively impacted by these economic or other conditions which could have a negative impact on our future results.

DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS

Comparison of years ended December 31, 2008 and December 31, 2007


	Years Ended December 31,						Net Change
	2008			2007			Amount			%
	(Dollars in millions)

Total investment income	$	17.3		$	12.5		$	4.8			39	%
Total expenses		(7.0	)		(6.0	)		(1.0	)		17	%

Net investment income		10.3			6.5			3.8			58	%
Total net realized gain from investments		1.4			4.7			(3.3	)		(70	)%

Net realized income		11.7			11.2			0.5			4	%
Net change in unrealized appreciation (depreciation) from investments		(4.0	)		(5.4	)		1.4			N	A
Income tax benefit (provision)		3.2			(3.3	)		6.5			N	A

Net increase in net assets resulting from operations	$	10.9		$	2.5		$	8.4			330	%


	Years Ended December 31,				Net Change
	2008		2007		Amount			%

Net investment income	$	10.3	$	6.5	$	3.8			58	%
Share-based compensation expense		0.5		—		0.5			N	A

Distributable net investment income(a)		10.8		6.5		4.3			66	%
Total net realized gain (loss) from investments		1.4		4.7		(3.3	)		(70	)%

Distributable net realized income(a)	$	12.2	$	11.2	$	1.0			9	%


(a)		Distributable net investment income and distributable net realized income are net investment income and net realized income, respectively, as determined in accordance with U.S. GAAP, excluding the impact of share-based compensation expense which is non-cash in nature. Main Street believes presenting distributable net investment income, distributable net realized income, and related per share measures are useful and appropriate supplemental disclosures for analyzing its financial performance since share-based compensation does not require settlement in cash. However, distributable net investment income and distributable net realized income are non U.S. GAAP measures and should not be considered as replacements to net investment income, net realized income, and other earnings measures presented in accordance with U.S. GAAP. Instead, distributable net investment income and distributable net realized income should be reviewed only in connection with such U.S. GAAP measures in analyzing Main Street’s financial performance. A reconciliation of net investment income in accordance with U.S. GAAP to distributable net investment income and distributable net realized income is presented in the table above.

Investment Income

For the year ended December 31, 2008, total investment income was $17.3 million, a $4.8 million, or 39%, increase over the $12.5 million of total investment income for the year ended December 31, 2007. The increase was attributable to a $4.6 million increase in interest, fee and dividend income from investments and a $0.2 million increase in interest income from idle funds, which was principally earned on the remaining proceeds from our IPO. The increase in interest, fee and dividend income was primarily attributable to (i) higher average levels of outstanding debt investments, which was principally due to the closing of eight new debt investments since December 31, 2007, partially offset by debt repayments received during the same period and certain portfolio investments that were on non-accrual status or written off in 2008, (ii) significantly higher levels of cash dividend income from portfolio equity investments, and (iii) higher levels of fee income. For the year ended December 31, 2008, Main Street received approximately $3 million in cash dividend

payments from portfolio company equity investments. These dividend payments were paid to Main Street based upon the accumulated earnings and available cash of certain portfolio companies for the year ended December 31, 2008. Future dividend payments will vary due to changes in portfolio company accumulated earnings and available cash.

Expenses

For the year ended December 31, 2008, total expenses increased by approximately $1.0 million, or 17%, to approximately $7.0 million from $6.0 million for the year ended December 31, 2007. Share-based compensation expense recognized during 2008 related to non-cash amortization expense for restricted share grants made in July 2008 totaled $0.5 million. There were no similar expenses incurred during 2007. In addition, 2007 operating expenses included $0.7 million of costs related to Main Street’s IPO which was completed in October 2007. There were no similar expenses incurred during 2008. Operating expenses, excluding the non-cash, share-based compensation expense and the 2007 IPO-related expenses discussed above, increased $1.2 million in 2008 compared with 2007 due to a $0.7 million increase in general and administrative expense associated with higher costs to operate as a public company and a $0.5 million increase in interest expense as a result of an additional $9.9 million of SBIC Debentures borrowed through the Fund during 2007, and unused commitment fees on two credit facilities totaling $80 million, one entered into in December 2007 and the other in October 2008, by MSCC.

Distributable Net Investment Income

Distributable net investment income for the year ended December 31, 2008 was $10.8 million, or a 66% increase, compared to distributable net investment income of $6.5 million during the year ended December 31, 2007. The increase in distributable net investment income was attributable to the increase in total investment income partially offset by the increase in total expenses discussed above.

Net Investment Income

Net investment income for the year ended December 31, 2008 was $10.3 million, or a 58% increase, compared to net investment income of $6.5 million during the year ended December 31, 2007. The increase in net investment income was attributable to the increase in total investment income partially offset by the increase in total expenses discussed above.

Distributable Net Realized Income

For the year ended December 31, 2008, the net realized gains from investments was $1.4 million, representing a $3.3 million, or 70%, decrease over the net realized gains of $4.7 million during the year ended December 31, 2007. The net realized gains during the year ended December 31, 2008 principally related to the realized gains recognized on equity investments in four portfolio companies, offset by realized losses on debt and equity investments in two portfolio companies, compared to higher net realized gains recognized on equity investments in four portfolio companies during the year ended December 31, 2007.

The higher distributable net investment income in the year ended December 31, 2008 offset by the lower net realized gains during that period resulted in a $1.0 million, or 9%, increase in the distributable net realized income for the year ended December 31, 2008 compared with the year ended December 31, 2007.

Net Realized Income

The higher net investment income in the year ended December 31, 2008 offset by the lower net realized gains during that period resulted in a $0.5 million, or 4%, increase in the net realized income for the year ended December 31, 2008 compared with the corresponding period in 2007.

Net Increase in Net Assets Resulting from Operations

For the year ended December 31, 2008, the net increase in net assets resulting from operations was $10.9 million in 2008 compared with $2.5 million for the year ended December 31, 2007. The $4.0 million net change in unrealized depreciation from investments for 2008 was attributable to (i) $2.9 million from the accounting reversal of net unrealized appreciation attributable to the total net realized gain on the exit of six portfolio investments, (ii) unrealized depreciation on nine investments in portfolio companies totaling $8.9 million, offset by unrealized appreciation on thirteen investments in portfolio companies totaling $8.7 million, and (iii) $0.9 million in unrealized depreciation attributable to Main Street’s investment in its affiliated investment manager. During 2008, Main Street also recognized a cumulative income tax benefit of $3.2 million primarily consisting of deferred tax benefits related to net unrealized losses on certain portfolio investments and the difference between taxable income and book income from equity investments which are flow through entities owned by MSEI, our wholly owned taxable subsidiary. We do not anticipate incurring this level of tax benefit in future periods.

Comparison of years ended December 31, 2007, and December 31, 2006


	Years Ended December 31,						Net Change
	2007			2006			Amount			%
	(Dollars in millions)

Total investment income	$	12.5		$	9.8		$	2.7			28%
Total expenses		(6.0	)		(4.9	)		(1.1	)		23%

Net investment income		6.5			4.9			1.6			33%
Total net realized gain (loss) from investments		4.7			2.4			2.3			93%

Net realized income		11.2			7.3			3.9			53%
Net change in unrealized appreciation (depreciation) from investments		(5.4	)		8.5			(13.9	)		NA
Income tax benefit (provision)		(3.3	)		—			(3.3	)		NA

Net increase in net assets resulting from operations	$	2.5		$	15.8		$	(13.3	)		(84)%

Investment Income

For the year ended December 31, 2007, total investment income was $12.5 million, a $2.7 million, or ~~27.8%~~28%, increase over the $9.8 million of total investment income for the year ended December 31, 2006. The increase was primarily attributable to a $2.3 million increase in interest, fee and dividend income from investments and a $0.4 million increase in interest income from idle funds principally related to funds received from the ~~Offering.~~IPO. The increase in interest, fee and dividend income from investments was primarily attributable to (i) higher average levels of outstanding debt investments, which was principally due to the closing of six new debt investments in the year ended December 31, 2007 and several new debt investments in the last half of 2006, partially offset by debt repayments received during the same periods, and (ii) higher levels of dividend income from portfolio equity investments.

Expenses

For the year ended December 31, 2007, total expenses increased by approximately $1.1 million, or ~~22.6%~~23%, to approximately $6.0 million from $4.9 million for the year ended December 31, 2006. The increase in total expenses was primarily attributable to a $0.5 million increase in interest expense as a result of the additional $9.9 million of SBIC Debentures borrowed by the Fund during the year ended December 31, 2007 and $0.7 million of professional costs related to the ~~Offering.~~IPO. The professional costs related to the ~~Offering~~IPO principally consisted of audit and review costs as well as other offering-related professional fees. In addition, general and administrative expenses increased $0.3 million primarily attributable to an increase in administration costs associated with being a public company. The increase in total expenses was partially offset by a decrease of $0.4 million in management fees paid due to Main Street’s internally managed operating structure subsequent to the ~~Offering.~~IPO.

Net Investment Income

As a result of the $2.7 million increase in total investment income as compared to the $1.1 million increase in total expenses, net investment income for the year ended December 31, 2007, was $6.5 million, or a 33% increase, compared to net investment income of $4.9 million during the year ended December 31, 2006. Professional fees related to the ~~Offering~~IPO represented $0.7 million of the $1.1 million increase in total expenses, or 11.7% of total expenses for the year ended December 31, 2007.

Net Realized Income ~~and Net Increase in Net Assets From Operations~~

For the year ended December 31, 2007, net realized gains from investments were $4.7 million, representing a $2.3 million increase over net realized gains during the year ended December 31, 2006. The higher level of net realized gains during the year ended December 31, 2007 principally related to ~~higher~~the realized gains recognized on ~~the sale or redemption of~~equity investments in four portfolio companies compared to ~~the sale or redemption of five~~lower net realized gains recognized on equity investments in five portfolio companies during the year ended December 31, 2006.

The higher net realized gains in the year ended December 31, 2007 combined with the higher net investment income during 2007 resulted in a $3.9 million, or ~~52.9%~~53%, increase, in the net realized income for the year ended December 31, 2007 compared with 2006.

Net Increase in Net Assets Resulting from Operations

During the year ended December 31, 2007, we recorded a net change in unrealized depreciation in the amount of $5.4 million, or a $13.9 million decrease over the $8.5 million in net change in unrealized appreciation for the year ended December 31, 2006. The net change in unrealized depreciation for the year ended December 31, 2007 included unrealized appreciation on 13 equity investments in portfolio companies, partially offset by unrealized depreciation on 6 equity investments, the reclassification of $3.8 million of previously recognized unrealized gains into realized gains on 5 exited investments and $0.4 million in unrealized depreciation attributable to Main Street’s investment in the affiliated Investment Manager.

Subsequent to the Formation Transactions and the ~~Offering,~~IPO, we recognized a cumulative income tax expense of $3.3 million primarily consisting of ~~non cash~~non-cash deferred taxes related to net unrealized gains from certain portfolio equity investments transferred into MSEI, our wholly-owned taxable subsidiary. These equity investments had historically been made in portfolio companies which were “pass through” entities for tax purposes. The transfer of the equity investments into MSEI was required in order to comply with the RIC “source income” requirements. We do not anticipate incurring this level of deferred tax expense in future periods, given the amount recognized in the fourth quarter of fiscal 2007 represents the cumulative impact of deferred taxes related to net unrealized gains on the equity investments transferred.

As a result of these events, our net increase in net assets resulting from operations during the year ended December 31, 2007, was $2.5 million, or an ~~83.9%~~84% decrease compared to a net increase in net assets resulting from operations of $15.8 million during the year ended December 31, 2006.

~~Comparison of years ended December 31, 2006~~Liquidity and ~~December 31, 2005~~Capital Resources

~~Investment Income~~Cash Flows

For the year ended December 31, ~~2006, total~~2008, we experienced a net decrease in cash and cash equivalents of $6.5 million. During that period, we generated $10.9 million of cash from our operating activities, primarily from net investment income ~~was $9.8~~partially offset by the semi-annual interest payments on our SBIC debentures, through the Fund. We used $3.5 million ~~a $2.2 million, or 29.1%, increase over the $7.6 million of total investment income~~in net cash for the year ended December 31, 2005. The increase was attributable to a $1.7 million increase in interest, fee and dividend income from investments and a $0.5 million increase in interest from idle funds. The increase in interest, fee and dividend income was primarily attributable to (i) higher average levels of outstanding debt investments, which wasinvesting activities, principally due to the ~~closing~~funding of ~~eight~~ new investments and several smaller follow-on investments for a total of $47.7 million. We also made a $4.2 million investment in idle funds investments, and received proceeds from the maturity of a $24.1 million investment in idle funds investments. We received $16.3 million in cash proceeds from repayment of debt investments ~~totaling $24.7~~and $8.0 million ~~during 2006, partially offset by debt repayments in 2006, (ii) higher levels~~ of ~~fee income attributable to greater investment activity~~cash proceeds from the redemption and ~~(iii) the fact that several portfolio companies began paying dividends on our~~sale of equity investments during the year. The increase in interest income from idle funds during 2006 was attributable to higher cash balances as a result of the final capital call by the Fund from its limited partners in September 2005.

~~Expenses~~

investments. For the year ended December 31, ~~2006, total expenses increased by approximately $0.7~~2008, we used $13.9 million ~~or 15.9%, to approximately $4.9 million from $4.2 million~~in cash for the year ended December 31, 2005. The increase in total expenses was primarily attributable to a $0.7 million increase in interest expense as a result of $45.1 million of SBIC Debentures being outstanding for the full year of 2006. The management fees paid to the Investment Manager and other general and administrative expenses did not significantly change between 2006 and 2005.financing activities, which principally

40
51

~~Net Investment Income~~

~~As a result~~consisted of ~~the $2.2~~$13.2 million ~~increase~~ in ~~total investment income as compared~~cash dividends to ~~the $0.7~~stockholders, $0.4 million ~~increase~~ in ~~total expenses, net investment income for the year ended December 31, 2006, was $4.9~~deferred loan origination costs and $0.3 million ~~or a 45.5% increase, compared to net investment income of $3.4 million during the year ended December 31, 2005.~~

~~Net Realized Income and Net Increase in Members’ Equity and Partners’ Capital Resulting From Operations~~

For the year ended December 31, 2006, net realized gains from investments were $2.4 million, or a 63.3% increase over the $1.5 million of net realized gains during the year ended December 31, 2005. The higher level of net realized gains during 2006 principally related to greater gains on the sale or redemption of equity investments in five portfolio companies, partially offset by the write off of one portfolio company investment.

~~The higher net realized gains in 2006 coupled with the higher net investment income during 2006 resulted in a $2.5 million, or 51.0%, increase,~~used in the ~~net realized income for the year ended December 31, 2006 compared with the year ended December 31, 2005.~~purchase of treasury stock pursuant to our open market share repurchase program.

During the year ended December 31, 2006, we recorded a net change in unrealized appreciation in the amount of $8.5 million, or a 179.9% increase over the $3.0 million in net change in unrealized appreciation for the year ended December 31, 2005. The net change in unrealized appreciation for the year ended December 31, 2006 included unrealized appreciation on 13 equity investments in portfolio companies, partially offset by unrealized depreciation on 4 equity investments and the reclassification of $1.1 million of previously recognized unrealized gains into realized gains on 6 exited investments.

As a result of these events, our net increase in members’ equity and partners’ capital resulting from operations during the year ended December 31, 2006, was $15.8 million, or a 100.5% increase compared to a net increase in members’ equity and partners’ capital resulting from operations of $7.9 million during the year ended December 31, 2005.

~~Liquidity and Capital Resources~~

~~Cash Flows~~

For the year ended December 31, 2007, we experienced a net increase in cash and equivalents in the amount of $28.1 million. During 2007, we generated $5.4 million of cash from our operating activities, primarily from net investment income. We used $38.0 million in net cash for investing activities, ~~including~~principally due to the funding of ~~six~~ new investments and several smaller follow-on investments for a total of $29.5 million of invested capital and the purchase of $24.1 million of investments in idle funds investments, partially offset by $9.6 million in cash proceeds from repayment of debt investments and $5.9 million of cash proceeds from the redemption or sale of several equity investments. We generated $60.7 million in cash from financing activities, which principally consisted of the net proceeds of $60.2 million from the ~~Offering~~IPO and $9.9 million in additional SBIC debenture borrowings, through the Fund, partially offset by $7.5 million of cash distributions to partners and stockholders and $1.6 million of payments related to ~~Offering~~IPO costs.

For the year ended December 31, 2006, we experienced a net decrease in cash and cash equivalents in the amount of $12.5 million. During 2006, we generated $4.2 million of cash from our operating activities, primarily from net investment income. During 2006, we used $10.9 million in cash for investing activities. The 2006 net cash used for investing activities included the funding of new or follow on investments for a total of $28.1 million of invested capital, partially offset by $12.2 million in cash proceeds from repayments of debt investments and $5.0 million of cash proceeds from the redemption or sale of several equity investments. During 2006, we used $5.9 million in cash for financing activities, which principally consisted of $6.2 million of cash distributions to partners (including a $0.5 million return of capital distribution), partially offset by additional partner contributions.

For the year ended December 31, 2005, we experienced a net increase in cash and cash equivalents in the amount of $25.5 million. During 2005, we generated $3.0 million of cash from our operating activities primarily from net investment income. During 2005, we used $8.2 million in cash for investing activities. The 2005 net cash used for investing activities principally included the funding of new or follow on investments for a total of $19.7 million of invested capital, partially offset by $10.3 million in cash proceeds from repayment of debt investments and $1.1 million of cash proceeds from the redemption and sale of several equity investments. During 2005, we generated $30.7 million in cash from financing activities, which principally consisted of the net proceeds from $23.1 million in additional SBIC debenture borrowings and $11.0 million in additional partner capital contributions, partially offset by $2.9 million of cash distributions to partners. The additional SBIC debenture borrowings and additional partner capital contributions during 2005 were used to support our investment activities.

Capital Resources

As of December 31, ~~2007,~~2008, we had ~~$41.9~~$39.8 million in cash and cash equivalents ~~and $24.1 in~~plus idle funds investments, ~~for $66.0 million in available funds. Our~~and our net assets totaled ~~$115.1~~$112.4 million.

~~We intend~~ On October 24, 2008, Main Street entered into a $30 million, three-year investment credit facility (the “Investment Facility”) with Branch Banking and Trust Company (“BB&T”) and Compass Bank, as lenders, and BB&T, as administrative agent for the lenders. The purpose of the Investment Facility is to ~~generate~~provide additional ~~cash from~~liquidity in support of future ~~offerings~~investment and operational activities. The Investment Facility allows for an increase in the total size of ~~securities, future borrowings as well as cash flows from operations,~~the facility up to $75 million, subject to certain conditions, and has a maturity date of October 24, 2011. Borrowings under the Investment Facility bear interest, subject to Main Street’s election, on a per annum basis equal to (i) the applicable LIBOR rate plus 2.75% or (ii) the applicable base rate plus 0.75%. Main Street will pay unused commitment fees of 0.375% per annum on the average unused lender commitments under the Investment Facility. The Investment Facility is secured by certain assets of MSCC, MSEI and the Investment Manager. The Investment Facility contains certain affirmative and negative covenants, including ~~income earned from investments in our portfolio companies and, to~~but not limited to: (i) maintaining a ~~lesser extent, from~~minimum liquidity of not less than 10% of the temporary investment of cash in U.S. government securities and other high-quality debt investments that mature in one year or less. Our primary use of funds will be investments in portfolio companies, operating expenses and cash distributions to holders of our common stock.

In order to satisfy the Code requirements applicable to a RIC, we intend to distribute to our stockholders substantially all of our income. We declared and paid our initial dividend in November 2007. In addition, as a BDC, we generally will be required to meet aaggregate principal amount outstanding, (ii) maintaining an interest coverage ratio of ~~total assets to total senior securities, which include all of our borrowings and any preferred stock we may issue in the future, of~~ at least ~~200%. This requirement will limit the amount that we may borrow. As of~~2.00 to 1.00, and (iii) maintaining a minimum tangible net worth. At December 31, ~~2007, we were~~2008, Main Street had no borrowings outstanding under the Investment Facility, and Main Street was in compliance with all covenants of the ~~asset coverage ratio~~Investment Facility.

Due to our existing cash and cash equivalents plus idle funds investments and the additional borrowing capacity under the ~~1940 Act.~~Investment Facility, we project that we will have sufficient liquidity to fund our investment and operational activities throughout all of calendar year 2009 and well into 2010. However, this projection will be impacted by, among other things, the pace of new and follow on investments, investment redemptions, the level of cash flow from operations and cash flow from realized gains, and the level of dividends paid in cash.

We anticipate that we will continue to fund our investment activities through existing cash and cash equivalents plus idle funds investments and a combination of ~~available cash,~~future debt and additional equity capital. Due to the Fund’s status as a licensed SBIC, ~~it has~~we have the ability to issue, through the Fund, debentures guaranteed by the Small Business Administration (the “SBA”) at favorable interest rates. Under the ~~Small Business Investment Act and the SBA rules~~regulations applicable to

SBICs, an SBIC can have outstanding ~~at any time~~ debentures guaranteed by the SBA generally in an amount up to twice its regulatory capital, which generally isequates to the amount ~~raised from private investors.~~ of its equity capital.

The ~~maximum statutory limit on~~2009 Stimulus Bill contains several provisions applicable to SBIC funds, including the ~~dollar~~Fund. One of the key SBIC-related provisions included in the 2009 Stimulus Bill increases the maximum amount of ~~outstanding debentures guaranteed~~combined SBIC leverage (or SBIC leverage cap) to $225 million for affiliated SBIC funds. The prior maximum amount of SBIC leverage available to affiliated SBIC funds was approximately $137 million, as adjusted annually based upon changes in the Consumer Price Index. Due to the increase in the maximum amount of SBIC leverage available, we will now have access to incremental SBIC leverage to support our future investment activities. Since the increase in the SBIC leverage cap applies to affiliated SBIC funds, we will allocate such increased borrowing capacity between the Fund, our wholly owned SBIC subsidiary, and MSC II, an independently owned SBIC that is managed by the SBA issued by a single SBIC or group of SBICs under common control as of December 31, 2007, was $130.6 million (which amount is subject to increase on an annual basis based on cost of living index increases).

~~Because of our investment team’s affiliations with~~ Main Street ~~Capital II, a separate SBIC which commenced investment operations in January 2006, the Fund~~ and ~~Main Street Capital II may be~~therefore deemed to be ~~a group of SBICs under common control. Thus, the dollar amount of SBA-guaranteed debentures that can be issued collectively by~~affiliated with the Fund ~~and~~for SBIC regulatory purposes. It is currently estimated that at least $55 million to $60 million of additional SBIC leverage is now accessible by Main Street ~~Capital II may be limited~~for future investment activities, subject to ~~$130.6 million, absent relief from~~ the ~~SBA. Currently, we, through~~required capitalization of the ~~Fund, do not intend to borrow SBA-guaranteed indebtedness in excess of $55.0 million based upon the Fund’s existing equity capital.~~Fund.

Debentures guaranteed by the SBA have fixed interest rates that approximate prevailing10-year ~~U.S.~~ Treasury Note rates plus a spread and have a maturity of ten years with interest payable semi-annually. The principal amount of the debentures is not required to be paid before maturity but may be pre-paid at any time. Debentures issued prior to September 2006 were subject to pre-payment penalties during their first five years. Those pre-payment penalties ~~do not~~no longer apply to debentures issued after September 1, 2006. On December 31, ~~2007,~~2008, we, through the Fund, had ~~$55.0~~$55 million of outstanding indebtedness guaranteed by the SBA, which carried an average fixed interest rate of approximately 5.8%. The first maturity related to the Fund’s SBIC debentures does not occur until 2013.

On December 31, 2007, ~~Main Street~~we entered into a Treasury Secured Revolving Credit Agreement (the ~~“Credit Agreement”~~“Treasury Facility”) among ~~Main Street,~~us, Wachovia Bank, National Association, and Branch Banking and Trust Company (“BB&T”), as administrative agent for the lenders. Under the ~~Credit Agreement,~~Treasury Facility, the lenders ~~have~~ agreed to extend revolving loans to ~~Main Street~~us in an amount not to exceed $100 ~~million.~~million; however, due to the maturation of our investment portfolio and the additional flexibility provided by the Investment Facility, we unilaterally reduced the Treasury Facility from $100 million to $50 million during October 2008. The reduction in the size of the Treasury Facility resulted in a 50% reduction in the amount of unused commitment fees paid by us. The purpose of the ~~Credit Agreement~~Treasury Facility is to provide us flexibility in the sizing of portfolio investments and to facilitate the growth of ~~Main Street’s~~our investment portfolio. The ~~Credit Agreement~~Treasury Facility has a two-year term and bears interest, at ~~Main Street’s~~our option, either (i) at the LIBOR rate or (ii) at a published prime rate of interest, plus ~~25 basis points~~0.25% in ~~each~~either case. The applicable interest rates under the ~~Credit Agreement~~Treasury Facility would be increased by ~~15 basis points~~0.15% if usage under the ~~Credit Agreement~~Treasury Facility is in excess of 50% of the days within a given calendar quarter. The ~~Credit Agreement~~Treasury Facility also requires payment of ~~15 basis points~~0.15% per annum in unused commitment fees based on the average daily unused balances under the facility. The ~~Credit Agreement~~Treasury Facility is secured by certain securities accounts maintained by BB&T and is also guaranteed by the Investment Manager. AsThe Treasury Facility contains certain affirmative and negative covenants, including but not limited to: (i) maintaining a cash collateral coverage ratio of at least 1.01 to 1.0, (ii) maintaining an interest coverage ratio of at least 2.0 to 1.0, and (iii) maintaining a minimum tangible net worth. At December 31, ~~2007,~~2008, we had no borrowings outstanding under the Treasury Facility, and Main Street ~~did~~was in compliance with all covenants of the Treasury Facility.

We intend to generate additional cash from future offerings of securities, future borrowings, repayments or sales of investments, and cash flow from operations, including income earned from investments in our portfolio companies and, to a lesser extent, from the temporary investments of cash in U.S. government securities and other idle funds investments that mature in one year or less with the exception of diversified bond funds. Our primary uses of funds will be investments in portfolio companies, operating expenses and cash distributions to holders of our common stock.

If our common stock trades below our net asset value per share, we will generally not ~~have~~be able to issue additional common stock at the market price unless our stockholders approve such a sale and our Board of Directors makes certain determinations. See “Risk Factors — Risks Relating to Our Business and Structure —

Stockholders may incur dilution if we sell shares of our common stock in one or more offerings at prices below the then current net asset value per share of our common stock or issue securities to subscribe to, convert to or purchase shares of our common stock” for a discussion of the proposal approved by our stockholders at our 2008 annual meeting of stockholders that authorizes us to sell shares of our common stock below the then current net asset value per share of our common stock in one or more offerings for a period of one year ending on the earlier of June 26, 2009 or the date of our 2009 annual meeting of stockholders. We will need approval of similar proposals by our stockholders to issue shares below the then current net asset value per share after the earlier of June 26, 2009 and the date of our 2009 annual meeting of stockholders.

In order to satisfy the Code requirements applicable to a RIC, we intend to distribute to our stockholders substantially all of our taxable income, but we may also elect to periodically spillover certain excess undistributed taxable income from one tax year into the next tax year. In addition, as a BDC, we generally are required to meet a coverage ratio of total assets to total senior securities, which include all of our borrowings and any ~~outstanding borrowings under~~preferred stock we may issue in the ~~Credit Agreement.~~future, of at least 200%. This requirement limits the amount that we may borrow. In January 2008, we received exemptive relief from the SEC that permits us to exclude SBA-guaranteed debt issued by the Fund from our asset coverage ratio, which, in turn, enables us to fund more investments with debt capital.

Current Market Conditions

~~The debt and equity capital markets~~

Beginning in late 2007, the United States ~~have been severely impacted by significant write-offs~~entered a recession. Throughout 2008, the economy continued to deteriorate and many believe that the current recession could continue for an extended period. During 2008, banks and others in the financial services ~~sector relating~~industry reported significant write-downs in the fair value of their assets, which has led to ~~subprime mortgages~~the failure of a number of banks and investment companies, a number of distressed mergers and acquisitions, the government take-over of the nation’s two largest government-sponsored mortgage companies, and the ~~re-pricing of credit risk in the broadly syndicated bank loan market, among other things. These events, along with the deterioration~~passage of the ~~housing~~$700 billion Emergency Economic Stabilization Act of 2008 in October 2008 and the $787 billion 2009 Stimulus Bill. In addition, the stock market ~~have~~has declined significantly, with both the S&P 500 and the NASDAQ Global Select Market (on which our stock trades), declining by nearly 40% between December 31, 2007 and December 31, 2008. As the recession deepened during 2008, unemployment rose and consumer confidence declined, which led to ~~worsening general economic conditions which have impacted the broader financial~~significant reductions in spending by both consumers and ~~credit markets and have reduced the availability of debt and equity capital for the market as a whole and financial firms in particular.~~ businesses.

Although we have been able to secure access to additional liquidity, including the ~~capital~~recently obtained $30 million investment credit facility and ~~credit markets~~the increase in available leverage through the ~~past to finance our investment activities, due to~~SBIC program as part of the 2009 Stimulus Bill, the current turmoil in the debt markets and uncertainty in the equity capital markets ~~we cannot assure you~~provides no assurance that debt or equity capital will be available to us in the future on favorable terms, or at all.

The deterioration in consumer confidence and a general reduction in spending by both consumers and businesses has had an adverse effect on a number of the industries in which some of our portfolio companies operate. In the event that the United States economy ~~enters into~~remains in a protracted ~~recession, it is possible that~~period of weakness, the results of some of the lower middle-market companies ~~similar to~~like those in which we invest, ~~could~~will continue to experience deterioration, which could ultimately lead to difficulty in meeting their debt service requirements and an increase in their defaults. ~~While we are not seeing signs~~In addition, the end markets for certain of ~~an overall, broad deterioration in~~ our portfolio ~~company results at this time, there~~companies’ products and services have experienced, and continue to experience, negative economic trends. We can beprovide no assurance that the performance of certain of our portfolio companies will not be negatively impacted by economic or other conditions which could have a negative impact on our future results.

Recently Issued Accounting Standards

In June ~~2006,~~2008, the Financial Accounting Standards Board ~~(the “FASB”~~(“FASB”) issued ~~Interpretation No. 48, Accounting for Uncertainty~~EITF 03-6-1, DeterminingWhether Instruments Granted in Income Taxes, which clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with FASB Statement of Financial Accounting Standards No. 109,~~Accounting for Income Taxes~~Share-Based Payment Transactions Are Participating Securities. This interpretation is effective for fiscal years beginning after December 15, 2006. The adoption of this interpretation did not have a significant impact on Main Street’s consolidated financial position or its results of operations.

~~In September 2006,~~FASB Staff Position (“FSP”) addresses whether instruments granted in share-based payment transactions are participating securities prior to vesting and, therefore, need to be included in the ~~FASB issued Statement of Financial Accounting Standards No. 157,~~~~Fair Value Measurements~~~~(“SFAS 157”~~earnings allocation in computing earnings per share (“EPS”). ~~SFAS 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements.~~ This statement addressed how to calculate fair value measurements required or permitted under other accounting pronouncements. Accordingly, this statement does not require any new fair value measurements. However, for some entities, the application of this statementFSP will ~~change current practice. SFAS 157 is~~be effective for financial statements issued for fiscal

years beginning after ~~November~~December 15, ~~2007. Main Street~~2008, and interim periods within those years. All prior-period EPS data presented will be adjusted retrospectively (including interim financial statements, summaries of earnings, and selected financial data) to conform to the provisions of this FSP. Early application is not permitted. We are currently analyzing the effect, ~~of adoption of~~if any, this statement may have on ~~its~~our consolidated ~~financial position, including its net asset value, and~~ results of operations. ~~Main Street will adopt this statement on~~

In October 2008, the FASB issued Staff PositionNo. 157-3,Determining the Fair Value of a ~~prospective basis, effective~~Financial Asset When the Market for That Asset is Not Active(“FSP 157-3”).FSP 157-3 provides an illustrative example of how to determine the fair value of a financial asset in an inactive market. The FSP does not change the fair value measurement principles set forth in SFAS 157. Since adopting SFAS 157 in January ~~1, 2008. Adoption~~2008, our practices for determining the fair value of ~~this statement could~~our investment portfolio have been, and continue to be, consistent with the guidance provided in the example inFSP 157-3. Therefore, our adoption ofFSP 157-3 did not affect our practices for determining the fair value of our investment portfolio and does not have a material effect on Main Street’s consolidated financial statements, including its net asset value. However, the actual impact on Main Street’s consolidated financial statements in the period of adoption and subsequent to the period of adoption cannot be determined at this time as it will be influenced by the estimates of fair value for that period and the number and amount of investments Main Street originates, acquires or exits. Main Street is currently evaluating the impact of SFAS 157.

~~In February 2007, the FASB issued Statement of Financial Accounting Standards No. 159,~~~~The Fair Value Option for Financial Assets and Financial Liabilities~~(“SFAS 159”), which provides companies with an option to report selected financial assets and liabilities at fair value. The objective of SFAS 159 is to reduce both complexity in accounting for financial instruments and the volatility in earnings caused by measuring related assets and liabilities differently. SFAS 159 establishes presentation and disclosure requirements designed to facilitate comparisons between companies that choose different measurement attributes for similar types of assets and liabilities and to more easily understand the effect of the company’s choice to use fair value on its earnings. SFAS 159 also requires entities to display the fair value of the selected assets and liabilities on the face of the combined balance sheet. SFAS 159 does not eliminate disclosure requirements of other accounting standards, including fair value measurement disclosures in SFAS 157. This Statement is effective as of the beginning of an entity’s first fiscal year beginning after November 15, 2007. Main Street does not intend to elect fair value measurement for assets or liabilities other than portfolio investments, which are already measured at fair value. Therefore, Main Street does not believe the adoption of this statement will have a significant effect on Main Street’s consolidatedour financial position or ~~its~~ results of operations.

Inflation

~~As a result of the relatively low levels of inflation during the past three years, inflation~~

Inflation has not had a significant ~~affect~~effect on our results of operations in any of ~~those years.~~the reporting periods presented in this report. However, our portfolio companies have and may continue to experience the impacts of inflation on their operating results, including periodic escalations in their costs for raw materials and required energy consumption.

Off-Balance Sheet Arrangements

We may be a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financial needs of our portfolio companies. These instruments include commitments to extend credit and involve, to varying degrees, elements of liquidity and credit risk in excess of the amount recognized in the balance sheet. ~~However, as of~~At December 31, ~~2007,~~2008, we had ~~no unused firm~~two outstanding commitments to ~~extend credit~~fund unused revolving loans for up to ~~our portfolio companies, which would not be reflected on our balance sheet.~~$900,000.

Contractual Obligations

As of December 31, ~~2007,~~2008, our future fixed commitments for cash payments on contractual obligations for each of the next five years and thereafter are as follows:


																											2014 and
															Total		2009		2010		2011		2012		2013		thereafter
													2013 and		(Dollars in thousands)
	Total		2008		2009		2010		2011		2012		Thereafter		(Unaudited)
	*(dollars in thousands)*
SBIC debentures payable	$	55,000	$	—	$	—	$	—	$	—	$	—	$	55,000	$	55,000	$	—	$	—	$	—	$	—	$	4,000	$	51,000
Interest due on SBIC debentures		24,684		3,188		3,179		3,179		3,179		3,188		8,771		21,495		3,179		3,179		3,179		3,188		3,179		5,591

Total	$	79,684	$	3,188	$	3,179	$	3,179	$	3,179	$	3,188	$	63,771	$	76,495	$	3,179	$	3,179	$	3,179	$	3,188	$	7,179	$	56,591

~~In connection with the Formation Transactions, Main Street~~

MSCC is obligated to make payments under ~~the~~a support services agreement with the Investment ~~Manager as more fully described in “Formation Transactions”~~Manager. Subsequent to the completion of the Formation Transactions and in the ~~Notes to Financial Statements elsewhere in this Annual Report on Form 10-K. The~~IPO, the Investment Manager is reimbursed for its excess expenses associated with providing investment management and other services to ~~Main Street~~MSCC and its subsidiaries, as well as ~~Main Street Capital~~MSC II. Each quarter, as part of the support services agreement, ~~Main Street~~MSCC makes payments to cover all expenses incurred by the Investment Manager, less ~~amounts~~the recurring management fees that the Investment Manager receives from ~~Main Street Capital~~MSC II pursuant to a ~~separate~~long-term investment advisory services ~~agreement.~~agreement and any other fees received for providing external services.

Related Party Transactions

~~Main Street~~

We co-invested with ~~Main Street Capital~~MSC II ~~LP (“MSC II”)~~ in several existing portfolio investments prior to the ~~Offering.~~IPO, but did notco-invest with MSC II subsequent to the IPO and prior to June 2008. In June 2008, we received exemptive relief from the SEC to allow us to resume co-investing with MSC II in accordance with the terms of such exemptive relief. MSC II is managed by the Investment Manager, and the Investment Manager is ~~wholly-owned~~wholly

owned by MSCC. MSC II is an SBIC fund with similar investment objectives to Main Street and which began its investment operations in January 2006. The co-investments among Main Street and MSC II ~~were~~had all been made at the same time and on the same terms and conditions. The co-investments were also made in accordance with the Investment Manager’s conflicts policy and in accordance with the applicable SBIC conflict of interest regulations.

As discussed further in ~~“Formation Transactions” and in the notes~~Note D to the ~~financial~~accompanying consolidated financials statements, ~~included in this Annual Report on Form 10-K,~~ Main Street paid certain management fees to the Investment Manager ~~prior to the Offering~~ during the ~~years~~year ended December 31, ~~2007, 2006 and 2005.~~2007. Subsequent to the completion of the Formation Transactions, the Investment Manager is a ~~wholly-owned,~~wholly owned portfolio company of Main Street.

At December 31, 2008 and 2007, the Investment Manager had a receivable of $302,633 and a payable of $207,783, respectively, with MSCC related to recurring expenses required to support MSCC’s business.

RECENT DEVELOPMENTS

The recently enacted 2009 Stimulus Bill contains several provisions applicable to SBIC funds, including the Fund, our wholly owned subsidiary. One of the key SBIC-related provisions included in the 2009 Stimulus Bill increases the maximum amount of combined SBIC leverage (or SBIC leverage cap) to $225 million for affiliated SBIC funds. The prior maximum amount of SBIC leverage available to affiliated SBIC funds was approximately $137 million, as adjusted annually based upon changes in the Consumer Price Index. Due to the increase in the maximum amount of SBIC leverage available, we will now have access to incremental SBIC leverage to support our future investment activities. Since the increase in the SBIC leverage cap applies to affiliated SBIC funds, we will allocate such increased borrowing capacity between our wholly owned SBIC subsidiary and MSC II, an independently owned SBIC that is managed by Main Street and therefore deemed to be affiliated with the Fund for SBIC regulatory purposes. It is currently estimated that at least $55 million to $60 million of additional SBIC leverage is now accessible by Main Street for future investment activities, subject to the required capitalization of our wholly owned SBIC subsidiary.


Item 7A.		*Quantitative and Qualitative Disclosures about Market Risk*

We are subject to financial market risks, including changes in interest rates. Changes in interest rates may affect both our cost of funding and our interest income from portfolio investments and idle funds investments. Our risk management systems and procedures are designed to identify and analyze our risk, to set appropriate policies and limits and to continually monitor these risks and limits by means of reliable administrative and information systems and other policies and programs. Our investment income will be affected by changes in various interest rates, including LIBOR and prime rates, to the extent of any debt investments that include floating interest rates. The significant majority of our debt investments are made with fixed interest rates for the term of the investment. However, as of December 31, ~~2007,~~2008, approximately ~~11.8%~~15.1% of our debt investment portfolio (at cost) bore interest at floating rates with 68.5% of those debt investments subject to contractual minimum rates. All of our current outstanding indebtedness is subject to fixed interest rates for the10-year life of such debt. As of December 31, ~~2007,~~2008, we had not entered into any interest rate hedging arrangements. At December 31, ~~2007,~~2008, based on our applicable levels of floating-rate debt investments, a 1% change in interest rates would not have a material effect on our level of interest income from debt investments.


Item 8.		*Financial Statements and Supplementary Data*

Index to Financial Statements


~~Report~~Reports of Independent Registered Public Accounting Firm			46
			58
Consolidated Balance ~~Sheet~~Sheets as of December 31, ~~2007~~2008 and ~~Combined Balance Sheet as of December 31, 2006~~2007			47
			60
Consolidated Statements of Operations for the Years Ended December 31, 2008 and 2007 and Combined Statement of Operations for the Year Ended December 31, ~~2007 and Combined~~2006			61
Consolidated Statements of ~~Operations~~Changes in Net Assets for the Years Ended December 31, ~~2006~~2008 and ~~2005~~			48

~~Consolidated~~2007 and Combined Statement of Changes in Net Assets for the Year Ended December 31, ~~2007 and Combined Statements of Changes in Net Assets for the Years Ended December 31,~~ 2006 ~~and 2005~~			49
			62
Consolidated Statements of Cash Flows for the ~~Year~~Years Ended December 31, 2008 and 2007 and Combined ~~Statements~~Statement of Cash Flows for the ~~Years~~Year Ended ~~December 31, 2006 and 2005~~			50

~~Consolidated Schedule of Investments as of December 31, 2007 and Combined Schedule of Investments as of~~ December 31, 2006			5163
Consolidated Schedules of Investments as of December 31, 2008 and 2007			64
Notes to Consolidated Financial Statements			56
			72

45
57

Report of Independent Registered Public Accounting Firm
Board of Directors and Stockholders’ of
Main Street Capital Corporation
We have audited the accompanying consolidated balance sheet of Main Street Capital Corporation (a Maryland corporation), and its consolidated subsidiaries, Main Street Mezzanine Management, LLC, Main Street Equity Interests, Inc. and Main Street Mezzanine Fund, LP, including the consolidated schedule of investments, as of December 31, 2008 and 2007 and the related consolidated statements of operations, changes in net assets and cash flows and the consolidated financial highlights (see Note I)H) for the ~~year~~two years then ended. We have also audited the combined balance sheets of Main Street Mezzanine Fund, LP, (a Delaware Partnership) and Main Street Mezzanine Management, LLC (a Delaware Limited Liability Company) including the combined schedule of investments as of December 31, 2006, and the related combined statements of operations, changes in ~~members’ equity and partners’ capital,~~net assets, and cash flows and the combined financial highlights of Main Street Mezzanine Fund, LP and Main Street Mezzanine Management, LLC for the ~~two years in the period~~year ended December 31, 2006. These financial statements and financial highlights are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, 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 consolidated financial statements and financial highlights referred to above present fairly, in all material respects, the consolidated financial position of Main Street Capital Corporation and subsidiaries as of December 31, 2008 and 2007 and the consolidated results of their operations, changes in net assets, cash flows and financial highlights for the ~~year~~two years then ended ~~December 31, 2007~~ and the combined results of operations, changes in net assets, cash flows and financial ~~position~~highlights of Main Street Mezzanine Fund, LP and Main Street Mezzanine Management, LLC ~~as of December 31, 2006 and~~for the ~~combined results of their operations, changes in members’ equity and partners’ capital, cash flows and financial highlights for each of the two years in the period~~year ended December 31, 2006, in conformity with accounting principles generally accepted in the United States of America.
As discussed in Note B to the consolidated financial statements, the Company changed its method of accounting for the fair value of its portfolio investments in 2008 due to the adoption of Statement of Financial Accounting Standards No. 157,Fair Value Measurements.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Main Street Capital Corporation’s internal control over financial reporting as of December 31, 2008, based on criteria established inInternal Control — Integrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated March 11, 2009, expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.
/s/ GRANT THORNTON LLP
Houston, Texas
March ~~18, 2008~~12, 2009
46

~~MAIN STREET CAPITAL CORPORATION~~
~~Balance Sheets~~

December 31,
2007 2006
(Consolidated) (Combined)
ASSETS

Portfolio investments at fair value:
Control investments (cost: $44,169,431 and $33,312,337 as of December 31, 2007 and 2006, respectively) $ 49,161,952 $ 42,429,000
Affiliate investments (cost: $34,211,440 and $24,328,596 as of December 31, 2007 and 2006, respectively) 37,412,907 28,822,245
Non-Control/Non-Affiliate investments (cost: $3,465,590 and $4,983,015 as of December 31, 2007 and 2006, respectively) 3,825,590 4,958,183

Investment in affiliated Investment Manager (cost: $18,000,000) 17,625,000 —

Total portfolio investments (cost: $99,846,461 and $62,623,948 as of December 31, 2007 and 2006, respectively) 108,025,449 76,209,428

Accumulated unearned income (2,375,035 ) (2,498,427 )

Total portfolio investments net of accumulated unearned income 105,650,414 73,711,001
Idle funds investments 24,063,261 —
Cash and cash equivalents 41,889,324 13,768,719
Other assets 1,574,888 630,058
Deferred financing costs (net of accumulated amortization of $529,952 and $343,846 as of December 31, 2007 and 2006, respectively) 1,670,135 1,333,654

Total assets $ 174,848,022 $ 89,443,432

LIABILITIES

SBIC debentures $ 55,000,000 $ 45,100,000
Deferred tax liability 3,025,672 —
Interest payable 1,062,672 854,941
Accounts payable and other liabilities 610,470 215,960

Total liabilities 59,698,814 46,170,901

Commitments and contingencies

NET ASSETS

Common stock, $0.01 par value per share (150,000,000 shares authorized, 8,959,718 shares issued and outstanding as of December 31, 2007) 89,597 —
Additional paid in capital 104,076,033 —
Undistributed net realized income 6,067,131 4,266,043
Net unrealized appreciation from investments, net of income taxes 4,916,447 13,585,479
Members’ capital (General Partner) — 181,770
Limited Partners’ capital — 25,239,239

Total net assets 115,149,208 43,272,531

Total liabilities and net assets $ 174,848,022 $ 89,443,432

Net asset value per share $ 12.85 N/A

~~See accompanying notes to consolidated financial statements.~~

~~MAIN STREET CAPITAL CORPORATION~~
~~Statements of Operations~~

Years Ended December 31,
2007 2006 2005
(Consolidated) (Combined)
INVESTMENT INCOME:

Interest, fee and dividend income:
Control investments $ 5,201,382 $ 4,295,354 $ 3,335,879
Affiliate investments 5,390,655 3,573,570 3,149,259
Non-Control/Non-Affiliate investments 720,076 1,144,213 852,841

Total interest, fee and dividend income 11,312,113 9,013,137 7,337,979
Interest from idle funds and other 1,162,865 748,670 221,765

Total investment income 12,474,978 9,761,807 7,559,744

EXPENSES:

Management fees to affiliate (1,499,937 ) (1,942,032 ) (1,928,763 )
Interest (3,245,839 ) (2,717,236 ) (2,063,726 )
General and administrative (512,253 ) (197,979 ) (197,192 )
Professional costs related to initial public offering (695,250 ) — —

Total expenses (5,953,279 ) (4,857,247 ) (4,189,681 )

NET INVESTMENT INCOME
6,521,699 4,904,560 3,370,063

NET REALIZED GAIN (LOSS) FROM INVESTMENTS:

Control investments 1,802,713 (805,469 ) 221,837
Affiliate investments 3,160,034 1,940,794 623,681
Non-Control/Non-Affiliate investments (270,538 ) 1,294,598 —
Derivative Instrument and related investment — — 642,208

Total net realized gain (loss) from investments 4,692,209 2,429,923 1,487,726

NET REALIZED INCOME
11,213,908 7,334,483 4,857,789

NET CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION) FROM INVESTMENTS:

Control investments (3,075,392 ) 6,631,698 2,526,516
Affiliate investments (2,340,933 ) 2,831,649 347,000
Non-Control/Non-Affiliate investments 384,832 (974,833 ) 685,000
Investment in affiliated Investment Manager (375,000 ) — —
Derivative Instrument and related investment — — (526,242 )

Total net change in unrealized appreciation (depreciation) from investments (5,406,493 ) 8,488,514 3,032,274

Income tax provision (3,262,539 ) — —

NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS
$ 2,544,876 $ 15,822,997 $ 7,890,063
��

NET INVESTMENT INCOME PER COMMON SHARE-BASIC AND DILUTED
$ 0.76 N/A N/A

NET REALIZED INCOME PER COMMON SHARE-BASIC AND DILUTED
$ 1.31 N/A N/A

DIVIDENDS/DISTRIBUTIONS PER COMMON SHARE
$ 1.10 N/A N/A

NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS PER COMMON SHARE-BASIC AND DILUTED
$ 0.30 N/A N/A

WEIGHTED AVERAGE SHARES OF COMMON STOCK OUTSTANDING- BASIC AND DILUTED
8,587,701 N/A N/A

~~See accompanying notes to consolidated financial statements.~~

~~MAIN STREET CAPITAL CORPORATION~~
~~Statements of Changes in Net Assets~~

Net
Unrealized
Appreciation
from
Members' Limited Common Stock Additional Undistributed Investments, Total
Capital Partners' Number Par Paid In Net Realized net of Net
(General Partner) Capital of Shares Value Capital Income Income Taxes Assets
Balances at December 31, 2004
$ 118,505 $ 14,453,688 — $ — $ — $ 601,004 $ 2,064,691 $ 17,237,888
Capital contributions 61,437 10,962,290 — — — — — 11,023,727
Distributions to partners — — — — — (2,882,936 ) — (2,882,936 )
Net increase resulting from operations: — — — — — 4,857,789 3,032,274 7,890,063

Balances at December 31, 2005
179,942 25,415,978 — — — 2,575,857 5,096,965 33,268,742
Capital contributions 1,828 353,261 — — — — — 355,089
Distributions to partners — (530,000 ) — — — (5,644,297 ) — (6,174,297 )
Net increase resulting from operations: — — — — — 7,334,483 8,488,514 15,822,997

Balances at December 31, 2006
181,770 25,239,239 — — — 4,266,043 13,585,479 43,272,531
Capital contributions — 300,081 — — — — — 300,081
Distributions to partners — — — — — (6,500,000 ) — (6,500,000 )
Formation Transactions (181,770 ) (25,539,320 ) 4,525,726 45,257 43,675,833 — — 18,000,000
Initial capitalization — — 1,000 10 990 — — 1,000
Public offering of common stock — — 4,300,000 43,000 60,139,997 — — 60,182,997
Costs related to offering — — — — (1,642,573 ) — — (1,642,573 )
Dividends paid to stockholders — — — — — (2,912,820 ) — (2,912,820 )
Dividend reinvestment — — 132,992 1,330 1,901,786 — — 1,903,116
Net increase resulting from operations — — — — — 11,213,908 (8,669,032 ) 2,544,876

Balances at December 31, 2007
$ — $ — 8,959,718 $ 89,597 $ 104,076,033 $ 6,067,131 $ 4,916,447 $ 115,149,208

~~See accompanying notes to consolidated financial statements.~~

~~MAIN STREET CAPITAL CORPORATION~~
~~Statements of Cash Flows~~

For the Years Ended
December 31,
2007 2006 2005
(Consolidated) (Combined) (Combined)

CASH FLOWS FROM OPERATING ACTIVITIES

Net increase in net assets resulting from operations $ 2,544,876 $ 15,822,997 $ 7,890,063
Adjustments to reconcile net increase in net assets resulting from operations to net cash provided by operating activities:
Accretion of unearned income (998,069 ) (1,380,351 ) (1,251,066 )
Net payment-in-kind interest accrual (260,806 ) (216,805 ) (144,150 )
Amortization of deferred financing costs 186,106 157,850 120,225
Net change in unrealized (appreciation) depreciation from investments 5,406,493 (8,488,514 ) (3,032,274 )
Net realized gain from investments (4,692,209 ) (2,429,923 ) (1,487,726 )
Changes in other assets and liabilities:
Interest receivable (407,347 ) (93,480 ) (182,324 )
Other assets (469,598 ) 2,107 4,172
Deferred tax liability 3,025,672 — —
Interest payable 207,731 83,459 417,325
Accounts payable and other liabilities 394,510 76,543 103,670
Deferred debt origination fees received 467,558 709,980 535,250

Net cash provided by operating activities 5,404,917 4,243,863 2,973,165

CASH FLOWS FROM INVESTMENT ACTIVITIES

Investments in portfolio companies (29,479,023 ) (28,088,005 ) (19,727,500 )
Principal payments received on loans and debt securities 9,614,338 12,199,956 10,322,470
Proceeds from sale of equity securities and related notes 5,934,420 5,021,313 1,117,143
Proceeds from derivative instrument — — 115,966
Investments of idle funds (24,063,261 ) — —

Net cash used in investing activities (37,993,526 ) (10,866,736 ) (8,171,921 )

CASH FLOWS FROM FINANCING ACTIVITIES

Proceeds from initial public offering/capitalization 60,183,997 — —
Proceeds from capital contributions 300,081 355,089 11,023,727
Distribution to members and partners (6,500,000 ) (6,174,297 ) (2,882,936 )
Dividends paid to stockholders (1,009,704 ) — —
Proceeds from issuance of SBIC debentures 9,900,000 — 23,100,000
Payment of deferred loan costs and SBIC debenture fees (522,587 ) (50,000 ) (577,500 )
Payment of initial public offering costs (1,642,573 ) — —

Net cash provided by (used in) financing activities 60,709,214 (5,869,208 ) 30,663,291

Net increase (decrease) in cash and cash equivalents 28,120,605 (12,492,081 ) 25,464,535

CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
13,768,719 26,260,800 796,265

CASH AND CASH EQUIVALENTS AT END OF PERIOD
$ 41,889,324 $ 13,768,719 $ 26,260,800

~~See accompanying notes to consolidated financial statements.~~

~~MAIN STREET CAPITAL CORPORATION~~
~~CONSOLIDATED SCHEDULE OF INVESTMENTS~~
~~December 31, 2007~~

Portfolio Company/Type of Investment (1) (2) Industry Principal (6) Cost (6) Fair Value

Control Investments(3)

     Café Brazil, LLC Casual Restaurant
12% Secured Debt (Maturity — April 20, 2009)   Group $ 2,750,000 $ 2,750,000 $ 2,750,000
Member Units (7) (Fully diluted 42.3%) 41,837 1,250,000

2,791,837 4,000,000

     CBT Nuggets, LLC Produces and Sells
Prime plus 2% Secured Debt (Maturity — June 1, 2011)   IT Certification 360,000 360,000 360,000
14% Secured Debt (Maturity — June 1, 2011)   Training Videos 1,860,000 1,860,000 1,860,000
Member Units (Fully diluted 29.1%) 432,000 1,145,000
Warrants (Fully diluted 10.5%) 72,000 345,000

2,724,000 3,710,000

     Gulf Manufacturing, LLC Specialty Metal
Prime plus 1% Secured Debt (Maturity — August 31, 2012)   Fabrication 1,200,000 1,200,000 1,200,000
13% Secured Debt (Maturity — August 31, 2012) 2,000,000 2,000,000 2,000,000
Member Units (Fully diluted 18.4%) 472,000 472,000
Warrants (Fully diluted 8.4%) 160,000 250,000

3,832,000 3,922,000

     Hawthorne Customs & Dispatch Services, LLC Transportation/
13% Secured Debt (Maturity — January 31, 2011)   Logistics 1,350,000 1,350,000 1,350,000
Member Units (7) (Fully diluted 27.8%) 375,000 435,000
Warrants (Fully diluted 16.5%) 37,500 230,000

1,762,500 2,015,000

     Hayden Acquisition, LLC Manufacturer of
12% Secured Debt (Maturity — March 9, 2009)   Utility Structures 1,955,000 1,955,000 1,955,000

     Hydratec Holdings, LLC Agricultural Services
12.5% Secured Debt (Maturity — October 31, 2012) 5,700,000 5,700,000 5,700,000
Prime plus 1% Secured Debt (Maturity — October 31, 2012) 1,845,244 1,845,244 1,845,244
Member Units (Fully diluted 60%) 1,800,000 1,800,000

9,345,244 9,345,244

     Jensen Jewelers of Idaho, LLC Retail Jewelry
Prime Plus 2% Secured Debt (Maturity — November 14, 2011) 1,200,000 1,200,000 1,200,000
13% current / 6% PIK Secured Debt (Maturity — November 14, 2011) 1,069,457 1,069,457 1,069,457
Member Units (7) (Fully diluted 25.1%) 376,000 815,000

2,645,457 3,084,457

     Magna Card, Inc. Wholesale/Consumer
12% current / 0.4% PIK Secured Debt (Maturity — September 30, 2010)   Magnetic Products 2,021,079 2,021,079 —
Warrants (Fully diluted 35.8%) 100,000 —

2,121,079 —

     Quest Design & Production, LLC Design and Fabrication
8% current / 5% PIK Secured Debt (Maturity — December 1, 2010)   of Custom Display 3,991,542 3,991,542 3,991,542
Warrants (Fully diluted 26.0%)   Systems 40,000 40,000

4,031,542 4,031,542

     TA Acquisition Group, LP Processor of
12% Secured Debt (Maturity — July 29, 2010)   Construction 1,870,000 1,870,000 1,870,000
Partnership Interest (7) (Fully diluted 18.3%)   Aggregates 357,500 3,435,000
Warrants (Fully diluted 18.3%) 82,500 3,450,000

2,310,000 8,755,000

     Technical Innovations, LLC Manufacturer of
12% Secured Debt (Maturity — October 31, 2009)   Specialty Cutting 787,500 787,500 787,500
Prime Secured Debt (Maturity — October 31, 2009)   Tools and Punches 262,500 262,500 262,500

1,050,000 1,050,000

     Universal Scaffolding & Equipment, LLC Manufacturer of
Prime plus 1% Secured Debt (Maturity — August 16, 2012)   Scaffolding and 1,122,333 1,122,333 1,122,333
13% current / 5% PIK Secured Debt (Maturity — August 16, 2012)   Shoring Equipment 3,196,376 3,196,376 3,196,376
Member Units (Fully Diluted 18.4%) 992,063 1,025,000

5,310,772 5,343,709

     Wicks N’ More, LLC Manufacturer of
12% Secured Debt (Maturity — April 26, 2011)   High-end Candles 3,720,000 3,720,000 1,950,000
Member Units (Fully diluted 11.5%) 360,000 —
Warrants (Fully diluted 21.3%) 210,000 —

4,290,000 1,950,000

Subtotal Control Investments
44,169,431 49,161,952

~~See accompanying notes to consolidated financial statements.~~

5158

~~MAIN STREET CAPITAL CORPORATION~~
~~CONSOLIDATED SCHEDULE OF INVESTMENTS~~
Report of Independent Registered Public Accounting Firm

Board of Directors and Stockholders’ of

Main Street Capital Corporation

We have audited Main Street Capital Corporation and subsidiaries’ (the Company) internal control over financial reporting as of December 31, ~~2007~~2008, based on criteria established inInternal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Main Street Capital Corporation’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

Portfolio Company/Type of Investment (1) (2) Industry Principal (6) Cost (6) Fair Value

Affiliate Investments(4)

     Advantage Millwork Company, Inc. Manufacturer/Distributor
12% Secured Debt (Maturity — February 5, 2012)   of Wood Doors 2,666,667 2,666,667 2,666,667
Warrants (Fully diluted 10.89%) 87,120 87,120

2,753,787 2,753,787

     American Sensor Technologies, Inc. Manufacturer of
Prime plus 0.5% Secured Debt (Maturity — May 31, 2010)   Commercial/ 3,500,000 3,500,000 3,500,000
Warrants (Fully diluted 20.0%)   Industrial Sensors 50,000 750,000

3,550,000 4,250,000

     Carlton Global Resources, LLC Processor of
13% PIK Secured Debt (Maturity — November 15, 2011)   Industrial Minerals 4,687,777 4,687,777 2,812,667
Member Units (Fully diluted 8.5%) 400,000 —

5,087,777 2,812,667

     Houston Plating & Coatings, LLC Plating & Industrial
Prime plus 2% Secured Debt (Maturity — July 19, 2011)   Coating Services 100,000 100,000 100,000
Member Units (7) (Fully diluted 11.8%) 210,000 2,450,000

310,000 2,550,000

     KBK Industries, LLC Specialty Manufacturer
14% Secured Debt (Maturity — January 23, 2011)   of Oilfield and 3,937,500 3,937,500 3,937,500
8% Secured Debt (Maturity — July 1, 2009)   Industrial Products 623,063 623,063 623,063
Prime Plus 2% Secured Debt (Maturity — January 31, 2008) 75,000 686,250
Member Units (7) (Fully diluted 14.5%) 187,500 700,000

4,823,063 5,946,813

     Laurus Healthcare, LP Healthcare Facilities
13% Secured Debt (Maturity — May 7, 2009) 3,010,000 3,010,000 3,010,000
Warrants (Fully diluted 18.2%) 105,000 715,000

3,115,000 3,725,000

     National Trench Safety, LLC Trench & Traffic
10% PIK debt (Maturity — April 16, 2014)   Safety Equipment 365,334 365,334 365,334
Member Units (Fully diluted 10.9%) 1,792,308 1,792,308

2,157,642 2,157,642

     Pulse Systems, LLC Manufacturer of
14% Secured Debt (Maturity — June 1, 2009)   Components for 2,307,498 2,307,498 2,307,498
Warrants (Fully diluted 6.6%)   Medical Devices 118,000 350,000

2,425,498 2,657,498

     Transportation General, Inc. Taxi Cab/Transportation
13% Secured Debt (Maturity — May 31, 2010)   Services 3,600,000 3,600,000 3,600,000
Warrants (Fully diluted 24.0%) 70,000 340,000

3,670,000 3,940,000

     Turbine Air Systems, Ltd. Commercial/Industrial
12% Secured Debt (Maturity — October 11, 2011)   Chilling Systems 1,000,000 1,000,000 1,000,000

     Vision Interests, Inc. Manufacturer/
13% Secured Debt (Maturity — June 5, 2012)   Installer of Commercial 3,760,000 3,760,000 3,760,000
Common stock (Fully diluted 8.9%)   Signage 372,000 372,000
Warrants (Fully diluted 11.2%) 160,000 375,000

4,292,000 4,507,000

     WorldCall, Inc. Telecommunication/
13% Secured Debt (Maturity — October 22, 2009)   Information Services 782,500 782,500 782,500
Common stock (Fully diluted 6.22%) 169,173 180,000
Warrants (Fully diluted 13.4%) 75,000 150,000

1,026,673 1,112,500

Subtotal Affiliate Investments
34,211,440 37,412,907

~~See accompanying notes~~

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to ~~consolidated~~obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, Main Street Capital Corporation maintained, in all material respects, effective internal control over financial reporting as of December 31, 2008, based on criteria established inInternal Control — Integrated Frameworkissued by COSO.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of Main Street Capital Corporation and subsidiaries as of December 31, 2008 and 2007, including the consolidated schedule of investments as of December 31, 2008 and 2007, and the related consolidated statements of operations, changes in net assets and cash flows, and the financial highlights (see Note H), for the two years then ended and the combined results of operations, changes in net assets, cash flows and financial highlights of Main Street Mezzanine Fund, LP and Main Street Mezzanine Management, LLC for the year ended December 31, 2006, and our report dated March 11, 2009, expressed an unqualified opinion on those consolidated and combined financial statements.

/s/ GRANT THORNTON LLP

Houston, Texas

March 12, 2009

52
59

MAIN STREET CAPITAL CORPORATION

Consolidated Balance Sheets

December 31,
December 31,

2008 2007

ASSETS
Investments at fair value:
Control investments (cost: $60,767,805 and $43,053,372 as of December 31, 2008 and 2007, respectively) $ 65,542,608 $ 48,108,197
Affiliate investments (cost: $37,946,800 and $33,037,053 as of December 31, 2008 and 2007, respectively) 39,412,695 36,176,216
Non-Control/Non-Affiliate investments (cost: $6,245,405 and $3,381,001 as of December 31, 2008 and 2007, respectively) 5,375,886 3,741,001
Investment in affiliated Investment Manager (cost: $18,000,000 as of December 31, 2008 and 2007) 16,675,626 17,625,000

Total investments (cost: $122,960,010 and $97,471,426 as of December 31, 2008 and 2007, respectively) 127,006,815 105,650,414
Idle funds investments (cost: $4,218,704 and $24,063,261 as of December 31, 2008 and 2007, respectively) 4,389,795 24,063,261
Cash and cash equivalents 35,374,826 41,889,324
Deferred tax asset 1,121,681 —
Other assets 1,100,922 1,574,888
Deferred financing costs (net of accumulated amortization of $956,037 and $529,952 as of December 31, 2008 and 2007, respectively) 1,635,238 1,670,135

Total assets $ 170,629,277 $ 174,848,022

LIABILITIES
SBIC debentures $ 55,000,000 $ 55,000,000
Deferred tax liability — 3,025,672
Interest payable 1,108,193 1,062,672
Accounts payable and other liabilities 2,165,028 610,470

Total liabilities 58,273,221 59,698,814
Commitments and contingencies
NET ASSETS

Common stock, $0.01 par value per share (150,000,000 shares authorized; 9,241,183 and 8,959,718 issued and 9,206,483 and 8,959,718 outstanding as of December 31, 2008 and 2007, respectively) 92,412 89,597
Additional paid-in capital 104,798,399 104,076,033
Undistributed net realized income 3,658,495 6,067,131
Net unrealized appreciation from investments, net of income taxes 4,137,756 4,916,447
Treasury stock, at cost (34,700 and 0 shares as of December 31, 2008 and 2007, respectively) (331,006 ) —

Total net assets 112,356,056 115,149,208

Total liabilities and net assets $ 170,629,277 $ 174,848,022

NET ASSET VALUE PER SHARE
$ 12.20 $ 12.85

The accompanying notes are an integral part of these financial statements

60

MAIN STREET CAPITAL CORPORATION

Statements of Operations

Years Ended December 31,
2008 2007 2006
(Consolidated) (Consolidated) (Combined)

INVESTMENT INCOME:

Interest, fee and dividend income:
Control investments $ 9,826,369 $ 5,201,382 $ 4,295,354
Affiliate investments 4,842,442 5,390,655 3,573,570
Non-Control/Non-Affiliate investments 1,298,386 720,076 1,144,213

Total interest, fee and dividend income 15,967,197 11,312,113 9,013,137
Interest from idle funds and other 1,328,229 1,162,865 748,670

Total investment income 17,295,426 12,474,978 9,761,807
EXPENSES:

Interest (3,777,919 ) (3,245,839 ) (2,717,236 )
General and administrative (1,684,084 ) (512,253 ) (197,979 )
Expenses reimbursed to Investment Manager (1,006,835 ) — —
Share-based compensation (511,452 ) — —
Management fees to affiliate — (1,499,937 ) (1,942,032 )
Professional costs related to initial public offering — (695,250 ) —

Total expenses (6,980,290 ) (5,953,279 ) (4,857,247 )

NET INVESTMENT INCOME
10,315,136 6,521,699 4,904,560
NET REALIZED GAIN (LOSS) FROM INVESTMENTS:

Control investments 188,214 1,802,713 (805,469 )
Affiliate investments 1,209,280 3,160,034 1,940,794
Non-Control/Non-Affiliate investments — (270,538 ) 1,294,598

Total net realized gain (loss) from investments 1,397,494 4,692,209 2,429,923

NET REALIZED INCOME
11,712,630 11,213,908 7,334,483
NET CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION) FROM INVESTMENTS:

Control investments (217,717 ) (3,075,392 ) 6,631,698
Affiliate investments (1,735,573 ) (2,340,933 ) 2,831,649
Non-Control/Non-Affiliate investments (1,058,428 ) 384,832 (974,833 )
Investment in affiliated Investment Manager (949,374 ) (375,000 ) —

Total net change in unrealized appreciation (depreciation) from investments (3,961,092 ) (5,406,493 ) 8,488,514

Income tax benefit (provision) 3,182,401 (3,262,539 ) —

NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS
$ 10,933,939 $ 2,544,876 $ 15,822,997

NET INVESTMENT INCOME PER SHARE

BASIC AND DILUTED
$ 1.15 $ 0.76 N/A

NET REALIZED INCOME PER SHARE

BASIC AND DILUTED
$ 1.31 $ 1.31 N/A

DIVIDENDS/DISTRIBUTIONS PAID PER SHARE
BASIC AND DILUTED
$ 1.43 $ 1.10 N/A

NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS PER SHARE

BASIC AND DILUTED
$ 1.22 $ 0.30 N/A

WEIGHTED AVERAGE SHARES OUTSTANDING —

BASIC
8,967,383 8,587,701 N/A

DILUTED
8,971,064 8,587,701 N/A

The accompanying notes are an integral part of these financial statements

61

MAIN STREET CAPITAL CORPORATION

Statements of Changes in Net Assets

Net

Unrealized

Appreciation

Members’
from

Equity
Limited
Common Stock Additional
Undistributed
Investments,
Treasry Stock Total

(General
Partners’
Number
Par
Paid-In
Net Realized
net of Income
Number
Net

Partner) Capital of Shares Value Capital Income Taxes of Shares Value Assets

Balances at December 31, 2005
$ 179,942 $ 25,415,978 — $ — $ — $ 2,575,857 $ 5,096,965 — $ — $ 33,268,742
Capital contributions 1,828 353,261 — — — — — — — 355,089
Distributions to partners — (530,000 ) — — — (5,644,297 ) — — — (6,174,297 )
Net increase resulting from operations — — — — — 7,334,483 8,488,514 — — 15,822,997

Balances at December 31, 2006
181,770 25,239,239 — — — 4,266,043 13,585,479 — — 43,272,531
Capital contributions — 300,081 — — — — — — — 300,081
Distributions to partners — — — — — (6,500,000 ) — — — (6,500,000 )
Formation Transactions (181,770 ) (25,539,320 ) 4,525,726 45,257 43,675,833 — — — — 18,000,000
Initial Capitalization — — 1,000 10 990 — — — — 1,000
Public offering of common stock — — 4,300,000 43,000 60,139,997 — — — — 60,182,997
Costs related to offering — — — — (1,642,573 ) — — — — (1,642,573 )
Dividends paid to stockholders — — — — — (2,912,820 ) — — — (2,912,820 )
Dividend reinvestment — — 132,992 1,330 1,901,786 — — — — 1,903,116
Net increase resulting from operations — — — — — 11,213,908 (8,669,032 ) — — 2,544,876

Balances at December 31, 2007
— — 8,959,718 89,597 104,076,033 6,067,131 4,916,447 — — 115,149,208
Issuance of restricted stock — — 265,645 2,657 (2,657 ) — — — — —
Issuance of stock — dividend reinvestment plan — — 15,820 158 213,571 — — — — 213,729
Purchase of treasury stock — — — — — — — (34,700 ) (331,006 ) (331,006 )
Share-based compensation — — — — 511,452 — — — — 511,452
Dividends declared to stockholders — — — — — (14,121,266 ) — — — (14,121,266 )
Net increase resulting from operations — — — — — 11,712,630 (778,691 ) — — 10,933,939

Balances at December 31, 2008
$ — $ — 9,241,183 $ 92,412 $ 104,798,399 $ 3,658,495 $ 4,137,756 (34,700 ) $ (331,006 ) $ 112,356,056

The accompanying notes are an integral part of these financial statements

62

MAIN STREET CAPITAL CORPORATION

Statements of Cash Flows

Years Ended December 31,
2008 2007 2006
(Consolidated) (Consolidated) (Combined)

CASH FLOWS FROM OPERATING ACTIVITIES

Net increase in net assets resulting from operations: $ 10,933,939 $ 2,544,876 $ 15,822,997
Adjustments to reconcile net increase in net assets resulting from operations to net cash provided by operating activities:
Accretion of unearned income (1,062,452 ) (998,069 ) (1,380,351 )
Netpayment-in-kind interest accrual
(216,505 ) (260,806 ) (216,805 )
Share-based compensation 511,452 — —
Amortization of deferred financing costs 426,084 186,106 157,850
Net change in unrealized (appreciation) depreciation from investments 3,961,092 5,406,493 (8,488,514 )
Net realized gain from investments (1,397,494 ) (4,692,209 ) (2,429,923 )
Deferred taxes (4,147,353 ) 3,025,672 —
Changes in other assets and liabilities:
Other assets 418,166 (876,945 ) (91,373 )
Interest payable 45,521 207,731 83,459
Accounts payable and other liabilities 828,098 394,510 76,543
Deferred debt origination fees received 612,143 467,558 709,980

Net cash provided by operating activities 10,912,691 5,404,917 4,243,863

CASH FLOWS FROM INVESTMENT ACTIVITIES

Investments in portfolio companies (47,698,567 ) (29,479,023 ) (28,088,005 )
Investments in idle funds (4,218,704 ) (24,063,261 ) —
Principal payments received on loans and debt securities 16,300,750 9,614,338 12,199,956
Proceeds from sale of equity securities and related notes 8,029,339 5,934,420 5,021,313
Proceeds from idle funds investments 24,063,261 — —

Net cash used in investment activities (3,523,921 ) (37,993,526 ) (10,866,736 )

CASH FLOWS FROM FINANCING ACTIVITIES

Proceeds from initial public offering/capitalization — 60,183,997 —
Proceeds from capital contributions — 300,081 355,089
Purchase of treasury stock (331,006 ) — —
Payment of distributions to members and partners — (6,500,000 ) (6,174,297 )
Payment of dividends to stockholders (13,181,074 ) (1,009,704 ) —
Proceeds from issuance of SBIC debentures — 9,900,000 —
Payment of initial public offering costs — (1,642,573 ) —
Payment of deferred loan costs and SBIC debenture fees (391,188 ) (522,587 ) (50,000 )

Net cash provided by (used in) financing activities (13,903,268 ) 60,709,214 (5,869,208 )

Net increase (decrease) in cash and cash equivalents (6,514,498 ) 28,120,605 (12,492,081 )
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
41,889,324 13,768,719 26,260,800

CASH AND CASH EQUIVALENTS AT END OF PERIOD
$ 35,374,826 $ 41,889,324 $ 13,768,719

The accompanying notes are an integral part of these financial statements

63

MAIN STREET CAPITAL CORPORATION

CONSOLIDATED SCHEDULE OF INVESTMENTS

December 31, ~~2007~~2008

Portfolio Company/Type of Investment (1) (2) Industry Principal (6) Cost (6) Fair Value

Non-Control/Non-Affiliate Investments(5):

     East Teak Fine Hardwoods, Inc. Hardwood Products
13% Current/5.5% PIK Secured Debt (Maturity — April 13, 2011) 1,651,028 1,651,028 1,651,028
Common Stock (Fully diluted 3.3%) 130,000 490,000

1,781,028 2,141,028

     Support Systems Homes, Inc. Manages Substance
14% Current/4% PIK Secured Debt (Maturity — June 5, 2012)   Abuse Treatment 1,525,674 1,525,674 1,525,674
8% Secured Debt (Maturity — June 5, 2012)   Centers 158,888 158,888 158,888

1,684,562 1,684,562

Subtotal Non-Control/Non-Affiliate Investments
3,465,590 3,825,590

     Main Street Capital Partners, LLC (Investment Manager) Asset Management
100% of Membership Interests 18,000,000 17,625,000

Total Portfolio Investments, December 31, 2007
$ 99,846,461 $ 108,025,449

Accumulated unearned income
$ (2,375,035 )

Total Portfolio Investments net of accumulated unearned income
$ 105,650,414

     Idle Fund Investments Investments in U.S.
4.691% Current Federal Home Loan Bank Discount Note
(Maturity — April 11, 2008)   Agency Securities 3,500,000 $ 3,421,791 $ 3,421,791
4.691% Current Federal National Mortgage Association Discount Note
(Maturity — April 2, 2008) 3,500,000 3,425,490 3,425,490
4.675% Current Federal Home Loan Bank Discount Note
(Maturity — March 20, 2008) 3,500,000 3,431,089 3,431,089
4.668% Current Federal Home Loan Bank Discount Note
(Maturity — March 5, 2008) 3,500,000 3,437,408 3,437,408
4.673% Current Federal Home Loan Bank Discount Note
(Maturity — February 20, 2008) 3,500,000 3,443,197 3,443,197
4.77% Current Federal Home Loan Mortgage Corp Discount Note
(Maturity — February 7, 2008) 3,500,000 3,448,948 3,448,948
4.64% Current Federal National Mortgage Association Discount Note
(Maturity — January 23, 2008) 3,500,000 3,455,338 3,455,338

Total Idle Fund Investments, December 31, 2007
$ 24,063,261 $ 24,063,261

Portfolio Company/Type of Investment(1)(2)

Industry
Principal(6) Cost(6) Fair Value

Control Investments(3)

Café Brazil, LLC

12% Secured Debt (Maturity — April 20, 2011) Casual Restaurant Group $ 2,750,000 $ 2,728,113 $ 2,750,000
Member Units(7) (Fully diluted 42.3%) 41,837 1,000,000

2,769,950 3,750,000
CBT Nuggets, LLC
Produces and Sells
14% Secured Debt (Maturity — June 1, 2011) IT Certification 1,680,000 1,642,518 1,680,000
10% Secured Debt (Maturity — December 31, 2009) Training Videos 150,000 150,000 150,000
Member Units(7) (Fully diluted 29.1%) 432,000 1,625,000
Warrants (Fully diluted 10.5%) 72,000 500,000

2,296,518 3,955,000
Ceres Management, LLC (Lambs)
Aftermarket Automotive
14% Secured Debt (Maturity — May 31, 2013) Services Chain 2,400,000 2,372,601 2,372,601
Member Units (Fully diluted 42.0%) 1,200,000 1,300,000

3,572,601 3,672,601
Condit Exhibits, LLC
Tradeshow Exhibits/
13% current / 5% PIK Secured Debt (Maturity — July 1, 2013) Custom Displays 2,308,073 2,273,194 2,273,194
Warrants (Fully diluted 28.1%) 300,000 300,000

2,573,194 2,573,194
Gulf Manufacturing, LLC
Industrial Metal
Prime plus 1% Secured Debt (Maturity — August 31, 2012) Fabrication 1,200,000 1,190,764 1,200,000
13% Secured Debt (Maturity — August 31, 2012) 1,900,000 1,747,777 1,880,000
Member Units(7) (Fully diluted 18.6%) 472,000 1,100,000
Warrants (Fully diluted 8.4%) 160,000 550,000

3,570,541 4,730,000
Hawthorne Customs & Dispatch Services, LLC
Transportation/
13% Secured Debt (Maturity — January 31, 2011) Logistics 1,200,000 1,171,988 1,171,988
Member Units(7) (Fully diluted 27.8%) 375,000 435,000
Warrants (Fully diluted 16.5%) 37,500 230,000

1,584,488 1,836,988
Hydratec Holdings, LLC
Agricultural Services
12.5% Secured Debt (Maturity — October 31, 2012) 5,400,000 5,311,329 5,311,329
Prime plus 1% Secured Debt (Maturity — October 31, 2012) 1,595,244 1,579,911 1,579,911
Member Units (Fully diluted 60%) 1,800,000 2,050,000

8,691,240 8,941,240
Jensen Jewelers of Idaho, LLC
Retail Jewelry
Prime Plus 2% Secured Debt (Maturity — November 14, 2011) 1,044,000 1,030,957 1,044,000
13% current / 6% PIK Secured Debt (Maturity — November 14, 2011) 1,004,591 986,980 1,004,591
Member Units(7) (Fully diluted 24.3%) 376,000 380,000

2,393,937 2,428,591
NAPCO Precast, LLC
Precast Concrete
18% Secured Debt (Maturity — February 1, 2013) Manufacturing 6,461,538 6,348,011 6,461,538
Prime Plus 2% Secured Debt (Maturity — February 1, 2013)(8) 3,692,308 3,660,945 3,692,308
Member Units(7) (Fully diluted 36.1%) 2,000,000 5,100,000

12,008,956 15,253,846
OMi Holdings, Inc.
Manufacturer of
12% Secured Debt (Maturity — April 1, 2013) Overhead Cranes 6,660,000 6,603,400 6,603,400
Common Stock (Fully diluted 28.8%) 900,000 570,000

7,503,400 7,173,400

64

MAIN STREET CAPITAL CORPORATION

CONSOLIDATED SCHEDULE OF INVESTMENTS — (Continued)

December 31, 2008

Portfolio Company/Type of Investment(1)(2)

Industry
Principal(6) Cost(6) Fair Value

Quest Design & Production, LLC
Design and Fabrication
10% Secured Debt (Maturity — June 30, 2013) of Custom Display 600,000 465,060 600,000
0% Secured Debt (Maturity — June 30, 2013) Systems 2,000,000 2,000,000 1,400,000
Warrants (Fully diluted 40.0%) 1,595,858 —
Warrants (Fully diluted 20.0%) 40,000 —

4,100,918 2,000,000
Universal Scaffolding & Equipment, LLC
Manufacturer of Scaffolding
Prime plus 1% Secured Debt (Maturity — August 17, 2012)(8) and Shoring Equipment 881,833 875,072 875,072
13% current / 5% PIK Secured Debt (Maturity — August 17, 2012) 3,362,698 3,311,508 3,160,000
Member Units (Fully diluted 18.4%) 992,063 —

5,178,643 4,035,072
Uvalco Supply, LLC
Farm and Ranch Supply
Member Units (Fully diluted 39.6%) 905,743 1,575,000

Ziegler’s NYPD, LLC
Restaurant
Prime plus 2% Secured Debt (Maturity — October 1, 2013)(8) 600,000 594,239 594,239
13% current / 5% PIK Secured Debt (Maturity — October 1, 2013) 2,704,262 2,663,437 2,663,437
Warrants (Fully diluted 28.6%) 360,000 360,000

3,617,676 3,617,676

Subtotal Control Investments
60,767,805 65,542,608

65

MAIN STREET CAPITAL CORPORATION

CONSOLIDATED SCHEDULE OF INVESTMENTS — (Continued)

December 31, 2008

Portfolio Company/Type of Investment(1)(2)

Industry
Principal(6) Cost(6) Fair Value

Affiliate Investments(4)

Advantage Millwork Company, Inc.
Manufacturer/Distributor
12% Secured Debt (Maturity — February 5, 2012) of Wood Doors 3,066,667 2,955,442 2,955,442
Warrants (Fully diluted 12.2%) 97,808 —

3,053,250 2,955,442
American Sensor Technologies, Inc.
Manufacturer of Commercial/
Prime plus 0.5% Secured Debt (Maturity — May 31, 2010)(8) Industrial Sensors 3,800,000 3,800,000 3,800,000
Warrants (Fully diluted 20.0%) 50,000 250,000

3,850,000 4,050,000
Carlton Global Resources, LLC
Processor of
13% PIK Secured Debt (Maturity — November 15, 2011) Industrial Minerals 4,791,944 4,655,836 —
Member Units (Fully diluted 8.5%) 400,000 —

5,055,836 —
California Healthcare Medical Billing, Inc.
Healthcare
12% Secured Debt (Maturity — October 17, 2013) Services 1,410,000 1,141,706 1,141,706
Common Stock (Fully diluted 6%) 390,000 390,000
Warrants (Fully diluted 12%) 240,000 240,000

1,771,706 1,771,706
Houston Plating & Coatings, LLC
Plating & Industrial
Prime plus 2% Secured Debt (Maturity — July 18, 2013) Coating Services 300,000 300,000 300,000
Member Units(7) (Fully diluted 11.1%) 210,000 2,750,000

510,000 3,050,000
KBK Industries, LLC
Specialty Manufacturer
14% Secured Debt (Maturity — January 23, 2011) of Oilfield and 3,937,500 3,787,758 3,937,500
8% Secured Debt (Maturity — March 1, 2010) Industrial Products 468,750 468,750 468,750
8% Secured Debt (Maturity — March 31, 2009) 450,000 450,000 450,000
Member Units(7) (Fully diluted 14.5%) 187,500 775,000

4,894,008 5,631,250
Laurus Healthcare, LP
Healthcare Facilities
13% Secured Debt (Maturity — May 7, 2009) 2,275,000 2,259,664 2,275,000
Warrants (Fully diluted 17.5%) 105,000 2,500,000

2,364,664 4,775,000
National Trench Safety, LLC
Trench & Traffic
10% PIK Debt (Maturity — April 16, 2014) Safety Equipment 404,256 404,256 404,256
Member Units (Fully diluted 11.7%) 1,792,308 1,792,308

2,196,564 2,196,564
Pulse Systems, LLC
Manufacturer of
14% Secured Debt (Maturity — June 1, 2009) Components for 1,831,274 1,819,464 1,831,274
Warrants (Fully diluted 7.4%) Medical Devices 132,856 450,000

1,952,320 2,281,274
Schneider Sales Management, LLC
Sales Consulting
13% Secured Debt (Maturity — October 15, 2013) and Training 1,980,000 1,909,972 1,909,972
Warrants (Fully diluted 12.0%) 45,000 45,000

1,954,972 1,954,972
Vision Interests, Inc.
Manufacturer/
13% Secured Debt (Maturity — June 5, 2012) Installer of Commercial 3,760,000 3,579,117 3,579,117
Common Stock (Fully diluted 8.9%) Signage 372,000 420,000
Warrants (Fully diluted 11.2%) 160,000 420,000

4,111,117 4,419,117
Walden Smokey Point, Inc.
Specialty Transportation/
14% current / 4% PIK Secured Debt (Maturity — December 30, 2013) Logistics 4,800,533 4,704,533 4,704,533
Common Stock (Fully diluted 7.6%) 600,000 600,000

5,304,533 5,304,533
WorldCall, Inc.
Telecommunication/
13% Secured Debt (Maturity — October 22, 2009) Information Services 646,225 631,199 640,000
Common Stock (Fully diluted 9.9%) 296,631 382,837

927,830 1,022,837

Subtotal Affiliate Investments
37,946,800 39,412,695

66

MAIN STREET CAPITAL CORPORATION

CONSOLIDATED SCHEDULE OF INVESTMENTS — (Continued)

December 31, 2008

Portfolio Company/Type of Investment(1)(2)

Industry
Principal(6) Cost(6) Fair Value

Non-Control/Non-Affiliate Investments(5):

East Teak Fine Hardwoods, Inc.
Hardwood Products
Common Stock (Fully diluted 3.3%) 130,000 490,000

Hayden Acquisition, LLC
Manufacturer of
8% Secured Debt (Maturity — March 9, 2009) Utility Structures 1,800,000 1,781,303 500,000

Support Systems Homes, Inc.
Manages Substance
15% Secured Debt Abuse Treatment
(Maturity — August 21, 2018) Centers 226,589 226,589 226,589

Technical Innovations, LLC
Manufacturer of Specialty
7% Secured Debt (Maturity — August 31, 2009) Cutting Tools and Punches 416,364 409,297 409,297
13.5% Secured Debt (Maturity — January 16, 2015) 3,750,000 3,698,216 3,750,000

4,107,513 4,159,297

Subtotal Non-Control/Non-Affiliate Investments
6,245,405 5,375,886

Main Street Capital Partners, LLC (Investment Manager)
Asset Management
100% of Membership Interests 18,000,000 16,675,626

Total Portfolio Investments, December 31, 2008
$ 122,960,010 $ 127,006,815

Idle Funds Investments
Investments in High-Quality
8.3% General Electric Capital Corporate Bond Debt Investments and 1,218,704 1,218,704 1,218,704
(Maturity — September 20, 2009) Diversified Bond Funds
4.50% National City Bank Bond 1,000,000 1,000,000 1,000,000
(Maturity — March 15, 2010)
Vanguard High-Yield Corp Fund Admiral Shares 1,000,000 1,000,000 1,086,514
Vanguard Long-Term Investment-Grade Fund Admiral Shares 1,000,000 1,000,000 1,084,577

$ 4,218,704 $ 4,389,795

(1)
~~All debt~~Debt investments are generally income producing. Equity and warrants are non-income producing, unless otherwise ~~noted~~
noted.

(2)
See ~~footnote~~Note C for summary geographic location of portfolio ~~companies~~
companies.

(3)
~~Control~~Controlled investments are defined by the Investment Company Act of 1940, as amended (“1940 Act”), as investments ~~in companies~~ in which more than 25% of the voting securities are owned or where the ability to nominate greater than 50% of the board representation is maintained.

(4)
Affiliate investments are defined by the 1940 Act as ~~those Non-Control~~ investments ~~in companies~~ in which between 5% and 25% of the voting securities are owned.

(5)
Non-Control/Non-Affiliate investments are defined by the 1940 Act as investments that are neither Control Investments ornor Affiliate ~~Investments~~
Investments.

(6)
~~Net~~Principal is net of prepayments.
Cost is net of prepayments and accumulated unearned income.

(7)
Income producing through payment of dividends or distributions.
(8) Subject to contractual minimum rates.
~~See accompanying notes to consolidated financial statements.~~
53
67

MAIN STREET CAPITAL CORPORATION
~~COMBINED~~

SCHEDULE OF INVESTMENTS

December 31, ~~2006~~2007


Portfolio Company/Type of Investment (1) (2)	Industry	Principal(6)		Cost(6)		Fair Value
Portfolio Company/Type of Investment(1)(2)								Industry	Principal(6)		Cost(6)		Fair Value

Control Investments(3)

Café Brazil, LLC	Casual Restaurant							Casual Restaurant
12% Secured Debt (Maturity — April 20, 2009)	Group	$	3,150,000	$	3,150,000	$	3,150,000	Group	$	2,750,000	$	2,702,931	$	2,702,931
Member Units(7) (Fully diluted 41.0%)					41,837		900,000
Member Units(7) (Fully diluted 42.3%)												41,837		1,250,000

					3,191,837		4,050,000					2,744,768		3,952,931

CBT Nuggets, LLC	Produces and sells
CBT Nuggets , LLC								Produces and Sells
Prime plus 2% Secured Debt (Maturity — June 1, 2011)	IT Certification		660,000		660,000		660,000	IT Certification		360,000		354,678		354,678
14% Secured Debt (Maturity — June 1, 2011)	Training Videos		1,860,000		1,860,000		1,860,000	Training Videos		1,860,000		1,805,275		1,805,275
Member Units (Fully diluted 29.1%)					432,000		610,000					432,000		1,145,000
Warrants (Fully diluted 10.5%)					72,000		200,000					72,000		345,000

					3,024,000		3,330,000					2,663,953		3,649,953
Gulf Manufacturing, LLC								Industrial Metal
Prime plus 1% Secured Debt (Maturity — August 31, 2012)								Fabrication		1,200,000		1,188,636		1,188,636
13% Secured Debt (Maturity — August 31, 2012)										2,000,000		1,809,216		1,809,216
Member Units (Fully diluted 18.4%)												472,000		472,000
Warrants (Fully diluted 8.4%)												160,000		250,000

Hawthorne Customs & Dispatch Services, LLC	Transportation/
												3,629,852		3,719,852
Hawthorne Customs & Dispatch Services , LLC								Transportation/
13% Secured Debt (Maturity — January 31, 2011)	Logistics		1,650,000		1,650,000		1,650,000	Logistics		1,350,000		1,304,693		1,304,693
Member Units(7) (Fully diluted 27.8%)					375,000		950,000					375,000		435,000
Warrants (Fully diluted 16.5%)					37,500		500,000					37,500		230,000

					2,062,500		3,100,000					1,717,193		1,969,693

Hayden Acquisition, LLC	Manufacturer of							Manufacturer of
12% Secured Debt (Maturity — March 9, 2009)	Utility Structures		2,420,000		2,420,000		2,420,000	Utility Structures		1,955,000		1,901,040		1,901,040


Hydratec Holdings, LLC								Agricultural Services
12.5% Secured Debt (Maturity — October 31, 2012)										5,700,000		5,588,729		5,588,729
Prime plus 1% Secured Debt (Maturity — October 31, 2012)										1,845,244		1,825,911		1,825,911
Member Units (Fully diluted 60%)												1,800,000		1,800,000

												9,214,640		9,214,640
Jensen Jewelers of Idaho, LLC	Retail Jewelry							Retail Jewelry
Prime Plus 2% Secured Debt (Maturity — November 14, 2011)			1,340,000		1,340,000		1,340,000			1,200,000		1,180,509		1,180,509
13% current/6% PIK Secured Debt (Maturity — November 14, 2011)			1,008,000		1,008,000		1,008,000
13% current / 6% PIK Secured Debt (Maturity — November 14, 2011)										1,069,457		1,044,190		1,044,190
Member Units(7) (Fully diluted 25.1%)					376,000		376,000					376,000		815,000

					2,724,000		2,724,000					2,600,699		3,039,699

KBK Industries, LLC	Specialty Manufacturer
14% Secured Debt (Maturity — January 23, 2011)	of Oilfield and		3,937,500		3,937,500		3,937,500
Member Units(7) (Fully diluted 11.9%)	Industrial Products				187,500		625,000
Warrants (Fully diluted 25.7%)					150,000		1,372,500

					4,275,000		5,935,000

Magna Card, Inc.	Wholesale/Consumer							Wholesale/Consumer
12% Secured Debt (Maturity — September 30, 2010)	Magnetic Products		1,900,000		1,900,000		1,900,000
12% current / 0.4% PIK Secured Debt (Maturity — September 30, 2010)								Magnetic Products		2,021,079		1,958,775		—
Warrants (Fully diluted 35.8%)					100,000		—					100,000		—

					2,000,000		1,900,000					2,058,775		—

Quest Design & Production, LLC	Design and Fabrication							Design and Fabrication
12% Secured Debt (Maturity — May 1, 2008)	of Custom Display		3,900,000		3,900,000		3,900,000
Warrants (Fully diluted 20.0%)	Systems				40,000		40,000

8% current / 5% PIK Secured Debt (Maturity — December 31, 2010)								of Custom Display Systems		3,991,542		3,964,853		3,964,853
Warrants (Fully diluted 26.0%)												40,000		40,000
					3,940,000		3,940,000
												4,004,853		4,004,853
TA Acquisition Group, LP	Processor of							Processor of
12% Secured Debt (Maturity — July 29, 2010)	Construction		2,860,000		2,860,000		2,860,000	Construction		1,870,000		1,813,789		1,813,789
Partnership Interest(7) (Fully diluted 18.3%)	Aggregates				357,500		2,630,000	Aggregates				357,500		3,435,000
Warrants (Fully diluted 18.3%)					82,500		2,650,000					82,500		3,450,000

					3,300,000		8,140,000					2,253,789		8,698,789

Technical Innovations, LLC	Manufacturer of
Technical Innovations , LLC								Manufacturer of
12% Secured Debt (Maturity — October 31, 2009)	Specialty Cutting		1,850,000		1,387,500		1,387,500	Specialty Cutting		787,500		748,716		748,716
Prime Secured Debt (Maturity — October 31, 2009)	Tools and Punches				462,500		462,500	Tools and Punches		262,500		249,572		249,572
Member Units(7) (Fully diluted 1.6%)					15,000		35,000
Warrants (Fully diluted 57.0%)					400,000		1,285,000

					2,265,000		3,170,000					998,288		998,288

Wicks N’ More LLC	Manufacturer of
12% Secured Debt (Maturity — April 26, 2011)	High-end Candles		3,720,000		3,720,000		3,720,000
Member Units (Fully diluted 6.2%)					180,000		—
Warrants (Fully diluted 24.0%)					210,000		—

					4,110,000		3,720,000


Subtotal Control Investments					33,312,337		42,429,000

~~See accompanying notes to consolidated financial statements.~~

54
68

MAIN STREET CAPITAL CORPORATION
~~COMBINED~~

SCHEDULE OF INVESTMENTS — (Continued)

December 31, ~~2006~~2007

Portfolio Company/Type of Investment (1) (2) Industry Principal(6) Cost(6) Fair Value

Affiliate Investments(4)

     All Hose & Specialty, LLC Distributor of
11% Secured Debt (Maturity — August 4, 2010)   Commercial/Industrial 2,600,000 2,600,000 2,600,000
Member Units(7) (Fully diluted 15.0%)   Hoses 80,357 1,600,000
11% Note Receivable (Maturity — August 4, 2010) 34,821 441,000

2,715,178 4,641,000

     American Sensor Technologies, Inc. Manufacturer of
9% Secured Debt (Maturity — May 31, 2010)   Commercial/ 200,000 200,000 200,000
13% Secured Debt (Maturity — May 31, 2010)   Industrial Sensors 3,000,000 3,000,000 3,000,000
Warrants (Fully diluted 20.0%) 50,000 575,000

3,250,000 3,775,000

     Carlton Global Resources, LLC Processor of
13% Secured Debt (Maturity — November 15, 2011)   Industrial Minerals 3,600,000 3,600,000 3,600,000
Member Units (Fully diluted 8.5%) 400,000 400,000

4,000,000 4,000,000

     Houston Plating & Coatings, LLC Plating & Industrial
Prime plus 2% Secured Debt (Maturity — July 19, 2011)   Coating Services 100,000 100,000 100,000
Member Units(7) (Fully diluted 11.8%) 210,000 1,710,000

310,000 1,810,000

     Laurus Healthcare, LP Healthcare Facilities
13% Secured Debt (Maturity — May 7, 2009) 3,010,000 3,010,000 3,010,000
Warrants (Fully diluted 18.2%) 105,000 105,000

3,115,000 3,115,000

     National Trench Safety, LLC Trench & Traffic
Member Units (Fully diluted 15.8%)   Safety Equipment 1,792,308 1,792,308

     Pulse Systems, LLC Manufacturer of
14% Secured Debt (Maturity — June 1, 2009)   Components for 2,747,271 2,747,271 2,747,271
Warrants (Fully diluted 6.6%)   Medical Devices 118,000 400,000

2,865,271 3,147,271

     Transportation General, Inc. Taxi Cab/Transportation
13% Secured Debt (Maturity — May 31, 2010)   Services 3,900,000 3,900,000 3,900,000
Warrants (Fully diluted 24.0%) 70,000 395,000

3,970,000 4,295,000

     Turbine Air Systems, Ltd. Commercial/
12% Secured Debt (Maturity — October 11, 2011)   Industrial Chilling 1,000,000 1,000,000 1,000,000
Warrants (Fully diluted 5.0%)   Systems 96,666 96,666

1,096,666 1,096,666

     WorldCall, Inc. Telecommunication/
13% Secured Debt (Maturity — October 22, 2009)   Information Services 820,000 820,000 820,000
Common stock (Fully diluted 6.2%) 169,173 180,000
Warrants (Fully diluted 13.4%) 75,000 150,000

1,064,173 1,150,000

     Barton Springs Grill LP Restaurant
15% Partnership Interest 150,000 —

Subtotal Affiliate Investments
24,328,596 28,822,245

Non-Control/Non-Affiliate Investments(5):

     East Teak Fine Hardwoods, Inc. Hardwood Products
13% Current/5.5% PIK Secured Debt (Maturity — April 13, 2011) 4,394,763 4,394,763 4,394,763
Common Stock (Fully diluted 3.3%) 130,000 335,000

4,524,763 4,729,763

     Digital Music Group, Inc. Distribution of Music
Common stock   and Video Content 458,252 228,420

Subtotal Non-Control/Non-Affiliate Investments
4,983,015 4,958,183

Total Portfolio Investments, December 31, 2006
$ 62,623,948 $ 76,209,428

Accumulated unearned income
$ (2,498,427 )

Total Portfolio Investments net of accumulated unearned income
$ 73,711,001

Portfolio Company/Type of Investment(1)(2)

Industry
Principal(6) Cost(6) Fair Value

Universal Scaffolding & Equipment, LLC
Manufacturer of Scaffolding
Prime plus 1% Secured Debt (Maturity — August 16, 2012) and Shoring Equipment 1,122,333 1,111,741 1,111,741
13% current / 5% PIK Secured Debt (Maturity — August 16, 2012) 3,196,376 3,136,274 3,136,274
Member Units (Fully diluted 18.4%) 992,063 1,025,000

5,240,078 5,273,015
Wicks N’ More, LLC
Manufacturer of
12% Secured Debt (Maturity — April 26, 2011) High-end Candles 3,720,000 3,455,444 1,685,444
Member Units (Fully diluted 11.5%) 360,000 —
Warrants (Fully diluted 21.3%) 210,000 —

4,025,444 1,685,444

Subtotal Control Investments
43,053,372 48,108,197

69

MAIN STREET CAPITAL CORPORATION

SCHEDULE OF INVESTMENTS — (Continued)

December 31, 2007

Portfolio Company/Type of Investment(1)(2)

Industry
Principal(6) Cost(6) Fair Value

Affiliate Investments(4)

Advantage Millwork Company, Inc.
Manufacturer/Distributor
12% Secured Debt (Maturity — February 5, 2012) of Wood Doors 2,666,667 2,547,510 2,547,510
Warrants (Fully diluted 10.9%) 87,120 87,120

2,634,630 2,634,630
American Sensor Technologies, Inc.
Manufacturer of Commercial/
Prime plus 0.5% Secured Debt (Maturity — May 31, 2010) Industrial Sensors 3,500,000 3,404,755 3,404,755
Warrants (Fully diluted 20.0%) 50,000 750,000

3,454,755 4,154,755
Carlton Global Resources, LLC
Processor of
13% PIK Secured Debt (Maturity — November 15, 2011) Industrial Minerals 4,687,777 4,555,835 2,618,421
Member Units (Fully diluted 8.5%) 400,000 —

4,955,835 2,618,421
Houston Plating & Coatings, LLC
Plating & Industrial
Prime plus 2% Secured Debt (Maturity — July 19, 2011) Coating Services 100,000 100,000 100,000
Member Units(7) (Fully diluted 11.8%) 210,000 2,450,000

310,000 2,550,000
KBK Industries, LLC
Specialty Manufacturer of
14% Secured Debt (Maturity — January 23, 2011) Oilfield and Industrial 3,937,500 3,730,881 3,730,881
8% Secured Debt (Maturity — July 1, 2009) Products 623,063 623,063 623,063
Prime Plus 2% Secured Debt (Maturity — January 31, 2008) 75,000 686,250
Member Units(7) (Fully diluted 14.5%) 187,500 700,000

4,616,444 5,740,194
Laurus Healthcare, LP
Healthcare Facilities
13% Secured Debt (Maturity — May 7, 2009) 3,010,000 2,934,625 2,934,625
Warrants (Fully diluted 18.2%) 105,000 715,000

3,039,625 3,649,625
National Trench Safety, LLC
Trench & Traffic
10% PIK Debt (Maturity — April 16, 2014) Safety Equipment 365,334 314,805 314,805
Member Units (Fully diluted 10.9%) 1,792,308 1,792,308

2,107,113 2,107,113
Pulse Systems, LLC
Manufacturer of
14% Secured Debt (Maturity — June 1, 2009) Components for 2,307,498 2,260,420 2,260,420
Warrants (Fully diluted 6.6%) Medical Devices 118,000 350,000

2,378,420 2,610,420
Transportation General, Inc.
Taxi Cab/Transportation
13% Secured Debt (Maturity — May 31, 2010) Services 3,600,000 3,501,966 3,501,966
Warrants (Fully diluted 24.0%) 70,000 340,000

3,571,966 3,841,966
Turbine Air Systems, Ltd.
Commercial and
12% Secured Debt (Maturity — October 11, 2011) Industrial Chilling Systems 1,000,000 905,213 905,213

Vision Interests, Inc.
Manufacturer/
13% Secured Debt (Maturity — June 5, 2012) Installer of Commercial 3,760,000 3,541,662 3,541,662
Common Stock (Fully diluted 8.9%) Signage 372,000 372,000
Warrants (Fully diluted 11.2%) 160,000 375,000

4,073,662 4,288,662
WorldCall, Inc.
Telecommunication/
13% Secured Debt (Maturity — October 22, 2009) Information Services 782,500 745,217 745,217
Common Stock (Fully diluted 6.2%) 169,173 180,000
Warrants (Fully diluted 13.4%) 75,000 150,000

989,390 1,075,217

Subtotal Affiliate Investments
33,037,053 36,176,216

70

MAIN STREET CAPITAL CORPORATION

SCHEDULE OF INVESTMENTS — (Continued)

December 31, 2007

Portfolio Company/Type of Investment(1)(2)

Industry
Principal(6) Cost(6) Fair Value

Non-Control/Non-Affiliate Investments(5):

East Teak Fine Hardwoods, Inc.

13% Current/5.5% PIK Secured Debt (Maturity — April 13, 2011) Hardwood Products 1,651,028 1,586,391 1,586,391
Common Stock (Fully diluted 3.3%) 130,000 490,000

1,716,391 2,076,391
Support Systems Homes, Inc.
Manages Substance
14% Current/4% PIK Secured Debt Abuse Treatment
(Maturity — June 5, 2012) Centers 1,525,674 1,507,596 1,507,596
8% Secured Debt (Maturity — June 5, 2012) 158,888 157,014 157,014

1,664,610 1,664,610

Subtotal Non-Control/Non-Affiliate Investments
3,381,001 3,741,001

Main Street Capital Partners, LLC (Investment Manager)

100% of Membership Interests Asset Management 18,000,000 17,625,000

Total Portfolio Investments, December 31, 2007
$ 97,471,426 $ 105,650,414

Idle Funds Investments

4.691% Federal Home Loan Bank Discount Note Investments in U.S.
(Maturity — April 11, 2008) Agency Securities 3,500,000 $ 3,421,791 $ 3,421,791
4.691% Federal National Mortgage Association Discount (Maturity — April 2, 2008) 3,500,000 3,425,490 3,425,490
4.675% Federal Home Loan Bank Discount Note (Maturity — March 20, 2008) 3,500,000 3,431,089 3,431,089
4.668% Federal Home Loan Bank Discount Note (Maturity — March 5, 2008) 3,500,000 3,437,408 3,437,408
4.673% Federal Home Loan Bank Discount Note (Maturity — February 20, 2008) 3,500,000 3,443,197 3,443,197
4.77% Federal Home Loan Mortgage Corp Discount Note (Maturity — February 7, 2008) 3,500,000 3,448,948 3,448,948
4.64% Federal National Mortgage Association Discount (Maturity — January 23, 2008) 3,500,000 3,455,338 3,455,338

Total Idle Funds Investments, December 31, 2007
$ 24,063,261 $ 24,063,261

(1)
All debt investments are generally income producing. Equity and warrants are non-income producing, unless otherwise ~~noted~~
noted.

(2)
See ~~footnote~~Note C for summary geographic location of portfolio ~~companies~~
companies.

(3)
~~Control~~Controlled investments are defined by the Investment Company Act of 1940, as amended (“1940 Act”) as investments ~~in companies~~ in which more than 25% of the voting securities are owned or where the ability to nominate greater than 50% of the board representation is maintained.

(4)
Affiliate investments are defined by the 1940 Act as ~~those Non-Control~~ investments ~~in companies~~ in which between 5% and 25% of the voting securities are owned.

(5)
Non-Control/Non-Affiliate investments are defined by the 1940 Act as investments that are neither Control Investments ornor Affiliate ~~Investments~~
Investments.

(6)
~~Net~~Principal is net of prepayments.
Cost is net of prepayments and accumulated unearned income.

(7)
Income producing through payment of dividends or distributions.
(8) Subject to contractual minimum rates.
~~See accompanying notes to consolidated financial statements.~~
55
71

MAIN STREET CAPITAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

~~NOTE A — ORGANIZATION AND BASIS OF PRESENTATION~~


NOTE A —	ORGANIZATION AND BASIS OF PRESENTATION

~~1. Organization~~


1.	Organization

On October 2, 2007, prior to the ~~Offering,~~IPO, the following transactions were consummated (collectively, the “Formation Transactions”):


	•		MSCC acquired 100% of the limited partnership interests in the Fund, which became a wholly-owned consolidated subsidiary of MSCC; the Fund retained its Small Business Investment Company (“SBIC”) license, continued to hold its existing investments, and will make new investments with available funds;

	•		MSCC acquired 100% of the equity interests in the General Partner of the Fund, which became a wholly-owned consolidated subsidiary of MSCC; and

	•		MSCC acquired 100% of the equity interests in the Investment Manager. The Investment Manager became a wholly-owned portfolio company of MSCC under the 1940 Act, as the Investment Manager is not an investment company and does not conduct substantially all of its investment management activities for Main Street and its subsidiaries. See Note D for further information regarding this classification and accounting treatment.

Immediately following the Formation Transactions, Main Street Equity Interests, Inc. (“MSEI”) was ~~created~~formed as a wholly-owned consolidated subsidiary of MSCC. MSEI has elected for tax purposes to be treated as a corporation and is taxed at normal corporate tax rates based on its taxable income.


2.	Basis of Presentation

~~2. Basis of Presentation~~

The financial statements are prepared ~~on an accrual basis~~ in accordance with ~~U. S.~~accounting principles generally accepted ~~accounting principles~~in the United States of America (“U.S. GAAP”). For the ~~year~~years ended December 31, 2008 and 2007, the consolidated financial statements of Main Street include the accounts of MSCC, the Fund, MSEI and the General Partner. ~~For the years ended December 31, 2006 and 2005, the combined financial statements include the combined accounts of the Fund and the General Partner.~~The Investment Manager is accounted for as a portfolio investment. The Formation Transactions involved an exchange of ~~shares of Main Street’s common stock~~equity interests between companies under common control. In accordance with the guidance on exchanges of ~~shares~~equity interests between entities under common control contained in Statement of Financial Accounting Standards (“SFAS”) No. 141,Business Combinations (“(“SFAS 141”), Main Street’s results of operations and cash flows for the year ended December 31, 2007 are presented as if the Formation Transactions had occurred as of January 1, 2007. Main Street’s results of operations for the years ended December 31, 2008 and 2007, cash flows for the years ended December 31, 2008 and 2007 and financial ~~position~~positions as of December 31, 2008 and 2007 isare presented on a consolidated basis. In addition, the results of Main Street’s operations and its cash flows for the ~~years~~year ended ~~December 31, 2006 and 2005, and Main Street’s financial position as of~~ December 31, 2006 have been presented on a combined basis in order to provide comparative information with respect to prior periods. The effects of all intercompany transactions between Main Street and its subsidiaries have been eliminated in ~~consolidation/combination. Certain~~consolidation. As a result of adopting the provisions of SFAS No. 157,Fair Value Measurements(“SFAS 157”), in the first quarter of 2008, certain reclassifications have been made to ~~the 2006 and 2005~~prior period balances to conform with the ~~2007~~current financial statement presentation.

56
72

MAIN STREET CAPITAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Under the investment company rules and regulations pursuant to Article 6 ofRegulation S-X and the Audit and Accounting Guide for Investment Companies issued by the American Institute of Certified Public Accountants (the “AICPA Guide”), Main Street is precluded from consolidating portfolio company investments, including those in which it has a controlling interest, unless the portfolio company is another investment company. An exception to this general principle in the AICPA Guide occurs if the Fund owns a controlled operating company that provides all or substantially all of its services directly to Main Street or to an investment company of Main Street. None of the investments made by Main Street qualify for this exception. Therefore, the investments are carried on the balance sheet at fair value, as discussed further in Note B, with any adjustments to fair value recognized as “Net Change in Unrealized Appreciation (Depreciation) ~~of Investments and Taxes”~~from Investments” on the Statement of Operations until the investment is disposed of resulting in any gain or loss on exit being recognized as a “Net Realized Gain ~~or Loss From~~(Loss) from Investments.”

Portfolio Investment Classification

Main Street classifies its portfolio investments in accordance with the requirements of the 1940 Act. Under the 1940 Act, “Control Investments” are defined as investments in companies in which Main Street owns more than 25% of the voting securities or has rights to maintain greater than 50% of the board representation. Under the 1940 Act, “Affiliate Investments” are defined as those ~~Non-Control~~ investments in companies in which Main Street owns between 5% and 25% of the voting securities. Under the 1940 Act, “Non-Control/Non-Affiliate Investments” are defined as investments that are neither Control Investments nor Affiliate Investments. The “Investment in affiliated Investment Manager” represents Main Street’s investment in a wholly-owned, investment manager subsidiary that is accounted for as a portfolio investment of Main Street.

~~NOTE B — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES~~


NOTE B —	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES


1.	Valuation of Portfolio Investments

~~1. Valuation~~Main Street accounts for its portfolio investments at fair value. As a result, Main Street adopted the provisions of ~~Investments~~SFAS 157 in the first quarter of 2008. SFAS 157 defines fair value, establishes a framework for measuring fair value, establishes a fair value hierarchy based on the quality of inputs used to measure fair value and enhances disclosure requirements for fair value measurements. SFAS 157 requires Main Street to assume that the portfolio investment is to be sold in the principal market to market participants, or in the absence of a principal market, in the most advantageous market, which may be a hypothetical market. Market participants are defined as buyers and sellers in the principal or most advantageous market that are independent, knowledgeable, and willing and able to transact. With the adoption of this statement, Main Street incorporated the income approach to estimate the fair value of its debt investments principally using a yield-to-maturity model, resulting in the recognition of $0.7 million in unrealized appreciation from ten debt investments upon adoption. Prior to the adoption of SFAS 157, Main Street reported unearned income as a single line item on the consolidated balance sheets and consolidated schedule of investments. Unearned income is no longer reported as a separate line and is now part of the investment portfolio cost and fair value on the consolidated balance sheets and the consolidated schedule of investments. This change in presentation had no impact on the overall net cost or fair value of Main Street’s investment portfolio and had no impact on Main Street’s financial position or results of operations.

Main Street’s business plan calls for it to invest primarily in illiquid securities issued by private companiesand/or ~~thinly-traded~~ thinly traded public ~~companies (“Investments”).~~companies. These ~~Investments~~investments may be subject to restrictions on resale and will generally have no established trading market. As a result, Main Street ~~values its Investments at fair value as determined~~determines in good faith ~~by Main Street’s Board of Directors in accordance with Main Street’s valuation policy. Main Street bases~~ the fair value of its portfolio investments onpursuant to a valuation policy in accordance with SFAS 157 and a valuation process approved by its Board of Directors and in accordance with the 1940 Act. Main Street reviews external events, including private mergers, sales and acquisitions involving comparable companies,

MAIN STREET CAPITAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

and includes these events in the valuation process. Main Street’s valuation policy is intended to provide a consistent basis for determining the fair value of the portfolio.

For valuation purposes, control investments are composed of equity and debt securities for which Main Street has a controlling interest in the portfolio company or has the ability to nominate a majority of the portfolio company’s board of directors. Market quotations are generally not readily available for Main Street’s control investments. As a result, Main Street determines the fair value of control investments using a combination of market and income approaches. Under the market approach, Main Street will typically use the enterprise value methodology to determine the fair value of ~~the portfolio companies in which it invests.~~these investments. The enterprise value is the fair value at which an enterprise could be sold in a transaction between two willing parties, other than through a forced or liquidation sale. Typically, private companies are bought and sold based on multiples of earnings before ~~income~~interest, taxes, depreciation and amortization, or EBITDA, cash flows, net income, revenues, or in limited cases, book value. There is no single methodology for ~~determining~~estimating enterprise ~~value and for~~value. For any one portfolio company, enterprise value is generally described as a range of values from which a single estimate of enterprise value is derived. In ~~determining~~estimating the enterprise value of a portfolio company, Main Street analyzes various factors, including the portfolio company’s historical and projected financial results. Main Street allocates the enterprise value to investments in order of the legal priority of the investments. Main Street will also ~~generally prepares and analyzes discounted cash flow models~~use the income approach to determine the fair value of these securities, based on ~~its~~ projections of the discounted future free cash flows that the portfolio company or the debt security will likely generate. The valuation approaches for Main Street’s control investments estimate the value of the ~~business~~investment if it were to sell, or exit, the investment, assuming the highest and best use of the investment by market participants. In addition, these valuation approaches consider the value associated with Main Street’s ability to control the capital structure of the portfolio company, ~~specific capital costs.~~as well as the timing of a potential exit.

For valuation purposes, non-control investments are composed of debt and equity securities for which Main Street ~~reviews external events, including private mergers and acquisitions, and includes these events~~does not have a controlling interest in the portfolio company, or the ability to nominate a majority of the portfolio company’s board of directors. Market quotations for Main Street’s non-control investments are not readily available. For Main Street’s non-control investments, Main Street uses the market approach to value its equity investments and the income approach to value its debt instruments. For non-control debt investments, Main Street determines the fair value primarily using a yield approach that analyzes the discounted cash flows of interest and principal for the debt security, as set forth in the associated loan agreements, as well as the financial position and credit risk of each of these portfolio investments. Main Street’s estimate of the expected repayment date of a debt security is generally the legal maturity date of the instrument, as Main Street generally intends to hold its loans to maturity. The yield analysis considers changes in leverage levels, credit quality, portfolio company performance and other factors. Main Street will use the value determined by the yield analysis as the fair value for that security; however, because of Main Street’s general intent to hold its loans to maturity, the fair value will not exceed the face amount of the debt security. A change in the assumptions that Main Street uses to estimate the fair value of its debt securities using the yield analysis could have a material impact on the determination of fair value. If there is deterioration in credit quality or a debt security is in workout status, Main Street may consider other factors in determining the fair value of a debt security, including the value attributable to the debt security from the enterprise ~~valuation process.~~value of the portfolio company or the proceeds that would be received in a liquidation analysis.

Due to the inherent uncertainty in the valuation process, Main Street’s estimate of fair value may differ materially from the values that would have been used had a ready market for the securities existed. In addition, changes in the market environment, portfolio company performance and other events that may occur over the ~~life~~lives of the investments may cause the gains or losses ultimately realized on these investments to be different than the valuations currently assigned. Main Street determines the fair value of each individual investment and records changes in fair value as unrealized appreciation or depreciation.

MAIN STREET CAPITAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Main Street uses a standard investment ranking system in connection with its investment oversight, portfolio management/analysis and investment valuation procedures. This system takes into account both quantitative and qualitative factors of the portfolio company and the ~~securities~~investments held. Each quarter, Main Street estimates the fair value of each portfolio investment, and the Board of Directors ~~determines the value~~ of ~~each portfolio investment.~~

~~If there is adequate enterprise value to support the repayment of the debt, the~~Main Street oversees, reviews and approves, in good faith, Main Street’s fair value ~~of a loan or debt security normally corresponds to cost plus accumulated unearned income unless~~estimates consistent with the borrower’s condition or other factors lead to a determination of fair value at a different amount. The fair value of equity interests in portfolio companies is determined based on various factors, including revenues, EBITDA and cash flow from operations of the portfolio company and other pertinent factors such as recent offers to purchase a portfolio company’s securities, financing events or other liquidation events.

The value of Main Street’s equity interests in public companies for which market quotations are readily available is based upon the closing public market price. Securities that carry certain restrictions on sale are typically valued at a discount from the public market value of the security.1940 Act requirements.

Prior to the Offering, the review and determination of the Investments fair value was the responsibility of the General Partner. Subsequent to the Offering, the review and determination of fair value is the responsibility of the Board of Directors.

Duff & Phelps, LLC, an independent valuation firm (“Duff & Phelps”), has provided ~~third party~~third-party valuation consulting services to Main Street, which consisted of certain mutually agreed limited procedures that Main Street identified and requested Duff & Phelps to perform (hereinafter referred to as the “Procedures”). ~~For~~During 2008, the ~~year ended December 31, 2006, Main Street asked Duff & Phelps to perform the~~ Procedures were performed on investments in 2224 portfolio companies and on the investment in the Investment Manager comprising approximately ~~99%~~84% of the total portfolio investments at fair value as of December 31, ~~2006. During 2007, Main Street asked~~2008, with the Procedures performed on investments in 5 portfolio companies for the quarter ended March 31, 2008, investments in 8 portfolio companies for the quarter ended June 30, 2008, 5 portfolio companies for the quarter ended September 30, 2008 and 6 portfolio companies and the Investment Manager for the quarter ended December 31, 2008. Duff & Phelps ~~to perform the Procedures, at each quarter end, on~~had also reviewed a total of 24 portfolio companies comprising approximately ~~76%~~77% of the total portfolio investments at fair value as of December 31, 2007. The Procedures were performed on investments in 6 portfolio companies for each quarter ended March 31, 2007, June 30, 2007 and September 30, 2007. For the quarter ended December 31, 2007, the Procedures were performed on investments in 5 portfolio companies. In addition, the Procedures were performed on the investment in the Investment Manager. Upon completion of the Procedures in each case, Duff & Phelps concluded that the fair value, as determined by Main Street, of those investments subjected to the Procedures did not appear to be unreasonable. The Board of Directors of Main Street ~~are ultimately~~has final responsibility for overseeing, reviewing and ~~solely responsible for determining~~approving, in good faith, Main Street’s estimate of the fair value offor the ~~investments in good faith.~~investments.

Main Street believes its ~~Investments~~investments as of December 31, ~~2007~~2008 and ~~2006~~2007 approximate fair value as of those dates based on the market in which Main Street operates and other conditions in existence at ~~these~~those reporting periods.

~~2. Use of Estimates~~


2.	Use of Estimates

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 revenue and expenses during the period. Actual results may differ from these estimates under different conditions or assumptions. Additionally, as explained above, the financial statements include portfolio ~~Investments~~investments whose values have been estimated by Main Street with the oversight, review and approval by Main Street’s Board of Directors in the absence of readily ascertainable market values. Because of the inherent uncertainty of the portfolio investment valuations, those estimated values may differ significantly from the values that would have been used had a readily available market for the investments existed, and it is reasonably possible that the differences could be material.

~~3. Cash and Cash Equivalents~~


3.	Cash and Cash Equivalents

Cash and cash equivalents consist of highly liquid investments with an original maturity of three months or less at the date of purchase. Cash and cash equivalents are carried at cost, which approximates fair value. ~~For year ended December 31, 2007, cash equivalents included $17,478,957 of investments in U.S. government agency securities with maturities of three months or less when purchased.~~

~~4. Idle Funds Investments~~


4.	Idle Funds Investments

Idle funds investments consist primarily of short term investments in U.S. government agency securities, ~~maturing~~investments in ~~six months~~high-quality debt investments and diversified bond funds. With the exception of diversified bond funds, idle funds investments generally mature in one year or less but longer than three months from the time of ~~investment. Management’s~~investment, and management’s intent is to generally hold such investments to maturity. At December 31, 2007, the carrying amount approximated fair value due to the short term maturity of these investments. See the Consolidated Schedule of Investments at December 31, 2007 for a detail of such investments.

58
75

MAIN STREET CAPITAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


5.	Interest and Dividend Income

Interest and ~~Dividend Income~~

~~Interest~~dividend income is recorded on the accrual basis to the extent ~~that such~~ amounts are expected to be collected. Dividend income is recorded as dividends are declared or at the point an obligation exists for the portfolio company to make a distribution. In accordance with Main Street’s valuation policy, accrued interest and dividend income is evaluated periodically for collectibility. When a loan or debt security becomes 90 days or more past due, orand if weMain Street otherwise dodoes not expect the debtor to be able to service all of its debt or other obligations, weMain Street will generally place the loan or debt security on non-accrual status and cease recognizing interest income on that loan or debt security until the borrower has demonstrated the ability and intent to pay contractual amounts due. ~~Distributions~~If a loan or debt security’s status significantly improves regarding ability to service the debt or other obligations, or if a loan or debt security is fully impaired or written off, it will be removed from non-accrual status.

While not significant to its total portfolio, ~~companies are recorded as dividend income when the distribution is received.~~

Main Street holds debt instruments in its portfolio that contain a payment-in-kind (“PIK”) interest ~~provision.~~provisions. The PIK interest, computed at the contractual rate specified in each debt agreement, is added to the principal balance of the debt and is recorded as interest income. Thus, the actual collection of this interest ~~generally occurs at~~may be deferred until the time of debt principal repayment.

For each of the two years ended December 31, 2008, and 2007, Main Street had one investment ~~that was on non-accrual status. The investment in the company~~ on non-accrual status ~~comprised~~comprising approximately 0.5% and 3.1%, respectively, of the total portfolio investments at fair value asfor each of ~~December 31, 2007~~the two years then ended (excluding Main Street’s investment in the Investment Manager). ~~As of December 31, 2006, Main Street had no investments that were on non-accrual status.~~

~~6. Deferred Financing Costs~~


6.	Deferred Financing Costs

Deferred financing costs include SBIC debenture commitment fees and SBIC debenture leverage fees which have been capitalized and which are amortized into interest expense over the term of the debenture agreement (10 years).

Deferred financing costs also include costs related to a two-year treasury line of credit ~~that~~and a three-year investment credit facility. These costs have been capitalized and are amortized into interest expense over ~~the two-year term.~~their respective terms.

~~7. Fee Income — Structuring and Advisory Services~~


7.	Fee Income — Structuring and Advisory Services

Main Street may periodically provide services, including structuring and advisory services, to its portfolio companies. For services that are separately identifiable and evidence exists to substantiate fair value, income is recognized as earned, which is generally when the investment or other applicable transaction closes. Fees received in connection with debt financing transactions for services that do not meet these criteria are treated as debt origination fees and are accreted into interest income over the life of the financing.

~~8. Unearned Income — Debt Origination Fees and Original Issue Discount~~


8.	Unearned Income — Debt Origination Fees and Original Issue Discount

Main Street capitalizes upfront debt origination fees received in connection with financings and reflects such fees as unearned income onnetted against investments. Main Street will also capitalize and offset direct loan origination costs against the ~~balance sheets.~~origination fees received. The unearned income from ~~such~~the fees, net of debt origination costs, is accreted into interest income based on the effective interest method over the life of the financing.

In connection with its debt investments, Main Street sometimes receives nominal cost warrants (“nominal cost equity”) that are valued as part of the negotiation process with the particular portfolio company. When Main Street receives nominal cost equity, Main Street allocates its cost basis in its investment between its debt securities and its nominal cost equity at the time of origination. Any resulting discount from recording the

MAIN STREET CAPITAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

debt is reflected as unearned income, which is netted against the investment, and accreted into interest income based on the effective interest method over the life of the debt.

~~Accumulated unearned income activity for the years ended December 31, 2007 and 2006 was as follows:~~


9.	Share-Based Compensation

Year Ended December 31,
2007 2006
Beginning accumulated unearned income $ 2,498,427 $ 2,602,632
Debt origination fees received 467,558 709,980
Value of warrants received 407,119 566,166
Unearned income recognized (998,069 ) (1,380,351 )

Ending accumulated unearned income $ 2,375,035 $ 2,498,427

~~9. Income Taxes~~

Main Street accounts for its share-based compensation plans using the fair value method, as prescribed by SFAS No. 123R,Share-Based Payment(“SFAS 123R”). Accordingly, for restricted stock awards, Main Street measures the grant date fair value based upon the market price of its common stock on the date of the grant and amortizes that fair value as share-based compensation expense over the requisite service period or vesting term.


10.	Income Taxes

MSCC has elected and intends to qualify ~~and elect~~ for the tax treatment applicable to regulated investment companies (“RIC”) under Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”), and, among other things, intends to make the required distributions to its stockholders as specified therein. In order to qualify as a RIC, Main Street is required to timely distribute to its stockholders at least 90% of investment company taxable income, as defined by the Code, each year. Depending on the level of taxable income earned in a tax year, Main Street may choose to carry forward taxable income in excess of current year distributions into the next tax year and pay a 4% excise tax on such income. Any such carryover taxable income must be distributed through a dividend declared prior to filing the final tax return related to the year which generated such taxable income.

MSCC’s ~~wholly-owned~~wholly owned subsidiary, MSEI, is a taxable entity which holds certain portfolio investments of Main Street. MSEI is consolidated with Main Street for U.S. GAAP reporting purposes, and the portfolio investments held by MSEI are included in Main Street’s consolidated financial statements. The purpose of MSEI is to permit Main Street to hold equity investments in portfolio companies which are “pass through” entities for tax purposes in order to comply with the “source income” requirements contained in the RIC tax ~~provisions of the Code.~~requirements. MSEI is not consolidated with Main Street for income tax purposes and may generate income tax expense as a result of its ownership of ~~the~~certain portfolio investments. This income tax expense, if any, is reflected in Main Street’s Consolidated Statement of Operations.

Prior to the Formation Transactions, Main Street was taxed under the partnership provisions of the Code. Under these provisions of the Code, the General Partner and limited partners ~~are~~were responsible for reporting their share of the partnership’s income or loss on their income tax returns.

Taxable income generally differs from net income for financial reporting purposes due to temporary and permanent differences in the recognition of income and ~~expenses, and~~expenses. Taxable income generally excludes net unrealized appreciation or depreciation, as investment gains or losses are not included in taxable income until they are realized.

~~10. Realized Gains or Losses from Investments and Net Change in Unrealized Appreciation or Depreciation from Investments~~


11.	Net Realized Gains or Losses from Investments and Net Change in Unrealized Appreciation or Depreciation from Investments

Realized gains or losses are measured by the difference between the net proceeds from the sale or redemption of an investment and the cost basis of the investment, without regard to unrealized appreciation or depreciation previously recognized, and includes investments written-off during the period net of recoveries.

MAIN STREET CAPITAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Net change in unrealized appreciation or depreciation from investments ~~reflect~~reflects the net change in the valuation of the investment portfolio pursuant to Main Street’s valuation guidelines and the reclassification of any prior period unrealized appreciation or depreciation on exited investments.

~~11. Concentration of Credit Risks~~


12.	Concentration of Credit Risks

Main Street places its cash in financial institutions, and at times, such balances may be in excess of the federally insured limit.

~~12. Accounting for Derivative Instruments and Hedging Activities~~


13.	Fair Value of Financial Instruments

To hedge the market risk of changing prices of a publicly traded investment, Main Street entered into a derivative financial instrument in 2004. In accordance with SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities,” as amended, Main Street recognizes the fair value of this derivative financial instrument, in its statement of operations and balance sheet for each reporting period, as a derivative entered into by Main Street that does not meet the requirement for hedge accounting. Subsequent to December 31, 2005, Main Street did not enter into any derivative transactions.

~~13. Fair Value of Financial Instruments~~

Fair value estimates are made at discrete points in time based on relevant information. These estimates may be subjective in nature and involve uncertainties and matters of significant judgment and, therefore, cannot be determined with precision. Main Street believes that the carrying amounts of its financial instruments, consisting of cash and cash equivalents, ~~short-term investments,~~ receivables, accounts payable and accrued liabilities ~~and debentures~~ approximate the fair values of such items. Idle funds investments consist primarily of short term investments in U.S. government agency securities, investments in high-quality debt investments and diversified bond funds. The fair value determination for these investments primarily consists of Level 1 observable inputs. The SBIC debentures remain a strategic advantage due to their flexible structure, long-term duration, and low fixed interest rates. As of December 31, 2008, had Main Street adopted the provisions of SFAS No. 159,The Fair Value Option for Financial Assets and Financial Liabilities(“SFAS 159”) relating to accounting for debt obligations at their fair value, Main Street estimates the fair value of its SBIC debentures would be approximately $41 million, or $14 million less than the face value of the SBIC debentures.

~~14. Initial Public Offering Costs~~


14.	Initial Public Offering Costs

For the year ended December 31, 2007, Main Street incurred total costs of $2,337,823 associated with the initial public offering of Main Street. These costs principally related to accounting, legal and other professional fees associated with the company’s initial public offering which was completed in October 2007.

Of the $2,337,823 in total costs incurred related to initial public offering, $695,250 of such costs were professional fees related to the ~~Offering and~~IPO which were deducted in determining the Net Investment Income and Net Increase in Net Assets Resulting from Operations for the year ended December 31, 2007. The remaining $1,642,573 in ~~Offering~~offering costs incurred has been reflected as a reduction to Additional Paid In Capital.

~~15. Earnings per Share~~


15.	Earnings per Share

Basic and diluted per share calculations are computed utilizing the weighted average number of shares of common stock outstanding for the period. The diluted weighted average number of shares of common stock outstanding for 2008 reflects the dilution attributable to unvested shares of restricted stock that are part of Main Street’s share-based compensation plans as discussed in Note M. The diluted weighted average number of shares was calculated using the Treasury Stock method. The weighted average number of shares of common stock outstanding for 2007 was calculated as if the Formation Transactions and the ~~Offering~~IPO had occurred on January 1, 2007, consistent with the guidance on exchanges of shares between entities under common control contained in SFAS 141. This approach resulted in more relevant and meaningful per share computations.

For the year ended December 31, 2008, the difference between the weighted average number of basic and diluted shares was small enough to result in the same earnings per share calculation for both basic and diluted earnings per share. As Main Street ~~has~~had no common stock equivalents outstanding as of December 31, 2007, diluted earnings per share iswas the same as basic earnings per share. For the ~~years~~year ended December 31, 2006, ~~and 2005,~~ earnings per share calculations were not appropriate due to the partnership structure comprising the combined

MAIN STREET CAPITAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

financial statements of the Fund and the General Partner nor ~~were~~would calculations ~~for these years~~be representative of Main Street prospectively.

~~16. Recently Issued Accounting Standards~~


16.	Recently Issued Accounting Standards

In June ~~2006,~~2008, the Financial Accounting Standards Board ~~(the “FASB”~~(“FASB”) issued ~~Interpretation No. 48, Accounting~~EITF 03-6-1,Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities.This FASB Staff Position (“FSP”) addresses whether instruments granted in share-based payment transactions are participating securities prior to vesting and, therefore, need to be included in the earnings allocation in computing earnings per share (“EPS”). This FSP will be effective for ~~Uncertainty in Income Taxes, which clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s~~ financial statements ~~in accordance with FASB Statement of Financial Accounting Standards No. 109,~~~~Accounting for Income Taxes~~~~. This interpretation is effective~~issued for fiscal years beginning after December 15, ~~2006. The adoption~~2008, and interim periods within those years. All prior-period EPS data presented will be adjusted retrospectively (including interim financial statements, summaries of earnings, and selected financial data) to conform to the provisions of this ~~interpretation~~FSP. Early application is not permitted. Main Street is currently analyzing the effect, if any, this statement may have on its consolidated results of operations.

In October 2008, the FASB issued Staff PositionNo. 157-3,Determining the Fair Value of a Financial Asset When the Market for That Asset is Not Active(“FSP 157-3”).FSP 157-3 provides an illustrative example of how to determine the fair value of a financial asset in an inactive market. The FSP does not change the fair value measurement principles set forth in SFAS 157. Since adopting SFAS 157 in January 2008, Main Street’s practices for determining the fair value of its investment portfolio have been, and continue to be, consistent with the guidance provided in the example inFSP 157-3. Therefore, Main Street’s adoption ofFSP 157-3 did not affect its practices for determining the fair value of its investment portfolio and does not have a ~~significant impact~~material effect on ~~Main Street’s consolidated~~its financial position or ~~its~~ results of operations.

NOTE C — FAIR VALUE HIERARCHY FOR PORTFOLIO AND IDLE FUNDS INVESTMENTS

In ~~September 2006,~~connection with valuing portfolio and idle funds investments, Main Street adopted the ~~FASB issued Statement~~provisions of ~~Financial Accounting Standards No.~~SFAS 157~~Fair Value Measurements(“SFAS 157”).~~ in the first quarter of 2008. SFAS 157 defines fair value, establishes a framework for measuring fair value, ~~in generally accepted accounting principles,~~establishes a fair value hierarchy based on the quality of inputs used to measure fair value, and ~~expands disclosures about~~enhances disclosure requirements for fair value measurements. ~~This statement addressed how~~Main Street accounts for its portfolio investments at fair value.

Fair Value Hierarchy

In accordance with SFAS 157, Main Street has categorized its portfolio and idle funds investments, based on the priority of the inputs to ~~calculate~~the valuation technique, into a three-level fair value ~~measurements required or permitted under other accounting pronouncements. Accordingly, this statement does not require any new~~hierarchy. The fair value ~~measurements. However,~~hierarchy gives the highest priority to quoted prices in active markets for ~~some entities,~~identical investments (Level 1) and the application of this statement will change current practice. SFAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007. Main Street is currently analyzing the effect of adoption of this statement on its consolidated financial position, including its net asset value,lowest priority to unobservable inputs (Level 3).

Portfolio and ~~results of operations. Main Street will adopt this statement on a prospective basis, effective January 1, 2008. Adoption of this statement could have a material effect~~idle funds investments recorded on Main Street’s ~~consolidated financial statements, including its net asset value. However,~~balance sheet are categorized based on the ~~actual impact on Main Street’s consolidated financial statements in the period of adoption and subsequent~~inputs to the ~~period of adoption cannot be determined at this time~~valuation techniques as ~~it will be influenced by the estimates of fair value~~follows:

Level 1 — Investments whose values are based on unadjusted quoted prices for identical assets in an active market that ~~period and the number and amount of investments~~ Main Street ~~originates, acquires~~has the ability to access (examples include investments in active exchange-traded equity securities and investments in most U.S. government and agency securities).

Level 2 — Investments whose values are based on quoted prices in markets that are not active or ~~exits.~~

~~In February 2007,~~model inputs that are observable either directly or indirectly for substantially the FASB issued Statement of Financial Accounting Standards No. 159, The Fair Value Option for Financial Assets and Financial Liabilities (“SFAS 159”), which provides companies with an option to report selected financial assets and liabilities at fair value. The objective of SFAS 159 is to reduce both complexity in accounting for financial instruments and the volatility in earnings caused by measuring related assets and liabilities differently. SFAS 159 establishes presentation and disclosure requirements designed to facilitate comparisons between companies that choose different measurement attributes for similar types of assets and liabilities and to more easily understand the effectfull term of the ~~company’s choice to use fair value on its earnings. SFAS 159 also requires entities to display~~investment. Level 2 inputs include the fair value of the selected assets and liabilities on the face of the combined balance sheet. SFAS 159 does not eliminate disclosure requirements of other accounting standards, including fair value measurement disclosures in SFAS 157. This Statement is effective as of the beginning of an entity’s first fiscal year beginning after November 15, 2007. Main Street does not intend to elect fair value measurement for assets or liabilities other than portfolio investments, which are already measured at fair value. Therefore, Main Street does not believe the adoption of this statement will have a significant effect on Main Street’s consolidated financial position or its results of operations.following:


	•	Quoted prices for similar assets in active markets (for example, investments in restricted stock);

	•	Quoted prices for identical or similar assets in non-active markets (for example, investments in thinly traded public companies);

61
79

~~NOTE C~~MAIN STREET CAPITAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — ~~PORTFOLIO INVESTMENTS~~(Continued)


	•	Pricing models whose inputs are observable for substantially the full term of the investment (for example, market interest rate indices); and

	•	Pricing models whose inputs are derived principally from, or corroborated by, observable market data through correlation or other means for substantially the full term of the investment.

Level 3 — Investments whose values are based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement. These inputs reflect management’s own assumptions about the assumptions a market participant would use in pricing the investment (for example, investments in illiquid securities issued by private companies).

As required by SFAS 157, when the inputs used to measure fair value fall within different levels of the hierarchy, the level within which the fair value measurement is categorized is based on the lowest level input that is significant to the fair value measurement in its entirety. For example, a Level 3 fair value measurement may include inputs that are observable (Levels 1 and 2) and unobservable (Level 3). Therefore, gains and losses for such investments categorized within the Level 3 table below may include changes in fair value that are attributable to both observable inputs (Levels 1 and 2) and unobservable inputs (Level 3).

Main Street conducts reviews of fair value hierarchy classifications on a quarterly basis. Changes in the observability of valuation inputs may result in a reclassification for certain investments. As of December 31, 2008, all of Main Street’s idle funds investments consisted primarily of investments in high-quality debt investments and diversified bond funds. The fair value determination for these investments primarily consisted of observable inputs. As a result, all of Main Street’s idle funds investments were categorized as Level 1 with a fair value of $4,389,795.

As of December 31, 2008, all of Main Street’s portfolio investments consisted of illiquid securities issued by private companies. The fair value determination for these investments primarily consisted of unobservable inputs. As a result, all of Main Street’s portfolio investments were categorized as Level 3. The fair value determination of each portfolio investment required one or more of the following unobservable inputs:


	•	Financial information obtained from each portfolio company, including unaudited statements of operations and balance sheets for the most recent period available as compared to budgeted numbers;

	•	Current and projected financial condition of the portfolio company;

	•	Current and projected ability of the portfolio company to service its debt obligations;

	•	Type and amount of collateral, if any, underlying the investment;

	•	Current financial ratios (e.g., fixed charge coverage ratio, interest coverage ratio, net debt/EBITDA ratio) applicable to the investment;

	•	Current liquidity of the investment and related financial ratios (e.g., current ratio and quick ratio);

	•	Pending debt or capital restructuring of the portfolio company;

	•	Projected operating results of the portfolio company;

	•	Current information regarding any offers to purchase the investment;

	•	Current ability of the portfolio company to raise any additional financing as needed;

	•	Changes in the economic environment which may have a material impact on the operating results of the portfolio company;

	•	Internal occurrences that may have an impact (both positive and negative) on the operating performance of the portfolio company;

MAIN STREET CAPITAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


	•	Qualitative assessment of key management;

	•	Contractual rights, obligations or restrictions associated with the investment; and

	•	Other factors deemed relevant.

The following table provides a summary of changes in fair value of Main Street’s Level 3 investments for the year ended December 31, 2008:

Net
Net

Redemptions/
Changes from
Unrealized

Type of
December 31, 2007
Accretion of
Repayments/
New
Unrealized
Appreciation
December 31, 2008

Investment
Fair Value Unearned Income Realized Losses Investments to Realized (Depreciation) Fair Value

Debt $ 64,581,986 $ 1,062,452 $ (23,595,109 ) $ 40,586,637 $ 4,568,891 $ (5,453,814 ) $ 81,751,043
Equity 16,361,308 — (590,041 ) 5,995,743 (2,717,500 ) 3,685,636 22,735,146
Equity warrants 7,082,120 — 1,069,046 959,856 (3,636,654 ) 370,632 5,845,000
Investment Manager 17,625,000 — — — — (949,374 ) 16,675,626

$ 105,650,414 $ 1,062,452 $ (23,116,104 ) $ 47,542,236 $ (1,785,263 ) $ (2,346,920 ) $ 127,006,815

Portfolio Investments
Main Street’s portfolio investments principally consist of secured debt, equity ~~warrant~~warrants and direct equity investments in privately held companies. The debt investments are secured by either a first or second lien on the assets of the portfolio company, generally bear interest at fixed rates, and generally mature between five and seven years from original investment. Main Street also receives nominally priced equity warrants and makes direct equity investments, usually in connection with a debt investment in a portfolio company.
As discussed further in Note D, the Investment Manager is a ~~100%, wholly-owned~~wholly owned subsidiary of MSCC. However, the Investment Manager is accounted for as a portfolio investment of Main Street, since it is not an investment company and since it conducts a significant portion of its investment management activities ~~outside of~~for entities other than MSCC or one of its subsidiaries. To allow for more relevant disclosure of Main Street’s “core” investment portfolio, Main Street’s ~~$17,625,000~~ investment in the Investment Manager has been excluded from the tables and amounts set forth in this ~~note.~~Note C.
Investment income, consisting of interest, dividends and fees, can fluctuate ~~dramatically upon repayment of an investment or sale of an equity interest.~~dramatically. Revenue recognition in any given year ~~can~~could also be highly concentrated among several portfolio companies. For the ~~years~~year ended December 31, ~~2007, 2006~~2008, Main Street recorded investment income from one portfolio company in excess of 10% of total investment income. The investment income from that portfolio company represented approximately 21% of the total investment income for the period, principally related to high levels of dividend income and ~~2005,~~transaction and structuring fees on the investment in such company. For the year ended December 31, 2007, Main Street did not record investment income from any portfolio company in excess of 10% of total investment income.
As of December 31, 2008, Main Street had debt and equity investments in 31 core portfolio companies with an aggregate fair value of $110,331,189 and a weighted average effective yield on its debt investments of 14.0%. Approximately 84% of Main Street’s total core portfolio investments at cost were in the form of debt investments and 91% of such debt investments at cost were secured by first priority liens on the assets of Main Street’s portfolio companies as of December 31, 2008. At December 31, 2008, Main Street had equity ownership in approximately 94% of its core portfolio companies and the average fully diluted equity ownership in those portfolio companies was approximately 25%. As of December 31, 2007, Main Street had debt and equity investments in 27 core portfolio companies with an aggregate fair value of ~~$90,400,449~~$88,025,414 and a weighted average effective yield on its debt investments of 14.3%. The weighted average yields were computed using the effective interest rates for all debt investments at December 31, 2008 and 2007, including

81

MAIN STREET CAPITAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

amortization of deferred debt origination fees and accretion of original issue ~~discount.~~discount but excluding any debt investments on non-accrual status.

Summaries of the composition of Main Street’s core investment portfolio at cost and fair value as a percentage of total portfolio investments are shown in the following table:


	December 31,
Cost:	2007			2006			December 31, 2008			December 31, 2007

First lien debt		81.71	%		77.08	%		76.2	%		81.5	%
Equity								11.0	%		10.7	%
Second lien debt		6.28	%		11.81	%		7.4	%		6.1	%
Equity		10.34	%		7.62	%
Equity warrants		1.67	%		3.49	%		5.4	%		1.7	%

		100.00	%		100.00	%		100.0	%		100.0	%

December 31,
Fair Value: 2007 2006
First lien debt 70.62 % 63.88 %
Second lien debt 3.45 % 9.70 %
Equity 18.10 % 12.65 %
Equity warrants 7.83 % 13.77 %

100.00 % 100.00 %

Fair Value:
December 31, 2008 December 31, 2007

First lien debt 67.0 % 70.1 %
Equity 15.7 % 18.6 %
Equity warrants 10.2 % 8.0 %
Second lien debt 7.1 % 3.3 %

100.0 % 100.0 %

The following table shows the core investment portfolio composition by geographic region of the United States at cost and fair value as a percentage of total portfolio investments. The geographic composition is determined by the location of the corporate headquarters of the portfolio company.

December 31,
Cost: 2007 2006 December 31, 2008 December 31, 2007

Southwest 31.94 % 39.92 % 50.2 % 31.9 %
West 36.85 % 24.74 % 36.3 % 37.1 %
Northeast 11.41 % 14.72 %
Southeast 13.91 % 13.79 % 5.1 % 11.4 %
Midwest 5.89 % 6.83 % 4.7 % 5.8 %
Northeast 3.7 % 13.8 %

100.00 % 100.00 % 100.0 % 100.0 %

December 31,
Fair Value: 2007 2006 December 31, 2008 December 31, 2007

Southwest 41.01 % 47.24 % 56.0 % 41.2 %
West 32.91 % 20.80 % 31.1 % 32.9 %
Midwest 5.1 % 6.5 %
Southeast 4.1 % 10.3 %
Northeast 9.06 % 11.09 % 3.7 % 9.1 %
Southeast 10.44 % 13.08 %
Midwest 6.58 % 7.79 %

100.00 % 100.00 % 100.0 % 100.0 %

82

MAIN STREET CAPITAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Set forth below are tables showing the composition of Main Street’s core investment portfolio by industry at cost and fair value as of December 31, ~~2007~~2008 and ~~2006 (excluding unearned income):~~2007:


Cost:							December 31, 2008			December 31, 2007

Industrial equipment								12.0	%		6.6	%
Precast concrete manufacturing								11.3	%		—
Custom wood products								9.3	%		8.4	%
Agricultural services								8.3	%		11.6	%
Electronics manufacturing								7.6	%		9.5	%
Transportation/Logistics								6.6	%		6.7	%
Retail								6.5	%		3.3	%
Restaurant								6.1	%		3.4	%
Health care products								5.8	%		4.2	%
Mining and minerals								4.8	%		9.1	%
Manufacturing								4.7	%		12.0	%
Health care services								4.2	%		5.9	%
Professional services								4.1	%		3.3	%
Metal fabrication								3.4	%		4.6	%
Equipment rental								2.1	%		2.6	%
Infrastructure products								1.7	%		2.4	%
Information services								0.9	%		1.2	%
Industrial services								0.5	%		0.4	%
Distribution								0.1	%		2.2	%
Consumer products								—			2.6	%

	December 31,							100.0	%		100.0	%
Cost:	2007			2006
Manufacturing		12.35	%		15.14	%
Agricultural services		11.42	%		—
Electronics manufacturing		9.58	%		5.19	%
Construction/industrial minerals		9.04	%		11.66	%
Custom wood products		8.29	%		6.29	%
Transportation/logistics		6.64	%		9.64	%
Industrial Equipment		6.49	%		—
Health care services		5.86	%		4.97	%
Metal Fabrication		4.68	%		—
Health care products		4.25	%		8.19	%
Restaurant		3.41	%		5.34	%
Professional services		3.33	%		4.83	%
Retail		3.23	%		4.35	%
Equipment rental		2.64	%		2.86	%
Consumer products		2.59	%		3.19	%
Building products		2.39	%		3.86	%
Distribution		2.18	%		11.56	%
Information services		1.25	%		2.43	%
Industrial services		0.38	%		0.50	%

Total		100.00	%		100.00	%

63
83

December 31,
Fair Value: 2007 2006
Construction/industrial minerals 12.80 % 15.93 %
Agricultural services 10.34 % —
Manufacturing 9.84 % 14.11 %
Electronics manufacturing 9.69 % 4.95 %
Custom wood products 7.51 % 5.17 %
Transportation/logistics 6.59 % 9.70 %
Health care services 5.98 % 4.09 %
Industrial Equipment 5.91 % —
Restaurant 4.42 % 5.31 %
Metal Fabrication 4.34 % —
Health care products 4.10 % 8.29 %
Professional services 4.10 % 4.37 %
Retail 3.41 % 3.57 %
Industrial services 2.82 % 2.38 %
Equipment rental 2.39 % 2.35 %
Distribution 2.37 % 12.30 %
Building products 2.16 % 3.18 %
Information services 1.23 % 1.81 %
Consumer products — 2.49 %

Total 100.00 % 100.00 %

MAIN STREET CAPITAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Fair Value:
December 31, 2008 December 31, 2007

Precast concrete manufacturing 13.7 % —
Industrial equipment 10.2 % 6.0 %
Agricultural services 8.1 % 10.5 %
Electronics manufacturing 7.7 % 9.6 %
Retail 7.0 % 3.4 %
Custom wood products 6.8 % 7.5 %
Restaurant 6.7 % 4.5 %
Transportation/Logistics 6.5 % 6.6 %
Health care services 6.1 % 6.0 %
Health care products 5.8 % 4.1 %
Professional services 5.4 % 4.1 %
Manufacturing 5.1 % 9.5 %
Metal fabrication 4.3 % 4.2 %
Industrial services 2.8 % 2.9 %
Equipment rental 2.0 % 2.4 %
Information services 0.9 % 1.2 %
Infrastructure products 0.5 % 2.2 %
Distribution 0.4 % 2.4 %
Mining and minerals — 12.9 %

100.0 % 100.0 %

Main Street’s core portfolio investments are generally in lower middle-market companies conducting business in a variety of industries. At December 31, ~~2007,~~2008, Main Street had ~~no investments that were greater than 10% of its total investment portfolio. At December 31 2006, Main Street had~~ one ~~such~~ investment that was greater than 10% of ~~the~~its total core investment ~~portfolio.~~portfolio at fair value. That investment represented approximately ~~11%~~13.8% of ~~Main Street’s~~the portfolio at fair ~~value and~~value. At December 31, 2007, Main Street had one investment that was greater than 10% of its total core investment portfolio at fair value. That investment represented approximately 5%10.5% of the core investment portfolio at ~~cost.~~fair value.
~~NOTE D — WHOLLY-OWNED INVESTMENT MANAGER~~
NOTE D — WHOLLY OWNED INVESTMENT MANAGER
As part of the Formation Transactions, ~~described in Note A,~~the Investment Manager became a wholly owned subsidiary of MSCC. However, the Investment Manager is accounted for as a portfolio investment of Main Street, since the Investment Manager is not an investment company and since it conducts a significant portion of its investment management activities for Main Street Capital II, LP (“MSC II”), a separate SBIC fund, which is not part of MSCC ~~acquired 100%~~or one of ~~the equity interests~~its subsidiaries. The Investment Manager receives recurring investment management fees from MSC II pursuant to a separate investment advisory agreement, paid quarterly, which currently total $3.3 million per year. The portfolio investment in the Investment Manager is accounted for ~~1,200,000 shares~~using fair value accounting, with the fair value determined by Main Street and approved, in good faith, by Main Street’s Board of ~~common stock valued at $18,000,000.~~Directors, based on the same valuation methodologies applied to determine the original $18 million valuation. The ~~$18,000,000~~original valuation for the Investment Manager was based on the estimated present value of the net cash flows received for investment management services ~~to be~~ provided to ~~Main Street Capital~~MSC II, over the estimated dollar averaged life of the related management contract, and was also based ~~upon~~on comparable public market transactions. ~~For 2008, annual~~The net cash ~~flow from Main Street Capital II for these investment management services will be approximately $3,300,000.~~
~~Upon acquisition,~~flows utilized in the valuation of the Investment Manager ~~became a wholly-owned subsidiary~~exclude any revenues and expenses from all related parties (including MSCC) but include the management fees from MSC II and an estimated allocation of MSCC. However, the Investment Manager is accounted for as a portfolio investment of Main Street since it conducts a significant portion of its investment management activities for Main Street Capital II, a separate SBIC, which is not part of MSCC or one of its subsidiaries. The investment in the Investment Manager is accounted for using fair value accounting with the fair value determined in good faith by Main Street’s Board of Directors based upon the same valuation methodologies appliedcosts related to ~~determine the original $18,000,000 valuation discussed above.~~providing services to MSC II. Any change in fair value of the
84

MAIN STREET CAPITAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Investment Manager investment is recognized on Main Street’s ~~income~~ statement of operations as ~~unrealized~~“Unrealized appreciation (depreciation) in ~~“Investment~~Investment in affiliated Investment ~~Manager”~~Manager,” with a corresponding increase (in the case of appreciation) or decrease (in the case of depreciation) to “Investment in affiliated Investment Manager” on Main Street’s balance sheet. ~~For the period from October 2, 2007 (the date of the Formation Transactions) to December 31, 2007, MSCC’s investment in the Investment Manager depreciated $375,000.~~ Main Street believes that the valuation for the Investment Manager will decrease over the life of the management contract with ~~Main Street Capital~~MSC II, absent obtaining additional ~~future~~recurring cash flows ~~for~~from performing investment management activities for other external investment entities.

The Investment Manager has elected, for tax purposes, to be treated as a ~~corporation~~taxable entity and is taxed at normal corporate tax rates based ~~upon~~on its taxable income. The taxable income of the Investment Manager may differ from its book income due to ~~deferred~~temporary book and tax timing differences, as well as permanent differences. The Investment Manager provides for any current taxes payable and deferred tax items in its separate financial statements.

MSCC has a support services agreement with the Investment ~~Manager.~~Manager that is structured to provide reimbursement to the Investment Manager for any personnel, administrative and other costs it incurs in conducting its operational and investment management activities in excess of the investment management fees received from MSC II. As a ~~100%~~wholly owned subsidiary of MSCC, the Investment Manager manages theday-to-day operational and investment activities of ~~Main Street.~~MSCC and its subsidiaries, as well as the investment activities of MSC II. The Investment Manager pays ~~normal operating~~personnel and other administrative expenses, except those specifically required to be borne by MSCC, which principally include direct costs that are specific to MSCC’s status as a ~~publicly-traded~~publicly traded entity. The expenses paid by the Investment Manager include the cost of salaries and related benefits, rent, equipment and other administrative costs required for ~~Main Street’s~~ day-to-day operations.

~~Subsequent~~Pursuant to the ~~Formation Transactions and the Offering,~~support services agreement with MSCC, the Investment Manager is reimbursed for its excess expenses associated with providing investment management and other services to MSCC and its subsidiaries, as well as ~~Main Street Capital~~MSC II. Each quarter, as part of the support services agreement, MSCC makes payments to cover all expenses incurred by the Investment Manager, less ~~amounts~~the recurring management fees that the Investment Manager receives from ~~Main Street Capital~~MSC II pursuant to a ~~separate~~long-term investment advisory services agreement. For the year ended December 31, 2008, the expenses reimbursed by MSCC to the Investment Manager were approximately $1.0 million. For the period from October 2, 2007 through December 31, 2007, no expenses were reimbursed by MSCC to the Investment Manager.

In its separate stand alone financial statements as presented below, the Investment Manager recognized an $18 million intangible asset related to the investment advisory agreement with MSC II and consistent with Staff Accounting Bulletin No. 54,Application of “Pushdown” Basis of Accounting in Financial Statements of Subsidiaries Acquired by Purchase(“SAB 54”). Under SAB 54, push-down accounting is required in “purchase transactions that result in an entity becoming substantially wholly owned.” In this case, MSCC acquired 100% of the equity interests in the Investment Manager. Because the $18 million value attributed to MSCC’s investment in the Investment Manager was derived from the long-term, recurring management fees under the investment advisory agreement with MSC II, the same methodology used to determine the $18 million valuation of the Investment Manager was utilized to establish the push-down accounting basis for the intangible asset. The intangible asset is being amortized over the estimated economic life of the investment advisory agreement with MSC II. As of December 31, 2008, the Investment Manager recognized $1,174,207 in cumulative amortization expense associated with the intangible asset. Amortization expense is not included in the expenses reimbursed by MSCC to the Investment Manager based upon the support services agreement between the two entities since it is non-cash in nature.

MAIN STREET CAPITAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Summarized financial information ~~for~~from the separate financial statements of the Investment Manager is as follows:


				As of December 31,
				2008		2007
	As of			(Unaudited)
	December 31, 2007
ASSETS			ASSETS
Current assets	$	129,675
Cash				$	20,772	$	86,439
Accounts receivable					17,990		14,142
Accounts receivable — MSCC					302,633		—
Intangible asset (net of accumulated amortization of $1,174,207 as of December 31, 2008)					16,825,793		18,000,000
Deposits and other					103,392		29,094

Total assets	$	129,675		$	17,270,580	$	18,129,675


LIABILITIES			LIABILITIES
Current liabilities**	$	274,247
Accounts payable — MSCC				$	—	$	207,898
Accrued liabilities					589,360		66,349

Total liabilities	$	274,247			589,360		274,247
Equity					16,681,220		17,855,428

Total liabilities and equity				$	17,270,580	$	18,129,675

For the Period
October 2, 2007
through
December 31, 2007
Management fee income from Main Street Capital II $ 831,300
Compensation and other administrative expenses (831,300 )

Net income $ —


**		~~Includes $207,783 due to MSCC.~~

For the Period

October 2,

2007

Year Ended
through

December 31,
December 31,

2008 2007
(Unaudited)

Management fee income from Main Street Capital II $ 3,325,200 $ 831,300
Other management advisory fees 47,750 —

Total income 3,372,950 831,300
EXPENSES

Salaries, benefits and other personnel costs (3,483,336 ) (612,377 )
Occupancy expense (184,285 ) (45,343 )
Professional expenses (81,208 ) (57,703 )
Amortization expense — intangible asset (1,174,207 ) —
Other (630,956 ) (115,877 )
Expense reimbursement from MSCC 1,006,835 —

Total net expenses (4,547,157 ) (831,300 )

Net income (loss) $ (1,174,207 ) $ —

Prior to the Formation Transactions and the ~~Offering,~~IPO, the Fund had a ~~management~~separate investment advisory agreement with the Investment Manager which provided for recurring management fees to be paid from the Fund to the Investment Manager. ~~The~~As part of this agreement, the Investment Manager ~~managed~~was responsible for managing the day-to-day operational and investment activities of the Fund. Subsequent to the Formation Transactions and IPO, the Fund ~~paying~~has not paid any management fees to the ~~same types of operating expenses as noted in the support services agreement with~~Investment Manager since both entities are now

86

MAIN STREET CAPITAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

wholly owned by MSCC. Management fees paid by the Fund to the Investment Manager, prior to the Formation Transactions and IPO, for the years ended December 31, 2007 ~~2006~~ and ~~2005~~2006 were $1,499,937 ~~$1,942,032~~ and ~~$1,928,763,~~$1,942,032, respectively.

~~NOTE E — DEFERRED FINANCING COSTS~~


NOTE E —	DEFERRED FINANCING COSTS

Deferred financing costs balances as of December 31, ~~2007~~2008 and ~~2006~~2007 are as follows:


							December 31,
	December 31,						2008			2007
	2007			2006
SBIC debenture commitment fees	$	550,000		$	550,000		$	550,000		$	550,000
SBIC debenture leverage fees		1,367,575			1,127,500			1,367,575			1,367,575
Other		282,512			—			673,700			282,512

Subtotal		2,200,087			1,677,500			2,591,275			2,200,087
Accumulated amortization		(529,952	)		(343,846	)		(956,037	)		(529,952	)

Ending deferred financing costs balance	$	1,670,135		$	1,333,654		$	1,635,238		$	1,670,135

Estimated aggregate amortization expense for each of the five years succeeding December 31, ~~2007~~2008 and thereafter is as follows:

Year Ending Estimated
December 31, Amortization
2008 $ 333,013
2009 333,013
2010 191,757
2011 191,757
2012 191,757
2013 and thereafter $ 428,838

Estimated

Years Ending December 31,
Amortization

2009 $ 402,091
2010 $ 316,689
2011 $ 295,867
2012 $ 191,758
2013 $ 182,424
2014 and thereafter $ 246,409
NOTE F — SBIC DEBENTURES
~~NOTE F — SBIC DEBENTURES~~
SBIC debentures payable at both December 31, 2008 and 2007 ~~and December 31, 2006 were $55,000,000 and $45,100,000, respectively.~~was $55,000,000. SBIC debentures provide for interest to be paid semi-annually with principal due at the applicable10-year maturity date. Main Street paid interest on the SBIC debentures of ~~$2,852,002~~$3,188,015 and ~~$2,475,926~~$2,852,002 for the years ended ~~2007~~2008 and ~~2006,~~2007, respectively. The weighted average interest rate as of December 31, 2008 and 2007 ~~and 2006~~ was ~~5.7806%, and 5.6761%, respectively.~~5.78%. The first principal maturity due under the existing SBIC debentures is in 2013. Main Street is subject to regular compliance examinations by the SBA. There have been no historical findings resulting from these examinations.

87

MAIN STREET CAPITAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

SBIC Debentures payable at December 31, ~~2007~~2008 and ~~2006~~2007 consist of the following:

Maturity Fixed
Pooling Date Date Interest Rate Amount
09/24/2003 09/01/2013 5.762 % $ 4,000,000
03/24/2004 03/01/2014 5.007 % 3,000,000
09/22/2004 09/01/2014 5.571 % 9,000,000
09/22/2004 09/01/2014 5.539 % 6,000,000
03/23/2005 03/01/2015 5.925 % 2,000,000
03/23/2005 03/01/2015 5.893 % 2,000,000
09/28/2005 09/01/2015 5.796 % 19,100,000

Balance as of December 31, 2006
45,100,000
3/28/2007 03/01/2017 6.231 % 3,900,000
3/28/2007 03/01/2017 6.263 % 1,000,000
3/28/2007 03/01/2017 6.317 % 5,000,000

Balance as of December 31, 2007
$ 55,000,000

Fixed

Maturity
Interest

Pooling Date
Date Rate Amount

9/24/2003 9/1/2013 5.76 % $ 4,000,000
3/24/2004 3/1/2014 5.01 % 3,000,000
9/22/2004 9/1/2014 5.57 % 9,000,000
9/22/2004 9/1/2014 5.54 % 6,000,000
3/23/2005 3/1/2015 5.93 % 2,000,000
3/23/2005 3/1/2015 5.89 % 2,000,000
9/28/2005 9/1/2015 5.80 % 19,100,000
3/28/2007 3/1/2017 6.23 % 3,900,000
3/28/2007 3/1/2017 6.26 % 1,000,000
3/28/2007 3/1/2017 6.32 % 5,000,000

Balances as of December 31, 2008 and 2007
$ 55,000,000

~~NOTE G — REVOLVING LINE OF CREDIT~~
NOTE G — INVESTMENT AND TREASURY CREDIT FACILITIES
On October 24, 2008, Main Street entered into a $30 million, three-year investment credit facility (the “Investment Facility”) with Branch Banking and Trust Company (“BB&T”) and Compass Bank, as lenders, and BB&T, as administrative agent for the lenders. The purpose of the Investment Facility is to provide additional liquidity in support of future investment and operational activities. The Investment Facility allows for an increase in the total size of the facility up to $75 million, subject to certain conditions, and has a maturity date of October 24, 2011. Borrowings under the Investment Facility bear interest, subject to Main Street’s election, on a per annum basis equal to (i) the applicable LIBOR rate plus 2.75% or (ii) the applicable base rate plus 0.75%. Main Street will pay unused commitment fees of 0.375% per annum on the average unused lender commitments under the Investment Facility. The Investment Facility is secured by certain assets of MSCC, MSEI and the Investment Manager. The Investment Facility contains certain affirmative and negative covenants, including but not limited to: (i) maintaining a minimum liquidity of not less than 10% of the aggregate principal amount outstanding, (ii) maintaining an interest coverage ratio of at least 2.00 to 1.00, and (iii) maintaining a minimum tangible net worth. At December 31, 2008, Main Street had no borrowings outstanding under the Investment Facility, and Main Street was in compliance with all covenants of the Investment Facility.
On December 31, 2007, Main Street entered into a ~~Treasury Secured Revolving Credit Agreement~~treasury-based credit facility (the ~~“Credit Agreement”~~“Treasury Facility”) among Main Street, Wachovia Bank, National Association and ~~Branch Banking and Trust Company (“~~BB~~&T”),~~&T, as administrative agent for the lenders. ~~As of December 31, 2007, Main Street did not have any outstanding borrowings under the Credit Agreement.~~
~~Under the Credit Agreement, the lenders have agreed to extend revolving loans to Main Street in an amount not to exceed $100,000,000.~~ The purpose of the ~~Credit Agreement~~Treasury Facility is to provide flexibility in the sizing of portfolio investments and to facilitate the growth of Main Street’s investment portfolio. Under the Treasury Facility, the lenders had agreed to extend revolving loans to Main Street in an amount not to exceed $100 million; however, due to the maturation of Main Street’s investment portfolio and the additional flexibility provided by the Investment Facility, Main Street unilaterally reduced the Treasury Facility from $100 million to $50 million during October 2008. The ~~Credit Agreement~~reduction in the size of the Treasury Facility will reduce the amount of unused commitment fees paid by Main Street. The Treasury Facility has a two-year term and bears interest, at Main Street’s option, either (i) at the LIBOR rate or (ii) at a published prime rate of interest, plus ~~25 basis points~~0.25% in each case. The applicable interest rates under the ~~Credit Agreement~~Treasury Facility would be increased by ~~15 basis points~~0.15% if usage under the ~~Credit Agreement~~Treasury Facility is in excess of 50% of the days within a given calendar quarter. The ~~Credit Agreement also~~Treasury Facility requires payment of ~~15 basis points~~0.15% per annum in unused commitment fees based on average daily unused balances under the facility. The ~~Credit Agreement~~Treasury Facility is secured by certain securities accounts maintained for Main Street by BB&T

88

MAIN STREET CAPITAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

and is also guaranteed by Main Street’s wholly-owned Investment Manager. The Treasury Facility contains certain affirmative and negative covenants, including but not limited to: (i) maintaining a cash collateral coverage ratio of at least 1.01 to 1.0, (ii) maintaining an interest coverage ratio of at least 2.0 to 1.0, and (iii) maintaining a minimum tangible net worth. At December 31, ~~2007, because there were no amounts outstanding on this Credit Agreement, there were no securities pledged against it.~~

~~NOTE H — PRE-PAID VARIABLE DELIVERY FORWARD TRANSACTION~~

On April 9, 2004, Main Street received 64,888 shares of common stock (the “Shares”) of Autobytel, Inc. (“Autobytel”), a publicly traded company, as the non-cash portion of the consideration received from the sale of Main Street’s warrant position in iDriveonline, Inc. (“iDrive”) as a result of Autobytel’s acquisition of iDrive. The Shares were not registered and therefore such Shares had certain restrictions on Main Street’s ability to sell the Shares for the period from April 9, 2004 to April 8, 2005.

On May 13, 2004, Main Street entered into a Pre-paid Variable Delivery Forward Transaction (the “Derivative Instrument”) with a financial institution to hedge against the risk associated with potential volatility of the stock market valuation of the Shares. The Shares were held in custody by the financial institution and the Derivative Instrument had a contractual forward settlement date of May 12, 2005. The Derivative Instrument was executed based upon an average per share price of $9.30 and resulted in proceeds (net of transaction costs) to Main Street of $8.11 per Share, or $526,242. Under the terms of the Derivative Instrument and based upon the transaction proceeds recorded by Main Street on the transaction date,2008, Main Street had no ~~exposure through May 12, 2005 to a decrease~~borrowings outstanding under the Treasury Facility, and Main Street was in ~~the market value~~compliance with all covenants of the Shares below $8.37 per Share and had the potential for an increase in the market value of the Shares above $8.37 per Share through May 12, 2005, up to a maximum of $10.695 per Share, or an additional $150,865.

In 2005, the contract was closed by delivery of Shares to the financial institution. In 2005, Main Street recognized realized gains of $526,242 that were previously included in unrealized gains and recognized realized gains of $115,966 based on the price per share at the settlement date and the additional proceeds received related to this transaction.Treasury Facility.

~~NOTE I — FINANCIAL HIGHLIGHTS~~


NOTE H —	FINANCIAL HIGHLIGHTS

The financial highlights are prepared in accordance with the guidance on exchanges of shares between entities under common control contained in SFAS 141, with ratios and per share amounts calculated as if the Formation Transactions and the ~~Offering~~IPO had occurred as of January 1, 2007. In addition, in accordance with SFAS 141, the financial highlights of Main Street for the years ended December 31, 2006 and 2005 have been presented on a combined basis in order to provide comparative information with respect to prior periods.

Year Ended
December 31,
Per Share Data: 2007
Net asset value at beginning of year $ 4.90

Net investment income (1) 0.76
Net realized gains (1), (2) 0.55
Net change in unrealized depreciation on investments (1), (2) (0.63 )
Income taxes (1) (0.38 )

Net increase in net assets resulting from operations (1) 0.30
Net increase in net assets associated with the Formation Transactions and the Offering 8.66
Net decrease in net assets from net distributions to partners (prior to Formation Transactions) (1), (3) (0.72 )
Net decrease in net assets from dividends paid to stockholders (subsequent to the Offering) (0.33 )
Shares issued pursuant to the dividend reinvestment plan 0.22
Other (4) (0.18 )

Net asset value at end of year $ 12.85

Market value at end of year $ 14.01
Shares outstanding at end of year 8,959,718

Years Ended December 31,
Per Share Data:
2008 2007

Net asset value at beginning of period $ 12.85 $ 4.90
Net investment income(1) 1.15 0.76
Net realized gains(1)(2) 0.16 0.55
Net change in unrealized depreciation on investments(1)(2) (0.44 ) (0.63 )
Income tax benefit (provision)(1) 0.35 (0.38 )

Net increase in net assets resulting from operations(1) 1.22 0.30
Net increase in net assets associated with the Formation Transactions and the Offering — 8.66
Net decrease in net assets from dividends paid to stockholders (1.43 ) (0.33 )
Net decrease in net assets from dividends declared as of December 31, 2008 for the January 15, 2009 monthly dividend (0.13 ) —
Net decrease in net assets from distributions to partners, net of contributions(3) — (0.72 )
Increase due to shares issued pursuant to the dividend reinvestment plan 0.02 0.22
Increase due to share-based compensation 0.06 —
Accretive effect of share repurchase program (repurchases below net asset value) 0.01 —
Other(4) (0.40 ) (0.18 )

Net asset value at December 31, 2008 and 2007 $ 12.20 $ 12.85

Market value at December 31, 2008 and 2007 $ 9.77 $ 14.01
Shares outstanding at December 31, 2008 and 2007 9,206,483 8,959,718
⁽¹⁾ Based on weighted average number of common shares outstanding for the period.

⁽²⁾ Net realized gains and net change in unrealized appreciation or depreciation can fluctuate significantly from period to period.

⁽³⁾ Net of partner contributions made during the period.

⁽⁴⁾ Represents the impact of the different share amounts used in calculating per share data as a result of calculating certain per share data based on the weighted average basic shares outstanding during the period and certain per share data based on the shares outstanding as of a period end or transaction date.
67
89

Years Ended December 31,
2007 2006(1) 2005(1)
Net assets at end of period $ 115,149,208 $ 43,272,531 $ 33,268,742
Average net assets 56,882,526 38,621,188 23,534,007
Average outstanding debt 53,020,000 45,100,000 34,400,000
Ratio of total expenses, excluding interest expense, to average net assets(2)(4) 4.76 % 5.54 % 9.03 %
Ratio of total expenses to average net assets(2)(4) 10.47 % 12.58 % 17.80 %
Ratio of net investment income to average net assets 11.47 % 12.70 % 14.32 %
Total return based on change in net asset value(3)(5) 5.88 % 47.56 % 45.77 %

MAIN STREET CAPITAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Years Ended December 31,
2008 2007 2006(1)

Net assets at end of period $ 112,356,056 $ 115,149,208 $ 43,272,531
Average net assets $ 114,977,272 $ 56,882,526 $ 38,621,188
Average outstanding debt $ 55,000,000 $ 53,020,000 $ 45,100,000
Ratio of total expenses, excluding interest expense, to average net assets(2)(4) 2.79 % 4.76 % 5.54 %
Ratio of total expenses to average net assets(2)(4) 6.07 % 10.47 % 12.58 %
Ratio of net investment income to average net assets(2)(4) 8.97 % 11.47 % 12.70 %
Total return based on change in net asset value(3)(5) 9.84 % 5.88 % 47.56 %
(1) The amounts reflected in the financial highlights ~~above~~ represent the combined general partner and limited partner amounts.

(2) The Investment Manager voluntarily waived $48,000 of management fees for the ~~years~~year ended December 31, ~~2006 and 2005.~~2006.

(3) Total return based on change in net asset value was calculated using the sum of ending net asset value plus distributions to stockholders and/or members and partners during the period less capital contributions during the period, as divided by the beginning net asset value.

(4) The December 31, 2007 ratio includes the impact of professional costs related to the ~~Offering.~~IPO. These costs were 25.7% and 11.7% of operating expense and total expenses, respectively, for that period.

(5) For the ~~periods~~period prior to the Formation Transactions, this ratio combines the total return for both the managing investors (the General Partner) and the non-managing investors (limited partners).
~~NOTE J — DIVIDEND, DISTRIBUTIONS AND TAXABLE INCOME~~
NOTE I — DIVIDENDS, DISTRIBUTIONS AND TAXABLE INCOME
OnIn September 2008, Main Street announced that it would begin making dividend payments on a monthly, as opposed to a quarterly, basis beginning in October 2008. Main Street’s Board of Directors declared monthly dividends of $0.125 per share for each of October, November ~~30,~~and December 2008.
For the year ended December 31, 2008, Main Street’s Board of Directors declared dividends of approximately $14.1 million or $1.55 per share of common stock, with $13.0 million or $1.425 per share paid to stockholders during 2008 and $1.1 million or $0.125 per share accrued based upon record date as of December 31, 2008 for the January 2009 monthly dividend. The dividends were comprised of ordinary income totaling $8.6 million, or $0.95 per share, and long term capital gain totaling $5.5 million, or $0.60 per share. During the period from October 2, 2007 (the date of the Formation Transactions) through December 31, 2007, Main Street’s Board of Directors declared a dividend of ~~$2,912,820~~$2.9 million, or $0.33 per common share. The dividend was comprised of ordinary income ~~($926,921~~totaling $0.9 million, or $0.105 per ~~share)~~share, and long term capital gain ~~($1,985,899~~totaling $2.0 million, or $0.225 per ~~share).~~share. Ordinary dividend distributions from a RIC do not qualify for the 15% maximum tax rate on dividend income from domestic corporations and qualified foreign corporations except to the extent that the RIC received the income in the form of qualifying dividends from domestic corporations and qualified foreign ~~corporations (which Main Street did not receive in 2007).~~corporations.
~~Main Street intends to elect~~
MSCC has elected to be treated for federal income tax purposes as a RIC on its 2007 tax return. As a RIC, Main Street generally will not pay corporate-level federal income taxes on any net ordinary income or capital gains that Main Street distributes to its stockholders as dividends. Main Street must distribute at least 90% of its investment company taxable income to qualify for pass-through tax treatment and maintain its RIC status. Main Street has distributed and currently intends to distribute sufficient dividends to qualify as a RIC.
90

MAIN STREET CAPITAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

As part of maintaining RIC status, dividends pertaining to a given fiscal year may be distributed up to 12 months subsequent to the end of that fiscal year provided such dividends are declared prior to the filing of Main Street’s federal income tax return.

Main Street will generally be required to pay an excise tax equal to 4% of the amount by which 98% of the company’s annual taxable income for a given year exceeds the distributions for ~~the~~such year. For the ~~year~~years ended December 31, 2008 and 2007, estimated annual taxable income ~~was in excess of its~~exceeded dividend distributions from such taxable income, and accordingly, Main Street accrued to “Income tax ~~provision”~~provision (benefit)” an excise tax of $112,625 on the 2008 estimated excess taxable income carried forward into 2009 and $60,000 on the 2007 estimated excess taxable income carried forward into 2008. For the year ended December 31, 2008, estimated excess taxable income carried forward into 2009 totaled $2,799,963 million and was reduced by, for tax purposes, the monthly dividend paid in January 2009 since it was declared and accrued prior to December 31, 2008. This tax treatment resulted in a reduction of the 2008 excise taxes required to be paid. Excluding the impact for this tax treatment of the January 2009 dividend, Main Street estimates that it generated undistributed taxable income of $3,952,448 million during 2008 that will be carried forward toward distributions paid in 2009. For the year ended December 31, 2007, excess taxable income carried forward into 2008 totaled $1,481,131 million.

Main Street’s wholly-owned subsidiary, MSEI, is a taxable entity which holds certain portfolio investments of Main Street. MSEI is consolidated with Main Street, and the portfolio investments held by MSEI are included in Main Street’s consolidated financial statements. The purpose of MSEI is to permit Main Street to hold portfolio companies which are “pass through” entities for tax purposes in order to comply with the “source income” requirements contained in the RIC tax provisions of the Code. MSEI is not consolidated with Main Street for income tax purposes and may generate income tax expense or income tax benefit as a result of its ownership of the portfolio investments. This income tax expense or benefit, if any, is reflected in Main Street’s Consolidated Statement of Operations. For the year ended December 31, 2008, Main Street recognized an income tax benefit of $3,182,401 primarily related to non-cash deferred taxes on unrealized depreciation for certain portfolio investments that are owned by MSEI. Main Street does not anticipate having this level of income tax benefit in future periods. For the period from October 2, 2007 (the date of the Formation Transactions) through December 31, 2007, ~~and as part of Main Street’s initial election to be treated as a RIC on its 2007 tax return,~~ Main Street recognized a cumulative income tax expense of ~~$3,191,139 associated with the~~$3,262,539 primarily related to non-cash deferred taxes on unrealized appreciation from portfolio investments that were contributed to ~~MSEI, with $3,025,672 comprising cumulative deferred taxes and $165,467 comprising current taxes payable.~~MSEI.

Main Street’s provision for income taxes, including MSEI, was comprised of the following:


	December 31,		Years Ended December 31,
	2007		2008			2007
Current tax expense:

Current tax expense (benefit):
Federal	$	162,274	$	663,767		$	162,274
State		14,593		188,560			14,593

Total current tax expense		176,867
Deferred tax expense:
Total current tax expense (benefit)				852,327			176,867
Deferred tax expense (benefit):
Federal		2,967,286		(4,061,969	)		2,967,286
State		58,386		(85,384	)		58,386

Total deferred tax expense		3,025,672

Total deferred tax expense (benefit)				(4,147,353	)		3,025,672
Excise tax		60,000		112,625			60,000

Total provision for income taxes	$	3,262,539
Total income tax provision (benefit)			$	(3,182,401	)	$	3,262,539

Listed below is a reconciliation of “Net Increase in Net Assets Resulting From Operations” to taxable income and to total distributions to common stockholders for the ~~year~~years ended December 31, 2008 and 2007.

(Estimated) (1)
Net increase in net assets resulting from operations $ 2,544,876
Earnings prior to Formation Transactions (5,819,311 )
Net change in unrealized depreciation from investments subsequent to Formation Transactions 5,420,834
Net income from taxable subsidiary, MSEI, net of income tax provision (2) (622,545 )
Cumulative deferred tax expense related to MSEI portfolio investments for the period prior to Formation Transactions 2,864,123
Nondeductible excise tax 60,000
Other realized loss related items (90,098 )

Taxable income 4,357,879
Taxable income earned in current year and carried forward for distribution in next year (1,445,059 )

Total distributions to common stockholders $ 2,912,820

MAIN STREET CAPITAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Years Ended December 31,
2008 2007
(Estimated)

Net increase in net assets resulting from operations $ 10,933,939 $ 2,544,876
Earnings prior to Formation Transactions — (5,819,311 )
Share-based compensation 511,452 —
Net change in unrealized depreciation on investments 3,961,092 4,597,897
Income tax provision (benefit) (3,182,401 ) 3,262,539
Pre-tax loss (income) of taxable subsidiary, MSEI, not consolidated for tax purposes 2,182,580 (126,624 )
Book income and tax income differences, including debt origination, structuring fees and realized gains 1,033,436 (65,426 )

Taxable income(1) 15,440,098 4,393,951
Taxable income earned in prior year and carried forward for distribution in current year 1,481,131 —
Taxable income earned in current year and carried forward for distribution (2,799,963 ) (1,481,131 )

Total distributions declared to common stockholders $ 14,121,266 $ 2,912,820

(1) Main Street’s taxable income for ~~2007~~2008 is an estimate and will not be finally determined until the company files its ~~2007~~2008 tax return in September ~~2008.~~2009. Therefore, the final taxable income, and the taxable income earned in ~~2007~~2008 and carried forward for distribution in ~~2008~~2009, may be different than this estimate.
~~(2)~~ The MSEI income tax provision is for the period subsequent to the Formation Transactions (October 2, 2007 through December 31, 2007) and consists of a current component ($165,467) and a deferred component ($161,549).
The net deferred tax ~~liability~~asset at December 31, ~~2007~~2008 was ~~$3,025,672, consisting of deferred tax assets of $202,125~~$1,121,681 and ~~deferred tax liabilities of $3,227,797. The deferred tax assets are~~ primarily related to timing differences from recognition of unrealized losses from debt and equity investments in portfolio companies as well as timing differences from taxable income from equity investments in portfolio companies which are flow through entities. The net deferred tax ~~liabilities are~~liability at December 31, 2007 was $3,025,672 and primarily related to timing differences from recognition of unrealized gains from equity investments in portfolio companies. Management believes that the realization of the deferred tax asset is more likely than not based on expectations as to future taxable income and scheduled reversals of temporary differences. Accordingly, Main Street did not record a valuation allowance at December 31, ~~2007.~~2008.
69
Prior to the Formation Transactions, Main Street was taxed under the partnership provisions of the Code. Under these provisions of the Code, the General Partner and limited partners are responsible for reporting their share of the partnership’s income or loss on their income tax returns. Taxable income generally differs from net income for financial reporting purposes due to temporary and permanent differences in the recognition of income and expenses, and generally excludes net unrealized appreciation or depreciation, as gains or losses are not included in taxable income until they are realized. Listed below is a reconciliation of Net Increase in Net Assets Resulting From Operations to taxable income for the ~~years~~year ended December 31, ~~2006~~2006.
92
MAIN STREET CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Year Ended

December 31,

2006

Net increase in members’ equity and partners’ capital resulting from operations $ 15,822,997
Net change in unrealized depreciation from investments (8,488,514 )
Accrual basis to cash basis adjustments:
Deferred debt origination fees included in taxable income 709,980
Accretion of unearned fee income for book income (517,649 )
Net change in interest receivable (93,480 )
Net change in interest payable 83,459
Portfolio company pass through taxable income (loss) 610,866
Other (321,295 )

Taxable income $ 7,806,364

NOTE J — COMMON STOCK AND SHARE REPURCHASE PROGRAM
On November 13, 2008, Main Street announced that its Board of Directors authorized its officers, in their discretion and ~~2005.~~subject to compliance with the 1940 Act and other applicable law, to purchase on the open market or in privately negotiated transactions, an amount up to $5 million of the outstanding shares of Main Street’s common stock at prices per share not to exceed Main Street’s last reported net asset value per share. The share repurchase program is authorized to be in effect through the earlier of December 31, 2009 or such time as the approved $5 million repurchase amount has been fully utilized. Main Street can not assure the extent that it will conduct future open market purchases. The share repurchase program does not require Main Street to repurchase any specific number of shares and may be discontinued at any time. Shares purchased under the repurchase program will be accounted for as treasury stock until such time as the shares are cancelled or reissued. During November and December 2008, Main Street purchased 34,700 shares in connection with the repurchase program at a weighted average cost of $9.54 per share.

2006 2005
Net increase in net assets resulting from operations $ 15,822,997 $ 7,890,063
Net change in unrealized (appreciation) from investments (8,488,514 ) (3,032,274 )
Accrual basis to cash basis adjustments:
Deferred debt origination fees included in taxable income 709,980 535,250
Accretion of unearned fee income for book income (517,649 ) (508,406 )
Net change in interest receivable (93,480 ) (182,324 )
Net change in interest payable 83,459 417,325
Portfolio company pass through taxable income (loss) 610,866 (815,510 )
Other (321,295 ) (441,231 )

Taxable income $ 7,806,364 $ 3,862,893

~~NOTE K — COMMON STOCK~~
On October 2, 2007, Main Street initiated the Formation Transactions and acquired 100% of the equity interests in the Fund, the General Partner and the Investment Manager in exchange for 4,525,726 shares.
On October 4, 2007, Main Street completed the ~~Offering.~~IPO. The ~~Offering~~IPO consisted of the public offering and sale of 4,300,000 shares of common stock, including the underwriters’ exercise of the over-allotment option, at a price to the public of $15.00 per share, resulting in net proceeds of approximately $60.2 million, after deducting underwriters’ commissions totaling approximately $4.3 million.
~~In connection with Main Street’s November 2007 dividend, the company issued new shares as part of the company’s dividend reinvestment plan (“DRIP”) totaling $1,903,116, or 132,992 shares.~~
NOTE K — PARTNERS’ CAPITAL CONTRIBUTIONS, ALLOCATIONS AND DISTRIBUTIONS
~~As of December 31, 2007, Main Street had 8,959,718 shares of common stock outstanding.~~
~~NOTE L — PARTNERS’ CAPITAL CONTRIBUTIONS, ALLOCATIONS AND DISTRIBUTIONS~~
Prior to the Formation Transactions, the Fund had received irrevocable commitments from investors to contribute capital of $26,665,548, which had been substantially paid in through the date of the Formation Transactions (October 2, 2007).
The Fund is a licensed SBIC, and prior to the Formation Transactions, was able to make distributions of cashand/or property only at such times as permitted by the SBIC Act and as determined under the Partnership Agreement. Under the Partnership Agreement, the General Partner was entitled to 20% of the Fund’s distributions, subject to a “clawback” provision that required the General Partner to return an amount of allocated profits and distributions to the Fund if, and to the extent that, distributions to the General Partner over the life of the Fund caused the limited partners of the Fund to receive cumulative distributions which were less than their share (approximately 80%) of the cumulative net profits of the Fund. The Fund made total distributions of $6,500,000 and $6,174,297 (including a $530,000 return of capital distribution) ~~and $2,882,936~~ from January 1,
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MAIN STREET CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
2007 through the date of the Formation Transactions (October 2, 2007) and for the ~~years~~year ended December 31, 2006, ~~and 2005,~~ respectively.
~~NOTE M — DIVIDEND REINVESTMENT PLAN~~
NOTE L — DIVIDEND REINVESTMENT PLAN (“DRIP”)
Main ~~Street maintains a dividend reinvestment plan that~~Street’s DRIP provides for the reinvestment of dividends on behalf of its stockholders, unless a stockholder has elected to receive dividends in cash. As a result, if Main Street declares a cash dividend, the company’s stockholders who have not “opted out” of the DRIP by the dividend record date will have their cash dividend automatically reinvested into additional shares of MSCC common stock. Main Street has the option to satisfy the share requirements of the DRIP through the issuance of ~~new~~ shares of common stock or through open market purchases of common stock by the DRIP plan administrator. Newly issued shares will be valued based upon the final closing price of MSCC’s common stock on the valuation date determined by Main Street’s Board of Directors. Shares purchased in the open market to satisfy the DRIP requirements will be valued based upon the average price of the applicable shares purchased by the DRIP plan administrator, before any associated brokerage or other costs.
For the year ended December 31, 2008, $4,918,649 of the total $12,968,780 in dividends paid to stockholders that were attributable to 2008 represented DRIP participation, and 382,794 shares of common stock were purchased in the open market to satisfy the DRIP participation requirements. Additionally, 15,820 shares valued at $213,729 were issued to satisfy remaining DRIP obligations. During December 2008, Main Street funded $400,000 to its dividend reinvestment plan administrator for the purchase of common stock in the open market to satisfy the DRIP participation requirements in connection with the January 2009 monthly dividend. For the year ended December 31, 2007, $1,903,116 of the total $2,912,820 ~~distribution~~in dividends paid to stockholders represented DRIP participation and 132,992 shares of common ~~shares~~stock were issued to satisfy the DRIP participation requirements. The shares disclosed above relate only to Main Street’s DRIP and exclude any activity related to broker-managed dividend reinvestment plans.
NOTE M — SHARE-BASED COMPENSATION
Main Street accounts for its share-based compensation plan using the fair value method, as prescribed by SFAS 123R. Accordingly, for restricted stock awards, Main Street measured the grant date fair value based upon the market price of its common stock on the date of the grant and will amortize this fair value into share-based compensation expense over the requisite service period or vesting term.
On July 1, 2008, Main Street’s Board of Directors approved the issuance of 245,645 shares of restricted stock to Main Street employees pursuant to the Main Street Capital Corporation 2008 Equity Incentive Plan. These shares will vest over a four-year period from the grant date and will be expensed over a four-year service period starting on the grant date.
On July 1, 2008, a total of 20,000 shares of restricted stock were issued to Main Street’s independent directors pursuant to the Main Street Capital Corporation 2008 Non-Employee Director Restricted Stock Plan. One-half of those shares vested immediately on the grant date, and the remaining half will vest on the day immediately preceding the next annual meeting at which Main Street stockholders elect directors, provided that these independent directors have been in continuous service as members of the Board through such date. As a result, 50% of those shares were expensed during July 2008 with the remaining 50% to be expensed over a one-year service period starting on the grant date.
For the year ended December 31, 2008, Main Street recognized total share-based compensation expense of $511,452 related to the restricted stock issued to Main Street employees and Main Street’s independent directors. As of December 31, 2008, there were no forfeitures of non-vested restricted shares.
70
94
~~NOTE N~~MAIN STREET CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — ~~SUPPLEMENTAL CASH FLOW DISCLOSURES~~(Continued)
As of December 31, 2008, there was $2,380,167 of total unrecognized compensation cost related to Main Street’s non-vested restricted shares. This cost is expected to be recognized over a weighted-average period of approximately 3.25 years.
NOTE N — EARNINGS PER SHARE
The following table summarizes our calculation of basic and diluted earnings per share for the years ended December 31, 2008 and 2007:

Years Ended December 31,
2008 2007 2006
(Consolidated) (Consolidated) (Combined)

Numerator:
Net increase in net assets resulting from operations $ 10,933,939 $ 2,544,876 $ 15,822,997

Denominator:
Basic weighted-average shares outstanding 8,967,383 8,587,701 N/A
Dilutive effect of restricted stock on which forfeiture provisions have not lapsed 3,681 — N/A

Diluted average shares outstanding 8,971,064 8,587,701 N/A

Net increase in net assets resulting from operations per share:
Basic $ 1.22 $ 0.30 N/A
Diluted $ 1.22 $ 0.30 N/A
We use the treasury stock method to calculate diluted earnings per share. We include non-vested restricted shares in our calculation of diluted earnings per share when we believe it is probable the requisite service period criteria will be met and the forfeiture provisions have not lapsed.
NOTE O — COMMITMENTS
At December 31, 2008, Main Street had two outstanding commitments to fund unused revolving loans for up to $900,000.
NOTE P — SUPPLEMENTAL CASH FLOW DISCLOSURES
Listed below are the supplemental cash flow disclosures for the years ended December 31, 2008, 2007 ~~2006~~ and ~~2005:~~2006:

2008 2007 2006
2007 2006 2005
Interest paid $ 2,852,002 $ 2,475,926 $ 1,481,191 $ 3,306,313 $ 2,852,002 $ 2,475,926
Taxes paid $ — $ — $ — $ 355,053 $ — $ —
Non-cash investing and financing activity:
Investment in the Investment Manager (Main Street Capital Partners) $ 18,000,000 $ — $ —
Shares issued for Investment in the Investment Manager $ — $ 18,000,000 $ —
Issuance of shares for dividend reinvestment plan $ 1,903,116 $ — $ — $ 213,729 $ 1,903,116 $ —

95
~~NOTE O~~MAIN STREET CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — ~~SELECTED QUARTERLY DATA (UNAUDITED)~~(Continued)

2007
Qtr. 1 Qtr. 2 Qtr. 3 Qtr. 4

Total investment income $ 2,253,468 $ 2,927,033 $ 2,968,425 $ 3,163,187
Net investment income $ 1,170,179 $ 970,897 $ 1,745,144 $ 2,635,479
Net increase (decrease) in net assets resulting from operations $ 1,779,474 $ 1,330,897 $ 2,708,941 $ (3,274,436 )
Net investment income per common share-basic and diluted $ 0.14 $ 0.11 $ 0.20 $ 0.30
Net increase in net assets resulting from operations per common share-basic and diluted $ 0.21 $ 0.16 $ 0.32 $ (0.37 )
NOTE Q — SELECTED QUARTERLY DATA (UNAUDITED)

2008
Qtr. 1 Qtr. 2 Qtr. 3 Qtr. 4

Total investment income $ 4,027,366 $ 4,176,911 $ 4,457,324 $ 4,633,825
Net investment income $ 2,504,062 $ 2,586,575 $ 2,529,950 $ 2,694,549
Net increase in net assets resulting from operations $ 3,202,636 $ 4,488,097 $ 2,673,703 $ 569,503
Net investment income per share-basic and diluted $ 0.28 $ 0.29 $ 0.28 $ 0.30
Net increase in net assets resulting from operations per share-basic and diluted $ 0.36 $ 0.50 $ 0.30 $ 0.06

2006
Qtr. 1 Qtr. 2 Qtr. 3 Qtr. 4

Total investment income $ 2,095,256 $ 2,478,398 $ 2,255,170 $ 2,184,313
Net investment income $ 1,111,225 $ 1,410,085 $ 1,230,153 $ 1,153,097
Net increase in net assets resulting from operations $ 3,714,625 $ 2,686,023 $ 6,731,463 $ 2,690,886
Net investment income per common share-basic and diluted N/A N/A N/A N/A
Net increase in net assets resulting from operations per common share-basic and diluted N/A N/A N/A N/A

2007
Qtr. 1 Qtr. 2 Qtr. 3 Qtr. 4

Total investment income $ 2,412,577 $ 3,142,284 $ 3,127,383 $ 3,792,734
Net investment income $ 1,170,179 $ 970,897 $ 1,745,144 $ 2,635,479
Net increase (decrease) in net assets resulting from operations $ 1,779,474 $ 1,330,897 $ 2,708,941 $ (3,274,436 )
Net investment income per share-basic and diluted $ 0.14 $ 0.11 $ 0.20 $ 0.30
Net increase in net assets resulting from operations per share-basic and diluted $ 0.21 $ 0.16 $ 0.32 $ (0.37 )
~~NOTE P — EQUITY INCENTIVE PLAN~~
NOTE R — RELATED PARTY TRANSACTIONS
~~Main Street’s Board of Directors has adopted~~We co-invested with MSC II in several existing portfolio investments prior to the ~~Main Street Capital Corporation 2007 Equity Incentive Plan (the “Plan”) whereby~~IPO, but did not co-invest with MSC II subsequent to the ~~Board of Directors may award stock options, restricted stock or other stock based incentive awards~~IPO and prior to ~~executive officers, employees and directors, subject to stockholder approval. Subsequent to adoption of the Plan, Main Street~~June 2008. In June 2008, we received exemptive relief from the SEC to ~~permit~~allow us to resume co-investing with MSC II in accordance with the ~~grant~~terms of restricted stock to Main Street’s independent directors as a portion of their compensation for service on the Board of Directors. The independent members of the Board of Directors shall each receive exactly $30,000 of restricted stock annually, based on the market value at the close of the exchange on the date of grant, as compensation for their services on the Board of Directors. Up to 200,000 shares are available for grant under the Plan. As of December 31, 2007, no awards under the Plan had been granted or were outstanding to Main Street’s independent directors.
71
~~In addition, Main Street received~~such exemptive relief from the SEC to permit the grant of restricted stock in exchange for or in recognition of services by Main Street’s executive officers and employees. Up to 2,000,000 shares are available for grant under the Plan. As of December 31, 2007, no awards under the Plan had been granted or were outstanding to Main Street’s executive officers and employees.
~~NOTE Q — RELATED PARTY TRANSACTIONS~~
~~The Fund co-invested with Main Street Capital II, LP (“MSC II”) in several investments prior to the Offering.~~relief. MSC II is managed by the Investment Manager, and the Investment Manager is ~~wholly-owned~~wholly owned by MSCC. MSC II is an SBIC fund with similar investment objectives to Main Street and which began its investment operations in January 2006. The co-investments among ~~the Fund~~Main Street and MSC II ~~were~~had all been made at the same time and on the same terms and conditions. The co-investments were also made in accordance with the Investment Manager’s conflicts policy and in accordance with the applicable SBIC conflict of interest regulations.
As discussed further in ~~note, “Wholly-Owned Investment Manager,”~~Note D to the ~~Fund~~accompanying consolidated financials statements, Main Street paid certain management fees to the Investment Manager ~~for~~during the ~~years~~year ended December 31, ~~2007, 2006 and 2005.~~2007. Subsequent to the completion of the Formation Transactions, the Investment Manager is a ~~wholly-owned,~~wholly owned portfolio company of Main Street. ~~Prior to the Formation Transactions and the Offering, management fees paid by the Fund to the Investment Manager for the years ended~~At December 31, ~~2007, 2006,~~2008 and ~~2005 were $1,499,937, $1,942,032 and $1,928,763, respectively. At December 31,~~ 2007, the Investment Manager had a receivable of $302,633 and a payable of $207,783, ~~due to~~respectively, with MSCC related to recurring expenses required to support MSCC’s business.
NOTE S — SUBSEQUENT EVENTS
The recently enacted American Recovery and Reinvestment Act of 2009 (the “2009 Stimulus Bill”) contains several provisions applicable to SBIC funds, including the Fund, Main Street’s wholly owned subsidiary. One of the key SBIC-related provisions included in the 2009 Stimulus Bill increases the maximum amount of combined SBIC leverage (or SBIC leverage cap) to $225 million for affiliated SBIC funds. The prior maximum amount of SBIC leverage available to affiliated SBIC funds was approximately $137 million, as adjusted annually based upon changes in the Consumer Price Index. Due to the increase in the maximum

96
~~NOTE R~~MAIN STREET CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — ~~SUBSEQUENT EVENTS~~(Continued)
~~Subsequent~~
amount of SBIC leverage available to ~~December 31, 2007,~~affiliated SBIC funds, Main Street, ~~has closed three self- sponsored investments totaling $16.9 million. Main Street’s investments~~through the Fund, will now have access to incremental SBIC leverage to support its future investment activities. Since the increase in ~~2008 include: a $13.0 million “one stop” debt and equity investment in NAPCO Precast, LLC, a leading designer, manufacturer and installer of precast and prestressed concrete products serving~~ the commercial, industrial and high density multi- family segments of the construction industry; a $3.1 million follow-on debt investment in Technical Innovations, LLC, a designer and manufacturer of manual, semiautomatic, pneumatic and computer controlled machines and tools used primarily by medical device manufacturersSBIC leverage cap applies to place access holes in catheters; and a $0.8 million equity investment in Uvalco Supply, LLC, a leading retailer of farm and ranch supplies to ranch owners and farmers, as well as a leading provider of design, fabrication and erection services for metal buildings throughout South Texas.
~~On February 7, 2008,~~affiliated SBIC funds, Main Street ~~declared a quarterly dividend of $0.34 per share. This quarterly dividend~~ will ~~be paid based upon~~allocate such increased borrowing capacity between the ~~accumulated taxable income recognized~~Fund and MSC II, an independently owned SBIC that is managed by Main Street ~~including excess undistributed taxable income from 2007~~and therefore deemed to be affiliated with the Fund for SBIC regulatory purposes. It is currently estimated that ~~was carried forward~~at least $55 million to $60 million of additional SBIC leverage is now accessible by Main Street, through the Fund, for ~~distribution during 2008. The quarterly dividend will be payable on March 21, 2008~~future investment activities, subject to ~~stockholders~~the required capitalization of ~~record on February 15, 2008.~~the Fund. Under the provisions of SFAS 159 and related guidance inEITF 96-19,Debtor’s Accounting for Modification or Exchange of Debt Instruments, Main Street is analyzing whether the additional SBIC leverage provisions under the 2009 Stimulus Bill meet the definition of a significant modification of debt which would automatically create an election date for the fair value option under SFAS 159.
72
97
Report of Independent Registered Public Accounting Firm
Board of Directors and Stockholders’ of
Main Street Capital Corporation
We have audited in accordance with the standards of the Public Company Accounting Oversight Board (United States) the consolidated financial statements of Main Street Capital Corporation ~~and the combined financial statements of Main Street Mezzanine Fund, LP and Main Street Mezzanine Management, LLC~~ referred to in our report dated March ~~18, 2008,~~12, 2009, which is included in the annual report onForm 10-K. Our report on the consolidated financial statements includes an explanatory paragraph, which discussed the adoption of Statement of Financial Accounting Standards No. 157,Fair Value Measurementsin 2008 as discussed in Note B to the consolidated financial statements. Our audits of the basic financial statements include the financial statement schedule listed in the index appearing under Item 15(2) which is the responsibility of the Company’s management. In our opinion, this financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.
/s/  GRANT THORNTON LLP
Houston, Texas
March ~~18, 2008~~12, 2009
73
98
Schedule 12-14
MAIN STREET CAPITAL CORPORATION
Schedule of Investments in and Advances to Affiliates
Year ended December 31, ~~2007~~2008

Amount of Amount of

Interest or Interest or

Dividends Dividends

Credited to December 31, Gross Gross December 31, Credited to
December 31,
Gross
Gross
December 31,

Company Investments (1) Income (2) 2006 Value Additions (3) Reductions (4) 2007 Value
Investments(1)
Income(2) 2007 Value Additions(3) Reductions(4) 2008 Value

CONTROL INVESTMENTS

Café Brazil, LLC 12% Secured Debt $ 398,180 $ 3,150,000 $ — $ 400,000 $ 2,750,000 12% Secured Debt $ 389,182 $ 2,702,931 $ 47,069 $ — $ 2,750,000
Member Units 127,861 900,000 380,000 30,000 1,250,000 Member Units 30,681 1,250,000 — 250,000 1,000,000

CBT Nuggets, LLC Prime plus 2% Secured Debt 51,591 660,000 — 300,000 360,000 Prime plus 2% Secured Debt 12,067 354,678 5,322 360,000 —
14% Secured Debt 275,399 1,860,000 — — 1,860,000 14% Secured Debt 272,276 1,805,275 54,725 180,000 1,680,000
10% Secured Debt 2,292 — 150,000 — 150,000
Member Units 225,000 1,145,000 480,000 — 1,625,000
Warrants — 345,000 155,000 — 500,000

Ceres Management, LLC 14% Secured Debt 271,426 — 2,402,492 29,891 2,372,601
(Lambs) Member Units — — 1,300,000 — 1,300,000

Condit Exhibits, LLC 13% Current/5% PIK Secured Debt 245,195 — 2,310,454 37,260 2,273,194
Member Units 270,000 610,000 535,000 — 1,145,000 Warrants — — 300,000 — 300,000
Warrants — 200,000 145,000 — 345,000
Gulf Manufacturing, LLC Prime plus 1% Secured Debt 48,519 — 1,200,000 — 1,200,000 Prime plus 1% Secured Debt 77,870 1,188,636 11,364 — 1,200,000
13% Secured Debt 162,049 — 2,000,000 — 2,000,000 13% Secured Debt 298,308 1,809,216 170,784 100,000 1,880,000
Member Units — — 472,000 — 472,000 Member Units 281,837 472,000 628,000 — 1,100,000
Warrants — — 250,000 — 250,000 Warrants — 250,000 300,000 — 550,000
Hawthorne Customs & Dispatch Services, LLC 13% Secured Debt 219,640 1,650,000 — 300,000 1,350,000
Member Units 31,000 950,000 — 515,000 435,000
Warrants — 500,000 — 270,000 230,000
Hayden Acquisition, LLC 12% Secured Debt 311,157 �� 2,420,000 — 465,000 1,955,000
Hawthorne Customs & 13% Secured Debt 185,862 1,304,693 17,295 150,000 1,171,988
Dispatch Services, LLC Member Units 18,200 435,000 — — 435,000
Warrants — 230,000 — — 230,000

Hydratec Holdings, LLC 12.5% Secured Debt 194,423 — 5,700,000 — 5,700,000 12.5% Secured Debt 734,496 5,588,729 22,600 300,000 5,311,329
Prime plus 1% Secured Debt 39,783 — 1,845,244 — 1,845,244 Prime plus 1% Secured Debt 93,363 1,825,911 654,000 900,000 1,579,911
Member Units — — 1,800,000 — 1,800,000 Member Units 1,800,000 250,000 — 2,050,000
Jensen Jewelers of Idaho, LLC Prime plus 2% Secured Debt 128,904 1,340,000 80,000 220,000 1,200,000
13% Current/6% PIK Secured Debt 198,736 1,008,000 61,457 — 1,069,457
Member Units 136,049 376,000 439,000 — 815,000
KBK Industries, LLC 14% Secured Debt 51,473 3,937,500 — 3,937,500 —
Jensen Jewelers of Prime plus 2% Secured Debt 90,543 1,180,509 19,491 156,000 1,044,000
Idaho, LLC 13% Current/6% PIK Secured Debt 213,914 1,044,190 90,401 130,000 1,004,591
Member Units — 625,000 — 625,000 — Member Units 63,888 815,000 — 435,000 380,000
Warrants — 1,372,500 — 1,372,500 —
Magna Card, Inc. 12% Current/0.4% PIK Secured Debt 267,695 1,900,000 121,079 2,021,079 — 12% Secured Debt — — 1,958,776 1,958,776 —
Quest Design & Production LLC 8% Current/5% PIK Secured Debt 566,235 3,900,000 91,542 — 3,991,542
Warrants — — 100,000 100,000 —

NAPCO Precast, LLC Prime plus 2% Secured Debt 455,227 — 4,040,000 347,692 3,692,308
18% Secured Debt 1,424,035 — 7,140,000 678,462 6,461,538
Member Units 1,811,206 — 5,100,000 — 5,100,000

OMi Holdings, Inc. 12% Secured Debt 898,992 — 7,536,600 933,200 6,603,400
Common Stock — — 900,000 330,000 570,000

Quest Design & 10% Secured Debt 178,312 3,964,853 204,139 3,568,992 600,000
Production LLC 0% Secured Debt — — 2,000,000 600,000 1,400,000
Warrants — 40,000 — 40,000 —
Warrants — — 1,595,858 1,595,858 —
Warrants — 40,000 — — 40,000
TA Acquisition Group, LP 12% Secured Debt 346,519 2,860,000 — 990,000 1,870,000 12% Secured Debt 386,811 1,813,789 56,211 1,870,000 —
Partnership Interest 96,211 3,435,000 — 3,435,000 —
Partnership Interest 105,053 2,630,000 805,000 — 3,435,000 Warrants — 3,450,000 — 3,450,000 —
Warrants — 2,650,000 800,000 — 3,450,000
Technical Innovations, LLC 12% Secured Debt 372,981 1,387,500 600,000 787,500 12% Secured Debt — 748,716 — 748,716 —
Prime Secured Debt 32,058 462,500 200,000 262,500 Prime Secured Debt — 249,572 — 249,572 —
Member Units 3,285 35,000 5,000 40,000 — Member Units — — — — —
Warrants — 1,285,000 130,000 1,415,000 — Warrants — — — — —
Universal Scaffolding & Equipment, LLC Prime plus 1% Secured Debt 52,273 — 1,202,500 80,167 1,122,333
13% Current/5% PIK Secured Debt 281,897 — 3,196,376 — 3,196,376
Member Units — — 1,025,000 — 1,025,000
Wicks N’ More, LLC 12% Secured Debt 513,369 3,720,000 — 1,770,000 1,950,000
Member Units — — 180,000 180,000 —

Income from Control Investments disposed of during the year 15,253 — — — —

Total — Control $ 5,201,382 $ 42,429,000 $ 22,464,198 $ 15,731,246 $ 49,161,952

74
99

Amount of

Interest or

Dividends

Credited to
December 31,
Gross
Gross
December 31,

Company

Investments(1)
Income(2) 2007 Value Additions(3) Reductions(4) 2008 Value

Universal Scaffolding & Prime plus 1% Secured Debt 89,538 1,111,741 3,831 240,500 875,072
Equipment, LLC 13% Current/5% PIK Secured Debt 607,672 3,136,274 175,235 151,509 3,160,000
Member Units 1,025,000 — 1,025,000 —

Uvalco Supply, LLC Equity 100,000 — 1,575,000 — 1,575,000

Wicks Acquisition, LLC 8% Secured Debt — — 78,000 78,000 —
12% Secured Debt 300 1,685,444 1,770,000 3,455,444 —
8% Secured Debt — — 30,000 30,000 —
12% Secured Debt — — 30,000 30,000 —
Member Units — — 360,000 360,000 —
Warrants — — 210,000 210,000 —

Ziegler’s NYPD, LLC Prime plus 2% Secured Debt 33,838 — 600,239 6,000 594,239
13% Current/5% PIK Secured Debt 164,258 — 2,705,579 42,142 2,663,437
Warrants — — 360,000 — 360,000

Income from Control Investments disposed of during the year 1,525 — — — —

Total-Control $ 9,754,325 $ 46,207,157 $ 47,898,465 $ 28,563,014 $ 65,542,608

AFFILIATE INVESTMENTS

Advantage Millwork Company, Inc. 12% Secured Debt $ 394,820 $ 2,547,510 $ 426,620 $ 18,688 $ 2,955,442
Warrants — 87,120 10,688 97,808 —

American Sensor Prime plus .5% Secured Debt 363,486 3,404,755 395,245 — 3,800,000
Technologies, Inc. Warrants — 750,000 — 500,000 250,000

Carlton Global 13% PIK Secured Debt — 2,618,421 104,166 2,722,587 —
Resources, LLC Member Units — — — — —

CHMB, Inc. 12% Secured Debt 55,140 — 1,415,906 274,200 1,141,706
Common Stock — — 390,000 — 390,000
Warrants — — 240,000 — 240,000

Houston Plating & Coatings, LLC Prime Plus 2% 13,037 100,000 200,000 — 300,000
Member Units 410,550 2,450,000 300,000 — 2,750,000

KBK Industries, LLC 14% Secured Debt 618,065 3,730,881 206,619 — 3,937,500
8% Secured Debt 50,591 623,063 126,937 281,250 468,750
8% Secured Debt 27,617 — 712,500 262,500 450,000
Prime plus 2% Secured Debt 11,013 686,250 — 686,250 —
Member Units 43,436 700,000 75,000 — 775,000

Laurus Healthcare, LP, 13% Secured Debt 415,285 2,934,625 75,375 735,000 2,275,000
Warrants — 715,000 1,785,000 — 2,500,000

National Trench Safety, LLC 10% PIK Debt 89,451 314,805 89,451 — 404,256
Member Units — 1,792,308 — — 1,792,308

Pulse Systems, LLC 14% Secured Debt 331,010 2,260,420 47,078 476,224 1,831,274
Warrants — 350,000 100,000 — 450,000

Schneider Sales Management, LLC 13% Secured Debt 97,026 — 1,981,656 71,684 1,909,972
Warrants — — 45,000 — 45,000

Transportation General Inc. 13% Secured Debt 1,047,372 3,501,966 98,034 3,600,000 —
Warrants — 340,000 — 340,000 —

Turbine Air Systems, Ltd. 12% Secured Debt 181,787 905,213 94,787 1,000,000 —
Warrants — — — — —

100
~~Schedule 12-14~~

Amount of

Interest or

Dividends

Credited to
December 31,
Gross
Gross
December 31,

Company

Investments(1)
Income(2) 2007 Value Additions(3) Reductions(4) 2008 Value

Vision Interests, Inc. 13% Secured Debt 534,401 3,541,662 37,455 — 3,579,117
Common Stock — 372,000 48,000 — 420,000
Warrants — 375,000 45,000 — 420,000

Walden Smokey Point, Inc. 14% Current / 4% PIK Secured 50,400 — 4,800,533 96,000 4,704,533
Debt Common Stock — — 600,000 — 600,000

WorldCall, Inc. 13% Secured Debt 107,955 745,217 31,057 136,275 640,000
Common Stock — 180,000 202,837 — 382,837
Warrants — 150,000 — 150,000 —

Income from Affiliate Investments disposed of during the year — — — — —

Total-Affiliate Investments $ 4,842,442 $ 36,176,216 $ 14,684,944 $ 11,448,465 $ 39,412,695

~~MAIN STREET CAPITAL CORPORATION~~
~~Schedule of Investments in and Advances to Affiliates~~
~~Year ended December 31, 2007~~

Amount of
Interest or
Dividends
Credited to December 31, Gross Gross December 31,
Company Investments (1) Income (2) 2006 Value Additions (3) Reductions (4) 2007 Value
AFFILIATE INVESTMENTS

Advantage Millwork Company, Inc. 12% Secured Debt $ 327,874 $ — $ 2,666,667 $ — $ 2,666,667
Warrants — — 87,120 — 87,120
All Hose & Speciality, LLC 11% Secured Debt — 2,600,000 — 2,600,000 —
Member Units — 1,600,000 — 1,600,000 —
11% Note Receivable — 441,000 — 441,000 —
American Sensor Technologies, Inc. Prime plus .50% Secured Debt 425,789 3,200,000 300,000 — 3,500,000
Warrants — 575,000 175,000 — 750,000
Carlton Global Resources, LLC 13% Secured Debt 425,983 3,600,000 1,087,777 1,875,110 2,812,667
Member Units — 400,000 — 400,000 —
Houston Plating & Coatings, LLC Prime plus 2% Secured Debt 10,049 100,000 — — 100,000
Member Units 340,477 1,710,000 740,000 — 2,450,000
KBK Industries, LLC 14% Secured Debt 556,595 — 3,937,500 — 3,937,500
8% Secured Debt 34,491 — 623,063 — 623,063
Prime plus 2% Secured Debt 63,861 — 686,250 — 686,250
Member Units 110,437 — 700,000 — 700,000
Warrants — — 1,372,500 1,372,500 —
Laurus Healthcare, LP, 13% Secured Debt 444,737 3,010,000 — — 3,010,000
Warrants — 105,000 610,000 — 715,000
National Trench Safety, LLC 10% PIK Debt 41,205 — 365,334 — 365,334
Member Units — 1,792,308 — — 1,792,308
Pulse Systems, LLC 14% Secured Debt 396,755 2,747,271 — 439,773 2,307,498
Warrants — 400,000 125,000 175,000 350,000
Transportation General Inc. 13% Secured Debt 524,976 3,900,000 — 300,000 3,600,000
Warrants — 395,000 85,000 140,000 340,000
Turbine Air Systems, Ltd. 12% Secured Debt 139,476 1,000,000 — — 1,000,000
Warrants — 96,666 — 96,666 —
Vision Interests, Inc. 13% Secured Debt 377,196 — 3,760,000 — 3,760,000
Common Stock — — 372,000 — 372,000
Warrants — — 375,000 — 375,000
WorldCall, Inc. 13% Secured Debt 126,746 820,000 — 37,500 782,500
Common Stock — 180,000 — — 180,000
Warrants — 150,000 — — 150,000
Barton Springs Grill LP 15% Partnership Interest — — 150,000 150,000 —

Income from Affiliate Investments disposed of during the year 1,044,008 — — — —

Total — Affiliate Investments $ 5,390,655 $ 28,822,245 $ 18,218,211 $ 9,627,549 $ 37,412,907

This schedule should be read in conjunction with Main Street’s Consolidated and Combined Financial Statements, including the Consolidated and Combined Schedule of Investments and Notes to the Consolidated Financial Statements.
This schedule should be read in conjunction with Main Street’s Consolidated and Combined Financial Statements, including the Consolidated and Combined Schedule of Investments and Notes to the Consolidated Financial Statements.

(1) The principal amount, the ownership detail for equity investments and if the investment is income producing is shown in the Consolidated and Combined Schedule of Investments.

(2) Represents the total amount of interest, fees or dividends credited to income for the portion of the year an investment was included in Control or Affiliate categories, respectively. For investments transferred between Control and Affiliate during the year, the income related to the time period it was in the category other than the one shown at year end is included in “Income from Investment disposed of during the year”.

(3) Gross additions include increases in the cost basis of investments resulting from new portfolio investment , follow on investments and accrued PIK interest, and the exchange of one or more existing securities for one or more new securities. Gross Additions also include net increases in unrealized appreciation or net decreases in unrealized depreciation as well as the movement of an existing portfolio company into this category and out of a different category.

(4) Gross reductions include decreases in the cost basis of investments resulting from principal repayments or sales and the exchange of one or more existing securities for one or more new securities. Gross reductions also include net increases in unrealized depreciation or net decreases in unrealized appreciation as well as the movement of an existing portfolio company out of this category and into a different category.
75
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Not applicable.
Item 9A. Controls and Procedures
(a) Evaluation of Disclosure Controls and Procedures.  As of the end of the period covered by this annual report onForm 10-K, our Chief Executive Officer, Chief Financial Officer, Chief Compliance Officer and Chief Accounting Officer conducted an evaluation of our disclosure controls and procedures (as defined inRules 13a-15(e) of the Securities Exchange Act of 1934). Based upon this evaluation, our Chief Executive Officer, Chief Financial Officer, Chief Compliance Officer and Chief Accounting Officer concluded that our disclosure controls and procedures are effective to allow timely decisions regarding required disclosure of any material information relating to us that is required to be disclosed by us in the reports we file or submit under the Securities Exchange Act of 1934.
101
~~Item 9A.~~(b)
~~Controls and Procedures~~Management’s Report on Internal Control Over Financial Reporting
~~Evaluation~~The management of ~~Controls~~Main Street Capital Corporation and ~~Procedures~~
~~Our management~~its subsidiaries (the Company) is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange ActRules 13a-15(f) ~~and 15d-15(f) under the Exchange Act. Main Street’s management, under~~. Under the supervision and with the participation of ~~various members of~~ management, including ~~our~~the Chief Executive Officer ~~our~~and Chief Financial Officer, ~~and our Chief Compliance Officer, has evaluated~~the Company conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) of the Exchange Act) as of the end of the period covered by this report. Based upon that evaluation, our Chief Executive Officer, our Chief Financial Officer, and our Chief Compliance Officer, have concluded that our current disclosure controls and procedures are effective as of the end of the period covered by this report. In accordance with transition rules established by rules of the Securities and Exchange Commission for newly public companies, this Annual Report does not include a report of management’s assessment regardingCompany’s internal control over financial reporting orbased on the criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on the Company’s evaluation under the framework in Internal Control — Integrated Framework, management concluded that the Company’s internal control over financial reporting was effective as of December 31, 2008. Grant Thornton, LLP, the Company’s independent registered public accounting firm, has issued an attestation report on the effectiveness of the ~~company’s~~Company’s internal control over financial reporting as of December 31, 2008, as stated in its report which is included herein.
(c) Attestation Report of the Registered Public Accounting Firm.  Our independent registered public accounting ~~firm.~~firm, Grant Thornton LLP, has issued an attestation report on the effectiveness of our internal control over financial reporting, which is set forth above under the heading “Report of Independent Registered Public Accounting Firm” in Item 8.
(d) Changes in Internal ~~Controls~~Control over Financial Reporting.
There ~~has~~have been no ~~change~~changes in ~~Main Street’s~~our internal control over financial reporting (as defined in ~~Rules~~Rule 13a-15(f) ~~and 15d-15(f)~~ of the Securities Exchange Act of 1934) that occurred during ~~the~~our most recently completed fiscal quarter, ~~ended December 31, 2007~~ that ~~has~~have materially affected, or isare reasonably likely to materially affect, ~~Main Street’s~~our internal control over financial reporting.
Item 9B.
Other Information
None.
PART III
Item 10.
Directors, Executive Officers and Corporate Governance
The information required by this ~~item~~Item will be contained in the definitive proxy statement relating to our ~~2008~~2009 annual meeting of stockholders (the “Proxy Statement”) under the headings “Election of Directors,” ~~“Control Persons~~“Corporate Governance,” “Executive Officers” and ~~Principal Stockholders” and “Corporate Governance Principles and Director Information,~~“Section 16(a) Beneficial Ownership Reporting Compliance,” to be filed with the Securities and Exchange Commission on or prior to April ~~29, 2008,~~30, 2009, and is incorporated herein by reference.
We have adopted a code of business conduct and ethics that applies to directors, officers and employees of Main Street. This code of ethics is published on our Web site atwww.mainstcapital.com. We intend to disclose any future amendments to, or waivers from, this code of conduct within four business days of the waiver or amendment through a Web site posting.
Item 11.
Executive Compensation
The information required by this ~~item~~Item will be contained in the Proxy Statement under the headings ~~“Election~~“Compensation of ~~Directors,~~Executive Officers,” ~~“Executive Compensation,~~“Compensation of Directors,” “Compensation Discussion and Analysis,” “Compensation Committee Interlocks and Insider Participation” and “Compensation Committee ~~Report”,~~Report,” to be filed with the Securities and Exchange Commission on or prior to April ~~29, 2008,~~30, 2009, and is incorporated herein by reference.
76
102
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The following table provides information ~~included in the Equity Compensation Plan Information table appearing in Item 5 – “Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases~~regarding our equity compensation plans as of ~~Equity Securities” is incorporated by reference into this Item.~~ December 31, 2008:

Number of Securities

Remaining Available for

Number of Securities to be
Weighted-Average Exercise
Future Issuance Under

Issued Upon Exercise of
Price of Outstanding
Equity Compensation Plans

Outstanding Options,
Options, Warrants and
(Excluding Securities

Plan Category
Warrants and Rights Rights Reflected in Column(a))
(a) (b) (c)

Equity compensation plans approved by security holders — $ — 1,934,355 (1)
Equity compensation plans not approved by security holders — — —

Total — $ — 1,934,355

(1) All of our equity compensation plans have been approved by our stockholders. As of December 31, 2008, we had issued 265,645 shares of restricted stock pursuant to our equity compensation plans, of which 10,000 shares had vested as of December 31, 2008. Pursuant to each of our equity compensation plans, if any award issued thereunder shall for any reason expire or otherwise terminate or be forfeited, in whole or in part, the shares of stock not acquired under such award shall revert to and again become available for issuance under such plan.
The other information required by this Item will be contained in the Proxy Statement under the headings ~~“Executive Compensation”~~“Security Ownership of Certain Beneficial Owners and ~~“Control Persons and Principal Stockholders,~~Management,” to be filed with the Securities and Exchange Commission on or prior to April ~~29, 2008,~~30, 2009, and is incorporated herein by reference.
Item 13.
Certain Relationships and Related Transactions, and Director Independence
The information required by this ~~item~~Item will be contained in the Proxy Statement under the headings ~~“Transactions with~~“Certain Relationships and Related ~~Persons,” “Election of Directors,”~~Transactions” and “Corporate Governance, ~~Principles and Director Information,~~” to be filed with the Securities and Exchange Commission on or prior to April ~~29, 2008,~~30, 2009, and is incorporated herein by reference.
Item 14.
Principal Accountant Fees and Services
The information required by this Item will be contained in the Proxy Statement under the heading “Ratification of Appointment of Independent Registered Public Accounting Firm for the Year Ending December 31, 2009,” to be filed with the Securities and Exchange Commission on or prior to April ~~29, 2008,~~30, 2009, and is incorporated herein by reference.

103
PART IV
Item 15.
Exhibits and Financial Statement Schedules
The following documents are filed or incorporated by reference as part of this Annual Report:
~~1. Consolidated Financial Statements~~
1.   Consolidated Financial Statements

~~Report~~Reports of Independent Registered Public Accounting Firm 58
Consolidated Balance ~~Sheet~~Sheets as of December 31, 2008 and 2007 60
Consolidated Statements of Operations for the Years Ended December 31, 2008 and 2007 and Combined ~~Balance Sheet as of December 31, 2006~~
~~Consolidated~~ Statement of Operations for the Year Ended December 31, ~~2007 and Combined~~2006 61
Consolidated Statements of ~~Operations~~Changes in Net Assets for the Years Ended December 31, ~~2006~~2008 and ~~2005~~
~~Consolidated~~2007 and Combined Statement of Changes in Net Assets for the Year Ended December 31, ~~2007 and Combined Statements of Changes in Net Assets for the Years Ended December 31,~~ 2006 ~~and 2005~~ 62
Consolidated ~~Statements of Cash Flows for the Year Ended December 31, 2007 and Combined~~ Statements of Cash Flows for the Years Ended December 31, ~~2006~~2008 and ~~2005~~2007 and Combined Statement of Cash Flows for the Year Ended December 31, 2006 63
Consolidated ~~Schedule~~Schedules of Investments as of December 31, ~~2007~~2008 and ~~Combined Schedule of Investments as of December 31, 2006~~2007 64
Notes to Consolidated Financial Statements 72
~~2. Consolidated Financial Statement Schedules~~
2.   Consolidated Financial Statement Schedules
Report of Independent Registered Public Accounting Firm
Schedule of Investments in and Advances to Affiliates for the Year Ended December 31, ~~2007~~2008
77
3.   Exhibits
~~3. Exhibits~~
The following exhibits are filed as part of this report or hereby incorporated by reference to exhibits previously filed with the SEC:

Exhibit

Number

Description

~~1.1~~3 * ~~Form of Underwriting Agreement (previously filed as exhibit (h) to Main Street Capital Corporation’s Registration Statement on Form N-2 (Reg. No. 333-142879))~~
~~3.1~~ *.1* Articles of Amendment and Restatement of Main Street Capital Corporation (previously filed as ~~exhibit~~Exhibit (a) to Main Street Capital Corporation’s Registration Statement on Form N-2 (Reg.No. 333-142879))
3
~~3.2~~ *.2* Amended and Restated Bylaws of Main Street Capital ~~Corporation(previously~~Corporation (previously filed as ~~exhibit (b)~~Exhibit 99.1 to Main Street Capital Corporation’s ~~Registration Statement~~Current Report on Form ~~N-2 (Reg.~~8-K dated May 1, 2008 (File No. ~~333-142879)~~1-33723))*
4
~~4.1~~ *.1* Form of Common Stock Certificate (previously filed as ~~exhibit~~Exhibit (d) to Main Street Capital Corporation’s Registration Statement on Form N-2 (Reg. No. 333-142879))
4 .2* Form of Dividend Reinvestment Plan (previously filed as Exhibit 4.2 to Main Street Capital Corporation’s Annual Report on Form 10-K for the year ended December 31, 2007)
~~4.2~~4 ~~Dividend Reinvestment Plan~~
~~4.3~~ *.3* Debentures guaranteed by the SBA (previously filed as ~~exhibit~~Exhibit (f)(1) to Main Street Capital Corporation’s Registration Statement on Form N-2 (Reg. No. 333-142879))
10 .1* Credit Agreement dated October 24, 2008 (previously filed as Exhibit 10.1 to Main Street Capital Corporation’s Current Report on Form 8-K filed October 28, 2008 (File No. 1-33723))
~~10.1~~10 *.2* General Security Agreement dated October 24, 2008 (previously filed as Exhibit 10.2 to Main Street’s Current Report on Form 8-K filed October 28, 2008 (File No. 1-33723))
10 .3* Custodial Agreement dated October 24, 2008 (previously filed as Exhibit 10.3 to Main Street’s Current Report on Form 8-K filed October 28, 2008 (File No. 1-33723))
10 .4* Equity Pledge Agreement dated October 24, 2008 (previously filed as Exhibit 10.4 to Main Street’s Current Report on Form 8-K filed October 28, 2008 (File No. 1-33723))
10 .5* Treasury Secured Revolving Credit Agreement dated December 31, 2007 (previously filed as ~~exhibit~~Exhibit 10.1 to Main Street Capital Corporation’s ~~Quarterly~~Current Report on Form ~~10-Q for the quarter ended September 30. 2007~~8-K filed January 3, 2008 (File No. 1-33723))
10
~~10.2~~ *.6* Security Agreement dated December 31, 2007 (previously filed as ~~exhibit~~Exhibit 10.2 to Main Street Capital Corporation’s ~~Quarterly~~Current Report on Form ~~10-Q for the quarter ended September 30. 2007~~8-K filed January 3, 2008 (File No. 1-33723))
~~10.3~~ * Control Agreement dated December 31, 2007 (previously filed as exhibit 10.3 to Main Street Capital Corporation’s Quarterly Report on Form 10-Q for the quarter ended September 30. 2007 (File No. 1-33723))
~~10.4~~ * Custody Agreement dated December 31, 2007 (previously filed as exhibit 10.4 to Main Street Capital Corporation’s Quarterly Report on Form 10-Q for the quarter ended September 30. 2007 (File No. 1-33723))
~~10.5~~ * Form of Amended and Restated Advisory Agreement by and between Main Street Capital Partners, LLC and Main Street Mezzanine Fund, LP (previously filed as exhibit (g)(1) to Main Street Capital Corporation’s Registration Statement on Form N-2 (Reg. No. 333-142879))
~~10.6~~ * Advisory Agreement by and between Main Street Capital Partners, LLC and Main Street Capital II, LP (previously filed as exhibit (g)(2) to Main Street Capital Corporation’s Registration Statement on Form N-2 (Reg. No. 333-142879))
~~10.7~~ *† ~~Equity Incentive Plan (previously filed as exhibit (i)(1) to Main Street Capital Corporation’s Registration Statement on Form N-2 (Reg. No. 333-142879))~~
~~10.8~~ * ~~Custodian Agreement (previously filed as exhibit (j) to Main Street Capital Corporation’s Registration Statement on Form N-2 (Reg. No. 333-142879))~~
~~10.9~~ *† Form of Employment Agreement by and between the Registrant and Todd A. Reppert (previously filed as exhibit (k)(1) to Main Street Capital Corporation’s Registration Statement on Form N-2 (Reg. No. 333-142879))
~~10.10~~ *† Form of Employment Agreement by and between the Registrant and Rodger A. Stout (previously filed as exhibit (k)(2) to Main Street Capital Corporation’s Registration Statement on Form N-2 (Reg. No. 333-142879))
78
104

Exhibit

Number

Description

10 .7* Control Agreement dated December 31, 2007 (previously filed as Exhibit 10.3 to Main Street Capital Corporation’s Current Report on Form 8-K filed January 3, 2008 (File No. 1-33723))
10 .8* Custody Agreement dated December 31, 2007 (previously filed as Exhibit 10.4 to Main Street Capital Corporation’s Current Report on Form 8-K filed January 3, 2008 (File No. 1-33723))
10 .9* Form of Amended and Restated Advisory Agreement by and between Main Street Capital Partners, LLC and Main Street Mezzanine Fund, LP (previously filed as Exhibit (g)(1) to Main Street Capital Corporation’s Registration Statement on Form N-2 (Reg. No. 333-142879))
10 .10* Advisory Agreement by and between Main Street Capital Partners, LLC and Main Street Capital II, LP (previously filed as Exhibit (g)(2) to Main Street Capital Corporation’s Registration Statement on Form N-2 (Reg. No. 333-142879))
10 .11*† Main Street Capital Corporation 2008 Equity Incentive Plan (previously filed as Exhibit 4.4 to Main Street Capital Corporation’s Registration Statement on Form S-8 (Reg. No. 333-151799))
10 .12*† Main Street Capital Corporation 2008 Non-Employee Director Restricted Stock Plan (previously filed as Exhibit 4.5 to Main Street Capital Corporation’s Registration Statement on Form S-8 (Reg. No. 333-151799))
�� 10 .13* Custodian Agreement (previously filed as Exhibit (j) to Main Street Capital Corporation’s Registration Statement on Form N-2 (Reg. No. 333-142879))
10 .14*† Form of Employment Agreement by and between Main Street Capital Corporation and Todd A. Reppert (previously filed as Exhibit (k)(1) to Main Street Capital Corporation’s Registration Statement on Form N-2 (Reg. No. 333-142879))
10 .15*† Form of Employment Agreement by and between Main Street Capital Corporation and Rodger A. Stout (previously filed as Exhibit (k)(2) to Main Street Capital Corporation’s Registration Statement on Form N-2 (Reg. No. 333-142879))
10 .16*† Form of Employment Agreement by and between Main Street Capital Corporation and Curtis A. Hartman (previously filed as Exhibit (k)(3) to Main Street Capital Corporation’s Registration Statement on Form N-2 (Reg. No. 333-142879))
10 .17*† Form of Employment Agreement by and between Main Street Capital Corporation and Dwayne L. Hyzak (previously filed as Exhibit (k)(4) to Main Street Capital Corporation’s Registration Statement on Form N-2 (Reg. No. 333-142879))
10 .18*† Form of Employment Agreement by and between Main Street Capital Corporation and David L. Magdol (previously filed as Exhibit (k)(5) to Main Street Capital Corporation’s Registration Statement on Form N-2 (Reg. No. 333-142879))
10 .19*† Form of Confidentiality and Non-Compete Agreement by and between Main Street Capital Corporation and Vincent D. Foster (previously filed as Exhibit (k)(12) to Main Street Capital Corporation’s Registration Statement on Form N-2 (Reg. No. 333-142879))
10 .20*† Form of Indemnification Agreement by and between Main Street Capital Corporation and each executive officer and director (previously filed as Exhibit (k)(13) to Main Street Capital Corporation’s Registration Statement on Form N-2 (Reg. No. 333-142879))
10 .21* Support Services Agreement effective as of October 2, 2007 by and between Main Street Capital Corporation and Main Street Capital Partners, LLC (previously filed as Exhibit (k)(16) to Main Street Capital Corporation’s Registration Statement on Form N-2 (Reg. No. 333-142879))
14 .1* Code of Ethics (previously filed as Exhibit (r) to Main Street Capital Corporation’s Registration Statement on Form N-2 (Reg. No. 333-142879))
23 Consent of Grant Thornton, LLP, independent registered public accounting firm
31 .1 Rule 13a - 14(a)/15d - 14(a) certification of Chief Executive Officer
31 .2 Rule 13a - 14(a)/15d - 14(a) certification of Chief Financial Officer
32 .1 Section 1350 certification of Chief Executive Officer
32 .2 Section 1350 certification of Chief Financial Officer
~~Exhibit~~
~~Number~~ ~~Description~~
~~10.11~~ *† Form of Employment Agreement by and between the Registrant and Curtis A. Hartman (previously filed as exhibit (k)(3) to Main Street Capital Corporation’s Registration Statement on Form N-2 (Reg. No. 333-142879))
~~10.12~~ *† Form of Employment Agreement by and between the Registrant and Dwayne L. Hyzak (previously filed as exhibit (k)(4) to Main Street Capital Corporation’s Registration Statement on Form N-2 (Reg. No. 333-142879))
~~10.13~~ *† Form of Employment Agreement by and between the Registrant and David L. Magdol (previously filed as exhibit (k)(5) to Main Street Capital Corporation’s Registration Statement on Form N-2 (Reg. No. 333-142879))
~~10.14~~ * Agreement and Plan of Merger by and between Main Street Capital Corporation and Main Street Mezzanine Fund, LP (previously filed as exhibit (k)(6) to Main Street Capital Corporation’s Registration Statement on Form N-2 (Reg. No. 333-142879))
~~10.15~~ * Exchange Agreement by and between Main Street Capital Corporation and Main Street Capital Partners, LLC (previously filed as exhibit (k)(7) to Main Street Capital Corporation’s Registration Statement on Form N-2 (Reg. No. 333-142879))
~~10.16~~ * Exchange Agreement by and between Main Street Capital Corporation and Main Street Mezzanine Management, LLC (previously filed as exhibit (k)(8*) to Main Street Capital Corporation’s Registration Statement on Form N-2 (Reg. No. 333-142879))
~~10.17~~ * Amendment to Agreement and Plan of Merger by and between Main Street Capital Corporation and Main Street Mezzanine Fund, LP (previously filed as exhibit (k)(9) to Main Street Capital Corporation’s Registration Statement on Form N-2 (Reg. No. 333-142879))
~~10.18~~ * Amendment to Exchange Agreement by and between Main Street Capital Corporation and Main Street Capital Partners, LLC (previously filed as exhibit (k)(10) to Main Street Capital Corporation’s Registration Statement on Form N-2 (Reg. No. 333-142879))
~~10.19~~ * Amendment to Exchange Agreement by and between Main Street Capital Corporation and Main Street Mezzanine Management, LLC (previously filed as exhibit (k)(11) to Main Street Capital Corporation’s Registration Statement on Form N-2 (Reg. No. 333-142879))
~~10.20~~ *† Form of Confidentiality and Non-Compete Agreement by and between the Registrant and Vincent D. Foster (previously filed as exhibit (k)(12) to Main Street Capital Corporation’s Registration Statement on Form N-2 (Reg. No. 333-142879))
~~10.21~~ *† Form of Indemnification Agreement by and between the Registrant and each executive officer and director (previously filed as exhibit (k)(13) to Main Street Capital Corporation’s Registration Statement on Form N-2 (Reg. No. 333-142879))
~~14.1~~ * ~~Code of Ethics (previously filed as exhibit (r) to Main Street Capital Corporation’s Registration Statement on Form N-2 (Reg. No. 333-142879))~~
~~31.1~~ ~~Rule 13a – 14(a)/15d – 14(a) certification of Chief Executive Officer~~
~~31.2~~ ~~Rule 13a – 14(a)/15d – 14(a) certification of Chief Financial Officer~~
~~31.3~~ ~~Rule 13a – 14(a)/15d – 14(a) certification of Chief Compliance Officer~~
~~32.1~~ ~~Section 1350 certification of Chief Executive Officer~~
~~32.2~~ ~~Section 1350 certification of Chief Financial Officer~~

* Exhibit previously filed with the Securities and Exchange Commission, as indicated, and incorporated herein by reference.

† Management contract or compensatory plan or arrangement
79105
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
~~Date: March 21, 2008~~
MAIN STREET CAPITAL CORPORATION
~~MAIN STREET CAPITAL CORPORATION~~
By:
/s/Vincent D. Foster
~~Vincent D. Foster~~
~~Chairman and Chief Executive Officer~~
Vincent D. Foster
Chairman and Chief Executive Officer
Date: March 13, 2009
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Signature

Title

Date
~~/s/Vincent D. Foster~~ ~~Chairman and Chief Executive Officer~~ ~~March 21, 2008~~
~~Vincent D. Foster~~ ~~(principal executive officer)~~

/s/~~Todd A. Reppert~~Vincent D. Foster

Vincent D. Foster ~~President,~~Chairman and Chief ~~Financial~~Executive Officer ~~and~~
(principal executive officer) March ~~21, 2008~~13, 2009

/s/  Todd A. Reppert

Todd A. Reppert President, Chief Financial Officer and Director (principal financial officer) March 13, 2009

/s/Michael S. Galvan

Michael S. Galvan Vice President, Chief Accounting Officer (principal accounting officer) March ~~21, 2008~~13, 2009

~~Michael S. Galvan~~
/s/  Rodger A. Stout

Rodger A. Stout ~~(principal accounting officer)~~Senior Vice President-Finance & Administration, Chief
Compliance Officer and Treasurer March 13, 2009

/s/~~Rodger A. Stout~~Michael Appling Jr.

Michael Appling Jr. ~~Senior Vice President-Finance & Administration,~~Director March ~~21, 2008~~13, 2009

~~Rodger A. Stout~~
/s/  Joseph E. Canon

Joseph E. Canon ~~Chief Compliance Officer, Secretary and Treasurer~~Director March 13, 2009

/s/~~Michael Appling Jr.~~William D. Gutermuth

William D. Gutermuth Director March ~~21, 2008~~13, 2009

~~Michael Appling Jr.~~
/s/~~Joseph E. Canon~~Arthur L. French

Arthur L. French Director March ~~21, 2008~~
~~Joseph E. Canon~~
~~/s/William D. Gutermuth~~ ~~Director~~ ~~March 21, 2008~~
~~William D. Gutermuth~~
~~/s/Arthur L. French~~ ~~Director~~ ~~March 21, 2008~~
~~Arthur L. French~~ 13, 2009
80
106
EXHIBIT INDEX

Exhibit

Number

Description

~~1.1~~3 * ~~Form of Underwriting Agreement (previously filed as exhibit (h) to Main Street Capital Corporation’s Registration Statement on Form N-2 (Reg. No. 333-142879))~~
~~3.1~~ *.1* Articles of Amendment and Restatement of Main Street Capital Corporation (previously filed as ~~exhibit~~Exhibit (a) to Main Street Capital Corporation’s Registration Statement on Form N-2 (Reg. No. 333-142879))
3
~~3.2~~ *.2* Amended and Restated Bylaws of Main Street Capital ~~Corporation(previously~~Corporation (previously filed as ~~exhibit (b)~~Exhibit 99.1 to Main Street Capital Corporation’s ~~Registration Statement~~Current Report on Form ~~N-2 (Reg.~~8-K dated May 1, 2008 (File No. ~~333-142879)~~1-33723))*
4
~~4.1~~ *.1* Form of Common Stock Certificate (previously filed as ~~exhibit~~Exhibit (d) to Main Street Capital Corporation’s Registration Statement on Form N-2 (Reg. No. 333-142879))
4 .2* Form of Dividend Reinvestment Plan (previously filed as Exhibit 4.2 to Main Street Capital Corporation’s Annual Report on Form 10-K for the year ended December 31, 2007)
~~4.2~~4 ~~Dividend Reinvestment Plan~~
~~4.3~~ *.3* Debentures guaranteed by the SBA (previously filed as ~~exhibit~~Exhibit (f)(1) to Main Street Capital Corporation’s Registration Statement on Form N-2 (Reg. No. 333-142879))
10 .1* Credit Agreement dated October 24, 2008 (previously filed as Exhibit 10.1 to Main Street Capital Corporation’s Current Report on Form 8-K filed October 28, 2008 (File No. 1-33723))
~~10.1~~10 *.2* General Security Agreement dated October 24, 2008 (previously filed as Exhibit 10.2 to Main Street’s Current Report on Form 8-K filed October 28, 2008 (File No. 1-33723))
10 .3* Custodial Agreement dated October 24, 2008 (previously filed as Exhibit 10.3 to Main Street’s Current Report on Form 8-K filed October 28, 2008 (File No. 1-33723))
10 .4* Equity Pledge Agreement dated October 24, 2008 (previously filed as Exhibit 10.4 to Main Street’s Current Report on Form 8-K filed October 28, 2008 (File No. 1-33723))
10 .5* Treasury Secured Revolving Credit Agreement dated December 31, 2007 (previously filed as ~~exhibit~~Exhibit 10.1 to Main Street Capital Corporation’s ~~Quarterly~~Current Report on Form ~~10-Q for the quarter ended September 30. 2007~~8-K filed January 3, 2008 (File No. 1-33723))
10
~~10.2~~ *.6* Security Agreement dated December 31, 2007 (previously filed as ~~exhibit~~Exhibit 10.2 to Main Street Capital Corporation’s ~~Quarterly~~Current Report on Form ~~10-Q for the quarter ended September 30. 2007~~8-K filed January 3, 2008 (File No. 1-33723))
10
~~10.3~~ *.7* Control Agreement dated December 31, 2007 (previously filed as ~~exhibit~~Exhibit 10.3 to Main Street Capital Corporation’s ~~Quarterly~~Current Report on Form ~~10-Q for the quarter ended September 30. 2007~~8-K filed January 3, 2008 (File No. 1-33723))
10
~~10.4~~ *.8* Custody Agreement dated December 31, 2007 (previously filed as ~~exhibit~~Exhibit 10.4 to Main Street Capital Corporation’s ~~Quarterly~~Current Report on Form ~~10-Q for the quarter ended September 30. 2007~~8-K filed January 3, 2008 (File No. 1-33723))
10
~~10.5~~ *.9* Form of Amended and Restated Advisory Agreement by and between Main Street Capital Partners, LLC and Main Street Mezzanine Fund, LP (previously filed as ~~exhibit~~Exhibit (g)(1) to Main Street Capital Corporation’s Registration Statement on Form N-2 (Reg. No. 333-142879))
10
~~10.6~~ *.10* Advisory Agreement by and between Main Street Capital Partners, LLC and Main Street Capital II, LP (previously filed as ~~exhibit~~Exhibit (g)(2) to Main Street Capital Corporation’s Registration Statement on Form N-2 (Reg. No. 333-142879))
10
~~10.7~~ *.11*† Main Street Capital Corporation 2008 Equity Incentive Plan (previously filed as ~~exhibit (i)(1)~~Exhibit 4.4 to Main Street Capital Corporation’s Registration Statement on Form ~~N-2~~S-8 (Reg. No. ~~333-142879)~~333-151799))
10 .12*† Main Street Capital Corporation 2008 Non-Employee Director Restricted Stock Plan (previously filed as Exhibit 4.5 to Main Street Capital Corporation’s Registration Statement on Form S-8 (Reg. No. 333-151799))
~~10.8~~10 *.13* Custodian Agreement (previously filed as ~~exhibit~~Exhibit (j) to Main Street Capital Corporation’s Registration Statement on Form N-2 (Reg. No. 333-142879))
10
~~10.9~~ *.14*† Form of Employment Agreement by and between ~~the Registrant~~Main Street Capital Corporation and Todd A. Reppert (previously filed as ~~exhibit~~Exhibit (k)(1) to Main Street Capital Corporation’s Registration Statement on Form N-2 (Reg. No. 333-142879))
10
~~10.10~~ *.15*† Form of Employment Agreement by and between ~~the Registrant~~Main Street Capital Corporation and Rodger A. Stout (previously filed as ~~exhibit~~Exhibit (k)(2) ~~to Main Street Capital Corporation’s Registration Statement on Form N-2 (Reg. No. 333-142879))~~
~~Exhibit~~
~~Number~~ ~~Description~~
~~10.11~~ *† ~~Form of Employment Agreement by and between the Registrant and Curtis A. Hartman (previously filed as exhibit (k)(3)~~ to Main Street Capital Corporation’s Registration Statement on Form N-2 (Reg. No. 333-142879))
10
~~10.12~~ *.16*† Form of Employment Agreement by and between ~~the Registrant~~Main Street Capital Corporation and ~~Dwayne L. Hyzak~~Curtis A. Hartman (previously filed as ~~exhibit~~Exhibit (k)~~(4)~~(3) to Main Street Capital Corporation’s Registration Statement on Form N-2 (Reg. No. 333-142879))
~~10.13~~ *† Form of Employment Agreement by and between the Registrant and David L. Magdol (previously filed as exhibit (k)(5) to Main Street Capital Corporation’s Registration Statement on Form N-2 (Reg. No. 333-142879))
~~10.14~~ * Agreement and Plan of Merger by and between Main Street Capital Corporation and Main Street Mezzanine Fund, LP (previously filed as exhibit (k)(6) to Main Street Capital Corporation’s Registration Statement on Form N-2 (Reg. No. 333-142879))
~~10.15~~ * Exchange Agreement by and between Main Street Capital Corporation and Main Street Capital Partners, LLC (previously filed as exhibit (k)(7) to Main Street Capital Corporation’s Registration Statement on Form N-2 (Reg. No. 333-142879))
~~10.16~~ * Exchange Agreement by and between Main Street Capital Corporation and Main Street Mezzanine Management, LLC (previously filed as exhibit (k)(8*) to Main Street Capital Corporation’s Registration Statement on Form N-2 (Reg. No. 333-142879))
~~10.17~~ * Amendment to Agreement and Plan of Merger by and between Main Street Capital Corporation and Main Street Mezzanine Fund, LP (previously filed as exhibit (k)(9) to Main Street Capital Corporation’s Registration Statement on Form N-2 (Reg. No. 333-142879))
~~10.18~~ * Amendment to Exchange Agreement by and between Main Street Capital Corporation and Main Street Capital Partners, LLC (previously filed as exhibit (k)(10) to Main Street Capital Corporation’s Registration Statement on Form N-2 (Reg. No. 333-142879))
~~10.19~~ * Amendment to Exchange Agreement by and between Main Street Capital Corporation and Main Street Mezzanine Management, LLC (previously filed as exhibit (k)(11) to Main Street Capital Corporation’s Registration Statement on Form N-2 (Reg. No. 333-142879))
~~10.20~~ *† Form of Confidentiality and Non-Compete Agreement by and between the Registrant and Vincent D. Foster (previously filed as exhibit (k)(12) to Main Street Capital Corporation’s Registration Statement on Form N-2 (Reg. No. 333-142879))
~~10.21~~ *† Form of Indemnification Agreement by and between the Registrant and each executive officer and director (previously filed as exhibit (k)(13) to Main Street Capital Corporation’s Registration Statement on Form N-2 (Reg. No. 333-142879))
~~14.1~~ * ~~Code of Ethics (previously filed as exhibit (r) to Main Street Capital Corporation’s Registration Statement on Form N-2 (Reg. No. 333-142879))~~
~~31.1~~ ~~Rule 13a – 14(a)/15d – 14(a) certification of Chief Executive Officer~~
~~31.2~~ ~~Rule 13a – 14(a)/15d – 14(a) certification of Chief Financial Officer~~
~~31.3~~ ~~Rule 13a – 14(a)/15d – 14(a) certification of Chief Compliance Officer~~
~~32.1~~ ~~Section 1350 certification of Chief Executive Officer~~
~~32.2~~ ~~Section 1350 certification of Chief Financial Officer~~

Exhibit

Number

Description

10 .17*† Form of Employment Agreement by and between Main Street Capital Corporation and Dwayne L. Hyzak (previously filed as Exhibit (k)(4) to Main Street Capital Corporation’s Registration Statement on Form N-2 (Reg. No. 333-142879))
10 .18*† Form of Employment Agreement by and between Main Street Capital Corporation and David L. Magdol (previously filed as Exhibit (k)(5) to Main Street Capital Corporation’s Registration Statement on Form N-2 (Reg. No. 333-142879))
10 .19*† Form of Confidentiality and Non-Compete Agreement by and between Main Street Capital Corporation and Vincent D. Foster (previously filed as Exhibit (k)(12) to Main Street Capital Corporation’s Registration Statement on Form N-2 (Reg. No. 333-142879))
10 .20*† Form of Indemnification Agreement by and between Main Street Capital Corporation and each executive officer and director (previously filed as Exhibit (k)(13) to Main Street Capital Corporation’s Registration Statement on Form N-2 (Reg. No. 333-142879))
10 .21* Support Services Agreement effective as of October 2, 2007 by and between Main Street Capital Corporation and Main Street Capital Partners, LLC (previously filed as Exhibit (k)(16) to Main Street Capital Corporation’s Registration Statement on Form N-2 (Reg. No. 333-142879))
14 .1* Code of Ethics (previously filed as Exhibit (r) to Main Street Capital Corporation’s Registration Statement on Form N-2 (Reg. No. 333-142879))
23 Consent of Grant Thornton LLP, independent registered public accounting firm
31 .1 Rule 13a - 14(a)/15d - 14(a) certification of Chief Executive Officer
31 .2 Rule 13a - 14(a)/15d - 14(a) certification of Chief Financial Officer
32 .1 Section 1350 certification of Chief Executive Officer
32 .2 Section 1350 certification of Chief Financial Officer

* Exhibit previously filed with the Securities and Exchange Commission, as indicated, and incorporated herein by reference.

† Management contract or compensatory plan or arrangement

		For the fiscal year ended December 31, 2008
OR
o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
		For the transition period from to


Maryland		41-2230745
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

~~(State or other jurisdiction of incorporation or organization)~~		~~(I.R.S. Employer Identification No.)~~

1300 Post Oak Boulevard, Suite 800
Houston, TX		~~77056~~

(Address of principal executive offices)		77056 (Zip Code)


Title of Each Class		Name of Each Exchange on Which Registered

Common Stock, par value $0.01 per share		NASDAQ Global Select Market


Large accelerated filero	Accelerated filero	~~Non-accelerated filer~~þ	Non-accelerated filer o	Smaller reporting companyo
		~~(Do not check if a smaller reporting company)~~


		~~Page~~

~~Part I~~
					Page

PART I
	Item 1.			Business		1
	Item 1A.
~~Item 1A.~~ Risk Factors			18

Item 1B. ~~Unresolved Staff Comments~~			29Unresolved Staff Comments		33

Item 2. ~~Properties~~			29Properties		33

Item 3. ~~Legal Proceedings~~			29Legal Proceedings		33
	Item 4.
~~Item 4.~~ Submission of Matters to a Vote of Security Holders			2933

PART II

~~Part II~~Item 5.

~~Item 5.~~ Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities			2933

Item 6. ~~Selected Financial Data~~			32Selected Financial Data		38
	Item 7.
~~Item 7.~~ Management’s Discussion and Analysis of Financial Condition and Results of Operations			3440
	Item 7A.
~~Item 7A.~~ Quantitative and Qualitative Disclosures About Market Risk			4556
	Item 8.
~~Item 8.~~ Financial Statements and Supplementary Data			4557
	Item 9.
~~Item 9.~~ Changes in and Disagreements with Accountants on Accounting and Financial Disclosure			76101

Item 9A. ~~Controls and Procedures~~			76Controls and Procedures		101

Item 9B. ~~Other Information~~			76Other Information		102

PART III

~~Part III~~Item 10.

~~Item 10.~~ Directors, Executive Officers and Corporate Governance			76102

Item 11. ~~Executive Compensation~~			76Executive Compensation		102
	Item 12.
~~Item 12.~~ Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters			77103
	Item 13.
~~Item 13.~~ Certain Relationships and Related Transactions, and Director Independence			77103
	Item 14.
~~Item 14.~~ Principal Accountant Fees and Services			77103

PART IV

~~Part IV~~Item 15.

~~Item 15.~~ Exhibits and Financial Statement Schedules			77
			104
Signatures						80
			106
~~Exhibit 4.2~~EX-23
~~Exhibit 31.1~~EX-31.1
~~Exhibit 31.2~~EX-31.2
~~Exhibit 31.3~~EX-32.1
~~Exhibit 32.1~~
~~Exhibit 32.2~~EX-32.2


(Mark One)

þ		ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


	•		*Delivering Customized Financing ~~Solutions~~Solutions.*.We believe our ability to provide a broad range of customized financing solutions to lower middle-market companies sets us apart from other capital providers that focus on providing a limited number of financing solutions. We offer to our portfolio companies customized debt financing solutions with equity components that are tailored to the facts and circumstances of each situation. Our ability to invest across a company’s capital structure, from senior secured loans to subordinated debt to equity securities, allows us to offer our portfolio companies a comprehensive suite of financing solutions, or “one-stop” financing.


	•		*Focusing on Established Companies in the Lower Middle-Market*.We generally invest in companies with established market positions, experienced management teams and proven revenue streams. Those companies generally possess better risk-adjusted return profiles than newer companies that are building management or are in the early stages of building a revenue base. In addition, established lower middle-market companies generally provide opportunities for capital appreciation.


	•		*Leveraging the Skills and Experience of Our Investment Team*.Our investment team has ~~over 35 years of combined~~significant experience in lending to and investing in lower middle-market companies. The members of our investment team have broad investment backgrounds, with prior experience at private investment funds, investment banks and other financial services companies, and currently include ~~five~~seven certified public accountants and one chartered financial analyst. The expertise of our investment team in analyzing, valuing, structuring, negotiating and closing transactions should provide us with competitive advantages by allowing us to consider customized financing solutions and non-traditional and complex structures.


	•		*~~Maintaining Portfolio Diversification~~Investing Across Multiple Industries.*.We seek to maintain a portfolio of investments that is appropriately ~~diversified~~balanced among various companies, industries, geographic regions and end markets. This portfolio ~~diversity~~balance is intended to mitigate the potential effects of negative economic events for particular companies, regions and industries.


	•		*Capitalizing on Strong Transaction Sourcing ~~Network~~Network.*.Our investment team seeks to leverage its extensive network of referral sources for investments in lower middle-market ~~companies developed over the last ten years. Since 2002, we have originated and have been the lead investor in over 30 principal investment transactions.~~companies. We have developed a reputation in our marketplace as a responsive, efficient and reliable source of financing, which has created a growing stream of proprietary deal flow for us.


	•		*Benefiting from Lower Cost of ~~Capital~~Capital.*.The Fund’s SBIC license has allowed it to issueSBA-guaranteed debentures. SBA-guaranteed debentures carry long-term fixed rates that are generally lower than rates on comparable bank and ~~public~~other debt. Because lower cost SBA leverage is, and will continue to be, a significant part of our capital base through the Fund, our relative cost of debt capital should be lower than many of our competitors. In addition, the SBIC leverage that we receive through the Fund represents a stable, long-term component of our capital structure.


	•		*Proven Management Team with Meaningful Financial Commitment*.We look for operationally-oriented management with direct industry experience and a successful track record. In addition, we expect the management team of each portfolio company to have meaningful equity ownership in the portfolio company to better align our respective economic interests. We believe management teams with these attributes are more likely to manage the companies in a manner that protects our debt investment and enhances the value of our equity investment.


	•		*Established Companies with Positive Cash ~~Flow~~*.Flow. We seek to invest in established companies in the lower middle-market with sound historical financial performance. We typically focus on companies that have historically generated EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) of ~~greater than $1.0~~$1 million to $10 million and commensurate levels of free cash flow. We generally do not intend to invest instart-up companies or companies with speculative business plans.


	•		*Defensible Competitive Advantages/Favorable Industry Position*.We primarily focus on companies having competitive advantages in their respective marketsand/or operating in industries with barriers to entry, which may help to protect their market position and profitability.


Item 1.		*Business*


	•		*Exit ~~Alternatives~~Alternatives.*.We expect that the primary means by which we exit our debt investments will be through the repayment of our investment from internally generated cash flowand/or refinancing. In addition, we seek to invest in companies whose business models and expected future cash flows may provide alternate methods of repaying our investment, such as through a strategic acquisition by other industry participants or a recapitalization.


	•	a comprehensive financial model based on quantitative analysis of historical financial performance, projections and pro forma adjustments to determine the estimated internal rate of return;

	•	a brief industry and market analysis; importing direct industry expertise from other portfolio companies or investors;

	•	preliminary qualitative analysis of the management team’s competencies and backgrounds;

	•	potential investment structures and pricing terms; and

	•	regulatory compliance.


	•	initial or additional site visits with management and key personnel;

	•	detailed review of historical and projected financial statements;

	•	operational reviews and analysis;

	•	interviews with customers and suppliers;

	•	detailed evaluation of company management, including background checks;

	•	review of material contracts;

	•	in-depth industry, market, and strategy analysis; and

	•	review by legal, environmental or other consultants, if applicable.


	•	company history and overview;

	•	transaction overview, history and rationale, including an analysis of transaction strengths and risks;

	•	analysis of key customers and suppliers and key contracts;

	•	a working capital analysis;

	•	an analysis of the company’s business strategy;

	•	a management background check and assessment;

	•	third-party accounting, legal, environmental or other due diligence findings;

	•	investment structure and expected returns;

	•	anticipated sources of repayment and potential exit strategies;

	•	pro forma capitalization and ownership;

	•	an analysis of historical financial results and key financial ratios;

	•	sensitivities to management’s financial projections; and

	•	detailed reconciliations of historical to pro forma results.


	•	Investment Rating 1represents a portfolio company that is performing in a manner which significantly exceeds our original expectations and projections;

	•	Investment Rating 2represents a portfolio company that, in general, is performing above our original expectations;

	•	Investment Rating 3represents a portfolio company that is generally performing in accordance with our original expectations;

	•	Investment Rating 4represents a portfolio company that is underperforming our original expectations. Investments with such a rating require increased Main Street monitoring and scrutiny; and

	•	Investment Rating 5represents a portfolio company that is significantly underperforming. Investments with such a rating require heightened levels of Main Street monitoring and scrutiny and involve the recognition of unrealized depreciation on such investment.


	•	Our quarterly valuation process will begin with each portfolio company or investment being initially valued by the deal team responsible for the portfolio investment;

	•	Preliminary valuation conclusions will then be reviewed and discussed with senior management;

	•	The Audit Committee of our Board of Directors will review the preliminary valuations, and the deal team will consider and assess, as appropriate, any changes that may be required to the preliminary valuation to address any comments provided by the Audit Committee;

	•	The Board of Directors will assess the valuations and will ultimately approve the fair value of each investment in our portfolio in good faith; and

	•	An independent valuation firm engaged by the Board of Directors will perform certain mutually agreed limited procedures that we have identified and asked them to perform on a selection of our final portfolio company valuation conclusions.


	Years Ended December 31,
	2003			2004			2005			2006			2007
	(Unaudited)
	(dollars in thousands)

Statement of operations data:
Investment income:
Total interest, fee and dividend income	$	3,397		$	4,452		$	7,338		$	9,013		$	11,312
Interest from idle funds and other		7			9			222			749			1,163

Total investment income		3,404			4,461			7,560			9,762			12,475

Expenses:
Management fees to affiliate		(1,722	)		(1,916	)		(1,929	)		(1,942	)		(1,500	)
Interest		(113	)		(869	)		(2,064	)		(2,717	)		(3,246	)
General and administrative		(135	)		(184	)		(197	)		(198	)		(512	)
Professional costs related to initial public offering		—			—			—			—			(695	)

Total expenses		(1,970	)		(2,969	)		(4,190	)		(4,857	)		(5,953	)

Net investment income		1,434			1,492			3,370			4,905			6,522
Total net realized gain (loss) from investments		(225	)		1,171			1,488			2,430			4,692

Net realized income		1,209			2,663			4,858			7,335			11,214
Total net change in unrealized appreciation (depreciation) from investments		300			1,764			3,032			8,488			(5,406	)
Income tax provision		—			—			—			—			(3,263	)

Net increase in net assets resulting from operations	$	1,509		$	4,427		$	7,890		$	15,823		$	2,545


Net investment income per common share – basic and diluted		N/A			N/A			N/A			N/A		$	0.76
Net realized income per common share – basic and diluted		N/A			N/A			N/A			N/A		$	1.31
Net increase in net assets resulting from operations per common share – basic and diluted		N/A			N/A			N/A			N/A		$	0.30
Weighted average shares of common stock outstanding – basic and diluted		N/A			N/A			N/A			N/A			8,587,701


																	Net Unrealized
																	Appreciation from
	Members'			Limited			Common Stock				Additional			Undistributed			Investments,			Total
	Capital			Partners'			Number		Par		Paid In			Net Realized			net of			Net
	(General Partner)			Capital			of Shares		Value		Capital			Income			Income Taxes			Assets
Balances at December 31, 2004	$	118,505		$	14,453,688			—	$	—	$	—		$	601,004		$	2,064,691		$	17,237,888
Capital contributions		61,437			10,962,290			—		—		—			—			—			11,023,727
Distributions to partners		—			—			—		—		—			(2,882,936	)		—			(2,882,936	)
Net increase resulting from operations:		—			—			—		—		—			4,857,789			3,032,274			7,890,063

Balances at December 31, 2005		179,942			25,415,978			—		—		—			2,575,857			5,096,965			33,268,742
Capital contributions		1,828			353,261			—		—		—			—			—			355,089
Distributions to partners		—			(530,000	)		—		—		—			(5,644,297	)		—			(6,174,297	)
Net increase resulting from operations:		—			—			—		—		—			7,334,483			8,488,514			15,822,997

Balances at December 31, 2006		181,770			25,239,239			—		—		—			4,266,043			13,585,479			43,272,531
Capital contributions		—			300,081			—		—		—			—			—			300,081
Distributions to partners		—			—			—		—		—			(6,500,000	)		—			(6,500,000	)
Formation Transactions		(181,770	)		(25,539,320	)		4,525,726		45,257		43,675,833			—			—			18,000,000
Initial capitalization		—			—			1,000		10		990			—			—			1,000
Public offering of common stock		—			—			4,300,000		43,000		60,139,997			—			—			60,182,997
Costs related to offering		—			—			—		—		(1,642,573	)		—			—			(1,642,573	)
Dividends paid to stockholders		—			—			—		—		—			(2,912,820	)		—			(2,912,820	)
Dividend reinvestment		—			—			132,992		1,330		1,901,786			—			—			1,903,116
Net increase resulting from operations		—			—			—		—		—			11,213,908			(8,669,032	)		2,544,876

Balances at December 31, 2007	$	—		$	—			8,959,718	$	89,597	$	104,076,033		$	6,067,131		$	4,916,447		$	115,149,208


	For the Years Ended
	December 31,
	2007			2006			2005
	(Consolidated)			(Combined)			(Combined)

CASH FLOWS FROM OPERATING ACTIVITIES
Net increase in net assets resulting from operations	$	2,544,876		$	15,822,997		$	7,890,063
Adjustments to reconcile net increase in net assets resulting from operations to net cash provided by operating activities:
Accretion of unearned income		(998,069	)		(1,380,351	)		(1,251,066	)
Net payment-in-kind interest accrual		(260,806	)		(216,805	)		(144,150	)
Amortization of deferred financing costs		186,106			157,850			120,225
Net change in unrealized (appreciation) depreciation from investments		5,406,493			(8,488,514	)		(3,032,274	)
Net realized gain from investments		(4,692,209	)		(2,429,923	)		(1,487,726	)
Changes in other assets and liabilities:
Interest receivable		(407,347	)		(93,480	)		(182,324	)
Other assets		(469,598	)		2,107			4,172
Deferred tax liability		3,025,672			—			—
Interest payable		207,731			83,459			417,325
Accounts payable and other liabilities		394,510			76,543			103,670
Deferred debt origination fees received		467,558			709,980			535,250


Net cash provided by operating activities		5,404,917			4,243,863			2,973,165


CASH FLOWS FROM INVESTMENT ACTIVITIES
Investments in portfolio companies		(29,479,023	)		(28,088,005	)		(19,727,500	)
Principal payments received on loans and debt securities		9,614,338			12,199,956			10,322,470
Proceeds from sale of equity securities and related notes		5,934,420			5,021,313			1,117,143
Proceeds from derivative instrument		—			—			115,966
Investments of idle funds		(24,063,261	)		—			—


Net cash used in investing activities		(37,993,526	)		(10,866,736	)		(8,171,921	)


CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from initial public offering/capitalization		60,183,997			—			—
Proceeds from capital contributions		300,081			355,089			11,023,727
Distribution to members and partners		(6,500,000	)		(6,174,297	)		(2,882,936	)
Dividends paid to stockholders		(1,009,704	)		—			—
Proceeds from issuance of SBIC debentures		9,900,000			—			23,100,000
Payment of deferred loan costs and SBIC debenture fees		(522,587	)		(50,000	)		(577,500	)
Payment of initial public offering costs		(1,642,573	)		—			—


Net cash provided by (used in) financing activities		60,709,214			(5,869,208	)		30,663,291


Net increase (decrease) in cash and cash equivalents		28,120,605			(12,492,081	)		25,464,535

CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD		13,768,719			26,260,800			796,265


CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	41,889,324		$	13,768,719		$	26,260,800


Portfolio Company/Type of Investment (1) (2)	Industry	Principal (6)		Cost (6)		Fair Value

Control Investments(3)

Café Brazil, LLC	Casual Restaurant
12% Secured Debt (Maturity — April 20, 2009)	Group	$	2,750,000	$	2,750,000	$	2,750,000
Member Units (7) (Fully diluted 42.3%)					41,837		1,250,000

					2,791,837		4,000,000

CBT Nuggets, LLC	Produces and Sells
Prime plus 2% Secured Debt (Maturity — June 1, 2011)	IT Certification		360,000		360,000		360,000
14% Secured Debt (Maturity — June 1, 2011)	Training Videos		1,860,000		1,860,000		1,860,000
Member Units (Fully diluted 29.1%)					432,000		1,145,000
Warrants (Fully diluted 10.5%)					72,000		345,000

					2,724,000		3,710,000

Gulf Manufacturing, LLC	Specialty Metal
Prime plus 1% Secured Debt (Maturity — August 31, 2012)	Fabrication		1,200,000		1,200,000		1,200,000
13% Secured Debt (Maturity — August 31, 2012)			2,000,000		2,000,000		2,000,000
Member Units (Fully diluted 18.4%)					472,000		472,000
Warrants (Fully diluted 8.4%)					160,000		250,000

					3,832,000		3,922,000

Hawthorne Customs & Dispatch Services, LLC	Transportation/
13% Secured Debt (Maturity — January 31, 2011)	Logistics		1,350,000		1,350,000		1,350,000
Member Units (7) (Fully diluted 27.8%)					375,000		435,000
Warrants (Fully diluted 16.5%)					37,500		230,000

					1,762,500		2,015,000

Hayden Acquisition, LLC	Manufacturer of
12% Secured Debt (Maturity — March 9, 2009)	Utility Structures		1,955,000		1,955,000		1,955,000


Hydratec Holdings, LLC	Agricultural Services
12.5% Secured Debt (Maturity — October 31, 2012)			5,700,000		5,700,000		5,700,000
Prime plus 1% Secured Debt (Maturity — October 31, 2012)			1,845,244		1,845,244		1,845,244
Member Units (Fully diluted 60%)					1,800,000		1,800,000

					9,345,244		9,345,244

Jensen Jewelers of Idaho, LLC	Retail Jewelry
Prime Plus 2% Secured Debt (Maturity — November 14, 2011)			1,200,000		1,200,000		1,200,000
13% current / 6% PIK Secured Debt (Maturity — November 14, 2011)			1,069,457		1,069,457		1,069,457
Member Units (7) (Fully diluted 25.1%)					376,000		815,000

					2,645,457		3,084,457

Magna Card, Inc.	Wholesale/Consumer
12% current / 0.4% PIK Secured Debt (Maturity — September 30, 2010)	Magnetic Products		2,021,079		2,021,079		—
Warrants (Fully diluted 35.8%)					100,000		—

					2,121,079		—

Quest Design & Production, LLC	Design and Fabrication
8% current / 5% PIK Secured Debt (Maturity — December 1, 2010)	of Custom Display		3,991,542		3,991,542		3,991,542
Warrants (Fully diluted 26.0%)	Systems				40,000		40,000

					4,031,542		4,031,542

TA Acquisition Group, LP	Processor of
12% Secured Debt (Maturity — July 29, 2010)	Construction		1,870,000		1,870,000		1,870,000
Partnership Interest (7) (Fully diluted 18.3%)	Aggregates				357,500		3,435,000
Warrants (Fully diluted 18.3%)					82,500		3,450,000

					2,310,000		8,755,000

Technical Innovations, LLC	Manufacturer of
12% Secured Debt (Maturity — October 31, 2009)	Specialty Cutting		787,500		787,500		787,500
Prime Secured Debt (Maturity — October 31, 2009)	Tools and Punches		262,500		262,500		262,500

					1,050,000		1,050,000

Universal Scaffolding & Equipment, LLC	Manufacturer of
Prime plus 1% Secured Debt (Maturity — August 16, 2012)	Scaffolding and		1,122,333		1,122,333		1,122,333
13% current / 5% PIK Secured Debt (Maturity — August 16, 2012)	Shoring Equipment		3,196,376		3,196,376		3,196,376
Member Units (Fully Diluted 18.4%)					992,063		1,025,000

					5,310,772		5,343,709

Wicks N’ More, LLC	Manufacturer of
12% Secured Debt (Maturity — April 26, 2011)	High-end Candles		3,720,000		3,720,000		1,950,000
Member Units (Fully diluted 11.5%)					360,000		—
Warrants (Fully diluted 21.3%)					210,000		—

					4,290,000		1,950,000

Subtotal Control Investments					44,169,431		49,161,952


	December 31,			December 31,
	2008			2007

ASSETS
Investments at fair value:
Control investments (cost: $60,767,805 and $43,053,372 as of December 31, 2008 and 2007, respectively)	$	65,542,608		$	48,108,197
Affiliate investments (cost: $37,946,800 and $33,037,053 as of December 31, 2008 and 2007, respectively)		39,412,695			36,176,216
Non-Control/Non-Affiliate investments (cost: $6,245,405 and $3,381,001 as of December 31, 2008 and 2007, respectively)		5,375,886			3,741,001
Investment in affiliated Investment Manager (cost: $18,000,000 as of December 31, 2008 and 2007)		16,675,626			17,625,000

Total investments (cost: $122,960,010 and $97,471,426 as of December 31, 2008 and 2007, respectively)		127,006,815			105,650,414
Idle funds investments (cost: $4,218,704 and $24,063,261 as of December 31, 2008 and 2007, respectively)		4,389,795			24,063,261
Cash and cash equivalents		35,374,826			41,889,324
Deferred tax asset		1,121,681			—
Other assets		1,100,922			1,574,888
Deferred financing costs (net of accumulated amortization of $956,037 and $529,952 as of December 31, 2008 and 2007, respectively)		1,635,238			1,670,135

Total assets	$	170,629,277		$	174,848,022


LIABILITIES
SBIC debentures	$	55,000,000		$	55,000,000
Deferred tax liability		—			3,025,672
Interest payable		1,108,193			1,062,672
Accounts payable and other liabilities		2,165,028			610,470

Total liabilities		58,273,221			59,698,814
Commitments and contingencies
NET ASSETS
Common stock, $0.01 par value per share (150,000,000 shares authorized; 9,241,183 and 8,959,718 issued and 9,206,483 and 8,959,718 outstanding as of December 31, 2008 and 2007, respectively)		92,412			89,597
Additional paid-in capital		104,798,399			104,076,033
Undistributed net realized income		3,658,495			6,067,131
Net unrealized appreciation from investments, net of income taxes		4,137,756			4,916,447
Treasury stock, at cost (34,700 and 0 shares as of December 31, 2008 and 2007, respectively)		(331,006	)		—

Total net assets		112,356,056			115,149,208

Total liabilities and net assets	$	170,629,277		$	174,848,022

NET ASSET VALUE PER SHARE	$	12.20		$	12.85


																	Net
																	Unrealized
																	Appreciation
	Members’																from
	Equity			Limited			Common Stock				Additional			Undistributed			Investments,			Treasry Stock						Total
	(General			Partners’			Number		Par		Paid-In			Net Realized			net of Income			Number						Net
	Partner)			Capital			of Shares		Value		Capital			Income			Taxes			of Shares			Value			Assets

Balances at December 31, 2005	$	179,942		$	25,415,978			—	$	—	$	—		$	2,575,857		$	5,096,965			—		$	—		$	33,268,742
Capital contributions		1,828			353,261			—		—		—			—			—			—			—			355,089
Distributions to partners		—			(530,000	)		—		—		—			(5,644,297	)		—			—			—			(6,174,297	)
Net increase resulting from operations		—			—			—		—		—			7,334,483			8,488,514			—			—			15,822,997

Balances at December 31, 2006		181,770			25,239,239			—		—		—			4,266,043			13,585,479			—			—			43,272,531
Capital contributions		—			300,081			—		—		—			—			—			—			—			300,081
Distributions to partners		—			—			—		—		—			(6,500,000	)		—			—			—			(6,500,000	)
Formation Transactions		(181,770	)		(25,539,320	)		4,525,726		45,257		43,675,833			—			—			—			—			18,000,000
Initial Capitalization		—			—			1,000		10		990			—			—			—			—			1,000
Public offering of common stock		—			—			4,300,000		43,000		60,139,997			—			—			—			—			60,182,997
Costs related to offering		—			—			—		—		(1,642,573	)		—			—			—			—			(1,642,573	)
Dividends paid to stockholders		—			—			—		—		—			(2,912,820	)		—			—			—			(2,912,820	)
Dividend reinvestment		—			—			132,992		1,330		1,901,786			—			—			—			—			1,903,116
Net increase resulting from operations		—			—			—		—		—			11,213,908			(8,669,032	)		—			—			2,544,876

Balances at December 31, 2007		—			—			8,959,718		89,597		104,076,033			6,067,131			4,916,447			—			—			115,149,208
Issuance of restricted stock		—			—			265,645		2,657		(2,657	)		—			—			—			—			—
Issuance of stock — dividend reinvestment plan		—			—			15,820		158		213,571			—			—			—			—			213,729
Purchase of treasury stock		—			—			—		—		—			—			—			(34,700	)		(331,006	)		(331,006	)
Share-based compensation		—			—			—		—		511,452			—			—			—			—			511,452
Dividends declared to stockholders		—			—			—		—		—			(14,121,266	)		—			—			—			(14,121,266	)
Net increase resulting from operations		—			—			—		—		—			11,712,630			(778,691	)		—			—			10,933,939

Balances at December 31, 2008	$	—		$	—			9,241,183	$	92,412	$	104,798,399		$	3,658,495		$	4,137,756			(34,700	)	$	(331,006	)	$	112,356,056


(1)		~~All debt~~Debt investments are generally income producing. Equity and warrants are non-income producing, unless otherwise ~~noted~~ noted.

(2)		See ~~footnote~~Note C for summary geographic location of portfolio ~~companies~~ companies.

(3)		~~Control~~Controlled investments are defined by the Investment Company Act of 1940, as amended (“1940 Act”), as investments ~~in companies~~ in which more than 25% of the voting securities are owned or where the ability to nominate greater than 50% of the board representation is maintained.

(4)		Affiliate investments are defined by the 1940 Act as ~~those Non-Control~~ investments ~~in companies~~ in which between 5% and 25% of the voting securities are owned.

(5)		Non-Control/Non-Affiliate investments are defined by the 1940 Act as investments that are neither Control Investments ornor Affiliate ~~Investments~~ Investments.

(6)		~~Net~~Principal is net of prepayments. Cost is net of prepayments and accumulated unearned income.

(7)		Income producing through payment of dividends or distributions.

(8)		Subject to contractual minimum rates.


(1)		All debt investments are generally income producing. Equity and warrants are non-income producing, unless otherwise ~~noted~~ noted.

(2)		See ~~footnote~~Note C for summary geographic location of portfolio ~~companies~~ companies.

(3)		~~Control~~Controlled investments are defined by the Investment Company Act of 1940, as amended (“1940 Act”) as investments ~~in companies~~ in which more than 25% of the voting securities are owned or where the ability to nominate greater than 50% of the board representation is maintained.

(4)		Affiliate investments are defined by the 1940 Act as ~~those Non-Control~~ investments ~~in companies~~ in which between 5% and 25% of the voting securities are owned.

(5)		Non-Control/Non-Affiliate investments are defined by the 1940 Act as investments that are neither Control Investments ornor Affiliate ~~Investments~~ Investments.

(6)		~~Net~~Principal is net of prepayments. Cost is net of prepayments and accumulated unearned income.

(7)		Income producing through payment of dividends or distributions.

(8)		Subject to contractual minimum rates.


	Year Ended December 31,
	2007			2006
Beginning accumulated unearned income	$	2,498,427		$	2,602,632
Debt origination fees received		467,558			709,980
Value of warrants received		407,119			566,166
Unearned income recognized		(998,069	)		(1,380,351	)

Ending accumulated unearned income	$	2,375,035		$	2,498,427


										Net			Net
					Redemptions/					Changes from			Unrealized
Type of	December 31, 2007		Accretion of		Repayments/			New		Unrealized			Appreciation			December 31, 2008
Investment	Fair Value		Unearned Income		Realized Losses			Investments		to Realized			(Depreciation)			Fair Value

Debt	$	64,581,986	$	1,062,452	$	(23,595,109	)	$	40,586,637	$	4,568,891		$	(5,453,814	)	$	81,751,043
Equity		16,361,308		—		(590,041	)		5,995,743		(2,717,500	)		3,685,636			22,735,146
Equity warrants		7,082,120		—		1,069,046			959,856		(3,636,654	)		370,632			5,845,000
Investment Manager		17,625,000		—		—			—		—			(949,374	)		16,675,626

	$	105,650,414	$	1,062,452	$	(23,116,104	)	$	47,542,236	$	(1,785,263	)	$	(2,346,920	)	$	127,006,815


	For the Period
	October 2, 2007
	through
	December 31, 2007
Management fee income from Main Street Capital II	$	831,300
Compensation and other administrative expenses		(831,300	)

Net income	$	—


				For the Period
				October 2,
				2007
	Year Ended			through
	December 31,			December 31,
	2008			2007
	(Unaudited)

Management fee income from Main Street Capital II	$	3,325,200		$	831,300
Other management advisory fees		47,750			—

Total income		3,372,950			831,300
EXPENSES
Salaries, benefits and other personnel costs		(3,483,336	)		(612,377	)
Occupancy expense		(184,285	)		(45,343	)
Professional expenses		(81,208	)		(57,703	)
Amortization expense — intangible asset		(1,174,207	)		—
Other		(630,956	)		(115,877	)
Expense reimbursement from MSCC		1,006,835			—

Total net expenses		(4,547,157	)		(831,300	)

Net income (loss)	$	(1,174,207	)	$	—


Year Ending	Estimated
December 31,	Amortization
2008	$	333,013
2009		333,013
2010		191,757
2011		191,757
2012		191,757
2013 and thereafter	$	428,838


	Estimated
Years Ending December 31,	Amortization

2009	$	402,091
2010	$	316,689
2011	$	295,867
2012	$	191,758
2013	$	182,424
2014 and thereafter	$	246,409