What changed in this filing

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Item 1. Business

2021-05-05 compared with 2020-05-06 · 1315 added, 1052 removed, 114 unchanged (95% of the section changed)

We are a specialty finance

company that provides customized financing solutions to U.S middle-market businesses.

We primarily invest in senior and unitranche leveraged loans and mezzanine debt and, to a lesser extent, equity issued by private U.S.

middle-market companies, which we define as companies having annual earnings before interest, taxes, depreciation and amortization (EBITDA) of between $2 million and $50 million, both through

direct lending and through participation in loan syndicates.

Our investment objective is to create attractive risk-adjusted returns by generating current income and long-term capital appreciation from our investments.

Our investments generally

provide financing for change of ownership transactions, strategic acquisitions, recapitalizations and growth initiatives in partnership with business owners, management teams and financial sponsors.

Our investment activities are externally managed

and advised by Saratoga Investment Advisors, LLC, a New York-based investment firm affiliated with Saratoga Partners, a middle market private equity investment firm.

Our portfolio is comprised primarily of investments in leveraged loans issued by middle market companies.

are a specialty finance company that provides customized financing solutions to U.S middle-market businesses.

We primarily invest in

senior and unitranche leveraged loans and mezzanine debt and, to a lesser extent, equity issued by private U.S.

middle-market companies,

which we define as companies having annual earnings before interest, taxes, depreciation and amortization (“EBITDA”) of between

$2 million and $50 million, both through direct lending and through participation in loan syndicates.

Our investment objective is to

create attractive risk-adjusted returns by generating current income and long-term capital appreciation from our investments.

Our investments

generally provide financing for change of ownership transactions, strategic acquisitions, recapitalizations and growth initiatives in

partnership with business owners, management teams and financial sponsors.

Our investment activities are externally managed and advised

by Saratoga Investment Advisors, LLC, a New York-based investment firm affiliated with Saratoga Partners, a middle market private equity

investment firm.

portfolio is comprised primarily of investments in leveraged loans issued by middle market companies.

Leveraged loans are generally senior

debt instruments that rank ahead of subordinated debt with below investment grade or junk ratings or, if not rated, would be rated below investment grade or junk and, as a result, carry a higher risk of default.

loans also have the benefit of security interests on the assets of the portfolio company, which may rank ahead of, or be junior to, other security interests.

Term loans are loans that do not allow the borrowers to repay all or a portion of the loans

prior to maturity and then re-borrow such repaid amounts under the loan again.

debt instruments that rank ahead of subordinated debt with below investment grade or “junk”

ratings or, if not rated, would

be rated below investment grade or “junk”

and, as a result, carry a higher risk of default.

Leveraged loans also have the

benefit of security interests on the assets of the portfolio company, which may rank ahead of, or be junior to, other security interests.

Term loans are loans that do not allow the borrowers to repay all or a portion of the loans prior to maturity and then re-borrow such

repaid amounts under the loan again.

We also invest in mezzanine debt and make equity investments in middle market companies.

Mezzanine debt is typically unsecured and subordinated to senior debt of the

portfolio company.

While our primary focus is to generate current income and capital appreciation from our debt and equity investments in

middle market companies, we may invest up to 30.0% of our portfolio in opportunistic investments in order to seek to enhance returns to stockholders.

Such investments may include investments in distressed debt, including securities of companies in

bankruptcy, foreign debt, private equity, securities of public companies that are not thinly traded and structured finance vehicles such as collateralized loan obligation funds.

Although we have no current intention to do so, to the extent we invest

in private equity funds, we will limit our investments in entities that are excluded from the definition of investment company under Section 3(c)(1) or Section 3(c)(7) of Investment Company Act of 1940, as amended (1940

Act), which includes private equity funds, to no more than 15% of its net assets.

As of February 29, 2020, we had total assets of

$530.9 million and investments in 35 portfolio companies, including an investment in the subordinated notes of one collateralized loan obligation fund, Saratoga Investment Corp.

debt is typically unsecured and subordinated to senior debt of the portfolio company.

our primary focus is to generate current income and capital appreciation from our debt and equity investments in middle market companies,

we may invest up to 30.0% of our portfolio in opportunistic investments in order to seek to enhance returns to stockholders.

Such investments

may include investments in distressed debt, including securities of companies in bankruptcy, foreign debt, private equity, securities

of public companies that are not thinly traded and structured finance vehicles such as collateralized loan obligation funds.

we have no current intention to do so, to the extent we invest in private equity funds, we will limit our investments in entities that

are excluded from the definition of “investment company”

under Section 3(c)(1) or Section 3(c)(7) of Investment Company Act

of 1940, as amended (“1940 Act”), which includes private equity funds, to no more than 15% of its net assets.

of February 28, 2021, we had total assets of $592.2 million and investments in 40 portfolio companies, including an investment in the

subordinated notes of one collateralized loan obligation fund, Saratoga Investment Corp.

CLO 2013-1, Ltd.

(Saratoga CLO), which had a fair value of $22.6 million as of February 29, 2020 and investments in the Class F-R-2 Notes and Class G-R-2 Notes tranches of the Saratoga CLO and an investment in Saratoga Investment Corp.

CLO 2013-1 Warehouse 2, Ltd, which

as of February 29, 2020 had fair values of $2.5 million, $7.4 million and $2.2 million, respectively.

The overall portfolio composition as of February 29, 2020 consisted of 71.3% of first lien term loans, 15.1% of second lien

term loans, 0.9% of unsecured term loans, 6.7% of structured finance securities and 6.0% of equity interests.

As of February 29, 2020, the weighted average yield on all of our investments, including our investment in the subordinated notes of

Saratoga CLO, Class F-R-2 Notes and Class G-R-2 Notes tranches of the Saratoga

CLO and Saratoga Investment Corp.

CLO 2013-1 Warehouse 2, Ltd was approximately 9.3%.

The weighted average yield of our investments is not the same as a return on investment for our stockholders and, among

other things, is calculated before the payment of our fees and expenses.

As of February 29, 2020, our total return based on market value was 9.28% and our total return based on net asset value per share was 26.22%.

As of February 28, 2019, our total

return based on market value was 16.11% and our total return based on net asset value was 13.33%.

Total return based on market value is the change in the ending market value of the Companys common stock plus dividends distributed during the

period assuming participation in the Companys dividend reinvestment plan divided by the beginning market value of the Companys common stock.

Total return based on NAV is the change in ending NAV per share plus dividends distributed per

share paid during the period assuming participation in the Companys dividend reinvestment plan divided by the beginning NAV per share.

While total return based on NAV and total return based on market value reflect fund expenses, they do not

reflect any sales load that may be paid by investors.

As of February 29, 2020, approximately 100.0% of our first lien debt investments were fully collateralized in the sense that the portfolio companies in which we held such investments had an

enterprise value or our investment had an asset coverage equal to or greater than the principal amount of the related debt investment.

The Company uses enterprise value to assess the level of collateralization of its portfolio companies.

enterprise value of a portfolio company is determined by analyzing various factors, including EBITDA, cash flows from operations less capital expenditures and other pertinent factors, such as recent offers to purchase a portfolio companys

(“Saratoga CLO”),

which had a fair value of $31.4 million as of February 28, 2021 and investments in the Class F-R-3 Notes which as of February 28, 2021

had a fair value of $18.3 million.

The overall portfolio composition as of February 28, 2021 consisted of 79.5% of first lien term loans,

4.4% of second lien term loans, 0.4% of unsecured term loans, 9.0% of structured finance securities and 6.7% of equity interests.

of February 28, 2021, the weighted average yield on all of our investments, including our investment in the subordinated notes of Saratoga

CLO and Class F-R-3 Notes was approximately 9.1%.

The weighted average yield of our investments is not the same as a return on investment

for our stockholders and, among other things, is calculated before the payment of our fees and expenses.

As of February 28, 2021, our

total return based on market value was 7.63% and our total return based on net asset value per share was 7.42%.

As of February 29, 2020,

our total return based on market value was 9.28% and our total return based on net asset value was 26.22%.

Total return based on market

value is the change in the ending market value of the Company’s common stock plus dividends distributed during the period assuming

participation in the Company’s dividend reinvestment plan divided by the beginning market value of the Company’s common stock.

Total return based on NAV is the change in ending NAV per share plus dividends distributed per share paid during the period assuming

participation in the Company’s dividend reinvestment plan divided by the beginning NAV per share.

While total return based on NAV

and total return based on market value reflect fund expenses, they do not reflect any sales load that may be paid by investors.

February 28, 2021, approximately 100.0% of our first lien debt investments were fully collateralized in the sense that the portfolio

companies in which we held such investments had an enterprise value or our investment had an asset coverage equal to or greater than

the principal amount of the related debt investment.

The Company uses enterprise value to assess the level of collateralization of its

portfolio companies.

The enterprise value of a portfolio company is determined by analyzing various factors, including EBITDA, cash flows

from operations less capital expenditures and other pertinent factors, such as recent offers to purchase a portfolio company’s

securities or other liquidation events.

As a result, while we consider a portfolio company to be collateralized if its enterprise value exceeds the amount of our loan, we do not hold tangible assets as collateral in our portfolio companies that we

would obtain in the event of a default.

Our investment in the subordinated notes of Saratoga CLO represents a first loss position in a portfolio that, at February 29, 2020, was composed of $528.4 million in aggregate principal amount of

predominantly senior secured first lien term loans.

A first loss position means that we will suffer the first economic losses if losses are incurred on loans held by the Saratoga CLO.

As a result, this investment is subject to unique risks.

Risk FactorsOur investment in Saratoga CLO constitutes a leveraged investment in a portfolio of predominantly senior secured first lien term loans and is subject to additional risks and volatility.

We are an externally managed, closed-end,

non-diversified management investment company that has elected to be regulated as a business development company (BDC) under the 1940 Act.

As a BDC, we are required to comply with various regulatory requirements, including limitations on

our use of debt.

As a result, while we consider a portfolio company to be collateralized if its enterprise value

exceeds the amount of our loan, we do not hold tangible assets as collateral in our portfolio companies that we would obtain in the event

of a default.

Our investment in the subordinated notes of Saratoga CLO represents a first loss position in a portfolio that, at February

28, 2021, was composed of $603.7 million in aggregate principal amount of predominantly senior secured first lien term loans.

loss position means that we will suffer the first economic losses if losses are incurred on loans held by the Saratoga CLO.

this investment is subject to unique risks.

“Risk Factors—Our investment in Saratoga CLO constitutes

a leveraged investment in a portfolio of predominantly senior secured first lien term loans and is subject to additional risks and volatility.”

are an externally managed, closed-end, non-diversified management investment company that has elected to be regulated as a business development

company (“BDC”) under the 1940 Act.

As a BDC, we are required to comply with various regulatory requirements, including limitations

on our use of debt.

We finance our investments through borrowings.

However, as a BDC, we are only generally allowed to borrow amounts such that our asset coverage, as defined in the 1940 Act, equals at least 200.0% after such borrowing, or, if we

obtain the required approvals from our independent directors and/or stockholders, 150.0%.

On April 16, 2018, as permitted by the Small Business Credit Availability Act, which was signed into law on March 23, 2018, our non-interested Board of

Directors approved of our becoming subject to a minimum asset coverage ratio of 150.0% under Sections 18(a)(1) and 18(a)(2) of the 1940 Act.

The 150.0% asset coverage ratio became effective on April 16, 2019.

We have elected to be treated for U.S.

federal income tax purposes as a regulated investment company (RIC), under Subchapter M of

the Internal Revenue Code of 1986 (the Code).

However, as a BDC, we are only generally allowed to borrow amounts

such that our asset coverage, as defined in the 1940 Act, equals at least 200.0% after such borrowing, or, if we obtain the required

approvals from our independent directors and/or stockholders, 150.0%.

On April 16, 2018, as permitted by the Small Business Credit Availability

Act, which was signed into law on March 23, 2018, our non-interested Board of Directors approved of our becoming subject to a minimum

asset coverage ratio of 150.0% under Sections 18(a)(1) and 18(a)(2) of the 1940 Act.

The 150.0% asset coverage ratio became effective

on April 16, 2019.

have elected to be treated for U.S.

federal income tax purposes as a regulated investment company (“RIC”), under Subchapter

M of the Internal Revenue Code of 1986 (the “Code”).

As a RIC, we generally will not have to pay corporate-level U.S.

federal income taxes on any net ordinary income or capital gains that we timely

distribute to our stockholders if we meet certain source-of-income, annual distribution and asset-diversification requirements.

In addition, we have two wholly-owned subsidiaries that are licensed as a small business investment

company (SBIC) and regulated by the Small Business Administration (SBA).

income taxes on any net ordinary income or capital gains that we timely distribute to our stockholders if we meet certain source-of-income,

annual distribution and asset diversification requirements.

addition, we have two wholly-owned subsidiaries that are licensed as a small business investment company (“SBIC”) and regulated

by the Small Business Administration (“SBA”).

On March 28, 2012, our wholly-owned subsidiary, Saratoga Investment Corp.

SBIC LP (SBIC LP), received an SBIC license from the SBA.

August 14, 2019, our wholly-owned subsidiary, Saratoga Investment Corp.

SBIC II LP (SBIC II LP), also received an SBIC license from the SBA.

The new license will provide up to $175.0 million in additional long-term capital in

the form of SBA-guaranteed debentures.

LP (“SBIC LP”), received an SBIC license from the SBA.

On August 14, 2019, our wholly-owned subsidiary, Saratoga Investment

SBIC II LP (“SBIC II LP”), also received an SBIC license from the SBA.

The new license will provide up to $175.0 million

in additional long-term capital in the form of SBA-guaranteed debentures.

The SBIC LP and SBIC II LP are regulated by the SBA.

As a result of the 2016 omnibus spending bill signed into law in December 2015, the maximum amount of SBA-guaranteed debentures that affiliated SBIC funds can have outstanding was increased from $225.0 million to $350.0 million.

Our wholly-owned SBIC subsidiaries are able to borrow funds from the SBA

against regulatory capital (which approximates equity capital) that is paid in and is subject to customary regulatory requirements including but not limited to an examination by the SBA.

With this license approval, Saratoga will grow its SBA

relationship from $150.0 million to $325.0 million of committed capital.

BusinessSmall Business Investment Company Regulations.

We received exemptive relief from the U.S.

Securities and Exchange Commission (SEC) to permit us to exclude the debt of SBIC LP

and SBIC II LP guaranteed by the SBA from the definition of senior securities in the asset coverage test under the 1940 Act.

This allows the Company increased flexibility under the asset coverage test by permitting it to borrow up to

$325.0 million more than it would otherwise be able to absent the receipt of this exemptive relief.

The Company has established

wholly-owned subsidiaries, SIA-Avionte, Inc., SIA-GH, Inc., SIA-HT, Inc., SIA-MAC, Inc., SIA-TG, Inc., SIA-TT, Inc., SIA-Vector, Inc.

and SIA-VR, Inc., which are structured as Delaware entities, or tax blockers, to hold equity or equity-like investments in portfolio companies organized as

limited liability companies, or LLCs (or other forms of pass through entities).

Tax blockers are consolidated for accounting purposes but are not consolidated for income tax purposes and may incur income tax expense as a result of their ownership of

portfolio companies.

During the fiscal year ended February 29, 2020, the Company sold its interest in

SIA-Easy Ice, LLC.

See Managements Discussion and Analysis for additional discussion.

Corporate History

and Information

We commenced operations, at the time known as GSC Investment Corp., on March 23, 2007 and completed an initial public

offering of shares of common stock on March 28, 2007.

Prior to July 30, 2010, we were externally managed and advised by GSCP (NJ), L.P., an entity affiliated with GSC Group, Inc.

In connection with the consummation of a recapitalization

transaction on July 30, 2010, we engaged Saratoga Investment Advisors (SIA) to replace GSCP (NJ), L.P.

of the 2016 omnibus spending bill signed into law in December 2015, the maximum amount of SBA-guaranteed debentures that affiliated SBIC

funds can have outstanding was increased from $225.0 million to $350.0 million.

Our wholly-owned SBIC subsidiaries are able to borrow

funds from the SBA against regulatory capital (which approximates equity capital) that is paid in and is subject to customary regulatory

requirements including but not limited to an examination by the SBA.

With this license approval, Saratoga will grow its SBA relationship

from $150.0 million to $325.0 million of committed capital.

See “Item 1.

Business—Small Business Investment Company Regulations.”

received exemptive relief from the U.S.

Securities and Exchange Commission (“SEC”) to permit us to exclude the debt of SBIC

LP and SBIC II LP guaranteed by the SBA from the definition of senior securities in the asset coverage test under the 1940 Act.

allows the Company increased flexibility under the asset coverage test by permitting it to borrow up to $325.0 million more than it would

otherwise be able to absent the receipt of this exemptive relief.

Company has established wholly-owned subsidiaries, SIA-Avionte, Inc., SIA-GH, Inc., SIA-MAC, Inc., SIA-PP, Inc., SIA-TG, Inc., SIA-TT,

Inc., SIA-Vector, Inc.

and SIA-VR, Inc., which are structured as Delaware entities, or tax blockers, to hold equity or equity-like investments

in portfolio companies organized as limited liability companies, or LLCs (or other forms of pass through entities).

Tax blockers are

consolidated for accounting purposes but are not consolidated for income tax purposes and may incur income tax expense as a result of

their ownership of portfolio companies.

the fiscal year ended February 29, 2020, the Company sold its interest in SIA-Easy Ice, LLC.

See Management’s Discussion and Analysis

for additional discussion.

History and Information

commenced operations, at the time known as GSC Investment Corp., on March 23, 2007 and completed an initial public offering of shares

of common stock on March 28, 2007.

Prior to July 30, 2010, we were externally managed and advised by GSCP (NJ), L.P., an entity affiliated

with GSC Group, Inc.

In connection with the consummation of a recapitalization transaction on July 30, 2010, we engaged Saratoga Investment

Advisors (“SIA”) to replace GSCP (NJ), L.P.

as our investment adviser and changed our name to Saratoga Investment Corp.

The recapitalization transaction consisted of (i) the private sale of 986,842 shares of

our common stock for $15.0 million in aggregate purchase price to Saratoga Investment Advisors and certain of its affiliates and (ii) the entry into a $40.0 million senior secured revolving credit facility with Madison Capital Funding

LLC (the Credit Facility).

We used the net proceeds from the private sale of shares of our common stock and a portion of the funds available to us under the Credit Facility to pay the full amount of principal and accrued interest,

including default interest, outstanding under our revolving securitized credit facility with Deutsche Bank AG, New York Branch.

recapitalization transaction consisted of (i) the private sale of 986,842 shares of our common stock for $15.0 million in aggregate purchase

price to Saratoga Investment Advisors and certain of its affiliates and (ii) the entry into a $40.0 million senior secured revolving

credit facility with Madison Capital Funding LLC (the “Credit Facility”).

We used the net proceeds from the private sale

of shares of our common stock and a portion of the funds available to us under the Credit Facility to pay the full amount of principal

and accrued interest, including default interest, outstanding under our revolving securitized credit facility with Deutsche Bank AG,

New York Branch.

Specifically, in July 2009, we had exceeded permissible borrowing limits under the revolving securitized credit facility

with Deutsche Bank, which resulted in an event of default under the revolving securitized credit facility.

As a result of the event of default, Deutsche Bank had the right to accelerate repayment of the outstanding indebtedness under the revolving

securitized credit facility and to foreclose and liquidate the collateral pledged under the revolving securitized credit facility.

The revolving securitized credit facility with Deutsche Bank was terminated in connection with our payment of all

amounts outstanding thereunder on July 30, 2010.

In January 2011, we registered for public resale by Saratoga Investment Advisors and certain of its affiliates the 986,842 shares of our common stock issued to them in the recapitalization.

As noted above, on March 28, 2012, our wholly-owned subsidiary, SBIC LP, received an SBIC license from the SBA and on August 14, 2019,

our wholly-owned subsidiary, SBIC II LP, also received an SBIC license from the SBA.

Our corporate offices are located at 535 Madison

Avenue, New York, New York 10022.

As a result of the event of

default, Deutsche Bank had the right to accelerate repayment of the outstanding indebtedness under the revolving securitized credit facility

and to foreclose and liquidate the collateral pledged under the revolving securitized credit facility.

The revolving securitized credit

facility with Deutsche Bank was terminated in connection with our payment of all amounts outstanding thereunder on July 30, 2010.

January 2011, we registered for public resale by Saratoga Investment Advisors and certain of its affiliates the 986,842 shares of our

common stock issued to them in the recapitalization.

noted above, on March 28, 2012, our wholly-owned subsidiary, SBIC LP, received an SBIC license from the SBA and on August 14, 2019, our

wholly-owned subsidiary, SBIC II LP, also received an SBIC license from the SBA.

corporate offices are located at 535 Madison Avenue, New York, New York 10022.

Our telephone number is (212) 906-7800.

We maintain a website on the Internet at www.saratogainvestmentcorp.com.

Information contained on our website is not incorporated by

reference into this Annual Report, and you should not consider that information to be part of this Annual Report.

Saratoga Investment Advisors

Our Investment Adviser

was formed in 2010 as a Delaware limited liability company and became our investment adviser in July 2010.

Our Investment Adviser is led by four principals, Christian L.

We maintain a

website on the Internet at www.saratogainvestmentcorp.com.

Information contained on our website is not incorporated by reference into

this Annual Report, and you should not consider that information to be part of this Annual Report.

Investment Advisors

Investment Adviser was formed in 2010 as a Delaware limited liability company and became our investment adviser in July 2010.

Our Investment

Adviser is led by four principals, Christian L.

Oberbeck, Michael J.

3 unchanged sentences

34 and 24 years of experience in leveraged finance, respectively.

Our Investment Adviser is affiliated with Saratoga Partners, a middle market private equity investment firm.

Saratoga Partners was established in 1984 to be the middle market

private investment arm of Dillon Read & Co.

Our Investment Adviser is affiliated with Saratoga Partners, a middle

market private equity investment firm.

Saratoga Partners was established in 1984 to be the middle market private investment arm of Dillon

and has been independent of Dillon Read and its successor entity, SBC Warburg Dillon Read, since 1998.

Saratoga Partners has a 30-year history of

private investments in middle market companies and focuses on public and private equity, preferred stock, and senior and mezzanine debt investments.

Our Relationship with Saratoga Investment Advisors

We utilize the personnel, infrastructure, relationships and experience of Saratoga Investment Advisors to enhance the growth of our business.

Saratoga Partners

has a 33-year history of private investments in middle market companies and focuses on public and private equity, preferred stock, and

senior and mezzanine debt investments.

Relationship with Saratoga Investment Advisors

utilize the personnel, infrastructure, relationships and experience of Saratoga Investment Advisors to enhance the growth of our business.

We currently have no employees and each of our executive officers is also an officer of Saratoga Investment Advisors.

We have entered

into an investment advisory and management agreement (the Management Agreement) with Saratoga Investment Advisors.

have entered into an investment advisory and management agreement (the “Management Agreement”) with Saratoga Investment

Pursuant to the 1940 Act, the initial term of the Management Agreement was for two years from its effective date of July

30, 2010, with automatic, one-year renewals, subject to approval by our board of directors, a majority of whom must be our independent directors.

On July 9, 2019, our board of directors approved the renewal of

the Management Agreement for an additional one-year term at an in-person meeting.

Pursuant to the Management Agreement, Saratoga Investment Advisors implements our business strategy on a day-to-day basis and

performs certain services for us under the direction of our board of directors.

Saratoga Investment Advisors is responsible for, among other duties, performing all of our day-to-day functions, determining

investment criteria, sourcing, analyzing and executing investment transactions, asset sales, financings and performing asset management duties.

Saratoga Investment Advisors has formed an investment committee to advise and consult with its senior management team with respect to our

investment policies, investment portfolio holdings, financing and leveraging strategies and investment guidelines.

We believe that the collective experience of the investment committee members across a variety of fixed income asset classes will

The investment committee must unanimously approve all investments in excess of $1.0 million made by us.

In addition, all sales of our investments must be approved by all four of our investment committee members.

The current members

of the investment committee are Messrs.

Oberbeck, Grisius, Inglesby, and Phillips.

We pay Saratoga Investment Advisors a fee for

investment advisory and management services consisting of two componentsa base management fee and an incentive fee.

The base management fee is calculated at an annual rate of 1.75% of our average gross assets, which includes assets purchased

with borrowed funds but excludes cash and cash equivalents.

As a result, Saratoga Investment Advisors will benefit as we incur debt or use leverage to purchase assets.

Our board of directors will monitor the conflicts presented by this compensation

structure by approving the amount of leverage that we may incur.

In addition to the base management fee, we pay Saratoga Investment Advisors an incentive

fee, which consists of two parts.

First, we pay Saratoga Investment Advisors an incentive fee with respect to our pre-incentive fee net investment income in each calendar quarter as follows:

no incentive fee in any calendar quarter in which, our pre-incentive fee

income does not exceed a fixed hurdle rate of 1.875% per quarter;

100.0% of our pre-incentive fee net investment income with respect to

that portion of such pre-incentive fee net investment income, if any, that exceeds the hurdle rate but is less than or equal to 2.344% in any fiscal quarter is payable to the Investment Adviser.

this portion of our pre-incentive fee net investment income (which exceeds the hurdle rate but is less than or equal to 2.344%) as the catch-up. The catch-up provision is intended to provide our Investment Adviser with an

incentive fee of 20.0% on all of our pre-incentive fee net investment income as if a hurdle rate did not apply when our pre-incentive fee net investment income exceeds 2.344% in any fiscal quarter.

Notwithstanding the foregoing, with respect to any period ending on or prior to December 31, 2010, our Investment Adviser was only entitled to 20.0% of the amount of our pre-incentive fee net investment

income, if any, that exceeded 1.875% in any fiscal quarter without any catch-up provision;

20.0% of the amount of our pre-incentive fee net investment income, if

any, that exceeds 2.344% in any fiscal quarter is payable to the Investment Adviser (once the hurdle is reached and the catch-up is achieved, 20.0% of all pre-incentive

fee net investment income thereafter is allocated to the Investment Adviser).

There is no accumulation of amounts from

quarter to quarter on either the hurdle rate or the parameters set by the catch-up mechanism or any claw back of amounts previously paid to Saratoga Investment Advisors if subsequent quarters are

below the quarterly hurdle or the catch-up parameters.

Furthermore, there is no delay of payment to Saratoga Investment Advisors if prior quarters are below the quarterly hurdle or catch-up.

Pre-incentive fee net investment income

means interest income, dividend income and other income (including any other fees, such as commitment, origination, structuring, diligence, managerial and consulting fees or other fees that we receive from portfolio companies) earned during the

calendar quarter, minus our operating expenses for the quarter.

Pre-incentive fee net investment income does not include any realized capital gains, realized capital losses, unrealized capital appreciation or

depreciation, or realized gains or losses resulting from the extinguishment of our own debt.

The second part of the incentive fee is

determined and payable in arrears as of the end of each fiscal year (or upon termination of the Management Agreement) and equals 20.0% of our incentive fee capital gains, which equals our realized capital gains on a cumulative basis from

May 31, 2010 through the end of the fiscal year, if any, computed net of all realized capital losses and unrealized capital depreciation on a cumulative basis on each investment in the Companys portfolio, less the aggregate amount of any

previously paid capital gain incentive fee.

Importantly, the capital gains portion of the incentive fee is based on realized gains and realized and unrealized losses from May 31, 2010.

Therefore, realized and unrealized losses incurred prior to such

time will not be taken into account when calculating the capital gains portion of the incentive fee, and our Manager will be entitled to 20.0% of incentive fee capital gains that arise after May 31, 2010.

In addition, for the purpose of the

incentive fee capital gains calculations, the cost basis for computing realized gains and losses on investments held by us as of May 31, 2010 will equal the fair value of such investments as of such date.

We have also entered into a separate Administration Agreement (the Administration Agreement) with Saratoga Investment Advisors

pursuant to which Saratoga Investment Advisors furnishes us with office facilities, equipment and clerical, bookkeeping and record keeping services.

The Administration Agreement has an initial term of two years from its effective date of July 30,

2010, with automatic one-year renewals, subject to approval by our board of directors, a majority of whom must be our independent directors.

On July 8, 2015, our board of directors approved the renewal of the Administration Agreement for an

additional one-year term and determined to increase the cap on the payment or reimbursement of expenses by us thereunder to $1.3 million.

On July 7, 2016, our board of directors approved the renewal of the Administration Agreement for an

additional one-year term.

On October 5, 2016, our board of directors determined to increase the cap on the payment or reimbursement of expenses by the Company under the Administration Agreement, from

$1.3 million to $1.5 million, effective November 1, 2016 .

On July 11, 2017, our board of directors approved the renewal of the Administration Agreement for an additional one-year term and determined to increase the cap on the

payment or reimbursement of expenses by the Company from $1.5 million to $1.75 million, effective August 1, 2017.

On July 9, 2018, our board of directors approved the renewal of the Administration Agreement for an additional one-year term

and determined to increase the cap on the payment or reimbursement of expenses by the Company from $1.75 million to $2.0 million, effective August 1, 2018.

On July 9, 2019, our board of directors approved the renewal of the

Administration Agreement for an additional one-year term and determined to increase the cap on the payment or reimbursement of expenses by the Company from $2.0 million to $2.225 million effective

August 1, 2019.

Under the Administration Agreement, Saratoga Investment Advisors also performs, or oversees the performance of our required administrative services, which include, among other things, being responsible for the financial records

which we are required to maintain, preparing reports for our stockholders and reports required to be filed with the SEC.

30, 2010, with automatic, one-year renewals, subject to approval by our board of directors, a majority of whom must be our

independent directors.

Our board of directors approved the renewal of the Management Agreement for an additional one-year term at a

telephonic meeting held on July 7, 2020.

In reliance on certain exemptive relief provided by the SEC in connection with the global

COVID-19 pandemic, our board undertook to ratify the Management Agreement at its next in-person meeting.

Pursuant to the Management

Agreement, Saratoga Investment Advisors implements our business strategy on a day-to-day basis and performs certain services for us

under the direction of our board of directors.

Saratoga Investment Advisors is responsible for, among other duties, performing all

of our day-to-day functions, determining investment criteria, sourcing, analyzing and executing investment transactions, asset

sales, financings and performing asset management duties.

Investment Advisors has formed an investment committee to advise and consult with its senior management team with respect to our investment

policies, investment portfolio holdings, financing and leveraging strategies and investment guidelines.

We believe that the collective

experience of the investment committee members across a variety of fixed income asset classes will benefit us.

The investment committee

must unanimously approve all investments in excess of $1.0 million made by us.

In addition, all sales of our investments must be approved

by all four of our investment committee members.

The current members of the investment committee are Messrs.

Oberbeck, Grisius, Inglesby,

and Phillips.

pay Saratoga Investment Advisors a fee for investment advisory and management services consisting of two components—a base management

fee and an incentive fee.

The base management fee is calculated at an annual rate of 1.75% of our average gross assets, which includes

assets purchased with borrowed funds but excludes cash and cash equivalents.

As a result, Saratoga Investment Advisors will benefit as

we incur debt or use leverage to purchase assets.

Our board of directors will monitor the conflicts presented by this compensation structure

by approving the amount of leverage that we may incur.

addition to the base management fee, we pay Saratoga Investment Advisors an incentive fee, which consists of two parts.

First, we pay

Saratoga Investment Advisors an incentive fee with respect to our pre-incentive fee net investment income in each calendar quarter as

incentive fee in any calendar quarter in which, our pre-incentive fee income does not exceed a fixed “hurdle rate”

of our pre-incentive fee net investment income with respect to that portion of such pre-incentive fee net investment income, if any,

that exceeds the hurdle rate but is less than or equal to 2.344% in any fiscal quarter is payable to the Investment Adviser.

to this portion of our pre-incentive fee net investment income (which exceeds the hurdle rate but is less than or equal to 2.344%) as

the “catch-up.”

The “catch-up”

provision is intended to provide our Investment Adviser with an incentive fee

of 20.0% on all of our pre-incentive fee net investment income as if a hurdle rate did not apply when our pre-incentive fee net investment

income exceeds 2.344% in any fiscal quarter.

Notwithstanding the foregoing, with respect to any period ending on or prior to December

31, 2010, our Investment Adviser was only entitled to 20.0% of the amount of our pre-incentive fee net investment income, if any, that

exceeded 1.875% in any fiscal quarter without any catch-up provision;

of the amount of our pre-incentive fee net investment income, if any, that exceeds 2.344% in any fiscal quarter is payable to the Investment

Adviser (once the hurdle is reached and the catch-up is achieved, 20.0% of all pre-incentive fee net investment income thereafter is

allocated to the Investment Adviser).

is no accumulation of amounts from quarter to quarter on either the hurdle rate or the parameters set by the “catch-up”

or any claw back of amounts previously paid to Saratoga Investment Advisors if subsequent quarters are below the quarterly hurdle or

the “catch-up”

Furthermore, there is no delay of payment to Saratoga Investment Advisors if prior quarters are

below the quarterly hurdle or “catch-up.”

Pre-incentive

fee net investment income means interest income, dividend income and other income (including any other fees, such as commitment, origination,

structuring, diligence, managerial and consulting fees or other fees that we receive from portfolio companies) earned during the calendar

quarter, minus our operating expenses for the quarter.

Pre-incentive fee net investment income does not include any realized capital

gains, realized capital losses, unrealized capital appreciation or depreciation, or realized gains or losses resulting from the extinguishment

of our own debt.

second part of the incentive fee is determined and payable in arrears as of the end of each fiscal year (or upon termination of the Management

Agreement) and equals 20.0% of our “incentive fee capital gains,”

which equals our realized capital gains on a cumulative

basis from May 31, 2010 through the end of the fiscal year, if any, computed net of all realized capital losses and unrealized capital

depreciation on a cumulative basis on each investment in the Company’s portfolio, less the aggregate amount of any previously paid

capital gain incentive fee.

Importantly, the capital gains portion of the incentive fee is based on realized gains and realized and unrealized

losses from May 31, 2010.

Therefore, realized and unrealized losses incurred prior to such time will not be taken into account when calculating

the capital gains portion of the incentive fee, and our Manager will be entitled to 20.0% of incentive fee capital gains that arise after

May 31, 2010.

In addition, for the purpose of the “incentive fee capital gains”

calculations, the cost basis for computing

realized gains and losses on investments held by us as of May 31, 2010 will equal the fair value of such investments as of such date.

have also entered into a separate Administration Agreement (the “Administration Agreement”) with Saratoga Investment Advisors

pursuant to which Saratoga Investment Advisors furnishes us with office facilities, equipment and clerical, bookkeeping and record keeping

The Administration Agreement has an initial term of two years from its effective date of July 30, 2010, with automatic one-year

renewals, subject to approval by our board of directors, a majority of whom must be our independent directors.

On July 8, 2015, our board

of directors approved the renewal of the Administration Agreement for an additional one-year term and determined to increase the cap

on the payment or reimbursement of expenses by us thereunder to $1.3 million.

On July 7, 2016, our board of directors approved the renewal

of the Administration Agreement for an additional one-year term.

On October 5, 2016, our board of directors determined to increase the

cap on the payment or reimbursement of expenses by the Company under the Administration Agreement, from $1.3 million to $1.5 million,

effective November 1, 2016 .

On July 11, 2017, our board of directors approved the renewal of the Administration Agreement for

an additional one-year term and determined to increase the cap on the payment or reimbursement of expenses by the Company from $1.5 million

to $1.75 million, effective August 1, 2017.

On July 9, 2018, our board of directors approved the renewal of the Administration Agreement

for an additional one-year term and determined to increase the cap on the payment or reimbursement of expenses by the Company from $1.75

million to $2.0 million, effective August 1, 2018.

On July 9, 2019, our board of directors approved the renewal of the Administration

Agreement for an additional one-year term and determined to increase the cap on the payment or reimbursement of expenses by the Company

from $2.0 million to $2.225 million effective August 1, 2019.

On July 7, 2020, our board of directors approved the renewal of the Administration

Agreement for an additional one-year term and determined to increase the cap on the payment or reimbursement of expenses by the Company

from $2.225 million to $2.775 million effective August 1, 2020.

Under the Administration Agreement, Saratoga Investment Advisors also

performs, or oversees the performance of our required administrative services, which include, among other things, being responsible for

the financial records which we are required to maintain, preparing reports for our stockholders and reports required to be filed with

Payments under the Administration Agreement will be equal to an amount based upon the allocable portion of Saratoga Investment

Advisors overhead in performing its obligations under the Administration Agreement, including rent and the allocable portion of the cost of our officers and their respective staffs relating to the performance of services under the

Administration Agreement.

Our portfolio is comprised primarily of investments in leveraged loans (both first and second lien term loans) issued by middle market

Advisors’

overhead in performing its obligations under the Administration Agreement, including rent and the allocable portion of

the cost of our officers and their respective staffs relating to the performance of services under the Administration Agreement.

portfolio is comprised primarily of investments in leveraged loans (both first and second lien term loans) issued by middle market companies.

Investments in middle market companies are generally less liquid than equivalent investments in companies with larger capitalizations.

These investments are sourced in both the primary and secondary markets through a network of

relationships with commercial and investment banks, commercial finance companies and financial sponsors.

The leveraged loans that we purchase are generally used to finance buyouts, strategic acquisitions, growth initiatives, recapitalizations and

other types of transactions.

Leveraged loans are generally senior debt instruments that rank ahead of subordinated debt which are invested by companies with below investment grade or junk ratings or, if not rated, would be rated below

investment grade or junk and, as a result, carry a higher risk of default.

Leveraged loans also have the benefit of security interests on the assets of the portfolio company, which may rank ahead of, or be junior to, other security

These investments are sourced in both the primary and secondary markets through a network of relationships with commercial and investment

banks, commercial finance companies and financial sponsors.

The leveraged loans that we purchase are generally used to finance buyouts,

strategic acquisitions, growth initiatives, recapitalizations and other types of transactions.

Leveraged loans are generally senior debt

instruments that rank ahead of subordinated debt which are invested by companies with below investment grade or “junk”

or, if not rated, would be rated below investment grade or “junk”

and, as a result, carry a higher risk of default.

loans also have the benefit of security interests on the assets of the portfolio company, which may rank ahead of, or be junior to, other

security interests.

For a discussion of the risks pertaining to our secured investments, see Part I.

Risk FactorsOur investments may be risky, and you could lose all or part of your investment.

As part of our long-term strategy, we also invest in mezzanine debt and make equity investments in middle market companies.

Mezzanine debt is

typically unsecured and subordinated to senior debt of the portfolio company.

Risk FactorsIf we make unsecured debt investments, we may lack adequate protection in the event our portfolio companies become distressed

or insolvent and will likely experience a lower recovery than more senior debtholders in the event our portfolio companies default on their indebtedness.

Substantially all of the debt investments held in our portfolio hold a non-investment grade rating by

one or more rating agencies or, if not rated, would be rated below investment grade if rated, which are often referred to as junk. As of February 29, 2020, 81.3% of our debt portfolio at fair value consisted of debt securities for

which issuers were not required to make principal payments until the maturity of such debt securities, which could result in a substantial loss to us if such issuers are unable to refinance or repay their debt at maturity.

Such interest-only loans are structured such that the borrower makes only interest payments throughout the life of the loan and makes a large, balloon payment at the end of the loan term.

ability of a borrower to make or refinance a balloon payment may be affected by a number of factors, including the financial condition of the borrower, prevailing economic conditions, higher interest rates, and collateral values.

If the interest-only loan borrower is unable to make or refinance a balloon payment, we may experience greater losses than if the loan were structured as amortizing.

As of February 29, 2020, 25.0% of our interest-only loans provided for contractual PIK interest, which represents contractual interest added to a loan balance and due at the end of such loans term, and 77.9% of such investments elected to pay a

portion of interest due in PIK.

In addition, 93.2% of our debt investments at February 29, 2020, had variable interest rates that reset periodically based on benchmarks such as LIBOR and the prime rate.

As a result, significant increases in such

benchmarks in the future may make it more difficult for these borrowers to service their obligations under the debt investments that we hold.

As a BDC, we are required to comply with certain regulatory requirements.

“Risk Factors—Our

investments may be risky, and you could lose all or part of your investment.”

part of our long-term strategy, we also invest in mezzanine debt and make equity investments in middle market companies.

Mezzanine debt

is typically unsecured and subordinated to senior debt of the portfolio company.

“Risk Factors—If we

make unsecured debt investments, we may lack adequate protection in the event our portfolio companies become distressed or insolvent

and will likely experience a lower recovery than more senior debtholders in the event our portfolio companies default on their indebtedness.”

Substantially

all of the debt investments held in our portfolio hold a non-investment grade rating by one or more rating agencies or, if not rated,

would be rated below investment grade if rated, which are often referred to as “junk.”

As of February 28, 2021, 85.4% of

our debt portfolio at fair value consisted of debt securities for which issuers were not required to make principal payments until the

maturity of such debt securities, which could result in a substantial loss to us if such issuers are unable to refinance or repay their

debt at maturity.

Such “interest-only”

loans are structured such that the borrower makes only interest payments throughout

the life of the loan and makes a large, “balloon payment”

at the end of the loan term.

The ability of a borrower to make

or refinance a balloon payment may be affected by a number of factors, including the financial condition of the borrower, prevailing

economic conditions, higher interest rates, and collateral values.

If the interest-only loan borrower is unable to make or refinance

a balloon payment, we may experience greater losses than if the loan were structured as amortizing.

As of February 28, 2021, 14.7% of

our interest-only loans provided for contractual PIK interest, which represents contractual interest added to a loan balance and due

at the end of such loan’s term, and 73.4% of such investments elected to pay a portion of interest due in PIK.

In addition, 95.0%

of our debt investments at February 28, 2021, had variable interest rates that reset periodically based on benchmarks such as LIBOR and

the prime rate.

As a result, significant increases in such benchmarks in the future may make it more difficult for these borrowers to

service their obligations under the debt investments that we hold.

a BDC, we are required to comply with certain regulatory requirements.

For instance, 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.

See BusinessBusiness Development Company Regulations Qualifying

While our primary focus is to generate current income and capital appreciation from our debt and equity investments in

middle market companies, we may invest up to 30.0% of the portfolio in opportunistic investments in order to seek to enhance returns to stockholders.

Such investments may include investments in distressed debt, private equity, securities of public

companies that are not thinly traded and structured finance vehicles such as collateralized loan obligation funds.

Although we have no current intention to do so, to the extent we invest in private equity funds, we will limit our investments in

entities that are excluded from the definition of investment company under Section 3(c)(1) or Section 3(c)(7) of the 1940 Act, which includes private equity funds, to no more than 15% of its net assets.

Leveraged loans

Our leveraged loan portfolio is comprised primarily of first lien and second lien term loans.

“qualifying assets”

unless, at the time of and after giving effect to such acquisition, at least 70% of our total assets

are qualifying assets.

See “Business—Business Development Company Regulations –

Qualifying Assets.”

our primary focus is to generate current income and capital appreciation from our debt and equity investments in middle market companies,

we may invest up to 30.0% of the portfolio in opportunistic investments in order to seek to enhance returns to stockholders.

Such investments

may include investments in distressed debt, private equity, securities of public companies that are not thinly traded and structured

finance vehicles such as collateralized loan obligation funds.

Although we have no current intention to do so, to the extent we invest

in private equity funds, we will limit our investments in entities that are excluded from the definition of “investment company”

under Section 3(c)(1) or Section 3(c)(7) of the 1940 Act, which includes private equity funds, to no more than 15% of its net assets.

leveraged loan portfolio is comprised primarily of first lien and second lien term loans.

First lien term loans are secured by a first

priority perfected security interest on all or substantially all of the assets of the borrower and typically include a first priority pledge of the capital stock of the borrower.

First lien term loans hold a first priority with regard to right of

Generally, first lien term loans offer floating rate interest payments, have a stated maturity of five to seven years, and have a fixed amortization schedule.

First lien term loans generally have restrictive financial and negative

Second lien term loans are secured by a second priority perfected security interest on all or substantially all of the assets of the borrower and typically include a second priority pledge of the capital stock of the borrower.

term loans hold a second priority with regard to right of payment.

Second lien term loans offer either floating rate or fixed rate interest payments, generally have a stated maturity of five to eight years and may or may not have a fixed

amortization schedule.

Second lien term loans that do not have fixed amortization schedules require payment of the principal amount of the loan upon the maturity date of the loan.

Second lien term loans have less restrictive financial and negative

covenants than those that govern first lien term loans.

Mezzanine debt

Mezzanine debt usually ranks subordinate in priority of payment to senior debt and is often unsecured.

priority perfected security interest on all or substantially all of the assets of the borrower and typically include a first priority

pledge of the capital stock of the borrower.

First lien term loans hold a first priority with regard to right of payment.

first lien term loans offer floating rate interest payments, have a stated maturity of five to seven years, and have a fixed amortization

First lien term loans generally have restrictive financial and negative covenants.

Second lien term loans are secured by a

second priority perfected security interest on all or substantially all of the assets of the borrower and typically include a second

priority pledge of the capital stock of the borrower.

Second lien term loans hold a second priority with regard to right of payment.

Second lien term loans offer either floating rate or fixed rate interest payments, generally have a stated maturity of five to eight

years and may or may not have a fixed amortization schedule.

Second lien term loans that do not have fixed amortization schedules require

payment of the principal amount of the loan upon the maturity date of the loan.

Second lien term loans have less restrictive financial

and negative covenants than those that govern first lien term loans.

debt usually ranks subordinate in priority of payment to senior debt and is often unsecured.

However, mezzanine debt ranks senior to

common and preferred equity in a borrowers capital structure.

Mezzanine debt typically has fixed rate interest payments and a stated maturity of six to eight years and does not have fixed amortization schedules.

In some cases, our debt investments may provide for a portion of the interest payable to be payment-in-kind interest (PIK).

extent interest is PIK, it will be payable through the increase of the principal amount of the obligation by the amount of interest due on the then-outstanding aggregate principal amount of such obligation.

Equity Investments

Equity investments may consist of preferred equity that is expected to pay dividends on a current basis or preferred equity that does not pay

common and preferred equity in a borrowers’

capital structure.

Mezzanine debt typically has fixed rate interest payments and a

stated maturity of six to eight years and does not have fixed amortization schedules.

some cases, our debt investments may provide for a portion of the interest payable to be payment-in-kind interest (“PIK”).

To the extent interest is PIK, it will be payable through the increase of the principal amount of the obligation by the amount of interest

due on the then-outstanding aggregate principal amount of such obligation.

investments may consist of preferred equity that is expected to pay dividends on a current basis or preferred equity that does not pay

current dividends.

Preferred equity at times may also have PIK interest payable.

Preferred equity generally has a preference over common equity as to distributions on liquidation and dividends.

Preferred equity generally has a preference over common

equity as to distributions on liquidation and dividends.

In some cases, we may acquire common equity.

general, our equity investments are not control-oriented investments and we expect that in many cases we will acquire equity securities as part of a group of private equity investors in which we are not the lead investor.

Opportunistic Investments

Opportunistic investments may include investments in distressed debt, which may include securities of companies in bankruptcy, debt and equity

securities of public companies that are not thinly traded, emerging market debt, structured finance vehicles such as collateralized loan obligation funds and debt of middle market companies located outside the United States.

On January 22, 2008, GSC Group, Inc., as asset manager, with Lehman Brothers raising the financing, entered into a collateral management

In general, our equity investments

are not control-oriented investments and we expect that in many cases we will acquire equity securities as part of a group of private

equity investors in which we are not the lead investor.

Opportunistic

investments may include investments in distressed debt, which may include securities of companies in bankruptcy, debt and equity securities

of public companies that are not thinly traded, emerging market debt, structured finance vehicles such as collateralized loan obligation

funds and debt of middle market companies located outside the United States.

January 22, 2008, GSC Group, Inc., as asset manager, with Lehman Brothers raising the financing, entered into a collateral management

agreement with Saratoga CLO.

Saratoga CLO was structured with five tranches of debt, plus residual notes.

Saratoga CLOs five tranches of debt were purchased by a wide variety of CLO debt market participants.

In addition, we purchased for

$30.0 million all of the outstanding subordinated notes of Saratoga CLO.

Pursuant to its terms, the investment period for Saratoga

CLO ended in January 2013, and certain restrictions in such terms limited portfolio reinvestment.

Saratoga CLO’s five tranches

of debt were purchased by a wide variety of CLO debt market participants.

In addition, we purchased for $30.0 million all of the outstanding

subordinated notes of Saratoga CLO.

to its terms, the investment period for Saratoga CLO ended in January 2013, and certain restrictions in such terms limited portfolio

reinvestment.

As a result, the Company determined that it was in its best interest to refinance Saratoga CLO given its investment attractiveness.

The Company did not

originate any of the loan assets included in the formation of Saratoga CLO, nor has it done so since the subsequent refinancing transaction.

Moreover, the Company does not expect to originate any of the loans in the Saratoga CLO portfolio

prospectively.

The Company did not originate any of the loan assets included in the formation of Saratoga CLO, nor has it done so since the subsequent

refinancing transaction.

Moreover, the Company does not expect to originate any of the loans in the Saratoga CLO portfolio prospectively.

The Company has from time to time co-invested in loans with the Saratoga CLO.

The Company currently has no co-investments between it and Saratoga CLO.

With respect to our advisory services to Saratoga CLO, and in particular the underwriting standards used when determining which

investments qualify for inclusion in the Saratoga CLO, they are substantially similar to the process employed in selecting the Companys investments.

All of the credit metrics for a Saratoga CLO investment are reviewed and documented in the

same manner as they would be for an investment for the Company, with some minor differences.

For example, the Saratoga CLO investment process also includes multiple rating agency review and analysis of the loan investment and the assigned corporate

ratings, which typically does not apply to a prospective investment of the Company.

Lastly, a Saratoga CLO investment also considers the likely secondary liquidity of the loan in considering the investment, whereas the Companys investments are

generally illiquid.

The Saratoga CLO investment period was initially refinanced in October 2013 and its

reinvestment period extended to October 2016.

On November 15, 2016, we completed a second refinancing of the Saratoga CLO with its reinvestment period extended to October 2018.

On December 14, 2018, we completed a third refinancing and

upsize of the Saratoga CLO (the 2013-1 Reset CLO Notes).

This refinancing, among other things, extended the non-call period and reinvestment period

to January 20, 2020 and January 20, 2021, respectively, and extended its legal final date to January 20, 2030.

Following this refinancing, the Saratoga CLO portfolio increased from approximately $300.0 million in aggregate

principal amount to approximately $500.0 million of predominantly senior secured first lien term loans.

As part of the refinancing of its liabilities, we also purchased $2.5 million in aggregate principal amount of the Class F-R-2 and $7.5 million aggregate principal amount of the Class G-R-2 notes

tranches of the Saratoga CLO at par, with a coupon of LIBOR plus 8.75% and LIBOR plus 10.00%, respectively.

We also redeemed our existing $4.5 million aggregate principal amount of the Class F Notes tranche of the Saratoga CLO at par.

The Class F-R-2 Notes and Class G-R-2 Notes tranches are the seventh and eighth tranches

in the capital structure of Saratoga CLO and are subordinated to the other debt classes of Saratoga CLO, respectively.

The Class F-R-2 and Class G-R-2 tranches are senior to the subordinated notes, which is effectively the equity position in Saratoga CLO.

As a result, the other tranches of debt in Saratoga

CLO rank ahead of the $2.5 million Class F-R-2 tranche and $7.5 million

Class G-R-2 tranche and ahead of the aggregate principal amount of our position in the subordinated notes, with respect to priority of payments in the event of a

default or a liquidation.

We also purchased an aggregate principal amount of $39.5 million of subordinated notes, which is in addition to the $30.0 million of subordinated notes issued in 2013 that were reset with an extended legal final

date to January 20, 2030.

Following the refinancing, Saratoga Investment Corp.

The Company currently has no co-investments between it

and Saratoga CLO.

respect to our advisory services to Saratoga CLO, and in particular the underwriting standards used when determining which investments

qualify for inclusion in the Saratoga CLO, they are substantially similar to the process employed in selecting the Company’s investments.

All of the credit metrics for a Saratoga CLO investment are reviewed and documented in the same manner as they would be for an investment

for the Company, with some minor differences.

For example, the Saratoga CLO investment process also includes multiple rating agency review

and analysis of the loan investment and the assigned corporate ratings, which typically does not apply to a prospective investment of

Lastly, a Saratoga CLO investment also considers the likely secondary liquidity of the loan in considering the investment,

whereas the Company’s investments are generally illiquid.

Saratoga CLO investment period was initially refinanced in October 2013 and its reinvestment period extended to October 2016.

15, 2016, we completed a second refinancing of the Saratoga CLO with its reinvestment period extended to October 2018.

On December 14,

2018, we completed a third refinancing and upsize of the Saratoga CLO (the “2013-1 Reset CLO Notes”).

This refinancing,

among other things, extended the non-call period and reinvestment period to January 20, 2020 and January 20, 2021, respectively, and

extended its legal final date to January 20, 2030.

Following this refinancing, the Saratoga CLO portfolio increased from approximately

$300.0 million in aggregate principal amount to approximately $500.0 million of predominantly senior secured first lien term loans.

part of the refinancing of its liabilities, we also purchased $2.5 million in aggregate principal amount of the Class F-R-2 and $7.5

million aggregate principal amount of the Class G-R-2 notes tranches of the Saratoga CLO at par, with a coupon of LIBOR plus 8.75% and

LIBOR plus 10.00%, respectively.

We also redeemed our existing $4.5 million aggregate principal amount of the Class F Notes tranche of

the Saratoga CLO at par.

The Class F-R-2 Notes and Class G-R-2 Notes tranches are the seventh and eighth tranches in the capital structure

of Saratoga CLO and are subordinated to the other debt classes of Saratoga CLO, respectively.

The Class F-R-2 and Class G-R-2 tranches

are senior to the subordinated notes, which is effectively the equity position in Saratoga CLO.

As a result, the other tranches of debt

in Saratoga CLO rank ahead of the $2.5 million Class F-R-2 tranche and $7.5 million Class G-R-2 tranche and ahead of the aggregate principal

amount of our position in the subordinated notes, with respect to priority of payments in the event of a default or a liquidation.

also purchased an aggregate principal amount of $39.5 million of subordinated notes, which is in addition to the $30.0 million of subordinated

notes issued in 2013 that were reset with an extended legal final date to January 20, 2030.

Following the refinancing, Saratoga Investment

owns 100% of the Class F-R-2, Class G-R-2 and the subordinated notes of the Saratoga CLO.

After the reinvestment period ends in January 2021, the Company will consider refinancing the Saratoga CLO, subject to market conditions.

refinancing transaction entails finding existing and new investors that are willing to provide debt financing to Saratoga CLO which extends the investment period of the CLO on terms that are acceptable to it and in an amount sufficient to allow it

to repay all of its existing debt holders.

If Saratoga CLO is unable to refinance its indebtedness by January 2021, then Saratoga CLO will be required to use investment repayments by portfolio companies received thereafter to repay its outstanding

indebtedness.

On February 11, 2020, we entered into an unsecured loan agreement (CLO 2013-1 Warehouse 2 Loan) with Saratoga Investment Corp.

CLO 2013-1 Warehouse 2, Ltd (CLO 2013-1 Warehouse 2), a wholly-owned subsidiary of Saratoga CLO, pursuant to which CLO 2013-1 Warehouse 2 may borrow from time to time up to $20.0 million from the Company in order to provide capital necessary to support warehouse activities.

CLO 2013-1 Warehouse 2 Loan, which expires on August 20, 2021, bears interest at an annual rate of 3M USD LIBOR + 7.5%.

At February 29, 2020, the aggregate fair value of our investments in

Saratoga Investment Corp.

CLO 2013-1 Warehouse 2, Ltd, Class F-R-2, Class G-R-2 Notes and subordinated notes of the Saratoga CLO was $2.2 million, $2.5 million, $7.4 million and $22.6 million, respectively.

The terms of the subordinated notes of Saratoga CLO entitles the Company to the residual net interest income in Saratoga CLO, which is paid on

a quarterly basis after payment of all expenses, assuming that the Saratoga CLO remains in compliance with its various debt and rating agency compliance tests.

The Companys investment in the subordinated notes of Saratoga CLO can be sold or

transferred at any time.

After the reinvestment period ends in

January 2021, the Company will consider refinancing the Saratoga CLO, subject to market conditions.

A refinancing transaction entails

finding existing and new investors that are willing to provide debt financing to Saratoga CLO which extends the investment period of

the CLO on terms that are acceptable to it and in an amount sufficient to allow it to repay all of its existing debt holders.

CLO is unable to refinance its indebtedness by January 2021, then Saratoga CLO will be required to use investment repayments by portfolio

companies received thereafter to repay its outstanding indebtedness.

On February 11, 2020, we entered into an unsecured loan agreement

(“CLO 2013-1 Warehouse 2 Loan”) with Saratoga Investment Corp.

CLO 2013-1 Warehouse 2, Ltd (“CLO 2013-1 Warehouse

2”), a wholly-owned subsidiary of Saratoga CLO, pursuant to which CLO 2013-1 Warehouse 2 may borrow from time to time

up to $20.0 million from the Company in order to provide capital necessary to support warehouse activities.

On October 23, 2020,

the CLO 2013-1 Warehouse 2 Loan was increased to $25.0 million availability, which was immediately fully drawn and, which expires on

August 20, 2021.

The interest rate was also amended to be based on a pricing grid, starting at an annual rate of 3M USD LIBOR + 4.46%.

On February 26, 2021, the Company completed the fourth refinancing of the Saratoga CLO.

This refinancing, among other things, extended

the Saratoga CLO reinvestment period to April 2024, and extended its legal maturity to April 2033.

A non- call period ending

February 2022 was also added.

In addition, and as part of the refinancing, the Saratoga CLO has also been upsized from $500 million

in assets to approximately $650 million.

As part of this refinancing and upsizing, the Company invested an additional $14.0 million

in all of the newly issued subordinated notes of the Saratoga CLO, and purchased $17.9 million in aggregate principal amount of

the Class F-R-3 Notes tranche at par.

Concurrently, the existing $2.5 million of Class F-R-2 Notes, $7.5 million

of Class G-R-2 Notes and $25.0 million CLO 2013-1 Warehouse 2 Loan were repaid.

The Company also paid $2.6 million

of transaction costs related to the refinancing and upsizing on behalf of the Saratoga CLO, to be reimbursed from future equity distributions.

As of February 28, 2021, there remained an outstanding receivable of $2.6 million for such transaction costs which is presented

as due from affiliate on the Company’s consolidated statement of assets and liabilities.

February 28, 2021, the aggregate fair value of our investments in Saratoga Investment Corp.

CLO 2013-1 F-R-3 Notes and subordinated notes

of the Saratoga CLO was $18.3 million and $31.4 million, respectively.

terms of the subordinated notes of Saratoga CLO entitles the Company to the residual net interest income in Saratoga CLO, which is paid

on a quarterly basis after payment of all expenses, assuming that the Saratoga CLO remains in compliance with its various debt and rating

agency compliance tests.

The Company’s investment in the subordinated notes of Saratoga CLO can be sold or transferred at any time.

The Company has held 100% of the subordinated notes of Saratoga CLO since the inception of Saratoga CLO.

Generally, the interests of the holders of the various classes of securities issued by the Saratoga CLO are aligned with the interests of the

Company as holder of the subordinated notes.

The investors in the various debt tranches of the securities issued by the Saratoga CLO are interested in the regular payment of interest income from the Saratoga CLO and the overcollateralization of the

underlying loan assets relative to the Saratoga CLO debt issued.

On the other hand, the subordinated note holders might prefer purchasing higher yielding riskier assets that could increase returns while the returns of the holders of the debt

securities remain unchanged.

With respect to the collateral management agreement that the Company has entered into with

Saratoga CLO, while the agreement is similar to the investment advisory and management agreement between the Company and Saratoga Investment Advisors in that it is an asset management agreement, there are material differences between the two.

example, pursuant to Section 15 of the 1940 Act, the Management Agreement with Saratoga Investment Advisors has an initial term of two years, with annual renewals to be approved by the Companys board of directors.

The contract can be

terminated by the Companys board of directors or stockholders with 60 days notice, with no penalty for termination.

The collateral management agreement that the Company has entered into with Saratoga CLO, on the other hand, has no

renewal requirement, and can be terminated without cause with the approval of two-thirds of each of the class of CLO securities, excluding votes from interested noteholders (Investment Manager

Securities).

Furthermore, the Saratoga CLO collateral management agreement may be terminated with cause at the direction of a majority of the most senior class of the Saratoga CLO securities then outstanding, excluding votes from the

Investment Manager Securities.

If the Saratoga CLO collateral management agreement is terminated, the manager remains in place until a new manager is appointed by the issuer at the direction of either (i) a majority of the Saratoga CLO

subordinated notes, and not rejected by a majority of the most senior class of CLO securities then outstanding, or (ii) a majority of the most senior class of CLO securities then outstanding, and not rejected by a majority of the Saratoga CLO

subordinated notes, in each case within 20 days of notice of a vote regarding the successor manager.

If no successor investment manager shall have been appointed within 120 days after the date of notice of resignation by the investment manager, the

resigning investment manager, a majority of the controlling class or a majority of the subordinated notes may petition any court of competent jurisdiction for the appointment of a successor investment manager without the approval of the holders of

We receive a base management fee of 0.10% per annum and a subordinated management fee of 0.40% per annum of the outstanding principal amount of Saratoga CLOs assets, paid quarterly to the extent of available proceeds.

second refinancing and the issuance of the 2013-1 Amended CLO Notes, we received a base management fee of 0.25% per annum and a subordinated management fee of 0.25% per annum of the outstanding principal

amount of Saratoga CLOs assets, paid quarterly to the extent of available proceeds.

Following the third refinancing and the issuance of the 2013-1 Reset CLO Notes on December 14, 2018, we are no

longer entitled to an incentive management fee equal to 20.0% of excess cash flow to the extent the Saratoga CLO subordinated notes receive an internal rate of return paid in cash equal to or greater than 12.0%.

The securities issued by the Saratoga CLO do not have any external credit enhancement features that would minimize the potential losses to the

subordinated notes.

Saratoga CLO recognized losses on extinguishment of debt of approximately $1.2 million, $6.1 million and $3.4 million in the fiscal years ended February 28, 2019, February 28, 2017 and February 28,

2014, respectively, related to the December 2018, November 2016 and October 2013 refinancing, primarily as a result of the legal and accounting costs associated with the refinancing and the divestiture of certain Saratoga CLO loans not eligible for

the refinanced Saratoga CLO.

The cost of the refinancing was effectively borne by the Company as the holder of the subordinated notes in Saratoga CLO.

The indenture for the Saratoga CLO does not contemplate the issuance of additional securities

while the existing Saratoga CLO securities remain outstanding.

The indenture could be amended to allow the issuance of additional securities, which would require consents of the holders of the Saratoga CLO debt securities and the approval of the

rating agencies.

The Saratoga CLO could issue additional securities pursuant to a refinancing of the existing securities.

The costs of any such future refinancing would effectively be borne by us as the holder of the subordinated notes in Saratoga

The securities issued by the Saratoga CLO do not have any external credit enhancement features that would minimize the potential

losses to the subordinated notes.

The Company does not believe that any representations or warranties made by the Company as manager of

Saratoga CLO or investor in the subordinated notes could materially affect the Company.

However, because the Company acts as the collateral manager to Saratoga CLO, it may be subject to claims by third-party investors in Saratoga CLO for alleged or

actual negligent acts, errors or omissions or breach of fiduciary duties committed in the scope of performing its services as the collateral manager.

As of February 29, 2020, the Saratoga CLO portfolio consisted of $528.4 million in aggregate principal amount of primarily senior

secured first lien term loans.

At February 29, 2020, 99.2% of the Saratoga CLO portfolio consisted of such loans to 254 borrowers with an average exposure to each borrower of $2.0 million.

The weighted average maturity of the portfolio is

In addition, Saratoga CLO held $9.1 million in cash at February 29, 2020.

Our investments in the Saratoga CLO falls into our 30% bucket of non-qualifying assets under the 1940

Act and currently has an aggregate cost basis of approximately $23.5 million, which is net of all principal payments made by Saratoga CLO on the Companys total investment in Saratoga CLO of $43.8 million, which is comprised of the

initial investment of $30.0 million in January 2008 plus the additional investment of $13.8 million in December 2018.

Prospective portfolio company characteristics

Our Investment Adviser generally selects portfolio companies with one or more of the following characteristics:

a history of generating stable earnings and strong free cash flow;

well-constructed balance sheets with the ability to withstand industry cycles, supported by sustainable

enterprise values;

reasonable debt-to-cash flow multiples;

exceptional management with meaningful stake;

industry leadership with competitive advantages and sustainable market shares and growth prospects in attractive

and healthy sectors;

capital structures that provide appropriate terms and reasonable covenants.

Investment selection

In managing us, Saratoga Investment Advisors employs the same investment philosophy and portfolio management methodologies used by Saratoga

Through this investment selection process, based on quantitative and qualitative analysis, Saratoga Investment Advisors seeks to identify portfolio companies with superior fundamental risk-reward profiles and strong, defensible business

franchises with the goal of minimizing principal losses while maximizing risk-adjusted returns.

Saratoga Investment Advisors investment process emphasizes the following:

bottoms-up, company-specific research and analysis;

capital preservation, low volatility and minimization of downside risk;

investing with experienced management teams that hold meaningful equity ownership in their businesses.

Our Investment Advisers investment process generally includes the following steps:

Initial screening.

A brief analysis identifies the investment opportunity and reviews the merits of the

The initial screening memorandum provides a brief description of the company, its industry, competitive position, capital structure, financials, equity sponsor and deal economics.

If the deal is determined to be attractive by the senior

members of the deal team, the opportunity is fully analyzed.

Full analysis.

the interests of the holders of the various classes of securities issued by the Saratoga CLO are aligned with the interests of the Company

as holder of the subordinated notes.

The investors in the various debt tranches of the securities issued by the Saratoga CLO are interested

in the regular payment of interest income from the Saratoga CLO and the overcollateralization of the underlying loan assets relative

to the Saratoga CLO debt issued.

On the other hand, the subordinated note holders might prefer purchasing higher yielding riskier assets

that could increase returns while the returns of the holders of the debt securities remain unchanged.

respect to the collateral management agreement that the Company has entered into with Saratoga CLO, while the agreement is similar to

the investment advisory and management agreement between the Company and Saratoga Investment Advisors in that it is an asset management

agreement, there are material differences between the two.

For example, pursuant to Section 15 of the 1940 Act, the Management Agreement

with Saratoga Investment Advisors has an initial term of two years, with annual renewals to be approved by the Company’s board

of directors.

The contract can be terminated by the Company’s board of directors or stockholders with 60 days’

no penalty for termination.

The collateral management agreement that the Company has entered into with Saratoga CLO, on the other hand,

has no renewal requirement.

The Saratoga CLO collateral management agreement may be terminated for cause at the direction of a majority

of the most senior class of the Saratoga CLO securities then outstanding, excluding any securities held by the Company or any affiliate

thereof or any other entity over which the Company or an affiliate thereof has discretionary authority over voting such securities, which

securities are disregarded for this purpose.

If the Saratoga CLO collateral management agreement is terminated, the

manager remains in place until a new manager is appointed by the issuer at the direction of either (i) a majority of the Saratoga CLO

subordinated notes, and not rejected by a majority of the most senior class of CLO securities then outstanding, or (ii) a majority

of the most senior class of CLO securities then outstanding, and not rejected by a majority of the Saratoga CLO subordinated notes, in

each case within 20 days of notice of a vote regarding the successor manager.

If no successor investment manager shall have been appointed

within 120 days after the date of notice of resignation by the investment manager, the resigning investment manager, a majority of the

controlling class or a majority of the subordinated notes may petition any court of competent jurisdiction for the appointment of a successor

investment manager without the approval of the holders of the notes.

We receive a base management fee of 0.10% per annum and a subordinated

management fee of 0.40% per annum of the outstanding principal amount of Saratoga CLO’s assets, paid quarterly to the extent of

available proceeds.

Prior to the second refinancing and the issuance of the 2013-1 Amended CLO Notes, we received a base management fee

of 0.25% per annum and a subordinated management fee of 0.25% per annum of the outstanding principal amount of Saratoga CLO’s assets,

paid quarterly to the extent of available proceeds.

Following the third refinancing and the issuance of the 2013-1 Reset CLO Notes on

December 14, 2018, we are no longer entitled to an incentive management fee equal to 20.0% of excess cash flow to the extent the Saratoga

CLO subordinated notes receive an internal rate of return paid in cash equal to or greater than 12.0%.

securities issued by the Saratoga CLO do not have any external credit enhancement features that would minimize the potential losses to

the subordinated notes.

Saratoga CLO recognized realized losses on extinguishment of debt of approximately $3.0 million, $1.2 million,

$6.1 million and $3.4 million in the fiscal years ended February 28, 2021, February 28, 2019, February 28, 2017 and February 28, 2014,

respectively, related to the February 2021, December 2018, November 2016 and October 2013 refinancing, primarily as a result of repurchasing

securities at par at the refinancing that was previously issued at a discount, as well as the acceleration of the amortization of the

legal and accounting costs associated with the refinancing.

The cost of the refinancing was effectively borne by the Company as the holder

of the subordinated notes in Saratoga CLO.

The indenture for the Saratoga CLO contemplates the issuance of additional securities from

time to time, pursuant to an amendment to the indenture and subject to various requirements and conditions, including the consent of

the Company (in its capacity as investment manager) and the consent of the of the holders of a majority of the subordinated notes (all

of which are held by the Company) and, except in certain limited circumstances, the consent of the holders of a majority (by principal

amount) the Class A-1 Notes.

The Saratoga CLO could also issue additional securities pursuant to a refinancing of the existing securities.

The costs of any such future refinancing would effectively be borne by the Company as the holder of the subordinated notes in Saratoga

Company does not believe that any representations or warranties made by the Company as manager of Saratoga CLO or investor in the subordinated

notes could materially affect the Company.

However, because the Company acts as the collateral manager to Saratoga CLO, it may be subject

to claims by third-party investors in Saratoga CLO for alleged or actual negligent acts, errors or omissions or breach of fiduciary duties

committed in the scope of performing its services as the collateral manager.

of February 28, 2021, the Saratoga CLO portfolio consisted of $603.7 million in aggregate principal amount of primarily senior secured

first lien term loans.

At February 28, 2021, 98.7% of the Saratoga CLO portfolio consisted of such loans to 304 borrowers with an average

exposure to each borrower of $1.9 million.

The weighted average maturity of the portfolio is 4.65 years.

In addition, Saratoga CLO held

$114.1 million in cash at February 28, 2021.

Our investments in the Saratoga CLO falls into our 30% “bucket”

of non-qualifying

assets under the 1940 Act and currently has an aggregate cost basis of approximately $33.8 million, which is net of all principal payments

made by Saratoga CLO on the Company’s total investment in the subordinate notes of Saratoga CLO is $57.8 which consists of additional

investments of $30 million in January 2008, $13.8 million in December 2018 and $14.0 million in February 2021.

portfolio company characteristics

Investment Adviser generally selects portfolio companies with one or more of the following characteristics:

history of generating stable earnings and strong free cash flow;

● well-constructed

balance sheets with the ability to withstand industry cycles, supported by sustainable enterprise values;

debt-to-cash flow multiples;

● exceptional

management with meaningful stake;

leadership with competitive advantages and sustainable market shares and growth prospects in attractive and healthy sectors;

structures that provide appropriate terms and reasonable covenants.

managing us, Saratoga Investment Advisors employs the same investment philosophy and portfolio management methodologies used by Saratoga

Through this investment selection process, based on quantitative and qualitative analysis, Saratoga Investment Advisors seeks

to identify portfolio companies with superior fundamental risk-reward profiles and strong, defensible business franchises with the goal

of minimizing principal losses while maximizing risk-adjusted returns.

Saratoga Investment Advisors’

investment process emphasizes

the following:

● bottoms-up,

company-specific research and analysis;

preservation, low volatility and minimization of downside risk;

with experienced management teams that hold meaningful equity ownership in their businesses.

Investment Adviser’s investment process generally includes the following steps:

A brief analysis identifies the investment opportunity and reviews the merits of the transaction.

The initial screening memorandum

provides a brief description of the company, its industry, competitive position, capital structure, financials, equity sponsor and deal

If the deal is determined to be attractive by the senior members of the deal team, the opportunity is fully analyzed.

A full analysis includes:

Business and Industry analysisa review of the companys business position, competitive dynamics within

its industry, cost and growth drivers and technological and geographic factors.

Business and industry research often includes meetings with industry experts, consultants, other investors, customers and competitors.

Company analysisa review of the companys historical financial performance, future projections, cash

flow characteristics, balance sheet strength, liquidation value, legal, financial and accounting risks, contingent liabilities, market share analysis and growth prospects.

Structural/security analysisa thorough legal document analysis including but not limited to an assessment

of financial and negative covenants, events of default, enforceability of liens and voting rights.

Approval of the investment committee.

and Industry analysis—a review of the company’s business position, competitive dynamics within its industry, cost and growth

drivers and technological and geographic factors.

Business and industry research often includes meetings with industry experts, consultants,

other investors, customers and competitors.

analysis—a review of the company’s historical financial performance, future projections, cash flow characteristics, balance

sheet strength, liquidation value, legal, financial and accounting risks, contingent liabilities, market share analysis and growth prospects.

● Structural/security

analysis—a thorough legal document analysis including but not limited to an assessment of financial and negative covenants, events

of default, enforceability of liens and voting rights.

of the investment committee.

The investment is then presented to the investment committee for approval.

The investment committee must unanimously approve all investments in excess of $1 million made by us.

In addition, all sales of our investments must be approved by all four of our investment committee members.

The members of our investment

committee are Christian L.

The investment committee must

unanimously approve all investments in excess of $1 million made by us.

In addition, all sales of our investments must be approved by

all four of our investment committee members.

The members of our investment committee are Christian L.

Oberbeck, Michael J.

Grisius, Thomas V.

Inglesby, and Charles G.

In general, our Investment Adviser intends to select investments with financial covenants and terms that reduce leverage

over time, thereby enhancing credit quality.

general, our Investment Adviser intends to select investments with financial covenants and terms that reduce leverage over time, thereby

enhancing credit quality.

These methods include:

maintenance leverage covenants requiring a decreasing ratio of debt to cash flow;

maintenance cash flow covenants requiring an increasing ratio of cash flow to the sum of interest expense and

capital expenditures;

debt incurrence prohibitions, limiting a companys ability to

In addition, limitations on asset sales and capital expenditures

should prevent a company from changing the nature of its business or capitalization without our consent.

Our Investment Adviser seeks,

where appropriate, to limit the downside potential of our investments by:

requiring a total return on our investments (including both interest and potential equity appreciation) that

compensates us for credit risk;

requiring companies to use a portion of their excess cash flow to repay debt;

selecting investments with covenants that incorporate call protection as part of the investment structure;

selecting investments with affirmative and negative covenants, default penalties, lien protection, change of

control provisions and board rights, including either observation or participation rights.

Valuation process

We account for our investments at fair value in accordance with the Financial Accounting Standards Board (FASB)

Accounting Standards Codification (ASC) Topic 820, Fair Value Measurements and Disclosures (ASC 820), as approved in good faith using written policies and procedures adopted by our board of directors.

Investments for

which market quotations are readily available are recorded in our consolidated financial statements at such market quotations subject to any decision by our board of directors to approve a fair value determination to reflect significant events

affecting the value of these investments.

We value investments for which market quotations are not readily available at fair value as approved in good faith by our board of directors based on input from Saratoga Investment Advisors, our audit

committee and an independent valuation firm engaged by our board of directors.

Determinations of fair value may involve subjective judgments and estimates.

The types of factors that may be considered in determining the fair value of our investments

include the nature and realizable value of any collateral, the portfolio companys ability to make payments, the markets in which the portfolio company does business, market yield trend analysis, comparison to publicly traded companies,

discounted cash flow and other relevant factors.

Our investment in Saratoga CLO is carried at fair value, which is based on a discounted

cash flow model that utilizes prepayment, re-investment and loss assumptions based on historical experience and projected performance, economic factors, the characteristics of the underlying cash flow, and

comparable yields for equity interests in collateralized loan obligation funds similar to Saratoga CLO, when available, as determined by SIA and recommended to our board of directors.

Specifically, we use Intex cash flow models, or an appropriate

substitute, to form the basis for the valuation of our investment in Saratoga CLO.

The models use a set of assumptions including projected default rates, recovery rates, reinvestment rate and prepayment rates in order to arrive at estimated

The assumptions are based on available market data and projections provided by third parties as well as management estimates.

We use the output from the Intex models (i.e., the estimated cash flows) to perform a discounted cash flow

analysis on expected future cash flows to determine a valuation for our investment in Saratoga CLO.

We undertake a multi-step valuation

process each quarter when valuing investments for which market quotations are not readily available, as described below:

Each investment is initially valued by the responsible investment professionals of Saratoga Investment Advisors

and preliminary valuation conclusions are documented and discussed with the senior management;

An independent valuation firm engaged by our board of directors independently reviews a selection of these

preliminary valuations each quarter so that the valuation of each investment for which market quotes are not readily available is reviewed by the independent valuation firm at least once each fiscal year.

In addition, all our investments are subject to the following valuation process:

The audit committee of our board of directors reviews and approves each preliminary valuation and our Investment

Adviser and independent valuation firm (if applicable) will supplement the preliminary valuation to reflect any comments provided by the audit committee;

Our board of directors discusses the valuations and approves the fair value of each investment in good faith

based on the input of our Investment Adviser, independent valuation firm (to the extent applicable) and the audit committee of our board of directors.

Because such valuations, and particularly valuations of private investments and private companies, are inherently uncertain, they may

fluctuate over short periods of time and may be based on estimates.

The determination of fair value may differ materially from the values that would have been used if a ready market for these investments existed.

Our net asset value could be

materially affected if the determinations regarding the fair value of our investments were materially higher or lower than the values that we ultimately realize upon the disposal of such investments.

Ongoing relationships with and monitoring of portfolio companies

Saratoga Investment Advisors will closely monitor each investment we make and, when appropriate, will conduct a regular dialogue with both the

● maintenance

leverage covenants requiring a decreasing ratio of debt to cash flow;

● maintenance

cash flow covenants requiring an increasing ratio of cash flow to the sum of interest expense and capital expenditures;

incurrence prohibitions, limiting a company’s ability to re-lever.

addition, limitations on asset sales and capital expenditures should prevent a company from changing the nature of its business or capitalization

without our consent.

Investment Adviser seeks, where appropriate, to limit the downside potential of our investments by:

a total return on our investments (including both interest and potential equity appreciation) that compensates us for credit risk;

companies to use a portion of their excess cash flow to repay debt;

investments with covenants that incorporate call protection as part of the investment structure;

investments with affirmative and negative covenants, default penalties, lien protection, change of control provisions and board rights,

including either observation or participation rights.

account for our investments at fair value in accordance with the Financial Accounting Standards Board (“FASB”) Accounting

Standards Codification (“ASC”) Topic 820, Fair Value Measurements and Disclosures (“ASC 820”), as approved

in good faith using written policies and procedures adopted by our board of directors.

Investments for which market quotations are readily

available are recorded in our consolidated financial statements at such market quotations subject to any decision by our board of directors

to approve a fair value determination to reflect significant events affecting the value of these investments.

We value investments for

which market quotations are not readily available at fair value as approved in good faith by our board of directors based on input from

Saratoga Investment Advisors, our audit committee and an independent valuation firm engaged by our board of directors.

We use multiple

techniques for determining fair value based on the nature of the investment and experience with those types of investments and specific

portfolio companies.

The selections of the valuation techniques and the inputs and assumptions used within those techniques often require

subjective judgements and estimates.

These techniques include market comparables, discounted cash flows and enterprise value waterfalls.

Fair value is best expressed as a range of values from which the Company determines a single best estimate.

The types of inputs and assumptions

that may be considered in determining the range of values of our investments include the nature and realizable value of any collateral,

the portfolio company’s ability to make payments, market yield trend analysis and volatility in future interest rates, call and

put features, the markets in which the portfolio company does business, comparison to publicly traded companies, discounted cash flows

and other relevant factors.

undertake a multi-step valuation process each quarter when valuing investments for which market quotations are not readily available,

as described below:

investment is initially valued by the responsible investment professionals of Saratoga Investment Advisors and preliminary valuation

conclusions are documented and discussed with the senior management;

independent valuation firm engaged by our board of directors independently reviews a selection of these preliminary valuations each quarter

so that the valuation of each investment for which market quotes are not readily available is reviewed by the independent valuation firm

at least once each fiscal year.

addition, all our investments are subject to the following valuation process:

audit committee of our board of directors reviews and approves each preliminary valuation and our Investment Adviser and independent

valuation firm (if applicable) will supplement the preliminary valuation to reflect any comments provided by the audit committee;

board of directors discusses the valuations and approves the fair value of each investment in good faith based on the input of our Investment

Adviser, independent valuation firm (to the extent applicable) and the audit committee of our board of directors.

investment in Saratoga CLO is carried at fair value, which is based on a discounted cash flow model that utilizes prepayment, re-investment

and loss assumptions based on historical experience and projected performance, economic factors, the characteristics of the underlying

cash flow, and comparable yields for equity interests in collateralized loan obligation funds similar to Saratoga CLO, when available,

as determined by SIA and recommended to our board of directors.

Specifically, we use Intex cash flow models, or an appropriate substitute,

to form the basis for the valuation of our investment in Saratoga CLO.

The models use a set of assumptions including projected default

rates, recovery rates, reinvestment rate and prepayment rates in order to arrive at estimated valuations.

The assumptions are based on

available market data and projections provided by third parties as well as management estimates.

We use the output from the Intex models

(i.e., the estimated cash flows) to perform a discounted cash flow analysis on expected future cash flows to determine a valuation for

our investment in Saratoga CLO.

such valuations, and particularly valuations of private investments and private companies, are inherently uncertain, they may fluctuate

over short periods of time and may be based on estimates.

The determination of fair value may differ materially from the values that

would have been used if a ready market for these investments existed.

Our net asset value could be materially affected if the determinations

regarding the fair value of our investments were materially higher or lower than the values that we ultimately realize upon the disposal

of such investments.

relationships with and monitoring of portfolio companies

Investment Advisors will closely monitor each investment we make and, when appropriate, will conduct a regular dialogue with both the

management team and other debtholders and seek specifically tailored financial reporting.

In addition, in certain circumstances, senior investment professionals of Saratoga Investment Advisors may take board seats or board observation seats.

In addition, in certain circumstances, senior

investment professionals of Saratoga Investment Advisors may take board seats or board observation seats.

Distributions

Our distributions, if any,

will be determined by our board of directors and paid out of assets legally available for distribution.

Any such distributions generally will be taxable to our stockholders, including to those stockholders who receive additional shares of our common

distributions, if any, will be determined by our board of directors and paid out of assets legally available for distribution.

distributions generally will be taxable to our stockholders, including to those stockholders who receive additional shares of our common

stock pursuant to our dividend reinvestment plan.

Prior to January 2009, we paid quarterly dividends to our stockholders.

However, in January 2009, we suspended the practice of paying quarterly dividends to our stockholders and thereafter paid five

annual dividend distributions (December 2013, 2012, 2011, 2010 and 2009) to our stockholders since such time, which distributions were made with a combination of cash and the issuance of shares of our common stock as discussed more fully below.

On September 24, 2014, we announced the recommencement of quarterly dividends to our stockholders and have subsequently made distributions

January 2009, we suspended the practice of paying quarterly dividends to our stockholders and thereafter paid five annual dividend distributions

(December 2013, 2012, 2011, 2010 and 2009) to our stockholders since such time, which distributions were made with a combination of cash

and the issuance of shares of our common stock as discussed more fully below.

September 24, 2014, we announced the recommencement of quarterly dividends to our stockholders and have subsequently made distributions

under this new policy.

We have adopted a dividend reinvestment plan (DRIP) that provides for reinvestment of our dividend distributions on behalf of our stockholders unless a stockholder elects to receive cash.

As a result, if our board

of directors authorizes, and we declare, a cash dividend, then our stockholders who have not opted out of the DRIP by the dividend record date will have their cash dividends automatically reinvested into additional shares of our common

stock, rather than receiving the cash dividends.

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.

In order to maintain our qualification as a RIC, we must, for each fiscal year, timely distribute an amount equal to at least 90.0% of

our ordinary net taxable income and realized net short-term capital gains in excess of realized net long-term capital losses, if any, reduced by deductible expenses.

addition, we will be subject to a non-deductible 4% U.S.

federal excise tax to the extent we do not distribute during the calendar year at least (1) 98.0% of our ordinary income for the calendar year, (2)

98.2% of our capital gains in excess of capital losses for the one year period ending on October 31 of the calendar year and (3) any ordinary income and net capital gains that we recognized for preceding years, but were not distributed during

such years and on which we paid no federal income tax.

For the 2019 calendar year, the Company made distributions sufficient such that we did not incur any federal excise taxes.

We may elect to withhold from distribution a portion of our ordinary

income for the 2020 calendar year and/or portion of the capital gains in excess of capital losses realized during the one-year period ending October 31, 2020, if any, and, if we do so, we would expect to incur

federal excise taxes as a result.

For the 2019 calendar year, our distributions were sufficient requiring no excise taxes.

distribute taxable dividends that are payable in cash or shares of our common stock at the election of each stockholder.

Under certain applicable provisions of the Code and the Treasury regulations and a revenue procedure issued by the Internal

Revenue Service (IRS), a RIC may treat a distribution of its own stock as fulfilling its RIC distribution requirements if each stockholder may elect to receive his or her entire distribution in either cash or stock of the RIC, subject to

a limitation that the aggregate amount of cash to be distributed to all stockholders must be at least 20% of the aggregate declared distribution.

If too many stockholders elect to receive their distributions in cash, the cash available for

distribution must be allocated among the stockholders electing to receive cash (with the balance of the distribution paid in stock).

In no event will any stockholder, electing to receive cash, receive the lesser of (a) the portion of the

distribution such shareholder has elected to receive in cash or (b) an amount equal to his or her entire distribution times the percentage limitation on cash available for distribution.

If these and certain other requirements are met, for U.S.

federal income tax purposes, the amount of the dividend paid in stock will be equal to the amount of cash that could have been received instead of stock.

Taxable stockholders receiving such distributions will be required to include the full amount

of the dividend as ordinary income (or as long-term capital gain or qualified dividend income to the extent such distribution is properly reported as such) to the extent of our current and accumulated earnings and profits for U.S.

We have adopted a dividend reinvestment plan (“DRIP”) that provides for reinvestment of our dividend

distributions on behalf of our stockholders unless a stockholder elects to receive cash.

As a result, if our board of directors authorizes,

and we declare, a cash dividend, then our stockholders who have not “opted out”

of the DRIP by the dividend record date will

have their cash dividends automatically reinvested into additional shares of our common stock, rather than receiving the cash dividends.

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.

order to maintain our qualification as a RIC, we must, for each fiscal year, timely distribute an amount equal to at least 90.0% of our

ordinary net taxable income and realized net short-term capital gains in excess of realized net long-term capital losses, if any, reduced

by deductible expenses.

In addition, we will be subject to a non-deductible 4% U.S.

federal excise tax to the extent we do not distribute

during the calendar year at least (1) 98.0% of our net ordinary income for the calendar year, (2) 98.2% of our capital gain net income

for the one year period ending on October 31 of the calendar year and (3) any net ordinary income and capital gain net income that we

recognized for preceding years, but were not distributed during such years, and on which we paid no U.S.

federal income tax.

2020 calendar year, the Company did not make sufficient distributions such that we did incur the U.S.

federal excise tax.

to withhold from distribution a portion of our ordinary income for the 2021 calendar year and/or portion of the capital gains in excess

of capital losses realized during the one-year period ending October 31, 2021, if any, and, if we do so, we would expect to incur U.S.

federal excise taxes as a result.

may distribute taxable dividends that are payable in cash or shares of our common stock at the election of each stockholder.

certain applicable provisions of the Code and the Treasury regulations and a revenue procedure issued by the Internal Revenue

Service (“IRS”), a RIC may treat a distribution of its own stock as fulfilling its RIC distribution requirements if each

stockholder may elect to receive his or her entire distribution in either cash or stock of the RIC, subject to a limitation that the

aggregate amount of cash to be distributed to all stockholders must be at least 20% of the aggregate declared distribution.

many stockholders elect to receive their distributions in cash, the cash available for distribution must be allocated among the

stockholders electing to receive cash (with the balance of the distribution paid in stock).

In no event will any stockholder,

electing to receive cash, receive the lesser of (a) the portion of the distribution such shareholder has elected to receive in cash

or (b) an amount equal to his or her entire distribution times the percentage limitation on cash available for distribution.

these and certain other requirements are met, for U.S.

federal income tax purposes, the amount of the dividend paid in stock will be

equal to the amount of cash that could have been received instead of stock.

Taxable stockholders receiving such distributions will

be required to include the full amount of the dividend as ordinary income (or as long-term capital gain or qualified dividend income

to the extent such distribution is properly reported as such) to the extent of our current and accumulated earnings and profits for

federal income tax purposes.

As a result of receiving distributions in the form of our common stock, a U.S.

stockholder may be required to pay tax with respect to such distributions in excess of any cash received.

stockholder sells the stock he or she

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 to

stockholder may be

required to pay tax with respect to such distributions in excess of any cash received.

stockholder sells the stock he or

she 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 to non-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.

Our primary competitors in providing financing to private middle market companies include public and private investment funds (including

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.

primary competitors in providing financing to private middle market companies include public and private investment funds (including

private equity funds, mezzanine funds, BDCs and SBICs), commercial and investment banks and commercial financing companies.

Additionally, alternative investment vehicles, such as hedge funds, frequently invest in

middle-market companies.

As a result, competition for investment opportunities at middle-market companies can be intense, and in the past couple of years we believe there has been an increase in the amount of

debt capital available on average.

Additionally,

alternative investment vehicles, such as hedge funds, frequently invest in middle-market companies.

As a result, competition for investment

opportunities at middle-market companies can be intense, and in the past couple of years we believe there has been an increase in the

amount of debt capital available on average.

This has resulted in a somewhat more competitive environment for making new investments.

Many middle-market companies are still unable to raise senior debt financing through traditional large financial

institutions, and we believe this approach to financing remains difficult as implementation of U.S.

and international financial reforms, such as Basel 3, limits the capacity of large financial institutions to hold

non-investment grade leveraged loans on their balance sheets.

We believe that many of these financial institutions have de-emphasized their service and product offerings

to middle-market companies in particular.

Many of our competitors are substantially larger and

have considerably greater financial and marketing resources than us.

For example, some competitors may have access to funding sources that are not available to us.

In addition, some of our competitors may have higher risk tolerances or different

risk assessments, which may allow them to consider a wider variety of investments and establish more relationships than us.

Many middle-market companies are still unable to raise senior debt financing through traditional large financial institutions, and we

believe this approach to financing remains difficult as implementation of U.S.

and international financial reforms, such as Basel 3,

limits the capacity of large financial institutions to hold non-investment grade leveraged loans on their balance sheets.

that many of these financial institutions have de-emphasized their service and product offerings to middle-market companies in particular.

of our competitors are substantially larger and have considerably greater financial and marketing resources than us.

For example, some

competitors may have access to funding sources that are not available to us.

In addition, some of our competitors may have higher risk

tolerances or different risk assessments, which may allow them to consider a wider variety of investments and establish more relationships

Furthermore, many of our competitors are not subject to the regulatory restrictions that the 1940 Act imposes on us as a BDC

or that the Code imposes on us as a RIC.

We use the industry information available to the investment professionals of Saratoga Investment Advisors to assess investment risks and determine appropriate pricing for our investments in portfolio

In addition, we believe that the investment professionals of our Investment Adviser enable us to learn about, and compete effectively for, financing opportunities with attractive leveraged companies in the industries in which we seek to

For additional information concerning the competitive risks we face, please see Part I.

Risk FactorsWe

operate in a highly competitive market for investment opportunities.

We do not currently have any employees and do not expect to have any employees in the future.

We use the industry information available to the investment professionals of Saratoga Investment

Advisors to assess investment risks and determine appropriate pricing for our investments in portfolio companies.

In addition, we believe

that the investment professionals of our Investment Adviser enable us to learn about, and compete effectively for, financing opportunities

with attractive leveraged companies in the industries in which we seek to invest.

additional information concerning the competitive risks we face, please see Part I.

“Risk Factors—We operate in

a highly competitive market for investment opportunities.”

do not currently have any employees and do not expect to have any employees in the future.

Services necessary for our business are provided

by individuals who are employees of Saratoga Investment Advisors, pursuant to the terms of the Management Agreement and the Administration Agreement.

For a discussion of the Management Agreement, see BusinessInvestment Advisory and

Management Agreement below.

We reimburse Saratoga Investment Advisors for our allocable portion of expenses incurred by it in performing its obligations under the Administration Agreement, including rent and our allocable portion of the cost

of our officers and their respective staffs, subject to certain limitations.

For a discussion of the Administration Agreement, see BusinessAdministration Agreement below.

Investment Advisory and Management Agreement

Saratoga Investment Advisors serves as our investment adviser.

Our Investment Adviser was formed in 2010 as a Delaware limited liability

company and became our investment advisor in July 2010.

Subject to the overall supervision of our board of directors, Saratoga Investment Advisors manages our day-to-day operations and provides investment

advisory and management services to us.

Under the terms of the Management Agreement, Saratoga Investment Advisors:

determines the composition of our portfolio, the nature and timing of the changes to our portfolio and the manner

of implementing such changes;

identifies, evaluates and negotiates the structure of the investments we make (including performing due diligence

on our prospective portfolio companies);

closes and monitors the investments we make;

determines the securities and other assets that we purchase, retain or sell.

Saratoga Investment Advisors services under the Management Agreement are not exclusive, and it is free to furnish similar services to other

Management Fee and Incentive Fee

Pursuant to the Management Agreement with Saratoga Investment Advisors, we pay Saratoga Investment Advisors a fee for investment advisory and

management services consisting of two componentsa base management fee and an incentive fee.

The base management fee is paid

quarterly in arrears, and equals 1.75% per annum of our gross assets (other than cash or cash equivalents but including assets purchased with borrowed funds) and calculated at the end of each fiscal quarter based on the average value of our gross

assets (other than cash or cash equivalents but including assets purchased with borrowed funds) as of the end of such fiscal quarter and the end of the immediate prior fiscal quarter.

Base management fees for any partial month or quarter are

appropriately pro-rated.

The incentive fee has the following two parts:

The first part is calculated and payable quarterly in arrears based on our pre-incentive fee net

investment income for the immediately preceding fiscal quarter.

Pre-incentive fee net investment income means interest income, dividend income and any other income (including any other fees such as commitment,

origination, structuring, diligence, managerial and consulting fees or other fees that we receive from portfolio companies) accrued during the fiscal quarter, minus our operating expenses for the quarter (including the base management fee, expenses

payable under the Administration Agreement, and any interest expense and dividends paid on any issued and outstanding preferred stock or debt security, but excluding the incentive fee).

Pre-incentive fee net

investment income includes, in the case of investments with a deferred interest feature (such as market discount, debt instruments with PIK interest, preferred stock with PIK dividends and zero-coupon

by individuals who are employees of Saratoga Investment Advisors, pursuant to the terms of the Management Agreement and the Administration

For a discussion of the Management Agreement, see “Business—Investment Advisory and Management Agreement”

We reimburse Saratoga Investment Advisors for our allocable portion of expenses incurred by it in performing its obligations under

the Administration Agreement, including rent and our allocable portion of the cost of our officers and their respective staffs, subject

to certain limitations.

For a discussion of the Administration Agreement, see “Business—Administration Agreement”

Advisory and Management Agreement

Investment Advisors serves as our investment adviser.

Our Investment Adviser was formed in 2010 as a Delaware limited liability company

and became our investment advisor in July 2010.

Subject to the overall supervision of our board of directors, Saratoga Investment Advisors

manages our day-to-day operations and provides investment advisory and management services to us.

Under the terms of the Management Agreement,

Saratoga Investment Advisors:

the composition of our portfolio, the nature and timing of the changes to our portfolio and the manner of implementing such changes;

● identifies,

evaluates and negotiates the structure of the investments we make (including performing due diligence on our prospective portfolio companies);

and monitors the investments we make;

the securities and other assets that we purchase, retain or sell.

Investment Advisors services under the Management Agreement are not exclusive, and it is free to furnish similar services to other entities.

Fee and Incentive Fee

to the Management Agreement with Saratoga Investment Advisors, we pay Saratoga Investment Advisors a fee for investment advisory and

management services consisting of two components—a base management fee and an incentive fee.

base management fee is paid quarterly in arrears, and equals 1.75% per annum of our gross assets (other than cash or cash equivalents

but including assets purchased with borrowed funds) and calculated at the end of each fiscal quarter based on the average value of our

gross assets (other than cash or cash equivalents but including assets purchased with borrowed funds) as of the end of such fiscal quarter

and the end of the immediate prior fiscal quarter.

Base management fees for any partial month or quarter are appropriately pro-rated.

incentive fee has the following two parts:

first part is calculated and payable quarterly in arrears based on our pre-incentive fee net investment income for the immediately preceding

fiscal quarter.

Pre-incentive fee net investment income means interest income, dividend income and any other income (including any other

fees such as commitment, origination, structuring, diligence, managerial and consulting fees or other fees that we receive from portfolio

companies) accrued during the fiscal quarter, minus our operating expenses for the quarter (including the base management fee, expenses

payable under the Administration Agreement, and any interest expense and dividends paid on any issued and outstanding preferred stock

or debt security, but excluding the incentive fee).

Pre-incentive fee net investment income includes, in the case of investments with

a deferred interest feature (such as market discount, debt instruments with PIK interest, preferred stock with PIK dividends and zero-coupon

securities), accrued income that we have not yet received in cash.

Pre-incentive fee net investment income does not include any realized capital gains, realized capital losses, unrealized capital appreciation

or depreciation or realized gains or losses resulting from the extinguishment of our own debt.

Pre-incentive fee net investment income, expressed as a rate of return on the value of our net assets (defined as

total assets less liabilities) at the end of the immediately preceding fiscal quarter, is compared to a hurdle rate of 1.875% per quarter, subject to a catch up provision.

The base management fee is calculated prior to giving

effect to the payment of any incentive fees.

We pay Saratoga Investment Advisors an incentive fee with respect to our pre-incentive fee net investment income in each fiscal quarter as follows:

(A) no incentive fee in any fiscal quarter in which our pre-incentive fee net investment income

does not exceed the hurdle rate;

(B) 100.0% of our pre-incentive fee net investment income with respect to that portion of such pre-incentive fee net investment income,

if any, that exceeds the hurdle rate but is less than or equal to 2.344% in any fiscal quarter is payable to Saratoga Investment Advisors;

and (C) 20.0% of the amount of our pre-incentive fee net investment

income, if any, that exceeds 2.344% in any fiscal quarter.

We refer to the amount specified in clause (B) as the catch-up. The catch-up

provision is intended to provide Saratoga Investment Advisors with an incentive fee of 20.0% on all of our pre-incentive fee net investment income as if a hurdle rate did not apply when our pre-incentive fee net investment income exceeds 2.344% in any fiscal quarter.

Notwithstanding the foregoing, with respect to any period ending on or prior to December 31, 2010, Saratoga Investment Advisors was

only entitled to 20.0% of the amount of our pre-incentive fee net investment income, if any, that exceeded 1.875% in any fiscal quarter without any catch-up provision.

These calculations are appropriately pro-rated when such calculations are applicable for any period of less than three months.

The following

is a graphical representation of the calculation of the income-related portion of the incentive fee subsequent to any period ending after December 31, 2010:

Quarterly Incentive Fee Based on Pre-Incentive Fee Net Investment Income

Pre-Incentive Fee Net Investment Income

(expressed as a percentage of the value of net assets)

Percentage of Pre-Incentive Fee Net Investment

Income allocated to income-related portion of incentive fee

The second part of the incentive fee, the capital gains fee, is determined and payable in

arrears as of the end of each fiscal year (or, upon termination of the Management Agreement), and is calculated at the end of each applicable fiscal year by subtracting (1) the sum of our cumulative aggregate realized capital losses and

aggregate unrealized capital depreciation from (2) our cumulative aggregate realized capital gains, in each case calculated from May 31, 2010 on each investment in the Companys portfolio.

If such amount is positive at the end of such

year, then the capital gains fee for such year is equal to 20.0% of such amount, less the cumulative aggregate amount of capital gains fees paid in all prior years.

Pre-incentive fee net investment income does not include any realized

capital gains, realized capital losses, unrealized capital appreciation or depreciation or realized gains or losses resulting from the

extinguishment of our own debt.

Pre-incentive fee net investment income, expressed as a rate of return on the value of our net assets

(defined as total assets less liabilities) at the end of the immediately preceding fiscal quarter, is compared to a “hurdle rate”

of 1.875% per quarter, subject to a “catch up”

The base management fee is calculated prior to giving effect to

the payment of any incentive fees.

pay Saratoga Investment Advisors an incentive fee with respect to our pre-incentive fee net investment income in each fiscal quarter

(A) no incentive fee in any fiscal quarter in which our pre-incentive fee net investment income does not exceed the hurdle

(B) 100.0% of our pre-incentive fee net investment income with respect to that portion of such pre-incentive fee net investment

income, if any, that exceeds the hurdle rate but is less than or equal to 2.344% in any fiscal quarter is payable to Saratoga Investment

and (C) 20.0% of the amount of our pre-incentive fee net investment income, if any, that exceeds 2.344% in any fiscal quarter.

We refer to the amount specified in clause (B) as the “catch-up.”

The “catch-up”

provision is intended to provide

Saratoga Investment Advisors with an incentive fee of 20.0% on all of our pre-incentive fee net investment income as if a hurdle rate

did not apply when our pre-incentive fee net investment income exceeds 2.344% in any fiscal quarter.

Notwithstanding the foregoing, with

respect to any period ending on or prior to December 31, 2010, Saratoga Investment Advisors was only entitled to 20.0% of the amount

of our pre-incentive fee net investment income, if any, that exceeded 1.875% in any fiscal quarter without any catch-up provision.

calculations are appropriately pro-rated when such calculations are applicable for any period of less than three months.

following is a graphical representation of the calculation of the income-related portion of the incentive fee subsequent to any period

ending after December 31, 2010:

Incentive Fee Based on “Pre-Incentive Fee Net Investment Income”

Pre-Incentive

Fee Net Investment Income

as a percentage of the value of net assets)

of Pre-Incentive Fee Net Investment

allocated to income-related portion of incentive fee

second part of the incentive fee, the capital gains fee, is determined and payable in arrears as of the end of each fiscal year (or,

upon termination of the Management Agreement), and is calculated at the end of each applicable fiscal year by subtracting (1) the sum

of our cumulative aggregate realized capital losses and aggregate unrealized capital depreciation from (2) our cumulative aggregate realized

capital gains, in each case calculated from May 31, 2010 on each investment in the Company’s portfolio.

If such amount is positive

at the end of such year, then the capital gains fee for such year is equal to 20.0% of such amount, less the cumulative aggregate amount

of capital gains fees paid in all prior years.

If such amount is negative, then there is no capital gains fee for such year.

Under the Management Agreement, the capital gains portion of the incentive fee is based on realized gains and realized and unrealized losses

the Management Agreement, the capital gains portion of the incentive fee is based on realized gains and realized and unrealized losses

from May 31, 2010.

Therefore, realized and unrealized losses incurred prior to such time will not be taken into account when calculating the capital gains portion of the incentive fee, and Saratoga Investment Advisors will be entitled to 20.0%

of net capital gains that arise after May 31, 2010.

In addition, the cost basis for computing our realized gains and losses on investments held by us as of May 31, 2010 equals the fair value of such investments as of such date.

Examples of Quarterly Incentive Fee Calculation

Therefore, realized and unrealized losses incurred prior to such time will not be taken into account when calculating

the capital gains portion of the incentive fee, and Saratoga Investment Advisors will be entitled to 20.0% of net capital gains that

arise after May 31, 2010.

In addition, the cost basis for computing our realized gains and losses on investments held by us as of May

31, 2010 equals the fair value of such investments as of such date.

of Quarterly Incentive Fee Calculation

Income Related Portion of Incentive Fee(1):

Hurdle rate(2) = 1.875%

Management fee(3) = 0.4375%

Other expenses (legal, accounting, custodian, transfer agent, etc.)(4) = 0.33%

Alternative 1

Additional Assumptions

Investment income (including interest, dividends, fees, etc.) = 1.25%

Pre-incentive fee net investment income (investment income(management fee + other expenses)) = 0.4825% Pre-incentive fee net investment income does not exceed hurdle rate, therefore there is no incentive fee.

Alternative 2

Additional Assumptions

Investment income (including interest, dividends, fees, etc.) = 3.0%

Pre-incentive fee net investment income (investment income(management fee + other expenses)) = 2.2325%

Pre-incentive fee net investment income exceeds hurdle rate, but does not fully

satisfy the catch-up provision, therefore the income related portion of the incentive fee is 0.3575%.

Incentive Fee

rate(2) = 1.875%

fee(3) = 0.4375%

expenses (legal, accounting, custodian, transfer agent, etc.)(4) = 0.33%

income (including interest, dividends, fees, etc.) = 1.25%

● Pre-incentive

fee net investment income (investment income–(management fee + other expenses)) = 0.4825% Pre-incentive fee net investment income

does not exceed hurdle rate, therefore there is no incentive fee.

income (including interest, dividends, fees, etc.) = 3.0%

● Pre-incentive

fee net investment income (investment income–(management fee + other expenses)) = 2.2325%

Pre-incentive

fee net investment income exceeds hurdle rate, but does not fully satisfy the “catch-up”

provision, therefore the income

related portion of the incentive fee is 0.3575%.

(100.0% ×

(pre-incentive fee net investment income1.875%)

100.0%(2.2325%1.875%)

(pre-incentive fee net investment income–1.875%)

100.0%(2.2325%–1.875%)

100.0%(0.3575%)

The hypothetical amount of pre-incentive fee net investment income shown is based on a percentage of total net

Represents 7.5% hurdle rate.

Represents 1.75% annualized management fee.

For the purposes of this example, we have assumed that we have not

incurred any indebtedness and that we maintain no cash or cash equivalents.

The catch-up provision is intended to provide our Investment Adviser with an incentive fee of 20.0%

on all pre-incentive fee net investment income as if a hurdle rate did not apply when our net investment income exceeds 2.344% in any fiscal quarter.

Alternative 3

Additional Assumptions

Investment income (including interest, dividends, fees, etc.) = 3.5%

Pre-Incentive Fee Net Investment Income (investment

income(management fee + other expenses) = 2.7325%

Pre-incentive fee net

investment income exceeds the hurdle rate, and fully satisfies the catch-up provision, therefore the income related portion of the incentive fee is 0.5467%.

hypothetical amount of pre-incentive fee net investment income shown is based on a percentage of total net assets.

(2) Represents

7.5% hurdle rate.

(3) Represents

1.75% annualized management fee.

For the purposes of this example, we have assumed that we have not incurred any indebtedness and that

we maintain no cash or cash equivalents.

“catch-up”

provision is intended to provide our Investment Adviser with an incentive fee of 20.0% on all pre-incentive fee

net investment income as if a hurdle rate did not apply when our net investment income exceeds 2.344% in any fiscal quarter.

income (including interest, dividends, fees, etc.) = 3.5%

● Pre-Incentive

Fee Net Investment Income (investment income–(management fee + other expenses) = 2.7325%

Pre-incentive

fee net investment income exceeds the hurdle rate, and fully satisfies the “catch-up”

provision, therefore the income related

portion of the incentive fee is 0.5467%.

Incentive fee

100.0% ×

pre-incentive fee net investment income (subject to

catch-up)(4)

pre-incentive fee net investment income (subject to “catch-up”)(4)

Incentive fee

100.0% ×

catch-up + (20.0% ×

(Pre-incentive fee net investment income2.344%))

2.344%1.875%

Incentive fee

“catch-up”

+ (20.0% ×

(Pre-incentive fee net investment income–2.344%))

2.344%–1.875%

Incentive fee

(100.0% ×

+(20.0% ×(2.7325%–2.344%))

0.469% +(20.0% ×

1 unchanged sentence

Capital Gains Portion of Incentive Fee:

Alternative 1

Assumptions(1)

$20.0 million investment made in Company A (Investment A), and $30.0 million

investment made in Company B (Investment B)

Investment A is sold for $50.0 million and fair market value (FMV) of Investment B

determined to be $32.0 million

$20.0 million investment made in Company A (“Investment A”), and $30.0 million investment made in Company B (“Investment

Investment A is sold for $50.0 million and fair market value (“FMV”) of Investment B determined to be $32.0 million

FMV of Investment B determined to be $25.0 million

Investment B sold for $31.0 million

The capital gains portion of the incentive fee, if any, calculated under the cumulative method would be:

capital gains portion of the incentive fee, if any, calculated under the cumulative method would be:

$6 million (20.0% multiplied by $30.0 million realized capital gains on sale of Investment A)

$5 million (20.0% multiplied by ($30.0 million realized cumulative capital gains less

$5.0 million cumulative capital depreciation)) less $6.0 million (capital gains incentive fee paid in Year 2)

$6.2 million (20.0% multiplied by $31.0 million cumulative realized capital gains)

$5 million (20.0% multiplied by ($30.0 million realized cumulative capital gains less $5.0 million cumulative capital depreciation))

less $6.0 million (capital gains incentive fee paid in Year 2)

Alternative 2

$6.2 million (20.0% multiplied by $31.0 million cumulative realized capital gains) less $6.0 million (capital gains incentive

fee paid in Year 2)

Assumptions(1)

The examples assume that Investment A and Investment B were acquired by us subsequent to May 31, 2010.

Investment A and B were acquired by us prior to May 31, 2010, then the cost basis for computing our realized gains and losses on such investments would equal the fair value of such investments as of May 31, 2010.

$20.0 million investment made in Company A (Investment A), $30.0 million investment

made in Company B (Investment B) and $25.0 million investment made in Company C (Investment C)

Investment A sold for $50.0 million, FMV of Investment B determined to be $25.0 million and FMV

of Investment C determined to be $25.0 million

examples assume that Investment A and Investment B were acquired by us subsequent to May 31, 2010.

If Investment A and B were acquired

by us prior to May 31, 2010, then the cost basis for computing our realized gains and losses on such investments would equal the fair

value of such investments as of May 31, 2010.

$20.0 million investment made in Company A (“Investment A”), $30.0 million investment made in Company B (“Investment

B”) and $25.0 million investment made in Company C (“Investment C”)

Investment A sold for $50.0 million, FMV of Investment B determined to be $25.0 million and FMV of Investment C determined to be $25.0

FMV of Investment B determined to be $27.0 million and Investment C sold for $30.0 million

1 unchanged sentence

Investment B sold for $20.0 million

The capital gains portion of the incentive fee, if any, calculated under the cumulative method would be:

$5.0 million (20.0% multiplied by $25.0 million ($30.0 million realized capital gains on

Investment A less $5.0 million unrealized capital depreciation on Investment B))

$1.4 million ($6.4 million (20.0% multiplied by $32.0 million ($35.0 million

cumulative realized capital gains less $3.0 million unrealized capital depreciation)) less $5.0 million (capital gains incentive fee paid in Year 2))

None ($5.0 million (20.0% multiplied by $25.0 million (cumulative realized capital gains of

$35.0 million less realized capital losses of $10.0 million)) less $6.4 million (cumulative capital gains incentive fee paid in Year 2 and Year 3))

The Management Agreement with Saratoga Investment Advisors was approved by our board of directors at an in-person meeting of the directors,

including a majority of our independent directors, and was approved by our stockholders at the special meeting of stockholders held on July 30, 2010.

Subsequent to then, our board of directors approved the renewal of the Management Agreement

annually for an additional one-year term at an in-person meeting, with the last approval granted on July 9, 2019.

In approving this Management Agreement, the directors considered, among other things, (i) the nature, extent and quality of the advisory

capital gains portion of the incentive fee, if any, calculated under the cumulative method would be:

$5.0 million (20.0% multiplied by $25.0 million ($30.0 million realized capital gains on Investment A less $5.0 million unrealized

capital depreciation on Investment B))

$1.4 million ($6.4 million (20.0% multiplied by $32.0 million ($35.0 million cumulative realized capital gains less $3.0 million unrealized

capital depreciation)) less $5.0 million (capital gains incentive fee paid in Year 2))

None ($5.0 million (20.0% multiplied by $25.0 million (cumulative realized capital gains of $35.0 million less realized capital losses

of $10.0 million)) less $6.4 million (cumulative capital gains incentive fee paid in Year 2 and Year 3))

Management Agreement with Saratoga Investment Advisors was approved by our board of directors at an in-person meeting of the directors,

including a majority of our independent directors, and was approved by our stockholders at the special meeting of stockholders held on

July 30, 2010.

Subsequent to then, our board of directors approved the renewal of the Management Agreement annually for an additional

one-year term at an in-person meeting, with the last approval granted on July 7, 2020 at a telephonic meeting.

In reliance on certain

exemptive relief provided by the SEC in connection with the global COVID-19 pandemic, our board undertook to ratify the Management Agreement

at its next in-person meeting.

approving this Management Agreement, the directors considered, among other things, (i) the nature, extent and quality of the advisory

and other services to be provided to us by Saratoga Investment Advisors;

(ii) our investment performance and the investment performance of Saratoga Investment Advisors;

(iii) the expected costs of the services to be provided by Saratoga

Investment Advisors (including management fees, advisory fees and expense ratios) as compared to other companies within the industry, and the profits expected to be realized by Saratoga Investment Advisors;

(iv) the limited potential for

economies of scale in investment management associated with managing us;

(ii) our investment performance and the investment performance

of Saratoga Investment Advisors;

(iii) the expected costs of the services to be provided by Saratoga Investment Advisors (including management

fees, advisory fees and expense ratios) as compared to other companies within the industry, and the profits expected to be realized by

Saratoga Investment Advisors;

(iv) the limited potential for economies of scale in investment management associated with managing us;

and (v) Saratoga Investment Advisors estimated pro forma profitability with respect to managing us.

Payment of our expenses

The Management Agreement provides that all investment professionals of Saratoga Investment Advisors and its staff, when and to the extent

engaged in providing investment advisory services required to be provided by Saratoga Investment Advisors, and the compensation and routine overhead expenses of such personnel allocable to such services, will be provided and paid for by Saratoga

Investment Advisors and not by us.

We bear all costs and expenses of our operations and transactions, including those relating to:

of our expenses

Management Agreement provides that all investment professionals of Saratoga Investment Advisors and its staff, when and to the extent

engaged in providing investment advisory services required to be provided by Saratoga Investment Advisors, and the compensation and routine

overhead expenses of such personnel allocable to such services, will be provided and paid for by Saratoga Investment Advisors and not

bear all costs and expenses of our operations and transactions, including those relating to:

● organization;

calculating our net asset value (including the cost and expenses of any independent valuation firm);

expenses incurred by our Investment Adviser payable to third parties, including agents, consultants or other

advisers, in monitoring financial and legal affairs for us and in monitoring our investments and performing due diligence on our prospective portfolio companies;

expenses incurred by our Investment Adviser payable for travel and due diligence on our prospective portfolio

interest payable on debt, if any, incurred to finance our investments;

offerings of our common stock and other securities;

investment advisory and management fees;

fees payable to third parties, including agents, consultants or other advisers, relating to, or associated with,

evaluating and making investments;

transfer agent and custodial fees;

federal and state registration fees;

all costs of registration and listing our common stock on any securities exchange;

federal, state and local taxes;

independent directors fees and expenses;

costs of preparing and filing reports or other documents required by governmental bodies (including the SEC and

costs of any reports, proxy statements or other notices to common stockholders including printing costs;

our fidelity bond, directors and officers errors and omissions liability insurance, and any other insurance

direct costs and expenses of administration, including printing, mailing, long distance telephone, copying,

secretarial and other staff, independent auditors and outside legal costs;

administration fees and all other expenses incurred by us or, if applicable, the administrator in connection with

administering our business (including payments under the Administration Agreement based upon our allocable portion of the administrators overhead in performing its obligations under the Administration Agreement, including rent and the

allocable portion of the cost of our officers and their respective staffs (including travel expenses)).

● calculating

our net asset value (including the cost and expenses of any independent valuation firm);

incurred by our Investment Adviser payable to third parties, including agents, consultants or other advisers, in monitoring financial

and legal affairs for us and in monitoring our investments and performing due diligence on our prospective portfolio companies;

incurred by our Investment Adviser payable for travel and due diligence on our prospective portfolio companies;

payable on debt, if any, incurred to finance our investments;

of our common stock and other securities;

advisory and management fees;

payable to third parties, including agents, consultants or other advisers, relating to, or associated with, evaluating and making investments;

agent and custodial fees;

and state registration fees;

costs of registration and listing our common stock on any securities exchange;

state and local taxes;

● independent

directors’

fees and expenses;

of preparing and filing reports or other documents required by governmental bodies (including the SEC and the SBA);

of any reports, proxy statements or other notices to common stockholders including printing costs;

fidelity bond, directors and officers errors and omissions liability insurance, and any other insurance premiums;

costs and expenses of administration, including printing, mailing, long distance telephone, copying, secretarial and other staff, independent

auditors and outside legal costs;

● administration

fees and all other expenses incurred by us or, if applicable, the administrator in connection with administering our business (including

payments under the Administration Agreement based upon our allocable portion of the administrator’s overhead in performing its

obligations under the Administration Agreement, including rent and the allocable portion of the cost of our officers and their respective

staffs (including travel expenses)).

and Termination

The Management Agreement will remain in effect continuously, unless terminated under the termination provisions of

the agreement.

The Management Agreement provides that it may be terminated at any time, without the payment of any penalty, upon 60 days written notice, by the vote of stockholders holding a majority of our outstanding voting securities, or by the

vote of our directors or by Saratoga Investment Advisors.

The Management Agreement will, unless terminated as described above, continue

in effect from year to year so long as it is approved at least annually by (i) the vote of the board of directors, or by the vote of stockholders holding a majority of our outstanding voting securities, and (ii) the vote of a majority of

our directors who are not parties to the Management Agreement or interested persons (as such term is defined in Section 2(a)(19) of the 1940 Act) of any party to such agreement, in accordance with the requirements of the 1940 Act.

Management Agreement will remain in effect continuously, unless terminated under the termination provisions of the agreement.

The Management

Agreement provides that it may be terminated at any time, without the payment of any penalty, upon 60 days written notice, by the vote

of stockholders holding a majority of our outstanding voting securities, or by the vote of our directors or by Saratoga Investment Advisors.

Management Agreement will, unless terminated as described above, continue in effect from year to year so long as it is approved at least

annually by (i) the vote of the board of directors, or by the vote of stockholders holding a majority of our outstanding voting securities,

and (ii) the vote of a majority of our directors who are not parties to the Management Agreement or “interested persons”

(as such term is defined in Section 2(a)(19) of the 1940 Act) of any party to such agreement, in accordance with the requirements of

the 1940 Act.

Indemnification

Under the Management Agreement, Saratoga Investment Advisors and certain of its affiliates are not liable to us for any action taken or omitted

to be taken by Saratoga Investment Advisors in connection with the performance of any of its duties or obligations under the agreement or otherwise as an investment adviser to us, except to the extent specified in Section 36(b) of the 1940 Act

concerning loss resulting from a breach of fiduciary duty (as the same is finally determined by judicial proceedings) with respect to the receipt of compensation for services and except to the extent such action or omission constitutes gross

negligence, willful misfeasance, bad faith or reckless disregard of its duties and obligations under the agreement.

We also provide

indemnification to Saratoga Investment Advisors and certain of its affiliates for damages, liabilities, costs and expenses incurred by them in or by reason of any pending, threatened or completed action, suit, investigation or other proceeding

arising out of or otherwise based upon the performance of any of its duties or obligations under the agreement or otherwise as an investment adviser to us.

However, we would not provide indemnification against any liability to us or our security

holders to which Saratoga Investment Advisors or such affiliates would otherwise be subject by reason of willful misfeasance, bad faith or gross negligence in the performance of any such persons duties or by reason of the reckless disregard of

its duties and obligations under the agreement.

Organization of the Investment Adviser

Saratoga Investment Advisors is registered as an investment adviser under the Investment Advisers Act of 1940.

the Management Agreement, Saratoga Investment Advisors and certain of its affiliates are not liable to us for any action taken or omitted

to be taken by Saratoga Investment Advisors in connection with the performance of any of its duties or obligations under the agreement

or otherwise as an investment adviser to us, except to the extent specified in Section 36(b) of the 1940 Act concerning loss resulting

from a breach of fiduciary duty (as the same is finally determined by judicial proceedings) with respect to the receipt of compensation

for services and except to the extent such action or omission constitutes gross negligence, willful misfeasance, bad faith or reckless

disregard of its duties and obligations under the agreement.

also provide indemnification to Saratoga Investment Advisors and certain of its affiliates for damages, liabilities, costs and expenses

incurred by them in or by reason of any pending, threatened or completed action, suit, investigation or other proceeding arising out

of or otherwise based upon the performance of any of its duties or obligations under the agreement or otherwise as an investment adviser

However, we would not provide indemnification against any liability to us or our security holders to which Saratoga Investment

Advisors or such affiliates would otherwise be subject by reason of willful misfeasance, bad faith or gross negligence in the performance

of any such person’s duties or by reason of the reckless disregard of its duties and obligations under the agreement.

of the Investment Adviser

Investment Advisors is registered as an investment adviser under the Investment Advisers Act of 1940.

The principal executive offices

of Saratoga Investment Advisors are located at 535 Madison Avenue, New York, New York 10022.

Administration Agreement

Pursuant to a separate Administration Agreement, Saratoga Investment Advisors, who also serves as our administrator, furnishes us with office

Administration

to a separate Administration Agreement, Saratoga Investment Advisors, who also serves as our administrator, furnishes us with office

facilities, equipment and clerical, book-keeping and record keeping services.

Under the Administration Agreement, our administrator also performs, or oversees the performance of, our required administrative

services, which include, among other things, being responsible for the financial records which we are required to maintain, preparing reports for our stockholders and reports required to be filed with the SEC.

In addition, our administrator assists

us in determining and publishing our net asset value, oversees the preparation and filing of our tax returns and the printing and dissemination of reports to our stockholders, and generally oversees the payment of our expenses and the performance of

administrative and professional services rendered to us by others.

Payments under the Administration Agreement equal an amount based upon our allocable portion of our administrators overhead in performing its obligations under the

Administration Agreement, including rent and our allocable portion of the cost of our officers and their respective staffs relating to the performance of services under this agreement (including travel expenses).

Our allocable portion is based on

the proportion that our total assets bears to the total assets administered or managed by our administrator.

Under the Administration Agreement, our administrator also provides managerial assistance, on our behalf, to those portfolio companies who

accept our offer of assistance.

The Administration Agreement may be terminated by either party without penalty upon 60 days written notice to the other party.

Our board of directors, including a majority of independent directors, will annually

review the compensation we pay to the Adviser to determine that the provisions of the Administrative Agreement are carried out satisfactorily and to determine, among other things, whether the fees payable under such agreement are reasonable in light

of the services provided.

Our board of directors reviews the methodology employed in determining how the expenses are allocated to us and any proposed allocation of administrative expenses among us and any affiliates of the Adviser.

directors then assesses the reasonableness of such reimbursements for expenses allocated to us based on the breadth, depth and quality of the administrative services as compared to the estimated cost to us of obtaining similar services from third-party service providers known to be available.

In addition, our board of directors considers whether any single third-party service provider would be capable of providing all such services at comparable cost

Finally, our board of directors compares the total amount paid to the Adviser for such services as a percentage of our net assets to the same ratio as reported by other comparable funds.

The amount payable by us under the Administration

Agreement was initially capped at $1.0 million for each annual term of the agreement.

On July 8, 2015, our board of directors approved the renewal of the Administration Agreement for an additional

one-year term and determined to increase the cap on the payment or reimbursement of expenses by the Company thereunder, which had not been increased since the inception of the agreement, to $1.3 million.

On July 7, 2016, our board of directors approved the renewal of the Administration Agreement for an additional one-year term.

On October 5, 2016, our board of directors determined to increase the cap on

the payment or reimbursement of expenses by the Company under the Administration Agreement, from $1.3 million to $1.5 million, effective November 1, 2016.

On July 11, 2017, our board of directors approved the renewal of the Administration

Agreement for an additional one-year term and determined to increase the cap on the payment or reimbursement of expenses by the Company from $1.5 million to $1.75 million, effective August 1, 2017.

On July 9, 2018, our board of directors approved the renewal of the Administration Agreement for an additional one-year term and determined to increase the cap on the payment or reimbursement of expenses

by the Company from $1.75 million to $2.0 million, effective August 1, 2018.

On July 9, 2019, our board of directors approved the renewal of the Administration Agreement for an additional

one-year term and determined to increase the cap on the payment or reimbursement of expenses by the Company from $2.0 million to $2.225 million effective August 1, 2019.

Under the Administration Agreement, our administrator also

performs, or oversees the performance of, our required administrative services, which include, among other things, being responsible

for the financial records which we are required to maintain, preparing reports for our stockholders and reports required to be filed

with the SEC.

In addition, our administrator assists us in determining and publishing our net asset value, oversees the preparation and

filing of our tax returns and the printing and dissemination of reports to our stockholders, and generally oversees the payment of our

expenses and the performance of administrative and professional services rendered to us by others.

Payments under the Administration

Agreement equal an amount based upon our allocable portion of our administrator’s overhead in performing its obligations under

the Administration Agreement, including rent and our allocable portion of the cost of our officers and their respective staffs relating

to the performance of services under this agreement (including travel expenses).

Our allocable portion is based on the proportion that

our total assets bears to the total assets administered or managed by our administrator.

Under the Administration Agreement, our administrator

also provides managerial assistance, on our behalf, to those portfolio companies who accept our offer of assistance.

The Administration

Agreement may be terminated by either party without penalty upon 60 days written notice to the other party.

Our board of directors, including

a majority of independent directors, will annually review the compensation we pay to the Adviser to determine that the provisions of

the Administrative Agreement are carried out satisfactorily and to determine, among other things, whether the fees payable under such

agreement are reasonable in light of the services provided.

Our board of directors reviews the methodology employed in determining how

the expenses are allocated to us and any proposed allocation of administrative expenses among us and any affiliates of the Adviser.

board of directors then assesses the reasonableness of such reimbursements for expenses allocated to us based on the breadth, depth and

quality of the administrative services as compared to the estimated cost to us of obtaining similar services from third-party service

providers known to be available.

In addition, our board of directors considers whether any single third-party service provider would

be capable of providing all such services at comparable cost and quality.

Finally, our board of directors compares the total amount paid

to the Adviser for such services as a percentage of our net assets to the same ratio as reported by other comparable funds.

payable by us under the Administration Agreement was initially capped at $1.0 million for each annual term of the agreement.

8, 2015, our board of directors approved the renewal of the Administration Agreement for an additional one-year term and determined to

increase the cap on the payment or reimbursement of expenses by the Company thereunder, which had not been increased since the inception

of the agreement, to $1.3 million.

On July 7, 2016, our board of directors approved the renewal of the Administration Agreement for an

additional one-year term.

On October 5, 2016, our board of directors determined to increase the cap on the payment or reimbursement of

expenses by the Company under the Administration Agreement, from $1.3 million to $1.5 million, effective November 1, 2016.

2017, our board of directors approved the renewal of the Administration Agreement for an additional one-year term and determined to increase

the cap on the payment or reimbursement of expenses by the Company from $1.5 million to $1.75 million, effective August 1, 2017.

9, 2018, our board of directors approved the renewal of the Administration Agreement for an additional one-year term and determined to

increase the cap on the payment or reimbursement of expenses by the Company from $1.75 million to $2.0 million, effective August 1, 2018.

On July 9, 2019, our board of directors approved the renewal of the Administration Agreement for an additional one-year term and determined

to increase the cap on the payment or reimbursement of expenses by the Company from $2.0 million to $2.225 million effective August 1,

On July 7, 2020, our board of directors approved the renewal of the Administration Agreement for an additional one-year term and

determined to increase the cap on the payment or reimbursement of expenses by the Company from $2.225 million to $2.775 million effective

August 1, 2020.

Indemnification

Under the Administration Agreement, Saratoga Investment Advisors and certain of its affiliates are not liable to us for any action taken or

omitted to be taken by Saratoga Investment Advisors in connection with the performance of any of its duties or obligations under the agreement.

We also provide indemnification to Saratoga Investment Advisors and certain of its affiliates for damages, liabilities, costs and expenses

incurred by them in or by reason of any pending, threatened or completed action, suit, investigation or other proceeding arising out of or otherwise based upon the performance of any of its duties or obligations under the agreement or otherwise as

an administrator to us.

However, we do not provide indemnification against any liability to us or our security holders to which Saratoga Investment Advisors or such affiliates would otherwise be subject by reason of willful misfeasance, bad faith or

gross negligence in the performance of any such persons duties or by reason of the reckless disregard of its duties and obligations under the agreement.

License Agreement

We entered into a

trademark license agreement with Saratoga Investment Advisors, pursuant to which Saratoga Investment Advisors grants us a non-exclusive, royalty-free license to use the

name Saratoga. Under this agreement, we have a right to use the Saratoga name, for so long as Saratoga Investment Advisors or one of its affiliates remains our Investment Adviser.

Other than with respect to this limited

license, we have no legal right to the Saratoga name.

Saratoga Investment Advisors has the right to terminate the license agreement if it is no longer acting as our investment adviser.

In the event the Management Agreement is terminated,

we would be required to change our name to eliminate the use of the name Saratoga.

Business Development Company Regulations

We have elected to be treated as a BDC under the 1940 Act.

the Administration Agreement, Saratoga Investment Advisors and certain of its affiliates are not liable to us for any action taken or

omitted to be taken by Saratoga Investment Advisors in connection with the performance of any of its duties or obligations under the

also provide indemnification to Saratoga Investment Advisors and certain of its affiliates for damages, liabilities, costs and expenses

incurred by them in or by reason of any pending, threatened or completed action, suit, investigation or other proceeding arising out

of or otherwise based upon the performance of any of its duties or obligations under the agreement or otherwise as an administrator to

However, we do not provide indemnification against any liability to us or our security holders to which Saratoga Investment Advisors

or such affiliates would otherwise be subject by reason of willful misfeasance, bad faith or gross negligence in the performance of any

such person’s duties or by reason of the reckless disregard of its duties and obligations under the agreement.

entered into a trademark license agreement with Saratoga Investment Advisors, pursuant to which Saratoga Investment Advisors grants us

a non-exclusive, royalty-free license to use the name “Saratoga.”

Under this agreement, we have a right to use the “Saratoga”

name, for so long as Saratoga Investment Advisors or one of its affiliates remains our Investment Adviser.

Other than with respect to

this limited license, we have no legal right to the “Saratoga”

Saratoga Investment Advisors has the right to terminate

the license agreement if it is no longer acting as our investment adviser.

In the event the Management Agreement is terminated, we would

be required to change our name to eliminate the use of the name “Saratoga.”

Development Company Regulations

have elected to be treated as a BDC under the 1940 Act.

As with other companies regulated by the 1940 Act, a BDC must adhere to certain

substantive regulatory requirements.

The 1940 Act contains prohibitions and restrictions relating to transactions between BDCs and their affiliates (including any investment advisers or sub-advisers), principal underwriters and affiliates of those

affiliates or underwriters, and requires that a majority of the directors 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, as defined in the 1940 Act.

A majority of the outstanding voting securities of a company is defined

under the 1940 Act as the lesser of:

(i) 67.0% or more of such companys stock present at a meeting if more than 50.0% of the outstanding stock of such company is present and represented by proxy or (ii) more than 50.0% of the outstanding

stock of such company.

We do not intend to acquire securities issued by any investment company (i.e., mutual fund, registered closed-end fund or BDC) that exceed the limits imposed by the 1940 Act.

Under these limits, except for registered money market funds, we generally cannot acquire more than 3% of the voting stock of any investment

company, invest more than 5% of the value of our total assets in the securities of one investment company or invest more than 10% of the value of our total assets in the securities of more than one investment company.

With regard to that portion of

our portfolio invested in securities issued by investment companies, it should be noted that such investments might subject our stockholders to additional expenses.

We expect to be periodically examined by 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 disregard of the duties involved

in the conduct of such persons office.

We and our investment adviser have adopted and implemented written policies and procedures

reasonably designed to prevent violation of the federal securities laws and review these policies and procedures annually for their adequacy and the effectiveness of their implementation.

We and our investment adviser have designated a chief

compliance officer to be responsible for administering these policies and procedures.

Qualifying assets

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

The 1940 Act contains prohibitions and restrictions relating to transactions between BDCs and their

affiliates (including any investment advisers or sub-advisers), principal underwriters and affiliates of those affiliates or underwriters,

and requires that a majority of the directors be persons other than “interested persons,”

as that term is defined in the

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,”

as defined in the 1940 Act.

of the outstanding voting securities of a company is defined under the 1940 Act as the lesser of:

(i) 67.0% or more of such company’s

stock present at a meeting if more than 50.0% of the outstanding stock of such company is present and represented by proxy or (ii) more

than 50.0% of the outstanding stock of such company.

do not intend to acquire securities issued by any investment company (i.e., mutual fund, registered closed-end fund or BDC) that exceed

the limits imposed by the 1940 Act.

Under these limits, except for registered money market funds, we generally cannot acquire more than

3% of the voting stock of any investment company, invest more than 5% of the value of our total assets in the securities of one investment

company or invest more than 10% of the value of our total assets in the securities of more than one investment company.

With regard to

that portion of our portfolio invested in securities issued by investment companies, it should be noted that such investments might subject

our stockholders to additional expenses.

expect to be periodically examined by the SEC for compliance with the 1940 Act.

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 disregard of the duties involved in the conduct of such person’s

and our investment adviser have adopted and implemented written policies and procedures reasonably designed to prevent violation of

the federal securities laws and review these policies and procedures annually for their adequacy and the effectiveness of their

implementation.

We and our investment adviser have designated a chief compliance officer to be responsible for administering these

policies and procedures.

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) below.

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 70.0% of the companys total assets.

The principal categories of qualifying assets relevant to our business are the following:

Securities purchased in transactions not involving any public offering from the issuer of such securities,

which issuer (subject to certain limited exceptions) is an eligible portfolio company, or from any person who is, or has been during the preceding 13 months, an affiliated person of an eligible portfolio company, or from any other person, subject to

such rules as may be prescribed by the SEC.

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

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

is not an investment company (other than a small business investment company

wholly-owned by the BDC) or a company that would be an investment company but for certain exclusions under the 1940 Act;

satisfies either of the following:

does not have any class of securities listed on a national securities exchange;

has a class of securities listed on a national securities exchange but has an aggregate market value of

outstanding voting and non-voting common equity of less than $250.0 million;

is controlled by a BDC or a group of companies including a BDC and the BDC has an affiliated person who is a

director of the eligible portfolio company;

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;

meets such other criteria as may established by the SEC.

Securities of any eligible portfolio company which we control.

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.

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 at least 60.0% of the outstanding equity of the eligible portfolio company.

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 options, warrants or rights relating to such securities.

Cash, cash equivalents, U.S.

Government securities or high-quality debt securities maturing in one year or less

from the time of investment.

The regulations defining qualifying assets may change over time.

We may adjust our

investment focus as needed to comply with and/or take advantage of any regulatory, legislative, administrative or judicial actions in this area.

Significant managerial assistance to portfolio companies

A BDC generally must offer to make available to the issuer of the securities in which it invests significant managerial assistance, except in

circumstances where either (i) the BDC controls such issuer of securities or (ii) the BDC purchases such securities in conjunction with one or more other persons acting together and one of the other persons in the group makes available

such managerial assistance.

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 70.0% of the company’s total assets.

The principal categories of qualifying

assets relevant to our business are 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, or from any person who is, or has been during the preceding 13 months, an affiliated person

of an eligible portfolio company, or from any other person, subject to such rules as may be prescribed by the SEC.

An eligible portfolio

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

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

not an investment company (other than a small business investment company wholly-owned by the BDC) or a company that would be an investment

company but for certain exclusions under the 1940 Act;

either of the following:

not have any class of securities listed on a national securities exchange;

a class of securities listed on a national securities exchange but has an aggregate market value of outstanding voting and non-voting

common equity of less than $250.0 million;

controlled by a BDC or a group of companies including a BDC and the BDC has an affiliated person who is a director of the eligible portfolio

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;

such other criteria as may established by the SEC.

(2) Securities

of any eligible portfolio company which we control.

(3) Securities

purchased in a private transaction from a U.S.

issuer that is not an investment company or from an affiliated person of the issuer, or

in transactions incident thereto, if the issuer is in bankruptcy and subject to reorganization or if the issuer, immediately prior to

the purchase of its securities was unable to meet its obligations as they came due without material assistance other than conventional

lending or financing arrangements.

(4) Securities

of an eligible portfolio company purchased from any person in a private transaction if there is no ready market for such securities and

we already own at least 60.0% 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 options, warrants or rights relating to

such securities.

cash equivalents, U.S.

Government securities or high-quality debt securities maturing in

one year or less from the time of investment.

regulations defining qualifying assets may change over time.

We may adjust our investment focus as needed to comply with and/or take

advantage of any regulatory, legislative, administrative or judicial actions in this area.

managerial assistance to portfolio companies

BDC generally must offer to make available to the issuer of the securities in which it invests significant managerial assistance, except

in circumstances where either (i) the BDC controls such issuer of securities or (ii) the BDC purchases such securities in conjunction

with one or more other persons acting together and one of the other persons in the group makes available such managerial assistance.

As a BDC we offer, and must provide upon request, managerial assistance to our portfolio companies.

Making available significant managerial assistance means, among other things, any arrangement whereby the BDC, through

its directors, officers or employees or those of its investment adviser, 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

This assistance could involve, among other things, monitoring the operations of our portfolio companies, participating in board and management meetings, consulting with and advising officers of portfolio companies and providing other

organizational and financial guidance.

Pursuant to a separate Administration Agreement, our Investment Adviser provides such managerial assistance on our behalf to portfolio companies that request this assistance, recognizing that our involvement

with each investment will vary based on factors including the size of the company, the nature of our investment, the companys overall stage of development and our relative position in the capital structure.

We may receive fees for these

Temporary investments

As a BDC, pending investment in other types of qualifying assets, as described above, our investments may consist of cash, cash

equivalents, U.S.

Government securities or high-quality debt securities maturing in one year or less from the time of investment, which we refer to, collectively, as temporary investments, so that 70.0% of our assets are qualifying assets.

Typically, we will invest in U.S.

Treasury bills or in repurchase agreements, provided that such agreements are fully collateralized by cash or securities issued by the U.S.

Making available significant managerial

assistance means, among other things, any arrangement whereby the BDC, through its directors, officers or employees or those of its investment

adviser, 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.

This assistance could involve, among other things, monitoring the operations

of our portfolio companies, participating in board and management meetings, consulting with and advising officers of portfolio companies

and providing other organizational and financial guidance.

Pursuant to a separate Administration Agreement, our Investment Adviser provides

such managerial assistance on our behalf to portfolio companies that request this assistance, recognizing that our involvement with each

investment will vary based on factors including the size of the company, the nature of our investment, the company’s overall stage

of development and our relative position in the capital structure.

We may receive fees for these services.

a BDC, pending investment in other types of “qualifying assets,”

as described above, our investments may consist of cash,

cash equivalents, U.S.

Government securities or high-quality debt securities maturing in one year or less from the time of investment,

which we refer to, collectively, as temporary investments, so that 70.0% of our assets are qualifying assets.

Typically, we will invest

Treasury bills or in repurchase agreements, provided that such agreements are fully collateralized by cash or securities issued

Government or its agencies.

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 which 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 25.0% 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 regulated investment company (RIC) for U.S.

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 which 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 25.0% 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 regulated investment company

(“RIC”) for U.S.

federal income tax purposes.

Thus, we do not intend to enter into

repurchase agreements with a single counterparty in excess of this limit.

Our Investment Adviser will monitor the creditworthiness of the counterparties with which we enter into repurchase agreement transactions.

Indebtedness and senior securities

As a BDC, we are permitted, under specified conditions, to issue multiple classes of indebtedness and one class of shares of stock, senior to

our common stock, if our asset coverage, as defined in the 1940 Act, is at least equal to 200.0% immediately after each such issuance.

On April 16, 2018, as permitted by the Small Business Credit Availability Act, which was signed into law on

March 23, 2018, our non-interested Board of Directors approved of our becoming subject to a minimum asset coverage ratio of 150.0% under Sections 18(a)(1) and 18(a)(2) of the 1940 Act.

The 150.0% asset

coverage ratio became effective on April 16, 2019.

See Risk Factors Recent legislation allows us to incur additional leverage. We may also borrow amounts up to 5.0% of the value of our total assets for temporary or emergency

purposes without regard to asset coverage.

The 1940 Act also limits the amount of warrants, options and rights to common stock that we

may issue and the terms of such securities.

We are generally not able to issue and sell our common stock at a price below net asset value per share.

Thus, we do not intend to enter into repurchase agreements with a single counterparty

in excess of this limit.

Our Investment Adviser will monitor the creditworthiness of the counterparties with which we enter into repurchase

agreement transactions.

and senior securities

a BDC, we are permitted, under specified conditions, to issue multiple classes of indebtedness and one class of shares of stock, senior

to our common stock, if our asset coverage, as defined in the 1940 Act, is at least equal to 200.0% immediately after each such issuance.

On April 16, 2018, as permitted by the Small Business Credit Availability Act, which was signed into law on March 23, 2018, our non-interested

Board of Directors approved of our becoming subject to a minimum asset coverage ratio of 150.0% under Sections 18(a)(1) and 18(a)(2)

of the 1940 Act.

The 150.0% asset coverage ratio became effective on April 16, 2019.

“See Risk Factors –

Recent legislation

allows us to incur additional leverage.”

We may also borrow amounts up to 5.0% of the value of our total assets for temporary or

emergency purposes without regard to asset coverage.

1940 Act also limits the amount of warrants, options and rights to common stock that we may issue and the terms of such securities.

are generally not 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).

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.

Code of ethics

a BDC, we and Saratoga Investment Advisors have each adopted a code of ethics pursuant to Rule 17j-1 under the 1940 Act and Rule 204A-1 under the Advisers Act,

respectively, that establishes procedures for personal investments and restricts certain personal securities transactions.

Personnel subject to each 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 codes requirements.

In addition, each code of ethics is available on the EDGAR database on the SECs website at

h t tp:/ / www.sec.g o v .

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

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).

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.

a BDC, we and Saratoga Investment Advisors have each adopted a code of ethics pursuant to Rule 17j-1 under the 1940 Act and Rule 204A-1

under the Advisers Act, respectively, that establishes procedures for personal investments and restricts certain personal securities

transactions.

Personnel subject to each 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.

In addition, each

code of ethics is available on the EDGAR database on the SEC’s website at http://www.sec.gov .

You may also obtain copies of the code of ethics, after paying a duplicating fee, by electronic request at the following e-mail address:

p u bl i cinf o @sec.gov , or by writing the SECs Public Reference Section, Washington, D.C.

publicinfo@sec.gov , or by writing the SEC’s Public Reference Section, Washington,

Our code of ethics is also available on our corporate governance webpage at

http://ir.saratogainvestmentcorp.com/corporate-governance.

Proxy voting policies and procedures

SEC registered investment advisers that have the authority to vote (client) proxies (which authority may be implied from a general grant of

investment discretion) are required to adopt policies and procedures reasonably designed to ensure that the adviser votes proxies in the best interests of its clients.

Registered investment advisers also must maintain certain records on proxy

In most cases, we will invest in securities that do not generally entitle us to voting rights in our portfolio companies.

When we do have voting rights, we will delegate the exercise of such rights to our Investment Adviser.

Saratoga Investment Advisors has particular proxy voting policies and procedures in place.

In determining how to vote, officers of Saratoga

Investment Advisors will consult with each other, taking into account our interests and the interests of our investors, as well as any potential conflicts of interest.

Saratoga Investment Advisors will consult with legal counsel to identify

potential conflicts of interest.

Where a potential conflict of interest exists, Saratoga Investment Advisors may, if it so elects, resolve it by following the recommendation of a disinterested third party, by seeking the direction of our independent

directors or, in extreme cases, by abstaining from voting.

While Saratoga Investment Advisors may retain an outside service to provide voting recommendations and to assist in analyzing votes, it will not delegate its voting authority to any third

An officer of Saratoga Investment Advisors will keep a written record of how all such proxies are voted.

It will retain records of

(1) proxy voting policies and procedures, (2) all proxy statements received (or it may rely on proxy statements filed on the SECs EDGAR system in lieu thereof), (3) all votes cast, (4) investor requests for voting information,

and (5) any specific documents prepared or received in connection with a decision on a proxy vote.

If it uses an outside service, Saratoga Investment Advisors may rely on such service to maintain copies of proxy statements and records, so long

as such service will provide a copy of such documents promptly upon request.

Saratoga Investment Advisors proxy voting policies are

not exhaustive and are designed to be responsive to the wide range of issues that may be subject to a proxy vote.

voting policies and procedures

registered investment advisers that have the authority to vote (client) proxies (which authority may be implied from a general grant

of investment discretion) are required to adopt policies and procedures reasonably designed to ensure that the adviser votes proxies

in the best interests of its clients.

Registered investment advisers also must maintain certain records on proxy voting.

In most cases,

we will invest in securities that do not generally entitle us to voting rights in our portfolio companies.

When we do have voting rights,

we will delegate the exercise of such rights to our Investment Adviser.

Investment Advisors has particular proxy voting policies and procedures in place.

In determining how to vote, officers of Saratoga Investment

Advisors will consult with each other, taking into account our interests and the interests of our investors, as well as any potential

conflicts of interest.

Saratoga Investment Advisors will consult with legal counsel to identify potential conflicts of interest.

a potential conflict of interest exists, Saratoga Investment Advisors may, if it so elects, resolve it by following the recommendation

of a disinterested third party, by seeking the direction of our independent directors or, in extreme cases, by abstaining from voting.

While Saratoga Investment Advisors may retain an outside service to provide voting recommendations and to assist in analyzing votes,

it will not delegate its voting authority to any third party.

officer of Saratoga Investment Advisors will keep a written record of how all such proxies are voted.

It will retain records of (1) proxy

voting policies and procedures, (2) all proxy statements received (or it may rely on proxy statements filed on the SEC’s EDGAR

system in lieu thereof), (3) all votes cast, (4) investor requests for voting information, and (5) any specific documents prepared or

received in connection with a decision on a proxy vote.

If it uses an outside service, Saratoga Investment Advisors may rely on such

service to maintain copies of proxy statements and records, so long as such service will provide a copy of such documents promptly upon

Investment Advisors’

proxy voting policies are not exhaustive and are designed to be responsive to the wide range of issues that

may be subject to a proxy vote.

In general, Saratoga Investment Advisors will vote our proxies in accordance with these guidelines unless:

(1) it has determined

otherwise due to the specific and unusual facts and circumstances with respect to a particular vote, (2) the subject matter of the vote is not covered by these guidelines, (3) a material conflict of interest is present, or (4) it

finds it necessary to vote contrary to its general guidelines to maximize stockholder value or our best interests.

In reviewing proxy issues, Saratoga Investment Advisors generally will use the following

Elections of Directors:

In general, Saratoga Investment Advisors will vote in favor of the management-proposed slate of

If there is a proxy fight for seats on a portfolio companys board of directors, or Saratoga Investment Advisors determines that there are other compelling reasons for withholding our vote, it will determine the appropriate vote on

It may withhold votes for directors that fail to act on key issues, such as failure to:

(1) implement proposals to declassify a board, (2) implement a majority vote requirement, (3) submit a rights plan to a stockholder

vote or (4) act on tender offers where a majority of stockholders have tendered their shares.

(1) it has determined otherwise due to the specific and unusual facts and circumstances with respect to a particular vote, (2) the subject

matter of the vote is not covered by these guidelines, (3) a material conflict of interest is present, or (4) it finds it necessary to

vote contrary to its general guidelines to maximize stockholder value or our best interests.

reviewing proxy issues, Saratoga Investment Advisors generally will use the following guidelines:

of Directors:

In general, Saratoga Investment Advisors will vote in favor of the management-proposed slate of directors.

is a proxy fight for seats on a portfolio company’s board of directors, or Saratoga Investment Advisors determines that there are

other compelling reasons for withholding our vote, it will determine the appropriate vote on the matter.

It may withhold votes for directors

that fail to act on key issues, such as failure to:

(1) implement proposals to declassify a board, (2) implement a majority vote requirement,

(3) submit a rights plan to a stockholder vote or (4) act on tender offers where a majority of stockholders have tendered their shares.

Finally, Saratoga Investment Advisors may withhold votes for directors of non-U.S.

issuers where there is

insufficient information about the nominees disclosed in the proxy statement.

Appointment of Auditors:

We believe that a portfolio

company remains in the best position to choose its independent auditors and Saratoga Investment Advisors will generally support managements recommendation in this regard.

Changes in Capital Structure:

Changes in a portfolio companys organizational documents may be required by state or federal

issuers where there is insufficient information about

the nominees disclosed in the proxy statement.

We believe that a portfolio company remains in the best position to choose its independent auditors and Saratoga Investment

Advisors will generally support management’s recommendation in this regard.

in Capital Structure:

Changes in a portfolio company’s organizational documents may be required by state or federal regulation.

In general, Saratoga Investment Advisors will cast our votes in accordance with the management on such proposals.

However, Saratoga Investment Advisors will consider carefully any proposal regarding a change in corporate structure that

is not required by state or federal regulation.

Corporate Restructurings, Mergers and Acquisitions:

We believe proxy votes dealing

with corporate reorganizations are an extension of the investment decision.

Accordingly, Saratoga Investment Advisors will analyze such proposals on a case-by-case basis and vote in accordance with its perception of our interests.

Proposals Affecting Stockholder Rights:

We will generally vote in favor of proposals that give stockholders a greater voice in the

affairs of a portfolio company and oppose any measure that seeks to limit such rights.

However, when analyzing such proposals, Saratoga Investment Advisors will balance the financial impact of the proposal against any impairment of stockholder

rights as well as of our investment in the portfolio company.

Corporate Governance:

We recognize the importance of good corporate

Accordingly, Saratoga Investment Advisors will generally favor proposals that promote transparency and accountability within a portfolio company.

Anti-Takeover Measures:

Saratoga Investment Advisors will evaluate, on a case-by-case basis, any proposals regarding anti- takeover measures to determine the likely effect on stockholder value dilution.

Share Splits:

However, Saratoga Investment

Advisors will consider carefully any proposal regarding a change in corporate structure that is not required by state or federal regulation.

Restructurings, Mergers and Acquisitions:

We believe proxy votes dealing with corporate reorganizations are an extension of the investment

Accordingly, Saratoga Investment Advisors will analyze such proposals on a case-by-case basis and vote in accordance with its

perception of our interests.

Affecting Stockholder Rights:

We will generally vote in favor of proposals that give stockholders a greater voice in the affairs

of a portfolio company and oppose any measure that seeks to limit such rights.

However, when analyzing such proposals, Saratoga Investment

Advisors will balance the financial impact of the proposal against any impairment of stockholder rights as well as of our investment

in the portfolio company.

We recognize the importance of good corporate governance.

Accordingly, Saratoga Investment Advisors will generally favor

proposals that promote transparency and accountability within a portfolio company.

Anti-Takeover

Saratoga Investment Advisors will evaluate, on a case-by-case basis, any proposals regarding anti- takeover measures to

determine the likely effect on stockholder value dilution.

Saratoga Investment Advisors will generally vote with management on share split matters.

Liability of Directors:

Saratoga Investment Advisors will generally vote with management on matters that could adversely affect the

limited liability of directors.

Saratoga Investment Advisors will generally vote with management on matters that could adversely affect the limited liability of directors.

Social and Corporate Responsibility:

Saratoga Investment Advisors will review proposals related to social, political and environmental

issues to determine whether they may adversely affect stockholder value.

It may abstain from voting on such proposals where they do not have a readily determinable financial impact on stockholder value.

Privacy principles

We are committed to protecting the privacy of our stockholders.

The following explains the privacy policies of Saratoga Investment Corp.,

Saratoga Investment Advisors and their affiliated companies.

We will safeguard, according to strict standards of security and

confidentiality, all information we receive about our stockholders.

Generally, we do not receive any non-public personal

information relating to our stockholders, although certain non-public personal information of our stockholders may become available to us.

The only information we collect from stockholders is the holders

name, address, number of shares and social security number.

This information is used only so that we can send annual reports and other information about us to the stockholder and send the stockholder proxy statements or other information required by

We restrict access to non-public personal information about our stockholders to our Investment Advisers and Administrators employees with a legitimate business need for the information.

maintain physical, electronic and procedural safeguards designed to protect the non-public personal information of our stockholders.

and Corporate Responsibility:

Saratoga Investment Advisors will review proposals related to social, political and environmental issues

to determine whether they may adversely affect stockholder value.

It may abstain from voting on such proposals where they do not have

a readily determinable financial impact on stockholder value.

are committed to protecting the privacy of our stockholders.

The following explains the privacy policies of Saratoga Investment

Corp., Saratoga Investment Advisors and their affiliated companies.

will safeguard, according to strict standards of security and confidentiality, all information we receive about our stockholders.

we do not receive any non-public personal information relating to our stockholders, although certain non-public personal information

of our stockholders may become available to us.

The only information we collect from stockholders is the holder’s name, address,

number of shares and social security number.

This information is used only so that we can send annual reports and other information about

us to the stockholder and send the stockholder proxy statements or other information required by law.

We restrict access to non-public

personal information about our stockholders to our Investment Adviser’s and Administrator’s employees with a legitimate business

need for the information.

We maintain physical, electronic and procedural safeguards designed to protect the non-public personal information

of our stockholders.

do not share this information with any non-affiliated third party except as described below:

Authorized Employees of Saratoga Investment Advisors.

It is our policy that only authorized employees of Saratoga

Investment Advisors who need to know a stockholders personal information will have access to it.

Service Providers.

We may disclose your personal information to companies that provide services on our

behalf, such as recordkeeping, processing a stockholders trades, and mailing stockholder information.

These companies are required to protect our stockholders information and use it solely for the purpose for which they received it.

Courts and Government Officials.

If required by law, we may disclose a stockholders personal

information in accordance with a court order or at the request of government regulators.

Employees of Saratoga Investment Advisors.

It is our policy that only authorized employees of Saratoga Investment Advisors who need to

know a stockholder’s personal information will have access to it.

We may disclose your personal information to companies that provide services on our behalf, such as recordkeeping, processing

a stockholder’s trades, and mailing stockholder information.

These companies are required to protect our stockholders’

and use it solely for the purpose for which they received it.

and Government Officials.

If required by law, we may disclose a stockholder’s personal information in accordance with a court

order or at the request of government regulators.

Only that information required by law, subpoena, or court order will be disclosed.

Compliance with applicable laws

As a BDC, we are periodically examined by 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.

in the conduct of such persons office.

We and Saratoga Investment Advisors are each 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 designate a chief compliance officer

to be responsible for administering the policies and procedures.

The New York Stock Exchange (NYSE) Corporate

Governance Regulations

The NYSE has adopted corporate governance regulations that listed companies must comply with.

compliance with such corporate governance listing standards applicable to BDCs.

with applicable laws

a BDC, we are periodically examined by the SEC for compliance with the 1940 Act.

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 disregard of the duties involved in the conduct of such person’s

and Saratoga Investment Advisors are each 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 designate a chief compliance officer to be responsible for administering the policies and procedures.

New York Stock Exchange (“NYSE”) Corporate Governance Regulations

NYSE has adopted corporate governance regulations that listed companies must comply with.

We are in compliance with such corporate governance

listing standards applicable to BDCs.

Co-investment

We may 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.

Thus, based on current SEC interpretations, co-investment transactions involving a BDC like us and an entity

that is advised by Saratoga Investment Advisors or an affiliated adviser generally could not be effected without SEC relief.

The staff of the SEC has, however, granted no-action relief to third parties

permitting purchases of a single class of privately-placed securities provided that the adviser negotiates no term other than price and certain other conditions are met.

As a result, currently we only expect to

co-invest on a concurrent basis with affiliates of Saratoga Investment Advisors when each of us will own the same securities of the issuer and when no term is negotiated other than price.

may 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.

Thus, based on current SEC interpretations,

co-investment transactions involving a BDC like us and an entity that is advised by Saratoga Investment Advisors or an affiliated adviser

generally could not be effected without SEC relief.

The staff of the SEC has, however, granted no-action relief to third parties permitting

purchases of a single class of privately-placed securities provided that the adviser negotiates no term other than price and certain

other conditions are met.

As a result, currently we only expect to co-invest on a concurrent basis with affiliates of Saratoga Investment

Advisors when each of us will own the same securities of the issuer and when no term is negotiated other than price.

Any such investment

would be made, subject to compliance with existing regulatory guidance, applicable regulations and our allocation procedures.

the future submit an application for exemptive relief to the SEC to permit greater flexibility to negotiate the terms of co-investments because we believe that it will be advantageous for us to co-invest with affiliates of Saratoga Investment Advisors where such investment is consistent with the investment objective, investment positions, investment policies, investment strategies, investment restrictions,

may in the future submit an application for exemptive relief to the SEC to permit greater flexibility to negotiate the terms of co-investments

because we believe that it will be advantageous for us to co-invest with affiliates of Saratoga Investment Advisors where such investment

is consistent with the investment objective, investment positions, investment policies, investment strategies, investment restrictions,

regulatory requirements and other pertinent factors applicable to us.

However, there is no assurance that any application for exemptive relief, if made, would be granted by the SEC.

Small Business Investment Company Regulations

On March 28, 2012, our wholly-owned subsidiary, SBIC LP, received an SBIC license from the SBA.

On August 14, 2019, our wholly-owned

subsidiary, SBIC II LP, also received an SBIC license from the SBA.

The SBIC licenses allows our SBIC LP and SBIC II LP to obtain leverage by issuing

SBA-guaranteed debentures, subject to the satisfaction of certain customary procedures.

SBA-guaranteed debentures are non-recourse, interest only debentures with

interest payable semi- annually and have a ten-year maturity.

The principal amount of SBA-guaranteed debentures is not required to be paid prior to maturity but may be

prepaid at any time without penalty.

The interest rate of SBA-guaranteed debentures is fixed at the time of issuance at a market-driven spread over U.S.

However, there is no assurance that any application for exemptive

relief, if made, would be granted by the SEC.

Business Investment Company Regulations

March 28, 2012, our wholly-owned subsidiary, SBIC LP, received an SBIC license from the SBA.

On August 14, 2019, our wholly-owned subsidiary,

SBIC II LP, also received an SBIC license from the SBA.

SBIC licenses allows our SBIC LP and SBIC II LP to obtain leverage by issuing SBA-guaranteed debentures, subject to the satisfaction

of certain customary procedures.

SBA-guaranteed debentures are non-recourse, interest only debentures with interest payable semi- annually

and have a ten-year maturity.

The principal amount of SBA-guaranteed debentures is not required to be paid prior to maturity but may

be prepaid at any time without penalty.

The interest rate of SBA-guaranteed debentures is fixed at the time of issuance at a market-driven

spread over U.S.

Treasury Notes with 10-year maturities.

SBICs are designed to stimulate the flow of private equity capital to eligible small businesses.

are designed to stimulate the flow of private equity capital to eligible small businesses.

Under SBA regulations, SBICs may make loans

to eligible small businesses and invest in the equity securities of small businesses.

Under present SBA regulations, eligible small businesses include businesses that have a tangible net worth not exceeding $19.5 million and have average annual

Under present SBA regulations, eligible small businesses

include businesses that have a tangible net worth not exceeding $19.5 million and have average annual fully taxed net income not exceeding

$6.5 million for the two most recent fiscal years.

In addition, an SBIC must devote 25.0% of its investment activity to “smaller”

concerns as defined by the SBA.

A smaller concern is one that has a tangible net worth not exceeding $6.0 million and has average annual

fully taxed net income not exceeding $2.0 million for the two most recent fiscal years.

In addition, an SBIC must devote 25.0% of its investment activity to smaller concerns as defined by the SBA.

A smaller concern is one that has a

tangible net worth not exceeding $6.0 million and has average annual fully taxed net income not exceeding $2.0 million for the two most recent fiscal years.

SBA regulations also provide alternative size standard criteria to determine

eligibility, which depend on the industry in which the business is engaged and are based on such factors as the number of employees and gross sales.

According to SBA regulations, SBICs may make long-term loans to small businesses, invest in the

equity securities of such businesses and provide them with consulting and advisory services.

SBIC LP and SBIC II LP are subject to

regulation and oversight by the SBA, including requirements with respect to maintaining certain minimum financial ratios and other covenants.

Receipt of an SBIC license does not assure that SBIC LP or SBIC II LP will receive SBA-guaranteed debenture funding, which is dependent upon SBIC LP and SBIC II LP continuing to be in compliance with SBA regulations and policies.

The SBA, as a creditor, will have a superior claim to SBIC LP and

SBIC II LPs assets over our stockholders and debtholders in the event we liquidate SBIC LP or SBIC II LP or the SBA exercises its remedies under the SBA-guaranteed debentures issued by SBIC LP or SBIC II LP upon an event of default.

We received exemptive relief from the SEC to permit it to exclude the debt of SBIC LP and SBIC II LP guaranteed by the SBA from the definition

SBA regulations also provide alternative size

standard criteria to determine eligibility, which depend on the industry in which the business is engaged and are based on such factors

as the number of employees and gross sales.

According to SBA regulations, SBICs may make long-term loans to small businesses, invest

in the equity securities of such businesses and provide them with consulting and advisory services.

LP and SBIC II LP are subject to regulation and oversight by the SBA, including requirements with respect to maintaining certain minimum

financial ratios and other covenants.

Receipt of an SBIC license does not assure that SBIC LP or SBIC II LP will receive SBA-guaranteed

debenture funding, which is dependent upon SBIC LP and SBIC II LP continuing to be in compliance with SBA regulations and policies.

SBA, as a creditor, will have a superior claim to SBIC LP and SBIC II LP’s assets over our stockholders and debtholders in the

event we liquidate SBIC LP or SBIC II LP or the SBA exercises its remedies under the SBA-guaranteed debentures issued by SBIC LP or SBIC

II LP upon an event of default.

received exemptive relief from the SEC to permit it to exclude the debt of SBIC LP and SBIC II LP guaranteed by the SBA from the definition

of senior securities in the asset coverage test under the 1940 Act.

This allows us increased flexibility under the asset coverage test by permitting it to borrow up to $325.0 million more than it would otherwise be able to absent the receipt of

this exemptive relief.

On April 16, 2018, as permitted by the Small Business Credit Availability Act, which was signed into law on March 23, 2018, our non-interested board of directors approved of our becoming subject to a minimum asset

coverage ratio of 150.0% under Sections 18(a)(1) and 18(a)(2) of the 1940 Act.

This allows us increased flexibility under the asset coverage test

by permitting it to borrow up to $325.0 million more than it would otherwise be able to absent the receipt of this exemptive relief.

On April 16, 2018, as permitted by the Small Business Credit Availability Act, which was signed into law on March 23, 2018, our non-interested

board of directors approved of our becoming subject to a minimum asset coverage ratio of 150.0% under Sections 18(a)(1) and 18(a)(2)

of the 1940 Act.

The 150.0% asset coverage ratio became effective on April 16, 2019.

In December 2015, the 2016 omnibus spending bill approved by Congress and signed into law by the President increased the amount of

SBA-guaranteed debentures that affiliated SBIC funds can have outstanding from $225.0 million to $350.0 million, subject to SBA approval.

Our wholly-owned SBIC subsidiaries may borrow funds from the SBA against regulatory capital (which

approximates equity capital) that is paid in and is subject to customary regulatory requirements including but not limited to an examination by the SBA.

With this license approval, Saratoga will grow its SBA relationship from $150.0 million to

$325.0 million of committed capital.

SBA regulations currently limit the amount of SBA-guaranteed debentures that an SBIC may issue to $150.0 million when it has at least $75.0 million in

regulatory capital.

Affiliated SBICs are permitted to issue up to a combined maximum amount of $350.0 million in SBA-guaranteed debentures when they have at least $175.0 million in combined

regulatory capital.

As of February 29, 2020, we have funded SBIC LP with an aggregate total of $75.0 million of equity capital

and have $150.0 million of SBA guaranteed debentures outstanding and have funded SBIC II LP with an aggregate total of $50.0 million of equity capital and do not have any SBA-guaranteed debentures

SBA debentures are non-recourse to us, have a 10-year maturity, and may be prepaid at any time without penalty.

The interest rate of SBA debentures is fixed

at the time of issuance, often referred to as pooling, at a market-driven spread over 10-year U.S.

December 2015, the 2016 omnibus spending bill approved by Congress and signed into law by the President increased the amount of SBA-guaranteed

debentures that affiliated SBIC funds can have outstanding from $225.0 million to $350.0 million, subject to SBA approval.

Our wholly-owned

SBIC subsidiaries may borrow funds from the SBA against regulatory capital (which approximates equity capital) that is paid in and is

subject to customary regulatory requirements including but not limited to an examination by the SBA.

With this license approval, Saratoga

will grow its SBA relationship from $150.0 million to $325.0 million of committed capital.

SBA regulations currently limit the amount

of SBA-guaranteed debentures that an SBIC may issue to $150.0 million when it has at least $75.0 million in regulatory capital.

SBICs are permitted to issue up to a combined maximum amount of $350.0 million in SBA-guaranteed debentures when they have at least $175.0

million in combined regulatory capital.

of February 28, 2021, we have funded SBIC LP with an aggregate total of $75.0 million of equity capital and have $124.0 million of SBA

guaranteed debentures outstanding and have funded SBIC II LP with an aggregate total of $69.0 million of equity capital and have $34.0

million of SBA-guaranteed debentures outstanding.

SBA debentures are non-recourse to us, have a 10-year maturity, and may be prepaid

at any time without penalty.

The interest rate of SBA debentures is fixed at the time of issuance, often referred to as pooling, at a

market-driven spread over 10-year U.S.

Treasury Notes.

SBA current regulations limit the amount that SBIC LP and SBIC II LP may borrow to a maximum

of $150.0 million and $175.0 million, respectively, which is up to twice its potential regulatory capital.

Available Information

We file with or submit to the SEC annual, quarterly and current periodic reports, proxy statements and other information meeting the

informational requirements of the Securities Exchange of 1934, as amended (the Exchange Act).

You may inspect and copy these reports, proxy statements and other information at the Public Reference Room of the SEC at 100 F Street, N.E.,

Washington, D.C.

You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.

Copies of these reports, proxy and

information statements and other information may be obtained, after paying a duplicating fee, by electronic request at the following e-mail address:

publicinfo@sec.gov, or by writing the SECs Public

Reference Section, Washington, D.C.

In addition, the SEC maintains an Internet website that contains reports, proxy and information statements and other information filed electronically by us with

the SEC at http://www.sec.gov.

Our Internet address is

h tt p :/ / www.sarato g ain v es t m e n tcorp.com.

We make available free of charge on our Internet website our Annual Report on Form 10-K, quarterly

reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC.

contained on our website is not incorporated by reference into this Annual Report, and you should not consider that information to be part of this Annual Report.

SBA current regulations limit the amount that SBIC LP and SBIC II LP may borrow

to a maximum of $150.0 million and $175.0 million, respectively, which is up to twice its potential regulatory capital.

file with or submit to the SEC annual, quarterly and current periodic reports, proxy statements and other information meeting the informational

requirements of the Securities Exchange of 1934, as amended (the “Exchange Act”).

You may inspect and copy these reports,

proxy statements and other information at the Public Reference Room of the SEC at 100 F Street, N.E., Washington, D.C.

obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.

Copies of these reports, proxy

and information statements and other information may be obtained, after paying a duplicating fee, by electronic request at the following

e-mail address:

publicinfo@sec.gov, or by writing the SEC’s Public Reference Section, Washington, D.C.

the SEC maintains an Internet website that contains reports, proxy and information statements and other information filed electronically

by us with the SEC at http://www.sec.gov.

Internet address is http://www.saratogainvestmentcorp.com.

We make available free of charge on our Internet website our Annual

Report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports as soon as reasonably

practicable after we electronically file such material with, or furnish it to, the SEC.

Information contained on our website is not incorporated

by reference into this Annual Report, and you should not consider that information to be part of this Annual Report.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1. Business