What changed in this filing

/stocks — the workspaceLOADING

Item 1. Business

2022-05-04 compared with 2021-05-05 · 1248 added, 1089 removed, 340 unchanged (87% of the section changed)

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”

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.

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.

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.

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.

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, joint ventures 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 28, 2022, we had total assets

of $876.2 million and investments in 45 portfolio companies, excluding 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 $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%.

(“Saratoga CLO”), which had a fair value of $28.7

million as of February 28, 2022, investments in the Class F-2-R-3 Note of the Saratoga CLO which as of February 28, 2022 had a fair

value of $9.4 million, and investments in the Saratoga Senior Loan Fund I JV LLC (“SLF JV”), a joint venture which as of

February 28, 2022 had a fair value of $25.1 million.

The overall portfolio composition as of February 28, 2022 consisted of 77.3% of

first lien term loans, 5.4% of second lien term loans, 1.9% of unsecured loans, 4.7% of structured finance securities and 10.7% of

equity interests.

As of February 28, 2022, the weighted average yield on all of our investments, including our investment in the

subordinated notes of Saratoga CLO and Class F-2-R-3 Note was approximately 7.7%.

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, 2022, our total return based on market value was 28.19% and our total return based on net asset

value per share was 15.88%.

As of February 28, 2021, our total return based on market value was 7.63% and our total return based on

net asset value was 7.42%.

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 net asset value (“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.

As of February 28,

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.

2022, approximately 97.1% 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

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.

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.

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”).

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 28, 2022, was composed of $660.2 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.

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.”

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.

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 board of directors, including, a majority of our independent 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

We have elected to be treated for U.S.

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 U.S.

federal income taxes at corporate rates 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”).

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

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.

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.

SBIC LP (“SBIC LP”), received an SBIC license from

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

SBIC II LP (“SBIC II LP”), also received

an SBIC license from the SBA, which provides up to $175.0 million in additional long-term capital in the form of SBA-guaranteed debentures.

As a result, Saratoga’s SBA relationship increased from $150.0 million to $325.0 million of committed capital.

The SBIC LP and

SBIC II LP are regulated by the SBA.

For two or more SBIC’s under common control, the maximum amount of outstanding SBA debentures

cannot exceed $350.0 million.

Our wholly-owned SBIC subsidiaries are able to borrow funds from the SBA against the SBIC’s regulatory

capital (which approximates equity capital) and is subject to customary regulatory requirements, including, but not limited to, an examination

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.

We received exemptive relief from the U.S.

and Exchange Commission (“SEC”) to permit us to exclude the senior securities issued by of SBIC LP and SBIC II LP from the

definition of senior securities in the asset coverage requirement under the 1940 Act.

This allows the Company increased flexibility under

the asset coverage requirement 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-AX, Inc., SIA-GH, Inc., SIA-MAC, Inc., SIA-PEP, 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.

In February 2022, SIA-GH, Inc.,

and SIA-VR, Inc.

received an approved plan of liquidation following the sale of equity held by each of the portfolio companies.

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 Management’s Discussion and Analysis for additional discussion.

On October 26, 2021, the Company and TJHA JV I

LLC (“TJHA”) entered into a Limited Liability Company Agreement (the “LLC Agreement”) to co-manage SLF JV.

JV is invested in Saratoga Investment Corp Senior Loan Fund 2021-1 Ltd (“SLF 2021”), which is a wholly owned subsidiary of

SLF 2021 was formed for the purpose of making investments in a diversified portfolio of broadly syndicated first lien and second

lien term loans or bonds in the primary and secondary markets.

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.

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

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.

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.

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 “Madison 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 Madison 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 (“Deutsche Bank”).

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.

The Company has formed a wholly owned special purpose

entity, Saratoga Investment Funding II LLC, a Delaware limited liability company (“SIF II”), for the purpose of entering

into a $50.0 million senior secured revolving credit facility with Encina Lender Finance, LLC (the “Lender”), supported by

loans held by SIF II and pledged to the Lender under the credit facility (the “Encina Credit Facility”).

The Encina Credit

Facility closed on October 4, 2021.

During the first two years following the closing date, SIF II may request an increase in the commitment

amount under the Encina Credit Facility to up to $75.0 million.

The terms of the Encina Credit Facility require a minimum drawn amount

of $12.5 million at all times during the first six months following the closing date, which increases to the greater of $25.0 million

or 50% of the commitment amount in effect at any time thereafter.

The term of the Encina Credit Facility is three years.

Advances under

the Encina Credit Facility bear interest at a floating rate per annum equal to LIBOR plus 4.0%, with LIBOR having a floor of 0.75%, with

customary provisions related to the selection by the Lender and the Company of a replacement benchmark rate.

Concurrently with the closing

of the Encina Credit Facility, all remaining amounts outstanding on the Company’s existing revolving credit facility with Madison

Capital Funding, LLC were repaid and the revolving credit facility terminated.

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.

On October 26, 2021, the Company and TJHA

JV I LLC entered into a Limited Liability Company Agreement (the “LLC Agreement”) to co-manage the SLF JV.

a joint venture that is expected to invest in the debt or equity interests of collateralized loan obligations, loans, notes and other

debt instruments.

Our 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.

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.

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,

Oberbeck, Michael J.

1 unchanged sentence

Inglesby, and Charles G.

Phillips, with 33, 31,

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

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

Phillips, with 34, 32, 35 and 25 years of experience in

leveraged finance, respectively, and the Chief Financial Officer and Chief Compliance Officer, Henri Steenkamp, who has 23 years of experience

in financial services and leveraged finance.

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.

and has been independent of Dillon Read & Co.

and its successor entity, SBC Warburg Dillon Read, since 1998.

Saratoga Partners

1 unchanged sentence

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.

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.

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.

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.

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.

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, to be

approved at an in-person meeting of the board of directors, a majority of whom must not be “interested persons”

in Section 2(a)(19) of the 1940 Act) of the Company (“independent directors”).

Our board of directors approved the renewal

of the Management Agreement for an additional one-year term at a video conference meeting held on July 6, 2021.

In reliance on certain

exemptive relief provided by the SEC in connection with the COVID-19 pandemic, our board undertook to ratify the renewal of the Management

Agreement at its next in-person meeting held on October 4, 2021, which was duly done.

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 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

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

Oberbeck, Grisius, Inglesby, and Phillips.

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.

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

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.

We refer 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”

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

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”

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 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.

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 .

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,

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.

On July 6, 2021, 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 $2.775 million

to $3.0 million effective August 1, 2021.

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.

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”

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

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.

Payments under

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

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 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.

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 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.

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.

For a discussion

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

“Risk Factors—Our 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 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, 2022, 87.3% 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”

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 “Business—Business Development Company Regulations –

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, 2022, 12.9% 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 26.3% of such investments elected to pay a portion of interest due in PIK.

In addition, 95.7% of our debt investments at February

28, 2022, had variable interest rates that reset periodically based on benchmarks such as LIBOR, BSBY, SOFR and the prime rate.

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.

For instance, as a BDC, we may not acquire any assets other than “qualifying assets”

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 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.

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, joint ventures 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.

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.

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

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 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’

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

Mezzanine debt

Mezzanine 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.

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.

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”).

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.

Equity Investments

Equity investments may consist of preferred equity

that is expected to pay dividends on a current basis in the form of cash or additional equity or preferred equity that does not pay current

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.

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 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 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.

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.

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.

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.

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

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 agreement with Saratoga CLO.

Saratoga CLO was

structured with five tranches of debt, plus residual notes.

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.

Pursuant 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.

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 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 the Company.

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.

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,

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.

owns 100% of the Class F-R-2, Class

G-R-2 and the subordinated notes of the Saratoga CLO.

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.

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.

On August 9, 2021, the Company exchanged its existing $17.9 million

Class F-R-3 Notes for $8.5 million Class F-1-R-3 Notes and $9.4 million Class F-2-R-3 Note at par.

On August 11, 2021, the Company sold

its Class F-1-R-3 Notes to third parties, resulting in a realized loss of $0.1 million.

At August 31, 2021, the outstanding receivable

of $2.6 million was repaid in full.

After the reinvestment period ends in April 2024, 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.

If Saratoga CLO is unable to refinance its indebtedness by April 2024, then Saratoga

CLO will be required to use investment repayments by portfolio companies received thereafter to repay its outstanding indebtedness.

At February 28, 2022, the aggregate fair value

of our investments in Saratoga Investment Corp.

CLO 2013-1 F-2-R-3 Notes and subordinated notes of the Saratoga CLO was $9.4 million

and $28.7 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 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

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

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

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 at an in-person meeting of the Company’s board of directors.

can be terminated by the Company’s 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.

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

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

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

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 CLO.

On August 9, 2021, the Company exchanged

its existing $17.9 million Class F-R-3 Notes for $8.5 million Class F-1-R-3 Notes and $9.4 million Class F-2-R-3 Notes at par.

11, 2021, the Company sold its Class F-1-R-3 Notes to third parties, resulting in a realized loss of $0.1 million.

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 28, 2022, the Saratoga CLO portfolio

consisted of $660.2 million in aggregate principal amount of primarily senior secured first lien term loans.

At February 28, 2022, 98.7%

of the Saratoga CLO portfolio consisted of such loans to 334 borrowers with an average exposure to each borrower of $1.9 million.

weighted average maturity of the portfolio is 4.81 years.

In addition, Saratoga CLO held $6.2 million in cash at February 28, 2022.

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 $32.3 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.

On October 26, 2021, the Company and TJHA

JV I LLC entered into the LLC Agreement to co-manage SLF JV.

SLF JV is a joint venture that is expected to invest in the debt or

equity interests of collateralized loan obligations, loans, notes and other debt instruments.

As of February 28, 2022, the Company has

membership interests with a fair value of $12.0 million and an unsecured loan with a fair value of $13.1 million in the SLF JV.

February 28, 2022, the SLF JV has an unsecured loan with a fair value of $28.7 million in a CLO warehouse.

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

● 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

Investment selection

In managing us, Saratoga Investment Advisors employs

the same investment philosophy and portfolio management methodologies used by Saratoga Partners.

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

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.

investment process emphasizes the following:

● bottom-up, company-specific research and analysis;

● capital preservation, low volatility and minimization of downside

● investing with experienced management teams that hold meaningful

equity ownership in their businesses.

Our Investment Adviser’s investment process generally includes

the following steps:

● Initial screening.

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 economics.

If the deal is determined to be

attractive by the senior members of the deal team, the opportunity is fully analyzed.

● Full analysis.

A full analysis includes:

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.

● Business 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.

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

● Company 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.

● Approval 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.

of our investment committee are Christian L.

Oberbeck, Michael J.

Grisius, Thomas V.

Inglesby, and Charles G.

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

enhancing credit quality.

Investment structure

In 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;

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

● 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 company’s ability

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 determined 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 determined 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.

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

● 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.

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.

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.

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.

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 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.

Distributions

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.

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 stock pursuant to our dividend reinvestment

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

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.

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.

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 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 tax treatment 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.

For the 2021 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.

We may elect to withhold from distribution a portion of

our ordinary income for the 2022 calendar year and/or portion of the capital gains in excess of capital losses realized during the one-year

period ending October 31, 2022, 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

We may 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,

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.

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.

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 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.

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.

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

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 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.

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.

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 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

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.

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 deemphasized

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.

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.

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.

For additional information concerning the competitive

risks we face, please see Part I.

“Risk Factors—We 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.

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 “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”

Investment Advisory and Management Agreement

Saratoga Investment Advisors serves as our investment

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

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 entities.

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 components—a

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.

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”

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 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

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

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.

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.

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 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

If such amount is negative, then there is no capital gains fee for such year.

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.

of Quarterly Incentive Fee Calculation

Under 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

Income Related Portion of Incentive Fee(1):

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%.

● 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.)

● 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

Alternative 2

Additional Assumptions

● Investment income (including interest, dividends, fees, etc.)

● 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

Incentive Fee

(100.0% ×

2 unchanged sentences

100.0%(0.3575%)

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% ×

(1) The 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.

(4) 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.)

● 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

pre-incentive fee net investment income (subject to “catch-up”)(4)

Incentive fee

100.0% ×

“catch-up”

2 unchanged sentences

2.344%–1.875%

Incentive fee

(100.0% ×

0.469%) +(20.0% ×(2.7325%–2.344%))

+(20.0% ×

0.469% + 0.0777%

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

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 B”)

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

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) less $6.0 million (capital gains incentive

fee paid in Year 2)

The 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) less $6.0 million (capital gains incentive fee paid in Year 2)

Alternative 2

Assumptions(1)

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

$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

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

FMV of Investment B determined to be $27.0 million and

Investment C sold for $30.0 million

(1) The 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.

FMV of Investment B determined to be $35.0 million

Investment B sold for $20.0 million

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.

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

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.

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;

and (v) Saratoga Investment Advisors estimated pro forma profitability with respect to managing us.

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:

exemptive relief provided by the SEC in connection with the COVID-19 pandemic, the last approval was granted on July 6, 2021 at a video

conference meeting and our board ratified the approval of the renewal of the Management Agreement at its next in-person meeting held

on October 4, 2021.

In 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;

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:

● organization;

● 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’

● 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 companies;

● 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;

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

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.

● costs of preparing and filing reports or other documents required

by governmental bodies (including the SEC and the SBA);

● 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 premiums;

● 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 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)).

Duration 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.

Indemnification

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.

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 person’s 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, as amended (the “Advisers Act”).

The principal executive offices

of Saratoga Investment Advisors are located at 535 Madison Avenue, New York, New York 10022.

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 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.

Administration Agreement

Pursuant 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

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

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.

Our 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

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.

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.

On July 6, 2021, 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 $2.775 million to $3.0 million effective August 1, 2021.

Indemnification

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.

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 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

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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.

and requires that a majority of the directors be persons who are not “interested persons,”

as that term is defined in Section

2(a)(19) of 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:

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 (including Section 3(c)(1) and Section 3(c)(7) funds for this purpose,

and mutual funds, registered closed-end funds and BDCs) 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 the investment company’s total outstanding

voting stock, 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 aggregate 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.

are required to provide and maintain a bond issued by a reputable fidelity insurance company to protect us against larceny and embezzlement.

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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.

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.

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

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

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(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:

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;

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;

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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;

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 company;

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.

(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.

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.

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

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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.

Pursuant to a separate Administration Agreement, our Saratoga Investment Advisors

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.

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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.

On April 16, 2018, as permitted by the Small Business Credit Availability Act, which was signed into law on March 23, 2018, our board

of directors, including a majority of our independent 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.”

“Risk Factors –

Effective April 16, 2019, our asset coverage requirement was reduced from 200% to 150%, which could increase

the risk of investing in the Company.”

We may also borrow amounts up to 5.0% of the value of our total assets for temporary or

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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:

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.

Our code of ethics is also

available on our corporate governance webpage at http://ir.saratogainvestmentcorp.com/corporate-governance.

voting policies and procedures

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are committed to protecting the privacy of our stockholders.

The following explains the privacy policies of Saratoga Investment

The following explains the privacy policies of Saratoga

Corp., Saratoga Investment Advisors and their affiliated companies.

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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.

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

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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.

Advisors when each party will own the same securities of the issuer and when no term is negotiated other than price.

Any such investment

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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.

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.

include businesses (together with their affiliates) that have a tangible net worth not exceeding $19.5 million and have average annual

net income after U.S federal income taxes not exceeding $6.5 million (average net income to be computed without benefit of any carryover

loss) for the two most recent fiscal years.

In addition, an SBIC must devote 25.0% of its investment activity to “smaller enterprises”

as defined by the SBA.

A smaller enterprise is a business (including its affiliates) that has a tangible net worth not exceeding $6.0

million and has average annual net income after U.S.

federal income taxes not exceeding $2.0 million (average net income to be computed

without benefit of any net carryover loss) for the two most recent fiscal years.

SBA regulations also provide alternative size standard

criteria to determine eligibility for designation as an eligible small business, which depend on the industry in which the business is

engaged and are based on such factors as the number of employees and gross revenue.

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

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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.

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

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.

received exemptive relief from the SEC to permit it to exclude the senior securities of SBIC LP and SBIC II LP from the definition of

senior securities in the asset coverage requirement under the 1940 Act.

This allows us increased flexibility under the asset coverage

requirement by permitting it to borrow up to $325.0 million more than it would otherwise be able to absent the receipt of this exemptive

two or more SBIC’s under common control, the maximum amount of outstanding SBA debentures cannot exceed $350.0 million with at

least $175.0 million in combined regulatory capital.

Our wholly-owned SBIC subsidiaries may borrow funds from the SBA against its respective

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.

SBIC I LP and SBIC II LP have $325.0 million of committed capital on an aggregate basis.

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.

of February 28, 2022, we have funded SBIC LP with an aggregate total of $75.0 million of equity capital and have $86.0 million of SBA

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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.

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.

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

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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