SARATOGA INVESTMENT CORP. - Quarter Report: 2015 May (Form 10-Q)

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Non-Accelerated Filer

Smaller Reporting Company

Form 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

x	Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the Quarterly Period Ended May 31, 2015

¨	Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Commission File Number: 001-33376

SARATOGA INVESTMENT CORP.

(Exact name of registrant as specified in its charter)


Maryland		20-8700615
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)


535 Madison Avenue New York, New York		10022
(Address of principal executive office)		(Zip Code)

(212) 906-7800

(Registrant’s telephone number, including area code)

Not applicable

(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ¨ No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (check one):

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

The number of shares of the registrant’s common stock, $0.001 par value, outstanding as of July 14, 2015 was 5,588,754.

TABLE OF CONTENTS


		Page
PART I	FINANCIAL INFORMATION		3

Item 1.	Financial Statements		3

	Consolidated Statements of Assets and Liabilities as of May 31, 2015 (unaudited) and February 28, 2015		3

	Consolidated Statements of Operations for the three months ended May 31, 2015 and May 31, 2014 (unaudited)		4

	Consolidated Schedules of Investments as of May 31, 2015 (unaudited) and February 28, 2015		5

	Consolidated Statements of Changes in Net Assets for the three months ended May 31, 2015 and May 31, 2014 (unaudited)		11

	Consolidated Statements of Cash Flows for the three months ended May 31, 2015 and May 31, 2014 (unaudited)		12

	Notes to Consolidated Financial Statements as of May 31, 2015 (unaudited)		13

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		35

Item 3.	Quantitative and Qualitative Disclosures About Market Risk		55

Item 4.	Controls and Procedures		55

PART II	OTHER INFORMATION		56

Item 1.	Legal Proceedings		56

Item 1A.	Risk Factors		56

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		56

Item 3.	Defaults upon Senior Securities		56

Item 4.	Mine Safety Disclosures		56

Item 5.	Other Information		56

Item 6.	Exhibits		57

Signatures			58

PART I FINANCIAL INFORMATION

Item 1. Financial Statements

Saratoga Investment Corp.

Consolidated Statements of Assets and Liabilities


	As of
	May 31, 2015			February 28, 2015
	(unaudited)
ASSETS
Investments at fair value
Non-control/non-affiliate investments (amortized cost of $239,950,830 and $222,505,383, respectively)	$	245,883,731		$	223,506,589
Control investments (cost of $15,172,837 and $15,953,001, respectively)		16,860,256			17,031,146

Total investments at fair value (amortized cost of $255,123,667 and $238,458,384, respectively)		262,743,987			240,537,735
Cash and cash equivalents		699,127			1,888,158
Cash and cash equivalents, reserve accounts		5,863,893			18,175,214
Interest receivable, (net of reserve of $354,144 and $309,498, respectively)		2,793,526			2,469,398
Management fee receivable		174,527			171,913
Other assets		475,257			317,637

Total assets	$	272,750,317		$	263,560,055

LIABILITIES
Revolving credit facility	$	11,800,000		$	9,600,000
Deferred debt financing costs, revolving credit facility		(575,002	)		(594,845	)
SBA debentures payable		79,000,000			79,000,000
Deferred debt financing costs, SBA debentures payable		(2,231,653	)		(2,340,894	)
Notes payable		48,300,000			48,300,000
Deferred debt financing costs, notes payable		(1,758,989	)		(1,847,564	)
Dividend payable		5,995,489			402,200
Base management and incentive fees payable		6,765,317			5,835,941
Accounts payable and accrued expenses		675,383			835,189
Interest and debt fees payable		912,628			1,405,466
Due to manager		375,820			365,820

Total liabilities	$	149,258,993		$	140,961,313

Commitments and contingencies (See Note 7)

NET ASSETS
Common stock, par value $.001, 100,000,000 common shares authorized, 5,428,758 and 5,401,899 common shares issued and outstanding, respectively	$	5,429		$	5,402
Capital in excess of par value		185,279,853			184,877,680
Distribution in excess of net investment income		(29,029,436	)		(23,905,603	)
Accumulated net realized loss from investments and derivatives		(40,384,842	)		(40,458,088	)
Accumulated net unrealized appreciation on investments and derivatives		7,620,320			2,079,351

Total net assets		123,491,324			122,598,742

Total liabilities and net assets	$	272,750,317		$	263,560,055

NET ASSET VALUE PER SHARE	$	22.75		$	22.70

See accompanying notes to consolidated financial statements.

Saratoga Investment Corp.

Consolidated Statements of Operations

(unaudited)


	For the three months ended May 31, 2015		For the three months ended May 31, 2014
INVESTMENT INCOME
Interest from investments
Non-control/Non-affiliate investments	$	5,648,979	$	4,707,894
Payment-in-kind interest income from Non-control/Non-affiliate investments		691,152		252,928
Control investments		590,990		641,338

Total interest income		6,931,121		5,602,160
Interest from cash and cash equivalents		736		594
Management fee income		378,746		392,034
Other income		250,564		149,335

Total investment income		7,561,167		6,144,123

EXPENSES
Interest and debt financing expenses		1,963,865		1,787,587
Base management fees		1,124,098		968,479
Professional fees		333,444		435,374
Administrator expenses		250,000		250,000
Incentive management fees		1,797,833		378,489
Insurance		87,317		84,487
Directors fees and expenses		51,000		53,175
General & administrative		182,920		123,626

Total expenses		5,790,477		4,081,217

NET INVESTMENT INCOME		1,770,690		2,062,906

REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain from investments		73,246		81,680
Net unrealized appreciation/(depreciation) on investments		5,540,969		(384,697	)

Net gain/(loss) on investments		5,614,215		(303,017	)

NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS	$	7,384,905	$	1,759,889

WEIGHTED AVERAGE - BASIC AND DILUTED EARNINGS PER COMMON SHARE	$	1.36	$	0.33

WEIGHTED AVERAGE COMMON STOCK OUTSTANDING - BASIC AND DILUTED		5,422,491		5,379,616

See accompanying notes to consolidated financial statements.

Saratoga Investment Corp.

Consolidated Schedule of Investments

May 31, 2015

(unaudited)


Company	Industry	Investment Interest Rate / Maturity	Principal/ Number of Shares		Cost		Fair Value (c)		% of Net Assets
Non-control/Non-affiliated investments—199.1% (b)
National Truck Protection Co., Inc. (d), (g)	Automotive Aftermarket	Common Stock		1,116	$	1,000,000	$	1,430,192		1.2	%
National Truck Protection Co., Inc. (d)	Automotive Aftermarket	First Lien Term Loan 15.50% Cash, 9/13/2018	$	7,326,770		7,326,770		7,326,770		5.9	%
Take 5 Oil Change, L.L.C. (d), (g)	Automotive Aftermarket	Common Stock		7,128		480,535		1,782,855		1.4	%

		Total Automotive Aftermarket				8,807,305		10,539,817		8.5	%

Legacy Cabinets Holdings (d), (g)	Building Products	Common Stock Voting A-1		2,535		220,900		1,701,441		1.4	%
Legacy Cabinets Holdings (d), (g)	Building Products	Common Stock Voting B-1		1,600		139,424		1,073,888		0.9	%
Polar Holding Company, Ltd. (a), (i)	Building Products	First Lien Term Loan 10.00% Cash, 8/13/2016	$	1,000,000		1,000,000		1,000,000		0.8	%

		Total Building Products				1,360,324		3,775,329		3.1	%

BMC Software, Inc. (d)	Business Services	First Lien Term Loan 5.00% Cash, 9/10/2020	$	5,716,667		5,673,479		5,610,337		4.5	%
Dispensing Dynamics International (d)	Business Services	Senior Secured Note 12.50% Cash, 1/1/2018	$	7,000,000		6,916,888		7,350,000		6.0	%
Easy Ice, LLC (d)	Business Services	First Lien Term Loan 9.50% Cash, 1/15/2020	$	12,000,000		11,876,875		12,000,000		9.6	%
Emily Street Enterprises, L.L.C.	Business Services	Senior Secured Note 10.00% Cash, 1/23/2020	$	8,400,000		8,271,383		8,400,000		6.8	%
Emily Street Enterprises, L.L.C. (g)	Business Services	Warrant Membership Interests		49,318		400,000		452,056		0.4	%
Help/Systems Holdings, Inc.(Help/Systems, LLC) (d)	Business Services	First Lien Term Loan 5.50% Cash, 6/28/2019	$	1,950,101		1,937,220		1,940,351		1.6	%
Help/Systems Holdings, Inc.(Help/Systems, LLC) (d)	Business Services	Second Lien Term Loan 9.50% Cash, 6/28/2020	$	2,000,000		1,976,757		1,965,000		1.6	%
Knowland Technology Holdings, L.L.C.	Business Services	First Lien Term Loan 11.00% Cash, 11/29/2017	$	5,259,171		5,209,053		5,259,171		4.3	%
Knowland Technology Holdings, L.L.C. (j), (k), (l)	Business Services	Delayed Draw Term Loan 11.00% Cash, 11/29/2017	$	—		—		—		0.0	%
Vector Controls Holding Co., LLC (d)	Business Services	First Lien Term Loan, 14.00% (12.00% Cash/2.00% PIK), 3/6/2018	$	9,482,677		9,366,186		9,482,677		7.7	%
Vector Controls Holding Co., LLC (d), (g)	Business Services	Warrants to Purchase Limited Liability Company Interests		101		—		34,939		0.0	%

		Total Business Services				51,627,841		52,494,531		42.5	%

Targus Group International, Inc. (d)	Consumer Products	First Lien Term Loan, 14.75% (13.75% Cash/1.00% PIK), 5/24/2016	$	3,577,302		3,551,526		3,035,341		2.5	%
Targus Holdings, Inc. (d), (g)	Consumer Products	Common Stock		62,413		566,765		—		0.0	%
Targus Holdings, Inc. (d), (m)	Consumer Products	Unsecured Note 10.00% PIK, 6/14/2019	$	2,054,158		2,054,158		—		0.0	%
Targus Holdings, Inc. (d), (m)	Consumer Products	Unsecured Note 16.00% PIK, 10/26/2018	$	429,797		425,459		—		0.0	%

		Total Consumer Products				6,597,908		3,035,341		2.5	%

Avionte Holdings, LLC (g)	Consumer Services	Common Stock		100,000		100,000		164,000		0.1	%
Avionte Holdings, LLC	Consumer Services	First Lien Term Loan 9.75% Cash, 1/8/2019	$	2,406,342		2,370,166		2,406,342		1.9	%
Avionte Holdings, LLC (j), (l)	Consumer Services	Delayed Draw Term Loan A 9.75% Cash, 1/8/2019	$	—		—		—		0.0	%
CFF Acquisition L.L.C. (d)	Consumer Services	First Lien Term Loan 7.50% Cash, 7/31/2015	$	582,304		581,685		582,304		0.5	%
Expedited Travel L.L.C. (g)	Consumer Services	Common Stock		1,000,000		1,000,000		1,180,000		1.0	%
Expedited Travel L.L.C.	Consumer Services	First Lien Term Loan 10.00% Cash, 10/10/2019	$	13,018,475		12,898,361		13,018,475		10.6	%
PrePaid Legal Services, Inc. (d)	Consumer Services	First Lien Term Loan 6.50% Cash, 7/1/2019	$	1,629,032		1,617,017		1,625,448		1.3	%
PrePaid Legal Services, Inc. (d)	Consumer Services	Second Lien Term Loan 9.75% Cash, 7/1/2020	$	10,000,000		9,958,335		10,000,000		8.1	%

		Total Consumer Services				28,525,564		28,976,569		23.5	%

M/C Acquisition Corp., L.L.C. (d), (g)	Education	Class A Common Stock		544,761		30,241		—		0.0	%
M/C Acquisition Corp., L.L.C. (d)	Education	First Lien Term Loan 1.00% Cash, 3/31/2016	$	2,362,978		1,235,695		102,983		0.1	%

		Total Education				1,265,936		102,983		0.1	%


Group Dekko, Inc. (d)	Electronics	Second Lien Term Loan 11.00% (10.00% Cash/1.00% PIK), 5/1/2016	$	6,880,696	6,880,696	6,575,881	5.3	%

		Total Electronics			6,880,696	6,575,881	5.3	%

TB Corp. (d)	Food and Beverage	First Lien Term Loan 5.50% Cash, 6/19/2018	$	4,992,403	4,981,077	4,973,931	4.0	%
TB Corp. (d)	Food and Beverage	Unsecured Note 13.50% (12.00% Cash/1.50% PIK), 12/20/2018	$	2,546,121	2,513,305	2,546,121	2.1	%
TM Restaurant Group L.L.C.	Food and Beverage	First Lien Term Loan 9.75% Cash, 7/16/2017	$	9,783,298	9,649,729	9,764,709	7.9	%

		Total Food and Beverage			17,144,111	17,284,761	14.0	%

Bristol Hospice, LLC	Healthcare Services	Senior Secured Note 11.00% (10.00% Cash/1.00% PIK), 11/29/2018	$	5,445,486	5,365,513	5,445,486	4.5	%
Bristol Hospice, LLC (j), (l)	Healthcare Services	Delayed Draw Term Loan 11.00% (10.00% Cash/1.00% PIK), 11/29/2018	$	—	—	—	0.0	%
Roscoe Medical, Inc. (d), (g)	Healthcare Services	Common Stock		5,000	500,000	328,400	0.3	%
Roscoe Medical, Inc.	Healthcare Services	Second Lien Term Loan 11.25% Cash, 9/26/2019	$	4,200,000	4,132,667	4,009,740	3.2	%
Smile Brands Group Inc. (d)	Healthcare Services	First Lien Term Loan 7.50% Cash, 8/16/2019	$	4,432,500	4,365,682	3,745,463	3.0	%
Surgical Specialties Corporation (US), Inc. (d)	Healthcare Services	First Lien Term Loan 7.25% Cash, 8/22/2018	$	2,263,197	2,247,736	2,240,565	1.8	%
Zest Holdings, LLC (d)	Healthcare Services	First Lien Term Loan 5.25% Cash, 8/16/2020	$	4,241,318	4,166,205	4,257,435	3.4	%

		Total Healthcare Services			20,777,803	20,027,089	16.2	%

HMN Holdco, LLC	Media	First Lien Term Loan 12.00% Cash, 5/16/2019	$	9,294,607	9,141,763	9,410,790	7.7	%
HMN Holdco, LLC (j), (k)	Media	Deferred Draw Term Loan 12.00% Cash, 5/16/2020	$	1,600,000	1,569,588	1,620,000	1.3	%
HMN Holdco, LLC (g)	Media	Class A Series		4,264	61,647	247,525	0.2	%
HMN Holdco, LLC (g)	Media	Class A Warrant		30,320	438,353	1,415,034	1.1	%
HMN Holdco, LLC (g)	Media	Warrants to Purchase Limited Liability Company Interests (Common)		57,872	—	2,404,582	1.9	%
HMN Holdco, LLC (g)	Media	Warrants to Purchase Limited Liability Company Interests		8,139	—	395,637	0.3	%

		Total Media			11,211,351	15,493,568	12.5	%

Elyria Foundry Company, L.L.C. (d), (g)	Metals	Common Stock		35,000	9,217,563	6,762,000	5.5	%
Elyria Foundry Company, L.L.C. (d)	Metals	Revolver 9.50% Cash, 12/31/2020	$	8,500,000	8,500,000	8,500,000	6.9	%

		Total Metals			17,717,563	15,262,000	12.4	%

Network Communications, Inc. (d), (g)	Publishing	Common Stock		380,572	—	3,206,314	2.6	%
Network Communications, Inc. (d)	Publishing	Unsecured Notes 8.60% PIK, 1/14/2020	$	3,214,368	2,867,573	3,214,368	2.6	%

		Total Publishing			2,867,573	6,420,682	5.2	%

Censis Technologies, Inc.	Software as a Service	First Lien Term Loan B 11.00% Cash, 7/24/2019	$	11,775,000	11,570,813	11,775,000	9.5	%
Censis Technologies, Inc. (g), (h)	Software as a Service	Limited Partner Interests		999	999,000	988,011	0.8	%
Community Investors, Inc. (g)	Software as a Service	Common Stock		1,282	1,282	2,546	0.0	%
Community Investors, Inc.	Software as a Service	First Lien, Last Out Term Loan 11.73% Cash, 9/30/2019	$	12,000,000	12,000,000	12,000,000	9.7	%
Community Investors, Inc.	Software as a Service	First Lien Term Loan B 12.20% Cash, 12/31/2020	$	2,500,000	2,500,000	2,500,000	2.0	%
Community Investors, Inc. (g)	Software as a Service	Preferred Stock		63,463	149,138	126,056	0.1	%
Community Investors, Inc. (g)	Software as a Service	Preferred Stock - A Shares		135,584	135,584	269,309	0.2	%
Community Investors, Inc.	Software as a Service	Unsecured Note 10.00% PIK, 3/20/2020	$	100,853	100,853	100,853	0.1	%
Finalsite Holdings, Inc.	Software as a Service	Second Lien Term Loan 10.25% Cash, 11/21/2019	$	7,500,000	7,435,282	7,500,000	6.1	%
Identity Automation Systems (g)	Software as a Service	Common Stock Class A Units		232,616	232,616	227,964	0.2	%
Identity Automation Systems	Software as a Service	First Lien Term Loan 10.25% Cash, 8/25/2019	$	4,450,000	4,410,898	4,450,000	3.6	%
Mercury Network, LLC	Software as a Service	First Lien Term Loan
		10.25% Cash, 4/20/2020	$	9,086,957	8,998,663	9,086,957	7.4	%
Mercury Network, LLC (g)	Software as a Service	Common Stock		413,043	413,043	413,043	0.3	%
Pen-Link, Ltd. (d)	Software as a Service	Second Lien Term Loan 12.50% Cash, 5/26/2019	$	10,500,000	10,334,109	10,500,000	8.5	%

		Total Software as a Service			59,281,281	59,939,739	48.5	%


Advanced Air & Heat of Florida, LLC	Utilities	First Lien Term Loan 10.00% Cash, 1/31/2019	$	5,955,441		5,885,574		5,955,441	4.8	%

		Total Utilities				5,885,574		5,955,441	4.8	%

Sub Total Non-control/Non-affiliated investments						239,950,830		245,883,731	199.1	%

Control investments - 13.7% (b)
Saratoga Investment Corp. CLO 2013-1, Ltd. (a), (d), (e), (f)	Structured Finance Securities	Other/Structured Finance Securities 16.21%, 10/17/2023	$	30,000,000		15,172,837		16,860,256	13.7	%

Sub Total Control investments						15,172,837		16,860,256	13.7	%

TOTAL INVESTMENTS - 212.8% (b)					$	255,123,667	$	262,743,987	212.8	%

(a)	Represents a non-qualifying investment as defined under Section 55 (a) of the Investment Company Act of 1940, as amended. Non-qualifying assets represent 6.8% of the Company’s portfolio at fair value. As a BDC, the Company can only invest 30% of its portfolio in non-qualifying assets.

(b)	Percentages are based on net assets of $123,491,324 as of May 31, 2015.

(c)	Because there is no readily available market value for these investments, the fair value of these investments is approved in good faith by our board of directors (see Note 3 to the consolidated financial statements).

(d)	These securities are pledged as collateral under a senior secured revolving credit facility (see Note 6 to the consolidated financial statements).

(e)	This investment does not have a stated interest rate that is payable thereon. As a result, the 16.21% interest rate in the table above represents the interest rate currently earned on the investment cost and is based on the current cash interest and other income generated by the investment.

(f)	As defined in the Investment Company Act, we “Control” this portfolio company because we own more than 25% of the portfolio company’s outstanding voting securities. Transactions during the period in which the issuer was both an Affiliate and a portfolio company that we Control are as follows:


Company	Purchases		Redemptions		Sales (cost)		Interest Income		Management fee income		Net Realized gains/(losses)		Net Unrealized gains
Saratoga Investment Corp. CLO 2013-1, Ltd.	$	—	$	—	$	—	$	590,990	$	378,746	$	—	$	1,687,419

(g)	Non-income producing at May 31, 2015.

(h)	Includes securities issued by an affiliate of the company.

(i)	Non-U.S. company. The principal place of business for Polar Holding Company, Ltd. is Canada.

(j)	The investment has an unfunded commitment as of May 31, 2015 (See note 7).

(k)	Includes an analysis of the fair value of any unfunded loan commitments.

(l)	The entire commitment was unfunded at May 31, 2015. As such, no interest is being earned on this investment.

(m)	The investment was on non-accrual status as of May 31, 2015.

Saratoga Investment Corp.

Consolidated Schedule of Investments

February 28, 2015


Company	Industry	Investment Interest Rate / Maturity	Principal/ Number of Shares		Cost		Fair Value (c)		% of Net Assets
Non-control/Non-affiliated investments - 182.3% (b)
National Truck Protection Co., Inc. (d), (g)	Automotive Aftermarket	Common Stock		1,116	$	1,000,000	$	1,769,432		1.4	%
National Truck Protection Co., Inc. (d)	Automotive Aftermarket	First Lien Term Loan 15.50% Cash, 9/13/2018	$	7,737,848		7,737,848		7,737,848		6.3	%
Take 5 Oil Change, L.L.C. (d), (g)	Automotive Aftermarket	Common Stock		7,128		480,535		1,472,502		1.2	%

		Total Automotive Aftermarket				9,218,383		10,979,782		8.9	%

Legacy Cabinets Holdings (d), (g)	Building Products	Common Stock Voting A-1		2,535		220,900		1,493,470		1.2	%
Legacy Cabinets Holdings (d), (g)	Building Products	Common Stock Voting B-1		1,600		139,424		942,624		0.8	%
Polar Holding Company, Ltd. (a), (i)	Building Products	First Lien Term Loan 10.00% Cash, 8/13/2016	$	1,000,000		1,000,000		1,000,000		0.8	%

		Total Building Products				1,360,324		3,436,094		2.8	%

BMC Software, Inc. (d)	Business Services	First Lien Term Loan 5.00% Cash, 9/10/2020	$	5,731,667		5,686,622		5,478,327		4.5	%
Dispensing Dynamics International (d)	Business Services	Senior Secured Note 12.50% Cash, 1/1/2018	$	7,000,000		6,910,112		7,350,000		6.0	%
Easy Ice, LLC (d)	Business Services	First Lien Term Loan 9.50% Cash, 1/15/2020	$	12,000,000		11,872,639		12,000,000		9.6	%
Emily Street Enterprises, L.L.C.	Business Services	Senior Secured Note 10.00% Cash, 1/23/2020	$	8,400,000		8,260,787		8,400,000		6.9	%
Emily Street Enterprises, L.L.C. (g)	Business Services	Warrant Membership Interests		49,318		400,000		391,584		0.3	%
Help/Systems Holdings, Inc.(Help/Systems, LLC) (d)	Business Services	First Lien Term Loan 5.50% Cash, 6/28/2019	$	1,955,051		1,941,417		1,925,725		1.6	%
Help/Systems Holdings, Inc.(Help/Systems, LLC) (d)	Business Services	Second Lien Term Loan 9.50% Cash, 6/28/2020	$	2,000,000		1,975,767		1,965,000		1.6	%
Knowland Technology Holdings, L.L.C.	Business Services	First Lien Term Loan 11.00% Cash, 11/29/2017	$	5,259,171		5,205,142		5,259,171		4.3	%
Knowland Technology Holdings, L.L.C. (j), (k), (l)	Business Services	Delayed Draw Term Loan 11.00% Cash, 11/29/2017	$	—		—		—		0.0	%
Vector Controls Holding Co., LLC (d)	Business Services	First Lien Term Loan, 14.00% (12.00% Cash/2.00% PIK), 3/6/2018	$	9,436,991		9,312,095		9,295,437		7.6	%
Vector Controls Holding Co., LLC (d), (g)	Business Services	Warrants to Purchase Limited Liability Company Interests		101		—		62,341		0.1	%

		Total Business Services				51,564,581		52,127,585		42.5	%

Targus Group International, Inc. (d)	Consumer Products	First Lien Term Loan, 12.00% (11.00% Cash/1.00% PIK), 5/24/2016	$	3,569,127		3,537,732		3,283,597		2.7	%
Targus Holdings, Inc. (d), (g)	Consumer Products	Common Stock		62,413		566,765		—		0.0	%
Targus Holdings, Inc. (d), (g)	Consumer Products	Unsecured Note 10.00% PIK, 6/14/2019	$	2,054,158		2,054,158		—		0.0	%
Targus Holdings, Inc. (d), (g)	Consumer Products	Unsecured Note 16.00% PIK, 10/26/2018	$	429,797		425,227		—		0.0	%

		Total Consumer Products				6,583,882		3,283,597		2.7	%

Avionte Holdings, LLC (g)	Consumer Services	Common Stock		100,000		100,000		163,000		0.1	%
Avionte Holdings, LLC	Consumer Services	First Lien Term Loan 9.75% Cash, 1/8/2019	$	3,000,000		2,951,759		3,000,000		2.4	%
Avionte Holdings, LLC (j), (l)	Consumer Services	Delayed Draw Term Loan A 9.75% Cash, 1/8/2019	$	—		—		—		0.0	%
CFF Acquisition L.L.C. (d)	Consumer Services	First Lien Term Loan 7.50% Cash, 7/31/2015	$	716,179		714,270		716,179		0.6	%
Expedited Travel L.L.C. (g)	Consumer Services	Common Stock		1,000,000		1,000,000		1,069,157		0.9	%
Expedited Travel L.L.C.	Consumer Services	First Lien Term Loan 10.00% Cash, 10/10/2019	$	13,750,000		13,609,579		13,750,000		11.2	%
PrePaid Legal Services, Inc. (d)	Consumer Services	First Lien Term Loan 6.25% Cash, 7/1/2019	$	3,709,677		3,680,863		3,652,919		3.0	%
PrePaid Legal Services, Inc. (d)	Consumer Services	Second Lien Term Loan 9.75% Cash, 7/1/2020	$	5,000,000		4,937,212		4,981,000		4.1	%

		Total Consumer Services				26,993,683		27,332,255		22.3	%

M/C Acquisition Corp., L.L.C. (d), (g)	Education	Class A Common Stock		544,761		30,241		—		0.0	%
M/C Acquisition Corp., L.L.C. (d)	Education	First Lien Term Loan 1.00% Cash, 3/31/2015	$	2,362,978		1,235,695		100,951		0.1	%

		Total Education				1,265,936		100,951		0.1	%

Group Dekko, Inc. (d)	Electronics	Second Lien Term Loan 11.00% (10.00% Cash/1.00% PIK), 5/1/2016	$	6,950,048		6,950,048		6,667,181		5.4	%

		Total Electronics				6,950,048		6,667,181		5.4	%


TB Corp. (d)	Food and Beverage	First Lien Term Loan 5.76% Cash, 6/19/2018	$	5,050,436	5,038,131	5,037,810		4.0	%
TB Corp. (d)	Food and Beverage	Unsecured Note 13.50% (12.00% Cash/1.50% PIK), 12/20/2018	$	2,546,121	2,512,732	2,546,121		2.1	%
TM Restaurant Group L.L.C.	Food and Beverage	First Lien Term Loan 7.75% Cash, 7/16/2017	$	2,791,595	2,791,595	2,763,679		2.3	%

		Total Food and Beverage			10,342,458	10,347,610		8.4	%

Bristol Hospice, LLC	Healthcare Services	Senior Secured Note 11.00% (10.00% Cash/1.00% PIK), 11/29/2018	$	5,459,134	5,374,249	5,459,134		4.4	%
Bristol Hospice, LLC (j), (l)	Healthcare Services	Delayed Draw Term Loan 11.00% (10.00% Cash/1.00% PIK), 11/29/2018	$	—	—	—		0.0	%
Roscoe Medical, Inc. (d), (g)	Healthcare Services	Common Stock		5,000	500,000	294,500		0.2	%
Roscoe Medical, Inc.	Healthcare Services	Second Lien Term Loan 11.25% Cash, 9/26/2019	$	4,200,000	4,129,704	3,990,000		3.3	%
Smile Brands Group Inc. (d)	Healthcare Services	First Lien Term Loan 7.50% Cash, 8/16/2019	$	4,443,750	4,373,369	4,159,350		3.4	%
Surgical Specialties Corporation (US), Inc. (d)	Healthcare Services	First Lien Term Loan 7.25% Cash, 8/22/2018	$	2,312,500	2,295,234	2,277,813		1.9	%
Zest Holdings, LLC (d)	Healthcare Services	First Lien Term Loan 5.25% Cash, 8/16/2020	$	4,443,919	4,361,438	4,460,806		3.6	%

		Total Healthcare Services			21,033,994	20,641,603		16.8	%

HMN Holdco, LLC	Media	First Lien Term Loan 14.00% (12.00% Cash/2.00% PIK), 5/16/2019	$	9,368,327	9,206,438	9,579,115		7.9	%
HMN Holdco, LLC	Media	First Lien Term Loan 12.00% Cash, 5/16/2020	$	1,600,000	1,569,149	1,576,000		1.3	%
HMN Holdco, LLC (j), (k)	Media	Deferred Draw Term Loan 12.00% Cash, 5/16/2020	$	—	—	(36,000	)	0.0	%
HMN Holdco, LLC (g)	Media	Class A Series		4,264	61,647	223,604		0.2	%
HMN Holdco, LLC (g)	Media	Class A Warrant		30,320	438,353	1,247,365		1.0	%
HMN Holdco, LLC (g)	Media	Warrants to Purchase Limited Liability Company Interests (Common)		57,872	—	2,085,128		1.7	%
HMN Holdco, LLC (g)	Media	Warrants to Purchase Limited Liability Company Interests		8,139	—	350,464		0.3	%

		Total Media			11,275,587	15,025,676		12.4	%

Elyria Foundry Company, L.L.C. (d), (g)	Metals	Common Stock		35,000	9,217,563	6,762,000		5.5	%
Elyria Foundry Company, L.L.C. (d)	Metals	Revolver 9.00% Cash, 12/31/2020	$	8,500,000	8,500,000	8,500,000		6.8	%

		Total Metals			17,717,563	15,262,000		12.3	%

Network Communications, Inc. (d), (g)	Publishing	Common Stock		380,572	—	300,652		0.2	%
Network Communications, Inc. (d)	Publishing	Unsecured Notes 8.60% PIK, 1/14/2020	$	2,732,976	2,374,260	1,684,118		1.4	%

		Total Publishing			2,374,260	1,984,770		1.6	%

Censis Technologies, Inc.	Software as a Service	First Lien Term Loan B 11.00% Cash, 7/24/2019	$	11,850,000	11,634,939	11,850,000		9.7	%
Censis Technologies, Inc. (g), (h)	Software as a Service	Limited Partner Interests		999	999,000	981,627		0.8	%
Community Investors, Inc. (g)	Software as a Service	Common Stock		1,282	1,282	1,769		0.0	%
Community Investors, Inc.	Software as a Service	First Lien, Last Out Term Loan 11.78% Cash, 9/30/2019	$	12,000,000	12,000,000	12,000,000		9.7	%
Community Investors, Inc.	Software as a Service	First Lien Term Loan B 12.25% Cash, 12/31/2020	$	2,500,000	2,500,000	2,500,000		2.0	%
Community Investors, Inc. (g)	Software as a Service	Preferred Stock		63,463	149,138	87,579		0.1	%
Community Investors, Inc.	Software as a Service	Preferred Stock - A2		38,641	100,853	53,325		0.0	%
Community Investors, Inc. (g)	Software as a Service	Preferred Stock - A Shares		135,584	135,584	187,106		0.2	%
Finalsite Holdings, Inc.	Software as a Service	Second Lien Term Loan 10.25% Cash, 11/21/2019	$	7,500,000	7,429,305	7,500,000		6.1	%
Identity Automation Systems (g)	Software as a Service	Common Stock Class A Units		232,616	232,616	225,638		0.2	%
Identity Automation Systems	Software as a Service	First Lien Term Loan 10.25% Cash, 8/25/2019	$	4,475,000	4,433,897	4,475,000		3.7	%
Pen-Link, Ltd. (d)	Software as a Service	Second Lien Term Loan 12.50% Cash, 5/26/2019	$	10,500,000	10,326,376	10,500,000		8.6	%

		Total Software as a Service			49,942,990	50,362,044		41.1	%

Advanced Air & Heat of Florida, LLC	Utilities	First Lien Term Loan 10.00% Cash, 1/31/2019	$	5,955,441	5,881,694	5,955,441		5.0	%

		Total Utilities			5,881,694	5,955,441		5.0	%

Sub Total Non-control/Non-affiliated investments					222,505,383	223,506,589		182.3	%

Control investments - 13.9% (b)


Saratoga Investment Corp. CLO 2013-1, Ltd. (a), (d), (e), (f)	Structured Finance Securities	Other/Structured Finance Securities 14.32%, 10/17/2023	$	30,000,000		15,953,001		17,031,146	13.9	%

Sub Total Control investments						15,953,001		17,031,146	13.9	%

TOTAL INVESTMENTS - 196.2% (b)					$	238,458,384	$	240,537,735	196.2	%

(a)	Represents a non-qualifyng investment as defined under Section 55 (a) of the Investment Company Act of 1940, as amended. Non-qualifying assets represent 7.5% of the Company’s portfolio at fair value. As a BDC, the Company can only invest 30% of its portfolio in non-qualifying assets.

(b)	Percentages are based on net assets of $122,598,742, as of February 28, 2015.

(c)	Because there is no readily available market value for these investments, the fair value of these investments is approved in good faith by our board of directors. (see Note 3 to the consolidated financial statements).

(d)	These securities are pledged as collateral under a senior secured revolving credit facility (see Note 6 to the consolidated financial statements).

(e)	This investment does not have a stated interest rate that is payable thereon. As a result, the 14.32% interest rate in the table above represents the interest rate currently earned on the investment cost and is based on the current cash interest and other income generated by the investment.

(f)	As defined in the Investment Company Act, we “Control” this portfolio company because we own more than 25% of the portfolio company’s outstanding voting securities. Transactions during the period in which the issuer was both an Affiliate and a portfolio company that we Control are as follows:


Company	Purchases		Redemptions		Sales (cost)		Interest Income		Management fee income		Net Realized gains/(losses)		Net Unrealized gains
Saratoga Investment Corp. CLO 2013-1, Ltd.	$	—	$	—	$	—	$	2,707,230	$	1,520,205	$	—	$	1,078,145

(g)	Non-income producing at February 28, 2015.

(h)	Includes securities issued by an affiliate of the company.

(i)	Non-U.S. company. The principal place of business for Polar Holding Company, Ltd. is Canada.

(j)	The investment has an unfunded commitment as of February 28, 2015 (See note 7).

(k)	Includes an analysis of the value of any unfunded loan commitments.

(l)	The entire commitment was unfunded at February 28, 2015. As such, no interest is being earned on this investment.

Saratoga Investment Corp.

Consolidated Statements of Changes in Net Assets

(unaudited)


	For the three months ended May 31, 2015			For the three months ended May 31, 2014
INCREASE FROM OPERATIONS:
Net investment income	$	1,770,690		$	2,062,906
Net realized gain from investments		73,246			81,680
Net unrealized appreciation (depreciation) on investments		5,540,969			(384,697	)

Net increase in net assets from operations		7,384,905			1,759,889

DECREASE FROM SHAREHOLDER DISTRIBUTIONS:
Distributions declared		(6,894,523	)		—

Net decrease in net assets from shareholder distributions		(6,894,523	)		—

CAPITAL SHARE TRANSACTIONS:
Stock dividend distribution		402,200			—

Net increase in net assets from capital share transactions		402,200			—

Total increase in net assets		892,582			1,759,889
Net assets at beginning of period		122,598,742			113,427,929

Net assets at end of period	$	123,491,324		$	115,187,818

Net asset value per common share	$	22.75		$	21.41

Common shares outstanding at end of period		5,428,758			5,379,616

Distribution in excess of net investment income	$	(29,029,436	)	$	(29,060,761	)

See accompanying notes to consolidated financial statements.

Saratoga Investment Corp.

Consolidated Statements of Cash Flows

(unaudited)


	For the three months ended May 31, 2015			For the three months ended May 31, 2014
Operating activities
NET INCREASE IN NET ASSETS FROM OPERATIONS	$	7,384,905		$	1,759,889
ADJUSTMENTS TO RECONCILE NET INCREASE IN NET ASSETS FROM OPERATIONS TO NET CASH USED BY OPERATING ACTIVITIES:
Paid-in-kind interest income		(597,336	)		(110,592	)
Net accretion of discount on investments		(143,205	)		(177,191	)
Amortization of deferred debt financing costs		217,658			252,299
Net realized gain from investments		(73,246	)		(81,680	)
Net unrealized (appreciation) depreciation on investments		(5,540,969	)		384,697
Proceeds from sale and redemption of investments		7,323,338			8,689,899
Purchase of investments		(23,174,833	)		(21,574,435	)
(Increase) decrease in operating assets:
Cash and cash equivalents, reserve accounts		12,311,321			(6,432,500	)
Interest receivable		(324,128	)		(934,623	)
Management fee receivable		(2,614	)		(16,770	)
Other assets		(4,847	)		(6,875	)
Increase (decrease) in operating liabilities:
Management and incentive fees payable		929,376			(209,637	)
Accounts payable and accrued expenses		(159,806	)		71,538
Interest and debt fees payable		(492,838	)		(214,866	)
Due to manager		10,000			(50,000	)

NET CASH USED BY OPERATING ACTIVITIES		(2,337,224	)		(18,650,847	)

Financing activities
Borrowings on debt		3,200,000			18,700,000
Paydowns on debt		(1,000,000	)		—
Debt financing cost		(152,773	)		(368,940	)
Payments of cash dividends		(899,034	)		—

NET CASH PROVIDED BY FINANCING ACTIVITIES		1,148,193			18,331,060

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		(1,189,031	)		(319,787	)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD		1,888,158			3,293,898

CASH AND CASH EQUIVALENTS, END OF PERIOD	$	699,127		$	2,974,111

Supplemental information:
Interest paid during the period	$	2,239,045		$	1,750,155

Supplemental non-cash information:
Paid-in-kind interest income	$	597,336		$	110,592
Net accretion of discount on investments	$	143,205		$	177,191
Amortization of deferred debt financing costs	$	217,658		$	252,299
Stock dividend distribution	$	402,200		$	—

See accompanying notes to consolidated financial statements.

SARATOGA INVESTMENT CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

May 31, 2015

(unaudited)

Note 1. Organization

Saratoga Investment Corp. (the “Company”, “we”, “our” and “us”) is a non-diversified closed end management investment company incorporated in Maryland that has elected to be treated and is regulated as a business development company (“BDC”) under the Investment Company Act of 1940 (the “1940 Act”). We commenced operations on March 23, 2007 as GSC Investment Corp. and completed our initial public offering (“IPO”) on March 28, 2007. We have elected to be treated as a regulated investment company (“RIC”) under subchapter M of the Internal Revenue Code (the “Code”). We expect to continue to qualify and to elect to be treated for tax purposes as a RIC. Our investment objective is to generate current income and, to a lesser extent, capital appreciation from our investments.

GSC Investment, LLC (the “LLC”) was organized in May 2006 as a Maryland limited liability company. As of February 28, 2007, the LLC had not yet commenced its operations and investment activities.

On March 21, 2007, the Company was incorporated and concurrently therewith the LLC was merged with and into the Company, with the Company as the surviving entity, in accordance with the procedure for such merger in the LLC’s limited liability company agreement and Maryland law. In connection with such merger, each outstanding limited liability company interest of the LLC was converted into a share of common stock of the Company.

On July 30, 2010, the Company changed its name from “GSC Investment Corp.” to “Saratoga Investment Corp.”.

We are externally managed and advised by our investment adviser, Saratoga Investment Advisors, LLC (the “Manager”), pursuant to the Management Agreement. Prior to July 30, 2010, we were managed and advised by GSCP (NJ), L.P.

On March 28, 2012, our wholly-owned subsidiary, Saratoga Investment Corp. SBIC, LP (“SBIC LP”), received a Small Business Investment Company (“SBIC”) license from the Small Business Administration (“SBA”).

On April 2, 2015, the SBA issued a “green light” or “go forth” letter inviting us to continue our application process to obtain a license to form and operate its second SBIC subsidiary. If approved, a second SBIC license would provide us an incremental source of long-term capital by permitting us to issue $75 million of additional SBA-guaranteed debentures in addition to the $150 million already approved under the first license. Receipt of a green light letter from the SBA does not assure an applicant that the SBA will ultimately issue an SBIC license and we have received no assurance or indication from the SBA that it will receive an SBIC license, or of the timeframe in which it would receive a license, should one be granted.

Note 2. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying consolidated financial statements have been prepared on the accrual basis of accounting in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”) and include the accounts of the Company and its special purpose financing subsidiary, Saratoga Investment Funding, LLC (previously known as GSC Investment Funding LLC). All intercompany accounts and transactions have been eliminated in consolidation. All references made to the “Company,” “we,” and “us” herein include Saratoga Investment Corp. and its consolidated subsidiary, except as stated otherwise.

The Company and SBIC are both considered to be investment companies for financial reporting purposes and have applied the guidance in Topic 946, “Financial Services — Investment Companies”. There have been no changes to the Company or SBIC’s status as investment companies during the three months ended May 31, 2015.

Use of Estimates in the Preparation of Financial Statements

The preparation of the accompanying consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the financial statements, and income, gains (losses) and expenses during the period reported. Actual results could differ materially from those estimates.

Cash and Cash Equivalents

Cash and cash equivalents include short-term, liquid investments in a money market fund. Cash and cash equivalents are carried at cost which approximates fair value. Per section 12(d)(1)(A) of the 1940 Act, the Company may not invest in another registered investment company such as a money market fund, if such investment would cause the Company to exceed any of the following limitations:

•

we were to own more than 3.0% of the total outstanding voting stock of the money market fund;

•

we were to hold securities in the money market fund having an aggregate value in excess of 5.0% of the value of our total assets; or

•

we were to hold securities in money market funds and other registered investment companies and BDCs having an aggregate value in excess of 10.0% of the value of our total assets.

Cash and Cash Equivalents, Reserve Accounts

Cash and cash equivalents, reserve accounts include amounts held in designated bank accounts in the form of cash and short-term liquid investments in money market funds representing payments received on secured investments or other reserved amounts associated with our $45.0 million senior secured revolving credit facility with Madison Capital Funding LLC. The Company is required to use these amounts to pay interest expense, reduce borrowings, or pay other amounts in accordance with the terms of the senior secured revolving credit facility.

Investment Classification

The Company classifies its investments in accordance with the requirements of the 1940 Act. Under the 1940 Act, “Control Investments” are defined as investments in companies in which we own more than 25.0% of the voting securities or maintain greater than 50.0% of the board representation. Under the 1940 Act, “Affiliated Investments” are defined as those non-control investments in companies in which we own between 5.0% and 25.0% of the voting securities. Under the 1940 Act, “Non-affiliated Investments” are defined as investments that are neither Control Investments nor Affiliated Investments.

Investment Valuation

The Company accounts for its 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”). ASC 820 defines fair value, establishes a framework for measuring fair value, establishes a fair value hierarchy based on the quality of inputs used to measure fair value and enhances disclosure requirements for fair value measurements. ASC 820 requires the Company to assume that its investments are to be sold at the statement of assets and liabilities date in the principal market to independent market participants, or in the absence of a principal market, in the most advantageous market, which may be a hypothetical market. Market participants are defined as buyers and sellers in the principal or most advantageous market that are independent, knowledgeable, and willing and able to transact.

Investments for which market quotations are readily available are fair valued at such market quotations obtained from independent third party pricing services and market makers 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 our Manager, the audit committee of our board of directors and a third party independent valuation firm. Determinations of fair value may involve subjective judgments and estimates. The types of factors that may be considered in determining the fair value of our investments include the nature and realizable value of any collateral, the portfolio company’s ability to make payments, market yield trend analysis, the markets in which the portfolio company does business, comparison to publicly traded companies, discounted cash flow 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 our Manager and preliminary valuation conclusions are documented and discussed with the senior management of our Manager; and

•

An independent valuation firm engaged by our board of directors reviews approximately one quarter 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 annually.

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

•

The audit committee of our board of directors reviews each preliminary valuation and our Manager and independent valuation firm (if applicable) will supplement the preliminary valuation to reflect any comments provided by the audit committee; and

•

Our board of directors discusses the valuations and approves the fair value of each investment, in good faith, based on the input of our Manager, independent valuation firm (to the extent applicable) and the audit committee of our board of directors.

Our investment in Saratoga Investment Corp. CLO 2013-1, Ltd. (“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 our Manager 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 flows 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.

Derivative Financial Instruments

We account for derivative financial instruments in accordance with ASC Topic 815, Derivatives and Hedging (“ASC 815”). ASC 815 requires recognizing all derivative instruments as either assets or liabilities on the consolidated statements of assets and liabilities at fair value. The Company values derivative contracts at the closing fair value provided by the counterparty. Changes in the values of derivative contracts are included in the consolidated statements of operations.

Investment Transactions and Income Recognition

Purchases and sales of investments and the related realized gains or losses are recorded on a trade-date basis. Interest income, adjusted for amortization of premium and accretion of discount, is recorded on an accrual basis to the extent that such amounts are expected to be collected. The Company stops accruing interest on its investments when it is determined that interest is no longer collectible. Discounts and premiums on investments purchased are accreted/amortized over the life of the respective investment using the effective yield method. The amortized cost of investments represents the original cost adjusted for the accretion of discounts and amortizations of premium on investments.

Loans are generally placed on non-accrual status when there is reasonable doubt that principal or interest will be collected. Accrued interest is generally reserved when a loan is placed on non-accrual status. Interest payments received on non-accrual loans may be recognized as a reduction in principal depending upon management’s judgment regarding collectability. Non-accrual loans are restored to accrual status when past due principal and interest is paid and, in management’s judgment, are likely to remain current, although we may make exceptions to this general rule if the loan has sufficient collateral value and is in the process of collection.

in actual or estimated cash flows due to changes in prepayments and/or re-investments, credit losses or asset pricing. Changes in estimated yield are recognized as an adjustment to the estimated yield over the remaining life of the investment from the date the estimated yield was changed.

Other Income

Other income includes dividends received, origination fees, structuring fees and advisory fees, and is recorded in income when earned.

Paid-in-Kind Interest

The Company holds debt investments in its portfolio that contain a payment-in-kind (“PIK”) interest provision. The PIK interest, which represents contractually deferred interest added to the investment balance that is generally due at maturity, is generally recorded on the accrual basis to the extent such amounts are expected to be collected. We stop accruing PIK interest if we do not expect the issuer to be able to pay all principal and interest when due.

Deferred Debt Financing Costs

Financing costs incurred in connection with our credit facility are deferred and amortized using the straight line method over the life of their respective facilities. Financing costs incurred in connection with our SBA debentures are deferred and amortized using the effective yield method over the life of the debentures.

In April 2015, the FASB issued Accounting Standards Update (“ASU”) No. 2015-03, Interest—Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs (“ASU 2015-03”). The amendments in this ASU require that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are not affected by the amendments in this ASU. The guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015, and early adoption is allowed, and is to be applied on a retrospective basis. The Company has adopted the provisions of ASU 2015-03 as of February 28, 2015, by reclassifying deferred debt financing costs from within total assets to within total liabilities as a contra-liability. The adoption of the provisions of ASU 2015-03 did not materially impact the Company’s consolidated financial position or results of operations. Prior period amounts were reclassified to conform to the current period presentation.

Contingencies

In the ordinary course of its business, the Company may enter into contracts or agreements that contain indemnifications or warranties. Future events could occur that lead to the execution of these provisions against the Company. Based on its history and experience, management feels that the likelihood of such an event is remote.

In the ordinary course of business, the Company may directly or indirectly be a defendant or plaintiff in legal actions with respect to bankruptcy, insolvency or other types of proceedings. Such lawsuits may involve claims that could adversely affect the value of certain financial instruments owned by the Company.

Income Taxes

The Company has filed an election to be treated for tax purposes as a RIC under Subchapter M of the Code and, among other things, intends to make the requisite distributions to its stockholders which will relieve the Company from federal income taxes. Therefore, no provision has been recorded for federal income taxes.

In order to qualify as a RIC, among other requirements, the Company is required to timely distribute to its stockholders at least 90.0% of its investment company taxable income, as defined by the Code, for each fiscal tax year. The Company will be subject to a nondeductible U.S. federal excise tax of 4.0% on undistributed income if it does not distribute at least 98.0% of its ordinary income in any calendar year and 98.2% of its capital gain net income for each one-year period ending on October 31.

Depending on the level of taxable income earned in a tax year, the Company may choose to carry forward taxable income in excess of current year dividend distributions into the next tax year and pay a 4.0% excise tax on such income, as required. To the extent that the Company determines that its estimated current year annual taxable income will be in excess of estimated current year dividend distributions for excise tax purposes, the Company accrues excise tax, if any, on estimated excess taxable income as taxable income is earned.

In accordance with certain applicable Treasury regulations and private letter rulings issued by the Internal Revenue Service, 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 on the aggregate amount of cash to be distributed to all stockholders, which limitation must be at least 20.0% of the aggregate declared distribution. If too many stockholders elect to receive cash, each stockholder electing to receive cash will receive a pro rata amount of cash (with the balance of the distribution paid in stock). In no event will any stockholder, electing to receive cash, receive less than 20.0% of his or her entire distribution in cash. If these and certain other requirements are met, for U.S federal income tax purposes, the amount of the dividend paid in stock will be equal to the amount of cash that could have been received instead of stock.

ASC 740, Income Taxes, (“ASC 740”), provides guidance for how uncertain tax positions should be recognized, measured, presented and disclosed in the financial statements. ASC 740 requires the evaluation of tax positions taken or expected to be taken in the course of preparing the Company’s tax returns to determine whether the tax positions are “more-likely-than-not” of being sustained by the applicable tax authority. Tax positions deemed to meet a “more-likely-than-not” threshold would be recorded as a tax benefit or expense in the current period. The Company recognizes interest and penalties, if any, related to unrecognized tax benefits as income tax expense in the consolidated statements of operations. During the fiscal year ended February 28, 2015, the Company did not incur any interest or penalties. Although we file federal and state tax returns, our major tax jurisdiction is federal. The 2012, 2013 and 2014 federal tax years for the Company remain subject to examination by the IRS. As of May 31, 2015 and May 31, 2014, there were no uncertain tax positions.

Dividends

Dividends to common stockholders are recorded on the ex-dividend date. The amount to be paid out as a dividend is determined by the board of directors. Net realized capital gains, if any, are generally distributed at least annually, although we may decide to retain such capital gains for reinvestment.

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.

Capital Gains Incentive Fee

The Company records an expense accrual on the consolidated statements of operations, relating to the capital gains incentive fee payable on the consolidated statements of assets and liabilities, by the Company to its investment adviser when the net realized and unrealized gain on its investments exceed all net realized and unrealized capital losses on its investments given the fact that a capital gains incentive fee would be owed to the investment adviser if the Company were to liquidate its investment portfolio at such time. The actual incentive fee payable to the Company’s investment adviser related to capital gains will be determined and payable in arrears at the end of each fiscal year and will include only realized capital gains net of realized and unrealized losses for the period.

New Accounting Pronouncements

In February 2015, the FASB issued ASU 2015-02, Consolidation (ASC Topic 810): Amendments to the Consolidation Analysis (“ASU 2015-02”). ASU 2015-02 significantly changes the consolidation analysis required under GAAP and ends the deferral granted to investment companies from applying the variable interest entity guidance. ASU 2015-02 is effective for interim and annual reporting periods in fiscal years that begin after December 15, 2015 and early adoption is permitted. Management is currently evaluating the impact these changes will have on the Company’s consolidated financial statements and disclosures.

In August 2014, the FASB issued new accounting guidance that requires management to assess an entity’s ability to continue as a going concern by incorporating and expanding upon certain principles that are currently in U.S. auditing standards. The amendments provide a definition of the term “substantial doubt” and include principles for considering the mitigating effect of management’s plans. The amendments also require an evaluation every reporting period, including interim periods for a period of one year after the date that the financial statements are issued (or available to be issued), and certain disclosures when substantial doubt is alleviated or not alleviated. The amendments in this update are effective for reporting periods ending after December 15, 2016. Management is currently evaluating the impact of adopting this new accounting guidance update on the company’s consolidated financial statement.

(Topic 605). Under the new guidance, an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This guidance is effective for annual and interim reporting periods beginning after December 15, 2016, and early application is not permitted. The Company is currently evaluating the impact this ASU will have on its consolidated financial statements.

Risk Management

In the ordinary course of its business, the Company manages a variety of risks, including market risk and credit risk. Market risk is the risk of potential adverse changes to the value of investments because of changes in market conditions such as interest rate movements and volatility in investment prices.

Credit risk is the risk of default or non-performance by portfolio companies, equivalent to the investment’s carrying amount.

The Company is also exposed to credit risk related to maintaining all of its cash and cash equivalents, including those in reserve accounts, at a major financial institution and credit risk related to any of its derivative counterparties.

The Company has investments in lower rated and comparable quality unrated high yield bonds and bank loans. Investments in high yield investments are accompanied by a greater degree of credit risk. The risk of loss due to default by the issuer is significantly greater for holders of high yield securities, because such investments are generally unsecured and are often subordinated to other creditors of the issuer.

Note 3. Investments

As noted above, the Company values all investments in accordance with ASC 820. ASC 820 requires enhanced disclosures about assets and liabilities that are measured and reported at fair value. As defined in ASC 820, fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

ASC 820 establishes a hierarchal disclosure framework which prioritizes and ranks the level of market price observability of inputs used in measuring investments at fair value. Market price observability is affected by a number of factors, including the type of investment and the characteristics specific to the investment. Investments with readily available active quoted prices or for which fair value can be measured from actively quoted prices generally will have a higher degree of market price observability and a lesser degree of judgment used in measuring fair value.

Based on the observability of the inputs used in the valuation techniques, the Company is required to provide disclosures on fair value measurements according to the fair value hierarchy. The fair value hierarchy ranks the observability of the inputs used to determine fair values. Investments carried at fair value are classified and disclosed in one of the following three categories:

•

Level 1—Valuations based on quoted prices in active markets for identical assets or liabilities that the Company has the ability to access.

•

Level 2—Valuations based on inputs other than quoted prices in active markets, which are either directly or indirectly observable.

•

Level 3—Valuations based on inputs that are unobservable and significant to the overall fair value measurement. The inputs used in the determination of fair value may require significant management judgment or estimation. Such information may be the result of consensus pricing information or broker quotes which include a disclaimer that the broker would not be held to such a price in an actual transaction. The non-binding nature of consensus pricing and/or quotes accompanied by disclaimer would result in classification as Level 3 asset, assuming no additional corroborating evidence.

In addition to using the above inputs in investment valuations, the Company continues to employ the valuation policy approved by the board of directors that is consistent with ASC 820 and the 1940 Act (see Note 2). Consistent with our Company’s valuation policy, we evaluate the source of inputs, including any markets in which our investments are trading, in determining fair value.

The following table presents fair value measurements of investments, by major class, as of May 31, 2015 (dollars in thousands), according to the fair value hierarchy:


	Fair Value Measurements
	Level 1		Level 2		Level 3		Total
Syndicated loans	$	—	$	—	$	17,794	$	17,794
First lien term loans		—		—		157,072		157,072
Second lien term loans		—		—		40,551		40,551
Unsecured notes		—		—		5,861		5,861
Structured finance securities		—		—		16,860		16,860
Equity interest		—		—		24,606		24,606

Total	$	—	$	—	$	262,744	$	262,744

The following table presents fair value measurements of investments, by major class, as of February 28, 2015 (dollars in thousands), according to the fair value hierarchy:


	Fair Value Measurements
	Level 1		Level 2		Level 3		Total
Syndicated loans	$	—	$	—	$	18,302	$	18,302
First lien term loans		—		—		145,207		145,207
Second lien term loans		—		—		35,603		35,603
Unsecured notes		—		—		4,230		4,230
Structured finance securities		—		—		17,031		17,031
Equity interest		—		—		20,165		20,165

Total	$	—	$	—	$	240,538	$	240,538

The following table provides a reconciliation of the beginning and ending balances for investments that use Level 3 inputs for the three months ended May 31, 2015 (dollars in thousands):


	Syndicated loans			First lien term loans			Second lien term loans			Unsecured notes		Structured finance securities			Common stock/ equities			Total
Balance as of February 28, 2015	$	18,302		$	145,207		$	35,603		$	4,230	$	17,031		$	20,165		$	240,538
Net unrealized gains (losses)		(240	)		29			(22	)		1,036		609			4,129			5,541
Purchases and other adjustments to cost		11			17,941			5,056			494		—			413			23,915
Sales and redemptions		(283	)		(6,174	)		(86	)		—		(780	)		—			(7,323	)
Net realized gain from investments		4			69			—			—		—			—			73
Transfers in/out		—			—			—			101		—			(101	)		—

Balance as of May 31, 2015	$	17,794		$	157,072		$	40,551		$	5,861	$	16,860		$	24,606		$	262,744

Purchases and other adjustments to cost include purchases of new investments at cost, effects of refinancing/restructuring, accretion/amortization of income from discount/premium on debt securities, and PIK.

Sales and redemptions represent net proceeds received from investments sold, and principal paydowns received, during the period.

The net change in unrealized gain/(loss) for the three months ended May 31, 2015 on investments held as of May 31, 2015 is $5,493,439 and is included in net unrealized appreciation (depreciation) on investments in the consolidated statements of operations.

The following table provides a reconciliation of the beginning and ending balances for investments that use Level 3 inputs for the three months ended May 31, 2014 (dollars in thousands):


	Syndicated loans			First lien term loans			Second lien term loans			Unsecured notes		Structured finance securities		Common stock/ equities			Total
Balance as of February 28, 2014	$	32,390		$	110,278		$	27,804		$	5,471	$	19,570	$	10,332		$	205,845
Net unrealized gains (losses)		(181	)		(342	)		(210	)		8		549		(209	)		(385	)
Purchases and other adjustments to cost		16			9,605			11,134			76		—		1,031			21,862
Sales and redemptions		(106	)		(2,584	)		(6,000	)		—		—		—			(8,690	)
Net realized gain (loss) from investments		1			35			46			—		—		—			82

Balance as of May 31, 2014	$	32,120		$	116,992		$	32,774		$	5,555	$	20,119	$	11,154		$	218,714

Sales and redemptions represent net proceeds received from investments sold, and principal paydowns received, during the period.

The net change in unrealized gain/(loss) for the three months ended May 31, 2014 on investments held as of May 31, 2014 is ($319,092) and is included in net unrealized appreciation (depreciation) on investments in the consolidated statements of operations.

The valuation techniques and significant unobservable inputs used in recurring Level 3 fair value measurements of assets as of May 31, 2015 were as follows (dollars in thousands):


	Fair Value		Valuation Technique	Unobservable Input	Range
Syndicated loans		17,794	Market Comparables	Third-Party Bid	84.5% -100.4%
First lien term loans		157,072	Market Comparables	Market Yield (%)	6.2% – 15.5%
				EBITDA Multiples (x)	0.1x – 3.0x
				Third-Party Bid	81.5% - 105.0%
Second lien term loans		40,551	Market Comparables	Market Yield (%)	8.5% - 16.9%
				Third-Party Bid	99.5% - 100.0%
Unsecured notes		5,861	Market Comparables	Market Yield (%)	8.6% - 13.2%
Structured finance securities		16,860	Discounted Cash Flow	Discount Rate (%)	11.0%
Equity interests		24,606	Market Comparables	EBITDA Multiples (x)	5.0x – 11.0x

The valuation techniques and significant unobservable inputs used in recurring Level 3 fair value measurements of assets as of February 28, 2015 were as follows (dollars in thousands):


	Fair Value		Valuation Technique	Unobservable Input	Range
Syndicated loans		18,302	Market Comparables	Third-Party Bid	93.6% -100.4%
First lien term loans		145,207	Market Comparables	Market Yield (%)	5.8% - 17.7%
				EBITDA Multiples (x)	3.0x
				Third-Party Bid	79.3 - 105.0
Second lien term loans		35,603	Market Comparables	Market Yield (%)	8.5% - 15.0%
				Third-Party Bid	98.3% - 98.3%
Unsecured notes		4,230	Market Comparables	Market Yield (%)	13.2% - 20.3%
Structured finance securities		17,031	Discounted Cash Flow	Discount Rate (%)	12.0%
Equity interests		20,165	Market Comparables	EBITDA Multiples (x)	5.0x - 12.1x

For investments utilizing a market comparables valuation technique, a significant increase (decrease) in the market yield, in isolation, would result in a significantly lower (higher) fair value measurement, and a significant increase (decrease) in any of the EBITDA valuation multiples, in isolation, would result in a significantly higher (lower) fair value measurement. For investments utilizing a discounted cash flow valuation technique, a significant increase (decrease) in the discount rate, in isolation, would result in a significantly lower (higher) fair value measurement.

The composition of our investments as of May 31, 2015, at amortized cost and fair value were as follows (dollars in thousands):


	Investments at Amortized Cost		Amortized Cost Percentage of Total Portfolio			Investments at Fair Value		Fair Value Percentage of Total Portfolio
Syndicated loans	$	18,390		7.2	%	$	17,794		6.8	%
First lien term loans		156,795		61.4			157,072		59.8
Second lien term loans		40,718		16.0			40,551		15.4
Unsecured notes		7,962		3.1			5,861		2.2
Structured finance securities		15,173		6.0			16,860		6.4
Equity interest		16,086		6.3			24,606		9.4

Total	$	255,124		100.0	%	$	262,744		100.0	%

The composition of our investments as of February 28, 2015, at amortized cost and fair value were as follows (dollars in thousands):


	Investments at Amortized Cost		Amortized Cost Percentage of Total Portfolio			Investments at Fair Value		Fair Value Percentage of Total Portfolio
Syndicated loans	$	18,658		7.8	%	$	18,302		7.6	%
First lien term loans		144,959		60.8			145,207		60.3
Second lien term loans		35,748		15.0			35,603		14.8
Unsecured notes		7,366		3.1			4,230		1.8
Structured finance securities		15,953		6.7			17,031		7.1
Equity interest		15,774		6.6			20,165		8.4

Total	$	238,458		100.0	%	$	240,538		100.0	%

For loans and debt securities for which market quotations are not available, we determine their fair value based on third party indicative broker quotes, where available, or the assumptions that a hypothetical market participant would use to value the security in a current hypothetical sale using a market yield valuation methodology. In applying the market yield valuation methodology, we determine the fair value based on such factors as market participant assumptions including synthetic credit ratings, estimated remaining life, current market yield and interest rate spreads of similar securities as of the measurement date. If, in our judgment, the market yield methodology is not sufficient or appropriate, we may use additional methodologies such as an asset liquidation or expected recovery model.

For equity securities of portfolio companies and partnership interests, we determine the fair value based on the market approach with value then attributed to equity or equity like securities using the enterprise value waterfall valuation methodology. Under the enterprise value waterfall valuation methodology, we determine the enterprise fair value of the portfolio company and then waterfall the enterprise value over the portfolio company’s securities in order of their preference relative to one another. To estimate the enterprise value of the portfolio company, we weigh some or all of the traditional market valuation methods and factors based on the individual circumstances of the portfolio company in order to estimate the enterprise value. The methodologies for performing investments may be based on, among other things: valuations of comparable public companies, recent sales of private and public comparable companies, discounting the forecasted cash flows of the portfolio company, third party valuations of the portfolio company, considering offers from third parties to buy the company, estimating the value to potential strategic buyers and considering the value of recent investments in the equity securities of the portfolio company. For non-performing investments, we may estimate the liquidation or collateral value of the portfolio company’s assets and liabilities. We also take into account historical and anticipated financial results.

Our investment in Saratoga Investment Corp. CLO 2013-1, Ltd. (“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 our Manager 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. For the quarter ended November 30, 2013, in connection with the refinancing of the Saratoga CLO liabilities, we ran Intex models based on assumptions about the refinanced Saratoga CLO’s structure, including capital structure, cost of liabilities and reinvestment period. We use the output from the Intex models (i.e., the estimated cash flows) to perform a discounted cash flows analysis on expected future cash flows to determine a valuation for our investment in Saratoga CLO at May 31, 2015. The significant inputs for the valuation model include:

•

Default rates: 2.0%

•

Recovery rates: 35-75%

•

Prepayment rate: 25.0%

•

Reinvestment rate / price: L+375bps / $99.75

Note 4. Investment in Saratoga Investment Corp. CLO 2013-1, Ltd. (“Saratoga CLO”)

On January 22, 2008, we invested $30 million in all of the outstanding subordinated notes of GSC Investment Corp. CLO 2007, Ltd., a collateralized loan obligation fund managed by us that invests primarily in senior secured loans. Additionally, we entered into a collateral management agreement with GSC Investment Corp. CLO 2007, Ltd. pursuant to which we act as collateral manager to it. The Saratoga CLO was refinanced in October 2013 and its reinvestment period ends in October 2016. The Saratoga CLO remains 100% owned and managed by Saratoga Investment Corp. We receive a base management fee of 0.25% and a subordinated management fee of 0.25% of the Fee Basis Amount at the beginning of the Collection Period, paid quarterly to the extent of available proceeds. We are also entitled to an incentive management fee equal to 20.0% of the remaining interest proceeds and principal proceeds, if any, after the subordinated notes have realized the incentive management fee target return of 12.0%, in accordance with the Priority of Payments after making the prior distributions on the relevant payment date. For the three months ended May 31, 2015 and May 31, 2014, we accrued $0.4 million and $0.4 million in management fee income, respectively, and $0.6 million and $0.6 million in interest income, respectively, from Saratoga CLO. We did not accrue any amounts related to the incentive management fee as the 12.0% hurdle rate has not yet been achieved.

At May 31, 2015, the Company determined that the fair value of its investment in the subordinated notes of Saratoga CLO was $16.9 million. The Company determines the fair value of its investment in the subordinated notes of Saratoga CLO based on the present value of the projected future cash flows of the subordinated notes over the life of Saratoga CLO. At May 31, 2015, Saratoga CLO had investments with a principal balance of $306.6 million and a weighted average spread over LIBOR of 4.2%, and had debt with a principal balance of $282.4 million with a weighted average spread over LIBOR of 1.8%. As a result, Saratoga CLO earns a “spread” between the interest income it receives on its investments and the interest expense it pays on its debt and other operating expenses, which is distributed quarterly to the Company as the holder of its subordinated notes. At May 31, 2015, the total “spread”, or projected future cash flows of the subordinated notes, over the life of Saratoga CLO was $17.1 million, which had a present value of approximately $16.9 million, using an 11.0% discount rate.

Below is certain financial information from the separate unaudited financial statements of Saratoga CLO as of May 31, 2015 and February 28, 2015 and for the three months ended May 31, 2015 and May 31, 2014.

Saratoga Investment Corp. CLO 2013-1, Ltd.

Statements of Assets and Liabilities


	As of
	May 31, 2015			February 28, 2015
	(unaudited)
ASSETS

Investments
Fair Value Loans (amortized cost of $304,723,108, and $295,193,588, respectively)	$	304,192,066		$	294,621,817
Fair Value Other/Structured finance securities (amortized cost of $2,566,752 and $2,566,752, respectively)		490,890			617,451

Total investments at fair value (amortized cost of $307,289,860 and $297,760,340, respectively)		304,682,956			295,239,268
Cash and cash equivalents		2,565,671			5,831,797
Receivable from open trades		745,005			2,119,687
Interest receivable		1,361,040			1,290,637

Total assets	$	309,354,672		$	304,481,389

LIABILITIES

Interest payable	$	644,098		$	631,886
Payable from open trades		9,759,881			5,214,331
Accrued base management fee		87,263			85,957
Accrued subordinated management fee		87,263			85,957
Class A-1 Notes - SIC CLO 2013-1, Ltd.		170,000,000			170,000,000
Discount on Class A-1 Notes - SIC CLO 2013-1, Ltd.		(1,451,425	)		(1,495,802	)
Class A-2 Notes - SIC CLO 2013-1, Ltd.		20,000,000			20,000,000
Discount on Class A-2 Notes - SIC CLO 2013-1, Ltd.		(150,450	)		(155,050	)
Class B Notes - SIC CLO 2013-1, Ltd.		44,800,000			44,800,000
Discount on Class B Notes - SIC CLO 2013-1, Ltd.		(977,323	)		(1,007,205	)
Class C Notes - SIC CLO 2013-1, Ltd.		16,000,000			16,000,000
Discount on Class C Notes - SIC CLO 2013-1, Ltd.		(608,487	)		(627,091	)
Class D Notes - SIC CLO 2013-1, Ltd.		14,000,000			14,000,000
Discount on Class D Notes - SIC CLO 2013-1, Ltd.		(789,863	)		(814,013	)
Class E Notes - SIC CLO 2013-1, Ltd.		13,100,000			13,100,000
Discount on Class E Notes - SIC CLO 2013-1, Ltd.		(1,489,121	)		(1,534,650	)
Class F Notes - SIC CLO 2013-1, Ltd.		4,500,000			4,500,000
Discount on Class F Notes - SIC CLO 2013-1, Ltd.		(541,620	)		(558,180	)
Deferred debt financing costs, SIC CLO 2013-1, Ltd. Notes		(1,885,333	)		(1,941,595	)
Subordinated Notes		30,000,000			30,000,000

Total liabilities	$	315,084,883		$	310,284,545

Commitments and contingencies

NET ASSETS

Ordinary equity, par value $1.00, 250 ordinary shares authorized, 250 and 250 issued and outstanding, respectively	$	250		$	250
Accumulated loss		(5,803,406	)		(3,343,488	)
Net gain/(loss)		72,945			(2,459,918	)

Total net assets		(5,730,211	)		(5,803,156	)

Total liabilities and net assets	$	309,354,672		$	304,481,389

Saratoga Investment Corp. CLO 2013-1, Ltd.

Statements of Operations

(unaudited)


	For the three months ended May 31, 2015			For the three months ended May 31, 2014
INVESTMENT INCOME
Interest from investments	$	3,512,587		$	3,157,518
Interest from cash and cash equivalents		290			276
Other income		164,115			98,923

Total investment income		3,676,992			3,256,717

EXPENSES
Interest expense		2,846,636			2,126,984
Professional fees		59,222			70,218
Miscellaneous fee expense		4,925			23,133
Base management fee		189,373			196,017
Subordinated management fee		189,373			196,017
Trustee expenses		31,284			26,615
Amortization expense		239,963			239,963

Total expenses		3,560,776			2,878,947

NET INVESTMENT INCOME		116,216			377,770

REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain on investments		42,561			380,619
Net unrealized depreciation on investments		(85,832	)		(1,453,349	)

Net loss on investments		(43,271	)		(1,072,730	)

NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS	$	72,945		$	(694,960	)

Saratoga Investment Corp. CLO 2013-1 Ltd.

Schedule of Investments

May 31, 2015

(unaudited)


Issuer Name	Industry	Asset Name	Asset Type	Current Rate			Maturity Date		Principal/ Number of Shares		Cost		Fair Value
Education Management II LLC	Leisure Goods/Activities/Movies	A-1 Preferred Shares	Equity		0.00	%				6,692	$	669,214	$	301,140
Education Management II LLC	Leisure Goods/Activities/Movies	A-2 Preferred Shares	Equity		0.00	%				18,975		1,897,538		189,750
24 Hour Holdings III LLC	Leisure Goods/Activities/Movies	Term Loan	Loan		4.75	%		5/28/2021	$	496,250		491,913		476,400
Acosta Holdco Inc.	Media	Term Loan B1	Loan		4.25	%		9/27/2021	$	1,990,000		1,975,220		1,992,806
Aderant North America, Inc.	Services: Business	Term Loan (First Lien)	Loan		5.25	%		12/20/2018	$	3,260,898		3,260,898		3,260,898
Aspen Dental Management, Inc.	Healthcare & Pharmaceuticals	Term Loan Initial	Loan		5.50	%		4/27/2022	$	500,000		497,525		504,375
Advantage Sales & Marketing Inc.	Services: Business	Delayed Draw Term Loan	Loan		4.25	%		7/25/2021	$	2,490,000		2,486,539		2,485,344
AECOM Technology Corporation	Services: Business	Term Loan B	Loan		3.75	%		10/15/2021	$	319,103		317,635		320,900
Aegis Toxicology Science Corporation	Healthcare & Pharmaceuticals	Term B Loan	Loan		5.50	%		2/24/2021	$	992,500		992,500		967,687
Akorn, Inc.	Healthcare & Pharmaceuticals	Term Loan B	Loan		4.50	%		4/16/2021	$	497,500		495,530		498,276
Albertson’s LLC	Retailers (Except Food and Drugs)	Term Loan B-4	Loan		5.50	%		8/25/2021	$	3,410,000		3,390,923		3,427,971
Alere Inc. (fka IM US Holdings, LLC)	Healthcare & Pharmaceuticals	Incremental B-1 Term Loan	Loan		4.25	%		6/30/2017	$	1,524,604		1,524,604		1,526,830
Alvogen Pharma US, Inc	Healthcare & Pharmaceuticals	Term Loan	Loan		5.00	%		4/2/2022	$	500,000		497,572		502,915
American Tire Distributors Inc	Automotive	Term Loan B	Loan		4.25	%		9/1/2021	$	496,487		495,668		501,040
Aramark Corporation	Food Products	LC-2 Facility	Loan		3.74	%		7/26/2016	$	79,187		79,177		78,593
Aramark Corporation	Food Products	LC-3 Facility	Loan		3.74	%		7/26/2016	$	43,961		43,961		43,631
Aramark Corporation	Food Products	U.S. Term F Loan	Loan		3.25	%		2/24/2021	$	3,174,472		3,174,472		3,170,504
ARG IH Corp	Food Services	Term Loan	Loan		4.75	%		11/15/2020	$	483,163		482,308		484,975
American Beacon Advisors, Inc.	Financial Intermediaries	Term Loan (First Lien)	Loan		5.50	%		4/30/2022	$	250,000		248,759		252,812
Asurion, LLC (fka Asurion Corporation)	Insurance	Incremental Tranche B-1 Term Loan	Loan		5.00	%		5/24/2019	$	5,397,939		5,358,755		5,414,834
Avantor Performance Materials Holdings, Inc.	Chemicals/Plastics	Term Loan	Loan		5.25	%		6/24/2017	$	3,913,710		3,905,683		3,913,710
Avast Software	Electronics/Electric	Term Loan	Loan		4.75	%		3/20/2020	$	1,900,000		1,898,425		1,911,077
AZ Chem US Inc.	Chemicals/Plastics	Term Loan	Loan		5.25	%		6/12/2021	$	460,274		458,212		460,274
Bass Pro Group, LLC	Retailers (Except Food and Drugs)	New Term Loan	Loan		3.75	%		11/20/2019	$	492,348		491,947		492,348
Bass Pro Group, LLC	Retailers (Except Food and Drugs)	Term Loan	Loan		3.75	%		11/20/2019	$	1,007,652		1,005,133		1,007,652
Bayonne Energy Center	Oil & Gas	Term Loan B	Loan		5.00	%		8/19/2021	$	533,481		531,096		536,148
Belmond Interfin Ltd.	Lodging & Casinos	Term Loan	Loan		4.00	%		3/19/2021	$	495,000		492,889		494,381
Berry Plastics Corporation	Chemicals/Plastics	Term E Loan	Loan		3.75	%		1/6/2021	$	1,814,499		1,802,988		1,814,499
Biomet, Inc.	Healthcare & Pharmaceuticals	Dollar Term B-2 Loan	Loan		3.65	%		7/25/2017	$	1,840,718		1,840,718		1,838,325
BJ’s Wholesale Club, Inc.	Food/Drug Retailers	New 2013 (November) Replacement Loan (First Lien)	Loan		4.50	%		9/26/2019	$	1,486,212		1,485,225		1,489,304
Blue Coat Systems	Technology	Term Loan B	Loan		4.50	%		5/19/2022	$	1,000,000		997,500		1,001,250
BMC Software	Technology	Term Loan	Loan		5.00	%		9/10/2020	$	1,994,950		1,933,227		1,948,407
Bombardier Recreational Products Inc.	Leisure Goods/Activities/Movies	Term B Loan	Loan		4.00	%		1/30/2019	$	754,286		750,526		753,516
Brickman Group Holdings, Inc.	Brokers/Dealers/Investment Houses	Initial Term Loan (First Lien)	Loan		4.00	%		12/18/2020	$	1,487,481		1,475,540		1,484,699
Brock Holdings III, Inc.	Industrial Equipment	Term Loan (First Lien)	Loan		6.00	%		3/16/2017	$	1,933,169		1,945,346		1,921,087
Burlington Coat Factory Warehouse Corporation	Retailers (Except Food and Drugs)	Term B-2 Loan	Loan		4.25	%		8/13/2021	$	1,861,667		1,853,261		1,865,800
BWAY Holding Company	Leisure Goods/Activities/Movies	Term Loan B	Loan		5.50	%		8/14/2020	$	992,500		983,770		995,805
Caesars Entertainment Corp.	Lodging & Casinos	Term B-7 Loan	Loan		9.75	%		1/28/2018	$	995,000		989,683		900,167
Camp International Holding Company	Aerospace and Defense	2013 Replacement Term Loan (First Lien)	Loan		4.75	%		5/31/2019	$	1,955,057		1,960,381		1,958,107
Capital Automotive L.P.	Conglomerate	Tranche B-1 Term Loan Facility	Loan		4.00	%		4/10/2019	$	2,073,747		2,077,935		2,081,523
Catalent Pharma Solutions, Inc	Drugs	Initial Term B Loan	Loan		4.25	%		5/20/2021	$	496,250		494,094		497,804
Celanese US Holdings LLC	Chemicals/Plastics	Dollar Term C-2 Commitment	Loan		2.49	%		10/31/2018	$	2,149,147		2,173,337		2,156,905
Cengage Learning Acquisitions, Inc.	Publishing	Term Loan	Loan		7.00	%		3/31/2020	$	2,724,987		2,753,442		2,730,328
Charter Communications Operating, LLC	Cable and Satellite Television	Term F Loan	Loan		3.00	%		12/31/2020	$	2,649,005		2,640,702		2,632,078
CHS/Community Health Systems, Inc.	Healthcare & Pharmaceuticals	Term F Loan	Loan		3.25	%		12/31/2018	$	1,097,819		1,077,865		1,099,653
CHS/Community Health Systems, Inc.	Healthcare & Pharmaceuticals	Term G Loan	Loan		3.75	%		12/31/2019	$	1,027,707		1,000,275		1,029,568
CHS/Community Health Systems, Inc.	Healthcare & Pharmaceuticals	Term H Loan	Loan		4.00	%		1/27/2021	$	1,890,955		1,840,450		1,894,377
Cinedigm Digital Funding I, LLC	Services: Business	Term Loan	Loan		3.75	%		2/28/2018	$	490,397		487,081		490,397
CITGO Petroleum Corporation	Oil & Gas	Term Loan B	Loan		4.50	%		7/29/2021	$	995,000		991,770		997,070
ClubCorp Club Operations, Inc.	Lodging & Casinos	Term Loan B	Loan		4.50	%		7/24/2020	$	500,000		496,250		501,125
Communications Sales & Leasing, Inc.	Telecommunications	Term Loan B (First Lien)	Loan		5.00	%		10/24/2022	$	2,000,000		1,987,560		1,990,500
CommScope, Inc.	Telecommunications	Term Loan B	Loan		4.00	%		5/27/2022	$	500,000		498,750		500,625
Concordia Healthcare Corp	Healthcare & Pharmaceuticals	Term Loan B	Loan		4.75	%		4/21/2022	$	250,000		248,764		251,875
CPI International Acquisition, Inc. (f/k/a Catalyst Holdings, Inc.)	Electronics/Electric	Term B Loan	Loan		4.25	%		11/17/2017	$	3,586,275		3,586,275		3,568,344
Crosby US Acquisition Corp.	Industrial Equipment	Initial Term Loan (First Lien)	Loan		3.75	%		11/23/2020	$	740,625		739,888		700,816
Crown Castle Operating Company	Telecommunications/Cellular	Extended Incremental Tranche B-2 Term Loan	Loan		3.00	%		1/31/2021	$	2,429,443		2,427,500		2,424,536
CT Technologies Intermediate Hldgs, Inc	Healthcare & Pharmaceuticals	Term Loan (First Lien)	Loan		6.00	%		12/1/2021	$	1,496,250		1,482,153		1,499,362
Culligan International Company	Conglomerate	Dollar Loan (First Lien)	Loan		6.25	%		12/19/2017	$	777,637		738,020		764,029
Culligan International Company	Conglomerate	Dollar Loan (Second Lien)	Loan		9.50	%		6/19/2018	$	783,162		742,154		744,333
Cumulus Media Holdings Inc.	Broadcast Radio and Television	Term Loan	Loan		4.25	%		12/23/2020	$	470,093		466,256		445,413
Custom Sensors & Technologies, Inc.	Industrial Equipment	Term Loan	Loan		4.50	%		9/30/2021	$	497,500		496,476		497,500
DaVita HealthCare Partners Inc. (fka DaVita Inc.)	Healthcare & Pharmaceuticals	Tranche B Term Loan	Loan		3.50	%		6/24/2021	$	496,250		494,065		496,994
DCS Business Services, Inc.	Financial Intermediaries	Term B Loan	Loan		7.25	%		3/19/2018	$	3,231,044		3,210,653		3,191,432
Dealertrack Technologies, Inc.	Leisure Goods/Activities/Movies	Term B Loan	Loan		3.25	%		2/26/2021	$	477,011		476,070		476,214
Dell International LLC	Retailers (Except Food and Drugs)	Term B Loan	Loan		4.50	%		4/29/2020	$	2,926,941		2,915,287		2,928,170
Delos Finance SARL	Financial Intermediaries	Term Loan	Loan		3.50	%		3/6/2021	$	500,000		497,909		500,000
Delta 2 (Lux) S.a.r.l.	Lodging & Casinos	Term Loan B-3	Loan		4.75	%		7/30/2021	$	1,000,000		995,563		999,310
Deluxe Entertainment Service Group, Inc.	Leisure Goods/Activities/Movies	Term Loan (First Lien)	Loan		6.50	%		2/28/2020	$	1,882,982		1,884,624		1,835,908
Devix US, Inc.	Chemicals/Plastics	Term Loan	Loan		4.25	%		5/2/2021	$	250,000		247,779		249,688
Devix US, Inc.	Chemicals/Plastics	Term Loan (Second Lien)	Loan		8.00	%		5/2/2022	$	496,250		494,151		497,024
Diamond Resorts International	Lodging & Casinos	Term Loan	Loan		5.50	%		5/9/2021	$	926,971		922,892		926,971
DJO Finance LLC	Healthcare & Pharmaceuticals	Term Loan	Loan		4.25	%		6/8/2020	$	500,000		497,921		500,750
Dollar Tree Stores Inc.	Retail	Term Loan B (3950MM)	Loan		4.25	%		3/9/2022	$	1,000,000		995,086		1,009,030
DPX Holdings B.V.	Healthcare & Pharmaceuticals	Term Loan 2015 Incr Dollar	Loan		4.25	%		3/11/2021	$	2,977,500		2,971,293		2,959,814
Drew Marine Group Inc.	Chemicals/Plastics	Term Loan (First Lien)	Loan		4.50	%		11/19/2020	$	1,472,161		1,477,822		1,469,408
Education Management LLC	Leisure Goods/Activities/Movies	Term Loan A	Loan		5.50	%		7/2/2020	$	501,970		482,966		422,910
Education Management LLC	Leisure Goods/Activities/Movies	Term Loan B	Loan		8.50 (2.00% Cash/ 6.50% PIK)	%		7/2/2020	$	850,514		820,457		634,696
Emerald Performance Materials, LLC	Chemicals/Plastics	Term Loan (First Lien)	Loan		4.50	%		8/1/2021	$	497,500		495,276		498,122
Emerald Performance Materials, LLC	Chemicals/Plastics	Term Loan (Second Lien)	Loan		7.75	%		8/1/2022	$	500,000		497,728		498,440
Emerald Performance Materials, LLC	Chemicals/Plastics	Term Loan B1A	Loan		4.50	%		7/30/2021	$	1,000,000		990,354		988,330
EnergySolutions, LLC	Oil & Gas	Term Loan B	Loan		6.75	%		5/29/2020	$	937,857		921,782		941,374
Evergreen Acqco 1 LP	Retailers (Except Food and Drugs)	New Term Loan	Loan		5.00	%		7/9/2019	$	972,562		970,551		948,248
EWT Holdings III Corp. (fka WTG Holdings III Corp.)	Industrial Equipment	Term Loan (First Lien)	Loan		4.75	%		1/15/2021	$	1,982,462		1,977,634		1,979,984
Federal-Mogul Corporation	Automotive	Tranche C Term Loan	Loan		4.75	%		4/15/2021	$	2,977,500		2,964,818		2,966,811
First Data Corporation	Financial Intermediaries	2017 Second New Dollar Term Loan	Loan		3.74	%		3/23/2018	$	2,790,451		2,734,063		2,788,944
First Data Corporation	Financial Intermediaries	2018 Dollar Term Loan	Loan		4.24	%		3/24/2021	$	2,111,028		2,024,645		2,116,833
Fitness International, LLC	Leisure Goods/Activities/Movies	Term Loan B	Loan		5.50	%		7/1/2020	$	1,488,750		1,479,155		1,455,253
FMG Resources (August 2006) Pty LTD (FMG America Finance, Inc.)	Nonferrous Metals/Minerals	Loan	Loan		3.75	%		6/28/2019	$	1,977,443		1,977,366		1,790,199
Four Seasons Holdings Inc.	Lodging & Casinos	Term Loan (First Lien)	Loan		3.50	%		6/27/2020	$	489,865		489,865		490,271
Garda World Security Corporation	Services: Business	Term B Delayed Draw Loan	Loan		4.00	%		11/6/2020	$	200,648		199,825		199,896
Garda World Security Corporation	Services: Business	Term B Loan	Loan		4.00	%		11/6/2020	$	784,352		781,392		781,411
Gardner Denver, Inc.	Oil & Gas	Initial Dollar Term Loan	Loan		4.25	%		7/30/2020	$	2,469,943		2,461,740		2,412,690
Gates Global LLC	Leisure Goods/Activities/Movies	Term Loan (First Lien)	Loan		4.25	%		7/3/2021	$	497,500		492,525		494,888
Generac Power Systems, Inc.	Industrial Equipment	Term Loan B	Loan		3.25	%		5/29/2020	$	693,858		683,135		690,680
General Nutrition Centers, Inc.	Retailers (Except Food and Drugs)	Amended Tranche B Term Loan	Loan		3.25	%		3/4/2019	$	4,720,142		4,706,492		4,667,041
Global Tel*Link Corporation	Services: Business	Term Loan (First Lien)	Loan		5.00	%		5/26/2020	$	2,747,966		2,740,001		2,706,746
Goodyear Tire & Rubber Company, The	Chemicals/Plastics	Loan (Second Lien)	Loan		4.75	%		4/30/2019	$	3,333,333		3,298,766		3,355,000
Grosvenor Capital Management Holdings, LP	Brokers/Dealers/Investment Houses	Initial Term Loan	Loan		3.75	%		1/4/2021	$	3,395,892		3,381,806		3,381,052
GTCR Valor Companies, Inc.	Services: Business	Term Loan (First Lien)	Loan		6.00	%		6/1/2021	$	1,989,995		1,950,196		1,987,508
Harland Clarke Holdings Corp. (fka Clarke American Corp.)	Publishing	Tranche B-4 Term Loan	Loan		6.00	%		8/2/2019	$	484,375		482,452		485,184
HCA Inc.	Healthcare & Pharmaceuticals	Tranche B-4 Term Loan	Loan		2.99	%		5/1/2018	$	5,648,670		5,415,004		5,648,105
Headwaters Incorporated	Building & Development	Term Loan	Loan		4.50	%		3/24/2022	$	250,000		248,764		250,625
Hertz Corporation, The	Automotive	Tranche B-1 Term Loan	Loan		4.00	%		3/12/2018	$	2,932,500		2,964,832		2,933,556
Hoffmaster Group, Inc.	Containers/Glass Products	Term Loan	Loan		5.25	%		5/8/2020	$	1,985,000		1,968,036		1,994,925
Huntsman International LLC	Chemicals/Plastics	Extended Term B Loan	Loan		2.69	%		4/19/2017	$	3,840,541		3,813,492		3,840,541
Husky Injection Molding Systems Ltd.	Services: Business	Term Loan B	Loan		4.25	%		6/30/2021	$	491,797		489,720		492,761
Infor (US), Inc. (fka Lawson Software Inc.)	Services: Business	Tranche B-5 Term Loan	Loan		3.75	%		6/3/2020	$	2,205,351		2,189,132		2,195,361
Insight Global	Services: Business	Term Loan	Loan		6.00	%		10/29/2021	$	1,994,898		1,986,758		1,998,229
J. Crew Group, Inc.	Retailers (Except Food and Drugs)	Term B-1 Loan Retired 03/05/2014	Loan		4.00	%		3/5/2021	$	962,775		962,775		872,188
Jazz Acquisition, Inc	Aerospace and Defense	First Lien 6/14	Loan		4.50	%		6/19/2021	$	496,364		495,123		492,641
J.Jill Group, Inc.	Retail	Term Loan (First Lien)	Loan		6.00	%		5/9/2022	$	1,000,000		995,018		1,001,250
Kinetic Concepts, Inc.	Healthcare & Pharmaceuticals	Dollar Term D-1 Loan	Loan		4.00	%		5/4/2018	$	2,471,356		2,449,511		2,486,802
Koosharem, LLC	Services: Business	Term Loan	Loan		7.50	%		5/15/2020	$	2,987,513		2,962,552		2,970,095
La Quinta Holdings, Inc.	Lodging & Casinos	Term Loan (First Lien)	Loan		4.00	%		4/14/2021	$	434,717		433,214		435,586
Level 3 Financing, Inc.	Telecommunications	Term Loan B2	Loan		4.50	%		1/31/2022	$	500,000		496,648		499,688
Mauser Holdings, Inc.	Containers/Glass Products	Term Loan	Loan		4.50	%		7/31/2021	$	497,500		495,281		497,813
Michaels Stores, Inc.	Retailers (Except Food and Drugs)	Term B Loan	Loan		3.75	%		1/28/2020	$	490,000		490,000		490,186
Michaels Stores, Inc.	Retailers (Except Food and Drugs)	Term Loan B-2	Loan		4.00	%		1/28/2020	$	1,488,750		1,482,222		1,493,469
Microsemi Corporation	Electronics/Electric	Incremental Term Loan	Loan		3.50	%		2/19/2020	$	2,122,318		2,118,346		2,124,313
Midas Intermediate Holdco II, LLC	Automotive	Delayed Draw Term Loan	Loan		4.75	%		8/18/2021	$	25,190		25,190		25,324
Midas Intermediate Holdco II, LLC	Automotive	Term Loan B	Loan		4.75	%		8/18/2021	$	223,560		222,539		224,747
Millenium Laboratories, LLC	Drugs	Term Loan	Loan		5.25	%		4/16/2021	$	1,488,750		1,475,773		1,001,929
MPH Acquisition Holdings LLC	Healthcare & Pharmaceuticals	Term Loan	Loan		3.75	%		3/31/2021	$	431,818		430,910		430,739
MSC Software Corp.	Services: Business	Term Loan	Loan		5.00	%		5/29/2020	$	992,500		984,127		985,056
National CineMedia, LLC	Leisure Goods/Activities/Movies	Term Loan (2013)	Loan		2.95	%		11/26/2019	$	1,086,207		1,060,272		1,072,238
National Veterinary Associates, Inc	Healthcare & Pharmaceuticals	Term Loan B	Loan		4.75	%		8/14/2021	$	995,006		991,489		995,832
National Vision, Inc.	Retailers (Except Food and Drugs)	Term Loan (Second Lien)	Loan		6.75	%		3/11/2022	$	250,000		249,731		243,125
Newsday, LLC	Publishing	Term Loan	Loan		3.69	%		10/12/2016	$	2,215,385		2,214,480		2,209,846
Nortek, Inc.	Electronics/Electric	Term B Loan	Loan		3.75	%		10/30/2020	$	992,500		980,651		988,778
Novelis, Inc.	Conglomerate	Initial Term Loan	Loan		3.75	%		3/10/2017	$	4,795,033		4,803,880		4,790,142
Novelis, Inc.	Conglomerate	Term Loan B	Loan		3.75	%		3/10/2017	$	4,795,033		4,771,058		4,790,142
NPC International, Inc.	Food Services	Term Loan (2013)	Loan		4.00	%		12/28/2018	$	485,000		485,000		480,756
NRG Energy, Inc.	Utilities	Term Loan (2013)	Loan		2.75	%		7/2/2018	$	3,851,400		3,833,925		3,825,095
NuSil Technology LLC.	Chemicals/Plastics	Term Loan	Loan		5.25	%		4/7/2017	$	795,751		795,751		790,284
Ollie’s Bargain Outlet, Inc	Retailers (Except Food and Drugs)	Term Loan	Loan		4.75	%		9/30/2019	$	974,527		970,576		969,654
On Assignment, Inc.	Services: Business	Initial Term B Loan	Loan		3.50	%		5/15/2020	$	1,311,364		1,303,800		1,310,957
Onex Carestream Finance LP	Healthcare & Pharmaceuticals	Term Loan (First Lien 2013)	Loan		5.00	%		6/7/2019	$	3,996,811		3,982,808		3,993,054
OnexYork Acquisition Co	Healthcare & Pharmaceuticals	Delayed Draw Term Loan	Loan		4.75	%		10/1/2021	$	48,537		48,182		48,294
OnexYork Acquisition Co	Healthcare & Pharmaceuticals	Term Loan B	Loan		4.75	%		10/1/2021	$	448,963		445,914		446,719
OpenLink International LLC	Services: Business	Term B Loan	Loan		6.25	%		10/28/2017	$	2,967,500		2,965,974		2,952,663
Orbitz Worldwide, Inc.	Services: Business	Term Loan (First Lien)	Loan		4.50	%		4/15/2021	$	1,408,613		1,406,579		1,409,500
P.F. Chang’s China Bistro, Inc. (Wok Acquisition Corp.)	Food/Drug Retailers	Term Borrowing	Loan		4.25	%		6/24/2019	$	1,444,113		1,437,299		1,427,867
P2 Upstream Acquisition Co. (P2 Upstream Canada BC ULC)	Services: Business	Term Loan (First Lien)	Loan		5.00	%		10/30/2020	$	987,500		983,132		966,516
Par Pharmaceutical Companies, Inc.	Healthcare & Pharmaceuticals	Term Loan B3	Loan		4.25	%		9/28/2019	$	498,750		496,360		499,583
Penn Products Terminal, LLC	Chemicals/Plastics	Term Loan B	Loan		4.75	%		4/13/2022	$	250,000		248,773		251,875
PetCo Animal Supplies Stores, Inc.	Retailers (Except Food and Drugs)	New Loans	Loan		4.00	%		11/24/2017	$	1,465,561		1,464,910		1,467,584
Petsmart, Inc. (Argos Merger Sub, Inc.)	Retail	Term Loan B1	Loan		4.25	%		3/11/2022	$	1,000,000		995,088		1,002,140
PGX Holdings, Inc.	Financial Intermediaries	Term Loan	Loan		6.25	%		9/29/2020	$	987,500		978,766		990,788
Pharmaceutical Product Development, Inc. (Jaguar Holdings, LLC)	Conglomerate	2013 Term Loan	Loan		4.00	%		12/5/2018	$	1,935,450		1,914,850		1,937,521
Phillips-Medisize Corporation	Healthcare & Pharmaceuticals	Term Loan	Loan		4.75	%		6/16/2021	$	496,250		494,073		495,942
Physio-Control International, Inc.	Healthcare & Pharmaceuticals	Term Loan B	Loan		5.50	%		5/19/2022	$	500,000		497,500		501,875
Pinnacle Foods Finance LLC	Food Products	New Term Loan G	Loan		3.00	%		4/29/2020	$	2,581,332		2,576,895		2,572,813
Planet Fitness Holdings LLC	Leisure Goods/Activities/Movies	Term Loan	Loan		4.75	%		3/31/2021	$	2,485,000		2,477,540		2,478,788
Polymer Group, Inc.	Chemicals/Plastics	Initial Loan	Loan		5.25	%		12/19/2019	$	493,750		491,694		495,394
Post Holdings, Inc.	Consumer Goods: Non-Durable	Term Loan Series A	Loan		3.75	%		6/2/2021	$	1,000,000		994,500		995,180
PrePaid Legal Services, Inc.	Services: Business	Term Loan B	Loan		6.50	%		7/1/2019	$	750,000		746,250		750,623
Presidio, Inc.	Services: Business	Term Loan	Loan		5.25	%		2/2/2022	$	1,916,667		1,861,770		1,920,270
Prestige Brands, Inc.	Consumer Goods: Durable	Term B-3 Loan	Loan		3.50	%		9/3/2021	$	2,112,374		2,104,893		2,114,127
Quintiles Transnational Corp.	Services: Business	Term Loan B	Loan		3.25	%		5/6/2022	$	1,000,000		997,510		1,002,190
Ranpak Holdings, Inc.	Services: Business	Term Loan	Loan		4.25	%		10/1/2021	$	995,000		992,728		995,000
Ranpak Holdings, Inc.	Services: Business	Term Loan (Second Lien)	Loan		8.25	%		9/30/2022	$	500,000		497,726		499,585
Redtop Acquisitions Limited	Electronics/Electric	Initial Dollar Term Loan (First Lien)	Loan		4.50	%		12/3/2020	$	493,750		490,848		493,133
Regal Cinemas Corporation	Services: Consumer	Term Loan	Loan		3.75	%		4/1/2022	$	500,000		498,780		501,640
Research Now Group, Inc	Media	Term Loan B	Loan		5.50	%		3/18/2021	$	500,000		497,544		501,875
Rexnord LLC/RBS Global, Inc.	Industrial Equipment	Term B Loan	Loan		4.00	%		8/21/2020	$	1,642,630		1,644,003		1,639,690
Reynolds Group Holdings Inc.	Industrial Equipment	Incremental U.S. Term Loan	Loan		4.00	%		12/1/2018	$	1,910,551		1,910,551		1,916,531
Riverbed Technology, Inc.	Technology	Term Loan B	Loan		6.00	%		2/25/2022	$	1,000,000		995,138		1,009,380
Rocket Software, Inc.	Services: Business	Term Loan (First Lien)	Loan		5.75	%		2/8/2018	$	1,916,674		1,900,419		1,916,674
Rovi Solutions Corporation / Rovi Guides, Inc.	Electronics/Electric	Tranche B-3 Term Loan	Loan		3.75	%		7/2/2021	$	1,488,750		1,482,202		1,481,306
RPI Finance Trust	Financial Intermediaries	Term B-4 Term Loan	Loan		3.50	%		11/9/2020	$	5,194,247		5,194,247		5,194,247
SBP Holdings LP	Industrial Equipment	Term Loan (First Lien)	Loan		5.00	%		3/27/2021	$	990,000		985,714		891,000
Scientific Games International, Inc.	Electronics/Electric	Term Loan B2	Loan		6.00	%		10/1/2021	$	997,500		988,352		996,440
Seadrill Operating LP	Oil & Gas	Term Loan B	Loan		4.00	%		2/21/2021	$	994,962		918,242		811,929
Sensata Technologies B.V./Sensata Technology Finance Company, LLC	Industrial Equipment	Term Loan	Loan		3.00	%		10/11/2021	$	1,264,400		1,264,400		1,266,878
Sensus USA Inc. (fka Sensus Metering Systems)	Utilities	Term Loan (First Lien)	Loan		4.50	%		5/9/2017	$	1,920,081		1,916,275		1,912,880
ServiceMaster Company, The	Conglomerate	Tranche B Term Loan	Loan		4.25	%		7/1/2021	$	1,990,000		1,972,330		1,994,657
Shearers Foods LLC	Food Services	Term Loan (First Lien)	Loan		4.50	%		6/30/2021	$	995,000		992,823		994,383
Sonneborn, LLC	Chemicals/Plastics	Term Loan (First Lien)	Loan		5.50	%		12/10/2020	$	224,437		223,922		224,999
Sonneborn, LLC	Chemicals/Plastics	Initial US Term Loan	Loan		5.50	%		12/10/2020	$	1,271,813		1,268,891		1,274,992
Sophia, L.P.	Electronics/Electric	Term B Loan	Loan		4.00	%		7/19/2018	$	883,715		875,972		884,599
SourceHOV LLC	Services: Business	Term Loan B (First Lien)	Loan		7.75	%		10/31/2019	$	1,987,500		1,932,692		1,828,500
SRAM, LLC	Industrial Equipment	Term Loan (First Lien)	Loan		4.00	%		4/10/2020	$	2,935,089		2,926,129		2,930,187
Staples, Inc.	Retail	Term Loan B	Loan		3.50	%		4/23/2021	$	1,000,000		995,000		1,000,940
Steak ‘n Shake Operations, Inc.	Food Services	Term Loan	Loan		4.75	%		3/19/2021	$	990,000		981,539		985,050
SunGard Data Systems Inc. (Solar Capital Corp.)	Conglomerate	Tranche C Term Loan	Loan		3.90	%		2/28/2017	$	285,352		283,389		285,472
SunGard Data Systems Inc. (Solar Capital Corp.)	Conglomerate	Tranche E Term Loan	Loan		4.00	%		3/9/2020	$	3,707,953		3,622,675		3,714,924
SuperMedia Inc. (fka Idearc Inc.)	Publishing	Loan	Loan		11.60	%		12/30/2016	$	235,379		230,025		158,528
Syniverse Holdings, Inc.	Telecommunications	Initial Term Loan	Loan		4.00	%		4/23/2019	$	479,913		476,313		458,917
TGI Friday’s Inc	Food Services	Term Loan B	Loan		5.25	%		7/15/2020	$	1,761,386		1,756,571		1,761,386
Townsquare Media, Inc.	Media	Term Loan B	Loan		4.25	%		4/1/2022	$	1,000,000		995,060		1,005,420
TPF II Power LLC and TPF II Covert Midco LLC	Utilities	Term Loan B	Loan		5.50	%		10/2/2021	$	498,750		495,598		504,516
TransDigm, Inc.	Aerospace and Defense	Tranche C Term Loan	Loan		3.75	%		2/28/2020	$	4,310,366		4,318,132		4,297,435
TransDigm, Inc.	Aerospace and Defense	Tranche E Term Loan	Loan		3.50	%		5/13/2022	$	2,000,000		1,990,600		1,985,000
TransFirst Holdings, Inc.	Financial Intermediaries	Term Loan	Loan		5.50	%		11/12/2021	$	498,750		494,148		498,022
Trans Union LLC	Financial Intermediaries	Term Loan	Loan		4.00	%		4/9/2021	$	495,000		493,963		493,322
Travel Leaders Group, LLC	Hotel, Gaming and Leisure	Term Loan B	Loan		7.00	%		12/7/2020	$	1,000,000		995,055		1,010,000
Tricorbraun, Inc. (fka Kranson Industries, Inc.)	Containers/Glass Products	Term Loan	Loan		4.00	%		5/3/2018	$	1,836,625		1,830,188		1,827,442
Truven Health Analytics Inc. (fka Thomson Reuters (Healthcare) Inc.)	Healthcare & Pharmaceuticals	New Tranche B Term Loan	Loan		4.50	%		6/6/2019	$	486,325		479,056		486,529
Twin River Management Group, Inc.	Lodging & Casinos	Term Loan B	Loan		5.25	%		7/10/2020	$	956,192		958,419		953,801
U.S. Security Associates Holdings, Inc.	Services: Business	Delayed Draw Loan	Loan		6.25	%		7/28/2017	$	158,110		157,308		157,814
U.S. Security Associates Holdings, Inc.	Services: Business	Term B Loan	Loan		6.25	%		7/28/2017	$	928,641		924,314		926,905
United Surgical Partners International, Inc.	Healthcare & Pharmaceuticals	New Tranche B Term Loan	Loan		4.75	%		4/3/2019	$	2,425,561		2,403,697		2,425,561
Univar Inc.	Chemicals/Plastics	Term B Loan	Loan		5.00	%		6/30/2017	$	3,834,969		3,834,775		3,830,175
Univision Communications Inc.	Telecommunications	Replacement First-Lien Term Loan	Loan		4.00	%		3/1/2020	$	2,939,724		2,924,949		2,934,667
Valeant Pharmaceuticals International, Inc.	Drugs	Series D2 Term Loan B	Loan		3.50	%		2/13/2019	$	2,545,588		2,537,897		2,543,272
Verint Systems Inc.	Services: Business	Term Loan	Loan		3.50	%		9/6/2019	$	1,014,058		1,010,683		1,015,325
Vertafore, Inc.	Services: Business	Term Loan (2013)	Loan		4.25	%		10/3/2019	$	2,484,603		2,484,603		2,490,815
Vouvray US Finance	Industrial Equipment	Term Loan	Loan		5.00	%		6/28/2021	$	496,250		494,080		498,319
Washington Inventory Service	Services: Business	U.S. Term Loan (First Lien)	Loan		5.75	%		12/20/2018	$	1,832,875		1,850,149		1,800,800
Waste Industries	Environmental	Term Loan B	Loan		4.25	%		2/27/2020	$	250,000		249,405		251,145
Wendy’s International, Inc	Food Services	Term B Loan	Loan		3.25	%		5/15/2019	$	671,921		666,709		671,753
West Corporation	Telecommunications	Term B-10 Loan	Loan		3.25	%		6/30/2018	$	2,571,560		2,603,429		2,565,490

											$	307,289,860	$	304,682,956

Saratoga Investment Corp. CLO 2013-1 Ltd.

Schedule of Investments

February 28, 2015


Issuer Name	Industry	Asset Name	Asset Type	Current Rate			Maturity Date		Principal/ Number of Shares		Cost		Fair Value
Education Management II LLC	Leisure Goods/Activities/Movies	A-1 Preferred Shares	Equity		0.00	%				6,692	$	669,214	$	437,188
Education Management II LLC	Leisure Goods/Activities/Movies	A-2 Preferred Shares	Equity		0.00	%				18,975		1,897,538		180,263
24 Hour Holdings III LLC	Leisure Goods/Activities/Movies	Term Loan	Loan		4.75	%		5/28/2021	$	497,500		493,004		492,276
Acosta Holdco Inc.	Media	Term Loan B	Loan		5.00	%		9/27/2021	$	1,995,000		1,981,328		2,004,416
Aderant North America, Inc.	Services: Business	Term Loan (First Lien)	Loan		5.25	%		12/20/2018	$	3,260,898		3,260,898		3,240,517
Advantage Sales & Marketing Inc.	Services: Business	Delayed Draw Term Loan	Loan		4.25	%		7/25/2021	$	1,995,000		1,993,940		1,984,287
AECOM Technology Corporation	Services: Business	Term Loan B	Loan		3.75	%		10/15/2021	$	319,903		318,380		321,304
Aegis Toxicology Science Corporation	Healthcare & Pharmaceuticals	Term B Loan	Loan		5.50	%		2/24/2021	$	995,000		995,000		997,488
Akorn, Inc.	Healthcare & Pharmaceuticals	Term Loan B	Loan		4.50	%		4/16/2021	$	498,750		496,691		500,411
Albertson’s LLC	Retailers (Except Food and Drugs)	Term Loan B-4	Loan		5.50	%		8/25/2021	$	3,410,000		3,389,632		3,437,723
Alere Inc. (fka IM US Holdings, LLC)	Healthcare & Pharmaceuticals	Incremental B-1 Term Loan	Loan		4.25	%		6/30/2017	$	1,529,610		1,529,610		1,529,610
American Tire Distributors Inc	Automotive	Term Loan	Loan		5.75	%		6/1/2018	$	496,487		496,486		497,108
Aramark Corporation	Food Products	LC-2 Facility	Loan		3.74	%		7/26/2016	$	79,187		79,178		78,395
Aramark Corporation	Food Products	LC-3 Facility	Loan		3.74	%		7/26/2016	$	43,961		43,961		43,521
Aramark Corporation	Food Products	U.S. Term F Loan	Loan		3.25	%		2/24/2021	$	3,182,489		3,182,489		3,168,581
ARG IH Corp	Food Services	Term Loan	Loan		4.75	%		11/15/2020	$	495,000		494,038		495,312
Asurion, LLC (fka Asurion Corporation)	Insurance	Incremental Tranche B-1 Term Loan	Loan		5.00	%		5/24/2019	$	5,412,086		5,370,590		5,424,642
Auction.Com, LLC	Services: Business	Term Loan A-4	Loan		4.40	%		2/28/2017	$	914,567		914,567		905,422
Avantor Performance Materials Holdings, Inc.	Chemicals/Plastics	Term Loan	Loan		5.25	%		6/24/2017	$	4,319,115		4,309,242		4,297,520
Avast Software	Electronics/Electric	Term Loan	Loan		4.75	%		3/20/2020	$	1,925,000		1,923,275		1,937,031
AZ Chem US Inc.	Chemicals/Plastics	Term Loan	Loan		5.25	%		6/12/2021	$	467,123		464,958		466,614
Bass Pro Group, LLC	Retailers (Except Food and Drugs)	New Term Loan	Loan		3.75	%		11/20/2019	$	493,623		493,111		492,236
Bayonne Energy Center	Oil & Gas	Term Loan B	Loan		5.00	%		8/19/2021	$	969,671		965,093		964,416
Belmond Hotels	Lodging & Casinos	Term Loan	Loan		4.00	%		3/19/2021	$	496,250		494,055		495,009
Berry Plastics Corporation	Chemicals/Plastics	Term E Loan	Loan		3.75	%		1/6/2021	$	1,814,499		1,802,403		1,812,648
Big Heart Pet Brands (fka Del Monte Corporation)	Food/Drug Retailers	Initial Term Loan	Loan		3.50	%		3/9/2020	$	2,977,500		2,996,769		2,971,307
Biomet, Inc.	Healthcare & Pharmaceuticals	Dollar Term B-2 Loan	Loan		3.65	%		7/25/2017	$	1,840,718		1,840,718		1,838,601
BJ’s Wholesale Club, Inc.	Food/Drug Retailers	New 2013 (November) Replacement Loan (First Lien)	Loan		4.50	%		9/26/2019	$	1,489,975		1,488,922		1,483,374
Bombardier Recreational Products Inc.	Leisure Goods/Activities/Movies	Term B Loan	Loan		4.00	%		1/30/2019	$	754,286		750,287		747,120
Brickman Group Holdings, Inc.	Brokers/Dealers/Investment Houses	Initial Term Loan (First Lien)	Loan		4.00	%		12/18/2020	$	1,491,237		1,478,800		1,478,935
Brock Holdings III, Inc.	Industrial Equipment	Term Loan (First Lien)	Loan		6.00	%		3/16/2017	$	1,938,503		1,952,391		1,904,580
Burlington Coat Factory Warehouse Corporation	Retailers (Except Food and Drugs)	Term B-2 Loan	Loan		4.25	%		8/13/2021	$	1,945,000		1,935,814		1,942,219
BWAY	Leisure Goods/Activities/Movies	Term Loan B	Loan		5.50	%		8/14/2020	$	995,000		985,881		998,423
Caesars Entertainment Corp.	Lodging & Casinos	Term B-7 Loan	Loan		9.75	%		1/28/2018	$	995,000		989,028		917,141
Camp International Holding Company	Aerospace and Defense	2013 Replacement Term Loan (First Lien)	Loan		4.75	%		5/31/2019	$	1,960,046		1,965,495		1,969,846
Capital Automotive L.P.	Conglomerate	Tranche B-1 Term Loan Facility	Loan		4.00	%		4/10/2019	$	2,079,313		2,083,783		2,084,511
Catalent Pharma Solutions, Inc	Drugs	Initial Term B Loan	Loan		4.25	%		5/20/2021	$	497,500		495,170		498,401
Celanese US Holdings LLC	Chemicals/Plastics	Dollar Term C-2 Commitment	Loan		2.49	%		10/31/2018	$	2,154,560		2,180,598		2,157,533
Cengage Learning	Publishing	Term Loan	Loan		7.00	%		3/31/2020	$	2,731,869		2,761,735		2,733,235
Charter Communications Operating, LLC	Cable and Satellite Television	Term F Loan	Loan		3.00	%		12/31/2020	$	2,655,745		2,646,932		2,646,344
CHS/Community Health Systems, Inc.	Healthcare & Pharmaceuticals	2017 Term E Loan	Loan		3.49	%		1/25/2017	$	1,097,818		1,074,945		1,097,193
CHS/Community Health Systems, Inc.	Healthcare & Pharmaceuticals	2021 Term D Loan	Loan		4.25	%		1/27/2021	$	2,926,052		2,844,886		2,935,210
Cinedigm Digital Funding I, LLC	Services: Business	Term Loan	Loan		3.75	%		2/28/2018	$	562,001		557,872		561,298
CITGO Petroleum	Oil & Gas	Term Loan B	Loan		4.50	%		7/29/2021	$	997,500		994,095		979,106
ClubCorp Club Operations, Inc.	Lodging & Casinos	Term Loan B	Loan		4.50	%		7/24/2020	$	500,000		496,250		500,315
CPI International Acquisition, Inc. (f/k/a Catalyst Holdings, Inc.)	Electronics/Electric	Term B Loan	Loan		4.25	%		11/17/2017	$	3,595,331		3,595,331		3,570,631
Crosby US Acquisition Corp.	Industrial Equipment	Initial Term Loan (First Lien)	Loan		3.75	%		11/23/2020	$	742,500		741,718		681,244
Crown Castle Operating Company	Telecommunications/Cellular	Extended Incremental Tranche B-2 Term Loan	Loan		3.00	%		1/31/2021	$	2,435,594		2,433,546		2,430,723
CT Technologies Intermediate Hldgs, Inc	Healthcare & Pharmaceuticals	Term Loan (First Lien)	Loan		6.00	%		12/1/2021	$	1,500,000		1,485,423		1,505,625
Culligan International Company	Conglomerate	Dollar Loan (First Lien)	Loan		6.25	%		12/19/2017	$	779,642		736,275		765,998
Culligan International Company	Conglomerate	Dollar Loan (Second Lien)	Loan		9.50	%		6/19/2018	$	783,162		739,367		727,033
Cumulus Media Holdings Inc.	Broadcast Radio and Television	Term Loan	Loan		4.25	%		12/23/2020	$	470,093		466,100		466,863
Custom Sensors	Industrial Equipment	Term Loan	Loan		4.50	%		9/30/2021	$	498,750		497,651		498,750
DaVita HealthCare Partners Inc. (fka DaVita Inc.)	Healthcare & Pharmaceuticals	Tranche B Term Loan	Loan		3.50	%		6/24/2021	$	497,500		495,228		498,062
DCS Business Services, Inc.	Financial Intermediaries	Term B Loan	Loan		7.25	%		3/19/2018	$	3,460,027		3,436,485		3,413,835
Dealertrack Technologies, Inc.	Leisure Goods/Activities/Movies	Term B Loan	Loan		3.25	%		2/26/2021	$	477,011		475,991		474,230
Dell International LLC	Retailers (Except Food and Drugs)	Term B Loan	Loan		4.50	%		4/29/2020	$	2,969,962		2,957,576		2,980,684
Delos Finance SARL	Financial Intermediaries	Term Loan	Loan		3.50	%		3/6/2021	$	500,000		497,835		499,790
Delta 2 (Lux) S.a.r.l.	Lodging & Casinos	Term Loan B-3	Loan		4.75	%		7/30/2021	$	1,000,000		995,314		995,630
Deluxe Entertainment Service Group, Inc.	Leisure Goods/Activities/Movies	Term Loan (First Lien)	Loan		6.50	%		2/28/2020	$	1,882,983		1,884,624		1,835,908
Devix US, Inc.	Chemicals/Plastics	Term Loan	Loan		4.25	%		5/2/2021	$	250,000		247,710		250,938
Devix US, Inc.	Chemicals/Plastics	Term Loan (Second Lien)	Loan		8.00	%		5/2/2022	$	497,500		495,324		497,500
Diamond Resorts International	Lodging & Casinos	Term Loan	Loan		5.50	%		5/9/2021	$	995,000		990,370		999,975
Dollar Tree	Retail	Term Loan B (3950MM)	Loan		4.25	%		3/9/2022	$	1,000,000		995,000		1,007,500
DPX Holdings B.V.	Healthcare & Pharmaceuticals	Term Loan	Loan		4.25	%		3/11/2021	$	2,985,000		2,978,605		2,962,075
Drew Marine Group Inc.	Chemicals/Plastics	Term Loan (First Lien)	Loan		4.50	%		11/19/2020	$	1,489,975		1,495,721		1,473,213
Education Management LLC	Leisure Goods/Activities/Movies	Term Loan A	Loan		5.50	%		7/2/2020	$	501,970		482,120		457,295
Education Management LLC	Leisure Goods/Activities/Movies	Term Loan B	Loan		8.50% (2.00% Cash/ 6.50% PIK)			7/2/2020	$	836,617		805,283		672,882
EIG Investors Corp.	Services: Business	Term Loan	Loan		5.00	%		11/8/2019	$	987,500		983,552		989,969
Emerald Performance Materials, LLC	Chemicals/Plastics	Term Loan (First Lien)	Loan		4.50	%		8/1/2021	$	498,750		496,403		496,102
Emerald Performance Materials, LLC	Chemicals/Plastics	Term Loan (Second Lien)	Loan		7.75	%		8/1/2022	$	500,000		497,553		484,845
EnergySolutions, LLC	Oil & Gas	Term Loan B	Loan		6.75	%		5/29/2020	$	937,857		921,126		942,546
Enviromental Resources Management	Services: Business	Term Loan	Loan		5.00	%		5/14/2021	$	1,000,000		990,000		985,000
Evergreen Acqco 1 LP	Retailers (Except Food and Drugs)	New Term Loan	Loan		5.00	%		7/9/2019	$	975,056		972,887		955,555
EWT Holdings III Corp. (fka WTG Holdings III Corp.)	Industrial Equipment	Term Loan (First Lien)	Loan		4.75	%		1/15/2021	$	1,987,481		1,982,274		1,972,575
Federal-Mogul Corporation	Automotive	Tranche C Term Loan	Loan		4.75	%		4/15/2021	$	2,985,000		2,971,883		2,975,687
First Data Corporation	Financial Intermediaries	2017 Second New Dollar Term Loan	Loan		3.74	%		3/23/2018	$	2,790,451		2,729,399		2,785,568
First Data Corporation	Financial Intermediaries	2018 Dollar Term Loan	Loan		4.24	%		3/24/2021	$	2,111,028		2,021,476		2,115,777
Fitness International, LLC	Leisure Goods/Activities/Movies	Term Loan B	Loan		5.50	%		7/1/2020	$	1,492,500		1,482,322		1,421,606
FMG Resources (August 2006) Pty LTD (FMG America Finance, Inc.)	Nonferrous Metals/Minerals	Loan	Loan		3.75	%		6/28/2019	$	1,982,462		1,982,212		1,835,423
Four Seasons Holdings Inc.	Lodging & Casinos	Term Loan (First Lien)	Loan		3.50	%		6/27/2020	$	493,750		493,750		491,281
Garda World Security Corporation	Services: Business	Term B Delayed Draw Loan	Loan		4.00	%		11/6/2020	$	201,157		200,308		199,146
Garda World Security Corporation	Services: Business	Term B Loan	Loan		4.00	%		11/6/2020	$	786,343		783,060		778,479
Gardner Denver, Inc.	Oil & Gas	Initial Dollar Term Loan	Loan		4.25	%		7/30/2020	$	2,476,212		2,467,608		2,377,164
Gates Global LLC	Leisure Goods/Activities/Movies	Term Loan (First Lien)	Loan		4.25	%		7/3/2021	$	498,750		493,763		494,885
Generac Power Systems, Inc.	Industrial Equipment	Term Loan B	Loan		3.25	%		5/29/2020	$	802,956		789,932		797,182
General Nutrition Centers, Inc.	Retailers (Except Food and Drugs)	Amended Tranche B Term Loan	Loan		3.25	%		3/4/2019	$	4,724,136		4,709,712		4,649,353
Global Tel*Link Corporation	Services: Business	Term Loan (First Lien)	Loan		5.00	%		5/26/2020	$	2,755,515		2,747,025		2,719,914
Goodyear Tire & Rubber Company, The	Chemicals/Plastics	Loan (Second Lien)	Loan		4.75	%		4/30/2019	$	3,333,333		3,296,753		3,347,933
Grosvenor Capital Management Holdings, LP	Brokers/Dealers/Investment Houses	Initial Term Loan	Loan		3.75	%		1/4/2021	$	3,395,892		3,381,240		3,353,443
GTCR Valor Companies, Inc.	Services: Business	Term Loan (First Lien)	Loan		6.00	%		6/1/2021	$	1,995,000		1,981,582		1,965,075
Harland Clarke Holdings Corp. (fka Clarke American Corp.)	Publishing	Tranche B-4 Term Loan	Loan		6.00	%		8/2/2019	$	487,500		485,460		488,963
HCA Inc.	Healthcare & Pharmaceuticals	Tranche B-4 Term Loan	Loan		2.99	%		5/1/2018	$	5,663,006		5,409,534		5,658,872
Hertz Corporation, The	Automotive	Tranche B-1 Term Loan	Loan		4.00	%		3/12/2018	$	2,940,000		2,975,234		2,927,152
Hoffmaster Group, Inc.	Containers/Glass Products	Term Loan	Loan		5.25	%		5/8/2020	$	1,990,000		1,972,040		1,999,950
Huntsman International LLC	Chemicals/Plastics	Extended Term B Loan	Loan		2.69	%		4/19/2017	$	3,880,270		3,866,113		3,872,199
Husky Injection	Services: Business	Term Loan B	Loan		4.25	%		6/30/2021	$	498,099		495,886		495,818
Ikaria, Inc.	Healthcare & Pharmaceuticals	Initial Term Loan (First Lien)	Loan		5.00	%		2/12/2021	$	435,702		433,809		434,251
Infor (US), Inc. (fka Lawson Software Inc.)	Services: Business	Tranche B-5 Term Loan	Loan		3.75	%		6/3/2020	$	2,211,036		2,194,068		2,190,650
Insight Global	Services: Business	Term Loan	Loan		6.00	%		10/29/2021	$	2,000,000		1,990,539		1,993,760
J. Crew Group, Inc.	Retailers (Except Food and Drugs)	Term B-1 Loan Retired 03/05/2014	Loan		4.00	%		3/5/2021	$	965,206		965,206		906,493
Jazz Acquisition, Inc	Aerospace and Defense	First Lien 6/14	Loan		4.50	%		6/19/2021	$	497,576		496,332		492,913
Kinetic Concepts, Inc.	Healthcare & Pharmaceuticals	Dollar Term D-1 Loan	Loan		4.00	%		5/4/2018	$	2,477,613		2,453,687		2,477,167
Koosharem, LLC	Services: Business	Term Loan	Loan		7.50	%		5/15/2020	$	2,995,000		2,968,450		2,961,306
La Quinta Holdings, Inc.	Lodging & Casinos	Term Loan (First Lien)	Loan		4.00	%		4/14/2021	$	451,283		449,626		450,719
Level 3 Financing, Inc.	Telecommunications	Term Loan B	Loan		4.50	%		1/31/2022	$	500,000		496,541		502,085
Mauser Holdings, Inc.	Containers/Glass Products	Term Loan	Loan		4.50	%		7/31/2021	$	498,750		496,409		491,269
Michaels Stores, Inc.	Retailers (Except Food and Drugs)	Term B Loan	Loan		3.75	%		1/28/2020	$	491,250		491,250		488,258
Michaels Stores, Inc.	Retailers (Except Food and Drugs)	Term Loan B-2	Loan		4.00	%		1/28/2020	$	1,492,500		1,485,638		1,488,769
Microsemi Corporation	Electronics/Electric	Incremental Term Loan	Loan		3.50	%		2/19/2020	$	2,393,981		2,389,500		2,381,509
Microsemi Corporation	Electronics/Electric	Term Loan	Loan		3.75	%		2/19/2020	$	172,170		172,170		171,309
Midas Intermediate Holdco II, LLC	Automotive	Delayed Draw Term Loan	Loan		4.75	%		8/18/2021	$	25,253		25,253		25,364
Midas Intermediate Holdco II, LLC	Automotive	Term Loan B	Loan		4.75	%		8/18/2021	$	224,122		223,063		225,103
Millenium Laboratories, LLC	Drugs	Term Loan	Loan		5.25	%		4/16/2021	$	1,492,500		1,479,041		1,489,396
Mitel US Holdings, Inc.	Telecommunications	Term Loan	Loan		5.25	%		1/31/2020	$	196,558		195,710		196,411
MPH Acquisition Holdings LLC	Healthcare & Pharmaceuticals	Term Loan	Loan		3.75	%		3/31/2021	$	445,455		444,453		442,033
MSC Software Corp.	Services: Business	Term Loan	Loan		5.00	%		5/29/2020	$	995,000		986,186		996,244
National CineMedia, LLC	Leisure Goods/Activities/Movies	Term Loan (2013)	Loan		2.95	%		11/26/2019	$	1,086,207		1,058,933		1,067,198
National Veterinary Associates, Inc	Healthcare & Pharmaceuticals	Term Loan B	Loan		4.75	%		8/14/2021	$	997,500		992,907		996,253
National Vision, Inc.	Retailers (Except Food and Drugs)	Term Loan (Second Lien)	Loan		6.75	%		3/11/2022	$	250,000		249,730		240,418
Newsday, LLC	Publishing	Term Loan	Loan		3.69	%		10/12/2016	$	2,215,385		2,214,305		2,201,538
Nortek, Inc.	Electronics/Electric	Term B Loan	Loan		3.75	%		10/30/2020	$	995,000		992,803		986,921
Novelis, Inc.	Conglomerate	Initial Term Loan	Loan		3.75	%		3/10/2017	$	4,807,530		4,817,740		4,799,502
NPC International, Inc.	Food Services	Term Loan (2013)	Loan		4.00	%		12/28/2018	$	486,250		486,250		480,780
NRG Energy, Inc.	Utilities	Term Loan (2013)	Loan		2.75	%		7/2/2018	$	3,861,225		3,842,164		3,850,761
NuSil Technology LLC.	Chemicals/Plastics	Term Loan	Loan		5.25	%		4/7/2017	$	797,986		797,986		791,004
Ollie’s Bargain Outlet, Inc	Retailers (Except Food and Drugs)	Term Loan	Loan		4.75	%		9/30/2019	$	977,052		972,882		962,396
On Assignment, Inc.	Services: Business	Initial Term B Loan	Loan		3.50	%		5/15/2020	$	1,311,364		1,303,451		1,301,528
Onex Carestream Finance LP	Healthcare & Pharmaceuticals	Term Loan (First Lien 2013)	Loan		5.00	%		6/7/2019	$	4,074,401		4,059,378		4,078,842
OnexYork Acquisition Co	Healthcare & Pharmaceuticals	Delayed Draw Term Loan	Loan		4.75	%		10/1/2021	$	—		—		—
OnexYork Acquisition Co	Healthcare & Pharmaceuticals	Term Loan B	Loan		4.75	%		10/1/2021	$	498,750		495,208		496,466
OpenLink International LLC	Services: Business	Term B Loan	Loan		6.25	%		10/28/2017	$	970,000		970,000		957,875
Orbitz Worldwide, Inc.	Services: Business	Term Loan (First Lien)	Loan		4.50	%		4/15/2021	$	1,494,994		1,492,711		1,494,755
P.F. Chang’s China Bistro, Inc. (Wok Acquisition Corp.)	Food/Drug Retailers	Term Borrowing	Loan		4.25	%		6/24/2019	$	1,447,901		1,440,712		1,406,274
P2 Upstream Acquisition Co. (P2 Upstream Canada BC ULC)	Services: Business	Term Loan (First Lien)	Loan		5.00	%		10/30/2020	$	990,000		985,444		947,925
Par Pharmaceutical	Healthcare & Pharmaceuticals	Term Loan B3	Loan		4.25	%		9/28/2019	$	500,000		497,502		499,065
PetCo Animal Supplies Stores, Inc.	Retailers (Except Food and Drugs)	New Loans	Loan		4.00	%		11/24/2017	$	1,469,388		1,468,520		1,467,066
PetSmart	Retail	Term Loan B	Loan		5.00	%		3/11/2022	$	1,000,000		995,000		1,007,050
PGX Holdings, Inc.	Financial Intermediaries	Term Loan	Loan		6.25	%		9/29/2020	$	993,750		984,482		993,750
Pharmaceutical Product Development, Inc. (Jaguar Holdings, LLC)	Conglomerate	2013 Term Loan	Loan		4.00	%		12/5/2018	$	1,940,400		1,918,409		1,935,898
Phillips-Medisize Corporation	Healthcare & Pharmaceuticals	Term Loan	Loan		4.75	%		6/16/2021	$	497,500		495,245		495,948
Pinnacle Foods Finance LLC	Food Products	New Term Loan G	Loan		3.00	%		4/29/2020	$	2,581,332		2,576,466		2,565,560
Planet Fitness Holdings LLC	Leisure Goods/Activities/Movies	Term Loan	Loan		4.75	%		3/31/2021	$	1,488,750		1,482,052		1,488,750
Polymer Group, Inc.	Chemicals/Plastics	Initial Loan	Loan		5.25	%		12/19/2019	$	495,000		492,860		495,619
Presidio	Services: Business	Term Loan B	Loan		6.25	%		2/2/2022	$	2,000,000		1,940,655		1,973,760
Prestige Brands, Inc.	Drugs	Term B-1 Loan	Loan		4.13	%		1/31/2019	$	344,697		341,112		344,697
Prestige Brands, Inc.	Leisure Goods/Activities/Movies	Term Loan	Loan		4.50	%		9/3/2021	$	1,861,111		1,858,280		1,860,534
QoL Meds, LLC	Healthcare & Pharmaceuticals	Term Loan B	Loan		5.50	%		7/15/2020	$	1,995,000		1,985,909		1,990,013
Quintiles Transnational Corp.	Conglomerate	Term B-3 Loan	Loan		3.75	%		6/8/2018	$	3,627,678		3,600,425		3,628,802
Ranpak Holdings, Inc.	Services: Business	Term Loan	Loan		4.75	%		10/1/2021	$	997,500		995,145		996,882
Ranpak Holdings, Inc.	Services: Business	Term Loan (Second Lien)	Loan		8.25	%		9/30/2022	$	500,000		497,672		496,250
Redtop Acquisitions Limited	Electronics/Electric	Initial Dollar Term Loan (First Lien)	Loan		4.50	%		12/3/2020	$	495,000		491,974		494,381
Rexnord LLC/RBS Global, Inc.	Industrial Equipment	Term B Loan	Loan		4.00	%		8/21/2020	$	1,646,799		1,648,172		1,642,172
Reynolds Group Holdings Inc.	Industrial Equipment	Incremental U.S. Term Loan	Loan		4.00	%		12/1/2018	$	1,960,200		1,960,200		1,965,767
Riverbed Technology	Technology	Term Loan B	Loan		6.00	%		2/25/2022	$	1,000,000		995,000		1,007,500
Rocket Software, Inc.	Services: Business	Term Loan (First Lien)	Loan		5.75	%		2/8/2018	$	1,916,674		1,898,764		1,906,285
Rovi Solutions Corporation / Rovi Guides, Inc.	Electronics/Electric	Tranche B-3 Term Loan	Loan		3.75	%		7/2/2021	$	1,492,500		1,485,607		1,479,441
RPI Finance Trust	Drugs	Term B-2 Term Loan	Loan		3.25	%		5/9/2018	$	5,207,431		5,188,396		5,219,147
SBP Holdings LP	Industrial Equipment	Term Loan (First Lien)	Loan		5.00	%		3/27/2021	$	992,500		988,065		863,475
Scientific Games International, Inc.	Electronics/Electric	Term Loan B2	Loan		6.00	%		10/1/2021	$	1,000,000		990,433		998,040
Scitor Corporation	Services: Business	Term Loan	Loan		5.00	%		2/15/2017	$	463,977		462,387		461,077
Seadrill	Oil & Gas	Term Loan B	Loan		4.00	%		2/21/2021	$	997,481		917,590		806,294
Sensata Technologies B.V./Sensata Technology Finance Company, LLC	Industrial Equipment	Term Loan	Loan		3.25	%		5/13/2019	$	1,509,445		1,509,445		1,511,603
Sensus USA Inc. (fka Sensus Metering Systems)	Utilities	Term Loan (First Lien)	Loan		4.50	%		5/9/2017	$	1,925,067		1,920,548		1,925,067
ServiceMaster Company, The	Conglomerate	Tranche B Term Loan	Loan		4.25	%		7/1/2021	$	1,995,000		1,976,650		1,994,641
Shearers Foods LLC	Food Services	Term Loan (First Lien)	Loan		4.50	%		6/30/2021	$	997,500		995,166		996,253
Sonneborn, LLC	Chemicals/Plastics	Term Loan (First Lien)	Loan		5.50	%		12/10/2020	$	225,000		224,471		225,000
Sonneborn, LLC	Chemicals/Plastics	Initial US Term Loan	Loan		5.50	%		12/10/2020	$	1,275,000		1,272,004		1,275,000
Sophia, L.P.	Electronics/Electric	Term B Loan	Loan		4.00	%		7/19/2018	$	886,138		877,732		884,756
SourceHOV LLC	Services: Business	Term Loan B (First Lien)	Loan		7.75	%		10/31/2019	$	2,000,000		1,942,284		1,915,000
Southwire Company, LLC (f.k.a Southwire Company)	Building and Development	Initial Term Loan	Loan		3.25	%		2/10/2021	$	496,250		495,181		485,084
SRAM, LLC	Industrial Equipment	Term Loan (First Lien)	Loan		4.00	%		4/10/2020	$	2,967,681		2,957,888		2,952,842
Steak ‘n Shake Operations, Inc.	Food Services	Term Loan	Loan		4.75	%		3/19/2021	$	992,500		983,723		975,131
STHI Holding	Healthcare & Pharmaceuticals	Term Loan	Loan		4.50	%		8/6/2021	$	997,500		997,500		994,388
SunGard Data Systems Inc. (Solar Capital Corp.)	Conglomerate	Tranche C Term Loan	Loan		3.90	%		2/28/2017	$	285,352		283,117		285,084
SunGard Data Systems Inc. (Solar Capital Corp.)	Conglomerate	Tranche E Term Loan	Loan		4.00	%		3/9/2020	$	3,707,953		3,618,899		3,706,804
SuperMedia Inc. (fka Idearc Inc.)	Publishing	Loan	Loan		11.60	%		12/30/2016	$	238,660		232,462		203,756
Syniverse Holdings, Inc.	Telecommunications	Initial Term Loan	Loan		4.00	%		4/23/2019	$	479,913		476,105		473,314
TGI Friday’s	Food Services	Term Loan B	Loan		5.25	%		7/15/2020	$	267,977		266,768		267,642
TGI Friday’s	Food Services	Term Loan (Second Lien)	Loan		9.25	%		7/15/2021	$	2,000,000		2,016,250		2,000,000
TPF II Power LLC and TPF II Covert Midco LLC	Utilities	Term Loan B	Loan		5.50	%		10/2/2021	$	500,000		496,689		504,790
TransDigm, Inc.	Aerospace and Defense	Tranche C Term Loan	Loan		3.75	%		2/28/2020	$	4,847,054		4,856,484		4,824,661
TransFirst	Financial Intermediaries	Term Loan	Loan		5.50	%		11/12/2021	$	500,000		495,182		502,815
TransUnion	Financial Intermediaries	Term Loan	Loan		4.00	%		4/9/2021	$	496,250		495,138		493,977
Tricorbraun, Inc. (fka Kranson Industries, Inc.)	Containers/Glass Products	Term Loan	Loan		4.00	%		5/3/2018	$	1,850,000		1,843,008		1,822,250
Truven Health Analytics Inc. (fka Thomson Reuters (Healthcare) Inc.)	Healthcare & Pharmaceuticals	New Tranche B Term Loan	Loan		4.50	%		6/6/2019	$	487,566		479,874		481,471
Twin River Management Group, Inc.	Lodging & Casinos	Term Loan B	Loan		5.25	%		7/10/2020	$	974,167		976,455		975,998
U.S. Security Associates Holdings, Inc.	Services: Business	Delayed Draw Loan	Loan		6.25	%		7/28/2017	$	158,518		157,610		156,734
U.S. Security Associates Holdings, Inc.	Services: Business	Term B Loan	Loan		6.25	%		7/28/2017	$	931,046		926,144		920,572
United Surgical Partners International, Inc.	Healthcare & Pharmaceuticals	New Tranche B Term Loan	Loan		4.75	%		4/3/2019	$	2,431,749		2,408,580		2,431,749
Univar Inc.	Chemicals/Plastics	Term B Loan	Loan		5.00	%		6/30/2017	$	3,844,964		3,844,749		3,813,935
Univision Communications Inc.	Telecommunications	Replacement First-Lien Term Loan	Loan		4.00	%		3/1/2020	$	2,947,446		2,931,982		2,940,549
Valeant Pharmaceuticals International, Inc.	Drugs	Series D2 Term Loan B	Loan		3.50	%		2/13/2019	$	2,545,588		2,537,415		2,539,683
Verint Systems Inc.	Services: Business	Term Loan	Loan		3.50	%		9/6/2019	$	1,264,058		1,259,623		1,259,634
Vertafore, Inc.	Services: Business	Term Loan (2013)	Loan		4.25	%		10/3/2019	$	2,881,003		2,881,003		2,878,294
Vouvray US Finance	Industrial Equipment	Term Loan	Loan		5.00	%		6/28/2021	$	497,500		495,243		499,366
Washington Inventory Service	Services: Business	U.S. Term Loan (First Lien)	Loan		5.75	%		12/20/2018	$	1,832,876		1,851,978		1,796,218
Waste Industries	Environmental	Term Loan B	Loan		4.25	%		2/27/2020	$	250,000		249,375		250,520
Wendy’s International, Inc	Food Services	Term B Loan	Loan		3.25	%		5/15/2019	$	673,630		668,099		670,545
West Corporation	Telecommunications	Term B-10 Loan	Loan		3.25	%		6/30/2018	$	2,571,560		2,605,923		2,562,998

											$	297,760,340	$	295,239,268

Note 5. Agreements and-Related Party Transactions

On July 30, 2010, the Company entered into the Management Agreement with our Manager. The initial term of the Management Agreement is two years, with automatic, one-year renewals at the end of each year subject to certain approvals by our board of directors and/or our stockholders. On July 8, 2015, our board of directors approved the renewal of the Management Agreement for an additional one-year term. Pursuant to the Management Agreement, our Manager implements our business strategy on a day-to-day basis and performs certain services for us, subject to oversight by our board of directors. Our Manager is responsible for, among other duties, determining investment criteria, sourcing, analyzing and executing investments transactions, asset sales, financings and performing asset management duties. Under the Management Agreement, we have agreed to pay our Manager a management fee for investment advisory and management services consisting of a base management fee and an incentive fee.

The base management fee of 1.75% is calculated based on the average value of our gross assets (other than cash or cash equivalents, but including assets purchased with borrowed funds) at the end of the two most recently completed fiscal quarters, and appropriately adjusted for any share issuances or repurchases during the applicable fiscal quarter.

The incentive fee consists of the following two parts:

The first, payable quarterly in arrears, equals 20.0% of our pre-incentive fee net investment income, expressed as a rate of return on the value of our net assets at the end of the immediately preceding quarter, that exceeds a 1.875% quarterly (7.5% annualized) hurdle rate measured as of the end of each fiscal quarter, subject to a “catch-up” provision. Under this provision, in any fiscal quarter, our Manager receives no incentive fee unless our pre-incentive fee net investment income exceeds the hurdle rate of 1.875%. Our Manager will receive 100.0% of 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 (9.376% annualized); and 20.0% of the amount of the our pre-incentive fee net investment income, if any, that exceeds 2.344% in any fiscal quarter (9.376% annualized).

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 year, if any, computed net of all realized capital losses and unrealized capital depreciation on a cumulative basis, 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.

For the three months ended May 31, 2015 and May 31, 2014, we incurred $1.1 million and $1.0 million in base management fees, respectively. For the three months ended May 31, 2015 and May 31, 2014, we incurred $0.7 million and $0.3 million in incentive fees related to pre-incentive fee net investment income, respectively. For the three months ended May 31, 2015 and May 31, 2014, we accrued of $1.1 million and $0.1 million in incentive fees related to capital gains, respectively. The accrual is calculated using both realized and unrealized capital gains for the period. The actual incentive fee related to capital gains will be determined and payable in arrears at the end of the fiscal year and will include only realized capital gains for the period. As of May 31, 2015, the base management fees accrual was $1.1 million and the incentive fees accrual was $5.7 million and is included in base management and incentive fees payable in the accompanying consolidated statements of assets and liabilities. As of February 28, 2015, the base management fees accrual was $1.0 million and the incentive fees accrual was $4.8 million and is included in base management and incentive fees payable in the accompanying consolidated statements of assets and liabilities.

On July 30, 2010, the Company entered into a separate administration agreement (the “Administration Agreement”) with our Manager, pursuant to which our Manager, as our administrator, has agreed to furnish us with the facilities and administrative services necessary to conduct our day-to-day operations and provide managerial assistance on our behalf to those portfolio companies to which we are required to provide such assistance. The initial term of the Administration Agreement was two years, with automatic, one-year renewals at the end of each year subject to certain approvals by our board of directors and/or our stockholders. The amount of expenses payable or reimbursable thereunder by the Company was capped at $1.0 million for the initial two year term of the administration agreement and subsequent renewals. 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. In addition, our board of directors intends to review the new cap in the next three to six months to determine whether it should be further adjusted in light of differences between our projected and actual expenses and other similar factors.

For the three months ended May 31, 2015 and May 31, 2014, we recognized $0.3 million and $0.3 million in administrator expenses for the periods, respectively, pertaining to bookkeeping, record keeping and other administrative services provided to us in addition to our allocable portion of rent and other overhead related expenses. As of May 31, 2015 and February 28, 2015, $0.4 million and $0.4 million, respectively, of administrator expenses were accrued and included in due to manager in the accompanying consolidated statements of assets and liabilities. For the three months ended May 31, 2015 and May 31, 2014, the Company neither bought nor sold any investments from the Saratoga CLO.

Note 6. Borrowings

Credit Facility

As a BDC, we are only allowed to employ leverage to the extent that our asset coverage, as defined in the 1940 Act, equals at least 200.0% after giving effect to such leverage. The amount of leverage that we employ at any time depends on our assessment of the market and other factors at the time of any proposed borrowing.

On April 11, 2007, we entered into a $100.0 million revolving securitized credit facility (the “Revolving Facility”). On May 1, 2007, we entered into a $25.7 million term securitized credit facility (the “Term Facility” and, together with the Revolving Facility, the “Facilities”), which was fully drawn at closing. In December 2007, we consolidated the Facilities by using a draw under the Revolving Facility to repay the Term Facility. In response to the market wide decline in financial asset prices, which negatively affected the value of our portfolio, we terminated the revolving period of the Revolving Facility effective January 14, 2009 and commenced a two-year amortization period during which all principal proceeds from the collateral was used to repay outstanding borrowings. A significant percentage of our total assets had been pledged under the Revolving Facility to secure our obligations thereunder. Under the Revolving Facility, funds were borrowed from or through certain lenders and interest was payable monthly at the greater of the commercial paper rate and our lender’s prime rate plus 4.00% plus a default rate of 2.00% or, if the commercial paper market was unavailable, the greater of the prevailing LIBOR rates and our lender’s prime rate plus 6.00% plus a default rate of 3.00%.

In March 2009, we amended the Revolving Facility to increase the portion of the portfolio that could be invested in “CCC” rated investments in return for an increased interest rate and expedited amortization. As a result of these transactions, we expected to have additional cushion under our borrowing base under the Revolving Facility that would allow us to better manage our capital in times of declining asset prices and market dislocation.

On July 30, 2009, we exceeded the permissible borrowing limit under the Revolving Facility for 30 consecutive days, resulting in an event of default under the Revolving Facility. As a result of this event of default, our lender had the right to accelerate repayment of the outstanding indebtedness under the Revolving Facility and to foreclose and liquidate the collateral pledged thereunder. Acceleration of the outstanding indebtedness and/or liquidation of the collateral could have had a material adverse effect on our liquidity, financial condition and operations.

On July 30, 2010, we used the net proceeds from (i) the stock purchase transaction and (ii) a portion of the funds available to us under the $45.0 million senior secured revolving credit facility (the “Credit Facility”) with Madison Capital Funding LLC, in each case, to pay the full amount of principal and accrued interest, including default interest, outstanding under the Revolving Facility. As a result, the Revolving Facility was terminated in connection therewith. Substantially all of our total assets, other than those held by SBIC LP, have been pledged under the Credit Facility to secure our obligations thereunder.

On February 24, 2012, we amended our senior secured revolving credit facility with Madison Capital Funding LLC to, among other things:

•

expand the borrowing capacity under the credit facility from $40.0 million to $45.0 million;

•

extend the period during which we may make and repay borrowings under the credit facility from July 30, 2013 to February 24, 2015 (the “Revolving Period”). The Revolving Period may upon the occurrence of an event of default, by action of the lenders or automatically. All borrowings and other amounts payable under the credit facility are due and payable five years after the end of the Revolving Period; and

•

remove the condition that we may not acquire additional loan assets without the prior written consent of Madison Capital Funding LLC.

On September 17, 2014, we entered into a second amendment to the Revolving Facility with Madison Capital Funding LLC to, among other things:

•

extend the commitment termination date from February 24, 2015 to September 17, 2017;

•

extend the maturity date of the Revolving Facility from February 24, 2020 to September 17, 2022 (unless terminated sooner upon certain events);

•

reduce the applicable margin rate on base rate borrowings from 4.50% to 3.75%, and on LIBOR borrowings from 5.50% to 4.75%; and

•

reduce the floor on base rate borrowings from 3.00% to 2.25%; and on LIBOR borrowings from 2.00% to 1.25%.

As of May 31, 2015 and February 28, 2015, there was $11.8 million and $9.6 million outstanding under the Credit Facility, respectively, and the Company was in compliance with all of the limitations and requirements of the Credit Facility. Financing costs of $2.7 million related to the Credit Facility have been capitalized and are being amortized over the term of the facility. For the three months ended May 31, 2015 and May 31, 2014, we recorded $0.2 million and $0.2 million of interest expense, respectively. For the three months ended May 31, 2015 and May 31, 2014, we recorded $0.02 million and $0.1 million of amortization of deferred financing costs related to the Credit Facility and Revolving Facility, respectively. The interest rates during the three months ended May 31, 2015 and May 31, 2014 on the outstanding borrowings under the Credit Facility were 6.00% and 7.50%, respectively.

The Credit Facility contains limitations as to how borrowed funds may be used, such as restrictions on industry concentrations, asset size, weighted average life, currency denomination and collateral interests. The Credit Facility also includes certain requirements relating to portfolio performance, the violation of which could result in the limit of further advances and, in some cases, result in an event of default, allowing the lenders to accelerate repayment of amounts owed thereunder. The Credit Facility has an eight year term, consisting of a three year period (the “Revolving Period”), under which the Company may make and repay borrowings, and a final maturity five years from the end of the Revolving Period. Availability on the Credit Facility will be subject to a borrowing base calculation, based on, among other things, applicable advance rates (which vary from 50.0% to 75.0% of par or fair value depending on the type of loan asset) and the value of certain “eligible” loan assets included as part of the Borrowing Base. Funds may be borrowed at the greater of the prevailing LIBOR rate and 2.00%, plus an applicable margin of 5.50%. At the Company’s option, funds may be borrowed based on an alternative base rate, which in no event will be less than 3.00%, and the applicable margin over such alternative base rate is 4.50%. In addition, the Company will pay the lenders a commitment fee of 0.75% per year on the unused amount of the Credit Facility for the duration of the Revolving Period.

Our borrowing base under the Credit Facility was $35.5 million subject to the Credit Facility cap of $45.0 million at May 31, 2015. For purposes of determining the borrowing base, most assets are assigned the values set forth in our most recent Annual Report on Form 10-K or Quarterly Report on Form 10-Q filed with the SEC. Accordingly, the May 31, 2015 borrowing base relies upon the valuations set forth in the Annual Report on Form 10-K for the year ended February 28, 2015. The valuations presented in this Quarterly Report on Form 10-Q will not be incorporated into the borrowing base until after this Quarterly Report on Form 10-Q is filed with the SEC.

SBA Debentures

SBIC LP is 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. As of May 31, 2015, we have funded SBIC LP with $59.3 million of equity capital, and have $79.0 million of SBA-guaranteed debentures outstanding. SBA debentures are non-recourse to us, have a 10-year maturity, and may be prepaid at any time without penalty. The interest rate of SBA debentures is fixed at the time of issuance, often referred to as pooling, at a market-driven spread over 10-year U.S. Treasury Notes. SBA current regulations limit the amount that SBIC LP may borrow to a maximum of $150.0 million, which is up to twice its potential regulatory capital.

SBICs are designed to stimulate the flow of private equity capital to eligible small businesses. Under SBA regulations, SBICs may make loans to eligible small businesses and invest in the equity securities of small businesses. Under present SBA regulations, eligible small businesses include businesses that have a tangible net worth not exceeding $19.5 million and have average annual 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.

SBIC LP is subject to regulation and oversight by the SBA, including requirements with respect to maintaining certain minimum financial ratios and other covenants. Receipt of an SBIC license does not assure that SBIC LP will receive SBA guaranteed debenture funding, which is dependent upon SBIC LP continuing to be in compliance with SBA regulations and policies. The SBA, as a creditor, will have a superior claim to SBIC LP’s assets over our stockholders and debtholders in the event we liquidate SBIC LP or the SBA exercises its remedies under the SBA-guaranteed debentures issued by SBIC LP upon an event of default.

The Company received exemptive relief from the Securities and Exchange Commission to permit it to exclude the debt of SBIC LP guaranteed by the SBA from the definition of senior securities in the 200.0% asset coverage test under the 1940 Act. This allows the Company increased flexibility under the 200.0% asset coverage test by permitting it to borrow up to $150.0 million more than it would otherwise be able to absent the receipt of this exemptive relief.

As of May 31, 2015 and February 28, 2015, there was $79.0 million and $79.0 million outstanding of SBA debentures, respectively. The carrying amount of the amount outstanding of SBA debentures approximates its fair value. Financing costs of $3.0 million related to the SBA debentures have been capitalized and are being amortized over the term of the commitment and drawdown. For the three months ended May 31, 2015 and May 31, 2014, we recorded $0.6 million and $0.4 million of interest expense related to the SBA debentures, respectively. For the three months ended May 31, 2015 and May 31, 2014, we recorded $0.1 million and $0.1 million of amortization of deferred financing costs related to the SBA debentures, respectively. The weighted average interest rate during the three months ended May 31, 2015 and May 31, 2014 on the outstanding borrowings of the SBA debentures was 3.25% and 3.06%, respectively.

Notes

On May 10, 2013, the Company issued $42.0 million in aggregate principal amount of 7.50% fixed-rate notes due 2020 (the “Notes”). The Notes will mature on May 31, 2020, and may be redeemed in whole or in part at any time or from time to time at the Company’s option on or after May 31, 2016. Interest will be payable quarterly beginning August 15, 2013.

On May 17, 2013, the Company closed an additional $6.3 million in aggregate principal amount of the Notes, pursuant to the full exercise of the underwriters’ option to purchase additional Notes.

As of May 31, 2015, the carrying amount and fair value of the Notes was $48.3 million and $49.7 million, respectively. The fair value of the Notes, which are publicly traded, is based upon closing market quotes as of the measurement date and would be classified as a level 1 liability within the fair value hierarchy. As of May 31, 2015, $2.5 million of financing costs related to the Notes have been capitalized and are being amortized over the term of the Notes. For the three months ended May 31, 2015, we recorded $0.9 million of interest expense and $0.1 million of amortization of deferred financing costs related to the Notes. For the three months ended May 31, 2014, we recorded $0.9 million of interest expense and $0.1 million of amortization of deferred financing costs related to the Notes.

Note 7. Commitments and contingencies

Contractual obligations

The following table shows our payment obligations for repayment of debt and other contractual obligations at May 31, 2015:


			Payment Due by Period
	Total		Less Than 1 Year		1 -3 Years		3 -5 Years		More Than 5 Years
	($ in thousands)
Long-Term Debt Obligations	$	139,100	$	—	$	—	$	48,300	$	90,800

Off-balance sheet arrangements

The Company’s off-balance sheet arrangements consisted of $11.2 million and $11.2 million of unfunded commitments to provide debt financing to its portfolio companies or to fund limited partnership interests as of May 31, 2015 and February 28, 2015, respectively. Such commitments are generally up to the Company’s discretion to approve, or the satisfaction of certain financial and nonfinancial covenants and involve, to varying degrees, elements of credit risk in excess of the amount recognized in the Company’s Consolidated Statement of Assets and Liabilities and are not reflected in the Company’s Consolidated Statements of Assets and Liabilities.

A summary of the composition of the unfunded commitments as of May 31, 2015 and February 28, 2015 are shown in the table below (dollars in thousands):


	As of
	May 31, 2015		February 28, 2015
Bristol Hospice, LLC	$	7,500	$	7,500
HMN Holdco, LLC		2,400		2,400
Avionte Holdings, LLC		1,000		1,000
Knowland Technology Holdings, L.L.C		300		300

Total	$	11,200	$	11,200

Note 8. Directors Fees

The independent directors receive an annual fee of $40,000. They also receive $2,500 plus reimbursement of reasonable out-of-pocket expenses incurred in connection with attending each board meeting and receive $1,000 plus reimbursement of reasonable out-of-pocket expenses incurred in connection with attending each committee meeting. In addition, the chairman of the Audit Committee receives an annual fee of $5,000 and the chairman of each other committee receives an annual fee of $2,000 for their additional services in these capacities. In addition, we have purchased directors’ and officers’ liability insurance on behalf of our directors and officers. Independent directors have the option to receive their directors’ fees in the form of our common stock issued at a price per share equal to the greater of net asset value or the market price at the time of payment. No compensation is paid to directors who are “interested persons” of the Company (as such term is defined in the 1940 Act). For the three months ended May 31, 2015 and May 31, 2014, we accrued $0.05 million and $0.05 million for directors’ fees expense, respectively. As of May 31, 2015 and February 28, 2015, $0.04 million and $0.03 million in directors’ fees expense were unpaid and included in accounts payable and accrued expenses in the consolidated statements of assets and liabilities. As of May 31, 2015, we had not issued any common stock to our directors as compensation for their services.

Note 9. Stockholders’ Equity

On May 16, 2006, GSC Group, Inc. capitalized the LLC, by contributing $1,000 in exchange for 67 shares, constituting all of the issued and outstanding shares of the LLC.

On March 20, 2007, the Company issued 95,995.5 and 8,136.2 shares of common stock, priced at $150.00 per share, to GSC Group and certain individual employees of GSC Group, respectively, in exchange for the general partnership interest and a limited partnership interest in GSC Partners CDO III GP, LP, collectively valued at $15.6 million. At this time, the 6.7 shares owned by GSC Group in the LLC were exchanged for 6.7 shares of the Company.

On March 28, 2007, the Company completed its IPO of 725,000 shares of common stock, priced at $150.00 per share, before underwriting discounts and commissions. Total proceeds received from the IPO, net of $7.1 million in underwriter’s discount and commissions, and $1.0 million in offering costs, were $100.7 million.

On November 13, 2009, we declared a dividend of $18.25 per share payable on December 31, 2009. Shareholders had the option to receive payment of the dividend in cash, shares of common stock, or a combination of cash and shares of common stock, provided that the aggregate cash payable to all shareholders was limited to $2.1 million or $2.50 per share. Based on shareholder elections, the dividend consisted of $2.1 million in cash and 864,872.5 of newly issued shares of common stock.

On July 30, 2010, our Manager and its affiliates purchased 986,842 shares of common stock at $15.20 per share. Total proceeds received from this sale were $15.0 million.

On August 12, 2010, we effected a one-for-ten reverse stock split of our outstanding common stock. As a result of the reverse stock split, every ten shares of our common stock were converted into one share of our common stock. Any fractional shares received as a result of the reverse stock split were redeemed for cash. The total cash payment in lieu of shares was $230. Immediately after the reverse stock split, we had 2,680,842 shares of our common stock outstanding.

On November 12, 2010, we declared a dividend of $4.40 per share payable on December 29, 2010. Shareholders had the option to receive payment of the dividend in cash, shares of common stock, or a combination of cash and shares of common stock, provided that the aggregate cash payable to all shareholders was limited to approximately $1.2 million or $0.44 per share. Based on shareholder elections, the dividend consisted of approximately $1.2 million in cash and 596,235 shares of common stock.

On November 15, 2011, we declared a dividend of $3.00 per share payable on December 30, 2011. Shareholders had the option to receive payment of the dividend in cash, shares of common stock, or a combination of cash and shares of common stock, provided that the aggregate cash payable to all shareholders was limited to approximately $2.0 million or $0.60 per share. Based on shareholder elections, the dividend consisted of approximately $2.0 million in cash and 599,584 shares of common stock.

On November 9, 2012, the Company declared a dividend of $4.25 per share payable on December 31, 2012. Shareholders had the option to receive payment of the dividend in cash, shares of common stock, or a combination of cash and shares of common stock, provided that the aggregate cash payable to all shareholders was limited to approximately $3.3 million or $0.85 per share. Based on shareholder elections, the dividend consisted of approximately $3.3 million in cash and 853,455 shares of common stock.

On October 30, 2013, the Company declared a dividend of $2.65 per share payable on December 27, 2013. Shareholders had the option to receive payment of the dividend in cash, shares of common stock, or a combination of cash and shares of common stock, provided that the aggregate cash payable to all shareholders was limited to approximately $2.5 million or $0.53 per share. Based on shareholder elections, the dividend consisted of approximately $2.5 million in cash and 649,500 shares of common stock.

On September 24, 2014, the Company declared a dividend of $0.18 per share payable on November 28, 2014. Shareholders had the option to receive payment of the dividend in cash, or receive shares of common stock pursuant to the Company’s DRIP. Based on shareholder elections, the dividend consisted of approximately $0.6 million in cash and 22,283 newly issued shares of common stock.

On September 24, 2014, the Company announced the approval of an open market share repurchase plan that allows it to repurchase up to 200,000 shares of its common stock at prices below its NAV as reported in its then most recently published financial statements. As of February 28, 2015, the Company had not purchased any shares of common stock pursuant to this repurchase plan.

On April 9, 2015, the Company declared a dividend of $0.27 per share payable on May 29, 2015. Shareholders have the option to receive payment of the dividend in cash, or receive shares of common stock, pursuant our DRIP. Based on shareholder elections, the dividend consisted of approximately $0.9 million in cash and 33,766 newly issued shares of common stock.

On May 14, 2015, the Company declared a dividend of $1.00 per share payable on June 5, 2015. Shareholders have the option to receive payment of the dividend in cash, or receive shares of common stock, pursuant our DRIP. Based on shareholder elections, the dividend consisted of approximately $3.4 million in cash and 126,230 newly issued shares of common stock.

Note 10. Earnings Per Share

In accordance with the provisions of FASB ASC 260, “Earnings per Share” (“ASC 260”), basic earnings per share is computed by dividing earnings available to common shareholders by the weighted average number of shares outstanding during the period. Other potentially dilutive common shares, and the related impact to earnings, are considered when calculating earnings per share on a diluted basis.

The following information sets forth the computation of the weighted average basic and diluted net decrease in net assets per share from operations for the three months ended May 31, 2015 and May 31, 2014 (dollars in thousands except share and per share amounts):


	For the three months ended
Basic and diluted	May 31, 2015		May 31, 2014
Net increase in net assets from operations	$	7,385	$	1,760
Weighted average common shares outstanding		5,422,491		5,379,616
Earnings per common share-basic and diluted	$	1.36	$	0.33

Note 11. Dividend

The following tables summarize dividends declared during the three months ended May 31, 2015 (dollars in thousands except per share amounts):


Date Declared	Record Date	Payment Date	Amount Per Share*		Total Amount
May 14, 2015	May 26, 2015	June 5, 2015	$	1.00	$	5,429
April 9, 2015	May 4, 2015	May 29, 2015	$	0.27	$	1,466

Total dividends declared			$	1.27	$	6,895

*	Amount per share is calculated based on the number of shares outstanding at the date of declaration.

The Company did not declare any dividend payments during the quarter ended May 31, 2014.

Note 12. Financial Highlights

The following is a schedule of financial highlights for the three months ended May 31, 2015 and May 31, 2014:


	May 31, 2015			May 31, 2014
Per share data:
Net asset value at beginning of period	$	22.70		$	21.08
Net investment income (1)		0.33			0.38
Net realized and unrealized gains and losses on investments and derivatives		1.03			(0.05	)

Net increase in net assets from operations		1.36			0.33
Distributions declared from net investment income		(1.27	)		—

Total distributions to stockholders		(1.27	)		—
Other (4)		(0.04	)		—
Net asset value at end of period	$	22.75		$	21.41
Net assets at end of period	$	123,491,324		$	115,187,818
Shares outstanding at end of period		5,428,758			5,379,616
Per share market value at end of period	$	17.42		$	15.15
Total return based on market value (2)		10.86	%		(4.62	)%
Total return based on net asset value (3)		1.68	%		1.57	%
Ratio/Supplemental data:
Ratio of net investment income to average net assets		5.80	%		7.28	%
Ratio of operating expenses to average net assets		6.65	%		6.76	%


	May 31, 2015			May 31, 2014
Ratio of incentive management fees to average net assets		5.89	%		1.34	%
Ratio of credit facility related expenses to average net assets		6.43	%		6.31	%
Ratio of total expenses to average net assets		18.97	%		14.40	%
Portfolio turnover rate (5)		2.99	%		4.29	%

As described in Note 2 to the consolidated financial statements and notes thereto, we identified errors that impacted the three months ended May 31, 2014. The corrections for the errors, which we have concluded are immaterial to all prior period consolidated financial statements, are reflected in the consolidated financial statements included in this Form 10-Q.

(1)	Net investment income per share is calculated using the weighted average shares outstanding during the period.

(2)

Total investment return is calculated assuming a purchase of common shares at the current market value on the first day and a sale at the current market value on the last day of the periods reported. Dividends and distributions, if any, are assumed for purposes of this calculation to be reinvested at prices obtained under the Company’s dividend reinvestment plan. Total investment return does not reflect brokerage commissions. Total investment returns covering less than a full period are not annualized.

(3)

Total investment return is calculated assuming a purchase of common shares at the current net asset value on the first day and a sale at the current net asset value on the last day of the periods reported. Dividends and distributions, if any, are assumed for purposes of this calculation to be reinvested at prices obtained under the Company’s dividend reinvestment plan. Total investment return does not reflect brokerage commissions.

(4)	Represents the dilutive effect of issuing common stock below net asset value per share during the period in connection with the satisfaction of the Company’s annual RIC distribution requirement. See Note 11, Dividend.

(5)	Portfolio turnover rate is calculated using the lesser of year-to-date sales or year-to-date purchases over the average of the invested assets at fair value.

Note 13. Subsequent Events

On May 29, 2015, the Company entered into a Debt Distribution Agreement with Landenburg Thalmann & Co. through which the Company may offer for sale, from time to time, up to $20.0 million in aggregate principal amount of the Notes through an At-the-Market (“ATM”) offering. As of July 14, 2015, the Company sold 227,863 bonds with a principal of $5,696,575 at an average price of $25.32 for aggregate net proceeds of $5,653,305 (net of transaction costs).

On July 8, 2015 the Company declared a dividend of $0.33 per share payable for the fiscal quarter ended May 31, 2015 to all stockholders of record at the close of business on August 3, 2015. Shareholders will have the option to receive payment of the dividend in cash, or receive shares of common stock pursuant to the Company’s dividend reinvestment plan.

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

The following discussion should be read in conjunction with our financial statements and related notes and other financial information appearing elsewhere in this Quarterly Report on Form 10-Q. In addition to historical information, the following discussion and other parts of this Quarterly Report contain forward-looking information that involves risks and uncertainties. Our actual results could differ materially from those anticipated by such forward-looking information due to the factors discussed under Part I, Item 1A in our Annual Report on Form 10-K for the fiscal year ended February 28, 2015.

The forward-looking statements are based on our beliefs, assumptions and expectations of our future performance, taking into account all information currently available to us. These beliefs, assumptions and expectations can change as a result of many possible events or factors, not all of which are known to us or are within our control. If a change occurs, our business, financial condition, liquidity and results of operations may vary materially from those expressed in our forward-looking statements.

The forward-looking statements contained in this Quarterly Report on Form 10-Q involve risks and uncertainties, including statements as to:

•

our future operating results;

•

our business prospects and the prospects of our portfolio companies;

•

the impact of investments that we expect to make;

•

our contractual arrangements and relationships with third parties;

•

the dependence of our future success on the general economy and its impact on the industries in which we invest;

•

the ability of our portfolio companies to achieve their objectives;

•

our expected financings and investments;

•

our regulatory structure and tax treatment, including our ability to operate as a business development company (“BDC”), or to operate our small business investment company (“SBIC”) subsidiary, and to continue to qualify to be taxed as a regulated investment company (“RIC”);

•

the adequacy of our cash resources and working capital;

•

the timing of cash flows, if any, from the operations of our portfolio companies; and

•

the ability of our investment adviser to locate suitable investments for us and to monitor and effectively administer our investments.

You should not place undue reliance on these forward-looking statements. The forward-looking statements made in this Quarterly Report on Form 10-Q relate only to events as of the date on which the statements are made. We undertake no obligation to update any forward-looking statement to reflect events or circumstances occurring after the date of this Quarterly Report on Form 10-Q.

OVERVIEW

We are a Maryland corporation that has elected to be treated as a BDC under the Investment Company Act of 1940 (the “1940 Act”). Our investment objective is to generate current income and, to a lesser extent, capital appreciation from our investments. We invest primarily in leveraged loans and mezzanine debt issued by private U.S. middle market companies, which we define as companies having EBITDA of between $5 million and $50 million, both through direct lending and through participation in loan syndicates. We may also 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, which may include 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 elected and qualified to be treated as a RIC under Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”).

Corporate History and Recent Developments

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, as described below we engaged Saratoga Investment Advisors (“SIA”) to replace GSCP (NJ), L.P. as our investment adviser and changed our name to Saratoga Investment Corp.

As a result of the event of default under a revolving securitized credit facility with Deutsche Bank we previously had in place, in December 2008 we engaged the investment banking firm of Stifel, Nicolaus & Company to evaluate strategic transaction opportunities and consider alternatives for us. On April 14, 2010, GSC Investment Corp. entered into a stock purchase agreement with Saratoga Investment Advisors and certain of its affiliates and an assignment, assumption and novation agreement with Saratoga Investment Advisors, pursuant to which GSC Investment Corp. assumed certain rights and obligations of Saratoga Investment Advisors under a debt commitment letter Saratoga Investment Advisors received from Madison Capital Funding LLC, which indicated Madison Capital Funding’s willingness to provide GSC Investment Corp. with a $40.0 million senior secured revolving credit facility, subject to the satisfaction of certain terms and conditions. In addition, GSC Investment Corp. and GSCP (NJ), L.P. entered into a termination and release agreement, to be effective as of the closing of the transaction contemplated by the stock purchase agreement, pursuant to which GSCP (NJ), L.P., among other things, agreed to waive any and all accrued and unpaid deferred incentive management fees up to and as of the closing of the transaction contemplated by the stock purchase agreement but continued to be entitled to receive the base management fees earned through the date of the closing of the transaction contemplated by the stock purchase agreement.

On July 30, 2010, the transactions contemplated by the stock purchase agreement with Saratoga Investment Advisors and certain of its affiliates were completed, 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 closed, the Company entered into the Credit Facility, and the Company began doing business as Saratoga Investment Corp.

We used the net proceeds from the private sale transaction 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. 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 the 982,842 shares of our common stock issued to Saratoga Investment Advisors and certain of its affiliates.

On March 28, 2012, our wholly-owned subsidiary, Saratoga Investment Corp. SBIC, LP (“SBIC LP”), received a SBIC license from the Small Business Administration (“SBA”).

In May 2013, we issued $48.3 million in aggregate principal amount of our 7.50% unsecured notes due 2020 for net proceeds of $46.1 million after deducting underwriting commissions of $1.9 million and offering costs of $0.3 million. The proceeds included the underwriters’ full exercise of their overallotment option. Interest on these notes is paid quarterly in arrears on February 15, May 15, August 15 and November 15, at a rate of 7.50% per year, beginning August 15, 2013. The notes mature on May 31, 2020 and may be redeemed in whole or in part at any time or from time to time at our option on or after May 31, 2016. The notes are listed on the NYSE under the trading symbol “SAQ” with a par value of $25.00 per share.

On May 29, 2015, we entered into a Debt Distribution Agreement with Landenburg Thalmann & Co. through which we may offer for sale, from time to time, up to $20.0 million in aggregate principal amount of the Notes through an At-the-Market (“ATM”) offering. As of July 14, 2015, the Company sold 227,863 bonds with a principal of $5,696,575 at an average price of $25.32 for aggregate net proceeds of $5,653,305 (net of transaction costs).

Critical Accounting Policies

Basis of Presentation

The preparation of financial statements in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) requires management to make certain estimates and assumptions affecting amounts reported in the Company’s consolidated financial statements. We have identified investment valuation, revenue recognition and the recognition of capital gains incentive fee expense as our most critical accounting estimates. We continuously evaluate our estimates, including those related to the matters described below. These estimates are based on the information that is currently available to us and on various other assumptions that we believe to be reasonable under the circumstances. Actual results could differ materially from those estimates under different assumptions or conditions. A discussion of our critical accounting policies follows.

Investment Valuation

Investments for which market quotations are readily available are fair valued at such market quotations obtained from independent third party pricing services and market makers 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 Advisers, the audit committee of our board of directors and a third party independent valuation firm. Determinations of fair value may involve subjective judgments and estimates. The types of factors that may be considered in determining the fair value of our investments include the nature and realizable value of any collateral, the portfolio company’s ability to make payments, market yield trend analysis, the markets in which the portfolio company does business, comparison to publicly traded companies, discounted cash flow 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 our senior management; and

•

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

•

The audit committee of our board of directors reviews each preliminary valuation and Saratoga Investment Advisors and independent valuation firm (if applicable) will supplement the preliminary valuation to reflect any comments provided by the audit committee; and

•

Our board of directors discusses the valuations and approves the fair value of each investment, in good faith, based on the input of Saratoga Investment Advisors, independent valuation firm (to the extent applicable) and the audit committee of our board of directors.

Our investment in Saratoga Investment Corp. CLO 2013-1, Ltd. (“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 flows analysis on expected future cash flows to determine a valuation for our investment in Saratoga CLO.

Revenue Recognition

Income Recognition

Interest income, adjusted for amortization of premium and accretion of discount, is recorded on an accrual basis to the extent that such amounts are expected to be collected. The Company stops accruing interest on its investments when it is determined that interest is no longer collectible. Discounts and premiums on investments purchased are accreted/amortized over the life of the respective investment using the effective yield method. The amortized cost of investments represents the original cost adjusted for the accretion of discounts and amortizations of premium on investments.

Interest income on our investment in Saratoga CLO is recorded using the effective interest method in accordance with the provisions of ASC Topic 325-40, Investments-Other, Beneficial Interests in Securitized Financial Assets, based on the anticipated yield and the estimated cash flows over the projected life of the investment. Yields are revised when there are changes in actual or estimated cash flows due to changes in prepayments and/or re-investments, credit losses or asset pricing. Changes in estimated yield are recognized as an adjustment to the estimated yield over the remaining life of the investment from the date the estimated yield was changed.

Paid-in-Kind Interest

Capital Gains Incentive Fee

The Company records an expense accrual relating to the capital gains incentive fee payable by the Company to its investment adviser when the unrealized gains on its investments exceed all realized capital losses on its investments given the fact that a capital gains incentive fee would be owed to the investment adviser if the Company were to liquidate its investment portfolio at such time. The actual incentive fee payable to the Company’s investment adviser related to capital gains will be determined and payable in arrears at the end of each fiscal year and will include only realized capital gains for the period.

Revenues

We generate revenue in the form of interest income and capital gains on the debt investments that we hold and capital gains, if any, on equity interests that we may acquire. We expect our debt investments, whether in the form of leveraged loans or mezzanine debt, to have terms of up to ten years, and to bear interest at either a fixed or floating rate. Interest on debt will be payable generally either quarterly or semi-annually. In some cases, our debt investments may provide for a portion of the interest to be PIK. To the extent interest is paid-in-kind, 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. The principal amount of the debt and any accrued but unpaid interest will generally become due at the maturity date. In addition, we may generate revenue in the form of commitment, origination, structuring or diligence fees, fees for providing managerial assistance or investment management services and possibly consulting fees. Any such fees will be generated in connection with our investments and recognized as earned. We may also invest in preferred equity securities that pay dividends on a current basis.

On January 22, 2008, we entered into a collateral management agreement with Saratoga CLO, pursuant to which we act as its collateral manager. The Saratoga CLO was refinanced in October 2013 and its reinvestment period ends in October 2016. The Saratoga CLO remains 100% owned and managed by Saratoga Investment Corp. We receive a senior collateral management fee of 0.25% and a subordinate collateral management fee of 0.25% of the outstanding principal amount of Saratoga CLO’s assets, paid quarterly to the extent of available proceeds. We are also 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 equal to or greater than 12.0%.

We recognize interest income on our investment in the subordinated notes of Saratoga CLO using the effective interest method, based on the anticipated yield and the estimated cash flows over the projected life of the investment. Yields are revised when there are changes in actual or estimated cash flows due to changes in prepayments and/or re-investments, credit losses or asset pricing. Changes in estimated yield are recognized as an adjustment to the estimated yield over the remaining life of the investment from the date the estimated yield was changed.

Expenses

Our primary operating expenses include the payment of investment advisory and management fees, professional fees, directors and officers insurance, fees paid to independent directors and administrator expenses, including our allocable portion of our administrator’s overhead. Our investment advisory and management fees compensate our investment adviser for its work in identifying, evaluating, negotiating, closing and monitoring our investments. We bear all other costs and expenses of our operations and transactions, including those relating to:

•

organization;

•

calculating our net asset value (including the cost and expenses of any independent valuation firm);

•

expenses incurred by our investment adviser payable to third parties, including agents, consultants or other advisers, in monitoring our financial and legal affairs and in monitoring our investments and performing 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;

•

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; and

•

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 an administration agreement, including rent and the allocable portion of the cost of our officers and their respective staffs (including travel expenses)).

Pursuant to the investment advisory and management agreement that we had with GSCP (NJ), L.P., our former investment adviser and administrator, we had agreed to pay GSCP (NJ), L.P. as investment adviser a quarterly base management fee of 1.75% of the average value of our total assets (other than cash or cash equivalents but including assets purchased with borrowed funds) at the end of the two most recently completed fiscal quarters, and appropriately adjusted for any share issuances or repurchases during the applicable fiscal quarter, and an incentive fee.

The incentive fee had two parts:

•

A fee, payable quarterly in arrears, equal to 20.0% of our pre-incentive fee net investment income, expressed as a rate of return on the value of the net assets at the end of the immediately preceding quarter, that exceeded a 1.875% quarterly (7.5% annualized) hurdle rate measured as of the end of each fiscal quarter. Under this provision, in any fiscal quarter, our investment adviser received no incentive fee unless our pre-incentive fee net investment income exceeded the hurdle rate of 1.875%. Amounts received as a return of capital were not included in calculating this portion of the incentive fee. Since the hurdle rate was based on net assets, a return of less than the hurdle rate on total assets could still have resulted in an incentive fee.

•

A fee, payable at the end of each fiscal year, equal to 20.0% of our net realized capital gains, if any, computed net of all realized capital losses and unrealized capital depreciation, in each case on a cumulative basis, less the aggregate amount of capital gains incentive fees paid to the investment adviser through such date.

We deferred cash payment of any incentive fee otherwise earned by our former investment adviser if, during the then most recent four full fiscal quarters ending on or prior to the date such payment was to be made, the sum of (a) our aggregate distributions to our stockholders and (b) our change in net assets (defined as total assets less liabilities) (before taking into account any incentive fees payable during that period) was less than 7.5% of our net assets at the beginning of such period. These calculations were appropriately pro-rated for the first three fiscal quarters of operation and adjusted for any share issuances or repurchases during the applicable period. Such incentive fee would become payable on the next date on which such test had been satisfied for the most recent four full fiscal quarters or upon certain terminations of the investment advisory and management agreement. We commenced deferring cash payment of incentive fees during the quarterly period ended August 31, 2007, and continued to defer such payments through the quarterly period ended May 31, 2010. As of July 30, 2010, the date on which GSCP (NJ), L.P. ceased to be our investment adviser and administrator, we owed GSCP (NJ), L.P. $2.9 million in fees for services previously provided to us; of which $0.3 million has been paid by us. GSCP (NJ), L.P. agreed to waive payment by us of the remaining $2.6 million in connection with the consummation of the stock purchase transaction with Saratoga Investment Advisors and certain of its affiliates described elsewhere in this Quarterly Report.

The terms of the investment advisory and management agreement with Saratoga Investment Advisors, our current investment adviser, are substantially similar to the terms of the investment advisory and management agreement we had entered into with GSCP (NJ), L.P., our former investment adviser, except for the following material distinctions in the fee terms:

•

The capital gains portion of the incentive fee was reset with respect to gains and losses from May 31, 2010, and therefore losses and gains incurred prior to such time will not be taken into account when calculating the capital gains fee payable to Saratoga Investment Advisors and, as a result, Saratoga Investment Advisors will be entitled to 20.0% of net gains that arise after May 31, 2010. In addition, the cost basis for computing realized gains and losses on investments held by us as of May 31, 2010 equal the fair value of such investment as of such date. Under the investment advisory and management agreement with our former investment adviser, GSCP (NJ), L.P., the capital gains fee was calculated from March 21, 2007, and the gains were substantially outweighed by losses.

•

Under the “catch up” provision, 100.0% of our pre-incentive fee net investment income with respect to that portion of such pre-incentive fee net investment income that exceeds 1.875% (7.5% annualized) but is less than or equal to 2.344% in any fiscal quarter is payable to Saratoga Investment Advisors. This will enable Saratoga Investment Advisors to receive 20.0% of all net investment income as such amount approaches 2.344% in any quarter, and Saratoga Investment Advisors will receive 20.0% of any additional net investment income. Under the investment advisory and management agreement with our former investment adviser, GSCP (NJ), L.P. only received 20.0% of the excess net investment income over 1.875%.

•

We will no longer have deferral rights regarding incentive fees in the event that the distributions to stockholders and change in net assets is less than 7.5% for the preceding four fiscal quarters.

To the extent that any of our leveraged loans are denominated in a currency other than U.S. dollars, we may enter into currency hedging contracts to reduce our exposure to fluctuations in currency exchange rates. We may also enter into interest rate hedging agreements. Such hedging activities, which will be subject to compliance with applicable legal requirements, may include the use of interest rate caps, futures, options and forward contracts. Costs incurred in entering into or settling such contracts will be borne by us.

New Accounting Pronouncements

In June 2014, the FASB issued ASU 2014-11, Repurchase-to-Maturity Transactions, Repurchase Financings, and Disclosures, (“ASU 2014-11”). ASU 2014-11 makes limited changes to the accounting for repurchase agreements, clarifies when repurchase agreements and securities lending transactions should be accounted for as secured borrowings, and requires additional disclosures regarding these types of transactions. The guidance is effective for fiscal years beginning on or after December 15, 2014, and for interim periods within those fiscal years. Management is currently evaluating the impact these changes will have on the Company’s consolidated financial statement disclosures.

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers (Topic 606), which supersedes the revenue recognition requirements in Revenue Recognition (Topic 605). Under the new guidance, an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This guidance is effective for annual and interim reporting periods beginning after December 15, 2016, and early application is not permitted. The Company is currently evaluating the impact this ASU will have on its consolidated financial statements.

Portfolio and investment activity

Corporate Debt Portfolio Overview


	At May 31, 2015			At February 28, 2015
	($ in millions)			($ in millions)
Number of investments(1)		65			63
Number of portfolio companies(1)		35			34
Average investment size(1)	$	3.8		$	3.5
Weighted average maturity(1)		3.5yrs			3.7yrs
Number of industries(1)		14			14
Average investment per portfolio company(1)	$	7.0		$	6.6
Non-performing or delinquent investments(1)	$	0.0		$	0.0
Fixed rate debt (% of interest bearing portfolio)(2)	$	83.0(37.5)	%	$	82.5(40.6)	%
Weighted average current coupon(2)		11.9	%		12.0	%
Floating rate debt (% of interest bearing portfolio)(2)	$	138.2(62.5)	%	$	120.8(59.4)	%
Weighted average current spread over LIBOR(2)		8.9	%		8.7	%

(1)	Excludes our investment in the subordinated notes of Saratoga CLO and limited partnership interests.

(2)	Excludes our investment in the subordinated notes of Saratoga CLO, investments in common stocks and limited partnership interests.

During the three months ended May 31, 2015, we made $23.2 million investments in new or existing portfolio companies and had $7.3 million in aggregate amount of exits and repayments resulting in net investments of $15.9 million for the period.

During the three months ended May 31, 2014, we made $21.6 million investments in new or existing portfolio companies and had $8.7 million in aggregate amount of exits and repayments resulting in net investments of $12.9 million for the period.

Our portfolio composition at May 31, 2015 and February 28, 2015 at fair value was as follows:

Portfolio composition


	At May 31, 2015						At February 28, 2015
	Percentage of Total Portfolio			Weighted Average Current Yield			Percentage of Total Portfolio			Weighted Average Current Yield
Syndicated loans		6.8	%		6.3	%		7.6	%		6.2	%
First lien term loans		59.8			11.2			60.3			11.0
Second lien term loans		15.4			11.0			14.8			11.2
Unsecured notes		2.2			10.8			1.8			13.7
Saratoga CLO subordinated notes		6.4			28.8			7.1			25.2
Equity interests		9.4			N/A			8.4			N/A

Total		100.0	%		12.0	%		100.0	%		11.8	%

Our investment in the subordinated notes of Saratoga CLO represents a first loss position in a portfolio that, at May 31, 2015 and February 28, 2015, was composed of $306.6 million and $296.9 million, respectively, in aggregate principal amount of predominantly senior secured first lien term loans. This investment is subject to unique risks. (See “Risk Factors—Our investment in Saratoga CLO 2013-1 LTD. constitutes a leveraged investment in a portfolio of predominantly senior secured first lien term loans and is subject to additional risks and volatility”). We do not consolidate the Saratoga CLO portfolio in our financial statements. Accordingly, the metrics below do not include the underlying Saratoga CLO portfolio investments. However, at May 31, 2015, $301.1 million or 98.8% of the Saratoga CLO portfolio investments in terms of market value had a CMR (as defined below) color rating of green or yellow and three Saratoga CLO portfolio investments were in default with a fair value of $1.4 million. At February 28, 2015, $291.6 million or 98.8% of the Saratoga CLO portfolio investments in terms of market value had a CMR (as defined below) color rating of green or yellow and two Saratoga CLO portfolio investments were in default with a fair value of $2.7 million.

Saratoga Investment Advisors normally grades all of our investments using a credit and monitoring rating system (“CMR”). The CMR consists of a single component: a color rating. The color rating is based on several criteria, including financial and operating strength, probability of default, and restructuring risk. The color ratings are characterized as follows: (Green)—strong credit; (Yellow)—satisfactory credit; (Red)—payment default risk, in payment default and/or significant restructuring activity.

The CMR distribution of our investments at May 31, 2015 and February 28, 2015 was as follows:

Portfolio CMR distribution


	At May 31, 2015					At February 28, 2015
Color Score	Investments at Fair Value		Percentage of Total Portfolio			Investments at Fair Value		Percentage of Total Portfolio
	($ in thousands)
Green	$	211,564		80.5	%	$	191,606		79.7	%
Yellow		9,611		3.7			11,635		4.8
Red		103		0.0			101		0.0
N/A(1)		41,466		15.8			37,196		15.5

Total	$	262,744		100.0	%	$	240,538		100.0	%

(1)	Comprised of our investment in the subordinated notes of Saratoga CLO and equity interests.

The CMR distribution of Saratoga CLO investments at May 31, 2015 and February 28, 2015 was as follows:

Portfolio CMR distribution


	At May 31, 2015					At February 28, 2015
Color Score	Investments at Fair Value		Percentage of Total Portfolio			Investments at Fair Value		Percentage of Total Portfolio
	($ in thousands)
Green	$	284,908		93.5	%	$	278,769		94.4	%
Yellow		16,166		5.3			12,875		4.4
Red		3,118		1.0			2,978		1.0
N/A(1)		491		0.2			617		0.2

Total	$	304,683		100.0	%	$	295,239		100.0	%

(1)	Comprised of Saratoga CLO’s equity interests.

Portfolio composition by industry grouping at fair value

The following table shows our portfolio composition by industry grouping at fair value at May 31, 2015 and February 28, 2015:


	At May 31, 2015					At February 28, 2015
	Investments at Fair Value		Percentage of Total Portfolio			Investments at Fair Value		Percentage of Total Portfolio
	($ in thousands)
Software as a Service	$	59,940		22.8	%	$	50,362		20.9	%
Business Services		52,494		20.0			52,128		21.7
Consumer Services		28,977		11.0			27,332		11.4
Healthcare Services		20,027		7.6			20,641		8.6
Food and Beverage		17,285		6.6			10,348		4.3
Structured Finance (1)		16,860		6.4			17,031		7.1
Media		15,494		5.9			15,026		6.2
Metals		15,262		5.8			15,262		6.3
Automotive Aftermarket		10,540		4.0			10,980		4.6
Electronics		6,576		2.5			6,667		2.8
Publishing		6,421		2.4			1,985		0.8
Utilities		5,955		2.3			5,955		2.5
Building Products		3,775		1.5			3,436		1.4
Consumer Products		3,035		1.2			3,284		1.4
Education		103		0.0			101		0.0

Total	$	262,744		100.0	%	$	240,538		100.0	%

(1)	Comprised of our investment in the subordinated notes of Saratoga CLO.

The following table shows Saratoga CLO’s portfolio composition by industry grouping at fair value at May 31, 2015 and February 28, 2015:


	At May 31, 2015					At February 28, 2015
	Investments at Fair Value		Percentage of Total Portfolio			Investments at Fair Value		Percentage of Total Portfolio
	($ in thousands)
Services: Business	$	42,819		14.1	%	$	42,751		14.4	%
Healthcare & Pharmaceuticals		34,030		11.1			35,341		12.0
Chemicals/Plastics		26,610		8.7			25,758		8.7
Conglomerate		21,103		6.9			19,928		6.7
Retailers (Except Food and Drugs)		20,873		6.9			22,026		7.4
Financial Intermediaries		16,026		5.3			10,806		3.7
Industrial Equipment		14,933		4.9			15,290		5.2
Electronics/Electric		12,448		4.1			12,904		4.4
Leisure Goods/Activities/Movies		11,587		3.8			12,629		4.3
Telecommunications		8,950		2.9			6,675		2.3
Aerospace and Defense		8,733		2.9			7,287		2.5
Automotive		6,651		2.2			6,650		2.2
Utilities		6,243		2.0			6,281		2.1
Food Products		5,866		1.9			5,856		2.0
Lodging and Casinos		5,702		1.9			5,826		2.0
Oil & Gas		5,699		1.9			6,070		2.1
Publishing		5,584		1.8			5,627		1.9
Insurance		5,415		1.8			5,425		1.8
Food Services		5,378		1.8			5,886		2.0
Brokers/Dealers/Investment Houses		4,866		1.6			4,832		1.6
Containers/Glass Products		4,320		1.4			4,313		1.5
Drugs		4,043		1.3			10,091		3.4
Retail		4,013		1.3			—		—
Technology		3,959		1.3			1,008		0.3
Media		3,500		1.1			2,004		0.7
Food/Drug Retailers		2,917		1.0			5,861		2.0
Cable and Satellite Television		2,632		0.9			2,646		0.9
Telecommunications/Cellular		2,425		0.8			2,431		0.8
Consumer Goods: Durable		2,114		0.7			—		—
Nonferrous Metals/Minerals		1,790		0.6			1,835		0.6
Hotels, Gaming, and Leisure		1,010		0.3			—		—
Consumer Goods: Non-Durable		995		0.3			—		—
Services: Consumer		502		0.2			—		—
Broadcast Radio and Television		445		0.1			467		0.2
Environmental		251		0.1			250		0.1
Building and Development		251		0.1			485		0.2

Total	$	304,683		100.0	%	$	295,239		100.0	%

Portfolio composition by geographic location at fair value

The following table shows our portfolio composition by geographic location at fair value at May 31, 2015 and February 28, 2015. The geographic composition is determined by the location of the corporate headquarters of the portfolio company.


	At May 31, 2015					At February 28, 2015
	Investments at Fair Value		Percentage of Total Portfolio			Investments at Fair Value		Percentage of Total Portfolio
	($ in thousands)
Southeast	$	116,223		44.2	%	$	92,069		38.3	%
Midwest		55,152		21.0			55,767		23.2
West		39,415		15.0			40,259		16.7
Northeast		34,094		13.0			34,412		14.3
Other(1)		16,860		6.4			17,031		7.1
International		1,000		0.4			1,000		0.4

Total	$	262,744		100.0	%	$	240,538		100.0	%

(1)	Comprised of our investment in the subordinated notes of Saratoga CLO.

Results of operations

Operating results for the three months ended May 31, 2015 and May 31, 2014 are as follows:


	For the three months ended
	May 31, 2015		May 31, 2014
	($ in thousands)
Total investment income	$	7,561	$	6,144
Total expenses, net		5,790		4,081

Net investment income		1,771		2,063
Net realized gains		73		82
Net unrealized appreciation/(depreciation) on investments		5,541		(385	)

Net increase in net assets resulting from operations	$	7,385	$	1,760

Investment income

The composition of our investment income for the three months ended May 31, 2015 and May 31, 2014 are as follows:


	For the three months ended
	May 31, 2015		May 31, 2014
	($ in thousands)
Interest from investments	$	6,931	$	5,602
Management fees from Saratoga CLO		379		392
Interest from cash and cash equivalents and other income		251		150

Total	$	7,561	$	6,144

For the three months ended May 31, 2015, total investment income increased $1.4 million, or 23.1% compared to the three months ended May 31, 2014. Interest income from investments increased $1.3 million, or 23.7%, to $6.9 million for the three months ended May 31, 2015 from $5.6 million for the three months ended May 31, 2014. This reflects an increase of 20.1% in total investments to $262.7 million at May 31, 2015 from $218.7 million at May 31, 2014, despite the weighted average current coupon reducing from 12.9% to 11.9%.

For the three months ended May 31, 2015 and May 31, 2014, total PIK income was $0.7 million and $0.3 million, respectively.

The Saratoga CLO was refinanced in October 2013. As a result, proceeds from principal payments in the loan portfolio of Saratoga CLO must now be used to paydown its outstanding notes. The management fee income and investment income that we receive from Saratoga CLO has remained relatively unchanged at $0.4 million for the three months ended May 31, 2015 and 2014.

Operating expenses

The composition of our operating expenses for the three months ended May 31, 2015 and May 31, 2014 are as follows:

Operating Expenses


	For the three months ended
	May 31, 2015		May 31, 2014
	($ in thousands)
Interest and debt financing expense	$	1,964	$	1,787
Base management fees		1,124		969
Professional fees		333		435
Incentive management fees		1,798		378
Administrator expenses		250		250
Insurance		87		85
Directors fees and expenses		51		53
General & administrative		183		124

Total expenses	$	5,790	$	4,081

For the three months ended May 31, 2015, total operating expenses increased $1.7 million, or 41.9% compared to the three months ended May 31, 2014.

For the three months ended May 31, 2015 and May 31, 2014, the increase in interest and credit facility expense is primarily attributable to an increase in outstanding debt as compared to the prior years, with increased levels of both the SBA debentures and the revolving credit facility outstanding. The credit facility increased from $4.7 million at May 31, 2014 to $11.8 million at May 31, 2015, while our SBA debentures increased from $64.0 million to $79.0 million for these same periods. For the three months ended May 31, 2015, the weighted average interest rate on our outstanding indebtedness was 4.94% compared to 5.27% for the three months ended May 31, 2014. This decrease was primarily driven by an increase in SBA debentures that carry a lower interest rate but now make up a higher proportion of our overall debt, increasing from 54.7% of overall debt as of May 31, 2014 to 56.8% as of May 31, 2015.

For the three months ended May 31, 2015, base management fees increased $0.2 million, or 16.1% compared to the three months ended May 31, 2014. The increase in base management fees results from the increase in the average value of our total assets, less cash and cash equivalents, from $219.6 million to $254.8 million as of May 31, 2014 and May 31, 2015, respectively.

For the three months ended May 31, 2015, professional fees decreased $0.1 million, or 23.4% compared to the three months ended May 31, 2014.

For the three months ended May 31, 2015, incentive management fees increased $1.4 million, or 375.0% compared to the three months ended May 31, 2014. These increased fees reflect two factors, being (i) an increase in accrued incentive fees this year, as higher total assets has led to increased net investment income above the hurdle rate pursuant to the investment advisory and management agreement, and (ii) increased second part of the incentive fees of $1.1 million, related primarily to the redemption of one of our investments in which we held both debt and equity, resulting in an unrealized gain of $4.2 million for the three months ended May 31, 2015.

As discussed above, the increase in interest and credit facility expense for three months ended May 31, 2015 and May 31, 2014 is primarily attributable to an increase in the amount of outstanding debt as compared to the prior periods. For the three months ended May 31, 2015 and May 31, 2014, the weighted average interest rate on the outstanding borrowings under the Credit Facility for three months ended May 31, 2015 and May 31, 2014 was 6.00% and 7.50%, respectively. For three months ended May 31, 2015 and May 31, 2014, the weighted average interest rate on the outstanding borrowings of the SBA debentures was 3.25% and 3.06%, respectively.

Net realized gains/losses on sales of investments

For the three months ended May 31, 2015, the Company had $7.3 million of sales, repayments, exits or restructurings resulting in $0.1 million of net realized gains. The most significant realized gains and losses during the three months ended May 31, 2015 were as follows:

Three Months ended May 31, 2015

Issuer

Asset Type

Gross
Proceeds

Cost

Net
Realized
Gain/
(Loss)

($ in thousands)

PrePaid Legal Services, Inc

First Lien Term Loan

2,091

2,065

Expedited Travel, LLC

First Lien Term Loan

732

722

For the three months ended May 31, 2014, the Company had $8.7 million of sales, repayments, exits or restructurings resulting in $0.1 million of net realized gains. There were no significant realized gains and losses during the three months ended May 31, 2014.

Net unrealized appreciation/depreciation on investments

For the three months ended May 31, 2015, our investments had net unrealized appreciation of $5.5 million versus net unrealized depreciation of $0.4 million for the three months ended May 31, 2014. The most significant cumulative changes in unrealized appreciation and depreciation for the three months ended May 31, 2015, were the following:

Three Months ended May 31, 2015


Issuer	Asset Type	Cost		Fair Value		Total Unrealized Appreciation/ (Depreciation)			YTD Change in Unrealized Appreciation/ (Depreciation)
		($ in thousands)
Saratoga CLO	Other/Structured Finance Securities		15,173		16,860		1,687			609
Network Communications, Inc.	Common Stock		—		3,206		3,206			2,906
Network Communications, Inc.	Unsecured Notes		2,868		3,214		346			1,297
Smile Brands Group, Inc.	First Lien Term Loan		4,366		3,745		(621	)		(406	)

The $2.9 million and $1.3 million of unrealized appreciation in our investments in Network Communications, Inc. is due to the sale of the company to a third party and reflects the realization value pursuant to that transaction.

The $0.6 million unrealized appreciation in our investment in the Saratoga CLO was primarily due to a decline in the discount rate based on prevailing market conditions.

The most significant cumulative changes in unrealized appreciation and depreciation for the three months ended May 31, 2014, were the following:

Three Months ended May 31, 2014


Issuer	Asset Type	Cost		Fair Value		Total Unrealized Appreciation/ (Depreciation)			YTD Change in Unrealized Appreciation/ (Depreciation)
		($ in thousands)
Saratoga CLO	Other/Structured Finance Securities	$	16,556	$	20,119	$	3,563		$	549
Elyria Foundry Company, LLC	First Lien Term Loan		8,860		5,721		(3,139	)		(923	)
USS Parent Holding Corp.	Voting Common Stock		3,026		4,510		1,484			(518	)

The $0.5 million of unrealized appreciation in our investment in the Saratoga CLO subordinated notes was due to decline in the discount rate for CLO equity securities from fiscal year end.

The $0.9 million of unrealized depreciation in our investment in Elyria Foundry Company, LLC was due to a decline in oil and gas end markets from fiscal year end.

The $0.5 million of unrealized depreciation in our investment in the common stock of USS Parent Holding Corp. was due to a decline in the EBITDA multiple from fiscal year end used to determined equity value.

Changes in net assets resulting from operations

For the three months ended May 31, 2015 and May 31, 2014, we recorded a net increase in net assets resulting from operations of $7.4 million and $1.8 million, respectively. Based on 5,422,491 weighted average common shares outstanding as of May 31, 2015, our per share net increase in net assets resulting from operations was $1.36 for the three months ended May 31, 2015. Based on 5,379,616 weighted average common shares outstanding as of May 31, 2014, our per share net increase in net assets resulting from operations was $0.33 for the three months ended May 31, 2014.

FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES

We intend to continue to generate cash primarily from cash flows from operations, including interest earned from our investments in debt in middle market companies, interest earned from the temporary investment of cash in U.S. government securities and other high-quality debt investments that mature in one year or less, future borrowings and future offerings of securities.

Although we expect to fund the growth of our investment portfolio through the net proceeds from SBA debenture drawdowns and future equity offerings, including our dividend reinvestment plan, and issuances of senior securities or future borrowings, to the extent permitted by the 1940 Act, we cannot assure you that our plans to raise capital will be successful. In this regard, because our common stock has historically traded at a price below our current net asset value per share and we are limited in our ability to sell our common stock at a price below net asset value per share, we have been and may continue to be limited in our ability to raise equity capital. Our stockholders approved a proposal at our annual meeting of stockholders held on September 30, 2014 that authorizes us to sell shares of our common stock at an offering price per share to investors that is not less than 85% of our then current net asset value per share in one or more offerings for a period ending on the earlier of September 30, 2015 or the date of our next annual meeting of stockholders. We would need stockholder approval of a similar proposal to issue shares below net asset value per share at any time after the earlier of September 30, 2015 or our next annual meeting of stockholders.

In addition, we intend to distribute to our stockholders substantially all of our taxable income in order to satisfy the distribution requirement applicable to RICs under Subchapter M of the Code. In satisfying this distribution requirement, we have in the past relied on IRS issued private letter rulings concluding that 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 on the aggregate amount of cash to be distributed to all stockholders, which limitation must be at least 20% of the aggregate declared distribution. We may rely on these IRS private letter rulings in future periods to satisfy our RIC distribution requirement.

Also, as a BDC, we generally are required to meet a coverage ratio of total assets, less liabilities and indebtedness not represented by senior securities, to total senior securities, which include all of our borrowings and any outstanding preferred stock, of at least 200%. This requirement limits the amount that we may borrow. Our asset coverage ratio, as defined in the 1940 Act, was 313.8% as of May 31, 2015 and 321.1% as of February 28, 2015. To fund growth in our investment portfolio in the future, we anticipate needing to raise additional capital from various sources, including the equity markets and other debt-related markets, which may or may not be available on favorable terms, if at all.

Consequently, we may not have the funds or the ability to fund new investments, to make additional investments in our portfolio companies, to fund our unfunded commitments to portfolio companies or to repay borrowings. Also, the illiquidity of our portfolio investments may make it difficult for us to sell these investments when desired and, if we are required to sell these investments, we may realize significantly less than their recorded value.

Madison revolving credit facility

Below is a summary of the terms of the senior secured revolving credit facility we entered into with Madison Capital Funding (the “Credit Facility”) on June 30, 2010.

Availability. The Company can draw up to the lesser of (i) $40.0 million (the “Facility Amount”) and (ii) the product of the applicable advance rate (which varies from 50.0% to 75.0% depending on the type of loan asset) and the value, determined in accordance with the Credit Facility (the “Adjusted Borrowing Value”), of certain “eligible” loan assets pledged as security for the loan (the “Borrowing Base”), in each case less (a) the amount of any undrawn funding commitments the Company has under any loan asset

and which are not covered by amounts in the Unfunded Exposure Account referred to below (the “Unfunded Exposure Amount”) and (b) outstanding borrowings. Each loan asset held by the Company as of the date on which the Credit Facility was closed was valued as of that date and each loan asset that the Company acquires after such date will be valued at the lowest of its fair value, its face value (excluding accrued interest) and the purchase price paid for such loan asset. Adjustments to the value of a loan asset will be made to reflect, among other things, changes in its fair value, a default by the obligor on the loan asset, insolvency of the obligor, acceleration of the loan asset, and certain modifications to the terms of the loan asset.

The Credit Facility contains limitations on the type of loan assets that are “eligible” to be included in the Borrowing Base and as to the concentration level of certain categories of loan assets in the Borrowing Base such as restrictions on geographic and industry concentrations, asset size and quality, payment frequency, status and terms, average life, and collateral interests. In addition, if an asset is to remain an “eligible” loan asset, the Company may not make changes to the payment, amortization, collateral and certain other terms of the loan assets without the consent of the administrative agent that will either result in subordination of the loan asset or be materially adverse to the lenders.

Collateral. The Credit Facility is secured by substantially all of the assets of the Company (other than assets held by our SBIC subsidiary) and includes the subordinated notes (“CLO Notes”) issued by Saratoga CLO and the Company’s rights under the CLO Management Agreement (as defined below).

Interest Rate and Fees. Under the Credit Facility, funds are borrowed from or through certain lenders at the greater of the prevailing LIBOR rate and 2.00%, plus an applicable margin of 5.50%. At the Company’s option, funds may be borrowed based on an alternative base rate, which in no event will be less than 3.00%, and the applicable margin over such alternative base rate is 4.50%. In addition, the Company pays the lenders a commitment fee of 0.75% per year on the unused amount of the Credit Facility for the duration of the Revolving Period (defined below). Accrued interest and commitment fees are payable monthly. The Company was also obligated to pay certain other fees to the lenders in connection with the closing of the Credit Facility.

Revolving Period and Maturity Date. The Company may make and repay borrowings under the Credit Facility for a period of three years following the closing of the Credit Facility (the “Revolving Period”). The Revolving Period may be terminated at an earlier time by the Company or, upon the occurrence of an event of default, by action of the lenders or automatically. All borrowings and other amounts payable under the Credit Facility are due and payable in full five years after the end of the Revolving Period.

Collateral Tests. It is a condition precedent to any borrowing under the Credit Facility that the principal amount outstanding under the Credit Facility, after giving effect to the proposed borrowings, not exceed the lesser of the Borrowing Base or the Facility Amount (the “Borrowing Base Test”). In addition to satisfying the Borrowing Base Test, the following tests must also be satisfied (together with Borrowing Base Test, the “Collateral Tests”):

•

Interest Coverage Ratio. The ratio (expressed as a percentage) of interest collections with respect to pledged loan assets, less certain fees and expenses relating to the Credit Facility, to accrued interest and commitment fees and any breakage costs payable to the lenders under the Credit Facility for the last 6 payment periods must equal at least 175.0%.

•

Overcollateralization Ratio. The ratio (expressed as a percentage) of the aggregate Adjusted Borrowing Value of “eligible” pledged loan assets plus the fair value of certain ineligible pledged loan assets and the CLO Notes (in each case, subject to certain adjustments) to outstanding borrowings under the Credit Facility plus the Unfunded Exposure Amount must equal at least 200.0%.

•

Weighted Average FMV Test. The aggregate adjusted or weighted value of “eligible” pledged loan assets as a percentage of the aggregate outstanding principal balance of “eligible” pledged loan assets must be equal to or greater than 72.0% and 80.0% during the one-year periods prior to the first and second anniversary of the closing date, respectively, and 85.0% at all times thereafter.

The Credit Facility also requires payment of outstanding borrowings or replacement of pledged loan assets upon the Company’s breach of its representation and warranty that pledged loan assets included in the Borrowing Base are “eligible” loan assets. Such payments or replacements must equal the lower of the amount by which the Borrowing Base is overstated as a result of such breach or any deficiency under the Collateral Tests at the time of repayment or replacement. Compliance with the Collateral Tests is also a condition to the discretionary sale of pledged loan assets by the Company.

Priority of Payments. During the Revolving Period, the priority of payments provisions of the Credit Facility require, after payment of specified fees and expenses and any necessary funding of the Unfunded Exposure Account, that collections of principal from the loan assets and, to the extent that these are insufficient, collections of interest from the loan assets, be applied on each payment date to payment of outstanding borrowings if the Borrowing Base Test, the Overcollateralization Ratio and the Interest Coverage Ratio would not otherwise be met. Similarly, following termination of the Revolving Period, collections of interest are required to be applied, after payment of certain fees and expenses, to cure any deficiencies in the Borrowing Base Test, the Interest Coverage Ratio and the Overcollateralization Ratio as of the relevant payment date.

Reserve Account. The Credit Facility requires the Company to set aside an amount equal to the sum of accrued interest, commitment fees and administrative agent fees due and payable on the next succeeding three payment dates (or corresponding to three payment periods). If for any monthly period during which fees and other payments accrue, the aggregate Adjusted Borrowing Value of “eligible” pledged loan assets which do not pay cash interest at least quarterly exceeds 15.0% of the aggregate Adjusted Borrowing Value of “eligible” pledged loan assets, the Company is required to set aside such interest and fees due and payable on the next succeeding six payment dates. Amounts in the reserve account can be applied solely to the payment of administrative agent fees, commitment fees, accrued and unpaid interest and any breakage costs payable to the lenders.

Unfunded Exposure Account. With respect to revolver or delayed draw loan assets, the Company is required to set aside in a designated account (the “Unfunded Exposure Account”) 100.0% of its outstanding and undrawn funding commitments with respect to such loan assets. The Unfunded Exposure Account is funded at the time the Company acquires a revolver or delayed draw loan asset and requests a related borrowing under the Credit Facility. The Unfunded Exposure Account is funded through a combination of proceeds of the requested borrowing and other Company funds, and if for any reason such amounts are insufficient, through application of the priority of payment provisions described above.

Operating Expenses. The priority of payments provision of the Credit Facility provides for the payment of certain operating expenses of the Company out of collections on principal and interest during the Revolving Period and out of collections on interest following the termination of the Revolving Period in accordance with the priority established in such provision. The operating expenses payable pursuant to the priority of payment provisions is limited to $350,000 for each monthly payment date or $2.5 million for the immediately preceding period of twelve consecutive monthly payment dates. This ceiling can be increased by the lesser of 5.0% or the percentage increase in the fair market value of all the Company’s assets only on the first monthly payment date to occur after each one-year anniversary following the closing of the Credit Facility. Upon the occurrence of a Manager Event (described below), the consent of the administrative agent is required in order to pay operating expenses through the priority of payments provision.

Events of Default. The Credit Facility contains certain negative covenants, customary representations and warranties and affirmative covenants and events of default. The Credit Facility does not contain grace periods for breach by the Company of certain covenants, including, without limitation, preservation of existence, negative pledge, change of name or jurisdiction and separate legal entity status of the Company covenants and certain other customary covenants. Other events of default under the Credit Facility include, among other things, the following:

•

an Interest Coverage Ratio of less than 150.0%;

•

an Overcollateralization Ratio of less than 175.0%;

•

the filing of certain ERISA or tax liens;

•

the occurrence of certain “Manager Events” such as:

•

failure by Saratoga Investment Advisors and its affiliates to maintain collectively, directly or indirectly, a cash equity investment in the Company in an amount equal to at least $5,000,000 at any time prior to the third anniversary of the closing date;

•

failure of the Management Agreement between Saratoga Investment Advisors and the Company to be in full force and effect;

•

indictment or conviction of Saratoga Investment Advisors or any “key person” for a felony offense, or any fraud, embezzlement or misappropriation of funds by Saratoga Investment Advisors or any “key person” and, in the case of “key persons,” without a reputable, experienced individual reasonably satisfactory to Madison Capital Funding appointed to replace such key person within 30 days;

•

resignation, termination, disability or death of a “key person” or failure of any “key person” to provide active participation in Saratoga Investment Advisors’ daily activities, all without a reputable, experienced individual reasonably satisfactory to Madison Capital Funding appointed within 30 days; or

•

occurrence of any event constituting “cause” under the Collateral Management Agreement between the Company and Saratoga CLO (the “CLO Management Agreement”), delivery of a notice under Section 12(c) of the CLO Management Agreement with respect to the removal of the Company as collateral manager or the Company ceases to act as collateral manager under the CLO Management Agreement.

Conditions to Acquisitions and Pledges of Loan Assets. The Credit Facility imposes certain additional conditions to the acquisition and pledge of additional loan assets. Among other things, the Company may not acquire additional loan assets without the prior written consent of the administrative agent until such time that the administrative agent indicates in writing its satisfaction with Saratoga Investment Advisors’ policies, personnel and processes relating to the loan assets.

Fees and Expenses. The Company paid certain fees and reimbursed Madison Capital Funding for the aggregate amount of all documented, out-of-pocket costs and expenses, including the reasonable fees and expenses of lawyers, incurred by Madison Capital Funding in connection with the Credit Facility and the carrying out of any and all acts contemplated thereunder up to and as of the date of closing of the stock purchase transaction with Saratoga Investment Advisors and certain of its affiliates. These amounts totaled $2.0 million.

On February 24, 2012, we amended our senior secured revolving credit facility with Madison Capital Funding LLC to, among other things:

•

expand the borrowing capacity under the credit facility from $40.0 million to $45.0 million;

•

extend the Revolving Period from July 30, 2013 to February 24, 2015; and

•

remove the condition that we may not acquire additional loan assets without the prior written consent of the administrative agent.

On September 17, 2014, we entered into a second amendment to the Revolving Facility with Madison Capital Funding LLC to, among other things:

•

extend the commitment termination date from February 24, 2015 to September 17, 2017;

•

extend the maturity date of the Revolving Facility from February 24, 2020 to September 17, 2022 (unless terminated sooner upon certain events);

•

reduce the applicable margin rate on base rate borrowings from 4.50% to 3.75%, and on LIBOR borrowings from 5.50% to 4.75%; and

•

reduce the floor on base rate borrowings from 3.00% to 2.25%; and on LIBOR borrowings from 2.00% to 1.25%.

As of May 31, 2015, we had $11.8 million outstanding under the Credit Facility and $79.0 million SBA-guaranteed debentures outstanding (which are discussed below). As of February 28, 2015, we had $9.6 million outstanding under the Credit Facility and $79.0 million SBA-guaranteed debentures outstanding. Our borrowing base under the Credit Facility at May 31, 2015 and February 28, 2015 was $35.5 million and $36.3 million, respectively.

Our asset coverage ratio, as defined in the 1940 Act, was 313.8% as of May 31, 2015 and 321.1% as of February 28, 2015.

SBA-guaranteed debentures

In addition, we, through a wholly-owned subsidiary, sought and obtained a license from the SBA to operate an SBIC. In this regard, on March 28, 2012, our wholly-owned subsidiary, Saratoga Investment Corp. SBIC, LP, received a license from the SBA to operate as an SBIC under Section 301(c) of the Small Business Investment Act of 1958. SBICs are designated to stimulate the flow of private equity capital to eligible small businesses. Under SBA regulations, SBICs may make loans to eligible small businesses and invest in the equity securities of small businesses.

The SBIC license allows our SBIC subsidiary to obtain leverage by issuing SBA-guaranteed debentures. SBA-guaranteed debentures are non-recourse, interest only debentures with interest payable semi-annually and have a ten year maturity. The principal amount of SBA-guaranteed debentures is not required to be paid prior to maturity but may be prepaid at any time without penalty. The interest rate of SBA-guaranteed debentures is fixed on a semi-annual basis at a market-driven spread over U.S. Treasury Notes with 10-year maturities.

SBA regulations currently limit the amount that our SBIC subsidiary may borrow to a maximum of $150 million when it has at least $75 million in regulatory capital, receives a capital commitment from the SBA and has been through an examination by the SBA subsequent to licensing. As of May 31, 2015, our SBIC subsidiary had $59.3 million in regulatory capital and $79.0 million SBA-guaranteed debentures outstanding.

We received exemptive relief from the Securities and Exchange Commission to permit us to exclude the debt of our SBIC subsidiary guaranteed by the SBA from the definition of senior securities in the 200% asset coverage test under the 1940 Act. This allows us increased flexibility under the 200% asset coverage test by permitting us to borrow up to $150 million more than we would otherwise be able to absent the receipt of this exemptive relief.

Unsecured notes

In May 2013, we issued $48.3 million in aggregate principal amount of our 7.50% unsecured notes due 2020 for net proceeds of $46.1 million after deducting underwriting commissions of $1.9 million and offering costs of $0.3 million. The proceeds included the underwriters’ full exercise of their overallotment option. Interest on these notes is paid quarterly in arrears on February 15, May 15, August 15 and November 15, at a rate of 7.50% per year, beginning August 15, 2013. The notes mature on May 31, 2020 and may be redeemed in whole or in part at any time or from time to time at our option on or after May 31, 2016. In connection with the issuance of the notes, we agreed to the following covenants for the period of time during which the notes are outstanding:

•

we will not violate (whether or not we are subject to) Section 18(a)(1)(A) as modified by Section 61(a)(1) of the 1940 Act or any successor provisions, but giving effect to any exemptive relief granted to us by the SEC. Currently, these provisions generally prohibit us from making additional borrowings, including through the issuance of additional debt or the sale of additional debt securities, unless our asset coverage, as defined in the 1940 Act, equals at least 200% after such borrowings.

•

we will not violate (regardless of whether we are subject to) Section 18(a)(1)(B) as modified by Section 61(a)(1) of the 1940 Act or any successor provisions, but giving effect to (i) any exemptive relief granted to us by the SEC and (ii) no-action relief granted by the SEC to another BDC (or to the Company if it determines to seek such similar no-action or other relief) permitting the BDC to declare any cash dividend or distribution notwithstanding the prohibition contained in Section 18(a)(1)(B) as modified by Section 61(a)(1) of the 1940 Act in order to maintain the BDC’s status as a regulated investment company under Subchapter M of the Internal Revenue Code of 1986. Currently these provisions generally prohibit us from declaring any cash dividend or distribution upon any class of our capital stock, or purchasing any such capital stock if our asset coverage, as defined in the 1940 Act, is below 200% at the time of the declaration of the dividend or distribution or the purchase and after deducting the amount of such dividend, distribution or purchase.

The Notes are listed on the NYSE under the trading symbol “SAQ” with a par value of $25.00 per share.

On May 29, 2015, we entered into a Debt Distribution Agreement with Landenburg Thalmann & Co. through which we may offer for sale, from time to time, up to $20.0 million in aggregate principal amount of the Notes through an ATM offering. As of July 14, 2015, the Company sold 227,863 bonds with a principal of $5,696,575 at an average price of $25.32 for aggregate net proceeds of $5,653,305 (net of transaction costs).

At May 31, 2015 and February 28, 2015, the fair value of investments, cash and cash equivalents and cash and cash equivalents, securitization accounts were as follows:


	At May 31, 2015					At February 28, 2015
	Fair Value		Percent of Total			Fair Value		Percent of Total
	($ in thousands)
Cash and cash equivalents	$	699		0.3	%	$	1,888		0.7	%
Cash and cash equivalents, securitization accounts		5,864		2.2			18,175		7.0
Syndicated loans		17,794		6.6			18,302		7.0
First lien term loans		157,072		58.3			145,207		55.7
Second lien term loans		40,551		15.1			35,603		13.7
Unsecured notes		5,861		2.2			4,230		1.7
Structured finance securities		16,860		6.2			17,031		6.5
Equity Interest		24,606		9.1			20,165		7.7

Total	$	269,307		100.0	%	$	260,601		100.0	%

On September 24, 2014, the Company declared a dividend of $0.22 per share payable on February 27, 2015. Shareholders have the option to receive payment of the dividend in cash, or receive shares of common stock, pursuant our DRIP. Based on shareholder elections, the dividend consisted of approximately $0.8 million in cash and 26,858 newly issued shares of common stock, or 0.5% of our outstanding common stock prior to the dividend payment. The number of shares of common stock comprising the stock portion was calculated based on a price of $14.97 per share, which equaled the volume weighted average trading price per share of the common stock on February 13, 17, 18, 19, 20, 23, 24, 25, 26 and 27, 2015.

Also on September 24, 2014, the Company declared a dividend of $0.18 per share payable on November 28, 2014. Shareholders had the option to receive payment of the dividend in cash, or receive shares of common stock pursuant to our DRIP. Based on shareholder elections, the dividend consisted of approximately $0.6 million in cash and 22,283 newly issued shares of common stock, or 0.4% of our outstanding common stock prior to the dividend payment. The number of shares of common stock comprising the stock portion was calculated based on a price of $14.37 per share, which equaled the volume weighted average trading price per share of the common stock on November 14, 17, 18, 19, 20, 21, 24, 25, 26 and 28, 2014.

On October 30, 2013, our board of directors declared a dividend of $2.65 per share payable on December 27, 2013, to common stockholders of record on November 13, 2013. Shareholders had the option to receive payment of the dividend in cash, shares of common stock, or a combination of cash and shares of common stock, provided that the aggregate cash payable to all shareholders was limited to approximately $2.5 million or $0.53 per share. This dividend was declared in reliance on certain private letter rulings issued by the IRS concluding that 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 on the aggregate amount of cash to be distributed to all stockholders, which limitation must be at least 20.0% of the aggregate declared distribution.

Based on shareholder elections, the dividend consisted of approximately $2.5 million in cash and 649,500 shares of common stock, or 13.7% of our outstanding common stock prior to the dividend payment. The amount of cash elected to be received was greater than the cash limit of 20.0% of the aggregate dividend amount, thus resulting in the payment of a combination of cash and stock to shareholders who elected to receive cash. The number of shares of common stock comprising the stock portion was calculated based on a price of $15.439 per share, which equaled the volume weighted average trading price per share of the common stock on December 11, 13, and 16, 2013.

On November 9, 2012, our board of directors declared a dividend of $4.25 per share payable on December 31, 2012, to common stockholders of record on November 20, 2012. Shareholders had the option to receive payment of the dividend in cash, shares of common stock, or a combination of cash and shares of common stock, provided that the aggregate cash payable to all shareholders was limited to approximately $3.3 million or $0.85 per share.

Based on shareholder elections, the dividend consisted of $3.3 million in cash and 853,455 shares of common stock, or 22.0% of our outstanding common stock prior to the dividend payment. The amount of cash elected to be received was greater than the cash limit of 20.0% of the aggregate dividend amount, thus resulting in the payment of a combination of cash and stock to shareholders who elected to receive cash. The number of shares of common stock comprising the stock portion was calculated based on a price of $15.444 per share, which equaled the volume weighted average trading price per share of the common stock on December 14, 17 and 19, 2012.

On November 15, 2011, our board of directors declared a dividend of $3.00 per share payable on December 30, 2011, to common stockholders of record on November 25, 2011. Shareholders had the option to receive payment of the dividend in cash, shares of common stock, or a combination of cash and shares of common stock, provided that the aggregate cash payable to all shareholders was limited to $2.0 million or $0.60 per share.

Based on shareholder elections, the dividend consisted of $2.0 million in cash and 599,584 shares of common stock, or 18.0% of our outstanding common stock prior to the dividend payment. The amount of cash elected to be received was greater than the cash limit of 20.0% of the aggregate dividend amount, thus resulting in the payment of a combination of cash and stock to shareholders who elected to receive cash. The number of shares of common stock comprising the stock portion was calculated based on a price of $13.117067 per share, which equaled the volume weighted average trading price per share of the common stock on December 20, 21 and 22, 2011.

On November 12, 2010, our board of directors declared a dividend of $4.40 per share to shareholders payable in cash or shares of our common stock, in accordance with the provisions of the IRS Revenue Procedure 2010-12, which allows a publicly-traded regulated investment company to satisfy its distribution requirements with a distribution paid partly in common stock provided that at least 10.0% of the distribution is payable in cash. The dividend was paid on December 29, 2010 to common shareholders of record on November 19, 2010.

Based on shareholder elections, the dividend consisted of $1.2 million in cash and 596,235 shares of common stock, or 22.0% of our outstanding common stock prior to the dividend payment. The amount of cash elected to be received was greater than the cash limit of 10.0% of the aggregate dividend amount, thus resulting in the payment of a combination of cash and stock to shareholders who elected to receive cash. The number of shares of common stock comprising the stock portion was calculated based on a price of $17.8049 per share, which equaled the volume weighted average trading price per share of the common stock on December 20, 21 and 22, 2010.

On November 13, 2009, our board of directors declared a dividend of $18.25 per share payable on December 31, 2009, to common stockholders of record on November 25, 2009. Shareholders had the option to receive payment of the dividend in cash, shares of common stock, or a combination of cash and shares of common stock, provided that the aggregate cash payable to all shareholders was limited to $2.1 million or $0.25 per share.

Based on shareholder elections, the dividend consisted of $2.1 million in cash and 8,648,725 shares of common stock, or 104.0% of our outstanding common stock prior to the dividend payment. The amount of cash elected to be received was greater than the cash limit of 13.7% of the aggregate dividend amount, thus resulting in the payment of a combination of cash and stock to shareholders who elected to receive cash. The number of shares of common stock comprising the stock portion was calculated based on a price of $1.5099 per share, which equaled the volume weighted average trading price per share of the common stock on December 24 and 28, 2009.

We cannot provide any assurance that these measures will provide sufficient sources of liquidity to support our operations and growth.

Contractual obligations

The following table shows our payment obligations for repayment of debt and other contractual obligations at May 31, 2015:


			Payment Due by Period
	Total		Less Than 1 Year		1 -3 Years		3 -5 Years		More Than 5 Years
	($ in thousands)
Long-Term Debt Obligations	$	139,100	$	—	$	—	$	48,300	$	90,800

Off-balance sheet arrangements

A summary of the composition of the unfunded commitments as of May 31, 2015 and February 28, 2015 is shown in the table below (dollars in thousands):


	As of
	May 31, 2015		February 28, 2015
Bristol Hospice, LLC	$	7,500	$	7,500
HMN Holdco, LLC		2,400		2,400
Avionte Holdings, LLC		1,000		1,000
Knowland Technology Holdings, L.L.C		300		300

Total	$	11,200	$	11,200

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Our market risks have not changed materially from the risks reported in our Form 10-K for the year ended February 28, 2015.

Item 4. Controls and Procedures

(a)

As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our management, including our chief executive officer and our chief financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934). Based on that evaluation, our chief executive officer and our chief financial officer have concluded that our current disclosure controls and procedures are effective in facilitating timely decisions regarding required disclosure of any material information relating to us that is required to be disclosed by us in the reports we file or submit under the Securities Exchange Act of 1934.

(b)	There have been no changes in our internal control over financial reporting that occurred during the quarter ended May 31, 2015 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

On August 31, 2012, a complaint was filed in the United States Bankruptcy Court for the Southern District of New York by GSC Acquisition Holdings, LLC against us to recover, among other things, approximately $2.6 million for the benefit of the estates and the general unsecured creditors of GSC Group, Inc. and its affiliates, including the Company’s former investment adviser, GSCP (NJ), L.P. The complaint alleges that the former investment adviser made a constructively fraudulent transfer of $2.6 million in deferred incentive fees by waiving them in connection with the termination of the Management Agreement with us, and that the termination of the Management Agreement was itself a fraudulent transfer. These transfers, the complaint alleges, were made without receipt of reasonably equivalent value and while the former investment adviser was insolvent. The complaint has not yet been served, and the plaintiff’s motion for authority to prosecute the case on behalf of the estates was taken under advisement by the court on October 1, 2012. We opposed that motion. We believe that the claims in this lawsuit are without merit and, if the plaintiff is authorized to proceed, intend to vigorously defend against this action.

Except as discussed above, neither we nor our wholly-owned subsidiaries, Saratoga Investment Funding LLC and Saratoga Investment Corp. SBIC LP, are currently subject to any material legal proceedings.

Item 1A. Risk Factors

In addition to other information set forth in this report, you should carefully consider the “Risk Factors” discussed in our annual report on Form 10-K filed with the SEC on May 20, 2015 which could materially affect our business, financial condition and/or operating results. Additional risks or uncertainties not currently known to us or that we currently deem to be immaterial also may materially affect our business, financial condition and/or operating results. There have been no material changes from the risk factors set forth in our Annual Report on Form 10-K for the year ended February 28, 2015.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Not applicable.

Item 3. Defaults upon Senior Securities

Not applicable.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

Not applicable.

Item 6. Exhibits

Listed below are the exhibits which are filed as part of this report (according to the number assigned to them in Item 601 of Regulation S-K):


Exhibit Number		Description of Document

31.1*		Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934

31.2*		Certification of Chief Financial Officer Pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934

32.1*		Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350)

32.2*		Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350)

*	Submitted herewith.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


	SARATOGA INVESTMENT CORP.

Date: July 14, 2015	By:	/s/ CHRISTIAN L. OBERBECK
		Christian L. Oberbeck
		Chief Executive Officer

	By:	/s/ HENRI J. STEENKAMP
		Henri J. Steenkamp
		Chief Financial Officer and Chief Compliance Officer