SARATOGA INVESTMENT CORP. - FORM 10-Q

Attached files

file	filename
EX-31.1 - EX-31.1 - SARATOGA INVESTMENT CORP.	a13-19849_1ex31d1.htm
EX-31.2 - EX-31.2 - SARATOGA INVESTMENT CORP.	a13-19849_1ex31d2.htm
EX-32.1 - EX-32.1 - SARATOGA INVESTMENT CORP.	a13-19849_1ex32d1.htm
EX-32.2 - EX-32.2 - SARATOGA INVESTMENT CORP.	a13-19849_1ex32d2.htm

Table of Contents

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 August 31, 2013

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

Commission File Number: 1-33376

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 o

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 o No o

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):

Large Accelerated Filer o		Accelerated Filer o

Non-Accelerated Filer x		Smaller Reporting Company o

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

The number of shares of the registrant’s common stock, $0.001 par value, outstanding as of October 15, 2013 was 4,730,116.

Table of Contents

TABLE OF CONTENTS

		Page

PART I	FINANCIAL INFORMATION	3

Item 1.	Financial Statements	3

	Consolidated Statements of Assets and Liabilities as of August 31, 2013 (unaudited) and February 28, 2013	3

	Consolidated Statements of Operations for the three and six months ended August 31, 2013 and 2012 (unaudited)	4

	Consolidated Schedules of Investments as of August 31, 2013 (unaudited) and February 28, 2013	5

	Consolidated Statements of Changes in Net Assets for the six months ended August 31, 2013 and 2012 (unaudited)	11

	Consolidated Statements of Cash Flows for the six months ended August 31, 2013 and 2012 (unaudited)	12

	Notes to Consolidated Financial Statements as of August 31, 2013 (unaudited)	13

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	34

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	50

Item 4.	Controls and Procedures	51

PART II	OTHER INFORMATION	51

Item 1.	Legal Proceedings	51

Item 1A.	Risk Factors	51

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	51

Item 3.	Defaults upon Senior Securities	51

Item 4.	Mine Safety Disclosures	52

Item 5.	Other Information	52

Item 6.	Exhibits	52

Signatures		53

Table of Contents

PART I FINANCIAL INFORMATION

Item 1. Financial Statements

Saratoga Investment Corp.

Consolidated Statements of Assets and Liabilities

	As of
	August 31, 2013			February 28, 2013
	(unaudited)
ASSETS

Investments at fair value
Non-control/non-affiliate investments (amortized cost of $167,382,770 and $130,465,086, respectively)	$	168,058,055		$	129,563,428
Control investments (cost of $16,804,518 and $18,944,966 respectively)	19,741,624			25,516,959
Total investments at fair value (amortized cost of $184,187,288 and $149,410,052 respectively)	187,799,679			155,080,387
Cash and cash equivalents	11,558,783			149,025
Cash and cash equivalents, reserve accounts	16,592,698			12,086,142
Interest receivable, (net of reserve of $240,693 and $53,543, respectively)	2,060,413			2,889,358
Due from manager	4,929			—
Deferred debt financing costs, net	4,250,199			2,090,184
Management fee receivable	198,522			215,853
Other assets	91,345			83,407
Receivable from unsettled trades	1,500,585			1,817,074
Total assets	$	224,057,153		$	174,411,430

LIABILITIES
Revolving credit facility	$	—		$	24,300,000
SBA debentures payable	40,000,000			36,000,000
Notes payable	48,300,000			—
Payable for unsettled trades	16,270,000			—
Management and incentive fees payable	5,486,746			4,509,322
Accounts payable and accrued expenses	501,640			435,038
Interest and debt fees payable	745,051			257,796
Due to manager	308,401			222,513
Total liabilities	$	111,611,838		$	65,724,669

NET ASSETS
Common stock, par value $.001, 100,000,000 common shares authorized, 4,730,116 and 4,730,116 common shares issued and outstanding, respectively	$	4,730		$	4,730
Capital in excess of par value	174,824,076			174,824,076
Distribution in excess of net investment income	(19,781,396		)	(24,522,951		)
Accumulated net realized loss from investments and derivatives	(46,214,485		)	(47,289,427		)
Net unrealized appreciation on investments and derivatives	3,612,390			5,670,333
Total Net Assets	112,445,315			108,686,761

Total liabilities and Net Assets	$	224,057,153		$	174,411,430

NET ASSET VALUE PER SHARE	$	23.77		$	22.98

See accompanying notes to consolidated financial statements.

Table of Contents

Saratoga Investment Corp.

Consolidated Statements of Operations

	For the three months ended August 31					For the six months ended August 31
	2013			2012		2013			2012
	(unaudited)			(unaudited)		(unaudited)			(unaudited)
INVESTMENT INCOME
Interest from investments
Non-control/Non-affiliate investments	$	3,385,362		$	2,206,947	$	7,254,826		$	3,945,469
Payment-in-kind interest income from Non-control/Non-affiliate investments	296,802			212,811		472,923			539,274
Control investments	1,109,535			1,094,681		2,235,539			2,140,466
Total interest income	4,791,699			3,514,439		9,963,288			6,625,209
Interest from cash and cash equivalents	3,959			1,791		5,865			4,637
Management fee income	480,750			500,225		978,841			1,000,065
Other income	111,300			146,834		457,476			152,560
Total investment income	5,387,708			4,163,289		11,405,470			7,782,471

EXPENSES
Interest and debt financing expenses	1,603,581			653,025		2,731,436			1,278,728
Base management fees	811,106			504,802		1,547,822			963,610
Professional fees	235,191			293,483		566,255			639,322
Administrator expenses	250,000			250,000		500,000			500,000
Incentive management fees	(39,770		)	869,403		781,352			1,299,674
Insurance	119,234			130,308		239,229			260,615
Directors fees and expenses	45,000			51,000		96,000			102,000
General & administrative	91,425			97,022		189,786			148,363
Other expense	75			—		12,035			3,123
Total expenses	3,115,842			2,849,043		6,663,915			5,195,435

NET INVESTMENT INCOME	2,271,866			1,314,246		4,741,555			2,587,036

REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain from investments	545,642			268,718		1,074,942			447,348
Net realized loss from derivatives	—			—		—			(131,000		)
Net unrealized appreciation (depreciation) on investments	(2,858,805		)	3,288,078		(2,057,943		)	5,027,500
Net unrealized appreciation on derivatives	—			—		—			130,925
Net gain (loss) on investments	(2,313,163		)	3,556,796		(983,001		)	5,474,773

NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS	$	(41,297	)	$	4,871,042	$	3,758,554		$	8,061,809

WEIGHTED AVERAGE - BASIC AND DILUTED EARNINGS (LOSS) PER COMMON SHARE	$	(0.01	)	$	1.26	$	0.79		$	2.08

WEIGHTED AVERAGE COMMON STOCK OUTSTANDING - BASIC AND DILUTED	4,730,116			3,876,661		4,730,116			3,876,661

See accompanying notes to consolidated financial statements.

Table of Contents

Saratoga Investment Corp.

Consolidated Schedule of Investments

August 31, 2013

(unaudited)

Company (a)	Industry	Investment Interest Rate / Maturity	Principal/ Number of Shares		Cost		Fair Value (c)		% of Net Assets

Non-control/Non-affiliated investments - 149.4% (b)

Coast Plating, Inc. (d)	Aerospace	First Lien Term Loan 11.70% Cash, 9/13/2014	$	2,401,310	$	2,401,310	$	2,401,310	2.1	%

Coast Plating, Inc. (d)	Aerospace	First Lien Term Loan 12.45% Cash, 9/13/2014	$	894,606	894,606		894,606		0.8	%

		Total Aerospace			3,295,916		3,295,916		2.9	%

National Truck Protection Co., Inc. (d), (g)	Automotive	Common Stock	589		500,000		826,041		0.7	%

National Truck Protection Co., Inc. (d)	Automotive	First Lien Term Loan 15.50% (13.50% Cash/2.00% PIK), 8/10/2017	$	5,471,119	5,471,119		5,471,119		4.9	%

Take 5 Oil Change, L.L.C. (d), (g)	Automotive	Common Stock	6,415		712,800		923,076		0.8	%

		Total Automotive			6,683,919		7,220,236		6.4	%

Legacy Cabinets Holdings (d), (g)	Building Products	Common Stock Voting A-1	2,535		220,900		136,890		0.1	%

Legacy Cabinets Holdings (d), (g)	Building Products	Common Stock Voting B-1	1,600		139,424		86,400		0.1	%

Legacy Cabinets, Inc. (d)	Building Products	First Lien Term Loan 7.25% (1.00% Cash/6.25% PIK), 5/3/2014	$	274,603	274,603		246,264		0.2	%

		Total Building Products			634,927		469,554		0.4	%

BMC Software, Inc. (d)	Business Services	First Lien Term Loan 5.00% Cash, 9/10/2020	$	6,000,000	5,940,000		5,988,000		5.3	%

Dispensing Dynamics International (d)	Business Services	Senior Secured Note 12.50% Cash, 1/1/2018	$	7,000,000	6,871,015		7,070,000		6.3	%

Easy Ice, LLC (d)	Business Services	First Lien Term Loan 14.00% (11.00% Cash 3.00% PIK), 3/29/2018	$	7,394,783	7,261,256		7,394,783		6.6	%

Emily Street Enterprises, L.L.C. (d)	Business Services	Senior Secured Note 14.00% (13.00% Cash/1.00% PIK), 12/28/2017	$	5,739,067	5,640,488		5,739,067		5.1	%
	`	`
Emily Street Enterprises, L.L.C. (d), (g)	Business Services	Warrant Membership Interests	49,318		400,000		458,657		0.4	%

Help/Systems Holdings, Inc.(Help/Systems, LLC) (d)	Business Services	First Lien Term Loan 5.50% Cash, 6/28/2019	$	4,000,000	3,960,973		3,970,000		3.5	%

Help/Systems Holdings, Inc.(Help/Systems, LLC) (d)	Business Services	Second Lien Term Loan 9.50% Cash, 6/28/2020	$	2,000,000	1,970,625		2,000,000		1.8	%

Knowland Technology Holdings, L.L.C. (d)	Business Services	First Lien Term Loan 11.00% Cash, 11/29/2017	$	6,200,000	6,094,743		6,200,000		5.5	%

Trinet HR Corporation (SOI Holdings, Inc.) (d)	Business Services	First Lien Term Loan 5.00% Cash, 8/20/2020	$	5,000,000	4,950,176		4,950,000		4.4	%

Trinet HR Corporation (SOI Holdings, Inc.) (d)	Business Services	Second Lien Term Loan 8.75% Cash, 2/20/2021	$	2,500,000	2,450,000		2,450,000		2.2	%

Vector Controls Holding Co., LLC (d)	Business Services	First Lien Term Loan, 14.00% (12.00% Cash, 2.00% PIK), 3/6/2018	$	9,619,580	9,447,755		9,619,580		8.6	%
.
Vector Controls Holding Co., LLC (d), (g)	Business Services	Warrants to Purchase Limited Liability Company Interests	79		—		—		0.0	%

		Total Business Services			54,987,031		55,840,087		49.7	%

Targus Group International, Inc. (d)	Consumer Products	First Lien Term Loan 11.00% Cash, 5/24/2016	$	3,815,100	3,772,976		3,834,175		3.5	%

Targus Holdings, Inc. (d)	Consumer Products	Unsecured Note 10.00% PIK, 6/14/2019	$	1,914,341	1,914,341		1,386,303		1.2	%

Targus Holdings, Inc. (d)	Consumer Products	Unsecured Note 16.00% Cash, 10/26/2018	$	358,682	353,039		346,129		0.3	%

Targus Holdings, Inc. (d), (g)	Consumer Products	Common Stock	62,413		566,765		2,390,418		2.1	%

		Total Consumer Products			6,607,121		7,957,025		7.1	%

CFF Acquisition L.L.C. (d)	Consumer Services	First Lien Term Loan 7.50% Cash, 7/31/2015	$	1,702,391	1,621,776		1,698,816		1.5	%

Expedited Travel L.L.C. (d)	Consumer Services	First Lien Term Loan 12.00% Cash, 12/28/2017	$	4,705,000	4,613,457		4,705,000		4.2	%

PrePaid Legal Services, Inc. (d)	Consumer Services	First Lien Term Loan 11.00% Cash, 12/31/2016	$	4,838,710	4,791,498		4,838,710		4.3	%

PrePaid Legal Services, Inc. (d)	Consumer Services	Second Lien Term Loan 9.75% Cash, 7/1/2020	$	5,000,000	4,926,560		5,000,000		4.4	%

		Total Consumer Services			15,953,291		16,242,526		14.4	%

M/C Acquisition Corp., L.L.C. (d)	Education	First Lien Term Loan 1.00% Cash, 6/28/2013	$	2,740,780	1,416,994		390,960		0.3	%

M/C Acquisition Corp., L.L.C. (d), (g)	Education	Class A Common Stock	544,761		30,242		—		0.0	%

		Total Education			1,447,236		390,960		0.3	%

Table of Contents

Group Dekko, Inc. (d)	Electronics	Second Lien Term Loan 11.00% (10.00% Cash/1.00% PIK), 5/1/2016	$	6,865,996	6,865,996		6,831,666		6.1	%

		Total Electronics			6,865,996		6,831,666		6.1	%

USS Parent Holding Corp. (d), (g)	Environmental	Non Voting Common Stock	765		133,002		176,914		0.2	%

USS Parent Holding Corp. (d), (g)	Environmental	Voting Common Stock	17,396		3,025,798		4,022,999		3.5	%

		Total Environmental			3,158,800		4,199,913		3.7	%

DS Waters of America, Inc. (d)	Food and Beverage	First Lien Term Loan 5.25% Cash, 8/30/2020	$	2,500,000	2,475,000		2,497,000		0.2	%

HOA Restaurant Group, L.L.C. (d)	Food and Beverage	Senior Secured Note 11.25% Cash, 4/1/2017	$	4,000,000	3,907,889		4,060,000		3.5	%
									0.2	%
TB Corp. (d)	Food and Beverage	First Lien Term Loan 5.81% Cash, 6/19/2018	$	5,127,738	5,105,368		5,090,306
									3.5	%
TB Corp. (d)	Food and Beverage	Unsecured Note 13.50% (12.00% Cash/1.50% PIK), 12/20/2018	$	2,523,533	2,490,413		2,523,533		0.2	%

TM Restaurant Group L.L.C. (d)	Food and Beverage	First Lien Term Loan 7.75% Cash, 7/16/2017	$	2,883,190	2,866,436		2,877,712		3.5	%

		Total Food and Beverage			16,845,106		17,048,551		15.2	%

Oceans Acquisition, Inc. (d)	Healthcare Services	First Lien Term Loan 9.03% Cash, 12/27/2017	$	6,500,000	6,384,688		6,500,000		5.9	%

Smile Brands Group Inc. (d)	Healthcare Services	First Lien Term Loan 7.50% Cash, 8/16/2019	$	4,500,000	4,410,124		4,430,250		3.9	%

Surgical Specialties Corporation (US), Inc. (d)	Healthcare Services	First Lien Term Loan 7.25% Cash, 8/22/2018	$	2,500,000	2,475,041		2,493,750		2.2	%

Zest Holdings, LLC (d)	Healthcare Services	First Lien Term Loan 6.50% Cash, 8/16/2020	$	4,500,000	4,410,000		4,432,500		3.9	%

		Total Healthcare Services			17,679,853		17,856,500		15.9	%

McMillin Companies L.L.C. (d), (g)	Homebuilding	Senior Secured Note 0% Cash, 12/31/2013	$	550,000	549,733		376,090		0.3	%

		Total Homebuilding			549,733		376,090		0.3	%

Keystone Automotive Operations, Inc. (d)	Logistics	First Lien Term Loan 7.00% Cash, 8/15/2019	$	5,000,000	4,925,343		5,000,000		4.4	%

		Total Logistics			4,925,343		5,000,000		4.4	%

Distribution International, Inc. (d)	Manufacturing	First Lien Term Loan 8.75% Cash, 7/16/2019	$	6,000,000	5,940,828		5,970,000		5.3	%

		Total Logistics			5,940,828		5,970,000		5.3	%

Elyria Foundry Company, L.L.C. (d)	Metals	Senior Secured Note 17.00% (13.00% Cash/4.00% PIK), 9/14/2014	$	8,859,614	8,859,614		7,147,051		6.4	%

Elyria Foundry Company, L.L.C. (d), (g)	Metals	Warrants to Purchase Limited Liability Company Interests (2008)	5,000		20		—		0.0	%

Elyria Foundry Company, L.L.C. (d), (g)	Metals	Warrants to Purchase Limited Liability Company Interests (2013)	18,227		—		—		0.0	%

		Total Metals			8,859,634		7,147,051		6.4	%

Network Communications, Inc. (d)	Publishing	Unsecured Notes 8.60% PIK, 1/14/2020	$	2,553,340	2,127,768		1,177,040		1.0	%

Network Communications, Inc. (d), (g)	Publishing	Common Stock	211,429		—		—		0.0	%

Penton Media, Inc. (d)	Publishing	First Lien Term Loan 6.00% Cash, 8/1/2014	$	4,861,303	4,635,522		4,771,854		4.3	%

		Total Publishing			6,763,290		5,948,894		5.3	%

Community Investors, Inc. (d)	Software	First Lien Term Loan 9.75% Cash, 5/9/2018	$	6,150,000	6,034,746		6,075,585		5.4	%

Community Investors, Inc. (d)	Software	Revolver	$	166,667	—		—		0.0	%

Community Investors, Inc. (d), (g)	Software	Common Stock	1,282		1,282		1,603		0.0	%

Community Investors, Inc. (d), (g)	Software	Preferred Stock	148,718		148,718		185,898		0.2	%

		Total Software			6,184,746		6,263,086		5.6	%

Sub Total Non-control/Non-affiliated investments					167,382,770		168,058,055		149.4	%

Control investments - 17.6% (b)

GSC Investment Corp. CLO 2007 LTD. (d), (e), (f)	Structured Finance Securities	Other/Structured Finance Securities 17.90%, 1/21/2020	$	30,000,000	16,804,518		19,741,624		17.6	%

Sub Total Control investments					16,804,518		19,741,624		17.6	%

TOTAL INVESTMENTS - 167.0% (b)					$	184,187,288	$	187,799,679	167.0	%

(a) All of our equity and debt investments are issued by eligible portfolio companies, as defined in the Investment Company Act of 1940, except GSC Investment Corp. CLO 2007 Ltd.

(b) Percentages are based on net assets of $112,445,315 as of August 31, 2013.

(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) 17.90% represents the modeled effective interest rate that is expected to be earned over the life of 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:

							Interest		Management		Net Realized		Net Unrealized
Company	Purchases		Redemptions		Sales (cost)		Income		fee income		gains/(losses)		gains/(losses)
GSC Investment Corp. CLO 2007 LTD.	$	—	$	—	$	—	$	2,235,539	$	978,841	$	—	$	2,937,106

(g) Non-income producing at August 31, 2013.

Table of Contents

Saratoga Investment Corp.

Consolidated Schedule of Investments

February 28, 2013

Company (a)	Industry	Investment Interest Rate / Maturity	Principal/ Number of Shares		Cost		Fair Value (c)		% of Net Assets
Non-control/Non-affiliated investments - 119.2% (b)
Coast Plating, Inc. (d)	Aerospace	First Lien Term Loan 11.70% Cash, 9/13/2014	$	2,550,000	$	2,550,000	$	2,550,000	2.3	%
Coast Plating, Inc. (d)	Aerospace	First Lien Term Loan 13.20% Cash, 9/13/2014	$	950,000	950,000		950,000		0.9	%
		Total Aerospace			3,500,000		3,500,000		3.2	%
National Truck Protection Co., Inc. (d), (h)	Automotive	Common Stock	589		500,000		591,827		0.5	%
National Truck Protection Co., Inc. (d)	Automotive	First Lien Term Loan 15.50% Cash 8/10/2017	$	5,500,000	5,500,000		5,500,000		5.1	%
Take 5 Oil Change, L.L.C. (d)	Automotive	First Lien Term Loan 9.00% Cash, 11/28/2016	$	6,000,000	6,000,000		6,000,000		5.5	%
Take 5 Oil Change, L.L.C. (d)	Automotive	First Lien Term Loan 13.00% Cash, 11/28/2016	$	2,000,000	1,961,761		2,000,000		1.8	%
Take 5 Oil Change, L.L.C. (d), (h)	Automotive	Common Stock	7,128		712,800		712,800		0.7	%
		Total Automotive			14,674,561		14,804,627		13.6	%
Legacy Cabinets Holdings (d), (h)	Building Products	Common Stock Voting A-1	2,535		220,900		—		0.0	%
Legacy Cabinets Holdings (d), (h)	Building Products	Common Stock Voting B-1	1,600		139,424		—		0.0	%
Legacy Cabinets, Inc. (d)	Building Products	First Lien Term Loan 7.25% (1.00% Cash/6.25% PIK), 5/3/2014	$	332,229	332,229		267,378		0.2	%
		Total Building Products			692,553		267,378		0.2	%
Emily Street Enterprises, L.L.C. (d)	Business Services	Senior Secured Note 14.00% (13.00% Cash/1.00% PIK), 12/28/2017	$	5,705,384	5,595,317		5,705,384		5.2	%
Emily Street Enterprises, L.L.C. (d), (h)	Business Services	Warrant Membership Interests	49,318		400,000		399,969		0.4	%
Dispensing Dynamics International (d)	Business Services	Senior Secured Note 12.50% Cash, 1/1/2018	$	7,000,000	6,860,186		7,000,000		6.4	%
Knowland Technology Holdings, L.L.C. (d)	Business Services	First Lien Term Loan 11.00% Cash, 11/29/2017	$	6,200,000	6,082,248		6,200,000		5.7	%
Sourcehov LLC (d)	Business Services	Second Lien Term Loan 10.50% Cash, 4/29/2018	$	3,000,000	2,648,298		2,850,000		2.6	%
		Total Business Services			21,586,049		22,155,353		20.3	%
C.H.I. Overhead Doors, Inc. (d)	Consumer Products	First Lien Term Loan 7.25% Cash, 8/17/2017	$	4,974,747	4,930,481		5,024,495		4.7	%
Targus Group International, Inc. (d)	Consumer Products	First Lien Term Loan 11.00% Cash, 5/24/2016	$	3,940,003	3,888,460		3,956,551		3.6	%
Targus Holdings, Inc. (d)	Consumer Products	Unsecured Note 10.00% PIK, 6/14/2019	$	1,914,341	1,914,341		1,116,252		1.0	%
Targus Holdings, Inc. (d)	Consumer Products	Unsecured Note 16.00% Cash, 10/26/2018	$	332,500	326,320		305,334		0.3	%
Targus Holdings, Inc. (d), (h)	Consumer Products	Common Stock	62,413		566,765		3,324,741		3.1	%
		Total Consumer Products			11,626,367		13,727,373		12.7	%
CFF Acquisition L.L.C. (d)	Consumer Services	First Lien Term Loan 7.50% Cash, 7/31/2015	$	2,161,391	2,032,060		2,154,475		2.0	%
Expedited Travel L.L.C. (d)	Consumer Services	First Lien Term Loan 12.00% Cash, 12/28/2017	$	5,500,000	5,380,520		5,500,000		5.0	%
PrePaid Legal Services, Inc. (d)	Consumer Services	First Lien Term Loan 11.00% Cash, 12/31/2016	$	3,000,000	2,936,860		3,000,000		2.8	%
		Total Consumer Services			10,349,440		10,654,475		9.8	%

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Company (a)	Industry	Investment Interest Rate / Maturity	Principal/ Number of Shares		Cost	Fair Value (c)	% of Net Assets
M/C Acquisition Corp., L.L.C. (d)	Education	First Lien Term Loan 1.00% Cash, 12/31/2012	$	2,740,780	1,586,846	291,893	0.3	%
M/C Acquisition Corp., L.L.C. (d), (h)	Education	Class A Common Stock	544,761		30,242	—	0.0	%
		Total Education			1,617,088	291,893	0.3	%
Group Dekko, Inc. (d)	Electronics	Second Lien Term Loan 11.00% (10.00% Cash/1.00% PIK), 5/1/2016	$	6,824,717	6,824,717	6,720,981	6.2	%
		Total Electronics			6,824,717	6,720,981	6.2	%
USS Parent Holding Corp. (d), (h)	Environmental	Non Voting Common Stock	765		133,002	125,981	0.1	%
USS Parent Holding Corp. (d), (h)	Environmental	Voting Common Stock	17,396		3,025,798	2,866,065	2.7	%
		Total Environmental			3,158,800	2,992,046	2.8	%
DS Waters of America, Inc. (d)	Food and Beverage	First Lien Term Loan 10.50% Cash, 8/29/2017	$	3,970,000	3,994,704	4,049,400	3.7	%
HOA Restaurant Group, L.L.C. (d)	Food and Beverage	Senior Secured Note 11.25% Cash, 4/1/2017	$	4,000,000	3,897,940	3,560,000	3.3	%
TB Corp. (d)	Food and Beverage	First Lien Term Loan 5.81% Cash, 6/19/2018	$	5,153,506	5,128,662	5,140,622	4.7	%
TB Corp. (d)	Food and Beverage	Unsecured Note 13.50% (12.00% Cash/1.50% PIK), 2/19/2017	$	2,504,585	2,468,317	2,492,062	2.3	%
TM Restaurant Group L.L.C. (d)	Food and Beverage	First Lien Term Loan 7.75% Cash, 7/17/2017	$	2,962,500	2,943,045	2,956,871	2.7	%
		Total Food and Beverage			18,432,668	18,198,955	16.7	%
Oceans Acquisition, Inc. (d)	Healthcare Services	First Lien Term Loan 10.75% Cash, 12/27/2017	$	7,500,000	7,351,433	7,500,000	6.9	%
Maverick Healthcare Group (d)	Healthcare Services	First Lien Term Loan 10.75% Cash, 12/31/2016	$	4,900,000	4,835,389	4,900,000	4.5	%
		Total Healthcare Services			12,186,822	12,400,000	11.4	%
McMillin Companies L.L.C. (d), (h)	Homebuilding	Senior Secured Note 0% Cash, 12/31/2013	$	550,000	536,764	315,370	0.3	%
		Total Homebuilding			536,764	315,370	0.3	%
Capstone Logistics, L.L.C. (d)	Logistics	First Lien Term Loan 7.50% Cash, 9/16/2016	$	899,769	889,798	908,766	0.8	%
Capstone Logistics, L.L.C. (d)	Logistics	First Lien Term Loan 13.50% Cash, 9/16/2016	$	3,693,369	3,652,443	3,767,236	3.5	%
Worldwide Express Operations, L.L.C. (d)	Logistics	First Lien Term Loan 7.50% Cash, 6/30/2013	$	6,527,979	6,461,295	6,504,478	6.0	%
		Total Logistics			11,003,536	11,180,480	10.3	%
Elyria Foundry Company, L.L.C. (d)	Metals	Senior Secured Note 17.00% (13.00% Cash/4.00% PIK), 3/1/2013	$	7,728,566	7,728,566	6,723,852	6.2	%
Elyria Foundry Company, L.L.C. (d), (h)	Metals	Warrants to Purchase Limited Liability Company Interests	3,000		—	—	0.0	%
		Total Metals			7,728,566	6,723,852	6.2	%
Network Communications, Inc. (d)	Publishing	Unsecured Note 8.60% PIK, 1/14/2020	$	2,500,198	2,049,660	960,827	0.9	%
Network Communications, Inc. (d), (h)	Publishing	Common Stock	211,429		—	—	0.0	%
Penton Media, Inc. (d)	Publishing	First Lien Term Loan 6.00% (4.00% Cash/2.00% PIK), 8/1/2014	$	4,839,189	4,497,495	4,669,818	4.3	%
		Total Publishing			6,547,155	5,630,645	5.2	%

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Company (a)	Industry	Investment Interest Rate / Maturity	Principal/ Number of Shares		Cost		Fair Value (c)		% of Net Assets
Sub Total Non-control/Non-affiliated investments					130,465,086		129,563,428		119.2	%
Control investments - 23.5% (b)
GSC Partners CDO GP III, LP (g), (h)	Financial Services	100% General Partnership Interest	—		—		—		0.0	%
GSC Investment Corp. CLO 2007 LTD. (d), (e), (g)	Structured Finance Securities	Other/Structured Finance Securities 23.06%, 1/21/2020	$	30,000,000	18,944,966		25,516,959		23.5	%
Sub Total Control investments					18,944,966		25,516,959		23.5	%
Affiliate investments - 0.0% (b)
GSC Partners CDO GP III, LP (f), (h)	Financial Services	6.24% Limited Partnership Interest	—		—		—		0.0	%
Sub Total Affiliate investments					—		—		0.0	%
TOTAL INVESTMENTS - 142.7% (b)					$	149,410,052	$	155,080,387	142.7	%

(a)		All of our equity and debt investments are issued by eligible portfolio companies, as defined in the Investment Company Act of 1940, except GSC Investment Corp. CLO 2007 Ltd. and GSC Partners CDO GP III, LP.
(b)		Percentages are based on net assets of $108,686,761 as of February 28, 2013.
(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)		23.06% represents the modeled effective interest rate that is expected to be earned over the life of the investment.
(f)		As defined in the Investment Company Act, we are an “Affiliate” of this portfolio company because we own 5% or more of the portfolio company’s outstanding voting securities. Transactions during the period in which the issuer was an Affiliate are as follows:

Interest

Management

Net Realized

Net Unrealized

Company

Purchases

Redemptions

Sales (cost)

Income

fee income

gains/(losses)

GSC Partners CDO GP III, LP

—

(g)

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:

							Interest		Management		Net Realized		Net Unrealized
Company	Purchases		Redemptions		Sales (cost)		Income		fee income		gains/(losses)		gains/(losses)
GSC Investment Corp. CLO 2007 LTD.	$	—	$	—	$	—	$	4,205,509	$	2,000,072	$	—	$	6,571,992
GSC Partners CDO GP III, LP	$	—	$	—	$	—	$	—	$	—	$	—	$	—

(h)

Non-income producing at February 28, 2013.

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Saratoga Investment Corp.

Consolidated Statements of Changes in Net Assets

	For the six months ended August 31, 2013			For the six months ended August 31, 2012
	(unaudited)			(unaudited)
INCREASE FROM OPERATIONS:
Net investment income	$	4,741,555		$	2,587,036
Net realized gain from investments	1,074,942			447,348
Net realized loss from derivatives	—			(131,000		)
Net unrealized appreciation (depreciation) on investments	(2,057,943		)	5,027,500
Net unrealized appreciation on derivatives	—			130,925
Net increase in net assets from operations	3,758,554			8,061,809

Total increase in net assets	3,758,554			8,061,809
Net assets at beginning of period	108,686,761			97,380,150
Net assets at end of period	$	112,445,315		$	105,441,959

Net asset value per common share	$	23.77		$	27.20
Common shares outstanding at end of period	4,730,116			3,876,661

Distribution in excess of net investment income	$	(19,781,396	)	$	(11,333,032	)

See accompanying notes to consolidated financial statements.

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Saratoga Investment Corp.

Consolidated Statements of Cash Flows

	For the six months ended August 31, 2013			For the six months ended August 31, 2012
	(unaudited)			(unaudited)
Operating activities
NET INCREASE IN NET ASSETS FROM OPERATIONS	$	3,758,554		$	8,061,809
ADJUSTMENTS TO RECONCILE NET INCREASE IN NET ASSETS FROM OPERATIONS TO NET CASH PROVIDED BY (USED BY) OPERATING ACTIVITIES:
Paid-in-kind interest income	(472,923		)	(539,274		)
Net accretion of discount on investments	(224,598		)	(481,812		)
Amortization of deferred debt financing costs	419,294			212,481
Net realized gain from investments	(1,074,942		)	(447,348		)
Net realized loss from derivatives	—			131,000
Net unrealized (appreciation) depreciation on investments	2,057,943			(5,027,500		)
Net unrealized appreciation on derivatives	—			(130,925		)
Proceeds from sale and redemption of investments	54,849,577			14,466,944
Purchase of investments	(87,854,349		)	(28,269,050		)
(Increase) decrease in operating assets:
Cash and cash equivalents, reserve accounts	(4,506,556		)	19,796,323
Interest receivable	828,945			(363,407		)
Due from manager	(4,929		)	—
Management fee receivable	17,331			(336		)
Other assets	(7,938		)	35,727
Receivable from unsettled trades	316,489			59,511
Increase (decrease) in operating liabilities:
Payable for unsettled trades	16,270,000			(4,072,500		)
Management and incentive fees payable	977,424			1,165,713
Accounts payable and accrued expenses	66,602			369,227
Interest and debt fees payable	487,255			133,668
Due to manager	85,888			(101,892		)
NET CASH PROVIDED BY (USED BY) OPERATING ACTIVITIES	(14,010,933		)	4,998,359

Financing activities
Borrowings on debt	4,000,000			3,350,000
Paydowns on debt	(24,300,000		)	(8,500,000		)
Issuance of notes	48,300,000			—
Debt financing cost	(2,579,309		)	(500,000		)
NET CASH PROVIDED BY (USED BY) FINANCING ACTIVITIES	25,420,691			(5,650,000		)

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS	11,409,758			(651,641		)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD	149,025			1,325,698
CASH AND CASH EQUIVALENTS, END OF PERIOD	$	11,558,783		$	674,057

Supplemental Information:
Interest paid during the period	$	1,824,887		$	932,579

Supplemental non-cash information:
Paid-in-kind interest income	$	472,923		$	539,274
Net accretion of discount on investments	$	224,598		$	481,812
Amortization of deferred debt financing costs	$	419,294		$	212,481

See accompanying notes to consolidated financial statements.

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SARATOGA INVESTMENT CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

August 31, 2013

(unaudited)

Note 1. Organization and Basis of Presentation

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.” in conjunction with the transaction described in “Note 12. Recapitalization Transaction” below.

We are externally managed and advised by our investment adviser, Saratoga Investment Advisors, LLC (the “Manager”), pursuant to an investment advisory and 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”).

The accompanying consolidated financial statements have been prepared on the accrual basis of accounting in conformity with U.S. generally accepted accounting principles (“GAAP”) and include the accounts of the Company, its special purpose financing subsidiary, Saratoga Investment Funding, LLC (previously known as GSC Investment Funding LLC), and SBIC LP. 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 subsidiaries, except as stated otherwise.

Note 2. Summary of Significant Accounting Policies

Use of Estimates in the Preparation of Financial Statements

The preparation of the accompanying consolidated financial statements in conformity with 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;

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· 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 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

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· 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 GSC Investment Corp. CLO 2007, 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.

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

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.

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Deferred Debt Financing Costs

Financing costs incurred in connection with our credit facility, SBA debentures and notes offering are deferred and amortized using the straight line method, which approximates the effective interest method, over the life of their respective debt instrument.

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, 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. As of August 31, 2013 and February 28, 2013, 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 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 our dividend reinvestment plan will have their cash dividends automatically reinvested in additional shares of our common stock, rather than receiving the cash dividends. If our common stock is

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trading below net asset value at the time of valuation, the plan administrator may receive the dividend or distribution in cash and purchase common stock in the open market, on the New York Stock Exchange or elsewhere, for the account of each participant in our dividend reinvestment plan.

Capital Gains Incentive Fee

The Company records an expense accrual in the consolidated statements of operations 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.

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 a 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

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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 August 31, 2013 (dollars in thousands), according to the fair value hierarchy:

	Fair Value Measurements
	Level 1		Level 2		Level 3		Total
Middle market loans	$	—	$	—	$	37,235	$	37,235
First lien term loans	—		—		75,507		75,507
Second lien term loans	—		—		16,282		16,282
Senior secured notes	—		—		24,393		24,393
Unsecured notes	—		—		5,433		5,433
Structured finance securities	—		—		19,742		19,742
Equity interest	—		—		9,208		9,208
Total	$	—	$	—	$	187,800	$	187,800

The following table presents fair value measurements of investments, by major class, as of February 28, 2013 (dollars in thousands), according to the fair value hierarchy:

	Fair Value Measurements
	Level 1		Level 2		Level 3		Total
First lien term loans	$	—	$	—	$	83,792	$	83,792
Second lien term loans	—		—		9,571		9,571
Senior secured notes	—		—		23,305		23,305
Unsecured notes	—		—		4,874		4,874
Structured finance securities	—		—		25,517		25,517
Equity interest	—		—		8,021		8,021
Total	$	—	$	—	$	155,080	$	155,080

The following table provides a reconciliation of the beginning and ending balances for investments that use Level 3 inputs for the six months ended August 31, 2013 (dollars in thousands):

	Middle market loans		First lien term loans			Second lien term loans			Senior secured notes			Unsecured notes		Structured finance securities			Common stock/equities			Total
Balance as of February 28, 2013	$	—	$	83,792		$	9,571		$	23,305		$	4,874	$	25,517		$	8,021		$	155,080
Net unrealized gains (losses)	222		38			(29		)	(122		)	432		(3,635		)	1,037			(2,057		)
Purchases and other adjustments to cost	37,013		32,924			9,400			8,938			127		—			150			88,552
Sales and redemptions	—		(41,650		)	(3,030		)	(7,728		)	—		(2,140		)	(301		)	(54,849		)
Net realized gains from investments	—		403			370			—			—		—			301			1,074
Balance as of August 31, 2013	$	37,235	$	75,507		$	16,282		$	24,393		$	5,433	$	19,742		$	9,208		$	187,800

The following table provides a reconciliation of the beginning and ending balances for investments that use Level 3 inputs for the six months ended August 31, 2012 (dollars in thousands):

	First lien term loans			Second lien term loans			Senior secured notes			Senior unsecured loans			Unsecured notes			Structured finance securities			Common stock/equities			Total
Balance as of February 29, 2012	$	36,196		$	8,914		$	10,706		$	6,000		$	2,008		$	25,846		$	5,690		$	95,360
Net unrealized gains (losses)	708			70			(321		)	(147		)	(157		)	3,225			1,649			5,027
Purchases and other adjustments to cost	24,798			2,812			266			107			94			—			1,213			29,290
Sales and redemptions	(4,321		)	(2,032		)	—			(6,090		)	—			(1,972		)	(51		)	(14,466		)
Net realized gain from invetments	179			87			—			130			—			—			51			447
Balance as of August 31, 2012	$	57,560		$	9,851		$	10,651		$	—		$	1,945		$	27,099		$	8,552		$	115,658

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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) on investments held for the six months ended August 31, 2013 and 2012, was $(2,349,502) and $5,157,786, respectively, 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 August 31, 2013 were as follows (dollars in thousands):

	Fair Value		Valuation Technique	Unobservable Input	Range	Weighted Average Yield
First lien term loans	$	112,742	Market Comparables	Market Yield (%)	6.0% - 19.0%	9.4%
				EBITDA Multiples (x)	3.0x	3.0x
				Third-Party Bid	98.2 - 100.0	99.3
Second lien term loans	16,282		Market Comparables	Market Yield (%)	9.5% - 11.3%	10.5%
				Third-Party Bid	98.0% - 100.0%	98.9%
Senior secured notes	24,393		Market Comparables	Market Yield (%)	11.0% - 42.5%	12.9%
				EBITDA Multiples (x)	5.0x	5.0x
				Third-Party Bid	101.0 - 101.5	101.2
Unsecured notes	5,433		Market Comparables	Market Yield (%)	8.4% - 23.2%	14.3%
Structured finance securities	19,742		Discounted Cash Flow	Discount Rate (%)	13.0%	13.0%
Equity interests	9,208		Market Comparables	EBITDA Multiples (x)	3.0x – 9.0x	7.2x

The valuation techniques and significant unobservable inputs used in recurring Level 3 fair value measurements of assets as of February 28, 2013 were as follows (dollars in thousands):

Fair Value

Valuation Technique

Unobservable Input

Range

Weighted
Average Yield

First lien term loans

83,792

Market Comparables

Market Yield (%)

5.8% - 26.9%

10.0%

EBITDA Multiples (x)

3.0x

Third-Party Bid

96.5 - 102.0

100.1

Second lien term loans

9,571

Market Comparables

Market Yield (%)

11.5 %

11.5%

Third-Party Bid

90.5

Senior secured notes

23,305

Market Comparables

Market Yield (%)

14.0% - 42.5%

20.4%

EBITDA Multiples (x)

5.5x

Third-Party Bid

89.0 – 101.0

97.0

Unsecured notes

4,874

Market Comparables

Market Yield (%)

13.6% - 23.8%

17.4%

Structured finance securities

25,517

Discounted Cash Flow

Discount Rate (%)

13.0%

Equity interests

8,021

Market Comparables

EBITDA Multiples (x)

3.0x – 8.9x

6.6x

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.

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The composition of the Company’s investments as of August 31, 2013, 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
Middle market loans	$	37,012	20.1	%	$	37,235	19.8	%
First lien term loans	75,564		41.0		75,507		40.2
Second lien term loans	16,213		8.8		16,282		8.7
Senior secured notes	25,829		14.0		24,393		13.0
Unsecured notes	6,885		3.7		5,433		2.9
Structured finance securities	16,805		9.2		19,742		10.5
Equity interest	5,879		3.2		9,208		4.9
Total	$	184,187	100.0	%	$	187,800	100.0	%

The composition of our investments as of February 28, 2013, 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
First lien term loans	$	83,886	56.2	%	$	83,792	54.0	%
Second lien term loans	9,473		6.3		9,571		6.2
Senior secured notes	24,619		16.5		23,305		15.0
Unsecured notes	6,758		4.5		4,874		3.1
Structured finance securities	18,945		12.7		25,517		16.5
Equity interest	5,729		3.8		8,021		5.2
Total	$	149,410	100.0	%	$	155,080	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, 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 GSC Investment Corp. CLO 2007, 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 August 31, 2013, in connection with the potential 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 August 31, 2013. The significant inputs for the valuation model include:

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· Default rates: 2.0%

· Recovery rates: 35-75%

· Prepayment rate: 25.0%

· Reinvestment rate / price: L+375bps / $99.25

Note 4. Investment in GSC Investment Corp. CLO 2007, Ltd. (“Saratoga CLO”)

On January 22, 2008, we invested $30 million in all of the outstanding subordinated notes of Saratoga CLO, a collateralized loan obligation fund managed by us that invests primarily in senior secured loans. Additionally, we entered into a collateral management agreement with Saratoga CLO pursuant to which we act as collateral manager to it. In return for our collateral management services, we are entitled to a senior collateral management fee of 0.10% and a subordinate collateral management fee of 0.40% of the outstanding principal amount of Saratoga CLO’s assets, to be 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%. For the six months ended August 31, 2013 and August 31, 2012, we accrued $1.0 million and $1.0 million in management fee income, respectively, and $2.2 million and $2.1 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 August 31, 2013, the Company determined that the fair value of its investment in the subordinated notes of Saratoga CLO was $19.7 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 August 31, 2013, Saratoga CLO had investments with a principal balance of $331.0 million and a weighted average spread over LIBOR of 4.2%, and had debt with a principal balance of $309.3 million with a weighted average spread over LIBOR of 1.5%. 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 August 31, 2013, the total “spread”, or projected future cash flows of the subordinated notes, over the life of Saratoga CLO was $27.8 million, which had a present value of approximately $20.1 million, using a 13.0% discount rate.

Below is certain financial information from the separate unaudited financial statements of Saratoga CLO as of August 31, 2013 and February 28, 2013 and for the three and six months ended August 31, 2013 and August 31, 2012.

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GSC Investment Corp. CLO 2007

Statements of Assets and Liabilities

	As of
	August 31, 2013			February 28, 2013
	(unaudited)
ASSETS

Investments
Fair Value Loans (amortized cost of $314,538,448 and $366,099,395, respectively)	$	306,347,204		$	362,494,006
Fair Value Other/Structured finance securities (amortized cost of $13,912,338 and $13,743,946, respectively)	13,180,411			11,925,973
Total investments at fair value (amortized cost of 328,450,786 and 379,843,341, respectively)	319,527,615			374,419,979
Cash and cash equivalents	12,901,271			28,804,871
Receivable from open trades	36,367			5,131,538
Interest receivable	1,709,975			1,584,985
Other assets	84,905			—
Deferred bond issuance	1,729,622			2,092,787
Total assets	$	335,989,755		$	412,034,160

LIABILITIES

Interest payable	$	638,263		$	666,121
Payable from open trades	36,367			16,346,250
Accrued senior collateral monitoring fee	39,704			43,171
Accrued subordinate collateral monitoring fee	158,818			172,682
Class A notes	239,382,488			296,000,000
Class B notes	22,000,000			22,000,000
Discount on class B notes	(386,526		)	(417,011		)
Class C notes	14,000,000			14,000,000
Class D notes	16,000,000			16,000,000
Discount on class D notes	(408,887		)	(441,136		)
Class E notes	17,960,044			17,960,044
Discount on class E notes	(1,051,823		)	(1,134,778		)
Subordinated notes	30,000,000			30,000,000
Total liabilities	$	338,368,448		$	411,195,343

NET ASSETS

Ordinary equity, par value $1.00, 250 ordinary shares authorized, 250 and 250 issued and oustanding, respectively	$	250		$	250
Accumulated loss	(3,560,496		)	(5,963,092		)
Net income	1,181,553			6,801,659
Total Net Assets	(2,378,693		)	838,817

Total liabilities and net assets	$	335,989,755		$	412,034,160

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GSC Investment Corp. CLO 2007

Statements of Operations

(unaudited)

	For the three months ended August 31					For the six months ended August 31
	2013			2012		2013			2012

INVESTMENT INCOME
Interest from investments	$	4,201,548		$	4,938,022	$	8,607,828		$	9,855,747
Interest from cash and cash equivalents	1,295			5,549		4,451			10,832
Other income	325,629			103,633		677,266			315,173
Total investment income	4,528,472			5,047,204		9,289,545			10,181,752

EXPENSES
Interest expense	1,472,007			1,761,154		3,037,996			3,575,485
Professional fees	208,576			50,884		324,928			247,258
Miscellaneous fee expense	8,681			33,828		160,791			67,587
Senior collateral monitoring fee	96,150			100,045		195,768			200,013
Subordinate collateral monitoring fee	384,601			400,180		783,073			800,052
Trustee expenses	23,839			24,943		48,371			49,868
Amortization expense	254,427			254,427		508,854			508,854
Total expenses	2,448,281			2,625,461		5,059,781			5,449,117

NET INVESTMENT INCOME	2,080,191			2,421,743		4,229,764			4,732,635

REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain on investments	213,058			323,076		451,600			1,412,130
Net unrealized appreciation/(depreciation) on investments	(4,139,484		)	2,099,108		(3,499,811		)	1,308,669
Net gain/(loss) on investments	(3,926,426		)	2,422,184		(3,048,211		)	2,720,799

NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS	$	(1,846,235	)	$	4,843,927	$	1,181,553		$	7,453,434

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GSC Investment Corp.

Schedule of Investments

August 31, 2013

(unaudited)

Issuer Name	Industry	Asset Name	Asset Type	Current Rate		Maturity Date	Principal / Number of Shares		Cost		Fair Value
Elyria Foundry Company, LLC	Industrial Equipment	Preferred Warrants (2013)	Equity	0.00	%		7,291		$	—	$	—
Elyria Foundry Company, LLC	Industrial Equipment	Warrants	Equity	0.00	%		2,000		—		—
Network Communications, Inc.	Business Equipment and Services	Common	Equity	0.00	%		169,143		169,143		—
OLD AII, Inc (fka Aleris International Inc.)	Conglomerate	Common	Equity	0.00	%		2,624		224,656		—
PATS Aircraft, LLC	Aerospace and Defense	Common	Equity	0.00	%		51,813		282,326		—
SuperMedia Inc. (fka Idearc Inc.)	Publishing	Common Stock	Equity	0.00	%		10,821		28,784		5,411
Academy, LTD.	Retailers (Except Food and Drugs)	Initial Term Loan (2012)	Loan	4.50	%	8/3/2018	$	1,970,112	1,957,444		1,977,225
Acosta, Inc.	Food Products	Term D Loan	Loan	5.00	%	3/2/2018	$	4,183,659	4,127,107		4,202,820
Aderant North America, Inc.	Business Equipment and Services	Term Loan (First Lien)	Loan	6.25	%	12/20/2018	$	3,491,250	3,487,298		3,460,702
Aeroflex Incorporated	Aerospace and Defense	Tranche B-1 Term Loan	Loan	4.50	%	11/9/2019	$	3,208,854	3,193,457		3,230,931
Alcatel-Lucent USA Inc.	Telecommunications/Cellular	US Term Loan	Loan	7.25	%	1/30/2019	$	1,069,625	1,064,723		1,073,978
Alere Inc. (fka IM US Holdings, LLC)	Healthcare	Incremental B-1 Term Loan	Loan	4.25	%	6/30/2017	$	1,970,000	1,936,016		1,981,091
Aptalis Pharma, Inc. (fka Axcan Intermediate Holdings Inc.)	Drugs	Term B-1 Loan	Loan	5.50	%	2/10/2017	$	1,950,000	1,944,389		1,953,666
Aramark Corporation	Food Products	LC-2 Facility	Loan	3.69	%	7/26/2016	$	79,187	79,187		79,385
Aramark Corporation	Food Products	LC-3 Facility	Loan	3.69	%	7/26/2016	$	43,961	43,961		44,070
Aramark Corporation	Food Products	U.S. Term B Loan (Extending)	Loan	3.69	%	7/26/2016	$	1,204,093	1,204,093		1,207,103
Aramark Corporation	Food Products	U.S. Term C Loan	Loan	3.75	%	7/26/2016	$	2,545,700	2,545,700		2,552,064
Asurion, LLC (fka Asurion Corporation)	Insurance	Incremental Tranche B-1 Term Loan	Loan	4.50	%	5/24/2019	$	5,630,795	5,579,223		5,558,046
Auction.Com, LLC	Business Equipment and Services	Term Loan A-4	Loan	4.20	%	2/28/2017	$	1,006,017	1,004,985		1,006,017
Aurora Diagnostics, LLC	Conglomerate	Tranche B Term Loan	Loan	6.75	%	5/26/2016	$	3,188,889	3,196,819		2,854,056
Autotrader.com, Inc.	Automotive	Tranche B-1 Term Loan	Loan	4.00	%	12/15/2016	$	3,811,273	3,811,273		3,836,694
Avantor Performance Materials Holdings, Inc.	Chemicals/Plastics	Term Loan	Loan	5.25	%	6/24/2017	$	4,900,000	4,884,291		4,900,000
AZ Chem US Inc.	Chemicals/Plastics	Term Loan	Loan	5.25	%	12/22/2017	$	1,474,105	1,442,063		1,484,365
Biomet, Inc.	Healthcare	Dollar Term B-1 Loan	Loan	3.97	%	7/25/2017	$	1,980,038	1,980,038		1,983,998
Bombardier Recreational Products Inc.	Leisure Goods/Activities/Movies	Term B Loan	Loan	4.00	%	1/30/2019	$	754,286	747,455		752,875
Brock Holdings III, Inc.	Industrial Equipment	Term Loan (First Lien)	Loan	6.01	%	3/16/2017	$	1,989,332	2,009,384		1,994,306
Burlington Coat Factory Warehouse Corporation	Retailers (Except Food and Drugs)	Term B-2 Loan	Loan	4.25	%	2/23/2017	$	2,769,901	2,762,023		2,789,290
C.H.I. Overhead Doors, Inc. (CHI)	Home Furnishings	Term Loan (First Lien)	Loan	5.50	%	3/18/2019	$	2,935,779	2,881,539		2,928,440
Camp International Holding Company	Aerospace and Defense	Refinanced Term Loan (First Lien)	Loan	5.25	%	5/31/2019	$	992,500	983,935		1,002,008
Capital Automotive L.P.	Conglomerate	Tranche B-1 Term Loan Facility	Loan	4.00	%	4/10/2019	$	2,158,921	2,163,964		2,166,477
Capstone Logistics, LLC	Business Equipment and Services	Term Note A	Loan	6.50	%	9/16/2016	$	2,692,494	2,666,994		2,652,258
Capsugel Holdings US, Inc.	Drugs	Initial Term Loan	Loan	4.75	%	8/1/2018	$	3,496,738	3,488,626		3,521,495
Celanese US Holdings LLC	Chemicals/Plastics	Dollar Term C Loan (Extended)	Loan	3.03	%	10/31/2016	$	2,187,260	2,205,007		2,211,254
Charter Communications Operating, LLC	Cable and Satellite Television	Term F Loan	Loan	3.00	%	12/31/2020	$	2,696,188	2,685,431		2,666,152
CHS/Community Health Systems, Inc.	Healthcare	Extended Term Loan	Loan	3.77	%	1/25/2017	$	4,064,516	3,976,668		4,075,693
Cinedigm Digital Funding I, LLC	Business Equipment and Services	Term Loan	Loan	3.75	%	2/28/2018	$	954,302	948,806		954,302
Contec, LLC	Electronics/Electric	Second Lien Term Notes	Loan	10.00	%	11/2/2016	$	401,202	2,126,716		401,202
Covanta Energy Corporation	Ecological Services and Equipment	Term Loan	Loan	3.50	%	3/28/2019	$	493,750	491,784		496,219
CPI International Acquisition, Inc. (f/k/a Catalyst Holdings, Inc.)	Electronics/Electric	Term B Loan	Loan	5.00	%	2/13/2017	$	4,805,833	4,791,985		4,805,833
Crown Castle Operating Company	Telecommunications/Cellular	New Tranche B Term Loan	Loan	3.25	%	1/31/2019	$	1,970,063	1,951,621		1,950,776
Culligan International Company	Conglomerate	Dollar Loan (First Lien)	Loan	6.25	%	12/19/2017	$	791,667	735,367		732,292
Culligan International Company	Conglomerate	Dollar Loan (Second Lien)	Loan	9.50	%	6/19/2018	$	783,162	726,174		646,109
DaVita HealthCare Partners Inc. (fka DaVita Inc.)	Healthcare	Tranche B Term Loan	Loan	4.50	%	10/20/2016	$	3,929,471	3,929,471		3,953,991
DCS Business Services, Inc.	Financial Intermediaries	Term B Loan	Loan	7.25	%	3/19/2018	$	3,851,085	3,807,337		3,851,085
Del Monte Foods Company	Food Products	Initial Term Loan	Loan	4.00	%	3/8/2018	$	4,304,067	4,338,097		4,300,451
Digitalglobe, Inc.	Ecological Services and Equipment	Term Loan	Loan	3.75	%	1/31/2020	$	249,375	249,375		251,011
Dunkin’ Brands, Inc.	Food Services	Term B-3 Loan	Loan	3.75	%	2/14/2020	$	3,978,366	3,969,074		3,974,228
DynCorp International Inc.	Aerospace and Defense	Term Loan	Loan	6.25	%	7/7/2016	$	574,161	568,698		578,227
Education Management LLC	Leisure Goods/Activities/Movies	Tranche C-2 Term Loan	Loan	4.31	%	6/1/2016	$	3,903,579	3,737,467		3,557,137
eInstruction Corporation	Electronics/Electric	Initial Term Loan	Loan	0.00	%	7/2/2013	$	2,997,722	2,931,236		599,544
Evergreen Acqco 1 LP	Retailers (Except Food and Drugs)	New Term Loan	Loan	5.00	%	7/9/2019	$	495,009	490,727		497,331
Federal-Mogul Corporation	Automotive	Tranche B Term Loan	Loan	2.14	%	12/29/2014	$	2,575,409	2,510,509		2,507,805
Federal-Mogul Corporation	Automotive	Tranche C Term Loan	Loan	2.14	%	12/28/2015	$	1,313,984	1,267,685		1,279,492
First Data Corporation	Financial Intermediaries	2017 New Dollar Term Loan	Loan	4.20	%	3/24/2017	$	2,111,028	2,018,375		2,089,917
First Data Corporation	Financial Intermediaries	2018 Dollar Term Loan	Loan	4.20	%	3/23/2018	$	2,290,451	2,224,159		2,266,264
Generac Power Systems, Inc.	Industrial Equipment	Term Loan B	Loan	3.50	%	5/31/2020	$	872,778	855,957		867,593
General Nutrition Centers, Inc.	Retailers (Except Food and Drugs)	Amended Tranche B Term Loan	Loan	3.75	%	3/2/2018	$	4,742,272	4,752,417		4,763,612
Global Tel*Link Corporation	Business Equipment and Services	Term Loan (First Lien)	Loan	5.00	%	5/23/2020	$	1,929,825	1,925,191		1,890,630
Goodyear Tire & Rubber Company, The	Chemicals/Plastics	Loan (Second Lien)	Loan	4.75	%	4/30/2019	$	4,000,000	3,935,381		4,020,680
Grifols Inc.	Drugs	New U.S. Tranche B Term Loan	Loan	4.25	%	6/1/2017	$	3,443,261	3,435,740		3,461,235
Grosvenor Capital Management Holdings, LLLP	Brokers/Dealers/Investment Houses	Tranche C Term Loan	Loan	4.25	%	12/5/2016	$	3,287,843	3,216,154		3,271,404
HCA Inc.	Healthcare	Tranche B-4 Term Loan	Loan	2.94	%	5/1/2018	$	5,734,690	5,364,290		5,728,325
Health Management Associates, Inc.	Healthcare	Replacement Term B Loan	Loan	3.50	%	11/16/2018	$	2,909,582	2,887,578		2,912,143
Hertz Corporation, The	Automotive	Tranche B-1 Term Loan	Loan	3.75	%	3/11/2018	$	2,985,000	3,025,398		2,987,657
HIBU PLC (fka Yell Group PLC)	Business Equipment and Services	Facility B1 - YB (USA) LLC (11/2009)	Loan	3.94	%	7/31/2014	$	3,030,606	2,983,167		642,913
HMH Holdings (Delaware) Inc.	Conglomerate	Term Loan (Exit Facility)	Loan	5.25	%	5/22/2018	$	987,500	971,700		987,500
Hologic, Inc.	Healthcare	Refinancing Tranche A Term Loan	Loan	2.19	%	8/1/2017	$	2,375,000	2,369,677		2,370,060
Hunter Defense Technologies, Inc.	Aerospace and Defense	Term Loan	Loan	3.45	%	8/22/2014	$	3,581,279	3,560,825		3,420,121
Huntsman International LLC	Chemicals/Plastics	Extended Term B Loan	Loan	2.73	%	4/19/2017	$	3,920,000	3,888,115		3,915,923
Infor (US), Inc. (fka Lawson Software Inc.)	Business Equipment and Services	Tranche B-2 Term Loan	Loan	5.34	%	4/5/2018	$	1,781,132	1,766,316		1,790,412
Inventiv Health, Inc. (fka Ventive Health, Inc)	Conglomerate	Consolidated Term Loan	Loan	7.50	%	8/4/2016	$	492,090	492,090		481,426
J. Crew Group, Inc.	Retailers (Except Food and Drugs)	Term B-1 Loan	Loan	4.00	%	3/7/2018	$	977,500	977,500		975,731
JFB Firth Rixson Inc.	Industrial Equipment	2013 Replacement Dollar Term Facility Loan	Loan	4.25	%	6/30/2017	$	2,577,262	2,565,974		2,570,819
Kinetic Concepts, Inc.	Healthcare	Dollar Term D-1 Loan	Loan	5.50	%	5/4/2018	$	492,525	476,050		493,141
Michaels Stores, Inc.	Retailers (Except Food and Drugs)	Term B Loan	Loan	3.75	%	1/28/2020	$	498,750	498,750		500,151
Microsemi Corporation	Electronics/Electric	Term Loan	Loan	3.75	%	2/19/2020	$	2,503,704	2,498,586		2,510,739
National CineMedia, LLC	Leisure Goods/Activities/Movies	Term Loan (2013)	Loan	2.95	%	11/26/2019	$	1,086,207	1,051,412		1,078,831
Newsday, LLC	Publishing	Term Loan	Loan	3.69	%	10/12/2016	$	2,953,846	2,950,725		2,950,154
Novelis, Inc.	Conglomerate	Initial Term Loan	Loan	3.75	%	3/10/2017	$	4,882,514	4,895,180		4,877,437
NPC International, Inc.	Food Services	Term Loan	Loan	4.50	%	12/28/2018	$	490,833	490,833		493,287
NRG Energy, Inc.	Utilities	Term Loan (2013)	Loan	3.25	%	7/1/2018	$	3,920,175	3,892,186		3,892,303
NuSil Technology LLC.	Chemicals/Plastics	Term Loan	Loan	5.25	%	4/7/2017	$	813,633	813,633		796,685
OEP Pearl Dutch Acquisition B.V.	Chemicals/Plastics	Initial BV Term Loan	Loan	6.50	%	3/30/2018	$	143,147	140,942		143,863
On Assignment, Inc.	Business Equipment and Services	Initial Term B Loan	Loan	3.50	%	5/15/2020	$	1,911,364	1,898,397		1,901,807
Onex Carestream Finance LP	Healthcare	Term Loan (First Lien 2013)	Loan	5.00	%	2/25/2017	$	4,647,343	4,625,018		4,682,198
OpenLink International, Inc.	Business Equipment and Services	Initial Term Loan	Loan	7.75	%	10/30/2017	$	985,000	971,327		985,000
P.F. Chang’s China Bistro, Inc. (Wok Acquisition Corp.)	Food/Drug Retailers	Term Borrowing	Loan	5.25	%	6/22/2019	$	992,500	984,180		1,003,666
PATS Aircraft, LLC	Aerospace and Defense	Term Loan	Loan	8.50	%	10/6/2016	$	267,998	191,682		200,998
Penn National Gaming, Inc.	Lodging and Casinos	Term A Facility	Loan	1.96	%	7/14/2016	$	2,702,663	2,655,658		2,701,311
Penn National Gaming, Inc.	Lodging and Casinos	Term B Facility	Loan	3.75	%	7/16/2018	$	840,963	839,501		841,434
PetCo Animal Supplies, Inc.	Retailers (Except Food and Drugs)	New Loans	Loan	4.00	%	11/24/2017	$	1,492,347	1,490,703		1,497,108
Pharmaceutical Product Development, Inc. (Jaguar Holdings, LLC)	Conglomerate	2013 Term Loan	Loan	4.25	%	12/5/2018	$	1,970,100	1,943,498		1,967,637
Pinnacle Foods Finance LLC	Food Products	New Term Loan G	Loan	3.25	%	4/29/2020	$	4,987,500	4,975,571		4,933,485
Preferred Proppants, LLC	Nonferrous Metals/Minerals	Term B Loan	Loan	9.00	%	12/15/2016	$	1,970,000	1,943,401		1,191,850
Prestige Brands, Inc.	Drugs	Term B-1 Loan	Loan	3.75	%	1/31/2019	$	662,879	653,815		666,690
Pro Mach, Inc.	Industrial Equipment	Term Loan	Loan	5.00	%	7/6/2017	$	1,955,436	1,942,796		1,963,590
Quintiles Transnational Corp.	Conglomerate	Term B-2 Loan	Loan	4.50	%	6/8/2018	$	3,681,541	3,656,454		3,691,886
Rexnord LLC/RBS Global, Inc.	Industrial Equipment	Term B Loan	Loan	3.75	%	4/1/2018	$	1,667,645	1,667,645		1,648,884
Reynolds Group Holdings Inc.	Industrial Equipment	U.S. Term Loan	Loan	4.75	%	9/28/2018	$	1,985,000	1,985,000		1,996,950
Rocket Software, Inc.	Business Equipment and Services	Term Loan (First Lien)	Loan	5.75	%	2/8/2018	$	1,970,012	1,940,661		1,967,964
Roundy’s Supermarkets, Inc.	Food/Drug Retailers	Tranche B Term Loan	Loan	5.75	%	2/13/2019	$	987,211	975,631		968,700
Rovi Solutions Corporation / Rovi Guides, Inc.	Electronics/Electric	Tranche A-2 Loan	Loan	2.45	%	3/29/2017	$	1,860,226	1,845,775		1,855,576
Rovi Solutions Corporation / Rovi Guides, Inc.	Electronics/Electric	Tranche B-3 Term Loan	Loan	3.50	%	3/29/2019	$	1,381,244	1,375,730		1,374,338
RPI Finance Trust	Drugs	6.75 Year Term Loan(2012)	Loan	3.50	%	5/9/2018	$	5,335,132	5,312,791		5,355,139
Scientific Games International Inc.	Electronics/Electric	Tranche B-1 Term Loan	Loan	3.45	%	6/30/2015	$	1,966,714	1,957,254		1,945,415
Scitor Corporation	Business Equipment and Services	Term Loan	Loan	5.00	%	2/15/2017	$	463,977	462,639		458,758
Sensata Technology BV/Sensata Technology Finance Company, LLC	Electronics/Electric	Term Loan	Loan	3.75	%	5/12/2018	$	1,036,090	1,036,090		1,042,565
Sensus USA Inc. (fka Sensus Metering Systems)	Utilities	Term Loan (First Lien)	Loan	4.75	%	5/9/2017	$	1,955,000	1,948,970		1,928,119
ServiceMaster Company, The	Conglomerate	Tranche B Term Loan	Loan	4.45	%	1/31/2017	$	2,837,058	2,845,769		2,755,890
SI Organization, Inc., The	Aerospace and Defense	New Tranche B Term Loan	Loan	5.50	%	11/22/2016	$	3,900,225	3,879,246		3,792,969
Sonneborn, LLC	Chemicals/Plastics	Initial US Term Loan	Loan	6.50	%	3/30/2018	$	811,166	798,673		815,222
Sophia, L.P.	Electronics/Electric	Term B Loan	Loan	4.50	%	7/19/2018	$	964,398	951,430		967,291
SRA International Inc.	Aerospace and Defense	Term Loan	Loan	6.50	%	7/20/2018	$	3,268,571	3,175,037		3,231,800
SRAM, LLC	Industrial Equipment	Term Loan (First Lien)	Loan	4.01	%	4/10/2020	$	3,340,965	3,312,653		3,315,908
SS&C Technologies Holdings Europe S.A.R.L.	Business Equipment and Services	2013 Replacement Term B-2 Loan	Loan	5.00	%	6/7/2019	$	74,115	73,402		74,020
SS&C Technologies, Inc., /Sunshine Acquisition II, Inc.	Business Equipment and Services	2013 Replacement Term B-1 Loan	Loan	5.00	%	6/7/2019	$	716,450	709,557		715,540
SunCoke Energy, Inc.	Nonferrous Metals/Minerals	Tranche B Term Loan	Loan	4.00	%	7/26/2018	$	1,367,311	1,358,287		1,357,056
SunGard Data Systems Inc (Solar Capital Corp.)	Conglomerate	Tranche C Term Loan	Loan	3.95	%	2/28/2017	$	304,311	301,811		304,941
SunGard Data Systems Inc (Solar Capital Corp.)	Conglomerate	Tranche E Term Loan	Loan	4.00	%	3/8/2020	$	4,243,114	4,107,242		4,268,318
SuperMedia Inc. (fka Idearc Inc.)	Publishing	Loan	Loan	11.60	%	12/30/2016	$	278,154	270,579		215,800
Syniverse Holdings, Inc.	Telecommunications	Initial Term Loan	Loan	5.00	%	4/23/2019	$	495,000	490,995		496,391
Taminco Global Chemical Corporation	Chemicals/Plastics	Tranche B-2 Dollar Term Loan	Loan	4.25	%	2/15/2019	$	1,481,306	1,472,417		1,490,105
Team Health, Inc.	Healthcare	Tranche B Term Loan	Loan	3.75	%	6/29/2018	$	4,410,000	4,394,716		4,398,975
TECTUM HOLDINGS INC	Industrial Equipment	Term Loan	Loan	7.50	%	12/3/2015	$	3,900,000	3,884,931		3,880,500
Texas Competitive Electric Holdings Company, LLC (TXU)	Utilities	2014 Term Loan (Non-Extending)	Loan	3.72	%	10/10/2014	$	5,580,862	5,544,221		3,792,977
Tomkins, LLC / Tomkins, Inc. (f/k/a Pinafore, LLC / Pinafore, Inc.)	Conglomerate	Term B-2 Loan	Loan	3.75	%	9/29/2016	$	2,404,012	2,409,016		2,409,012
TransDigm Inc.	Aerospace and Defense	Tranche C Term Loan	Loan	3.75	%	2/28/2020	$	4,921,244	4,930,307		4,914,403
Tricorbraun Inc. (fka Kranson Industries, Inc.)	Containers/Glass Products	Term Loan	Loan	4.00	%	5/3/2018	$	1,980,000	1,972,254		1,980,000
Truven Health Analytics Inc. (fka Thomson Reuters (Healthcare) Inc.)	Healthcare	New Tranche B Term Loan	Loan	4.50	%	6/6/2019	$	495,009	486,462		496,455
Tube City IMS Corporation	Steel	Term Loan	Loan	4.75	%	3/20/2019	$	987,538	979,661		987,538
U.S. Security Associates Holdings, Inc.	Business Equipment and Services	Delayed Draw Loan	Loan	6.00	%	7/28/2017	$	160,963	159,912		161,566
U.S. Security Associates Holdings, Inc.	Business Equipment and Services	Term B Loan	Loan	6.00	%	7/28/2017	$	123,121	122,677		123,583
U.S. Security Associates Holdings, Inc.	Business Equipment and Services	Term B Loan	Loan	6.00	%	7/28/2017	$	822,356	816,991		825,440
U.S. Silica Company	Nonferrous Metals/Minerals	Term Loan	Loan	4.75	%	6/8/2017	$	1,960,000	1,950,353		1,958,373
U.S. Xpress Enterprises, Inc.	Industrial Equipment	Extended Term Loan	Loan	9.00	%	11/13/2016	$	2,877,208	2,830,035		2,855,629
United Surgical Partners International, Inc.	Healthcare	New Tranche B Term Loan	Loan	4.75	%	4/3/2019	$	2,468,875	2,439,237		2,486,354
Univar Inc.	Chemicals/Plastics	Term B Loan	Loan	5.00	%	6/30/2017	$	3,904,934	3,904,123		3,804,889
Univision Communications Inc.	Telecommunications	2013 Converted Extended First-Lien Term Loan	Loan	4.50	%	3/1/2020	$	2,992,500	2,975,150		2,983,342
UPC Financing Partnership	Broadcast Radio and Television	Facility AF	Loan	4.00	%	1/31/2021	$	1,000,000	972,800		1,003,330
Valeant Pharmaceuticals International, Inc.	Drugs	Series D-1 Tranche B Term Loan	Loan	3.50	%	2/13/2019	$	2,955,150	2,943,920		2,963,247
Verint Systems Inc.	Business Equipment and Services	Term Loan	Loan	4.00	%	9/6/2019	$	1,910,400	1,901,568		1,915,176
Vertafore, Inc.	Business Equipment and Services	Term Loan (2013)	Loan	4.25	%	10/3/2019	$	2,969,728	2,969,728		2,979,024
Visant Corporation (fka Jostens)	Leisure Goods/Activities/Movies	Tranche B Term Loan (2011)	Loan	5.25	%	12/22/2016	$	3,658,446	3,658,446		3,534,974
Washington Inventory Service	Business Equipment and Services	U.S. Term Loan (First Lien)	Loan	5.75	%	12/20/2018	$	1,990,000	2,016,816		1,987,513
Wendy’s International, Inc	Food Services	Term B Loan	Loan	3.25	%	5/15/2019	$	683,889	677,387		681,612
West Corporation	Telecommunications	Term B-8 Loan	Loan	3.75	%	6/30/2018	$	2,963,339	3,010,081		2,963,338
Wolverine World Wide, Inc.	Clothing/Textiles	Tranche B Term Loan	Loan	4.00	%	10/9/2019	$	779,286	772,390		783,182
Yankee Candle Company, Inc., The	Retailers (Except Food and Drugs)	Initial Term Loan	Loan	5.25	%	4/2/2019	$	2,256,466	2,238,458		2,270,003
BABSN 2007-1A	Financial Intermediaries	Floating - 01/2021 - D1 - 05617AAA9	ABS	3.55	%	1/18/2021	$	1,500,000	1,274,293		1,275,000
GALE 2007-3A	Financial Intermediaries	Floating - 04/2021 - E - 363205AA3	ABS	3.78	%	4/19/2021	$	4,000,000	3,424,563		3,400,000
KATO 2006-9A	Financial Intermediaries	Floating - 01/2019 - B2L - 486010AA9	ABS	3.78	%	1/25/2019	$	5,000,000	4,395,720		4,250,000
STCLO 2007-6A	Financial Intermediaries	Floating - 04/2021 - D- 86176YAG7	ABS	3.88	%	4/17/2021	$	5,000,000	4,112,853		4,250,000
									$	328,450,786	$	319,527,615

Table of Contents

GSC Investment Corp. CLO 2007

Schedule of Investments

February 28, 2013

Issuer Name	Industry	Asset Name	Asset Type	Current Rate		Maturity Date	Principal / Number of Shares		Cost		Fair Value
Elyria Foundry Company, LLC	Industrial Equipment	Warrants	Equity	0.00	%		—		$	—	$	—
Network Communications, Inc.	Business Equipment and Services	Common	Equity	0.00	%		169,143		169,143		659,658
OLD AII, Inc (fka Aleris International Inc.)	Conglomerate	Common	Equity	0.00	%		2,624		224,656		128,576
PATS Aircraft, LLC	Aerospace and Defense	Common	Equity	0.00	%		51,813		282,326		282,329
SuperMedia Inc. (fka Idearc Inc.)	Publishing	Common Stock	Equity	0.00	%		10,821		28,784		5,411
Academy, LTD.	Retailers (Except Food and Drugs)	Initial Term Loan (2012)	Loan	4.75	%	8/3/2018	$	1,980,037	1,966,002		2,000,927
ACCO Brands Corporation	Conglomerate	Term B Loan	Loan	4.25	%	5/1/2019	$	351,944	348,847		354,584
Acosta, Inc.	Food Products	Term D Loan	Loan	5.00	%	3/2/2018	$	4,183,659	4,120,774		4,216,082
Aderant North America, Inc.	Business Equipment and Services	Term Loan (First Lien)	Loan	6.25	%	12/20/2018	$	3,500,000	3,495,662		3,552,500
Aeroflex Incorporated	Aerospace and Defense	Tranche B Term Loan	Loan	5.75	%	5/9/2018	$	3,345,517	3,333,081		3,369,204
Alcatel-Lucent USA Inc.	Telecommunications/Cellular	US Term Loan	Loan	0.00	%	1/30/2019	$	1,075,000	1,069,625		1,087,008
Alere Inc. (fka IM US Holdings, LLC)	Healthcare	Incremental B-1 Term Loan	Loan	4.75	%	6/30/2017	$	1,980,000	1,941,348		1,999,444
Aptalis Pharma, Inc. (fka Axcan Intermediate Holdings Inc.)	Drugs	Term B-1 Loan	Loan	5.50	%	2/10/2017	$	1,960,000	1,953,535		1,963,920
Aramark Corporation	Food Products	LC-2 Facility	Loan	3.45	%	7/26/2016	$	79,187	79,187		79,600
Aramark Corporation	Food Products	LC-3 Facility	Loan	3.45	%	7/26/2016	$	43,961	43,961		44,190
Aramark Corporation	Food Products	U.S. Term B Loan (Extending)	Loan	3.45	%	7/26/2016	$	1,204,093	1,204,093		1,210,366
Aramark Corporation	Food Products	U.S. Term C Loan	Loan	3.52	%	7/26/2016	$	2,545,700	2,545,700		2,558,963
Armstrong World Industries, Inc	Building and Development	Term Loan B-1	Loan	4.00	%	3/10/2018	$	2,122,931	2,109,740		2,124,268
Asurion, LLC (fka Asurion Corporation)	Insurance	Amortizing Term Loan	Loan	4.75	%	7/23/2017	$	968,750	960,226		973,594
Asurion, LLC (fka Asurion Corporation)	Insurance	Incremental Tranche B-1 Term Loan	Loan	4.50	%	5/24/2019	$	5,659,091	5,602,698		5,674,144
Auction.Com, LLC	Business Equipment and Services	Term Loan A-4	Loan	4.96	%	8/30/2016	$	1,018,699	1,017,479		1,013,606
Aurora Diagnostics, LLC	Conglomerate	Tranche B Term Loan	Loan	6.25	%	5/26/2016	$	3,188,889	3,198,281		3,077,278
Autotrader.com, Inc.	Automotive	Tranche B-1 Term Loan	Loan	4.00	%	12/15/2016	$	3,830,768	3,830,768		3,853,522
Avantor Performance Materials Holdings, Inc.	Chemicals/Plastics	Term Loan	Loan	5.25	%	6/24/2017	$	4,925,000	4,907,124		4,925,000
AZ Chem US Inc.	Chemicals/Plastics	Term Loan	Loan	5.25	%	12/22/2017	$	1,570,579	1,532,447		1,585,170
Biomet, Inc.	Healthcare	Dollar Term B-1 Loan	Loan	4.00	%	7/25/2017	$	1,990,013	1,990,013		2,003,445
Bombardier Recreational Products Inc.	Leisure Goods/Activities/Movies	Term B Loan	Loan	5.00	%	1/30/2019	$	1,000,000	990,101		1,007,500
Brock Holdings III, Inc.	Industrial Equipment	Term Loan (First Lien)	Loan	0.00	%	3/16/2017	$	2,000,000	2,022,500		2,013,340
Burlington Coat Factory Warehouse Corporation	Retailers (Except Food and Drugs)	Term B-1 Loan	Loan	5.50	%	2/23/2017	$	2,776,843	2,767,803		2,802,306
C.H.I. Overhead Doors, Inc. (CHI)	Home Furnishings	Term Loan (First Lien)	Loan	7.25	%	8/17/2017	$	2,976,290	2,931,556		2,983,730
Camp International Holding Company	Aerospace and Defense	Refinanced Term Loan (First Lien)	Loan	5.25	%	5/31/2019	$	997,500	988,136		1,005,400
Capital Automotive L.P.	Conglomerate	Tranche B Term Loan	Loan	5.25	%	3/11/2017	$	2,811,086	2,817,777		2,823,961
Capstone Logistics, LLC	Business Equipment and Services	Term Note A	Loan	7.50	%	9/16/2016	$	2,699,305	2,669,394		2,658,816
Capsugel Holdings US, Inc.	Drugs	Initial Term Loan (New)	Loan	4.75	%	8/1/2018	$	3,605,198	3,595,976		3,641,214
Celanese US Holdings LLC	Chemicals/Plastics	Dollar Term C Loan (Extended)	Loan	3.06	%	10/31/2016	$	2,198,534	2,219,212		2,208,911
Cenveo Corporation	Publishing	Term B Facility	Loan	7.00	%	12/21/2016	$	2,437,399	2,421,925		2,444,516
Charter Communications Operating, LLC	Cable and Satellite Television	Term C Loan	Loan	3.46	%	9/6/2016	$	2,047,547	2,044,048		2,057,785
Charter Communications Operating, LLC	Cable and Satellite Television	Term D Loan	Loan	4.00	%	5/15/2019	$	1,985,000	1,976,313		2,000,503
CHS/ Community Health Systems, Inc.	Healthcare	Extended Term Loan	Loan	3.79	%	1/25/2017	$	4,064,516	3,963,653		4,090,935
Cinedigm Digital Funding I, LLC	Business Equipment and Services	Term Loan	Loan	5.75	%	2/28/2018	$	1,066,260	1,059,429		1,068,925
Contec, LLC	Electronics/Electric	Second Lien Term Notes	Loan	10.00	%	11/2/2016	$	401,202	2,400,891		2,578,210
Covanta Energy Corporation	Ecological Services and Equipment	Term Loan	Loan	4.00	%	3/28/2019	$	496,250	494,095		501,833
CPI International Acquisition, Inc. (f/k/a Catalyst Holdings, Inc.)	Electronics/Electric	Term B Loan	Loan	5.00	%	2/13/2017	$	4,805,833	4,789,964		4,829,862
Crown Castle Operating Company	Telecommunications/Cellular	Tranche B Term Loan	Loan	4.00	%	1/31/2019	$	1,980,000	1,963,120		1,989,484
Culligan International Company	Conglomerate	Dollar Loan (First Lien)	Loan	6.25	%	12/19/2017	$	795,675	732,459		729,372
Culligan International Company	Conglomerate	Dollar Loan (Second Lien)	Loan	9.50	%	6/19/2018	$	783,162	720,189		604,343
DaVita HealthCare Partners Inc. (fka DaVita Inc.)	Healthcare	Tranche B Term Loan	Loan	4.50	%	10/20/2016	$	3,949,622	3,949,622		3,977,822
DCS Business Services, Inc.	Financial Intermediaries	Term B Loan	Loan	7.25	%	3/19/2018	$	3,970,010	3,919,904		3,910,460
Del Monte Foods Company	Food Products	Initial Term Loan	Loan	4.00	%	3/8/2018	$	4,438,139	4,473,061		4,443,687
Delphi Corporation	Electronics/Electric	Tranche A Term Loan Retired 03/01/2013	Loan	4.25	%	3/31/2016	$	1,683,357	1,685,403		1,682,650
Digitalglobe, Inc.	Ecological Services and Equipment	Term Loan	Loan	0.00	%	1/31/2020	$	250,000	250,000		250,783
DS Waters of America, Inc.	Beverage and Tobacco	Term Loan (First Lien)	Loan	10.50	%	8/29/2017	$	2,977,500	2,928,511		3,037,050
Dunkin’ Brands, Inc.	Food Services	Term B-3 Loan	Loan	0.00	%	2/14/2020	$	4,000,000	3,990,000		3,990,000
DynCorp International Inc.	Aerospace and Defense	Term Loan	Loan	6.25	%	7/7/2016	$	574,161	567,732		577,606
Education Management LLC	Leisure	Tranche C-2 Term Loan	Loan	4.31	%	6/1/2016	$	3,925,006	3,727,372		3,263,878

Table of Contents

	Goods/Activities/Movies
eInstruction Corporation	Electronics/Electric	Initial Term Loan	Loan	0.00	%	7/2/2013	$	2,997,722	2,931,236	899,317
Electrical Components International, Inc.	Electronics/Electric	Synthetic Revolving Loan	Loan	6.75	%	2/4/2016	$	117,647	116,611	117,647
Electrical Components International, Inc.	Electronics/Electric	Term Loan	Loan	6.75	%	2/4/2017	$	1,786,475	1,768,892	1,786,475
Evergreen Acqco 1 LP	Retailers (Except Food and Drugs)	New Term Loan	Loan	5.00	%	7/9/2019	$	497,503	492,828	501,702
Federal-Mogul Corporation	Automotive	Tranche B Term Loan	Loan	2.14	%	12/29/2014	$	2,589,036	2,498,894	2,467,351
Federal-Mogul Corporation	Automotive	Tranche C Term Loan	Loan	2.14	%	12/28/2015	$	1,320,937	1,264,234	1,258,853
First Data Corporation	Financial Intermediaries	2017 Dollar Term Loan	Loan	5.20	%	3/24/2017	$	2,111,028	2,027,434	2,111,914
First Data Corporation	Financial Intermediaries	2018 Dollar Term Loan	Loan	4.20	%	3/23/2018	$	2,290,451	2,216,829	2,261,591
Freescale Semiconductor, Inc.	Electronics/Electric	Tranche B-1 Term Loan Retired 03/01/2013	Loan	4.45	%	12/1/2016	$	2,534,348	2,450,139	2,535,945
FTD Group, Inc.	Retailers (Except Food and Drugs)	Initial Term Loan	Loan	4.75	%	6/11/2018	$	3,715,723	3,683,533	3,715,723
Generac Power Systems, Inc.	Industrial Equipment	Term Loan	Loan	6.25	%	5/30/2018	$	906,111	890,154	923,590
General Nutrition Centers, Inc.	Retailers (Except Food and Drugs)	Amended Tranche B Term Loan	Loan	3.75	%	3/2/2018	$	4,746,591	4,757,841	4,774,548
Global Tel*Link Corporation	Business Equipment and Services	Replacement Term Loan	Loan	6.00	%	12/14/2017	$	1,964,912	1,960,077	1,967,368
Goodyear Tire & Rubber Company, The	Chemicals/Plastics	Loan (Second Lien)	Loan	4.75	%	4/30/2019	$	4,000,000	3,929,629	4,015,000
Grifols Inc.	Drugs	New U.S. Tranche B Term Loan	Loan	4.25	%	6/1/2017	$	3,465,982	3,457,357	3,481,371
Grosvenor Capital Management Holdings, LLLP	Brokers/Dealers/Investment Houses	Tranche C Term Loan	Loan	4.25	%	12/5/2016	$	3,336,378	3,252,391	3,311,355
Hanger Orthopedic Group, Inc.	Healthcare	Term C Loan	Loan	4.00	%	12/1/2016	$	3,910,667	3,920,277	3,925,332
HCA Inc.	Healthcare	Tranche B-3 Term Loan	Loan	3.45	%	5/1/2018	$	5,734,690	5,440,293	5,764,912
Health Management Associates, Inc.	Healthcare	Term B Loan	Loan	4.50	%	11/16/2018	$	2,970,000	2,945,366	2,993,344
Hertz Corporation, The	Automotive	Tranche B-1 Term Loan	Loan	0.00	%	3/11/2018	$	3,000,000	3,045,000	3,045,000
HIBU PLC (fka Yell Group PLC)	Business Equipment and Services	Facility B1 - YB (USA) LLC (11/2009)	Loan	3.95	%	7/31/2014	$	3,030,606	2,983,167	530,356
HMH Holdings (Delaware) Inc.	Conglomerate	Term Loan (Exit Facility)	Loan	7.25	%	5/22/2018	$	992,500	974,925	997,463
Hologic, Inc.	Healthcare	Tranche A Term Loan	Loan	3.20	%	8/1/2017	$	2,437,500	2,432,069	2,439,328
Hunter Defense Technologies, Inc.	Aerospace and Defense	Term Loan	Loan	3.54	%	8/22/2014	$	3,679,939	3,647,610	3,385,544
Huntsman International LLC	Chemicals/Plastics	Extended Term B Loan	Loan	2.75	%	4/19/2017	$	3,920,000	3,883,690	3,920,000
Infor (US), Inc. ((fka Lawson Software Inc.)	Business Equipment and Services	Tranche B-2 Term Loan	Loan	5.25	%	4/5/2018	$	1,990,013	1,971,642	2,011,166
Inventiv Health, Inc. (fka Ventive Health, Inc)	Conglomerate	Consolidated Term Loan	Loan	7.50	%	8/4/2016	$	492,090	492,090	484,093
J. Crew Group, Inc.	Retailers (Except Food and Drugs)	Term B-1 Loan	Loan	4.00	%	3/7/2018	$	982,500	982,500	982,726
JFB Firth Rixson Inc.	Industrial Equipment	2013 Replacement Dollar Term Facility Loan	Loan	4.25	%	6/30/2017	$	2,590,213	2,577,375	2,598,838
Kalispel Tribal Economic Authority	Lodging and Casinos	Term Loan	Loan	7.50	%	2/24/2017	$	3,625,323	3,577,074	3,634,387
Kinetic Concepts, Inc.	Healthcare	Dollar Term C-1 Loan	Loan	5.50	%	5/4/2018	$	495,000	478,661	501,034
Kronos Worldwide, Inc.	Chemicals/Plastics	Initial Term Loan	Loan	7.00	%	6/13/2018	$	500,000	500,000	504,065
MetroPCS Wireless, Inc.	Telecommunications	Tranche B-2 Term Loan	Loan	4.07	%	11/3/2016	$	2,489,192	2,491,685	2,495,938
Michaels Stores, Inc.	Retailers (Except Food and Drugs)	Term B Loan	Loan	3.75	%	1/28/2020	$	500,000	500,000	501,110
Microsemi Corporation	Electronics/Electric	Term Loan	Loan	3.75	%	2/20/2020	$	2,688,796	2,682,872	2,697,212
National CineMedia, LLC	Leisure Goods/Activities/Movies	Term Loan	Loan	3.46	%	11/26/2019	$	1,086,207	1,050,910	1,089,607
Newsday, LLC	Publishing	Term Loan	Loan	3.70	%	10/12/2016	$	3,000,000	2,996,317	2,992,500
Novelis, Inc.	Conglomerate	Term B-2 Loan	Loan	4.00	%	3/10/2017	$	987,500	968,539	988,734
Novelis, Inc.	Conglomerate	Term Loan	Loan	4.00	%	3/10/2017	$	3,920,009	3,946,297	3,924,909
NPC International, Inc.	Food Services	Term Loan	Loan	4.50	%	12/28/2018	$	490,833	490,833	495,128
NRG Energy, Inc.	Utilities	Term Loan	Loan	3.25	%	7/1/2018	$	3,940,000	3,910,795	3,958,557
NuSil Technology LLC.	Chemicals/Plastics	Term Loan	Loan	5.00	%	4/7/2017	$	820,339	820,339	824,695
OEP Pearl Dutch Acquisition B.V.	Chemicals/Plastics	Initial BV Term Loan	Loan	6.50	%	3/30/2018	$	148,875	146,330	149,992
On Assignment, Inc.	Business Equipment and Services	Initial Term B Loan	Loan	5.00	%	5/15/2019	$	2,413,048	2,399,166	2,434,114
Onex Carestream Finance LP	Healthcare	Term Loan	Loan	5.00	%	2/25/2017	$	4,909,816	4,893,453	4,916,739
OpenLink International, Inc.	Business Equipment and Services	Initial Term Loan	Loan	7.75	%	10/30/2017	$	990,000	974,594	988,763
P.F. Chang’s China Bistro, Inc. (Wok Acquisition Corp.)	Food/Drug Retailers	Term Borrowing	Loan	5.25	%	6/22/2019	$	997,500	988,412	1,007,475
PATS Aircraft, LLC	Aerospace and Defense	Term Loan	Loan	8.50	%	10/6/2016	$	357,331	239,023	276,932
Penn National Gaming, Inc.	Lodging and Casinos	Term A Facility	Loan	1.72	%	7/14/2016	$	2,775,888	2,719,125	2,776,748
Penn National Gaming, Inc.	Lodging and Casinos	Term B Facility	Loan	3.75	%	7/16/2018	$	985,013	983,123	988,431
PetCo Animal Supplies, Inc.	Retailers (Except Food and Drugs)	New Loans	Loan	4.00	%	11/24/2017	$	1,496,173	1,494,329	1,501,784
Pharmaceutical Product Development, Inc. (Jaguar Holdings, LLC)	Conglomerate	2013 Term Loan	Loan	4.25	%	12/5/2018	$	1,980,000	1,950,704	1,989,583
Physician Oncology Services, LP	Healthcare	Delayed Draw Term Loan	Loan	7.75	%	1/31/2017	$	51,020	50,682	50,765
Physician Oncology Services, LP	Healthcare	Effective Date Term Loan	Loan	7.75	%	1/31/2017	$	419,961	417,178	417,861
Pinnacle Foods Finance LLC	Food Products	Extended Initial Term Loan	Loan	3.70	%	10/2/2016	$	5,726,579	5,491,534	5,761,168
Preferred Proppants, LLC	Nonferrous Metals/Minerals	Term B Loan	Loan	7.50	%	12/15/2016	$	1,980,000	1,949,170	1,841,400
Prestige Brands, Inc.	Drugs	Term B-1 Loan	Loan	3.76	%	1/31/2019	$	679,545	669,390	683,507
Pro Mach, Inc.	Industrial Equipment	Term Loan	Loan	5.00	%	7/6/2017	$	1,956,155	1,941,853	1,961,045
Quintiles Transnational Corp.	Conglomerate	Term B-2 Loan	Loan	4.50	%	6/8/2018	$	3,681,541	3,653,803	3,716,810

Table of Contents

Ranpak Corp.	Food/Drug Retailers	USD Term Loan (First Lien)	Loan	4.75	%	4/20/2017	$	2,396,012	2,387,700		2,384,032
Rexnord LLC/RBS Global, Inc.	Industrial Equipment	Term B Loan Refinancing	Loan	4.50	%	4/1/2018	$	1,995,000	1,995,000		2,005,454
Reynolds Group Holdings Inc.	Industrial Equipment	U.S. Term Loan	Loan	4.75	%	9/28/2018	$	1,995,000	1,995,000		2,017,244
Rocket Software, Inc.	Business Equipment and Services	Term Loan (First Lien)	Loan	5.75	%	2/8/2018	$	1,980,000	1,947,152		1,986,197
Roundy’s Supermarkets, Inc.	Food/Drug Retailers	Tranche B Term Loan	Loan	5.75	%	2/13/2019	$	992,500	979,782		937,297
Rovi Solutions Corporation / Rovi Guides, Inc.	Electronics/Electric	Tranche A-2 Loan	Loan	2.46	%	3/29/2017	$	1,860,226	1,843,739		1,855,576
Rovi Solutions Corporation / Rovi Guides, Inc.	Electronics/Electric	Tranche B-2 Loan	Loan	4.00	%	3/29/2019	$	1,384,706	1,378,679		1,389,899
Royal Adhesives and Sealants, LLC	Chemicals/Plastics	Term A Loan	Loan	7.25	%	11/29/2015	$	4,498,210	4,459,450		4,432,399
RPI Finance Trust	Drugs	6.75 Year Term Loan(2012)	Loan	3.50	%	5/9/2018	$	5,398,833	5,373,794		5,449,474
Scientific Games International Inc.	Electronics/Electric	Tranche B-1 Term Loan	Loan	3.21	%	6/30/2015	$	1,977,810	1,965,672		1,985,226
Scitor Corporation	Business Equipment and Services	Term Loan	Loan	5.00	%	2/15/2017	$	463,977	462,444		460,692
Securus Technologies Holdings, Inc (fka Securus Technologies, Inc.)	Telecommunications	Tranche 2 Term Loan (First Lien)	Loan	6.50	%	5/31/2017	$	1,985,000	1,967,961		1,975,075
Sensata Technology BV/Sensata Technology Finance Company, LLC	Electronics/Electric	Term Loan	Loan	3.75	%	5/12/2018	$	2,969,849	2,969,849		2,986,540
Sensus USA Inc. (fka Sensus Metering Systems)	Utilities	Term Loan (First Lien)	Loan	4.75	%	5/9/2017	$	1,965,000	1,958,111		1,961,070
ServiceMaster Company, The	Conglomerate	Tranche B Term Loan	Loan	4.45	%	1/31/2017	$	2,851,387	2,861,398		2,857,089
SI Organization, Inc., The	Aerospace and Defense	New Tranche B Term Loan	Loan	4.50	%	11/22/2016	$	3,920,000	3,895,621		3,906,946
Sonneborn, LLC	Chemicals/Plastics	Initial US Term Loan	Loan	6.50	%	3/30/2018	$	843,625	829,202		849,952
Sophia, L.P.	Electronics/Electric	Term B Loan	Loan	4.50	%	7/19/2018	$	969,244	954,866		976,310
SRA International Inc.	Aerospace and Defense	Term Loan	Loan	6.50	%	7/20/2018	$	3,268,571	3,165,384		3,154,171
SRAM, LLC	Industrial Equipment	Term Loan (First Lien)	Loan	4.77	%	6/7/2018	$	3,441,181	3,411,986		3,458,386
SS&C Technologies, Inc., /Sunshine Acquisition II, Inc.	Business Equipment and Services	Funded Term B-1 Loan	Loan	5.00	%	6/7/2019	$	811,071	803,796		817,138
SS&C Technologies, Inc., /Sunshine Acquisition II, Inc.	Business Equipment and Services	Funded Term B-2 Loan	Loan	5.00	%	6/7/2019	$	83,904	83,151		84,531
SunCoke Energy, Inc.	Nonferrous Metals/Minerals	Tranche B Term Loan	Loan	4.00	%	7/26/2018	$	1,367,311	1,357,359		1,370,729
SunGard Data Systems Inc (Solar Capital Corp.)	Conglomerate	Tranche B U.S. Term Loan	Loan	3.85	%	2/28/2016	$	4,253,748	4,184,167		4,260,086
SunGard Data Systems Inc (Solar Capital Corp.)	Conglomerate	Tranche C Term Loan	Loan	3.95	%	2/28/2017	$	497,687	493,012		500,544
SuperMedia Inc. (fka Idearc Inc.)	Publishing	Loan	Loan	11.00	%	12/31/2015	$	289,811	281,918		214,875
Syniverse Holdings, Inc.	Telecommunications	Initial Term Loan	Loan	5.00	%	4/23/2019	$	497,500	493,115		500,609
Taminco Global Chemical Corporation	Chemicals/Plastics	Tranche B-2 Dollar Term Loan	Loan	4.25	%	2/15/2019	$	1,488,750	1,478,991		1,498,859
Team Health, Inc.	Healthcare	Tranche B Term Loan	Loan	3.75	%	6/29/2018	$	4,432,500	4,415,534		4,432,500
TECTUM HOLDINGS INC	Industrial Equipment	Term Loan	Loan	7.50	%	12/3/2015	$	4,000,000	3,981,089		3,980,000
Texas Competitive Electric Holdings Company, LLC (TXU)	Utilities	2014 Term Loan (Non-Extending)	Loan	3.73	%	10/10/2014	$	5,580,862	5,527,535		4,012,249
Tomkins, LLC / Tomkins, Inc. (f/k/a Pinafore, LLC / Pinafore, Inc.)	Conglomerate	Term B-2 Loan	Loan	3.75	%	9/29/2016	$	2,431,854	2,437,744		2,450,093
TransDigm Inc.	Aerospace and Defense	Tranche C Term Loan	Loan	3.75	%	2/28/2020	$	4,945,974	4,955,789		4,955,587
Tricorbraun Inc. (fka Kranson Industries, Inc.)	Containers/Glass Products	Term Loan	Loan	5.50	%	5/3/2018	$	1,990,000	1,981,374		2,008,666
Truven Health Analytics Inc. (fka Thomson Reuters (Healthcare) Inc.)	Healthcare	New Tranche B Term Loan	Loan	5.75	%	6/6/2019	$	497,500	488,158		501,853
Tube City IMS Corporation	Steel	Term Loan	Loan	5.75	%	3/20/2019	$	992,500	983,864		1,001,184
U.S. Security Associates Holdings, Inc.	Business Equipment and Services	Delayed Draw Term Loan	Loan	6.00	%	7/28/2017	$	161,778	160,586		162,688
U.S. Security Associates Holdings, Inc.	Business Equipment and Services	Term Loan B	Loan	6.00	%	7/28/2017	$	123,747	123,243		124,444
U.S. Security Associates Holdings, Inc.	Business Equipment and Services	Term Loan B	Loan	6.00	%	7/28/2017	$	826,540	820,452		831,193
U.S. Silica Company	Nonferrous Metals/Minerals	Loan	Loan	4.75	%	6/8/2017	$	1,970,000	1,962,974		1,974,925
U.S. Xpress Enterprises, Inc.	Industrial Equipment	Extended Term Loan	Loan	9.00	%	11/13/2016	$	2,913,628	2,858,339		2,906,344
United Surgical Partners International, Inc.	Healthcare	New Tranche B Term Loan	Loan	6.00	%	4/3/2019	$	2,481,281	2,448,808		2,486,715
Univar Inc.	Chemicals/Plastics	Term B Loan	Loan	5.00	%	6/30/2017	$	3,924,924	3,924,007		3,902,670
Univision Communications Inc.	Telecommunications	2013 Converted Extended First-Lien Term Loan	Loan	4.75	%	3/1/2020	$	3,000,000	2,981,257		3,000,870
UPC Financing Partnership	Broadcast Radio and Television	Facility AF	Loan	4.00	%	1/31/2021	$	1,000,000	970,954		1,010,000
Valeant Pharmaceuticals International, Inc.	Drugs	Series D-1 Tranche B Term Loan	Loan	3.50	%	2/13/2019	$	2,985,000	2,972,608		3,006,462
Vantiv, LLC (fka Fifth Third Processing Solutions, LLC)	Financial Intermediaries	Tranche B Term Loan	Loan	3.75	%	3/27/2019	$	1,063,393	1,058,765		1,065,520
Verint Systems Inc.	Business Equipment and Services	Term Loan 2011	Loan	4.50	%	10/27/2017	$	1,920,000	1,913,087		1,921,920
Vertafore, Inc.	Business Equipment and Services	Term Loan (First Lien)	Loan	5.25	%	7/29/2016	$	2,984,781	2,984,781		3,018,360
Visant Corporation (fka Jostens)	Leisure Goods/Activities/Movies	Tranche B Term Loan (2011)	Loan	5.25	%	12/22/2016	$	3,696,942	3,696,942		3,518,269
Washington Inventory Service	Business Equipment and Services	U.S. Term Loan (First Lien)	Loan	5.75	%	12/20/2018	$	2,000,000	2,029,513		2,007,500
Weight Watchers International, Inc.	Food Products	Term D Loan	Loan	2.56	%	6/30/2016	$	2,700,529	2,667,383		2,701,879
Wendy’s International, Inc	Food Services	Term Loan	Loan	4.75	%	5/15/2019	$	997,500	988,532		1,006,098
West Corporation	Telecommunications	Term B-8 Loan	Loan	4.25	%	6/30/2018	$	2,971,535	3,023,298		2,978,964
Wolverine World Wide, Inc.	Clothing/Textiles	Tranche B Term Loan	Loan	4.00	%	10/9/2019	$	854,821	846,633		861,233
Yankee Candle Company, Inc., The	Retailers (Except Food and Drugs)	Initial Term Loan	Loan	5.25	%	4/2/2019	$	2,256,466	2,236,833		2,268,876
BABSN 2007-1A	Financial Intermediaries	Floating - 01/2021 - D1 - 05617AAA9	ABS	3.55	%	1/18/2021	$	1,500,000	1,258,888		1,050,000
GALE 2007-3A	Financial Intermediaries	Floating - 04/2021 - E - 363205AA3	ABS	3.80	%	4/19/2021	$	4,000,000	3,386,571		2,800,000
KATO 2006-9A	Financial Intermediaries	Floating - 01/2019 - B2L - 486010AA9	ABS	3.80	%	1/25/2019	$	5,000,000	4,339,337		3,500,000
STCLO 2007-6A	Financial Intermediaries	Floating - 04/2021 - D- 86176YAG7	ABS	3.90	%	4/17/2021	$	5,000,000	4,054,241		3,500,000
									$	379,843,341	$	374,419,979

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Note 5. Agreements

On July 30, 2010, the Company entered into an investment advisory and management agreement (the “Management Agreement”) with our Manager. The initial term of the Management 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. On July 15, 2013, 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 August 31, 2013 and 2012 we incurred $0.8 million and $0.5 million in base management fees, respectively. For the three months ended August 31, 2013 and 2012, we accrued $0.1 million, and $0.3 million in incentive fees related to pre-incentive fee net investment income. For the three months ended August 31, 2013 there was a reduction of $0.2 million in incentive management fees related to capital gains. For the three months ended August 31 2012, we accrued $0.6 million in incentive management fees related to capital gains. For the six months ended August 31, 2013 and 2012 we incurred $1.5 million and $1.0 million in base management fees, respectively. For the six months ended August 31, 2013 and 2012, we accrued $0.8 million, and $0.3 million in incentive fees related to pre-incentive fee net investment income. For the six months ended August 31, 2013 we did not accrue incentive management fees related to capital gains. For the six months ended August 31, 2012, we accrued $1.0 million in incentive management fees related to capital gains. 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 August 31, 2013, $0.8 million of base management fees and $4.7 million of incentive fees were accrued and included in management and incentive fees payable in the accompanying consolidated statements of assets and liabilities. As of February 28, 2013, $0.6 million of base management fees and $3.9 million of incentive fees were accrued and included in 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. On July 15, 2013, our board of directors approved the renewal of the Administration Agreement for an

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additional one-year term and determined to maintain the cap on the payment or reimbursement of expenses by the Company thereunder to $1.0 million for the additional one-year term.

For the three months ended August 31, 2013 and 2012, we recognized $0.3 million and $0.3 million in administrator expenses for the periods, 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, respectively. For the six months ended August 31, 2013 and 2012, we recognized $0.5 million and $0.5 million in administrator expenses for the periods, 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, respectively. As of August 31, 2013, $0.3 million of administrator expenses were accrued and included in due to manager in the accompanying consolidated statements of assets and liabilities.

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 marketwide 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 “Replacement Facility”) with Madison Capital Funding LLC, in each case, described in “Note 13. Recapitalization Transaction” below, 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 Replacement 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 be terminated at an earlier time 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

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

As of August 31, 2013, there were no outstanding borrowings under the Replacement Facility and the Company was in compliance with all of the limitations and requirements of the Replacement Facility. $2.3 million of financing costs related to the Replacement Facility have been capitalized and are being amortized over the term of the facility. For the three months ended August 31, 2013 and 2012, we recorded $0.1 million and $0.5 million of interest expense, respectively. For the three months ended August 31, 2013 and 2012, we recorded $0.1 million and $0.1 million of amortization of deferred financing costs related to the Replacement Facility, respectively. The interest rates during the six months ended August 31, 2013 on the outstanding borrowings under the Replacement Facility were 7.50%. The interest rates during the three and six months ended August 31, 2012 on the outstanding borrowings under the Replacement Facility were 7.50% and 7.50% respectively. For the six months ended August 31, 2013 and 2012, we recorded $0.6 million and $1.1 million of interest expense, respectively. For the six months ended August 31, 2013 and 2012, we recorded $0.2 million and $0.2 million of amortization of deferred financing costs related to the Replacement Facility, respectively.

The Replacement 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 Replacement 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 Replacement 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 Replacement 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 or 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 Replacement Facility for the duration of the Revolving Period.

Our borrowing base under the Replacement Facility was $51.1 million subject to the Replacement Facility cap of $45.0 million at August 31, 2013. 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 August 31, 2013 borrowing base relies upon the valuations set forth in the Annual Report on Form 10-K for the year ended February 28, 2013. 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 August 31, 2013, we have funded SBIC LP with $25.0 million of equity capital, and have $40.0 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 $18.0 million and have average annual fully taxed net income not exceeding $6.0 million for the two most recent fiscal years. In addition, an SBIC must devote 25.0% of its investment activity to ‘‘smaller’’ concerns as defined by the SBA. A smaller concern is one that has a tangible net worth not exceeding $6.0 million and has average annual fully taxed net income not exceeding $2.0 million for the two most recent fiscal years. SBA regulations also provide alternative size standard criteria to determine eligibility, which depend on the industry in which the business is engaged and are based on such factors as the number of employees and gross sales. According to SBA regulations, SBICs may make long-term loans to small businesses, invest in the equity securities of such businesses and provide them with consulting and advisory services.

SBIC LP 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

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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 debt holders 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 August 31, 2013, there was $40.0 million outstanding of SBA debentures. The carrying amount of the amount outstanding of SBA debentures approximates its fair value. $1.5 million of financing costs related to the SBA debentures have been capitalized and are being amortized over the term of the commitment and drawdown. For the three and six months ended August 31, 2013, the Company recorded $0.3 million and $0.6 million, respectively, of interest expense related to the SBA debentures. For the three and six months ended August 31, 2013, the Company recorded $0.05 million and $0.1 million, respectively, of amortization of deferred financing costs related to the SBA debentures. The weighted average interest rate during the six months ended August 31, 2013 on the outstanding borrowings of the SBA debentures was 2.90%. There were no outstanding SBA debentures at August 31, 2012.

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 August 31, 2013, the carrying amount and fair value of the Notes was $48.3 million and $48.3 million, respectively. The fair value of the Notes, which are publicly traded, is based upon closing market quotes as of the measurement date. As of August 31, 2013, $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 and six months ended August 31, 2013, we recorded $0.9 million and $1.1 million, respectively, of interest expense and $0.09 million and $0.1 million, respectively, of amortization of deferred financing costs related to the Notes.

Note 7. 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 August 31, 2013 and 2012, we accrued $0.05 million and $0.05 million for directors’ fees expense, respectively. For the six months ended August 31, 2013 and 2012, we accrued $0.1 million and $0.1 million for directors’ fees expense, respectively. As of August 31, 2013 and February 28, 2013, $0.05 million and $0.05 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 August 31, 2013, we had not issued any common stock to our directors as compensation for their services.

Note 8. 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.

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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. See “Note 13. Recapitalization Transaction.”

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.

Note 9. 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 increase in net assets per share from operations for the three and six months ended August 31, 2013 and 2012 (dollars in thousands except share and per share amounts):

	For the three months ended					For the six months ended
Basic and diluted	August 31, 2013			August 31, 2012		August 31, 2013		August 31, 2012
Net increase (decrease) in net assets from operations	$	(41	)	$	4,871	$	3,759	$	8,062
Weighted average common shares outstanding	4,730,116			3,876,661		4,730,116		3,876,661
Earnings (loss) per common share-basic and diluted	$	(0.01	)	$	1.26	0.79		$	2.08

Note 10. Dividend

The Company did not declare any dividend payments during the quarters ended August 31, 2013 and August 31, 2012.

Note 11. Financial Highlights

The following is a schedule of financial highlights for the three months ended August 31, 2013 and 2012:

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	August 31, 2013			August 31, 2012
Per share data:
Net asset value at beginning of period	$	22.98		$	25.12
Net investment income(1)	1.00			0.67
Net realized and unrealized gains and (losses) on investments and derivatives	(0.21		)	1.41
Net increase in net assets from operations	0.79			2.08
Net asset value at end of period	$	23.77		$	27.20
Net assets at end of period	$	112,445,315		$	105,441,959
Shares outstanding at end of period	4,730,116			3,876,661
Per share market value at end of period	$	18.31		$	16.50
Total return based on market value(2)	7.58		%	3.90		%
Total return based on net asset value(3)	3.45		%	8.28		%
Ratio/Supplemental data:
Ratio of net investment income to average, net assets(4)	8.62		%	5.16		%
Ratio of operating expenses to average net assets(4)	5.73		%	5.22		%
Ratio of incentive management fees to average net assets(4)	1.42		%	2.59		%
Ratio of debt related expenses to average net assets(4)	4.97		%	2.55		%
Ratio of total expenses to average net assets(4)	12.11		%	10.37		%
Portfolio turnover rate(5)	32.41		%	13.66		%

(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) Ratios are annualized.

(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 12. Recapitalization Transaction

In July 2010, we consummated a recapitalization transaction that was necessitated by the fact that we had exceeded permissible borrowing limits under the Revolving Facility in July 2009, which resulted in an event of default under the Revolving Facility. As a result of the event of default under the Revolving Facility, the lender had the right to accelerate repayment of the outstanding indebtedness under the Revolving Facility and to foreclose and liquidate the collateral pledged thereunder. We engaged the investment banking firm of Stifel, Nicolaus & Company to evaluate strategic transaction opportunities and consider alternatives for us in December 2008. On April 14, 2010, we entered into a stock purchase agreement with our Manager and certain of its affiliates and an assignment, assumption and novation agreement with our Manager, pursuant to which we assumed certain rights and obligations of our Manager under a debt commitment letter our Manager received from Madison Capital Funding LLC, indicating Madison Capital Funding’s willingness to provide us with the Replacement Facility, subject to the satisfaction of certain terms and conditions. In addition, we and GSCP (NJ), L.P., our then external investment adviser, 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 our Manager and certain of its affiliates was completed, and included the following actions:

· the private sale of shares of our common stock for $15.0 million in aggregate purchase price to our Manager and certain of its affiliates;

· the closing of the $40.0 million Replacement Facility with Madison Capital Funding;

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· the execution of a registration rights agreement with the investors in the private sale transaction, pursuant to which we agreed to file a registration statement with the SEC to register for resale the shares of our common stock sold in the private sale transaction;

· the execution of a trademark license agreement with our Manager pursuant to which our Manager granted us a non-exclusive, royalty-free license to use the “Saratoga” name, for so long as our Manager or one of its affiliates remains our investment adviser;

· replacing GSCP (NJ), L.P. as our investment adviser and administrator with our Manager by executing an investment advisory and management agreement, which was approved by our stockholders, and an administration agreement with our Manager;

· the resignations of Robert F. Cummings, Jr. and Richard M. Hayden, both of whom are affiliates of GSCP (NJ) L.P., as members of the board of directors and the election of Christian L. Oberbeck and Richard A. Petrocelli, both of whom are affiliates of our Manager, as members of the board of directors;

· the resignation of all of our then existing executive officers and the appointment by our board of directors of Mr. Oberbeck as our chief executive officer and Mr. Petrocelli as our chief financial officer, secretary and chief compliance officer; and

· our name change from “GSC Investment Corp.” to “Saratoga Investment Corp.”

We used the net proceeds from the private sale transaction and a portion of the funds available to us under the Replacement Facility to pay the full amount of principal and accrued interest, including default interest, outstanding under Revolving Facility. The Revolving Facility with Deutsche Bank was terminated in connection with our payment of all amounts outstanding thereunder on July 30, 2010.

Note 13. Subsequent Events

Management has evaluated subsequent events through the date of issuance of the consolidated financial statements included herein. There have been no subsequent events that occurred during such period that would require disclosure in this Form 10-Q or would be required to be recognized in the consolidated financial statements as of and for the quarter ended August 31, 2013, except as disclosed below.

On October 1, 2013, the Saratoga CLO priced a refinancing of its notes. The refinanced Saratoga CLO has assets of $300 million and will have a reinvestment period through October 2016. As a result of increased pricing on the notes and the smaller asset base, interest income and equity distributions in the future will be lower than historical amounts. Saratoga Investment Corp. will continue to own 100% of the subordinated notes and receive a 50 basis point management fee for the life of the Saratoga CLO. The refinancing is expected to close on October 17, 2013.

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, 2013.

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, a small business investment company and a regulated investment company;

· the adequacy of our cash resources and working capital;

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· 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 business development company (“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 regulated investment company (“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, 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, we 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 we assumed certain rights and obligations of Saratoga Investment Advisors under a debt commitment letter Saratoga Investment Advisors received from Madison Capital Funding LLC, indicating Madison Capital Funding’s willingness to provide us with a $40.0 million senior secured revolving credit facility, subject to the satisfaction of certain terms and conditions. In addition, we 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, and included the following actions:

· 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;

· the closing of the $40.0 million senior secured revolving credit facility with Madison Capital Funding;

· the execution of a registration rights agreement with the investors in the private sale transaction, pursuant to which, among other things, we agreed to file a registration statement with the SEC to register for resale the shares of our common stock sold in the private sale transaction, including any shares of common stock issued or issuable upon any stock split, dividend or other distribution, recapitalization or similar event relating thereto, and to use commercially reasonable efforts to cause such registration statement to be declared effective within 90 days after the date on which the registration statement was initially filed with the SEC;

· the execution of a trademark license agreement with Saratoga Investment Advisors pursuant to which Saratoga Investment Advisors granted us a non-exclusive, royalty-free license to use the “Saratoga” name, for so long as Saratoga Investment Advisors or one of its affiliates remains our investment adviser; and

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· replacing GSCP (NJ), L.P. as our investment adviser and administrator with Saratoga Investment Advisors by executing an investment advisory and management agreement, which was approved by our stockholders, and an administration agreement with Saratoga Investment Advisors;

· our name change from “GSC Investment Corp.” to “Saratoga Investment Corp.”

We used the net proceeds from the private sale transaction and a portion of the funds available to us under the $40.0 million senior secured revolving credit facility with Madison Capital Funding 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.

Critical Accounting Policies

Basis of Presentation

The preparation of financial statements in accordance with U.S. generally accepted accounting principles (“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:

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

Our investment in GSC Investment Corp. CLO 2007, 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.

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.

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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 paid-in-kind (“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 and receive a senior collateral management fee of 0.10% and a subordinate collateral management fee of 0.40% 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;

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· 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)).

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.

Portfolio and investment activity

Corporate Debt Portfolio Overview

	At August 31, 2013			At February 28, 2013
	($ in millions)
Number of investments(1)	54			44
Number of portfolio companies(1)	34			28
Average investment size(1)	$	3.1		$	2.9
Weighted average maturity(1)	4.5yrs			3.7yrs
Number of industries(1)	17			15
Average investment per portfolio company(1)	$	4.9		$	4.6
Non-performing or delinquent investments(1)	$	0.4		$	6.7
Fixed rate debt (% of interest bearing portfolio)(2)	$	55.8(35.1	)%	$	53.4(43.9	)%
Weighted average current coupon(2)	13.3		%	12.6		%
Floating rate debt (% of interest bearing portfolio)(2)	$	103.0(64.9	)%	$	68.2(56.1	)%
Weighted average current spread over LIBOR(2)	7.0		%	7.5		%

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

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

During the three months ended August 31, 2013, we made $54.9 million investments in new or existing portfolio companies and had $29.6 million in aggregate amount of exits and repayments resulting in net investments of $25.3 million for the period. During the three months ended August 31, 2012, we made $14.9 million investments in new or existing portfolio companies and had $10.0 million in aggregate amount of exits and repayments resulting in net investments of $4.9 million for the period.

During the six months ended August 31, 2013, we made $87.9 million investments in new or existing portfolio companies and had $54.9 million in aggregate amount of exits and repayments resulting in net investments of $33.0 million for the period. During the six months ended August 31, 2012, we made $28.3 million investments in new or existing portfolio companies and had $14.5 million in aggregate amount of exits and repayments resulting in net investments of $13.8 million for the period.

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Our portfolio composition based on fair value at August 31, 2013 and February 28, 2013 was as follows:

Portfolio composition

	At August 31, 2013				At February 28, 2013
	Percentage of Total Portfolio		Weighted Average Current Yield		Percentage of Total Portfolio		Weighted Average Current Yield
Middle market loans	19.8	%	6.6	%	—	%	—	%
First lien term loans	40.2		10.5		54.0		10.0
Second lien term loans	8.7		10.1		6.2		11.1
Senior secured notes	13.0		14.9		15.0		14.8
Unsecured notes	2.9		14.9		3.1		16.4
Saratoga CLO subordinated notes	10.5		27.2		16.5		27.1
Equity interests	4.9		N/A		5.2		N/A
Total	100.0	%	12.2	%	100.0	%	14.0	%

Our investment in the subordinated notes of Saratoga CLO represents a first loss position in a portfolio that, at August 31, 2013 and February 28, 2013, was composed of $331.8 million and $383.3 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 GSC Investment Corp. CLO 2007 LTD. constitutes a leveraged investment in a portfolio of predominantly senior secured first lien term loans and is subject to additional risks and volatility” in our Annual Report on Form 10-K for the fiscal year ended February 28, 2013). We do not consolidate the Saratoga CLO portfolio in our financial statements. However, at August 31, 2013, $312.2 million or 97.7% 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 $1.2 million. At February 28, 2013, $368.9 million or 98.5% of the Saratoga CLO portfolio investments in terms of market value had a CMR color rating of green or yellow and one Saratoga CLO portfolio investment was in default with a fair value of $1.0 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 August 31, 2013 and February 28, 2013 was as follows:

Portfolio CMR distribution

	At August 31, 2013				At February 28, 2013
Color Score	Investments at Fair Value		Percentage of Total Portfolio		Investments at Fair Value		Percentage of Total Portfolio
	($ in thousands)
Green	$	140,948	75.1	%	$	100,170	64.6	%
Yellow	16,334		8.7		8,143		5.3
Red	1,568		0.8		13,229		8.5
N/A(1)	28,950		15.4		33,538		21.6
Total	$	187,800	100.0	%	$	155,080	100.0	%

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

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The CMR distribution of Saratoga CLO investments at August 31, 2013 and February 28, 2013 was as follows:

Portfolio CMR distribution

	At August 31, 2013				At February 28, 2013
Color Score	Investments at Fair Value		Percentage of Total Portfolio		Investments at Fair Value		Percentage of Total Portfolio
	($ in thousands)
Green	$	270,296	84.6	%	$	318,181	85.0	%
Yellow	41,942		13.1		50,677		13.5
Red	7,289		2.3		5,562		1.5
Total	$	319,527	100.0	%	$	374,420	100.0	%

Portfolio composition by industry grouping at fair value

The following table shows the portfolio composition by industry grouping at fair value at August 31, 2013 and February 28, 2013.

	At August 31, 2013				At February 28, 2013
	Investments at Fair Value		Percentage of Total Portfolio		Investments at Fair Value		Percentage of Total Portfolio
	($ in thousands)
Business Services	$	55,840	29.7	%	$	22,155	14.3	%
Structured Finance Securities(1)	19,742		10.5		25,517		16.5
Healthcare Services	17,856		9.5		12,400		8.0
Food and Beverage	17,049		9.1		18,199		11.7
Consumer Services	16,242		8.7		10,654		6.9
Consumer Products	7,957		4.2		13,727		8.9
Automotive	7,220		3.8		14,805		9.5
Metals	7,147		3.8		6,724		4.3
Electronics	6,832		3.6		6,721		4.3
Software	6,263		3.3		—		—
Manufacturing	5,970		3.2		—		—
Publishing	5,949		3.2		5,631		3.6
Logistics	5,000		2.7		11,181		7.2
Environmental	4,200		2.2		2,992		1.9
Aerospace	3,296		1.8		3,500		2.3
Building Products	470		0.3		267		0.2
Education	391		0.2		292		0.2
Homebuilding	376		0.2		315		0.2
Total	$	187,800	100.0	%	$	155,080	100.0	%

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

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The following table shows the portfolio composition by industry grouping of Saratoga CLO at fair value at August 31, 2013 and February 28, 2013.

	At August 31, 2013				At February 28, 2013
	Investments at Fair Value		Percentage of Total Portfolio		Investments at Fair Value		Percentage of Total Portfolio
	($ in thousands)
Healthcare	$	35,562	11.1	%	$	40,502	10.8	%
Conglomerate	28,144		8.8		29,888		8.0
Business Equipment and Services	26,493		8.3		28,300		7.6
Chemicals/Plastics	23,584		7.4		28,817		7.7
Financial Intermediaries	21,382		6.7		20,199		5.4
Industrial Equipment	21,094		6.6		21,864		5.8
Aerospace and Defense	20,371		6.4		20,914		5.6
Drugs	17,922		5.6		18,226		4.9
Food Products	17,319		5.4		21,016		5.6
Electronics/Electric	15,503		4.9		26,321		7.0
Retailers (Except Food and Drugs)	15,270		4.8		19,050		5.1
Automotive	10,612		3.3		10,625		2.8
Utilities	9,613		3.0		9,932		2.6
Leisure Goods/Activities/Movies	8,924		2.9		8,879		2.4
Telecommunications	6,443		2.0		10,951		2.9
Insurance	5,558		1.7		6,648		1.8
Food Services	5,149		1.6		5,491		1.5
Nonferrous Metals/Minerals	4,507		1.4		5,187		1.4
Lodging and Casinos	3,543		1.1		7,400		2.0
Brokers/Dealers/Investment Houses	3,271		1.0		3,311		0.9
Publishing	3,171		1.0		5,657		1.5
Telecommunications/Cellular	3,025		1.0		3,076		0.8
Home Furnishings	2,928		0.9		2,984		0.8
Cable and Satellite Television	2,666		0.8		4,058		1.1
Containers/Glass Products	1,980		0.6		2,009		0.5
Food/Drug Retailers	1,972		0.6		4,329		1.1
Broadcast Radio and Television	1,003		0.3		1,010		0.3
Steel	988		0.3		1,001		0.3
Clothing/Textiles	783		0.3		861		0.2
Ecological Services and Equipment	747		0.2		753		0.2
Beverage and Tobacco	—		—		3,037		0.8
Building and Development	—		—		2,124		0.6
Total	$	319,527	100.0	%	$	374,420	100.0	%

Portfolio composition by geographic location at fair value

The following table shows the portfolio composition by geographic location at fair value at August 31, 2013 and February 28, 2013. The geographic composition is determined by the location of the corporate headquarters of the portfolio company.

	At August 31, 2013				At February 28, 2013
	Investments at Fair Value		Percentage of Total Portfolio		Investments at Fair Value		Percentage of Total Portfolio
	($ in thousands)
Southeast	$	74,637	39.7	%	$	70,476	45.4	%
West	42,924		22.9		26,573		17.1
Midwest	27,343		14.6		18,469		11.9
Northeast	23,154		12.3		14,045		9.1
Other(1)	19,742		10.5		25,517		16.5
Total	$	187,800	100.0	%	$	155,080	100.0	%

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

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Results of operations

Operating results for the three and six months ended August 31, 2013 and 2012 are as follows:

	For the three months ended
	August 31, 2013			August 31, 2012
	($ in thousands)
Total investment income	$	5,388		$	4,163
Total expenses, net	3,116			2,849
Net investment income	2,272			1,314
Net realized gains	546			269
Net unrealized gains (losses)	(2,859		)	3,288
Net increase (decrease) in net assets resulting from operations	$	(41	)	$	4,871

	For the six months ended
	August 31, 2013			August 31, 2012
	($ in thousands)
Total investment income	$	11,406		$	7,782
Total expenses, net	6,664			5,195
Net investment income	4,742			2,587
Net realized gains	1,074			316
Net unrealized gains (losses)	(2,057		)	5,158
Net increase in net assets resulting from operations	$	3,759		$	8,061

Investment income

The composition of our investment income for the three and six months ended August 31, 2013 and 2012 was as follows:

	For the three months ended
	August 31, 2013		August 31, 2012
	($ in thousands)
Interest from investments	$	4,792	$	3,514
Management fee income from Saratoga CLO	481		500
Interest from cash and cash equivalents and other income	115		149
Total	$	5,388	$	4,163

	For the six months ended
	August 31, 2013		August 31, 2012
	($ in thousands)
Interest from investments	$	9,963	$	6,625
Management fee income from Saratoga CLO	979		1,000
Interest from cash and cash equivalents and other income	464		157
Total	$	11,406	$	7,782

For the three months ended August 31, 2013, total investment income increased $1.2 million, or 29.4% compared to the three months ended August 31, 2012. The increase in total investment income for the three months ended August 31, 2013 versus the three months ended August 31, 2012 was the result of a higher average portfolio for the three months ended August 31, 2013.

For the six months ended August 31, 2013, total investment income increased $3.6 million, or 46.6% compared to the six months ended August 31, 2012. The increase in total investment income for the six months ended August 31, 2013 versus the six months ended August 31, 2012 was the result of a higher average portfolio for the three and six months ended August 31, 2013.

For the three and six months ended August 31, 2013 and 2012, total PIK income was $0.3 million and $0.5 million, and $0.2 million and $0.5 million, respectively.

The reinvestment period for Saratoga CLO ended in January 2013. As a result, proceeds from principal payments in the loan portfolio of Saratoga CLO must now be used to paydown its outstanding notes. Thus, the management fee income and investment income that we will receive from Saratoga CLO will decline in future periods.

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Operating expenses

The composition of our expenses for the three and six months ended August 31, 2013 and 2012 was as follows:

Operating Expenses

	For the three months ended
	August 31, 2013			August 31, 2012
	($ in thousands)
Interest and debt financing expenses	$	1,604		$	653
Base management fees	811			505
Professional fees	235			294
Incentive management fees	(40		)	869
Administrator expenses	250			250
Insurance expenses	119			130
Directors fees	45			51
General and administrative and other expenses	92			97
Total expenses	$	3,116		$	2,849

	For the six months ended
	August 31, 2013		August 31, 2012
	($ in thousands)
Interest and debt financing expenses	$	2,731	$	1,299
Base management fees	1,548		963
Professional fees	566		639
Incentive management fees	781		1,300
Administrator expenses	500		500
Insurance expenses	239		261
Directors fees	96		102
General and administrative and other expenses	203		151
Total expenses	$	6,664	$	5,195

For the three months ended August 31, 2013, total expenses increased $0.3 million, or 9.4%, compared to the three months ended August 31, 2012. For the six months ended August 31, 2013, total expenses increased $1.5 million, or 28.3%, compared to the six months ended August 31, 2012. The increase is primarily related an increase in interest and credit facility expense, base management fees and incentive management fees due to the growth in our portfolio and amount of our outstanding debt.

As discussed above, the increase in interest and debt financing expenses for the three and six months ended August 31, 2013 is primarily attributable to an increase in the amount of outstanding debt as compared to the prior periods. For the six months ended August 31, 2013 and 2012, the weighted average interest rate on the outstanding borrowings under the Replacement Facility was 7.50% and 7.50%, respectively. The weighted average interest rate during the six months ended August 31, 2013 on the outstanding borrowings of the SBA debentures was 2.90%. The weighted average interest rate during the six months ended August 31, 2013 on the Notes was 7.50%.

Net realized gains/losses on sales of investments

For the three months ended August 31, 2013, the Company had $29.6 million of sales, repayments, exits or restructurings resulting in $0.5 million of net realized gains.

For the six months ended August 31, 2013, the Company had $54.9 million of sales, repayments, exits or restructurings resulting in $1.0 million of net realized gains.

For the three months ended August 31, 2012, we had $10.0 million of sales, repayments, exits and restructurings, resulting in $0.3 million of net realized gains.

For the six months ended August 31, 2012, we had $14.5 million of sales, repayments, exits and restructurings, resulting in $0.4 million of net realized gains.

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Net unrealized appreciation/depreciation on investments

For the three months ended August 31, 2013, our investments had an increase in net unrealized depreciation of $2.9 million versus an increase in net unrealized appreciation of $3.3 million for the three months ended August 31, 2012. For the six months ended August 31, 2013, our investments had an increase in net unrealized depreciation of $2.1 million versus an increase in net unrealized appreciation of $5.0 million for the six months ended August 31, 2012. The most significant cumulative changes in unrealized appreciation and depreciation for the six months ended August 31, 2013, were the following:

Six months ended August 31, 2013

Issuer	Asset Type	Cost		Fair Value		Total Unrealized Appreciation/ (Depreciation)			YTD Change in Unrealized Appreciation/ (Depreciation)
		($ in thousands)
Elyria Foundry Company, LLC	Senior Secured Note	$	8,860	$	7,147	$	(1,713	)	$	(1,713	)
Saratoga CLO	Other/ Structured Finance Securities	16,805		19,742		2,937			(3,635		)
USS Parent Holding Corp.	Voting Common Stock	3,026		4,023		997			1,157

The $1.7 million of unrealized depreciation in our investment in Elyria Foundry Company, LLC was due to lower operating performance as a result of weaker oil and gas demand.

The $3.6 million of unrealized depreciation in our investment in the Saratoga CLO subordinated notes was due to lower net present value of projected future cash flows partially offset by a reduction in the investment basis of the subordinated notes.

The $1.2 million of unrealized appreciation in our investment in the common stock of USS Parent Holding Corp. was due to improved operating performance.

The most significant cumulative changes in unrealized appreciation for the six months ended August 31, 2012 were the following:

Six months ended August 31, 2012

Issuer	Asset Type	Cost		Fair Value		Total Unrealized Appreciation		YTD Change in Unrealized Appreciation/ (Depreciation)
		($ in thousands)
Targus Holdings, Inc.	Common Stock	$	567	$	4,594	$	4,027	$	1,918
Worldwide Express Operations LLC	First Lien Term Loan	6,397		6,441		44		353
Saratoga CLO	Other/Structured Finance Securities	21,568		27,099		5,531		3,225

The $2.0 million of unrealized appreciation on our investment in Targus Holdings, Inc. resulted from its improved operating performance and improved trading multiples of comparable publicly traded companies. In addition, the $0.4 million of unrealized appreciation on our investment in Worldwide Express Operations, LLC resulted from its improved operating performance.

The $3.2 million net unrealized appreciation in our investment in the Saratoga CLO subordinated notes was due to higher cash flow projections (based on an improvement in the overall portfolio, a decrease in the assumed portfolio default rate and an improvement in reinvestment assumptions based on current market conditions and projections) offset by a higher discount rate used to present value the cash flows based on current market conditions.

Changes in net assets resulting from operations

For the three months ended August 31, 2013, we recorded a net decrease in net assets resulting from operations of $0.04 million versus a net increase in net assets resulting from operations of $4.9 million for the three months ended August 31, 2012. Based on 4,730,116 and 3,876,661 weighted average common shares outstanding for the three months ended August 31, 2013 and August 31, 2012, respectively, our per share net decrease in net assets resulting from operations was ($0.01) for the three months ended August 31, 2013 versus a per share net increase in net assets from operations of $1.26 for the three months ended August 31, 2012.

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For the six months ended August 31, 2013, we recorded a net increase in net assets resulting from operations of $3.8 million versus a net increase in net assets resulting from operations of $8.1 million or the six months ended August 31, 2012. Based on 4,730,116 and 3,876,661 weighted average common shares outstanding for the six months ended August 31, 2013 and August 31, 2012, respectively, our per share net increase in net assets resulting from operations was $0.79 for the six months ended August 31, 2013 versus a per share net increase in net assets from operations of $2.08 for the six months ended August 31, 2012.

FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES

We intend to continue to generate cash primarily from cash flows from operations, including 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 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 26, 2013 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 26, 2014 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 26, 2014 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 332.8% as of August 31, 2013 and 547.3% as of February 28, 2013. 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.

Below is a summary of the terms of the senior secured revolving credit facility we entered into with Madison Capital Funding (the “Replacement 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 Replacement 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 Replacement 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.

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The Replacement 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 Replacement 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 Replacement 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 Replacement 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 Replacement Facility.

Revolving Period and Maturity Date. The Company may make and repay borrowings under the Replacement Facility for a period of three years following the closing of the Replacement 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 Replacement 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 Replacement Facility that the principal amount outstanding under the Replacement 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 Replacement Facility, to accrued interest and commitment fees and any breakage costs payable to the lenders under the Replacement 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 Replacement 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 Replacement 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 Replacement 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.

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Reserve Account. The Replacement 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 Replacement 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 Replacement 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 Replacement 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 Replacement Facility contains certain negative covenants, customary representations and warranties and affirmative covenants and events of default. The Replacement 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 Replacement 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

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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 Replacement 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 Replacement 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.

As of August 31, 2013, we had no outstanding balance under the Replacement Facility and our borrowing base under the Replacement Facility was $51.1 million.

Our asset coverage ratio, as defined in the 1940 Act, was 332.8% as of August 31, 2013 and 547.3% as of February 28, 2013.

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 August 31, 2013, our SBIC subsidiary had $25 million in regulatory capital and $40.0 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.

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 7.5% 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:

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· 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.

Contractual obligations

The following table shows our payment obligations for repayment of debt and other contractual obligations at August 31, 2013:

			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	$	88,300	$	—	$	—	$	—	$	88,300

Off-balance sheet arrangements

At August 31, 2013 and February 28, 2013, we did not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.

Recent Developments

On October 1, 2013, the Saratoga CLO priced a refinancing of its notes. The refinanced Saratoga CLO has assets of $300 million and will have a reinvestment period through October 2016. As a result of increased pricing on the notes and the smaller asset base, interest income and equity distributions in the future will be lower historical amounts. Saratoga Investment Corp. will continue to own 100% of the subordinated notes and receive a 50 basis point management fee for the life of the Saratoga CLO. The refinancing is expected to close on October 17, 2013.

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, 2013.

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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 August 31, 2013 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 an investment advisory and management agreement with us, and that the termination of the investment advisory and 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

Other than as set forth below, 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, 2013.

Our independent auditors have not assessed our internal control over financial reporting. If our internal control over financial reporting is not effective, it could have a material adverse effect on our stock price and our ability to raise capital.

Because we are a “non-accelerated filer” within the meaning of Rule 12b-2 under the Securities Exchange Act of 1934, our independent auditors are not required to assess our internal control over financial reporting or to provide a report thereon. Although our management determined that our internal control over financial reporting was effective at Febrauary 28, 2013 (the last dated that such determination was required to be made by us), there can be no assurance that our independent auditors would agree with our management’s conclusion. Furthermore, if our market capitalization, excluding affiliated stockholders, at August 31 of any fiscal year is greater than $75 million, then we will be required to obtain independent auditor certification on the adequacy of our internal control over financial reporting for that fiscal year. If our internal control over financial reporting is determined in the future to not be effective, whether by our management or by our independent auditors, there could be an adverse reaction in the financial markets due to a loss of confidence in the reliability of our financial statements, which could materially adversely affect our stock price and our ability to raise capital necessary to operate our business. In addition, we may be required to incur costs in improving our internal control system and hiring additional personnel.

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

Not applicable.

Item 3. Defaults upon Senior Securities

Not applicable.

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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.

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SIGNATURES

Pursuant to the requirements 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: October 15, 2013	By	/s/ Christian L. Oberbeck
		Christian L. Oberbeck
		Chief Executive Officer

	By	/s/ Richard A. Petrocelli
		Richard A. Petrocelli
		Chief Financial Officer, Chief Compliance Officer and Secretary

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