Proxy Statement (Form DEF 14A)

FOR THE SPECIAL MEETING OF SHAREHOLDERS

TO BE HELD ON NOVEMBER 6, 2025

This Proxy Statement is furnished in connection with the solicitation of proxies by the Board of Directors (the "Board of Directors" or the "Board") of Advanced Flower Capital Inc., a Maryland corporation (the "Company," "we," "us," or "our"), for exercise at a Special Meeting of Shareholders, or the "Special Meeting," to be held on November 6, 2025, at 10:00 a.m. Eastern Time, via live webcast at www.virtualshareholdermeeting.com/AFCG2025SM, and for the purposes set forth in the accompanying Notice of the Special Meeting of Shareholders, the proxy card, and at any postponements or adjournments thereof. On or about September 16, 2025, the Company mailed this proxy statement (the "Proxy Statement") to shareholders of record as of the close of business on September 15, 2025 (the "Record Date").

QUESTIONS AND ANSWERS

While the Company and the Board believe the conversion to a BDC will provide meaningful long-term benefits, they recognize that the change also involves certain risks and considerations. As a BDC, the Company will be subject to a different regulatory framework under the 1940 Act, including limitations on leverage, increased compliance and reporting obligations, and restrictions on certain types of transactions. In addition, if the Conversion is approved, the Company would have different management and incentive fees and potential for less real property collateral coverage. The Company and the Board have carefully considered these factors and believe that the potential for enhanced investment flexibility, portfolio diversification, and long-term value creation outweighs the risks associated with the Conversion.

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Following the Conversion, consistent with operating as a BDC, we will eliminate the investment guidelines relating to maintaining REIT qualification and avoiding investment company status and will adopt other investment guidelines to comport with the requirements applicable BDCs under the 1940 Act and RICs under the Code. In addition, we intend to expand our investment objective and change certain of our other investment guidelines.

Proposal 1: To approve the Proposed Investment Advisory Agreement with AFC Management, LLC, our external manager, which would replace the existing management agreement ("Proposal 1"); and

Proposal 2: To approve the application of the reduced asset coverage requirements in Section 61(a)(2) of the 1940 Act to the Company, which would permit the Company to increase the maximum amount of leverage that it would otherwise be permitted to incur by reducing the asset coverage requirement applicable to the Company from 200% to 150%. ("Proposal 2").

No cumulative voting rights are authorized, and dissenter's rights are not applicable to these matters.

Q.	Why is the Board requesting approval for the Proposed Investment Advisory Agreement?

Shareholder approval of the Proposed Investment Advisory Agreement is required under the 1940 Act and, as a result, is a prerequisite for the Company to convert to a BDC and elect to be treated as a RIC under the Code.

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Q.	What are the primary reasons that the Board approved the Manager as investment adviser to the Company?

Q.	How will the Company's operations and regulatory risk profile change after the Conversion?

In addition, the 1940 Act prohibits or restricts a BDC's ability to engage in certain principal transactions and joint transactions with certain "close affiliates" and "remote affiliates." For example, a BDC is prohibited from buying or selling any security from or to any person who owns more than 25% of its voting securities or certain of that person's affiliates (each is a "close affiliate"), or entering into prohibited joint transactions with such persons, absent the prior approval of the U.S. Securities and Exchange Commission (the "SEC"). BDCs are prohibited under the 1940 Act from participating in certain principal transactions and joint transactions with a "remote affiliate" without the prior approval of a majority of directors who are not "interested persons" of the BDC, as that term is defined in the 1940 Act (the "Independent Directors"). Any person that owns, directly or indirectly, 5% or more of a BDC's outstanding voting securities will be a "remote affiliate" for purposes of the 1940 Act, and a BDC is generally prohibited from buying or selling any security from or to such affiliate without the prior approval of the Independent Directors.

In addition, a BDC is subject to restrictions on the amount of "senior securities" it may issue, which effectively limits its ability to employ leverage through borrowing, issuing debt securities or issuing preferred stock. See "How will the Conversion affect the Company's ability to use leverage?" for additional information.

Further, following the completion of the Conversion, the Company intends to elect to be taxed as a RIC for U.S. federal income tax purposes as soon as practicable following its election to be regulated as a BDC. If the Company does not qualify for or maintain RIC tax treatment for any reason and is subject to corporate income tax, the resulting corporate taxes could substantially reduce the Company's net assets, the amount of income available for distribution and the amount of the Company's distributions.

For additional information about the tax implications of the Conversion, please see the answer to "What are the tax implications associated with the Conversion?" included below.

Following the Conversion, the Company would become subject to the limitations on the use of leverage contained in the 1940 Act. In general, the 1940 Act permits a BDC, under specified conditions, to issue multiple classes of indebtedness and one class of senior securities representing stock if the BDC's asset coverage is at least equal to 200%. Under a 200% asset coverage requirement, a BDC would only be permitted to borrow or issue senior securities equal to $1 for every $1 of net assets the BDC holds.

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The 1940 Act provides flexibility for a BDC to reduce the asset coverage requirement from 200% to 150% by either a (i) vote by a "required majority" of the BDC's directors who do not have a financial interest in the proposal, with such change to take effect one year after the date of the directors' approval, or (ii) a vote of a majority of votes cast at an annual or special meeting of the BDC's shareholders at which a quorum is present, with such change to take effect on the day following the shareholders' approval. Accordingly, the Company is seeking approval of shareholders in Proposal 2 to apply the Reduced Asset Coverage Requirement. Under a 150% asset coverage requirement, the Company would be permitted to borrow or issue senior securities in an amount equal up to $2 for every $1 of net assets the Company holds. Notwithstanding the Reduced Asset Coverage Requirement, if approved, the Company would continue to be subject to any applicable contractual limitations on its use of leverage.

For a more detailed discussion of the rationale for and impact of the Reduced Asset Coverage Requirements, please refer to "Proposal 2-Approval of the Application of the Reduced Asset Coverage Requirements in Section 61(a)(2) of the 1940 Act to the Company" below.

Following the Conversion, the Company intends to convert to a BDC and, as soon as practicable following its election to be regulated as a BDC, elect to be treated as a RIC for federal tax purposes. The Company and its shareholders are not expected to recognize any gain or loss for U.S. federal income tax purposes from the Conversion itself. However, prior to qualifying as a RIC, the Company may temporarily operate as a taxable C-Corporation, and its income may be taxable at regular corporate rates. Distributions of earnings and profits while the Company operates as a taxable C-Corporation will be taxable to its shareholders as dividend income and generally will be eligible (i) to be treated as qualified dividend income in the case of shareholders taxed as individuals and (ii) for the dividends received deduction in the case of corporate shareholders, in each case, subject to certain holding period and other requirements. Distributions in excess of earnings and profits will be treated as a return of shareholder's capital. To be eligible to be treated as a RIC, the Company would be required to distribute to shareholders any earnings and profits that remained undistributed from any year in which it did not qualify as a RIC, including from the period it operated as a taxable C-Corporation. In addition, the Company may elect to recognize and pay tax on net built-in gains (i.e., the excess of the aggregate gains over aggregate losses that would have been realized if the Company had sold its assets), if any, on the last day of its last tax year as a C-Corporation before it intends to qualify to be taxed as a RIC. The actual tax impact of operating as a taxable C-Corporation will depend on the circumstances following the Conversion and thus cannot be determined precisely at this time.

As a RIC, the Company generally would not be subject to U.S. federal income tax on taxable income that is distributed to our shareholders, so long as it maintains qualification as a RIC by complying with a number of organizational and operational requirements, including sources of income, asset diversification, and annual minimum distribution requirements.

As a RIC, the Company must, among other things, (1) derive at least 90% of our gross income for each tax year from dividends, interest, payments with respect to securities loans, gains from the sale or other disposition of stocks or securities or foreign currencies, net income from certain publicly traded partnerships or other income derived with respect to our business of investing in stocks, securities or currencies, and (2) diversify holdings so that at the close of each quarter of our tax year, (a) at least 50% of the value of our total assets is comprised of cash, cash items, U.S. government securities, securities of other RICs and other securities limited in respect of any one issuer to an amount not greater in value than 5% of the value of our total assets and to not more than 10% of the outstanding voting securities of such issuer, and (b) not more than 25% of the value of our total assets is invested in the securities of any one issuer (other than U.S. government securities and securities of other RICs), two or more issuers controlled by us and engaged in the same, similar or related trades or businesses, or certain publicly traded partnerships. As a RIC, distributions of earnings and profits will generally be treated as ordinary income or capital gain dividends to our shareholders. Distributions in excess of earnings and profits will be treated as a return of shareholder's capital.

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Currently, all services provided by the Manager to the Company are reflected in the Existing Management Agreement, including both advisory and non-advisory management services. Following the Conversion, it is proposed that the Company would, subject to Board approval, have two primary services agreements with the Manager: (i) the Proposed Investment Advisory Agreement, and (ii) an administrative services agreement (the "Administration Agreement"). The Proposed Investment Advisory Agreement would provide for investment advisory services that are the same in nature, kind, and extent as the advisory services contemplated under the Existing Management Agreement. All other services that the Manager currently provides to the Company, such as those that are more operational in nature, including furnishing the Company with office facilities and providing equipment, clerical, compliance, bookkeeping, record keeping, and other administrative services, would be included in the new Administration Agreement. It is expected that the Company's costs for administrative services under the Administration Agreement will be relatively consistent with those incurred under the Existing Management Agreement. Please see the discussion included in this Proxy Statement under "Proposal 1-Approval of a Proposed Investment Advisory Agreement with Advanced Flower Capital Inc." for additional information about the nature of the Proposed Investment Advisory Agreement, the Administration Agreement, and how these agreements compare to the Existing Management Agreement.

Second, certain features of the investment advisory fees paid to the Manager would change under the Proposed Investment Advisory Agreement. The investment advisory fees would continue to consist of two components: a base management fee, and an incentive fee. However, certain elements of the base management and incentive fees as well as certain rates applied in the calculation of such fees would be different under the Proposed Investment Advisory Agreement. Please see the discussion included in this Proxy Statement under "Proposal 1-Approval of a Proposed Investment Advisory Agreement with Advanced Flower Capital Inc." for additional information and detail regarding the fees and expenses payable under the Proposed Investment Advisory Agreement and how they compare to those provided for in the Existing Management Agreement.

Q.	How will the Company's directors and executive officers vote on the Proposals?

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As of the Record Date, the Company's directors and executive officers, including Mr. Tannenbaum, beneficially owned and were entitled to vote, in the aggregate, approximately 25.1% of the voting power of the shares of the Company's Common Stock outstanding. The Company's directors and executive officers, including Mr. Tannenbaum, have informed the Company that, as of the date of this Proxy Statement, they intend to vote all of the shares of the Company's Common Stock beneficially owned by them in favor of each Proposal.

In addition, our directors and executive officers, including Mr. Tannenbaum, may acquire additional shares of the Company's common stock in the open market or in privately negotiated transactions prior to the Record Date and vote such acquired shares in favor of the Proposals.

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Please note that if shareholders do not approve Proposal 1, the Company would be prohibited by the 1940 Act from effectuating the Conversion as currently anticipated.

The Proposals are presented to you separately in this Proxy Statement in accordance with SEC rules and guidance. However, the Conversion is contingent on the approval by shareholders of Proposal 1. Thus, the Company will not take the proposed action (including effectuating the Conversion), even if Proposal 2 is approved, if Proposal 1 fails to be approved.

The Company will employ Broadridge Financial Solutions, Inc. to receive and tabulate the proxies.

At the close of business on the Record Date, 22,594,541 shares of Common Shares of the Company were issued and outstanding. Holders of Common Shares are entitled to one (1) vote per each Common Share held as of the Record Date, on each Proposal to be voted on. Shares cannot be voted at the Special Meeting unless the holder thereof as of the Record Date is present or represented by proxy.

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By Internet-until 11:59 p.m. Eastern Time on November 5, 2025

If you are a shareholder of record, you may follow the instructions and web address noted on your proxy card to transmit your voting instructions. You will be asked to provide the 16-digit control number from the proxy card. Please have your notice in hand when you access the website and follow the instructions to obtain your records and to create an electronic voting instruction form. Your vote must be received by 11:59 p.m. Eastern Time on November 5, 2025 to be counted.

By Telephone-until 11:59 p.m. Eastern Time on November 5, 2025

If you are a shareholder of record, you may use any touch-tone telephone to dial the telephone number noted on your proxy card to transmit your voting instructions. You will be asked to provide the 16-digit control number from the proxy card, if applicable. Please have your notice in hand when you call and follow the instructions. Your vote must be received by 11:59 p.m. Eastern Time on November 5, 2025 to be counted.

By Mail-signed proxy card if received by November 5, 2025

If you received your proxy materials by mail, you may authorize your proxy to vote your shares by mail by marking the enclosed proxy card, dating and signing it, and returning it in the postage-paid envelope provided.

Authorizing your proxy by mail will not limit your right to attend the Special Meeting and vote your Common Shares online. Your proxy (either one or both of the individuals (as applicable) named in your proxy card) will vote your Common Shares per your instructions.

Banks and brokers have the authority to vote shares for which their customers do not provide voting instructions on routine matters. The Proposals to be voted on at the Special Meeting are non-routine matters for which brokers do not have discretionary voting power and for which specific instructions from their customers are required. As a result, banks and brokers are not allowed to vote any shares held by you in "street name" on the Proposals unless you provide the bank or broker with specific voting instructions. Failure to provide the bank or broker that holds your shares with specific voting instructions on the Proposals will result in your shares not being voted at the Special Meeting.

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A "broker non-vote" occurs when there are both routine and non-routine matters on the proxy card and the broker marks a vote on the routine matter (either as instructed by the client or, if not instructed, in the broker's discretion) and does not vote on the non-routine matters because the broker has no voting authority on such matters without the client's instruction. The Company does not expect any broker non-votes at the Special Meeting because each of the Proposals to be presented at the Special Meeting is considered non-routine.

Beneficial owners of Common Shares held through the account of a bank or broker are advised that, if they do not timely provide instructions to their broker, their Common Shares will not be voted at the Special Meeting.

Once your vote has been registered with the proxy solicitor, your name will be removed from the solicitor's follow-up contact list.

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The Company is furnishing this Proxy Statement for the purpose of soliciting your proxy. The Board of Directors of the Company requests that you submit your proxy to allow the representation and voting of your Common Shares at our Special Meeting.

Advanced Flower Capital Inc.

477 S. Rosemary Avenue, Suite 301

West Palm Beach, Florida 33401

Attention: Daniel Neville

Telephone: 561-510-2390

You may also contact the proxy solicitor at:

Innisfree M&A Incorporated

501 Madison Avenue, 20^th Floor

New York, NY 10022

Banks and Brokers Call: (212) 750-5833

Stockholders Call Toll Free: (877) 750-8269

You may also obtain additional information about the Company from documents filed with the SEC.

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PROPOSAL 1: APPROVAL OF AN INVESTMENT ADVISORY AGREEMENT WITH ADVANCED FLOWER CAPITAL INC.

Following the Conversion, the Company, as an externally managed, closed-end non-diversified management investment company that has elected to be regulated as a BDC under the 1940 Act, will be subject to Section 15 of the 1940 Act, which imposes certain requirements on the initial approval and subsequent continuance of investment advisory contracts with a BDC, including the approval of the investment advisory agreement by a majority of the BDC's shareholders. Therefore, in accordance with Section 15 of the 1940 Act, the Board is asking shareholders to approve the Proposed Investment Advisory Agreement to take effect upon completion of the Conversion. An investment advisory agreement enumerates the advisory services that the adviser will provide, the fee structure, the expenses to be borne by the respective parties, and other matters relating to the relationship between a BDC and its investment adviser.

The Manager has provided investment management services to the Company since its inception pursuant to the Existing Management Agreement. The terms of the Existing Management Agreement, including the definitions of various capitalized terms used below, are described in more detail under the headings "Existing Management Agreement-Fees and Expenses" and "Existing Management Agreement-Incentive Compensation Summary" later in this section.

The terms of the Proposed Investment Advisory Agreement, including the definitions of various capitalized terms used below, are described in more detail under the headings "Proposed Investment Advisory Agreement-Fees and Expenses" and "Proposed Investment Advisory Agreement-Performance Fee Summary" later in this section.

At a Board meeting held on August 12, 2025 called specifically for the purpose of considering the approval of the Proposed Investment Advisory Agreement, the Board, including a majority of the Independent Directors, approved the Proposed Investment Advisory Agreement, subject to shareholder approval. The Company is now seeking shareholder approval of the Proposed Investment Advisory Agreement. Section 15(a) of the 1940 Act makes it unlawful for any person to serve as investment adviser to a BDC except pursuant to a written contract that has been approved by a majority vote of the outstanding voting securities of the BDC, which means the lesser of: (1) more than 50% of the outstanding voting securities of the BDC; or (2) 67% or more of the voting securities of the BDC present at the meeting if more than 50% of the outstanding voting securities of the BDC are present or represented by proxy.

The address for each of the Manager's principal executive officers and directors remains 477 S. Rosemary Avenue, Suite 301, West Palm Beach, Florida 33401. The Manager is a wholly owned subsidiary of Castleground Holdings LLC (the "Parent Manager"). The address of Castleground Holdings LLC is 477 South Rosemary Avenue, Suite 301, West Palm Beach, Florida 33401.

Leonard M. Tannenbaum and Daniel Neville will jointly and primarily manage the portfolio of the Company if the Conversion is completed.

Leonard M. Tannenbaum. Mr. Tannenbaum has served as the Company's Chairman since October 2024, prior to which he served as the Company's Executive Chairman and Chief Investment Officer since November 2023 and as the Company's Chief Executive Officer and Chairman and a director from July 2020. Since February 2024, Mr. Tannenbaum has served as director of Sunrise Realty Trust Inc., ("SUNS"), since February 2024 and as Executive Chairman since the spin-off from the Company. Mr. Tannenbaum is responsible for the Company's overall management and, in his capacity as a principal of the Adviser, leads the Investment Committee, which is responsible for overseeing investment processes including origination, credit underwriting, risk analysis and loan approvals. Mr. Tannenbaum has extensive leadership experience, including his experience as the founder of Fifth Street Asset Management, Inc., a credit asset manager with a nationwide platform ("FSAM"), and its Chief Executive Officer from its inception in 1998 until October 2017 when substantially all of its assets were sold to Oaktree Capital Management ("Oaktree"). Prior to such sale to Oaktree, FSAM had a core focus on disciplined credit investing across multiple economic cycles, and issued billions of dollars in public equity, private capital and public debt securities. FSAM made flexible investments across capital structures to growing middle market companies, primarily in conjunction with private equity sponsors. It managed approximately $5 billion of assets across multiple private investment vehicles and two publicly-traded business development companies. FSAM dissolved and liquidated its operations in the first half of 2022 and since its asset sale to Oaktree, it has had no revenue generating operations and makes no investments. Mr. Tannenbaum had a controlling interest in FSAM. Subsequent to the sale to Oaktree in 2017, Mr. Tannenbaum founded Tannenbaum Capital Group, a group of affiliated investment managers that are focused on allocating capital across various strategies including credit and commercial real estate. Mr. Tannenbaum currently also serves as a director of Southern Realty Trust, Inc. ("SRT"). Mr. Tannenbaum graduated from The Wharton School of the University of Pennsylvania, where he received a B.S. in economics. Subsequent to his undergraduate degree from the University of Pennsylvania, he received an MBA in Finance from The Wharton School as part of the submatriculation program. He is also a holder of the Chartered Financial Analyst designation and is a member of The Wharton Graduate Executive Board. Mr. Tannenbaum is married to the Company's President and Chief Investment Officer, Robyn Tannenbaum.

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Robyn Tannenbaum. Mrs. Tannenbaum has served as the Company's Chief Investment Officer since October 2024 and its President since March 2023, prior to which she served as our Managing Director, Head of Origination and Investor Relations since July 2020. Mrs. Tannenbaum has served as the President of SUNS since February 2024. Mrs. Tannenbaum has also served as Head of Capital Markets of SRT since September 2023. Mrs. Tannenbaum has over 7 years' experience focusing on mergers and acquisitions and leveraged loans to healthcare companies. Additionally, she has 5 years of experience as an investor relations professional within the finance industry. Mrs. Tannenbaum formerly served as Head of Investor Relations at Fifth Street from March 2014 to October 2017 and as a Vice President in Healthcare mergers and acquisitions at CIT Group Inc. Subsequent to her time at Fifth Street, from October 2017 through July 2020, she founded and worked at REC Investor Relations, a boutique investor relations and marketing consulting firm advising healthcare and financial services companies. She graduated summa cum laude with a B.S. in Finance, with a concentration in Marketing and a Public Relations minor from Lehigh University. Mrs. Tannenbaum brings deep experience in investor relations within the finance industry, bringing meaningful insight as the President. Mrs. Tannenbaum is married to Mr. Tannenbaum.

Daniel Neville. Mr. Neville has served as the Company's Chief Executive Officer since November 2023. Mr. Neville, previously served as AWH's Chief Financial Officer beginning in August 2020 through November 2023 and, prior to that, served as SVP Finance. In these roles, he was responsible for the AWH's accounting, finance, M&A, IT and procurement functions. Prior to AWH, Mr. Neville worked at SLS Capital, a special situations hedge fund based in New York. He served as a Managing Director from January 2015 to March 2019 and as an Analyst from April 2010 to January 2015. Previously, he worked as an investment banker at Credit Suisse in the Technology Group, where he worked on M&A and IPO transactions. Mr. Neville earned his Bachelor of Science in Economics from Duke University.

Summary of Changes in the Proposed Investment Advisory Agreement

The Board has approved, and recommends to the shareholders of the Company that they approve, the Proposed Investment Advisory Agreement. The Proposed Investment Advisory Agreement differs from the Existing Management Agreement in certain key ways, including with respect to how management fees payable to the Manager are determined. These changes include the following:

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Comparison of the Proposed Investment Advisory Agreement and Existing Management Agreement

The following table provides a comparison of material terms of the Proposed Investment Advisory Agreement and Existing Management Agreement. The table is intended as a summary. Additional information follows the table, and the terms are fully set forth in the Proposed Investment Advisory Agreement, which is included as Appendix A to this Proxy Statement. Capitalized terms not defined in the table have the meanings ascribed to them below.

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"Adjusted Capital" means the sum of (i) cumulative gross proceeds generated from issuances of the shares of our capital stock (including any distribution reinvestment plan), less (ii) distributions to our investors that represent a return of capital and amounts paid for share repurchases pursuant to any share repurchase program.

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Proposed Investment Advisory Agreement-Fees and Expenses

Under the Proposed Investment Advisory Agreement, the Company would pay the Manager a base management fee (the "Base Management Fee") calculated at an annual rate of 1.50% of the average value of the Company's average of gross assets at the end of the two most recently completed calendar quarters (excluding cash or cash equivalents but including assets purchased with borrowed funds) during the most recently completed calendar quarter; provided, however, that the Base Management Fee shall be reduced by 50% (or such other amount as may be required under applicable law or as a condition to any exemptive relief on which the Company relies) of the sum of, without duplication, the aggregate amount of any other fees earned and paid to the Adviser or its affiliates from portfolio companies of the Company on a pro rata basis relative to the Company's hold size in the applicable investments during such quarter arising in connection with the investment advisory services rendered by it under this Agreement or the general management services rendered by it under the Administration Agreement by and between the Company and the Adviser (in its capacity thereunder as Administrator) dated as of the date on which the Company elects to be regulated as a BDC (such other fees, "Outside Fees"), including any agency fees relating to the Company's investments, but excluding the Incentive Compensation and any diligence fees paid and earned by the Adviser and paid by third parties in connection with the Adviser's due diligence of potential investments for the Company; provided further, that the Base Management Fee will be calculated at an annual rate equal to 1.00% of the average value of the Company's gross assets (excluding cash or cash equivalents but including assets purchased with borrowed funds) during the most recently completed calendar quarter that exceeds an amount equal to the product of (i) 200% and (ii) the Company's net asset value at the end of the most recently completed calendar quarter (the "Leverage Break Point").

In addition, under the Proposed Investment Advisory Agreement, the Company would pay the Manager incentive fees, which are more fully described below under "Proposed Investment Advisory Agreement-Incentive Fee Summary."

Had the Proposed Investment Advisory Agreement been in place, the Company estimates that the Manager would have earned $3.7 million in Base Management Fees for the year ended December 31, 2024. This represents 103.9% of the Base Management Fee that the Manager earned under the Existing Management Agreement for the year ended December 31, 2024.

The Proposed Investment Advisory Agreement is attached as Appendix A to this Proxy Statement. You should read the Investment Advisory Agreement in its entirety. The description in this Proxy Statement of the Investment Advisory Agreement is only a summary, which is qualified in its entirety by reference to the Proposed Investment Advisory Agreement.

Proposed Investment Advisory Agreement-Incentive Fee Summary

Under the Proposed Investment Advisory Agreement, the Company would pay the Manager an incentive fee consisting of two parts (the "Proposed Investment Advisory Agreement Incentive Fees"). The first part is determined and paid quarterly based on our pre-incentive fee net investment income in respect of the current calendar quarter and the three preceding calendar quarters (or the appropriate portion thereof in the case of any of the Company's first three calendar quarters following the effective date of the Proposed Investment Advisory Agreement (the "Trailing Four Quarters"), and the second part is determined and payable in arrears based on net capital gains as of the end of each calendar year or upon termination of the Proposed Investment Advisory Agreement. Pre-incentive fee net investment income is defined as interest income, dividend income and any other income accrued during the calendar quarter, minus operating expenses for the quarter, including the Base Management Fee, expenses payable to the Administrator under the Administration Agreement, any interest expense and distributions paid on any issued and outstanding preferred stock, but excluding the Proposed Investment Advisory Agreement Incentive Fees.

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Pre-incentive fee net investment income will be compared to a "New Hurdle Rate" equal to the product of (i) 1.5% per quarter (6.0% annualized) and (ii) the sum of the Company's net assets at the beginning of each applicable calendar quarter comprising the relevant Trailing Four Quarters. The Hurdle Rate will be calculated after making appropriate adjustments to the Company's net asset value at the beginning of each applicable calendar quarter for all issuances by the Company of shares of its common stock, including issuances pursuant to any dividend reinvestment plan, and distributions during the applicable calendar quarter. The Company would pay the Manager an incentive fee based on income with respect to its pre-incentive fee net investment income as follows:

Under the Proposed Investment Advisory Agreement, the Company would pay the Manager an incentive fee on capital gains calculated and payable in arrears in cash as of the end of each calendar year or upon the termination of the Proposed Investment Advisory Agreement in an amount equal to 17.5% of our realized capital gains, if any, on a cumulative basis from the date of our election to be regulated as a BDC through the end of a given calendar year or upon the termination of the Proposed Investment Advisory Agreement, 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 fees. For the purpose of computing the incentive fee on capital gains, the calculation methodology looks through derivative financial instruments or swaps as if we owned the reference assets directly. Therefore, realized gains and realized losses on the disposition of any reference assets, as well as unrealized depreciation on reference assets retained in the derivative financial instrument or swap, will be included on a cumulative basis in the calculation of the capital gains incentive fee. With respect to investments held by the Company at the time of the Conversion, such investments, for purposes of calculating the capital gains incentive fee, shall have a cost basis equal to the fair market value as of the date of the Conversion.

Proposed Investment Advisory Agreement-Incentive Fee Illustration

The following illustration sets forth a simplified graphical representation of the calculation of the Company's quarterly income incentive fee in accordance with the Proposed Investment Advisory Agreement.

Percentage of pre-incentive fee net income comprising the

Proposed Investment Advisory Agreement Incentive Fees based on Income

Proposed Investment Advisory Agreement-Incentive Fees Example

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The following are examples of the application of the income-related portion of the Proposed Investment Advisory Agreement Incentive Fees.

Alternative 1- Three Quarters under Proposed Investment Advisory Agreement in which Pre-Incentive Fee Net Investment Income Exceeds the New Hurdle Amount and New Catch-up Amount

Assumptions

Stable net asset value (NAV) of $500 million across all quarters with 1.0x leverage

New Hurdle rate⁽¹⁾ = 1.5%

New Catch-up Amount = 100% of pre-incentive fee net investment income that is greater than the hurdle amount but less than 1.8182%

Pre-incentive fee net investment income for each quarter = 5.0%^(*)

No adjusted capital returns each quarter

Incentive fee for the first quarter

Aggregate pre-incentive fee net investment income during the relevant period = $12.5 million

New Hurdle Amount = Q1 NAV × 1.5% = $500 million × 0.015 = $7.5 million

Excess income amount = pre-incentive fee net investment income during the relevant period - New Hurdle Amount = $12.5 million - $7.5 million = $5.0 million

New Catch-up Fee Amount = 100% of pre-incentive fee net investment income that is greater than $7.5 million (the New Hurdle Amount) but less than 1.8182% × Q1 NAV, or $9.091 million. This New Catch-up Fee Amount equals $1.591 million

Post New Catch-up Fee Amount = 17.5% of pre-incentive fee net investment income that exceeds the New Catch-up Amount = 0.175 × ($12.5 million - $9.091 million) = $596,591

New Catch-up Fee Amount + Post New Catch-up Fee Amount = income incentive fee payment = $2.188 million

Income incentive fee previously paid during the relevant period = none

Incentive fee for the second quarter

Aggregate pre-incentive fee net investment income during the relevant period = $12.5 million + $12.5 million = $25.0 million

New Hurdle Amount = (Q1 NAV + Q2 NAV) × 1.5% = $1 billion × 0.015 = $15 million

Excess income amount = aggregate pre-incentive fee net investment income during the relevant period (e.g., Q1 and Q2) - Hurdle Amount = $25.0 million - $15.0 million = $10.0 million

New Catch-up Fee Amount = 100% of pre-incentive fee net investment income that is greater than $15.0 million (the New Hurdle Amount) but less than 1.8182% × (Q1 NAV + Q2 NAV), or $18.182 million. This New Catch-up Fee Amount equals $3.182 million

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Post New Catch-up Fee Amount = 17.5% of pre-incentive fee net investment income that exceeds the New Catch-up Amount = 0.175 × ($25.0 million - $18.182 million) = $1.193 million

New Catch-up Fee Amount + Post New Catch-up Fee Amount = income incentive fee payment = $4.375 million

$2.188 million income incentive fee previously paid during the relevant period

Total income incentive fee payment for Q2 = income incentive fee payment - amount previously paid = $2.188 million

Incentive fee for third quarter

Aggregate pre-incentive fee net investment income during the relevant period = $12.5 million + $12.5 million + $12.5 million = $37.5 million

New Hurdle Amount = (Q1 NAV + Q2 NAV + Q3 NAV) × 1.5% = $1.5 billion × 0.015 = $22.5 million

Excess Income Amount = aggregate pre-incentive fee net investment income during the relevant period (e.g., Q1, Q2 and Q3) - New Hurdle Amount = $37.5 million - $22.5 million = $15 million

New Catch-up Fee Amount = 100% of pre-incentive fee net investment income that is greater than $22.5 million (the New Hurdle Amount) but less than 1.8182% × (Q1 NAV + Q2 NAV + Q3 NAV), or $27.273 million. This New Catch-up Fee Amount equals $4.773 million

Post New Catch-up Fee Amount = 17.5% of pre-incentive fee net investment income that exceeds the New Catch-up Amount = 0.175 × ($37.5 million - $27.273 million) = $1.790 million

New Catch-up Fee Amount + Post New Catch-up Fee Amount = income incentive fee payment = $6.563 million

$4.375 million income incentive fee previously paid during the relevant period

Total income incentive fee payment for Q3 = income incentive fee payment - amount previously paid = $2.188 million

Alternative 2-Three Quarters under Proposed Investment Advisory Agreement, in which Pre-Incentive Fee Net Investment Income does not meet the Net Hurdle Amount for one Quarter

Assumptions

Stable NAV of $500 million across all quarters with 1.0x leverage

New Hurdle rate⁽¹⁾ = 1.5%

New Catch-up Amount = 100% of pre-incentive fee net investment income that is greater than the hurdle amount but less than 1.8182%

Pre-incentive fee net investment income for Q1 = 5.0%^(*)

Pre-incentive fee net investment income for Q2 = 3.0%^(*)

Pre-incentive fee net investment income for Q3 = 0.0%^(*)

No adjusted capital Returns each quarter

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Incentive fee for the first quarter

Aggregate pre-incentive fee net investment income during the relevant period = $12.5 million

New Hurdle Amount = Q1 NAV × 1.5% = $500 million × 0.015 = $7.5 million

Excess Income Amount = pre-incentive fee net investment income during the relevant period - New Hurdle Amount = $12.5 million - $7.5 million = $5.0 million

New Catch-up Fee Amount = 100% of pre-incentive fee net investment income that is greater than $7.5 million (the New Hurdle Amount) but less than 1.8182% × Q1 NAV, or $9.091 million. This New Catch-up Fee Amount equals $1.591 million

Post New Catch-up Fee Amount = 17.5% of pre-incentive fee net investment income that exceeds the New Catch-up Amount = 0.175 × ($12.5 million - $9.091 million) = $596,591

New Catch-up Fee Amount + Post New Catch-up Fee Amount = income incentive fee payment = $2.188 million

No income incentive fee previously paid during the relevant period

Incentive fee for second quarter

Aggregate pre-incentive fee net investment income during the relevant period = $12.5 million + $7.5 million = $20.0 million

New Hurdle Amount = (Q1 NAV + Q2 NAV) × 1.5% = $1.0 billion × 0.015 = $15.0 million

Excess Income Amount = (aggregate pre-incentive fee net investment income during the relevant period (e.g., Q1 and Q2)) - New Hurdle Amount - $20.0 million - $15.0 million = $5.0 million

New Catch-up Fee Amount = 100% of pre-incentive fee net investment income that is greater than $15.0 million (the New Hurdle Amount) but less than 1.8182% × (Q1 NAV + Q2 NAV), or $18.182 million. This New Catch-up Fee Amount equals $18.182 million - $15.0 million, or $3.182 million

Post New Catch-up Fee Amount = 17.5% of pre-incentive fee net investment income that exceeds the New Catch-up Amount = 0.175 × ($20 million - $18.182 million) = $318,182

New Catch-up Fee Amount + Post New Catch-up Fee Amount = income incentive fee payment = $3.5 million

$2.188 million income incentive fee previously paid during the relevant period

Total income incentive fee payment for Q2 = income incentive fee payment - amount previously paid = $1.312 million

Incentive fee for the third quarter

Aggregate pre-incentive fee net investment income during the relevant period = $12.5 million + $7.5 million + $0.0 million = $20.0 million

New Hurdle Amount = Q1 NAV + Q2 NAV + Q3 NAV × 1.5% = $1.5 billion × 0.015 = $22.5 million

New Catch-up Amount = 100% of pre-incentive fee net investment income that is greater than the hurdle amount but less than 1.8182%

Aggregate pre-incentive fee net investment income < New Hurdle Amount. Therefore, no income incentive fee is payable for the quarter

(1)	Represents 6.0% annualized hurdle rate.

*	Hypothetical Pre incentive fee net investment income is comprised of investment income net of cost of debt, management fees, other expenses and before incentive fees.

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Pro forma Fees and Expenses

The following table shows a comparison of the Company's annual fees and expenses, shown as a percentage of net asset value over the most recent fiscal year and pro forma fees for the Company assuming the Proposed Investment Advisory Agreement had been in place.

Pro forma Expense Example

The following tables illustrate and provide a comparison of the actual expenses, including interest expense, paid and the hypothetical pro forma (if the Proposed Investment Advisory Agreement was in place) expenses that you would pay on a $1,000 investment made January 1, 2024, assuming annual expenses attributable to shares remain unchanged and shares earn a 5% annual return:

Based on Actual Fiscal Year 2024 Expenses

Based on Pro forma (as if the Proposed Investment Advisory Agreement had been in place) Expenses

The pro forma table directly above is based on estimates that assume the Proposed Investment Advisory Agreement was in place and that no performance fee was earned.

For the fiscal year ended December 31, 2024, the Manager earned approximately $10.4 million in management fees and incentive under the terms of the Existing Management Agreement that were in effect at such time. The Company did not pay any other fees to the Manager or its affiliates during the fiscal year ended December 31, 2024; however, the Company reimbursed the Manager approximately $2.9 million for general and administrative expenses of the Company incurred by the Manager pursuant to the Existing Management Agreement.

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Existing Management Agreement-Fees and Expenses

As stated above, pursuant to the Existing Management Agreement, the Company pays the Manager a base management fee that is calculated and payable quarterly in arrears, in an amount equal to 0.375% (which equals an annual rate of 1.50%) of the Company's Equity determined as of the last day of each quarter ("Base Management Fees"), and will be reduced by 50% of the aggregate amount of any Outside Fees, including any agency fees relating to our loans, but excluding the incentive compensation and any diligence fees paid to and earned by our Manager and paid by third parties in connection with our Manager's due diligence of potential loans. Under no circumstances will the Base Management Fees be less than zero. For purposes of computing the Base Management Fees, "Equity" means, as of any date (i) the sum of (A) the net proceeds from all of our issuances of equity securities since our inception through such date (allocated on a pro rata daily basis for such issuances during the fiscal quarter of any such issuance), plus (B) our retained earnings at the end of the most recently completed fiscal quarter determined in accordance with generally accepted accounting principles ("GAAP") in the United States (without taking into account any non-cash equity compensation expense incurred in current or prior periods), less (ii) (A) any amount that we have paid to repurchase our Common Shares since our inception through such date, (B) any unrealized gains and losses and other non-cash items that have impacted shareholders' equity as reported in our consolidated financial statements prepared in accordance with GAAP through such date; and (C) one-time events pursuant to changes in GAAP, and certain non-cash items not otherwise described above, through such date, in each case as determined after discussions between our Manager and our independent directors and approval by a majority of our independent directors.

Existing Management Agreement-Incentive Fee Summary

Under the Existing Management Agreement, the Manager receives incentive compensation ("Incentive Compensation" or "Incentive Fees") with respect to each fiscal quarter (or portion thereof that the Existing Management Agreement is in effect) based upon the Company's achievement of targeted levels of Core Earnings (as defined below). To the extent earned by the Manager, the Incentive Compensation is payable to the Manager quarterly in arrears in cash.

No Incentive Compensation is payable with respect to any fiscal quarter unless the Company's Core Earnings for such quarter exceed the amount equal to the product of (i) 2.0% and (ii) Adjusted Capital as of the last day of the immediately preceding fiscal quarter. The Incentive Compensation for any fiscal quarter will otherwise be calculated as the sum of (i) the product (the "Catch-Up Amount") of (A) 50% and (B) the amount of our Core Earnings for such quarter, if any, that exceeds the Hurdle Amount, but is less than or equal to 166-2/3% of the Hurdle Amount and (ii) the product (the "Excess Earnings Amount") of (A) 20% and (B) the amount of our Core Earnings for such quarter, if any, that exceeds 166-2/3% of the Hurdle Amount.

For the purposes of computing Incentive Compensation:

The calculation methodology for computing Incentive Compensation looks through any derivatives or swaps as if the Company owns the reference assets directly. Therefore, net interest, if any, associated with a derivative or swap (which represents the difference between (i) the interest income and fees received in respect of the reference assets of such derivative or swap and (ii) the interest expense paid by us to the derivative or swap counterparty) is included in the calculation of Core Earnings for purposes of the Incentive Compensation.

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Once Incentive Compensation is earned and paid to the Manager, it is not refundable, notwithstanding any losses incurred by us in subsequent periods, except that if our aggregate Core Earnings for any fiscal year do not exceed the amount equal to the product of (i) 8.0% and (ii) our Adjusted Capital as of the last day of the immediately preceding fiscal year (such amount, the "Annual Hurdle Amount"), our Manager will be obligated to pay us (such obligation to pay, the "Clawback Obligation") an amount equal to the aggregate Incentive Compensation that was earned and paid to the Manager during such fiscal year (such amount, the "Clawback Amount"); provided that under no circumstances will the Clawback Amount be more than the amount to which the Annual Hurdle Amount exceeds our aggregate Core Earnings for the specified fiscal year. The Clawback Obligation is determined on an annual basis and any Incentive Compensation earned during a specified fiscal year will not be subject to the Clawback Obligation with respect to the Incentive Compensation earned during any prior or subsequent fiscal year.

The aggregate Core Earnings, Annual Hurdle Amount, Clawback Amount and any components thereof for the initial and final fiscal years that the Existing Management Agreement is in effect will be prorated based on the number of days during the initial and final fiscal years, respectively, that the Existing Management Agreement is in effect, to the extent applicable.

Existing Management Agreement-Incentive Compensation Illustration

The following illustration sets forth a simplified graphical representation of the calculation of the Company's quarterly Incentive Compensation in accordance with the Existing Management Agreement without consideration to any Clawback Obligation.

Quarterly Incentive Fees on Core Earnings

Core Earnings (expressed as a percentage of Adjusted Capital as of the last day of the immediately preceding fiscal quarter)

Percentage of Core Earnings allocated to the Incentive Compensation on income

Existing Management Agreement-Incentive Compensation Example

The following sets forth a simplified, hypothetical example of a quarterly Incentive Compensation calculation without any consideration to any Clawback Obligation (in the manner set forth in our current annual report on Form 10-K):

This example of a quarterly Incentive Compensation calculation assumes the following:

●

Adjusted Capital as of the last day of the immediately preceding fiscal quarter of $100.0 million; and

●

Core Earnings before the Incentive Compensation for the specified quarter representing a quarterly yield of 20.9% on Adjusted Capital as of the last day of the immediately preceding fiscal quarter.

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Under these assumptions, the hypothetical quarterly Incentive Compensation payable to our Manager would be $1.045 million as calculated below:

The foregoing is solely a hypothetical example of a quarterly Incentive Compensation that the Company could pay to the Manager for a given fiscal quarter and is based on the simplified assumptions described above.

Administration Agreement

Currently, all services provided by the Manager to the Company are reflected in the Existing Management Agreement, including both advisory and non-advisory management services. Following the Conversion, it is proposed that the Company would, subject to Board approval, have two primary services agreements with the Manager: (i) the Proposed Investment Advisory Agreement, and (ii) the Administration Agreement. The Proposed Investment Advisory Agreement would provide for investment advisory services that are the same in nature, kind, and extent as the advisory services contemplated under the Existing Management Agreement. All other services that the Manager currently provides to the Company, such as those that are more operational in nature, including furnishing the Company with office facilities and providing equipment, clerical, compliance, bookkeeping, record keeping, and other administrative services, would be included in the new Administration Agreement. It is expected that the Company's costs for administrative services under the Administration Agreement will be relatively consistent with those incurred under the Existing Management Agreement.

Evaluation of the Proposed Investment Advisory Agreement by the Board of Directors

At a meeting held on August 12, 2025, the Board, including a majority of the Independent Directors, considered the approval of the Proposed Investment Advisory Agreement. In their deliberations, the Board reviewed materials relating to the Proposed Investment Advisory Agreement and the processes of the Manager and its affiliates. The Board considered several factors, including: (1) the nature, extent, and quality of services to be provided by the Manager; (2) the fees payable and expenses reimbursable to the Manager under the terms of the Proposed Investment Advisory Agreement; (3) the Manager's projected profitability in advising the Company and the estimated cost of services to be provided; (4) the extent to which economies of scale would be realized as the Company grows; and (5) any ancillary or "fall-out" benefits received by the Manager or its affiliates as a result of its relationship with the Company.

The Directors relied on the advice of independent legal counsel to the Independent Directors ("Independent Counsel") and counsel to the Company as well as their own business judgment in determining the material factors to be considered in evaluating the Proposed Investment Advisory Agreement and the weight to be given to each such factor. The conclusions reached by the Board were based on a comprehensive evaluation of all the information provided and were not the result of any single factor. Moreover, each Director may have afforded different weight to various factors in reaching his or her conclusion regarding the approval of the Proposed Investment Advisory Agreement.

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Assumed Returns on the Company's Portfolio (Net of Expenses)			(10.00	%)			(5.00	%)			0.00	%			5.00	%			10.00	%
Corresponding return to common shareholder assuming actual asset coverage as of December 31, 2024 (206%)(1)			(26.0	)%			(16.3	)%			(6.5	)%			3.2	%			12.9	%
Corresponding return to common shareholder assuming 200% asset coverage(2)			(26.9	)%			(16.9	)%			(6.9	)%			3.1	%			13.1	%
Corresponding return to common shareholder assuming 150% asset coverage(3)			(43.9	)%			(28.9	)%			(13.9	)%			1.1	%			16.1	%

Estimated Annual Expenses (as a percentage of net assets attributable to Common Shares)		Actual asset coverage as of December 31, 2024 (206)%(1)				200% asset coverage(2)				150% asset coverage(3)
Management fees(4)			2.92	%			3.00	%			4.00	%
Incentive fees payable under the Proposed Investment Advisory Agreement(5)			1.27	%			1.29	%			1.65	%
Interest payments on borrowed funds(6)			6.54	%			6.93	%			13.86	%
Other expenses(7)			2.70	%			2.70	%			2.70	%
Total annual expenses (estimated)			13.43	%			13.92	%			22.21	%

		1 year				3 years				5 years				10 years
Based on the actual asset coverage (206)% as of December 31, 2024
You would pay the following expenses on a $1,000 common share investment, assuming a 5% annual return (none of which is subject to the incentive fee based on capital gains)(1)		$	122			$	383			$	672			$	1,529
You would pay the following expenses on a $1,000 common share investment, assuming a 5% annual return resulting entirely from net realized capital gains (all of which is subject to the incentive fee based on capital gains)(2)		$	122			$	383			$	672			$	1,529
Based on 200% asset coverage
You would pay the following expenses on a $1,000 common share investment, assuming a 5% annual return (none of which is subject to the incentive fee based on capital gains)(1)		$	126			$	398			$	698			$	1,588
You would pay the following expenses on a $1,000 common share investment, assuming a 5% annual return resulting entirely from net realized capital gains (all of which is subject to the incentive fee based on capital gains)(2)		$	126			$	398			$	698			$	1,588
Based on 150% asset coverage
You would pay the following expenses on a $1,000 common share investment, assuming a 5% annual return (none of which is subject to the incentive fee based on capital gains)(1)		$	206			$	648			$	1,136			$	2,585
You would pay the following expenses on a $1,000 common share investment, assuming a 5% annual return resulting entirely from net realized capital gains (all of which is subject to the incentive fee based on capital gains)(2)		$	206			$	648			$	1,136			$	2,585

●

the benefits of increased financial flexibility;

●

the potential to increase and sustain returns on equity;

●

the current middle market direct lending landscape;

●

the risks relative to benefits associated with the use of increased leverage; and

●

impact on the investment advisory fees to be payable to the Manager.

Name of Beneficial Owner (1)		Total Number of Common Shares Beneficially Owned				% of Common Shares
5% Shareholders
Leonard M. Tannenbaum (2)			5,142,571				22.8	%
BlackRock, Inc. (3)			1,415,134				6.9	%
Named Executive Officers and Directors
Leonard M. Tannenbaum (2)			5,142,571				22.8	%
Daniel Neville (4)			209,649				*
Robyn Tannenbaum (5)			211,827				*
Brandon Hetzel (6)			51,037				*
Alexander C. Frank (7)			17,122				*
Thomas L. Harrison (8)			25,465				*
Robert Levy (9)			10,437				*
Marnie Sudnow (10)			9,037				*
All directors and executive officers as a group (8 persons)			5,677,145				25.1	%

Name		Position / Principal Occupation
Alexander C. Frank		Independent Director
Thomas L. Harrison		Lead Independent Director
Robert Levy		Independent Director
Leonard M. Tannenbaum		Director, Chairman of the Board
Marine Sudnow		Independent Director
Brandon Hetzel		Chief Financial Officer and Treasurer
Daniel Neville		Chief Executive Officer
Robyn Tannenbaum		President and Chief Investment Officer

	ADVANCED FLOWER CAPITAL INC.
	a Maryland corporation
	By:
	Name:
	Title:

	AFC MANAGEMENT, LLC
	a Delaware limited liability company
	By:
	Name:
	Title: