MFIC 10-Q Quarterly Report June 30, 2014 | Alphaminr
MidCap Financial Investment Corp
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MFIC 10-Q Quarter ended June 30, 2014

Balance Sheet
Cash Flow
Income Statement
Debt
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10-Q 1 ainv-2014630x10q.htm 10-Q AINV-2014.6.30-10Q
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 Quarter Ended June 30, 2014
¨ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Commission File Number: 814-00646
APOLLO INVESTMENT CORPORATION
(Exact name of registrant as specified in its charter)
Maryland
52-2439556
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
9 West 57 th Street
37th Floor
New York, N.Y.
10019
(Address of principal executive office)
(Zip Code)
(212) 515-3450
(Registrant’s telephone number, including area code)
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 and (2) has been subject to such filing requirements for the past 90 days.    Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes ¨ No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
x
Accelerated filer
¨
Non-accelerated filer
¨
Smaller Reporting Company
¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes ¨ No x
The number of shares of the registrant’s Common Stock, $.001 par value, outstanding as of August 7, 2014 was 236,741,351.



APOLLO INVESTMENT CORPORATION
FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 2014
TABLE OF CONTENTS

PAGE
PART I. FINANCIAL INFORMATION
Item 1.
FINANCIAL STATEMENTS
Statements of Assets and Liabilities as of June 30, 2014 and March 31, 2014

Statements of Operations for the three months ended June 30, 2014 and June 30, 2013

Statements of Changes in Net Assets for the three months ended June 30, 2014 and the year ended March 31, 2014

Statements of Cash Flows for the three months ended June 30, 2014 and June 30, 2013

Schedule of Investments as of June 30, 2014
Schedule of Investments as of March 31, 2014
Notes to Financial Statements
Report of Independent Registered Public Accounting Firm
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
Item 4.
Controls and Procedures
PART II. OTHER INFORMATION
Item 1.
Legal Proceedings
Item 1A.
Risk Factors
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
Item 3.
Defaults Upon Senior Securities
Item 4.
Mine Safety Disclosures
Item 5.
Other Information
Item 6.
Exhibits
Signatures


PART I. FINANCIAL INFORMATION
In this Quarterly Report, “Apollo Investment”, the “Company”, “AIC”, “we”, “us” and “our” refer to Apollo Investment Corporation unless the context otherwise states.

Item 1. Financial Statements

APOLLO INVESTMENT CORPORATION
STATEMENTS OF ASSETS AND LIABILITIES
(in thousands, except per share amounts)
June 30, 2014 (unaudited)

March 31, 2014
Assets
Non-controlled/non-affiliated investments, at fair value (cost — $2,790,135 and $2,714,971, respectively)
$
2,829,627


$
2,751,896

Non-controlled/affiliated investments, at fair value (cost — $162,796 and $153,721, respectively)
161,412


144,628

Controlled investments, at fair value (cost — $647,103 and $590,060, respectively)
653,669


582,147

Total investments (cost — $3,600,034 and $3,458,752, respectively)
3,644,708


3,478,671

Cash
10,177


13,413

Foreign currency (cost — $1,384 and $1,305, respectively)
1,386


1,323

Receivable for investments sold
86,874


72,918

Interest receivable
32,829


40,106

Dividends receivable
5,050


3,627

Deferred financing costs
30,010


31,601

Prepaid expenses and other assets
1,315


292

Total assets
$
3,812,349


$
3,641,951

Liabilities
Debt (see note 6 & 9)
$
1,571,018


$
1,372,261

Payable for investments purchased
70,580


119,577

Dividends payable
47,348


47,348

Management and performance-based incentive fees payable (see note 3)
33,362


31,108

Interest payable
14,718


14,318

Accrued administrative expenses
2,747


1,915

Other liabilities and accrued expenses
3,703


3,813

Total liabilities
$
1,743,476


$
1,590,340

Net Assets
Common stock, par value $.001 per share, 400,000,000 and 400,000,000 common shares authorized, respectively, 236,741,351 and 236,741,351 issued and outstanding, respectively
$
237


$
237

Paid-in capital in excess of par (see note 2)
3,221,802


3,221,829

Over-distributed net investment income (see note 2)
(47,791
)

(53,995
)
Accumulated net realized loss (see note 2)
(1,146,738
)

(1,133,405
)
Net unrealized gain
41,363


16,945

Total net assets
$
2,068,873


$
2,051,611

Total liabilities and net assets
$
3,812,349


$
3,641,951

Net asset value per share
$
8.74


$
8.67


See notes to financial statements.
3

APOLLO INVESTMENT CORPORATION
STATEMENTS OF OPERATIONS (unaudited)
(in thousands, except per share amounts)
Three Months Ended
June 30, 2014
June 30, 2013
INVESTMENT INCOME:
From non-controlled/non-affiliated investments:
Interest
$
82,547

$
75,561

Dividends
841

4,264

Other income
2,256

4,476

From non-controlled/affiliated investments:

Interest
1,956

703

Dividends
3,946

4,825

From controlled investments:

Interest
9,120

4,910

Dividends
1,808

1,896

Other income
106

38

Total investment income
$
102,580

$
96,673

EXPENSES:

Management fees (see note 3)
$
18,111

$
14,757

Performance-based incentive fees (see note 3)
12,467

12,449

Interest and other debt expenses
18,902

15,845

Administrative services expense
1,433

1,097

Other general and administrative expenses
2,288

2,132

Total expenses
53,201

46,280

Management and performance-based incentive fees waived (see note 3)
$
(4,152
)
$
(1,974
)
Expense reimbursements (see note 3)
(20
)
—

Net expenses
$
49,029

$
44,306

Net investment income
$
53,551

$
52,367

REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS, CASH EQUIVALENTS, FOREIGN CURRENCIES AND DERIVATIVES:
Net realized gain (loss):
Investments and cash equivalents
Non-controlled/non-affiliated investments
$
(11,716
)
$
(105,876
)
Non-controlled/affiliated investments
(107
)
—

Controlled investments
—

7,966

Net realized loss from investments and cash equivalents
$
(11,823
)
$
(97,910
)
Foreign currencies

Non-controlled/non-affiliated investments
$
380

$
(177
)
Non-controlled/affiliated investments
—

—

Controlled investments
—

(11
)
Foreign debt
(1,890
)
2,164

Net realized gain (loss) from foreign currencies
$
(1,510
)
$
1,976

Net realized gain (loss)
$
(13,333
)
$
(95,934
)
Net change in unrealized gain (loss):
Investments and cash equivalents
Non-controlled/non-affiliated investments
$
2,595

$
64,225

Non-controlled/affiliated investments
7,709

(3,933
)

See notes to financial statements.
4

APOLLO INVESTMENT CORPORATION
STATEMENTS OF OPERATIONS (unaudited) (continued)
(in thousands, except per share amounts)
Controlled investments
14,501

(3,098
)
Net change in unrealized gain (loss) from investments and cash equivalents
$
24,805

$
57,194

Foreign currencies


Non-controlled/non-affiliated investments
$
(177
)
$
226

Non-controlled/affiliated investments
—

—

Controlled investments
(79
)
(1
)
Foreign debt
(131
)
(1,903
)
Net change in unrealized gain (loss) from foreign currencies
$
(387
)
$
(1,678
)
Derivatives
$
—

$
6,855

Net change in unrealized gain
$
24,418

$
62,371

Net realized and unrealized gain (loss) from investments, cash equivalents, foreign currencies and derivatives
11,085

(33,563
)
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS
$
64,636

$
18,804

EARNINGS PER SHARE — BASIC (see note 4)
$
0.27

$
0.09

EARNINGS PER SHARE — DILUTED (see note 4)
$
0.27

$
0.09


See notes to financial statements.
5

APOLLO INVESTMENT CORPORATION
STATEMENTS OF CHANGES IN NET ASSETS
(in thousands, except shares)
Three months ended June 30, 2014 (unaudited)
Year ended March 31, 2014
Increase (decrease) in net assets from operations:
Net investment income
$
53,551

$
201,248

Net realized loss
(13,333
)
(106,507
)
Net change in unrealized gain
24,418

176,131

Net increase in net assets resulting from operations
64,636

270,872

Dividends and distributions to stockholders (see note 2):
Distribution of income
(47,348
)
(182,193
)
Return of capital
—

—

Total dividends and distributions to stockholders
(47,348
)
(182,193
)
Capital share transactions:
Net proceeds from shares sold
—

286,553

Less offering costs
(26
)
(1,010
)
Reinvestment of dividends
—

—

Net increase (decrease) in net assets from capital share transactions
(26
)
285,543

Total increase (decrease) net assets:
17,262

374,222

Net assets at beginning of period
2,051,611

1,677,389

Net assets at end of period
$
2,068,873

$
2,051,611

Capital share activity
Shares sold
—

33,850,000

Shares issued from reinvestment of dividends
—

—

Net capital share activity
—

33,850,000


See notes to financial statements.
6

APOLLO INVESTMENT CORPORATION
STATEMENTS OF CASH FLOWS (unaudited)
(in thousands)
Three months ended June 30,
2014
2013
CASH FLOWS FROM OPERATING ACTIVITIES:
Net increase in net assets resulting from operations
$
64,636

$
18,804

Adjustments to reconcile net increase (decrease):
PIK interest and dividends
(11,545
)
(12,098
)
Net amortization on investments
(2,688
)
(2,285
)
Amortization of deferred financing costs
1,746

1,821

Increase (decrease) from foreign currency transactions
(1,831
)
2,123

Net change in unrealized gain on investments, cash equivalents, foreign currencies and derivatives
(24,418
)
(62,371
)
Net realized loss on investments, cash equivalents, and foreign currencies
13,333

95,934

Changes in operating assets and liabilities:
Restricted cash
—

(5,180
)
Purchase of investments and cash equivalents
(649,512
)
(788,349
)
Proceeds from derivatives
—

4,156

Proceeds from disposition of investments and cash equivalents
510,753

572,722

Increase in receivables for investments sold
(13,956
)
(2,415
)
Decrease in interest receivable
7,277

7,541

Increase in dividends receivable
(1,423
)
(2,147
)
Increase in prepaid expenses and other assets
(1,023
)
(675
)
Increase (decrease) in payable for investments purchased
(48,997
)
75,538

Increase in management and performance-based incentive fees payable
2,254

2,658

Increase in interest payable
400

669

Increase in accrued administrative expenses
832

233

Increase (decrease) in other liabilities and accrued expenses
(110
)
695

Net cash (used in) provided by operating activities
$
(154,272
)
$
(92,626
)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from the issuance of common stock
$
—

$
182,273

Offering costs for the issuance of common stock
(26
)
(350
)
Dividends paid in cash
(47,348
)
(40,578
)
Proceeds from debt
956,000

681,559

Payments on debt
(757,356
)
(713,912
)
Deferred financing costs paid
(155
)
(5,344
)
Net cash provided by financing activities
$
151,115

$
103,648

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
$
(3,157
)
$
11,022

Effect of exchange rates on cash balances
(16
)
(135
)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR
$
14,736

$
6,197

CASH AND CASH EQUIVALENTS, END OF YEAR
$
11,563

$
17,084



See notes to financial statements.
7

APOLLO INVESTMENT CORPORATION
SCHEDULE OF INVESTMENTS (unaudited)
June 30, 2014
(in thousands)
INVESTMENTS IN NON-CONTROLLED/NON-AFFILIATED INVESTMENTS—136.8%
Interest Rate
Maturity Date
Industry
Par Amount*
Cost
Fair
Value (1)
CORPORATE DEBT—125.6%
SECURED DEBT—87.4%
1st Lien Secured Debt—37.3%
Altegrity, Inc. t †
9.500%
7/1/19
Diversified Service
$
3,000

$
3,000

$
3,023

Altegrity, Inc. †
L+825
7/1/19
Diversified Service
4,500

4,433

4,444

Archroma ‡
9.50% (L+825, 1.25% Floor)
10/1/18
Chemicals
45,459

44,972

46,198

Avanti Communication Group PLC t ‡
10.000%
10/1/19
Telecommunications
2,891

3,035

3,068

Avaya, Inc., (Revolver) †
2.90% (L+275) Funded, 0.50% Unfunded
10/26/16
Telecommunications
18,392

18,392

16,967

Aveta, Inc.
9.75% (L+825, 1.50% Floor)
12/12/17
Healthcare
58,287

56,987

58,797

Caza Petroleum, Inc.
12.00% (L+1000, 2.00% Floor)
5/23/17
Oil and Gas
45,000

43,701

44,145

Confie Seguros Holding II Co., (Revolver) †
6.75% (P+350, 3.25% Floor) Funded, 0.50% Unfunded
12/10/18
Insurance
210

210

191

Deep Gulf Energy II, LLC
11.500%
3/31/17
Oil and Gas
25,000

25,000

25,000

Delta Educational Systems, Inc.
16.00% (8.00% Cash/8.00% PIK)
12/11/16
Education
5,546

5,546

5,546

Evergreen Tank Solutions, Inc.
9.50% (L+800, 1.50% Floor)
9/28/18
Containers, Packaging, and Glass
41,214

40,734

41,420

Extraction Oil & Gas Holdings, LLC
11.000%
5/29/19
Oil and Gas
25,000

24,630

24,625

GenCorp, Inc. ‡
9.50% (L+850, 1.00% Floor)
4/18/22
Aerospace and Defense
39,500

39,500

39,500

Great Bear Petroleum Operating, LLC
12.000%
10/1/17
Oil and Gas
5,064

5,064

5,064

Hunt Companies, Inc. t
9.625%
3/1/21
Buildings and Real Estate
41,210

40,714

43,322

Lee Enterprises, Inc. t ‡
9.500%
3/15/22
Media
13,000

13,000

13,894

M&G Chemicals, S.A. ‡
8.73% (L+850)
3/28/16
Chemicals
5,000

5,000

5,000

Magnetation, LLC t
11.000%
5/15/18
Mining
16,400

16,455

17,999

Maxus Capital Carbon SPE I, LLC (Skyonic Corp.)
13.000%
9/18/19
Chemicals
60,000

60,000

60,000

Molycorp, Inc. ‡
10.000%
6/1/20
Diversified Natural Resources, Precious Metals and Minerals
50,424

49,990

46,453

My Alarm Center, LLC †
8.50% (L+750, 1.00% Floor)
1/9/18
Business Services
42,613

42,613

42,613

My Alarm Center, LLC †
8.50% (L+750, 1.00% Floor)
1/9/18
Business Services
4,661

4,661

4,661

Osage Exploration & Development, Inc. ‡
13.00% (L+1100, 2.00% Floor)
4/27/16
Oil and Gas
25,000

24,588

24,250

Panda Sherman Power, LLC
9.00% (L+750, 1.50% Floor)
9/14/18
Energy
15,000

14,830

15,375

Panda Temple Power, LLC
11.50% (L+1000, 1.50% Floor)
7/17/18
Energy
25,500

25,117

26,217

Pelican Energy, LLC ‡
10.00% (7.00% Cash/3.00% PIK)
12/31/18
Oil and Gas
24,119

23,209

24,601

Reichhold Holdings International B.V. ‡
10.75% (L+975, 1.00% Floor)
12/19/16
Chemicals
22,500

22,500

22,500

Sand Waves, S.A. (Endeavour Energy UK Limited) ‡
9.750%
12/31/15
Oil and Gas
12,083

12,083

12,083


See notes to financial statements.
8

APOLLO INVESTMENT CORPORATION
SCHEDULE OF INVESTMENTS (unaudited) (continued)
June 30, 2014
(in thousands, except shares)
INVESTMENTS IN NON-CONTROLLED/NON-AFFILIATED INVESTMENTS—136.8%
Interest Rate
Maturity Date
Industry
Par Amount*
Cost
Fair
Value (1)
1st Lien Secured Debt—37.3% (continued)
Spotted Hawk Development, LLC ‡
14.00% (13.00% Cash/1.00% PIK)
6/30/16
Oil and Gas
$
32,386

$
31,847

$
32,386

Sunrun Solar Owner IX, LLC
9.079%
12/31/24
Energy
3,574

3,422

3,422

UniTek Global Services, Inc., (Revolver)†
10.25% (L+925, 1.00% Floor) Funded, 2.00% Unfunded
4/15/16
Telecommunications
37,652

37,652

37,652

Walter Energy, Inc. t ‡
9.500%
10/15/19
Mining
21,257

21,676

21,636

Total 1st Lien Secured Debt
$
764,561

$
772,052

Unfunded Revolver Obligations—(0.3)%
Avaya, Inc., (Unfunded Revolver) (8)
L+275 Funded, 0.50% Unfunded
10/26/16
Telecommunications
$
18,392

$
(4,699
)
$
(1,425
)
BMC Software, Inc., (Unfunded Revolver) (8)
L+400 Funded, 0.50% Unfunded
9/10/18
Business Services
30,760

(3,281
)
(2,768
)
Confie Seguros Holding II Co., (Unfunded Revolver) (8) †
P+350 Funded, 0.50% Unfunded
12/10/18
Insurance
3,641

(409
)
(328
)
Laureate Education, Inc., (Unfunded Revolver) (8)‡
L+375 Funded, 0.625% Unfunded
6/16/16
Education
28,880

(2,888
)
(2,455
)
Reichhold Holdings International B.V., (Unfunded Revolver) ‡†
L+600 Funded, 1.50% Unfunded
12/19/16
Chemicals
12,500

—

—

Salix Pharmaceuticals, Ltd., (Unfunded Revolver) (8)‡†
L+300 Funded, 0.50% Unfunded
1/2/19
Healthcare
24,867

(1,822
)
(249
)
UniTek Global Services, Inc., (Unfunded Revolver) †
L+925 Funded, 2.00% Unfunded
4/15/16
Telecommunications
15,702

—

—

Walter Energy, Inc., (Unfunded Revolver) (8)‡
L+550 Funded, 0.625% Unfunded
10/1/17
Mining
1,923

(215
)
(101
)
Total Unfunded Revolver Obligations
$
(13,314
)
$
(7,326
)
Letters of Credit— (0.0)%
Confie Seguros Holding II Co., Letter of Credit (8)†
4.500%
10/27/14
Insurance
$
600

$
—

$
(54
)
Confie Seguros Holding II Co., Letter of Credit (8)†
4.500%
1/13/15
Insurance
50

—

(5
)
Salix Pharmaceuticals, Ltd., Letter of Credit ‡†
3.000%
2/10/15
Healthcare
8

3

—

Salix Pharmaceuticals, Ltd., Letter of Credit (8)‡†
3.000%
2/10/15
Healthcare
125

48

(1
)
UniTek Global Services, Inc., Letter of Credit †
9.250%
12/15/14
Telecommunications
5,446

—

—

UniTek Global Services, Inc., Letter of Credit †
9.250%
3/18/15
Telecommunications
1,000

—

—

UniTek Global Services, Inc., Letter of Credit †
9.250%
3/18/15
Telecommunications
2,700

—

—

UniTek Global Services, Inc., Letter of Credit †
9.250%
3/26/15
Telecommunications
12,500

—

—

Walter Energy, Inc., Letter of Credit (8)(9)‡†
5.500%
9/18/14- 7/4/15
Mining
86

—

(5
)
Walter Energy, Inc., Letter of Credit (8)(9)‡†
5.500%
11/28/15- 8/31/15
Mining
CAD
192

—

(9
)
Total Letters of Credit
$
51

$
(74
)

See notes to financial statements.
9

APOLLO INVESTMENT CORPORATION
SCHEDULE OF INVESTMENTS (unaudited) (continued)
June 30, 2014
(in thousands, except shares)
INVESTMENTS IN NON-CONTROLLED/NON-AFFILIATED INVESTMENTS—136.8%
Interest Rate
Maturity Date
Industry
Par Amount*
Cost
Fair
Value (1)
2nd Lien Secured Debt—50.4%
Active Network, Inc.
9.50% (L+850, 1.00% Floor)
11/15/21
Business Services
$
22,910

$
22,801

$
22,995

American Energy - Utica, LLC (10)
11.00% (L+950, 1.50% Floor)
9/30/18
Oil and Gas
10,869

10,764

11,521

Aptean, Inc.
8.50% (L+750, 1.00% Floor)
2/26/21
Business Services
11,322

11,158

11,506

Armor Holdings, Inc. (American Stock Transfer and Trust Company)
10.25% (L+900, 1.25% Floor)
12/26/20
Financial Services
8,000

7,855

7,960

Asurion Corporation
8.50% (L+750, 1.00% Floor)
3/3/21
Insurance
90,400

89,086

94,072

BancTec Group, LLC ‡
11.75% (L+1075, 1.00% Floor)
4/3/20
Business Services
40,000

39,224

39,200

BJ's Wholesale Club, Inc.
8.50% (L+750, 1.00% Floor)
3/26/20
Retail
15,000

14,927

15,450

Confie Seguros Holding II Co.
10.25% (L+900, 1.25% Floor)
5/8/19
Insurance
27,344

27,105

27,652

Consolidated Precision Products Corp.
8.75% (L+775, 1.00% Floor)
4/30/21
Aerospace and Defense
8,940

8,898

9,046

Del Monte Foods Co.
8.25% (L+725, 1.00% Floor)
8/18/21
Beverage, Food, and Tobacco
2,146

2,126

2,113

Deltek, Inc.
10.00% (L+875, 1.25% Floor)
10/10/19
Business Services
27,273

27,032

27,921

DSI Renal, Inc.
7.75% (L+675, 1.00% Floor)
10/22/21
Healthcare
3,300

3,276

3,325

Elements Behavioral Health, Inc.
9.25% (L+825, 1.00% Floor)
2/11/20
Healthcare
9,500

9,410

9,488

Emerald 3 Limited ‡
8.00% (L+700, 1.00% Floor)
5/9/22
Business Services
3,179

3,143

3,179

Flexera Software, LLC
8.00% (L+700, 1.00% Floor)
4/2/21
Business Services
4,250

4,228

4,266

Garden Fresh Restaurant Corp. †
14.50% (L+1300 PIK, 1.50% Floor)
1/1/19
Restaurants
35,764

33,654

31,830

Garden Fresh Restaurant Corp. †
7.25% (L+575 PIK, 1.50% Floor)
1/1/19
Restaurants
7,800

5,831

5,304

GCA Services Group, Inc.
9.25% (L+800, 1.25% Floor)
11/1/20
Diversified Service
22,838

22,937

23,066

Genex Holdings, Inc.
8.75% (L+775, 1.00% Floor)
5/30/22
Healthcare
5,320

5,267

5,370

Grocery Outlet, Inc.
10.50% (L+925, 1.25% Floor)
6/17/19
Grocery
8,674

8,531

8,847

GTCR Valor Companies, Inc.
L+850
11/21/21
Business Services
35,000

34,650

34,825

HD Vest, Inc. ‡
9.25% (L+800, 1.25% Floor)
6/18/19
Financial Services
9,396

9,294

9,384

Healogics, Inc.
9.25% (L+800, 1.25% Floor)
2/5/20
Healthcare
10,000

10,106

10,242

Insight Pharmaceuticals, LLC
13.25% (L+1175, 1.50% Floor)
8/25/17
Consumer Products
15,448

15,255

15,410

Institutional Shareholder Services, Inc.
8.50% (L+750, 1.00% Floor)
4/30/22
Financial Services
9,640

9,544

9,640

Kronos, Inc.
9.75% (L+850, 1.25% Floor)
4/30/20
Business Services
92,516

91,561

96,448

Learfield Communications, Inc.
8.75% (L+775, 1.00% Floor)
10/8/21
Media
15,000

14,859

15,300


See notes to financial statements.
10

APOLLO INVESTMENT CORPORATION
SCHEDULE OF INVESTMENTS (unaudited) (continued)
June 30, 2014
(in thousands, except shares)
INVESTMENTS IN NON-CONTROLLED/NON-AFFILIATED INVESTMENTS—136.8%
Interest Rate
Maturity Date
Industry
Par Amount*
Cost
Fair
Value (1)
2nd Lien Secured Debt—50.4% (continued)
Miller Energy Resources, Inc. ‡
11.75% (L+975, 2.00% Floor)
2/3/18
Oil and Gas
$
87,500

$
85,892

$
85,750

MSC Software Corp. ‡
8.50% (L+750, 1.00% Floor)
5/28/21
Business Services
20,448

20,244

20,652

Ranpak Corp.
8.50% (L+725, 1.25% Floor)
4/23/20
Packaging
22,000

21,808

22,468

RegionalCare Hospital Partners, Inc.
10.50% (L+950, 1.00% Floor)
10/23/19
Healthcare
10,000

9,508

9,953

River Cree Enterprises LP t ‡
11.000%
1/20/21
Hotels, Motels, Inns and Gaming
CAD
33,000

31,110

33,673

SiTV, Inc. t
10.375%
7/1/19
Cable Television
$
2,219

2,219

2,277

Sprint Industrial Holdings, LLC
11.25% (L+1000, 1.25% Floor)
11/14/19
Containers, Packaging, and Glass
14,163

13,935

14,305

SquareTwo Financial Corp. (Collect America, Ltd.) ‡
11.625%
4/1/17
Financial Services
66,079

64,944

63,436

Stadium Management Corp.
9.25% (L+825, 1.00% Floor)
2/27/21
Business Services
19,900

19,900

20,248

TASC, Inc.
12.000%
5/23/21
Aerospace and Defense
14,077

13,372

13,971

Tectum Holdings, Inc
9.00% (L+800, 1.00% Floor)
3/12/19
Auto Sector
17,670

17,586

17,648

Transfirst Holdings, Inc.
7.50% (L+650, 1.00% Floor)
6/27/18
Financial Services
22,500

22,435

22,669

TriMark USA, LLC
10.00% (L+900, 1.00% Floor)
8/12/19
Distribution
27,000

26,490

27,337

U.S. Renal Care, Inc. †
10.25% (L+900, 1.25% Floor)
1/3/20
Healthcare
11,927

11,978

12,136

U.S. Renal Care, Inc. †
8.50% (L+750, 1.00% Floor)
7/3/20
Healthcare
12,120

11,936

12,302

Velocity Technology Solutions, Inc.
9.00% (L+775, 1.25% Floor)
9/28/20
Business Services
16,500

16,180

16,170

Vertafore, Inc.
9.75% (L+825, 1.50% Floor)
10/27/17
Business Services
50,436

50,183

51,487

Walter Energy, Inc. t ‡
11.000%
4/1/20
Mining
22,554

21,138

18,823

Winebow Group
L+750
1/1/22
Beverage, Food, and Tobacco
2,582

2,562

2,588

Xand Operations, LLC
8.50% (L+750, 1.00% Floor)
5/13/20
Telecommunications
20,000

19,803

19,800

Total 2nd Lien Secured Debt
$
1,025,745

$
1,043,053

TOTAL SECURED DEBT
$
1,777,043

$
1,807,705


See notes to financial statements.
11

APOLLO INVESTMENT CORPORATION
SCHEDULE OF INVESTMENTS (unaudited) (continued)
June 30, 2014
(in thousands, except shares)
INVESTMENTS IN NON-CONTROLLED/NON-AFFILIATED INVESTMENTS—136.8%
Interest Rate
Maturity Date
Industry
Par Amount*
Cost
Fair
Value (1)
UNSECURED DEBT—38.2%
American Tire Distributors, Inc. t †
11.500%
6/1/18
Distribution
$
25,000

$
25,000

$
25,500

American Tire Distributors, Inc. †
11.500%
6/1/18
Distribution
40,000

39,353

40,800

Artsonig Pty Ltd. t ‡
11.500%
4/1/19
Transportation
20,000

19,712

19,900

BCA Osprey II Limited (British Car Auctions) †‡
12.50% PIK
8/17/17
Transportation
€
14,333

19,731

20,370

BCA Osprey II Limited (British Car Auctions) †‡
12.50% PIK
8/17/17
Transportation
£
23,566

37,603

41,826

Ceridian Corp. t †
11.000%
3/15/21
Diversified Service
$
34,000

34,000

39,334

Ceridian Corp. †
11.250%
11/15/15
Diversified Service
35,800

35,800

35,830

Ceridian Corp. †
12.25% Cash (12.25% Cash or 13.00% PIK)
11/15/15
Diversified Service
14,420

14,420

14,432

Delta Educational Systems, Inc.
16.00% (10.00% Cash/6.00% PIK)
5/12/17
Education
22,001

21,691

21,088

Denver Parent Corp. (Venoco) t
12.250%
8/15/18
Oil and Gas
15,000

14,649

14,512

Energy & Exploration Partners, Inc. †
15.000%
4/8/18
Oil and Gas
25,000

22,520

23,750

Energy & Exploration Partners, Inc. †
15.000%
12/12/18
Oil and Gas
4,464

4,270

4,241

Energy & Exploration Partners, Inc. †
15.000%
12/12/18
Oil and Gas
2,679

2,476

2,545

Energy & Exploration Partners, Inc. †
15.000%
3/27/19
Oil and Gas
8,036

7,664

7,634

First Data Corp.
11.250%
1/15/21
Financial Services
67,000

66,979

78,348

inVentiv Health, Inc. t
11.000%
8/15/18
Healthcare
65,250

65,250

62,069

My Alarm Center, LLC
16.25% (12.00% Cash/4.25% PIK)
7/9/18
Business Services
4,145

4,145

4,145

Niacet Corporation
13.000%
8/28/18
Chemicals
12,500

12,500

12,625

PetroBakken Energy Ltd. t ‡
8.625%
2/1/20
Oil and Gas
44,045

44,234

46,412

Radio One, Inc. t ‡
9.250%
2/15/20
Broadcasting & Entertainment
14,804

14,804

16,155

Sorenson Communications Holdings, LLC t
13.00% PIK
10/31/21
Consumer Products
68

46

63

Symbion, Inc.
11.000%
8/23/15
Healthcare
8,488

8,499

8,555

U.S. Security Associates Holdings, Inc.
11.000%
7/28/18
Business Services
135,000

135,000

137,570

Univar, Inc.
10.500%
6/30/18
Distribution
20,000

20,000

20,000

Varietal Distribution t †
10.750%
6/30/17
Distribution
22,204

21,927

22,204

Varietal Distribution t †
10.750%
6/30/17
Distribution
€
11,574

15,086

15,846

Venoco, Inc.
8.875%
2/15/19
Oil and Gas
$
55,824

55,844

54,638

TOTAL UNSECURED DEBT
$
763,203

$
790,392

TOTAL CORPORATE DEBT
$
2,540,246

$
2,598,097

STRUCTURED PRODUCTS AND OTHER—7.0%
Craft 2013-1, Credit-Linked Note †‡
9.48% (L+925)
4/17/22
Diversified Investment Vehicle
$
25,000

$
25,100

$
24,553

Craft 2013-1, Credit-Linked Note †‡
9.48% (L+925)
4/17/22
Diversified Investment Vehicle
7,625

7,759

7,541

Craft 2014-1A, Credit-Linked Note ‡
9.89% (L+965)
5/15/21
Diversified Investment Vehicle
38,500

38,500

37,898

Dark Castle Holdings, LLC
N/A
N/A
Media
24,395

1,189

2,158

JP Morgan Chase & Co., Credit-Linked Note ‡
12.48% (L+1225)
12/20/21
Diversified Investment Vehicle
43,250

42,786

43,382

NXT Capital CLO 2014-1, LLC ‡
5.80% (L+550)
4/23/26
Diversified Investment Vehicle
5,000

4,655

4,652

Renaissance Umiat, LLC, ACES Tax Receivable ****‡
N/A
N/A
Oil and Gas
—

7,153

8,084

Renaissance Umiat, LLC, ACES Tax Receivable ****‡

N/A

N/A

Oil and Gas

—


16,967


17,423

TOTAL STRUCTURED PRODUCTS AND OTHER
$
144,109

$
145,691


See notes to financial statements.
12

APOLLO INVESTMENT CORPORATION
SCHEDULE OF INVESTMENTS (unaudited) (continued)
June 30, 2014
(in thousands, except shares)
INVESTMENTS IN NON-CONTROLLED/NON-AFFILIATED INVESTMENTS—136.8%
Interest Rate
Maturity Date
Industry
Par Amount*
Cost
Fair
Value (1)
PREFERRED EQUITY—2.0%
Shares


CA Holding, Inc. (Collect America, Ltd.), Series A Preferred Stock ‡
N/A
N/A
Financial Services
7,961

$
788

$
1,592

Crowley Holdings, Series A Preferred Stock
12.00% (10.00% Cash/2.00% PIK)
N/A
Cargo Transport
22,500

22,736

22,810

Gryphon Colleges Corp. (Delta Educational Systems, Inc.), Preferred Stock (Convertible) ***
12.50% PIK
N/A
Education
332,500

6,863

—

Gryphon Colleges Corp. (Delta Educational Systems, Inc.), Preferred Stock ***
13.50% PIK
N/A
Education
12,360

27,686

13,322

Varietal Distribution Holdings, LLC, Class A Preferred Unit
8.00% PIK
N/A
Distribution
3,097

5,393

3,570

TOTAL PREFERRED EQUITY
$
63,466

$
41,294

EQUITY—2.2%
Common Equity/Interests—1.7%
AHC Mezzanine, LLC (Advanstar), Common Stock **
N/A
N/A
Media
25,016

$
1,063

$
370

ATD Corporation (Accelerate Parent Corp.), Common Stock **
N/A
N/A
Distribution
3,225,514

3,276

4,260

CA Holding, Inc. (Collect America, Ltd.), Series A Common Stock **‡
N/A
N/A
Financial Services
25,000

2,500

176

CA Holding, Inc. (Collect America, Ltd.), Series AA Common Stock **‡
N/A
N/A
Financial Services
4,294

429

859

Caza Petroleum, Inc., Net Profits Interest **
N/A
N/A
Oil and Gas
—

1,202

1,517

Caza Petroleum, Inc., Overriding Royalty Interest **
N/A
N/A
Oil and Gas
—

339

395

Clothesline Holdings, Inc. (Angelica Corporation), Common Stock **
N/A
N/A
Healthcare
6,000

6,000

1,588

Explorer Coinvest, LLC (Booz Allen), Common Stock **‡
N/A
N/A
Business Services
295,159

2,259

5,830

Garden Fresh Restaurant Holdings, LLC., Common Stock **
N/A
N/A
Restaurants
50,000

5,000

—

Gryphon Colleges Corp. (Delta Educational Systems, Inc.), Common Stock **
N/A
N/A
Education
17,500

175

—

GS Prysmian Co-Invest L.P. (Prysmian Cables & Systems), Limited Partnership (2)(3)**‡
N/A
N/A
Manufacturing
—

—

133

JV Note Holdco, LLC (DSI Renal, Inc.), Common Equity / Interest **
N/A
N/A
Healthcare
9,303

85

—

Pelican Energy, LLC, Net Profit Interest **‡
N/A
N/A
Oil and Gas
941,633

942

1,394

RC Coinvestment, LLC (Ranpak Corp.), Common Stock **
N/A
N/A
Packaging
50,000

5,000

9,066

Sorenson Communications Holdings, LLC, Class A Common Stock **
N/A
N/A
Consumer Products
587

—

52

Univar, Inc., Common Stock **
N/A
N/A
Distribution
900,000

9,000

9,450

Varietal Distribution Holdings, LLC, Class A Common Unit **
N/A
N/A
Distribution
28,028

28

—

Total Common Equity/Interests
$
37,298

$
35,090


See notes to financial statements.
13

APOLLO INVESTMENT CORPORATION
SCHEDULE OF INVESTMENTS (unaudited) (continued)
June 30, 2014
(in thousands, except warrants)
INVESTMENTS IN NON-CONTROLLED/NON-AFFILIATED INVESTMENTS—136.8%
Interest Rate
Maturity Date
Industry
Warrants
Cost
Fair
Value (1)
Warrants—0.5%
CA Holding, Inc. (Collect America, Ltd.), Common Stock Warrants **‡
N/A
N/A
Financial Services
7,961

$
8

$
—

Energy & Exploration Partners, Inc., Common Stock Warrants **
N/A
N/A
Oil and Gas
60,778

2,374

863

Fidji Luxco (BC) S.C.A., Common Stock Warrants (2)**‡
N/A
N/A
Electronics
18,113

182

5,036

Gryphon Colleges Corp. (Delta Educational Systems, Inc.), Class A-1 Preferred Stock Warrants **
N/A
N/A
Education
45,947

459

—

Gryphon Colleges Corp. (Delta Educational Systems, Inc.), Class B-1 Preferred Stock Warrants **
N/A
N/A
Education
104,314

1,043

—

Gryphon Colleges Corp. (Delta Educational Systems, Inc.), Common Stock Warrants **
N/A
N/A
Education
9,820

98

—

Osage Exploration & Development, Inc., Common Stock Warrants **‡
N/A
N/A
Oil and Gas
1,496,843

—

1,386

Spotted Hawk Development, LLC, Common Stock Warrants **‡
N/A
N/A
Oil and Gas
54,545

852

2,170

Total Warrants
$
5,016

$
9,455

TOTAL EQUITY
$
42,314

$
44,545

Total Investments in Non-Controlled/ Non-Affiliated Investments
$
2,790,135

$
2,829,627


See notes to financial statements.
14

APOLLO INVESTMENT CORPORATION
SCHEDULE OF INVESTMENTS (unaudited) (continued)
June 30, 2014
(in thousands, except shares and warrants)
INVESTMENTS IN NON-CONTROLLED/AFFILIATED
INVESTMENTS—7.8%(4)
Interest Rate
Maturity Date
Industry
Par
Amount*
Cost
Fair
Value (1)
CORPORATE DEBT—0.8%
SECURED DEBT—0.8%
1st Lien Secured Debt—0.8%
Aventine Renewable Energy Holdings, Inc. †
15.00% (12.00% Cash/3.00% PIK)
9/23/16
Chemicals
$
2,757

$
2,641

$
2,568

Aventine Renewable Energy Holdings, Inc. †
15.00% PIK (15.00% PIK or 10.50% Cash)
9/22/17
Chemicals
14,601

17,519

10,987

Aventine Renewable Energy Holdings, Inc. †
25.00% PIK
9/24/16
Chemicals
4,008

4,008

4,008

Total 1st Lien Secured Debt
$
24,168

$
17,563

TOTAL SECURED DEBT
$
24,168

$
17,563

TOTAL CORPORATE DEBT
$
24,168

$
17,563

STRUCTURED PRODUCTS AND OTHER—6.3%
Golden Hill CLO I, LLC, Equity ‡¢
N/A
N/A
Diversified Investment Vehicle
$
13,195

$
13,728

$
13,248

Highbridge Loan Management 3-2014, Ltd., Class D Notes †‡¢
5.22% (L+500)
1/18/25
Diversified Investment Vehicle
5,000

4,645

4,655

Highbridge Loan Management 3-2014, Ltd., Class E Notes †‡¢
6.22% (L+600)
1/18/25
Diversified Investment Vehicle
2,485

2,267

2,295

Highbridge Loan Management 3-2014, Ltd., Subordinated Notes †‡¢
N/A
1/18/25
Diversified Investment Vehicle
8,163

7,527

7,111

Jamestown CLO I LTD, Subordinated Notes ‡¢
N/A
11/5/24
Diversified Investment Vehicle
4,325

3,553

3,941

MCF CLO I, LLC, Membership Interests ‡¢
N/A
N/A
Diversified Investment Vehicle
38,918

36,898

40,798

MCF CLO III, LLC, Class E Notes ‡¢
4.81% (L+445)
1/20/24
Diversified Investment Vehicle
12,750

11,375

11,331

MCF CLO III, LLC, Membership Interests ‡¢
N/A
1/20/24
Diversified Investment Vehicle
41,900

39,183

38,843

Slater Mill Loan Fund LP, LP Certificates ‡¢
N/A
N/A
Diversified Investment Vehicle
8,375

6,017

7,691

TOTAL STRUCTURED PRODUCTS AND OTHER
$
125,193

$
129,913

PREFERRED EQUITY—0.4%
Shares
Renewable Funding Group, Inc., Series B Preferred Stock
N/A
N/A
Finance
1,505,868

$
8,750

$
8,750

Total Preferred Equity
$
8,750

$
8,750

EQUITY—0.3%
Common Equity/Interests—0.1%
Shares


Aventine Renewable Energy Holdings, Inc., Common Stock **
N/A
N/A
Chemicals
262,036

$
689

$
762

Total Common Equity/Interests
$
689

$
762


Warrants—0.2%
Warrants
Aventine Renewable Energy Holdings, Inc., Common Stock Warrants **
N/A
N/A
Chemicals
1,521,193

$
3,996

$
4,424

Total Warrants
$
3,996

$
4,424

TOTAL EQUITY
$
4,685

$
5,186

Total Investments in Non-Controlled/Affiliated Investments
$
162,796

$
161,412


See notes to financial statements.
15

APOLLO INVESTMENT CORPORATION
SCHEDULE OF INVESTMENTS (unaudited) (continued)
June 30, 2014
(in thousands, except shares)
INVESTMENTS IN CONTROLLED INVESTMENTS—31.6%(5)
Interest Rate
Maturity Date
Industry
Par
Amount*
Cost
Fair
Value (1)
CORPORATE DEBT—16.1%
SECURED DEBT—16.1%
1st Lien Secured Debt—16.1%
Merx Aviation Finance Holdings II, LLC, (Revolver)
12.00% Funded, 0.00% Unfunded
10/31/18
Aviation
$
334,084

$
334,084

$
334,084

Total 1st Lien Secured Debt
$
334,084

$
334,084

Unfunded Revolver Obligation—0.0%
Merx Aviation Finance Holdings II, LLC, (Unfunded Revolver)
12.00% Funded, 0.00% Unfunded
10/31/18
Aviation
$
65,916

$
—

$
—

Total Unfunded Revolver Obligation
$
—

$
—

Letters of Credit—0.0%
Merx Aviation Finance Assets Ireland Limited, Letter of Credit
2.250%
9/30/14
Aviation
$
1,800

$
—

$
—

Merx Aviation Finance Assets Ireland Limited, Letter of Credit
2.250%
9/30/14
Aviation
1,800

—

—

Total Letters of Credit
$
—

$
—

TOTAL SECURED DEBT
$
334,084

$
334,084

TOTAL CORPORATE DEBT
$
334,084

$
334,084

PREFERRED EQUITY—2.6%
Shares
Playpower Holdings, Inc., Series A Preferred
14.00% PIK
11/15/20
Leisure
49,178

$
53,580

$
53,580

TOTAL PREFFERED EQUITY
$
53,580

$
53,580

EQUITY—12.9%
Common Equity/Interests—12.9%
Generation Brands Holdings, Inc. (Quality Home Brands), Basic Common Stock **
N/A
N/A
Home and Office Furnishings and Durable Consumer Products
9,007

$
—

$
2,525

Generation Brands Holdings, Inc. (Quality Home Brands), Series 2L Common Stock **
N/A
N/A
Home and Office Furnishings and Durable Consumer Products
36,700

11,242

10,287

Generation Brands Holdings, Inc. (Quality Home Brands), Series H Common Stock **
N/A
N/A
Home and Office Furnishings and Durable Consumer Products
7,500

2,297

2,102

LVI Group Investments, LLC, Common Units **
N/A
N/A
Environmental Services
203,556

16,096

31,956

Merx Aviation Finance Holdings II, LLC, Partnership Interest **
N/A
N/A
Aviation
—

152,082

158,424

Playpower Holdings, Inc., Common Stock **
N/A
N/A
Leisure
1,000

77,722

60,711

Total Common Equity/Interests
$
259,439

$
266,005

TOTAL EQUITY
$
259,439

$
266,005

Total Investments in Controlled Investments
$
647,103

$
653,669

Total Investments—176.2% (6)(7)
$
3,600,034

$
3,644,708

Liabilities in Excess of Other Assets—(76.2)%
$
(1,575,835
)
Net Assets—100.0%
$
2,068,873


See notes to financial statements.
16

APOLLO INVESTMENT CORPORATION
SCHEDULE OF INVESTMENTS (unaudited) (continued)
June 30, 2014
(in thousands)
______________________
(1)
Fair value is determined in good faith by or under the direction of the Board of Directors of the Company (see note 2).
(2)
GS Prysmian Co-Invest L.P. and Fidji Luxco (BC) S.C.A. are EUR denominated investments.
(3)
The Company is the sole Limited Partner in GS Prysmian Co-Invest L.P.
(4)
Denotes investments in which we are an “Affiliated Person”, as defined in the 1940 Act, due to owning or holding the power to vote 5% or more of the outstanding voting securities of the investment but not controlling the company. Fair value as of March 31, 2014 and June 30, 2014 along with transactions during the three months ended June 30, 2014 in these Affiliated investments are as follows:

Name of Issue
Fair Value at March 31, 2014
Gross
Additions (Cost) ●
Gross
Reductions (Cost) ■
Change in Unrealized Gain (Loss)
Fair Value at June 30, 2014
Net Realized Gain (Loss)
Interest/Dividend/
Other Income
Aventine Renewable Energy Holdings, Inc., 15.00% (12.00% Cash/3.00% PIK), 9/23/16
$
2,405

$
21

$
—

$
142

$
2,568

$
—

$
104

Aventine Renewable Energy Holdings, Inc., 10.50% Cash or 15.00% PIK, 9/22/17
8,884

1,128

—

976

10,988

—

1,106

Aventine Renewable Energy Holdings, Inc., 25.00% PIK, 9/24/16
3,769

237

—

—

4,006

—

238

Aventine Renewable Energy Holdings, Inc., Common Stock
99

—

—

663

762

—

—

Aventine Renewable Energy Holdings, Inc., Common Stock Warrants
574

—

—

3,850

4,424

—

—

Golden Hill CLO I, LLC, Equity
1,097

12,099

—

53

13,249

—

—

Highbridge Loan Management 3-2014, Ltd., Class D Notes, L+500, 1/18/25
4,680

8

—

(33
)
4,655

—

74

Highbridge Loan Management 3-2014, Ltd., Class E Notes, L+600, 1/18/25
2,314

3

—

(22
)
2,295

—

42

Highbridge Loan Management 3-2014, Ltd., Subordinated Notes, 1/18/25
7,278

—

—

(167
)
7,111

—

140

Jamestown CLO I LTD, Subordinated Notes
3,828

—

—

113

3,941

—

128

MCF CLO I LLC, Class E Notes, L+575, 4/20/23
12,357

14

(12,344
)
(27
)
—

(107
)
210

MCF CLO I LLC, Membership Interests
40,391

—

(662
)
1,069

40,798

—

1,854

MCF CLO III LLC, Class E Notes L+445, 1/20/24
11,325

26

—

(20
)
11,331

—

181

MCF CLO III LLC, Membership Interests, 1/20/24
38,266

—

—

577

38,843

—

1,459

Renewable Funding Group, Inc., Series B Preferred Stock
—

8,750

—

—

8,750

—

—

Slater Mill Loan Fund LP, LP Certificates
7,361

—

(205
)
535

7,691

—

366

$
144,628

$
22,286

$
(13,211
)
$
7,709

$
161,412

$
(107
)
$
5,902

______________
● Gross additions includes increases in the cost basis of investments resulting from new portfolio investments, PIK interest or dividends, the accretion of discounts, the exchange of one or more existing securities for one or more new securities and the movement of an existing portfolio company into this category from a different category.
■ Gross reductions include decreases in the cost basis of investments resulting from principal collections related to investment repayments or sales, the amortization of premiums, the exchange of one or more existing securities for one or more new securities and the movement of an existing portfolio company out of this category into a different category.
As of June 30, 2014 , the Company has a 13%, 26%, 100%, 9%, 97%, 98%, 15%, and 26% equity ownership interest in Aventine Renewable Energy Holdings, Inc., Highbridge Loan Management, Ltd., Golden Hill CLO I, LLC, Jamestown CLO I LTD, MCF CLO I LLC, MCF CLO III LLC, Renewable Funding Group, Inc., and Slater Mill Loan Fund LP, respectively. Investments that the Company owns greater than 25% of the equity and are shown in “Non-Controlled/Affiliated” have governing documents that preclude the Company from controlling management of the entity and therefore the Company disclaims that the entity is a controlled affiliate.


See notes to financial statements.
17

APOLLO INVESTMENT CORPORATION
SCHEDULE OF INVESTMENTS (unaudited) (continued)
June 30, 2014
(in thousands)
(5)
Denotes investments in which we are deemed to exercise a controlling influence over the management or policies of a company, as defined in the 1940 Act, due to beneficially owning, either directly or through one or more controlled companies, more than 25% of the outstanding voting securities of the investment. Fair value as of March 31, 2014 and June 30, 2014 along with transactions during the three months ended June 30, 2014 in these Controlled investments are as follows:
Name of Issue
Fair Value at March 31, 2014
Gross
Additions (Cost) ●
Gross
Reductions (Cost) ■
Change in Unrealized Gain (Loss)
Fair Value at June 30, 2014
Net Realized Gain (Loss)
Interest/Dividend/
Other Income
Generation Brands Holdings, Inc. (Quality Home Brands), Basic Common Stock
$
1,615

$
—

$
—

$
910

$
2,525

$
—

$
—

Generation Brands Holdings, Inc. (Quality Homes Brands), Series H Common Stock
1,345

—

—

757

2,102

—

—

Generation Brands Holdings, Inc. (Quality Homes Brands), Series 2L Common Stock
6,582

—

—

3,705

10,287

—

—

LVI Group Investments, LLC, Common Units
—

16,096

—

15,860

31,956

—

—

LVI Services, Inc., Common Stock
34,020

—

(16,096
)
(17,924
)
—

LVI Parent Corp. (LVI Services, Inc.), 12.50%, 4/20/14
10,200

187

(10,200
)
(187
)
—

—

313

Merx Aviation Finance Holdings II, LLC, (Revolver) 12.00% Funded, 0.00% Unfunded, 10/31/18
282,334

51,750

—

—

334,084

—

8,850

Merx Aviation Finance Holdings II, LLC, (Unfunded Revolver) 12.00% Funded, 0.00% Unfunded, 10/31/18
—

—

—

—

—

—

—

Merx Aviation Finance Assets Ireland Limited, Letter of Credit, 2.25%, 9/30/14
—

—

—

—

—

—

—

Merx Aviation Finance Assets Ireland Limited, Letter of Credit, 2.25%, 9/30/14
—

—

—

—

—

—

—

Merx Aviation Finance Holdings II, LLC, Partnership Interest
140,465

13,500

—

4,459

158,424

—

—

Playpower Holdings, Inc., Common Stock
53,813

—

—

6,898

60,711

—

63

Playpower Holdings, Inc., Series A Preferred, 14.00% PIK, 11/15/20
51,773

1,807

—

—

53,580

—

1,808

$
582,147

$
83,340

$
(26,296
)
$
14,478

$
653,669

$
—

$
11,034

______________
● Gross additions includes increases in the cost basis of investments resulting from new portfolio investments, PIK interest or dividends, the accretions of discounts, the exchange of one or more existing securities for one or more new securities and the movement of an existing portfolio company into this category from a different category.
■ Gross reductions include decreases in the cost basis of investments resulting from principal collections related to investment repayments or sales, the amortization of premiums, the exchange of one or more existing securities for one or more new securities and the movement of an existing portfolio company out of this category into a different category.
As of June 30, 2014 , the Company has a 28%, 37%, 100%, and 100% equity ownership interest in Generation Brands Holdings, Inc., LVI Group Investments, LLC, Merx Aviation Finance Holdings II, LLC, and Playpower Holdings, Inc., respectively.

See notes to financial statements.
18

APOLLO INVESTMENT CORPORATION
SCHEDULE OF INVESTMENTS (unaudited) (continued)
June 30, 2014
(in thousands)

(6)
Aggregate gross unrealized gain for federal income tax purposes is $145,872; aggregate gross unrealized loss for federal income tax purposes is $94,296. Net unrealized gain is $51,576 based on a tax cost of $3,593,102.
(7)
Substantially all securities are pledged as collateral to our multicurrency revolving credit facility (the “Facility”). As such these securities are not available as collateral to our general creditors.
(8)
The negative fair value is the result of the unfunded commitment/letter of credit being valued below par.
(9)
These letters of credit represent multiple commitments made on various dates. As a result, there are numerous maturity dates and a maturity range has been provided.
(10)
Provided that no default has occurred, this investment may elect to pay up to 50% of the interest due on its interest payment date.

N/A
Not applicable
t
These securities are exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be resold in transactions that are exempt from registration, normally to qualified institutional buyers.
*
Denominated in USD unless otherwise noted, Euro (“€”), British Pound (“£”), and Canadian Dollar (“CAD”).
**
Non-income producing security
***
Non-accrual status (see note 2)
****
The investment has a put option attached to it and the combined instrument has been recorded in its entirety at fair value as a hybrid instrument in accordance with ASC 815-15-25-4 with subsequent changes in fair value charged or credited to investment gains/losses for each period.
†
Denotes debt securities where the Company owns multiple tranches of the same broad asset type but whose security characteristics differ. Such differences may include level of subordination, call protection and pricing, and differing interest rate characteristics, among other factors. Such factors are usually considered in the determination of fair values.
‡
Investments that the Company has determined are not “qualifying assets” under Section 55(a) of the 1940 Act. Under the 1940 Act, we may not acquire any non-qualifying asset unless, at the time such acquisition is made, qualifying assets represent at least 70% of our total assets. The status of these assets under the 1940 Act are subject to change. The Company monitors the status of these assets on an ongoing basis.
¢
Denotes investments where the governing documents of the entity preclude the Company from controlling management of the entity and accordingly the Company disclaims that the entity is a controlled affiliate.


See notes to financial statements.
19

APOLLO INVESTMENT CORPORATION
SCHEDULE OF INVESTMENTS (unaudited) (continued)
June 30, 2014

Industry Classification
Percentage of Total Investments (at fair value) as of June 30, 2014
Business Services
14.8%
Aviation
13.5%
Oil and Gas
13.1%
Diversified Investment Vehicle
6.8%
Financial Services
5.3%
Healthcare
5.3%
Chemicals
4.6%
Distribution
4.6%
Insurance
3.3%
Diversified Service
3.3%
Leisure
3.1%
Transportation
2.3%
Telecommunications
2.1%
Aerospace and Defense
1.7%
Mining
1.6%
Containers, Packaging, and Glass
1.5%
Diversified Natural Resources, Precious Metals and Minerals
1.3%
Energy
1.3%
Buildings and Real Estate
1.2%
Education
1.0%
Restaurants
1.0%
Hotels, Motels, Inns and Gaming
0.9%
Environmental Services
0.9%
Media
0.9%
Packaging
0.9%
Cargo Transport
0.6%
Auto Sector
0.5%
Broadcasting & Entertainment
0.5%
Consumer Products
0.4%
Retail
0.4%
Home and Office Furnishings and Durable Consumer Products
0.4%
Grocery
0.3%
Finance
0.3%
Electronics
0.1%
Beverage, Food and Tobacco
0.1%
Cable Television
0.1%
Manufacturing
—%
Total Investments
100.0%







See notes to financial statements.
20

APOLLO INVESTMENT CORPORATION
SCHEDULE OF INVESTMENTS
March 31, 2014
(in thousands)
INVESTMENTS IN NON-CONTROLLED/NON-AFFILIATED INVESTMENTS—134.1%
Interest Rate
Maturity Date
Industry
Par Amount*
Cost
Fair
Value (1)
CORPORATE DEBT—125.9%
SECURED DEBT—80.0%
1st Lien Secured Debt—32.5%
Archroma ‡
9.50% (L+825, 1.25% Floor)
10/1/18
Chemicals
$
35,422

$
34,762

$
35,511

Avanti Communication Group PLC t ‡
10.000%
10/1/19
Telecommunications
9,000

9,000

9,608

Aveta, Inc.
9.75% (L+825, 1.50% Floor)
12/12/17
Healthcare
59,951

58,535

60,325

Caza Petroleum, Inc.
12.00% (L+1000, 2.00% Floor)
5/23/17
Oil and Gas
35,000

33,988

33,845

Charming Charlie LLC
9.00% (L+800, 1.00% Floor)
12/24/19
Retail
5,305

5,241

5,315

Confie Seguros Holding II Co., (Revolver) †
6.75% (P+350) Funded, 0.50% Unfunded
12/10/18
Insurance
240

240

218

Delta Educational Systems, Inc.
16.00% (8.00% Cash/8.00% PIK)
12/11/16
Education
5,437

5,437

5,437

Endeavour International Corp. †‡
12.000%
3/1/18
Oil and Gas
18,262

17,960

17,760

Endeavour International Corp. †‡
8.25% (L+700, 1.25% Floor)
11/30/17
Oil and Gas
3,157

3,105

3,126

Endeavour International Corp. †‡
8.25% (L+700, 1.25% Floor)
11/30/17
Oil and Gas
4,412

4,338

4,368

Evergreen Tank Solutions, Inc.
9.50% (L+800, 1.50% Floor)
9/28/18
Containers, Packaging, and Glass
41,771

41,260

41,980

Great Bear Petroleum Operating, LLC
12.000%
10/1/17
Oil and Gas
4,464

4,464

4,464

Hunt Companies, Inc. t
9.625%
3/1/21
Buildings and Real Estate
41,210

40,701

42,807

Lee Enterprises, Inc t ‡
9.500%
3/15/22
Media
25,000

25,000

25,844

Magnetation, LLC t
11.000%
5/15/18
Mining
16,400

16,458

18,450

Maxus Capital Carbon SPE I, LLC (Skyonic Corp.)
13.000%
9/18/19
Chemicals
60,000

60,000

60,000

Molycorp, Inc. ‡
10.000%
6/1/20
Diversified Natural Resources, Precious Metals and Minerals
35,849

35,532

35,547

My Alarm Center, LLC †
8.50% (L+750, 1.00% Floor)
1/9/18
Business Services
42,614

42,614

42,614

My Alarm Center, LLC †
8.50% (L+750, 1.00% Floor)
1/9/18
Business Services
2,930

2,930

2,930

Osage Exploration & Development, Inc. ‡
17.00% (L+1500, 2.00% Floor)
4/27/15
Oil and Gas
20,000

19,752

20,040

Panda Sherman Power, LLC
9.00% (L+750, 1.50% Floor)
9/14/18
Energy
15,000

14,821

15,450

Panda Temple Power, LLC
11.50% (L+1000, 1.50% Floor)
7/17/18
Energy
25,500

25,099

26,169

Pelican Energy, LLC ‡
10.00% (7.00% Cash / 3.00% PIK)
12/31/18
Oil and Gas
19,330

18,634

19,717

Reichhold Holdings International B.V. ‡
10.75% (L+975, 1.00% Floor)
12/19/16
Chemicals
22,500

22,500

22,500

Sand Waves, S.A. (Endeavour Energy UK Limited) ‡
9.750%
12/31/15
Oil and Gas
12,500

12,500

12,500

Southern Pacific Resource Corp. ‡
11.00% (L+1000, 1.00% Floor)
3/29/19
Oil and Gas
9,080

8,808

9,216

Spotted Hawk Development, LLC ‡
14.00% (13.00% Cash/1.00% PIK)
6/30/16
Oil and Gas
24,308

23,712

23,615

Sunrun Solar Owner IX, LLC
9.079%
12/31/24
Energy
3,622

3,466

3,467


See notes to financial statements.
21

APOLLO INVESTMENT CORPORATION
SCHEDULE OF INVESTMENTS (continued)
March 31, 2014
(in thousands)
INVESTMENTS IN NON-CONTROLLED/NON-AFFILIATED INVESTMENTS—134.1%
Interest Rate
Maturity Date
Industry
Par Amount*
Cost
Fair
Value (1)
1st Lien Secured Debt—32.5% (continued)
Travel Leaders Group, LLC
7.00% (L+600, 1.00% Floor)
12/5/18
Business Services
$
2,568

$
2,414

$
2,548

UniTek Global Services, Inc., (Revolver) †
10.25% (L+925, 1.00% Floor)
Funded, 2.00% Unfunded
4/15/16
Telecommunications
$
44,802

$
44,802

$
44,802

Walter Energy, Inc. t ‡
9.500%
10/15/19
Mining
17,000

17,307

17,345

Total 1st Lien Secured Debt
$
655,380

$
667,518

Unfunded Revolver Obligations—(0.4)%
Avaya, Inc. (8)
L+275 Funded, 0.50% Unfunded
10/26/16
Telecommunications
$
36,785

$
(5,203
)
$
(3,035
)
BMC Software Inc. (8)
L+400 Funded, 0.50% Unfunded
9/10/18
Business Services
30,760

(3,243
)
(2,307
)
Confie Seguros Holding II Co. (8) †
P+350 Funded, 0.50% Unfunded
12/10/18
Insurance
3,627

(450
)
(326
)
Laureate Education, Inc. (8)‡
L+375 Funded, 0.625% Unfunded
6/16/16
Education
28,880

(2,888
)
(2,599
)
Reichhold Holdings International B.V. ‡
L+600 Funded, 1.50% Unfunded
12/19/16
Chemicals
12,500

—

—

Salix Pharmaceuticals, Ltd. (8)‡
L+300 Funded, 0.50% Unfunded
1/2/19
Healthcare
25,000

(1,923
)
(125
)
UniTek Global Services Inc., †
L+925 Funded, 2.00% Unfunded
4/15/16
Telecommunications
18,052

—

—

Total Unfunded Revolver Obligations
$
(13,707
)
$
(8,392
)
Letters of Credit— (0.0)%
Confie Seguros Holding II Co., Letter of Credit (8) †
4.500%
10/27/14
Insurance
$
600

$
—

$
(54
)
Confie Seguros Holding II Co., Letter of Credit (8) †
4.500%
1/13/15
Insurance
33

—

(3
)
UniTek Global Services Inc., Letter of Credit †
9.250%
3/26/15
Telecommunications
3,000

—

—

UniTek Global Services Inc., Letter of Credit †
9.250%
3/18/15
Telecommunications
1,000

—

—

UniTek Global Services Inc., Letter of Credit †
9.250%
3/18/15
Telecommunications
2,700

—

—

UniTek Global Services Inc., Letter of Credit †
9.250%
12/15/14
Telecommunications
5,446

—

—

Total Letters of Credit
$
—

$
(57
)

See notes to financial statements.
22

APOLLO INVESTMENT CORPORATION
SCHEDULE OF INVESTMENTS (continued)
March 31, 2014
(in thousands)
INVESTMENTS IN NON-CONTROLLED/NON-AFFILIATED INVESTMENTS—134.1%
Interest Rate
Maturity Date
Industry
Par Amount*
Cost
Fair
Value (1)
2nd Lien Secured Debt—47.9%
Active Network, Inc.
9.50% (L+850, 1.00% Floor)
11/15/21
Business Services
$
25,000

$
24,879

$
25,344

Applied Systems, Inc.
7.50% (L+650, 1.00% Floor)
1/24/22
Business Services
9,110

9,043

9,281

Aptean, Inc.
8.50% (L+750, 1.00% Floor)
2/26/21
Business Services
11,322

11,153

11,478

Armor Holdings, Inc. (American Stock Transfer and Trust Company)
10.25% (L+900, 1.25% Floor)
12/26/20
Financial Services
8,000

7,851

8,000

Asurion Corporation
8.50% (L+750, 1.00% Floor)
3/3/21
Insurance
90,400

89,050

93,413

Bennu Oil & Gas, LLC
10.25% (L+900, 1.25% Floor)
11/1/18
Oil and Gas
8,999

8,927

9,123

BJ's Wholesale Club, Inc
8.50% (L+750, 1.00% Floor)
3/26/20
Retail
20,000

19,904

20,537

Brock Holdings III, Inc.
10.00% (L+825, 1.75% Floor)
3/16/18
Environmental Services
19,500

19,245

19,805

Confie Seguros Holding II Co.
10.25% (L+900, 1.25% Floor)
5/8/19
Insurance
27,344

27,096

27,566

Consolidated Precision Products Corp.
8.75% (L+775, 1.00% Floor)
4/30/21
Aerospace and Defense
8,940

8,897

9,096

Del Monte Foods Co
8.25% (L+725, 1.00% Floor)
8/18/21
Beverage, Food, and Tobacco
12,140

12,019

12,110

Deltek, Inc.
10.00% (L+875, 1.25% Floor)
10/10/19
Business Services
27,273

27,023

27,887

Elements Behavioral Health, Inc.
9.25% (L+825, 1.00% Floor)
2/11/20
Healthcare
9,500

9,407

9,500

Flexera Software LLC
8.00% (L+700, 1.00% Floor)
4/2/21
Business Services
7,000

6,965

7,053

Garden Fresh Restaurant Corp. †
7.25% (L+575 PIK, 1.50% Floor)
1/1/19
Restaurants
7,661

5,618

5,210

Garden Fresh Restaurant Corp. †
14.50% (L+1300 PIK, 1.50% Floor)
1/1/19
Restaurants
34,513

32,326

30,716

GCA Services Group, Inc.
9.25% (L+800, 1.25% Floor)
11/1/20
Diversified Service
22,838

22,940

23,194

Grocery Outlet, Inc.
10.50% (L+925, 1.25% Floor)
6/17/19
Grocery
8,674

8,526

8,847

HD Vest Inc. ‡
9.25% (L+800, 1.25% Floor)
6/18/19
Financial Services
9,396

9,290

9,302

Healogics, Inc.
9.25% (L+800, 1.25% Floor)
2/5/20
Healthcare
10,000

10,109

10,242

IMG Worldwide, Inc.
8.25% (L+725, 1.00% Floor)
3/21/22
Leisure
2,167

2,145

2,199

Insight Pharmaceuticals, LLC.
13.25% (L+1175, 1.50% Floor)
8/25/17
Consumer Products
15,448

15,243

15,139

Kronos, Inc.
9.75% (L+850, 1.25% Floor)
4/30/20
Business Services
92,516

91,531

96,332

Landslide Holdings, Inc.
8.25% (L+725, 1.00% Floor)
2/25/21
Business Services
5,630

5,588

5,672

Learfield Communications, Inc.
8.75% (L+775, 1.00% Floor)
10/8/21
Media
15,000

14,856

15,375

Miller Energy Resources, Inc. ‡
11.75% (L+975, 2.00% Floor)
2/3/18
Oil and Gas
87,500

85,804

85,750


See notes to financial statements.
23

APOLLO INVESTMENT CORPORATION
SCHEDULE OF INVESTMENTS (continued)
March 31, 2014
(in thousands)
INVESTMENTS IN NON-CONTROLLED/NON-AFFILIATED INVESTMENTS—134.1%
Interest Rate
Maturity Date
Industry
Par Amount*
Cost
Fair
Value (1)
2nd Lien Secured Debt—47.9% (continued)
Ranpak Corp.
8.50% (L+725, 1.25% Floor)
4/23/20
Packaging
$
22,000

$
21,802

$
22,522

River Cree Enterprises LP t ‡
11.000%
1/20/21
Hotels, Motels, Inns and Gaming
CAD
33,000

31,110

31,767

SESAC Holdco II LLC
10.00% (L+875, 1.25% Floor)
4/9/14
Broadcasting & Entertainment
$
10,750

10,758

10,978

Sprint Industrial Holdings, LLC
11.25% (L+1000, 1.25% Floor)
11/14/19
Containers, Packaging, and Glass
14,163

13,928

14,305

SquareTwo Financial Corp. (Collect America, Ltd.) ‡
11.625%
4/1/17
Financial Services
61,079

59,929

61,690

Stadium Management Corp
9.25% (L+825, 1.00% Floor)
2/27/21
Business Services
19,900

19,900

20,348

Tectum Holdings, Inc.
10.25% (P+700, 3.25% Floor)
3/12/19
Auto Sector
17,670

17,582

17,626

Transfirst Holdings Inc.
7.50% (L+650, 1.00% Floor)
6/27/18
Financial Services
59,750

59,601

60,422

TriMark USA, LLC
10.00% (L+900, 1.00% Floor)
8/12/19
Distribution
27,000

26,470

27,338

U.S. Renal Care, Inc. †
10.25% (L+900, 1.25% Floor)
1/3/20
Healthcare
11,927

11,980

12,195

U.S. Renal Care, Inc. †
8.50% (L+750, 1.00% Floor)
7/3/20
Healthcare
12,120

11,930

12,325

Velocity Technology Solutions, Inc.
9.00% (L+775, 1.25% Floor)
9/28/20
Business Services
16,500

16,170

16,170

Vertafore, Inc.
9.75% (L+825, 1.50% Floor)
10/27/17
Business Services
50,436

50,167

51,397

Walter Energy, Inc. t ‡
11.000%
4/1/20
Mining
27,798

26,308

25,192

Total 2nd Lien Secured Debt
$
963,070

$
982,446

TOTAL SECURED DEBT
$
1,604,743

$
1,641,515

UNSECURED DEBT—45.9%
Altegrity, Inc. †
0.000% (12.5% effective)
8/2/16
Diversified Service
$
3,545

$
2,664

$
957

Altegrity, Inc. t †
12.000%
11/1/15
Diversified Service
14,667

14,667

13,567

American Energy - Utica, LLC t
3.500%
3/1/21
Oil and Gas
10,868

10,868

11,031

American Tire Distributors, Inc. t †
11.500%
6/1/18
Distribution
25,000

25,000

25,700

American Tire Distributors, Inc. †
11.500%
6/1/18
Distribution
40,000

39,321

41,120

Artsonig Pty Ltd t ‡
11.500%
4/1/19
Transportation
20,000

19,701

20,025

BCA Osprey II Limited (British Car Auctions) †‡
12.50% PIK
8/17/17
Transportation
€
12,721

17,489

18,102

BCA Osprey II Limited (British Car Auctions) †‡
12.50% PIK
8/17/17
Transportation
£
20,948

33,173

36,058

Ceridian Corp. t †
11.000%
3/15/21
Diversified Service
$
34,000

34,000

39,335

Ceridian Corp. †
11.250%
11/15/15
Diversified Service
35,800

35,800

36,154

Ceridian Corp. †
12.25% Cash (12.25% Cash or 13.00% PIK)
11/15/15
Diversified Service
14,420

14,420

14,562

CRC Health Corp.
10.750%
2/1/16
Healthcare
13,000

13,079

13,077

Delta Educational Systems, Inc.
16.00% (10.00% Cash/6.00% PIK)
5/12/17
Education
21,684

21,353

20,708

Denver Parent Corp. (Venoco) t
12.250%
8/15/18
Oil and Gas
15,000

14,633

15,150

Energy & Exploration Partners, Inc. †
15.000%
4/8/18
Oil and Gas
25,000

22,410

23,750


See notes to financial statements.
24

APOLLO INVESTMENT CORPORATION
SCHEDULE OF INVESTMENTS (continued)
March 31, 2014
(in thousands)
INVESTMENTS IN NON-CONTROLLED/NON-AFFILIATED INVESTMENTS—134.1%
Interest Rate
Maturity Date
Industry
Par Amount*
Cost
Fair
Value (1)
UNSECURED DEBT—45.9% (continued)
Energy & Exploration Partners, Inc. †
15.000%
12/12/18
Oil and Gas
4,464

4,263

4,241

Energy & Exploration Partners, Inc. †
15.000%
12/12/18
Oil and Gas
2,679

2,469

2,545

Energy & Exploration Partners, Inc. †
15.000%
3/27/19
Oil and Gas
$
8,036

$
7,650

$
7,634

Exova Limited †‡
10.50%
5/20/14
Business Services
£
4,655

6,606

8,537

Exova Limited t †‡
10.50%
5/20/14
Business Services
18,000

28,165

33,010

First Data Corp. †
10.625%
6/15/21
Financial Services
$
10,000

10,000

11,288

First Data Corp. †
11.250%
1/15/21
Financial Services
67,000

66,977

76,548

First Data Corp. †
12.625%
1/15/21
Financial Services
5,000

5,641

5,963

inVentiv Health, Inc. t
11.000%
8/15/18
Healthcare
106,500

106,500

98,646

My Alarm Center, LLC
16.25% (12.00% Cash/4.25%PIK)
7/9/18
Business Services
4,101

4,101

4,101

Niacet Corporation
13.000%
8/28/18
Chemicals
12,500

12,500

12,625

PetroBakken Energy Ltd. t ‡
8.625%
2/1/20
Oil and Gas
44,082

44,390

44,206

Prospect Holding Company LLC t
10.250%
10/1/18
Financial Services
20,000

19,106

19,450

Radio One Inc t ‡
9.250%
2/15/20
Broadcasting & Entertainment
14,804

14,804

15,778

Symbion Inc.
11.000%
8/23/15
Healthcare
8,488

8,501

8,538

Tervita Corporation t ‡
10.875%
2/15/18
Environmental Services
22,438

21,739

22,662

U.S. Security Associates Holdings, Inc.
11.000%
7/28/18
Business Services
135,000

135,000

139,590

Univar Inc.
10.500%
6/30/18
Distribution
20,000

20,000

19,960

Varietal Distribution t †
10.750%
6/30/17
Distribution
22,204

21,908

22,426

Varietal Distribution t †
10.750%
6/30/17
Distribution
€
11,574

15,092

16,111

Venoco, Inc.
8.875%
2/15/19
Oil and Gas
$
38,050

38,463

38,573

TOTAL UNSECURED DEBT
$
912,453

$
941,728

TOTAL CORPORATE DEBT
$
2,517,196

$
2,583,243

STRUCTURED PRODUCTS AND OTHER—3.9%
Craft 2013-1, Credit Linked Note ‡
9.49% (L+925)
4/17/22
Diversified Investment Vehicle
$
20,000

$
20,000

$
19,802

Dark Castle Holdings, LLC
N/A
N/A
Media
25,302

2,094

3,077

JP Morgan Chase & Co., Credit-Linked Note ‡
12.50% (L+1225)
12/20/21
Diversified Investment Vehicle
43,250

43,010

42,935

Renaissance Umiat, LLC, ACES ****†‡
N/A
N/A
Oil and Gas
—

7,153

7,799

Renaissance Umiat, LLC, ACES ****†‡
N/A
N/A
Oil and Gas
—

6,351

6,391

TOTAL STRUCTURED PRODUCTS AND OTHER
$
78,608

$
80,004

PREFERRED EQUITY—2.0%

Shares




CA Holding, Inc. (Collect America, Ltd.), Series A Preferred Stock **‡
N/A
N/A
Financial Services
7,961

$
788

$
1,592

Crowley Holdings, Series A Preferred Stock
12.00% (10.00% Cash / 2.00% PIK)
N/A
Cargo Transport
22,500

22,623

22,620

Gryphon Colleges Corp. (Delta Educational Systems, Inc.), Preferred Stock ***
13.50% PIK
N/A
Education
12,360

27,685

13,802

Gryphon Colleges Corp. (Delta Educational Systems, Inc.), Preferred Stock ***
12.50% PIK
N/A
Education
332,500

6,863

—

Varietal Distribution Holdings, LLC, Class A Preferred Unit
8.00% PIK
N/A
Distribution
3,097

5,288

3,275

TOTAL PREFERRED EQUITY

$
63,247


$
41,289


See notes to financial statements.
25

APOLLO INVESTMENT CORPORATION
SCHEDULE OF INVESTMENTS (continued)
March 31, 2014
(in thousands, except shares and warrants)
INVESTMENTS IN NON-CONTROLLED/NON-AFFILIATED INVESTMENTS—134.1%
Interest Rate
Maturity Date
Industry
Shares
Cost
Fair
Value (1)
EQUITY—2.3%
Common Equity/Interests—1.8%
Accelerate Parent Corp. (American Tire Distributors), Common Stock **
N/A
N/A
Distribution
3,225,514

$
3,276

$
4,710

AHC Mezzanine, LLC (Advanstar), Common Stock **
N/A
N/A
Media
25,016

1,063

350

Altegrity Holding Corp., Common Stock **
N/A
N/A
Diversified Service
353,399

13,797

—

CA Holding, Inc. (Collect America, Ltd.), Series A Common Stock **‡
N/A
N/A
Financial Services
25,000

2,500

1,380

CA Holding, Inc. (Collect America, Ltd.), Series AA Common Stock **‡
N/A
N/A
Financial Services
4,294

430

859

Caza Petroleum Inc., Net Profits Interest **
N/A
N/A
Oil and Gas
—

940

946

Caza Petroleum Inc., Overriding Royalty Interest **
N/A
N/A
Oil and Gas
—

265

228

Clothesline Holdings, Inc. (Angelica Corporation), Common Stock **
N/A
N/A
Healthcare
6,000

6,000

3,282

Explorer Coinvest, LLC (Booz Allen), Common Stock **‡
N/A
N/A
Business Services
340,090

2,603

6,958

Garden Fresh Restaurant Holdings, LLC., Common Stock **
N/A
N/A
Restaurants
50,000

5,000

138

Gryphon Colleges Corp. (Delta Educational Systems, Inc.), Common Stock **
N/A
N/A
Education
17,500

175

—

GS Prysmian Co-Invest L.P. (Prysmian Cables & Systems), Limited Partnership **(2)(3)‡
N/A
N/A
Manufacturing
—

—

17

JV Note Holdco, LLC (DSI Renal Inc.), Common Equity / Interest **
N/A
N/A
Healthcare
9,303

85

—

Pelican Energy, LLC, Net Profit Interest **‡
N/A
N/A
Oil and Gas
696,656

697

477

RC Coinvestment, LLC (Ranpak Corp.), Common Stock **
N/A
N/A
Packaging
50,000

5,000

7,674

Sorenson Communications Holdings, LLC, Class A, Common Stock **
N/A
N/A
Consumer Products
454,828

45

61

Univar Inc., Common Stock **
N/A
N/A
Distribution
900,000

9,000

9,680

Varietal Distribution Holdings, LLC, Class A Common Unit **
N/A
N/A
Distribution
28,028

28

—

Total Common Equity/Interests
$
50,904

$
36,760

Warrants—0.5%
Warrants
CA Holding, Inc. (Collect America, Ltd.), Common Stock Warrants **‡
N/A
N/A
Financial Services
7,961

$
8

$
—

Energy & Exploration Partners, Inc., Common Stock Warrants **
N/A
N/A
Oil and Gas
60,778

2,374

1,829

Fidji Luxco (BC) S.C.A., Common Stock Warrants **‡(2)
N/A
N/A
Electronics
18,113

182

5,069

Gryphon Colleges Corp. (Delta Educational Systems, Inc.), Common Stock **
N/A
N/A
Education
9,820

98

—

Gryphon Colleges Corp. (Delta Educational Systems, Inc.), Class A-1 Preferred Stock Warrants **
N/A
N/A
Education
45,947

459

—

Gryphon Colleges Corp. (Delta Educational Systems, Inc.), Class B-1 Preferred Stock Warrants **
N/A
N/A
Education
104,314

1,043

—

Osage Exploration & Development, Inc., Common Stock Warrants **‡
N/A
N/A
Oil and Gas
1,496,843

—

1,398

Spotted Hawk Development, LLC, Common Stock Warrants **‡
N/A
N/A
Oil and Gas
54,545

852

2,304

Total Warrants
$
5,016

$
10,600

TOTAL EQUITY
$
55,920

$
47,360

Total Investments in Non-Controlled/ Non-Affiliated Investments
$
2,714,971

$
2,751,896


See notes to financial statements.
26

APOLLO INVESTMENT CORPORATION
SCHEDULE OF INVESTMENTS (continued)
March 31, 2014
(in thousands, except shares and warrants)
INVESTMENTS IN NON-CONTROLLED/AFFILIATED
INVESTMENTS—7.0%(4)
Interest Rate
Maturity Date
Industry
Par
Amount*
Cost
Fair
Value (1)
CORPORATE DEBT—0.7%
SECURED DEBT—0.7%
1st Lien Secured Debt—0.7%
Aventine Renewable Energy Holdings, Inc. †
15.00% (12.00% Cash/3.00% PIK)
9/23/16
Chemicals
$
2,737

$
2,621

$
2,405

Aventine Renewable Energy Holdings, Inc. †
15.00% PIK or 10.50% Cash
9/22/17
Chemicals
14,068

16,391

8,884

Aventine Renewable Energy Holdings, Inc. †
25.00% PIK
9/24/16
Chemicals
3,769

3,769

3,769

Total 1st Lien Secured Debt
$
22,781

$
15,058

TOTAL SECURED DEBT
$
22,781

$
15,058

TOTAL CORPORATE DEBT
$
22,781

$
15,058

STRUCTURED PRODUCTS AND OTHER—6.3%
Golden Hill CLO I, LLC, Equity ‡¢
N/A
N/A
Diversified Investment Vehicle
$
1,097

$
1,631

$
1,097

Highbridge Loan Management 3-2014, Ltd., Class D Notes †‡¢
5.22% (L+500)
1/18/25
Diversified Investment Vehicle
5,000

4,638

4,680

Highbridge Loan Management 3-2014, Ltd., Class E Notes †‡¢
6.22% (L+600)
1/18/25
Diversified Investment Vehicle
2,485

2,263

2,314

Highbridge Loan Management 3-2014, Ltd., Subordinated Notes †‡¢
N/A
1/18/25
Diversified Investment Vehicle
8,163

7,527

7,278

Jamestown CLO I LTD, Subordinated Notes ‡¢
N/A
11/5/24
Diversified Investment Vehicle
4,325

3,553

3,828

MCF CLO I LLC, Class E Notes ‡¢
5.99% (L+575)
4/20/23
Diversified Investment Vehicle
13,000

12,330

12,357

MCF CLO I LLC, Membership Interests ‡¢
N/A
N/A
Diversified Investment Vehicle
38,918

37,560

40,391

MCF CLO III LLC, Class E Notes ‡¢
4.81% (L+445)
1/20/24
Diversified Investment Vehicle
12,750

11,349

11,325

MCF CLO III LLC, Membership Interests ‡¢
N/A
1/20/24
Diversified Investment Vehicle
41,900

39,183

38,266

Slater Mill Loan Fund LP, LP Certificates ‡¢
N/A
N/A
Diversified Investment Vehicle
8,375

6,222

7,361

TOTAL STRUCTURED PRODUCTS AND OTHER
$
126,256

$
128,897

EQUITY—0.0%
Common Equity/Interests—0.0%
Shares
Aventine Renewable Energy Holdings, Inc., Common Stock **
N/A
N/A
Chemicals
262,036

$
688

$
99

Total Common Equity/Interests
$
688

$
99

Warrants—0.0%
Warrants
Aventine Renewable Energy Holdings, Inc., Common Stock Warrants **
N/A
N/A
Chemicals
1,521,193

$
3,996

$
574

Total Warrants
$
3,996

$
574

TOTAL EQUITY
$
4,684

$
673

Total Investments in Non-Controlled/Affiliated Investments
$
153,721

$
144,628


See notes to financial statements.
27

APOLLO INVESTMENT CORPORATION
SCHEDULE OF INVESTMENTS (continued)
March 31, 2014
(in thousands, except shares)
INVESTMENTS IN CONTROLLED
INVESTMENTS—28.4%(5)
Interest Rate
Maturity Date
Industry
Par
Amount*
Cost
Fair
Value (1)
CORPORATE DEBT—14.3%
SECURED DEBT—14.3%
1st Lien Secured Debt—13.8%
Merx Aviation Finance Holdings II, LLC (Revolver)
12.00% Funded, 0.00% Unfunded
10/31/18
Aviation
$
282,334

$
282,334

$
282,334

Total 1st Lien Secured Debt
$
282,334

$
282,334

Unfunded Revolver Obligation—0.0%
Merx Aviation Finance Holdings II, LLC
12.00% Funded, 0.00% Unfunded
10/31/18
Aviation
$
117,666

$
—

$
—

Total Unfunded Revolver Obligation
$
—

$
—

Letters of Credit—0.0%
Merx Aviation Finance Assets Ireland Limited, LLC, Letter of Credit
2.250%
9/30/14
Aviation
$
1,800

$
—

$
—

Merx Aviation Finance Assets Ireland Limited, LLC, Letter of Credit
2.250%
9/30/14
Aviation
1,800

—

—

Total Letters of Credit
$
—

$
—

2nd Lien Secured Debt—0.5%
LVI Parent Corp. (LVI Services, Inc.)
12.500%
4/20/14
Environmental Services
$
10,000

$
10,013

$
10,200

Total 2nd Lien Secured Debt
$
10,013

$
10,200

TOTAL SECURED DEBT
$
292,347

$
292,534

TOTAL CORPORATE DEBT
$
292,347

$
292,534

PREFERRED EQUITY—2.5%
Shares
Playpower Holdings, Inc., Series A Preferred
14.00% PIK
11/15/20
Leisure
49,178

$
51,773

$
51,773

TOTAL PREFFERED EQUITY
$
51,773

$
51,773

EQUITY—11.6%
Common Equity/Interests—11.6%
Generation Brands Holdings, Inc. (Quality Home Brands), Basic Common Stock **
N/A
N/A
Home and Office Furnishings and Durable Consumer Products
9,007

$
—

$
1,615

Generation Brands Holdings, Inc. (Quality Home Brands), Series H Common Stock **
N/A
N/A
Home and Office Furnishings and Durable Consumer Products
7,500

2,297

1,345

Generation Brands Holdings, Inc. (Quality Home Brands), Series 2L Common Stock **
N/A
N/A
Home and Office Furnishings and Durable Consumer Products
36,700

11,242

6,582

LVI Parent Corp., Common Stock **
N/A
N/A
Environmental Services
14,981

16,097

34,020

Merx Aviation Finance Holdings II, LLC, Partnership Interest **
N/A
N/A
Aviation
—

138,582

140,465

Playpower Holdings, Inc., Common Stock **
N/A
N/A
Leisure
1,000

77,722

53,813

Total Common Equity/Interests
$
245,940

$
237,840

TOTAL EQUITY
$
245,940

$
237,840

Total Investments in Controlled Investments
$
590,060

$
582,147

Total Investments—169.5%(6)(7)
$
3,458,752

$
3,478,671

Liabilities in Excess of Other Assets—(69.5)%
$
(1,427,061
)
Net Assets—100.0%
$
2,051,611


See notes to financial statements.
28

APOLLO INVESTMENT CORPORATION
SCHEDULE OF INVESTMENTS (continued)
March 31, 2014
(in thousands)
______________________
(1)
Fair value is determined in good faith by or under the direction of the Board of Directors of the Company (see note 2).
(2)
GS Prysmian Co-Invest L.P. and Fidji Luxco (BC) S.C.A. are EUR denominated investments.
(3)
The Company is the sole Limited Partner in GS Prysmian Co-Invest L.P.
(4)
Denotes investments in which we are an “Affiliated Person”, as defined in the 1940 Act, due to owning or holding the power to vote 5% or more of the outstanding voting securities of the investment but not controlling the company. Fair value as of March 31, 2013 and March 31, 2014 along with transactions during the fiscal year ended March 31, 2014 in these Affiliated investments are as follows:

Name of Issue
Fair Value at March 31, 2013
Gross
Additions (Cost) ●
Gross
Reductions (Cost) ■
Change in Unrealized Gain (Loss)
Fair Value at March 31, 2014
Net Realized Gain (Loss)
Interest/Dividend/
Other Income
Aventine Renewable Energy Holdings, Inc., 15.00% (12.00% Cash/3.00% PIK), 9/23/16
$
3,866

$
85

$
(1,314
)
$
(232
)
$
2,405

$
—

$
606

Aventine Renewable Energy Holdings, Inc., 10.50% Cash or 15.00% PIK, 9/22/17
9,682

1,965

(1,581
)
(1,182
)
8,884

—

370

Aventine Renewable Energy Holdings, Inc., 25.00% PIK, 9/24/16
N/A

5,348

(1,578
)
—

3,769

—

1,044

Aventine Renewable Energy Holdings, Inc., Common Stock
2,347

—

(3,995
)
1,747

99

—

—

Aventine Renewable Energy Holdings, Inc., Common Stock Warrants
N/A

3,995

—

(3,422
)
574

—

—

Golden Hill CLO I, LLC, Equity
N/A

1,631

—

(534
)
1,097

—

—

Highbridge Loan Management 3-2014, Ltd., Class D Notes L+500, 1/18/25
N/A

4,638

—

42

4,680

—

49

Highbridge Loan Management 3-2014, Ltd., Class E Notes L+600, 1/18/25
N/A

2,263

—

50

2,314

—

28

Highbridge Loan Management 3-2014, Ltd., Subordinated Notes, 1/18/25
N/A

7,527

—

(249
)
7,278

—

96

Highbridge Loan, Ltd., Preference Shares
6,174

6,655

(12,829
)
—

—

—

1,876

Jamestown CLO I LTD, Class C L+400, 11/5/24
1,109

3

(1,027
)
(86
)
—

71

30

Jamestown CLO I LTD, Class D L+550, 11/5/24
3,537

13

(3,386
)
(164
)
—

250

139

Jamestown CLO I LTD, Subordinated
Notes, 11/5/24
13,568

—

(10,500
)
761

3,828

1,758

1,473

Kirkwood Fund II LLC, Common Interest
43,144

—

(41,067
)
(2,077
)
—

—

5,923

MCF CLO I LLC, Class E Notes, L+575, 4/20/23
12,273

52

—

32

12,357

—

854

MCF CLO I LLC, Membership Interests
38,918

—

(1,358
)
2,832

40,391

—

8,108

MCF CLO III LLC, Class E Notes L+445, 1/20/24
N/A

11,349

—

(24
)
11,325

—

165

MCF CLO III LLC, Membership Interests, 1/20/24
N/A

39,183

—

(918
)
38,266

—

1,165

Slater Mill Loan Fund LP, LP Certificates
6,951

—

(897
)
1,306

7,361

—

1,088

$
141,569

$
84,708

$
(79,534
)
$
(2,115
)
$
144,628

$
2,078

$
23,017

______________
● Gross additions includes increases in the cost basis of investments resulting from new portfolio investments, PIK interest or dividends, the accretion of discounts, the exchange of one or more existing securities for one or more new securities and the movement of an existing portfolio company into this category from a different category.
■ Gross reductions include decreases in the cost basis of investments resulting from principal collections related to investment repayments or sales, the amortization of premiums, the exchange of one or more existing securities for one or more new securities and the movement of an existing portfolio company out of this category into a different category.
As of March 31, 2014, the Company has a 13%, 26%, 100%, 9%, 97%, 98%, and 26% equity ownership interest in Aventine Renewable Energy Holdings, Inc., Highbridge Loan Management, Ltd, Golden Hill CLO I, LLC, Jamestown CLO I LTD, MCF CLO I LLC, MCF CLO III LLC, and Slater Mill Loan Fund LP, respectively. Investments that the Company owns greater than 25% of the equity and are shown in “Non-Controlled/Affiliated” have governing documents that preclude the Company from controlling management of the entity and therefore the Company disclaims that the entity is a controlled affiliate.



See notes to financial statements.
29

APOLLO INVESTMENT CORPORATION
SCHEDULE OF INVESTMENTS (continued)
March 31, 2014
(in thousands)
(5)
Denotes investments in which we are deemed to exercise a controlling influence over the management or policies of a company, as defined in the 1940 Act, due to beneficially owning, either directly or through one or more controlled companies, more than 25% of the outstanding voting securities of the investment. Fair value as of March 31, 2013 and March 31, 2014 along with transactions during the fiscal year ended March 31, 2014 in these Controlled investments are as follows:
Name of Issue
Fair Value at March 31, 2013
Gross
Additions (Cost) ●
Gross
Reductions (Cost) ■
Change in Unrealized Gain (Loss)
Fair Value at March 31, 2014
Net Realized Gain (Loss)
Interest/Dividend/
Other Income
AIC Credit Opportunity Fund, LLC Common Equity
$
50,697

$
20,386

$
(68,489
)
$
(2,594
)
$
—

$
(2,338
)
$
2,306

Generation Brands Holdings, Inc. (Quality Home Brands), Basic Common Stock
432

—

—

1,183

1,615

—

—

Generation Brands Holdings, Inc. (Quality Home Brands), Series 2L Common Stock
360

—

—

985

1,345

—

—

Generation Brands Holdings, Inc. (Quality Home Brands), Series H Common Stock
1,760

—

—

4,822

6,582

—

—

Grand Prix Holdings, LLC, Series A Preferred Interests, 12.00% PIK
N/A

N/A

N/A

N/A

N/A

98

—

LVI Parent Corp. (LVI Services, Inc.), 12.50%, 4/20/14
10,000

198

—

2

10,200

—

1,448

LVI Services, Inc., Common Stock
30,575

—

—

3,444

34,020

—

153

Merx Aviation Finance Holdings, LLC, 12.00%, 1/9/21
92,000

—

(92,000
)
—

—

—

6,761

Merx Aviation Finance Holdings, LLC, 12.00%, 2/1/21
5,303

—

(5,303
)
—

—

—

392

Merx Aviation Finance Holdings, LLC, 12.00%, 3/28/21
4,684

—

(4,684
)
—

—

—

346

Merx Aviation Finance Holdings, LLC, 12.00%, 6/25/21
N/A

13,500

(13,500
)
—

—

—

621

Merx Aviation Finance Holdings, LLC, 12.00%, 7/25/21
N/A

14,600

(14,600
)
—

—

—

286

Merx Aviation Finance Holdings, LLC, 12.00%, 8/19/21
N/A

4,000

(4,000
)
—

—

—

124

Merx Aviation Finance Holdings, LLC, 12.00%, 9/12/21
N/A

4,600

(4,600
)
—

—

—

80

Merx Aviation Finance Holdings, LLC, 12.00%, 10/28/21
N/A

31,150

(31,150
)
—

—

—

154

Merx Aviation Finance Holdings II, LLC, (Revolver) 12.00% Funded, 0.00% Unfunded, 10/31/18
N/A

282,334

—

—

282,334

—

9,205

Merx Aviation Finance Holdings II, LLC, Partnership Interest
33,820

107,120

(2,358
)
1,883

140,465

—

—

Merx Aviation Finance Assets Ireland Limited, Letter of Credit, 2.25%, 9/30/14
—

—

—

—

—

—

—

Merx Aviation Finance Assets Ireland Limited, Letter of Credit, 2.25%, 9/30/14
—

—

—

—

—

—

—

Playpower Holdings, Inc., 14.00% PIK, 12/15/15
24,174

2,293

(27,578
)
1,111

—

442

2,271

Playpower, Inc., 12.50% PIK, 12/31/15
18,458

1,713

(20,551
)
380

—

870

1,686

Playpower Holdings, Inc., Series A Preferred, 14.00% PIK, 11/15/20
N/A

51,773

—

—

51,773

—

3,303

Playpower Holdings, Inc., Common Stock
38,157

—

—

15,657

53,813

—

—

$
310,418

$
533,668

$
(288,811
)
$
26,872

$
582,147

$
(927
)
$
29,137

______________
● Gross additions includes increases in the cost basis of investments resulting from new portfolio investments, PIK interest or dividends, the accretions of discounts, the exchange of one or more existing securities for one or more new securities and the movement of an existing portfolio company into this category from a different category.

See notes to financial statements.
30

APOLLO INVESTMENT CORPORATION
SCHEDULE OF INVESTMENTS (continued)
March 31, 2014
(in thousands)
■ Gross reductions include decreases in the cost basis of investments resulting from principal collections related to investment repayments or sales, the amortization of premiums, the exchange of one or more existing securities for one or more new securities and the movement of an existing portfolio company out of this category into a different category.
As of March 31, 2014, the Company has a 28%, 33%, 100%, and 100% equity ownership interest in Generation Brands Holdings, Inc., LVI Parent Corp., Merx Aviation Finance Holdings II, LLC, and Playpower Holdings, Inc., respectively.

(6)
Aggregate gross unrealized gain for federal income tax purposes is $124,819; aggregate gross unrealized loss for federal income tax purposes is $154,176. Net unrealized loss is $29,357 based on a tax cost of $3,508,028.
(7)
Substantially all securities are pledged as collateral to our multicurrency revolving credit facility (the “Facility”). As such these securities are not available as collateral to our general creditors.
(8)
The negative fair value is the result of the unfunded commitment/letter of credit being valued below par.

N/A
Not applicable

t
These securities are exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be resold in transactions that are exempt from registration, normally to qualified institutional buyers.
*
Denominated in USD unless otherwise noted, Euro (“€”), British Pound (“£”), and Canadian Dollar (“CAD”).
**
Non-income producing security
***
Non-accrual status (see note 2)
****
The investment has a put option attached to it and the combined instrument has been recorded in its entirety at fair value as a hybrid instrument in accordance with ASC 815-15-25-4 with subsequent changes in fair value charged or credited to investment gains/losses for each period.
†
Denotes debt securities where the Company owns multiple tranches of the same broad asset type but whose security characteristics differ. Such differences may include level of subordination, call protection and pricing, and differing interest rate characteristics, among other factors. Such factors are usually considered in the determination of fair values.
‡
Investments that the Company has determined are not “qualifying assets” under Section 55(a) of the 1940 Act. Under the 1940 Act, we may not acquire any non-qualifying asset unless, at the time such acquisition is made, qualifying assets represent at least 70% of our total assets. The status of these assets under the 1940 Act are subject to change. The Company monitors the status of these assets on an ongoing basis.
¢
Denotes investments where the governing documents of the entity preclude the Company from controlling management of the entity and accordingly the Company disclaims that the entity is a controlled affiliate.


See notes to financial statements.
31

APOLLO INVESTMENT CORPORATION
SCHEDULE OF INVESTMENTS (continued)
March 31, 2014

Industry Classification
Percentage of Total Investments (at fair value) as of March 31, 2014
Business Services
14.6%
Aviation
12.2%
Oil and Gas
11.8%
Financial Services
7.4%
Healthcare
6.6%
Diversified Investment Vehicle
5.5%
Distribution
4.9%
Chemicals
4.2%
Diversified Service
3.7%
Insurance
3.5%
Leisure
3.1%
Environmental Services
2.5%
Transportation
2.1%
Mining
1.8%
Containers, Packaging, and Glass
1.6%
Telecommunications
1.5%
Energy
1.3%
Media
1.3%
Buildings and Real Estate
1.2%
Education
1.1%
Restaurants
1.0%
Diversified Natural Resources, Precious Metals and Minerals
1.0%
Hotels, Motels, Inns and Gaming
0.9%
Packaging
0.9%
Broadcasting & Entertainment
0.8%
Retail
0.7%
Cargo Transport
0.6%
Auto Sector
0.5%
Consumer Products
0.4%
Beverage, Food and Tobacco
0.3%
Home and Office Furnishings and Durable Consumer Products
0.3%
Aerospace and Defense
0.3%
Grocery
0.2%
Electronics
0.2%
Manufacturing
—%
Total Investments
100.0%



See notes to financial statements.
32


APOLLO INVESTMENT CORPORATION
NOTES TO FINANCIAL STATEMENTS
(in thousands except share and per share amounts)
Note 1. Organization
Apollo Investment Corporation (“Apollo Investment”, the “Company”, “AIC”, “we”, “us”, or “our”), a Maryland corporation organized on February 2, 2004, is a closed-end, externally managed, non-diversified management investment company that has elected to be treated as a business development company (“BDC”) under the Investment Company Act of 1940 (the “1940 Act”). In addition, for tax purposes we have elected to be treated as a regulated investment company (“RIC”), under the Internal Revenue Code of 1986, as amended (“the Code”). Our investment objective is to generate current income and capital appreciation. We invest primarily in various forms of debt investments, including secured and unsecured loans, loan investments, and/or equity in private middle-market companies. We may also invest in the securities of public companies and structured products and other investments such as collateralized loan obligations and credit-linked notes ("CLOs" and "CLNs", respectively). Our portfolio is comprised primarily of investments in debt, including secured and unsecured debt of private middle-market companies that, in the case of senior secured loans, generally are not broadly syndicated and whose aggregate tranche size is typically less than $250 million. Our portfolio also includes equity interests such as common stock, preferred stock, warrants or options.
Apollo Investment commenced operations on April 8, 2004 receiving net proceeds of $870,000 from its initial public offering by selling 62 million shares of common stock at a price of $15.00 per share. Since then, and through June 30, 2014 , we have raised approximately $2,210,099 in net proceeds from additional offerings of common stock.
Note 2. Significant Accounting Policies
The following is a summary of the significant accounting and reporting policies used in preparing the financial statements.
Basis of Presentation and Use of Estimates
The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America ("GAAP"). The Company is an investment company following accounting and reporting guidance in Accounting Standards Codification (“ASC”) 946. In accordance with Regulation S-X, the Company generally will not consolidate its interest in any company other than in investment company subsidiaries and controlled operating companies substantially all of whose business consists of providing services to the Company. Consequently, the Company has not consolidated special purpose entities through which the special purpose entity acquired and holds investments subject to financing with third parties. As of June 30, 2014 , the Company did not have any subsidiaries or controlled operating companies that were consolidated (see additional information within note 6).
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amount of assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reported periods. Changes in the economic environment, financial markets and any other parameters used in determining these estimates could cause actual results to differ materially.
Interim financial statements are prepared in accordance with GAAP for interim financial information and pursuant to the requirements for reporting on Form 10-Q and Article 6 or 10 of Regulation S-X, as appropriate. In the opinion of management, all adjustments, which are of a normal recurring nature, considered necessary for the fair statement of financial statements for the interim period, have been included. These financial statements should be read in conjunction with the audited financial statements and accompanying notes included in the Annual Report on Form 10-K for the year ended March 31, 2014 . Certain amounts have been reclassified on the Statement of Operations. For the three months ended June 30, 2013, $263 of investment income previously classified as interest income from controlled investments was reclassified to interest income from non-controlled/affiliated investments and $4,825 of investment income previously classified as dividend income from controlled investments was reclassified to dividend income from non-controlled/affiliated investments.
Cash and Cash Equivalents
The Company defines cash equivalents as securities that are readily convertible into known amounts of cash and so near their maturity that they present insignificant risk of changes in value because of changes in interest rates. Generally, only securities with a maturity of three months or less from the date of purchase would qualify, with limited exceptions. The Company deems that certain U.S. Treasury bills, repurchase agreements and other high-quality, short-term debt securities would qualify as cash equivalents.



33
APOLLO INVESTMENT CORPORATION
NOTES TO FINANCIAL STATEMENTS (continued)
(in thousands except share and per share amounts)

Fair Value Measurements
Under procedures established by our board of directors, we value investments, including certain secured debt, unsecured debt and other debt securities with maturities greater than 60 days, for which market quotations are readily available, at such market quotations (unless they are deemed not to represent fair value). We attempt to obtain market quotations from at least two brokers or dealers (if available, otherwise from a principal market maker or a primary market dealer or other independent pricing service). We utilize mid-market pricing as a practical expedient for fair value unless a different point within the range is more representative. If and when market quotations are deemed not to represent fair value, we typically utilize independent third party valuation firms to assist us in determining fair value. Accordingly, such investments go through our multi-step valuation process as described below. In each case, our independent third party valuation firms consider observable market inputs together with significant unobservable inputs in arriving at their valuation recommendations for such investments. Debt investments with remaining maturities of 60 days or less may each be valued at cost with interest accrued or discount amortized to the date of maturity, unless such valuation, in the judgment of our investment adviser, does not represent fair value, in which case such investments shall be valued at fair value as determined in good faith by or under the direction of our board of directors including using market quotations where available. Investments that are not publicly traded or whose market quotations are not readily available are valued at fair value as determined in good faith by or under the direction of our board of directors. Such determination of fair values may involve subjective judgments and estimates.
With respect to investments for which market quotations are not readily available or when such market quotations are deemed not to represent fair value, our board of directors has approved a multi-step valuation process each quarter, as described below:
(1)
our quarterly valuation process begins with each portfolio company or investment being initially valued by the investment professionals of our investment adviser responsible for the portfolio investment;
(2)
preliminary valuation conclusions are then documented and discussed with senior management of our investment adviser;
(3)
independent valuation firms are engaged by our board of directors to conduct independent appraisals by reviewing our investment adviser’s preliminary valuations and then making their own independent assessment;
(4)
the audit committee of the board of directors reviews the preliminary valuation of our investment adviser and the valuation prepared by the independent valuation firm and responds to the valuation recommendation of the independent valuation firm to reflect any comments; and
(5)
the board of directors discusses valuations and determines in good faith the fair value of each investment in our portfolio based on the input of our investment adviser, the applicable independent valuation firm, third party pricing services and the audit committee.
Investments in all asset classes are valued utilizing a market approach, an income approach, or both approaches, as appropriate. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities (including a business). The income approach uses valuation techniques to convert future amounts (for example, cash flows or earnings) to a single present amount (discounted). The measurement is based on the value indicated by current market expectations about those future amounts. In following these approaches, the types of factors that we may take into account in fair value pricing our investments include, as relevant: available current market data, including relevant and applicable market trading and transaction comparables, applicable market yields and multiples, security covenants, call protection provisions, information rights, the nature and realizable value of any collateral, the portfolio company’s ability to make payments, its earnings and discounted cash flows, the markets in which the portfolio company does business, comparisons of financial ratios of peer companies that are public, M&A comparables, our principal market (as the reporting entity) and enterprise values, among other factors. When readily available, broker quotations and/or quotations provided by pricing services are considered as an input in the valuation process. For the three months ended June 30, 2014 , there has been no change to the Company’s valuation techniques and related inputs considered in the valuation process.
ASC 820 classifies the inputs used to measure these fair values into the following hierarchy:
Level 1 : Quoted prices in active markets for identical assets or liabilities, accessible by the Company at the measurement date.
Level 2 : Quoted prices for similar assets or liabilities in active markets, or quoted prices for identical or similar assets or liabilities in markets that are not active, or other observable inputs other than quoted prices.
Level 3 : Unobservable inputs for the asset or liability.

34
APOLLO INVESTMENT CORPORATION
NOTES TO FINANCIAL STATEMENTS (continued)
(in thousands except share and per share amounts)

In all cases, the level in the fair value hierarchy within which the fair value measurement in its entirety falls has been determined based on the lowest level of input that is significant to the fair value measurement. Our assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to each investment.
Realized Gains and Losses
Security transactions are accounted for on the trade date. Realized gains or losses on investments are calculated by using the specific identification method. Securities that have been called by the issuer are recorded at the call price on the call effective date.
Investment Income Recognition
The Company records interest and dividend income, adjusted for amortization of premium and accretion of discount, on an accrual basis. Some of our loans and other investments, including certain preferred equity investments, may have contractual payment-in-kind (“PIK”) interest or dividends. PIK interest and dividends computed at the contractual rate are accrued into income and reflected as receivable up to the capitalization date. PIK investments offer issuers the option at each payment date of making payments in cash or in additional securities. When additional securities are received, they typically have the same terms, including maturity dates and interest rates as the original securities issued. On these payment dates, the Company capitalizes the accrued interest or dividends receivable (reflecting such amounts as the basis in the additional securities received). PIK generally becomes due at maturity of the investment or upon the investment being called by the issuer. At the point the Company believes PIK is not expected to be realized, the PIK investment will be placed on non-accrual status. When a PIK investment is placed on non-accrual status, the accrued, uncapitalized interest or dividends are reversed from the related receivable through interest or dividend income, respectively. The Company does not reverse previously capitalized PIK interest or dividends. Upon capitalization, PIK is subject to the fair value estimates associated with their related investments. PIK investments on non-accrual status are restored to accrual status if the Company believes that PIK is expected to be realized. For the three months ended June 30, 2014 , PIK income totaled $6,827 on total investment income of $102,580 .
Investments that are expected to pay regularly scheduled interest and/or dividends in cash are generally placed on non-accrual status when principal or interest/dividend cash payments are past due 30 days or more and/or when it is no longer probable that principal or interest/dividend cash payments will be collected. Such non-accrual investments are restored to accrual status if past due principal and interest or dividends are paid in cash, and in management’s judgment, are likely to continue timely payment of their remaining interest or dividend obligations. Interest or dividend cash payments received on non-accrual designated investments may be recognized as income or applied to principal depending upon management’s judgment.
Loan origination fees, original issue discount, and market discounts are capitalized and amortized into income using the interest method or straight-line, as applicable. Upon the prepayment of a loan, any unamortized loan origination fees are recorded as interest income. We record prepayment premiums on loans and other investments as interest income when we receive such amounts. Other income generally includes administrative fee, bridge fee, and structuring fee which are recorded when earned.
The Company records as dividend income the accretable yield from its beneficial interests in structured products such as CLOs based upon a number of cash flow assumptions that are subject to uncertainties and contingencies. Such assumptions include the rate and timing of principal and interest receipts (which may be subject to prepayments and defaults) of the underlying pool of assets. These assumptions are updated on at least a quarterly basis to reflect changes related to a particular security, actual historical data, and market changes. Structured product investments typically have an underlying pool of assets. Payments on structured product investments are and will be payable solely from the cashflows from such assets. As such, any unforeseen event in these underlying pool of assets might impact the expected recovery of principal and future accrual of income.
Expenses
Expenses include management fees, performance-based incentive fees, insurance expenses, administrative service fees, legal fees, directors' fees, audit and tax service expenses, and other general and administrative expenses. Expenses are recognized on an accrual basis.
Dividends to Common Stockholders
Dividends and distributions to common stockholders are recorded as of the record date. The amount to be paid out as a dividend is determined by the board of directors each quarter. Net realized capital gains, if any, are generally distributed or deemed distributed at least annually.


35
APOLLO INVESTMENT CORPORATION
NOTES TO FINANCIAL STATEMENTS (continued)
(in thousands except share and per share amounts)

Income Taxes
The Company complies with the applicable provisions of the Code pertaining to regulated investment companies to make distributions of taxable income sufficient to relieve it of substantially all Federal income taxes. The Company, at its discretion, may carry forward taxable income in excess of calendar year distributions and pay a 4% excise tax on this income. The Company will accrue excise tax on estimated excess taxable income, if any, as required.
Book and tax basis differences relating to stockholder dividends and distributions and other permanent book and tax differences are reclassified among the Company’s capital accounts. In addition, the character of income and gains to be distributed is determined in accordance with income tax regulations that may differ from accounting principles generally accepted in the United States of America.
Foreign Currency
The accounting records of the Company are maintained in U.S. dollars. All assets and liabilities denominated in foreign currencies are translated into U.S. dollars based on the rate of exchange of such currencies against U.S. dollars on the date of valuation. The company isolates that portion of the results of operations resulting from changes in foreign exchange rates on investments from the fluctuations arising from changes in market prices of securities held. The Company’s investments in foreign securities may involve certain risks, including without limitation: foreign exchange restrictions, expropriation, taxation or other political, social or economic risks, all of which could affect the market and/or credit risk of the investment. In addition, changes in the relationship of foreign currencies to the U.S. dollar can significantly affect the value of these investments and therefore the earnings of the Company.
Equity Offering Expenses
The Company records expenses related to shelf filings and applicable offering costs as deferred financing costs in the Statement of Assets and Liabilities. To the extent such expenses relate to equity offerings, these expenses are charged as a reduction of capital upon utilization, in accordance with ASC 946-20-25.
Debt Issuance Costs
The Company records origination and other expenses related to its debt obligations as deferred financing costs in the Statement of Assets and Liabilities. These expenses are deferred and amortized using the straight-line method over the stated life of the obligation which approximates the effective yield method.
Derivative Instruments
The Company may make investments in derivative instruments. The derivative instruments are fair valued with changes to the fair value reflected in net unrealized gain/loss during the reporting period and recorded within realized gain/loss upon exit and settlement of the contract. The accrual of periodic interest settlements is recorded in net unrealized gain/loss and subsequently recorded as net realized gain or loss on the interest settlement date.
The Company may enter into forward exchange contracts in order to hedge against foreign currency risk. These contracts are fair valued by recognizing the difference between the contract exchange rate and the current market rate as unrealized gain or loss. Realized gains or losses are recognized when contracts are settled.
Recent Accounting Pronouncements
In June 2013, the FASB issued guidance to change the assessment of whether an entity is an investment company by developing a new two-tiered approach that requires an entity to possess certain fundamental characteristics while allowing judgment in assessing certain typical characteristics. The fundamental characteristics that an investment company is required to have include the following: (1) it obtains funds from one or more investors and provides the investor(s) with investment management services; (2) it commits to its investor(s) that its business purpose and only substantive activities are investing the funds solely for returns from capital appreciation, investment income or both; and (3) it does not obtain returns or benefits from an investee or its affiliates that are not normally attributable to ownership interests. The typical characteristics of an investment company that an entity should consider before concluding whether it is an investment company include the following: (1) it has more than one investment; (2) it has more than one investor; (3) it has investors that are not related parties of the parent or the investment manager; (4) it has ownership interests in the form of equity or partnership interests; and (5) it manages substantially all of its investments on a fair value basis. The new approach requires an entity to assess all of the characteristics of an investment company and consider its purpose and

36
APOLLO INVESTMENT CORPORATION
NOTES TO FINANCIAL STATEMENTS (continued)
(in thousands except share and per share amounts)

design to determine whether it is an investment company. The guidance includes disclosure requirements about an entity’s status as an investment company and financial support provided or contractually required to be provided by an investment company to its investees. The guidance is effective for interim and annual reporting periods in fiscal years beginning after December 15, 2013. This guidance did not have a material impact on its financial statements.
Note 3. Agreements
The Company has an Investment Advisory and Management Agreement (the “Investment Advisory Agreement”) with Apollo Investment Management, L.P. (the “Investment Adviser” or “AIM”), under which the Investment Adviser, subject to the overall supervision of our board of directors, manages the day-to-day operations of, and provides investment advisory services to the Company. For providing these services, the Investment Adviser receives a fee from the Company, consisting of two components — a base management fee and a performance-based incentive fee. The base management fee is determined by taking the average value of our gross assets, net of the average of any payable for cash equivalents at the end of the two most recently completed calendar quarters calculated at an annual rate of 2.00%. The incentive fee has two parts, as follows: one part is calculated and payable quarterly in arrears based on our pre-incentive fee net investment income for the immediately preceding calendar quarter. For this purpose, pre-incentive fee net investment income means interest income, dividend income and any other income including any other fees (other than fees for providing managerial assistance), such as commitment, origination, structuring, diligence and consulting fees or other fees that we receive from portfolio companies accrued during the calendar quarter, minus our operating expenses for the quarter (including the base management fee, any expenses payable under an administration agreement (the “Administration Agreement”) between the Company and Apollo Investment Administration, LLC (the “Administrator”), and any interest expense and dividends paid on any issued and outstanding preferred stock, but excluding the incentive fee). Pre-incentive fee net investment income does not include any realized capital gains computed net of all realized capital losses and unrealized capital depreciation. 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 calendar quarter, is compared to the rate of 1.75% per quarter (7% annualized). For the period between April 2, 2012 and March 31, 2015, AIM has agreed to voluntarily waive the management and incentive fees on the common shares issued on April 2, 2012 and May 20, 2013.
The Investment Adviser has also entered into an investment sub-advisory agreement with CION Investment Corporation ("CION") (the "Sub-Advisory Agreement") under which AIM receives management and incentive fees from CION in connection with the investment advisory services provided. For the period between April 1, 2014 and March 31, 2015, the Investment Adviser has agreed to waive all base management fees receivable under the Investment Advisory Agreement with the Company in the amount equal to the amount receivable by AIM from CION less the fully allocated incremental expenses accrued by AIM.
The Company pays the Investment Adviser an incentive fee with respect to our pre-incentive fee net investment income in each calendar quarter as follows: (1) no incentive fee in any calendar quarter in which our pre-incentive fee net investment income does not exceed 1.75%, which we commonly refer to as the performance threshold; (2) 100% of our pre-incentive fee net investment income with respect to that portion of such pre-incentive fee net investment income, if any, that exceeds 1.75% but does not exceed 2.1875% in any calendar quarter; and (3) 20% of the amount of our pre-incentive fee net investment income, if any, that exceeds 2.1875% in any calendar quarter. These calculations are appropriately prorated for any period of less than three months. The effect of the fee calculation described above is that if pre-incentive fee net investment income is equal to or exceeds 2.1875%, the Investment Adviser will receive a fee of 20% of our pre-incentive fee net investment income for the quarter.
The second part of the incentive fee is determined and payable in arrears as of the end of each calendar year (or upon termination of the Investment Advisory Agreement, as of the termination date) and will equal 20% of our cumulative realized capital gains less cumulative realized capital losses, unrealized capital loss (unrealized loss on a gross investment-by-investment basis at the end of each calendar year) and all capital gains upon which prior performance-based capital gains incentive fee payments were previously made to the Investment Adviser. For accounting purposes only, we are required under GAAP to accrue a theoretical capital gains incentive fee based upon net realized capital gains and unrealized capital gain and loss on investments held at the end of each period.
The accrual of this theoretical capital gains incentive fee assumes all unrealized capital gain and loss is realized in order to reflect a theoretical capital gains incentive fee that would be payable to the Investment Adviser at each measurement date. There was no accrual for the three months ended June 30, 2014 and 2013 . It should be noted that a fee so calculated and accrued would not be payable under the Investment Advisers Act of 1940 (“Advisers Act”) or the Investment Advisory Agreement, and would not be paid based upon such computation of capital gains incentive fees in subsequent periods. Amounts actually paid to the Investment

37
APOLLO INVESTMENT CORPORATION
NOTES TO FINANCIAL STATEMENTS (continued)
(in thousands except share and per share amounts)

Adviser will be consistent with the Advisers Act and formula reflected in the Investment Advisory Agreement which specifically excludes consideration of unrealized capital gain.
For the time period between April 1, 2013 and March 31, 2015, AIM will not be paid the portion of the performance-based incentive fee that is attributable to deferred interest, such as PIK, until the Company receives such interest in cash. The accrual of incentive fees shall be reversed if such interest is reversed in connection with any write off or similar treatment of the investment. Upon payment of the deferred incentive fee, AIM will also receive interest on the deferred interest at an annual rate of 3.25% for the period between the date in which the incentive fee is earned and the date of payment.

For the three months ended June 30, 2014 and 2013 , the Company recognized $18,111 and $14,757 , respectively, of base management fees and $12,467 and $12,449 , respectively, of performance-based incentive fees. For the three months ended June 30, 2014 and 2013 , total management fees waived was $2,707 and $1,074 , respectively. For the three months ended June 30, 2014 and 2013 , total incentive fees waived were $1,445 and $900 , respectively.

The amount of the deferred incentive fees on PIK income for the three months ended June 30, 2014 and 2013 are $1,206 and $1,193, respectively. The cumulative incentive fee on PIK income included in management and performance-based incentive fee payable line of the Statement of Assets and Liabilities for the three months ended June 30, 2014 and 2013 are $8,141 and $5,061, respectively.
The Company has also entered into an Administration Agreement with the Administrator under which the Administrator provides administrative services for the Company. For providing these services, facilities and personnel, the Company reimburses the Administrator for the allocable portion of overhead and other expenses incurred by the Administrator and requested to be reimbursed in performing its obligations under the Administration Agreement, including rent and the Company’s allocable portion of its chief financial officer and chief compliance officer and their respective staffs. The Administrator will also provide, on our behalf, managerial assistance to those portfolio companies to which the Company is required to provide such assistance. For the three months ended June 30, 2014 and June 30, 2013 , the Company recognized expenses under the Administration Agreement of $1,433 and $1,097 , respectively.

The Company has also entered into an expense reimbursement agreement with Merx Aviation Finance Assets Ireland, Limited, a subsidiary of a portfolio company that will reimburse the Company for reasonable out-of-pocket expenses incurred, including any interest, fees or other amounts incurred by the Company in connection with letters of credit issued on its behalf. For the three months ended June 30, 2014 and June 30, 2013 , the Company recognized expenses that were reimbursed under the expense reimbursement agreement of $20 and $0 respectively.
Note 4. Earnings Per Share
The following table sets forth the computation of basic and diluted earnings per share, pursuant to ASC 260-10, for the three months ended June 30, 2014 and June 30, 2013 , respectively:
Three Months Ended June 30,
2014
2013
Earnings per share — basic
Numerator for increase in net assets per share:
$
64,636

$
18,804

Denominator for basic weighted average shares:
236,741,351

212,975,966

Basic earnings per share:
$
0.27

$
0.09

Earnings per share — diluted*
Numerator for increase in net assets per share:
$
64,636

$
18,804

Adjustment for interest on convertible notes and for incentive fees, net
2,556

3,895

Numerator for increase in net assets per share, as adjusted
$
67,192

$
22,699

Denominator for weighted average shares, as adjusted for dilutive effect of convertible notes:
251,289,451

227,524,066

Diluted earnings per share:
$
0.27

$
0.09

* In applying the if-converted method, conversion is not assumed for purposes of computing diluted EPS if the effect would be anti-dilutive. For the three months ended June 30, 2014 and June 30, 2013 , anti-dilution would total $0.00 and $0.01 , respectively.

38
APOLLO INVESTMENT CORPORATION
NOTES TO FINANCIAL STATEMENTS (continued)
(in thousands except share and per share amounts)

Note 5. Investments
AIC Credit Opportunity Fund LLC —
We owned all of the common member interests in AIC Credit Opportunity Fund LLC (“AIC Holdco”). AIC Holdco was formed for the purpose of holding various financed investments. AIC Holdco wholly owned three special purpose entities, each of which in 2008 acquired directly or indirectly an investment in a particular security from an unaffiliated entity that provided leverage for the investment as part of the sale. As of March 31, 2014, the three special purpose entities along with AIC Holdco were fully dissolved. Each of these transactions is described in more detail below together with summary financial statements.
In June 2008 we invested through AIC Holdco $39,500 in AIC (FDC) Holdings LLC (“Apollo FDC”). Apollo FDC used the proceeds to purchase a Junior Profit-Participating Note due 2013 in principal amount of $39,500 (the “Junior Note”) issued by Apollo I Trust (the “Trust”). The Trust also issued a Senior Floating Rate Note due 2013 (the “Senior Note”) to an unaffiliated third party in principal amount of $39,500 paying interest at the London Interbank Offered Rate (“LIBOR”) plus 1.50%, increasing over time to LIBOR plus 2.0%. The Trust used the aggregate $79,000 proceeds to acquire $100,000 face value of a senior subordinated loan of First Data Corporation (the “FDC Loan”) due 2016. The FDC Loan pays interest at 11.25% per year. The Junior Note of the Trust owned by Apollo FDC pays to Apollo FDC all of the interest and other proceeds received by the Trust on the FDC Loan after satisfying the Trust’s obligations on the Senior Note. The holder of the Senior Note has no recourse to Apollo FDC, AIC Holdco or us with respect to any interest on, or principal of, the Senior Note. However, if the value of the FDC Loan held by the Trust declines sufficiently, the investment would be unwound unless Apollo FDC posts additional collateral for the benefit of the Senior Note. During the quarter ended June 30, 2013, we unwound the transaction by investing $20,386 into the Trust which then repaid the Senior Note. Subsequent to the repayment of the Senior Note, $10,993 of face value of the FDC Loan was prepaid by First Data Corporation resulting in a distribution of $11,556 to the Company. The remaining FDC Loan, which consisted of $41,862 of face value, was transferred to the Company at an accreted cost of $38,728 with a fair value of $40,397 on the transfer date and the Trust was closed.
In the second of these investments, in June 2008 we invested through AIC Holdco $11,375 in AIC (TXU) Holdings LLC (“Apollo TXU”). Apollo TXU acquired exposure to $50,000 notional amount of a LIBOR plus 3.5% senior secured delayed draw term loan of Texas Competitive Electric Holdings (“TXU”) due 2014 through a non-recourse total return swap (the “TRS”) with an unaffiliated third party expiring on October 10, 2013. Pursuant to such delayed draw term loan, Apollo TXU pays an unaffiliated third-party interest at LIBOR plus 1.5% and generally receives all proceeds due under the delayed draw term loan of TXU (the “TXU Term Loan”). Like Apollo FDC, Apollo TXU is entitled to 100% of any realized appreciation in the TXU Term Loan and, since the TRS is a non-recourse arrangement, Apollo TXU is exposed only up to the amount of its investment in the TRS, plus any additional margin we decide to post, if any, during the term of the financing. The TRS does not constitute a senior security or a borrowing of Apollo TXU. In connection with the amendment and extension of the TXU Term Loan in April 2011, for which Apollo TXU received a consent fee along with an increase in the rate of the TXU Term Loan to LIBOR plus 4.5%, Apollo TXU extended its TRS to 2016 at a rate of LIBOR plus 2.0%. During the year ended March 31, 2014, Apollo TXU terminated the entire TRS resulting in a realized loss of $10,314. The excess collateral posted was returned to Apollo TXU.
In the third of these investments, in September 2008 we invested through AIC Holdco $10,022 in AIC (Boots) Holdings, LLC (“Apollo Boots”). Apollo Boots acquired €23,383 and £12,465 principal amount of senior term loans of AB Acquisitions Topco 2 Limited, a holding company for the Alliance Boots group of companies (the “Boots Term Loans”), out of the proceeds of our investment and a multicurrency $40,876 equivalent non-recourse loan to Apollo Boots (the “Acquisition Loan”) by an unaffiliated third party that was scheduled to mature in September 2013 and paid interest at LIBOR plus 1.25% or, in certain cases, the higher of the Federal Funds Rate plus 0.50% or the lender’s prime-rate. The Boots Term Loans paid interest at the rate of LIBOR plus 3% per year and are scheduled to mature in June 2015. During the fiscal year ended March 31, 2013, Apollo Boots sold the entire position of the Boots Term Loans in the amount of €23,383 and £12,465 of principal.
We do not consolidate AIC Holdco or its wholly owned subsidiaries. Our investment in AIC Holdco was valued in accordance with our normal valuation procedures and was based on the values of the underlying assets held by each special purpose entities net of associated liabilities.
As of June 30, 2014 and March 31, 2014, the consolidated AIC Holdco had no outstanding assets and liabilities. Below is summarized financial information for AIC Holdco for the three months ended June 30, 2013 . There was no operating activity during the three months ended June 30, 2014.

39
APOLLO INVESTMENT CORPORATION
NOTES TO FINANCIAL STATEMENTS (continued)
(in thousands except share and per share amounts)

Fiscal Year End Three Months Ended June 30, 2013
Net Operating Income (Loss)
Apollo FDC (1)
$
1,559

Apollo TXU (1)
329

Apollo Boots (1)
8

Other
10

Total Operating Income
$
1,906

Net Realized Gain (Loss)
Apollo FDC
$
9,634

Total Net Realized Gain (Loss)
$
9,634

Net Change in Unrealized Gain (Loss)
Apollo FDC
$
(11,509
)
Apollo TXU
(386
)
Total Net Change in Unrealized Gain (Loss)
$
(11,895
)
Net Income (Loss) (2)
Apollo FDC
$
(316
)
Apollo TXU
(57
)
Apollo Boots
8

Other
10

Total Net Income (Loss)
$
(355
)
____________________
(1)
In the case of Apollo FDC, net operating income consists of interest income on the Junior Note less interest paid on the senior note together with immaterial administrative expenses. In the case of Apollo TXU, net operating income consists of net payments from the swap counterparty of Apollo TXU’s obligation to pay interest and its right to receive the proceeds in respect of the reference asset, together with immaterial administrative expenses. In the case of AIC Boots, net operating income consists of interest income on the Boots Term Loans, less interest payments on the Acquisition Loan together with immaterial administrative expenses. There are no management or incentive fees.
(2)
Net income is the sum of operating income, realized gain (loss) and net change in unrealized gain (loss).

Merx Aviation Finance Holdings II, LLC —
Merx Aviation Finance Holdings II, LLC. and its subsidiaries ("Merx Aviation") are principally engaged in acquiring and leasing commercial aircraft to airlines. Its primary focus is on current generation aircrafts, held either domestically or internationally. Merx Aviation may acquire fleets of aircraft through securitized, non-recourse debt or individual aircraft. Merx Aviation is not intended to compete with the numerous large lessors, but rather to be complementary to them, providing them a capital base for various transactions. Merx Aviation also may outsource its aircraft servicing requirements to the large lessors that have the global staff necessary to complete such tasks.

Merx Aviation is considered a "significant subsidiary" under SEC Regulation S-X Rule 10-01(b)(1) for the three months ended June 30, 2014 and under Regulation S-X Rule 4-08(g) for the fiscal year ended March 31, 2014. Based on the S-X 10-01(b)(1) requirements, the summarized consolidated financial information of Merx Aviation is shown below:

40
APOLLO INVESTMENT CORPORATION
NOTES TO FINANCIAL STATEMENTS (continued)
(in thousands except share and per share amounts)

June 30, 2014 (unaudited)
March 31, 2014
Assets
Cash
$
1,720

$
735

Dividend receivable and other assets
20,623

18,850

Aircraft held for lease, net of depreciation
32,345

33,963

Controlled aircraft interests
441,264

376,013

Total assets
$
495,952

$
429,561

Liabilities
Notes payable
$
346,051

$
295,190

Interest payable and other liabilities
4,139

2,703

Total liabilities
$
350,190

$
297,893

Member’s equity
Contributed equity
$
152,082

$
138,582

Accumulated deficit
(6,320
)
(6,914
)
Total member's equity
$
145,762

$
131,668


Three Months Ended June 30, 2014 (unaudited)
Three Months Ended June 30, 2013 (unaudited)
Revenues
Lease rental revenue
$
2,812

$
1,555

Dividend income and other income
9,678

2,617

Total revenues
$
12,490

$
4,172

Expenses
Interest expense and other expenses
$
10,272

$
4,165

Depreciation expense
1,617

1,215

Total expenses
$
11,889

$
5,380

Net gain (loss) before taxes
$
601

$
(1,208
)
Net gain (loss) after taxes
$
594

$
(1,208
)


41
APOLLO INVESTMENT CORPORATION
NOTES TO FINANCIAL STATEMENTS (continued)
(in thousands except share and per share amounts)

Fair Value Measurement and Disclosures
At June 30, 2014 , our investments, measured at fair value, were categorized as follows in the fair value hierarchy for ASC 820 purposes:
Fair Value Measurement at Reporting Date Using:
Description
Cost

Fair Value
Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Secured Debt
$
2,135,295

$
2,159,352

$
—

$
964,836

$
1,194,516

Unsecured Debt
763,203

790,392

—

370,348

420,044

Structured Products and Other
269,302

275,604

—

—

275,604

Preferred Equity
125,796

103,624

—

—

103,624

Common Equity/Interests
297,426

301,857

—

52

301,805

Warrants
9,012

13,879

—

—

13,879

Total Investments
$
3,600,034


$
3,644,708

$
—

$
1,335,236

$
2,309,472


At March 31, 2014 , our investments that were measured at fair value were categorized as follows in the fair value hierarchy for ASC 820 purposes:
Fair Value Measurement at Reporting Date Using:
Description
Cost
Fair Value
Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Secured Debt
$
1,919,871

$
1,949,107

$
—

$
1,013,424

$
935,683

Unsecured Debt
912,453

941,728

—

526,649

415,079

Structured Products and Other
204,864

208,901

—

—

208,901

Preferred Equity
115,020

93,062

—

—

93,062

Common Equity/Interests
297,532

274,699

—

—

274,699

Warrants
9,012

11,174

—

—

11,174

Total Investments
$
3,458,752

$
3,478,671

$
—

$
1,540,073

$
1,938,598


42
APOLLO INVESTMENT CORPORATION
NOTES TO FINANCIAL STATEMENTS (continued)
(in thousands except share and per share amounts)

The following chart shows the components of change in our investments categorized as Level 3, for the three months ended June 30, 2014 .
Fair Value Measurements Using Significant Unobservable Inputs (Level 3)*
Secured Debt (2)
Unsecured
Debt
Structured
Products and Other
Preferred
Equity
Common
Equity/Interests
Warrants
Total
Beginning Balance, March 31, 2014
$
935,683

$
415,079

$
208,901

$
93,062

$
274,699

$
11,174

$
1,938,598

Total realized gains (losses) included in earnings
362

(1,752
)
(107
)
—

(13,104
)
—

(14,601
)
Total change in unrealized gain (loss) included in earnings
1,434

(404
)
2,264

(214
)
27,212

2,705

32,997

Net amortization on investments
1,229

364

54

—

—

—

1,647

Purchases, including capitalized PIK
335,217

11,651

78,724

10,776

14,080

—

450,448

Sales
(66,564
)
(24,794
)
(14,232
)
—

(1,037
)
—

(106,627
)
Transfers out of Level 3 (1)
(12,845
)
—

—

—

(45
)
—

(12,890
)
Transfers into Level 3 (1)
—

19,900

—

—

—

—

19,900

Ending Balance, June 30, 2014
$
1,194,516

$
420,044

$
275,604

$
103,624

$
301,805

$
13,879

$
2,309,472

The amount of total gains or losses for the period included in earnings attributable to the change in unrealized gain (loss) relating to our Level 3 assets still held at the reporting date and reported within the net change in unrealized gain (loss) on investments in our Statement of Operations.
$
2,247

$
(1,903
)
$
3,275

$
(214
)
$
31,930

$
2,705

$
38,040

____________________
(1)
Transfers out of Level 3 are due to an increase in the availability of qualified observable inputs and transfers into Level 3 are due to a decrease in the availability of qualified observable inputs as assessed by the Adviser. Transfers are assumed to have occurred at the end of the period. There were no transfers between Level 1 and Level 2 fair value measurements during the period shown.
(2)
Includes unfunded revolver obligations and letters of credit measured at fair value of $ (3,405) .
*
Pursuant to fair value measurement and disclosure guidance, the Company currently categorizes investments by class as shown above.


43
APOLLO INVESTMENT CORPORATION
NOTES TO FINANCIAL STATEMENTS (continued)
(in thousands except share and per share amounts)

The following chart shows the components of change in our investments categorized as Level 3, for the three months ended June 30, 2013 .
Fair Value Measurements Using Significant Unobservable Inputs (Level 3)*
Secured Debt
Unsecured
Debt
Structured
Products and Other
Preferred
Equity
Common
Equity/Interests
Warrants
Total
Beginning Balance, March 31, 2013
$
640,809

$
631,047

$
185,995

$
11,550

$
162,580

$
9,273

$
1,641,254

Total realized gains or losses included in earnings
(23,089
)
(39,126
)
7,966

—

—

—

(54,249
)
Total change in unrealized gain (loss) included in earnings
17,302

36,239

(16,992
)
1,147

9,436

(3,068
)
44,064

Net amortization on investments
719

645

55

—

—

—

1,419

Purchases, including capitalized PIK
202,340

77,449

61,231

97

28,441

6,228

375,786

Sales
(179,175
)
(94,741
)
(17,165
)
—

(3,995
)
—

(295,076
)
Transfers out of Level 3 (1)
(55,946
)
(120,703
)
(38,728
)
—

—

—

(215,377
)
Transfers into Level 3 (1)
68,531

—

—

—

—

—

68,531

Ending Balance, June 30, 2013
$
671,491

$
490,810

$
182,362

$
12,794

$
196,462

$
12,433

$
1,566,352

The amount of total gains or losses for the period included in earnings attributable to the change in unrealized gain (loss) relating to our Level 3 assets still held at the reporting date and reported within the net change in unrealized gain (loss) on investments in our Statement of Operations
$
(345
)
$
(4,498
)
$
(17,477
)
$
1,146

$
6,776

$
(405
)
$
(14,803
)
____________________
(1)
Transfers out of Level 3 are due to an increase in the availability of qualified observable inputs and transfers into Level 3 are due to a decrease in the availability of qualified observable inputs as assessed by the Adviser. Transfers are assumed to have occurred at the end of the period. There were no transfers between Level 1 and Level 2 fair value measurements during the period shown.

*
Pursuant to fair value measurement and disclosure guidance, the Company currently categorizes investments by class as shown above.

44
APOLLO INVESTMENT CORPORATION
NOTES TO FINANCIAL STATEMENTS (continued)
(in thousands except share and per share amounts)

The following tables summarizes the significant unobservable inputs the Company used to value the majority of its investments categorized within Level 3 as of June 30, 2014 and March 31, 2014 . In addition to the techniques and inputs noted in the table below, according to our valuation policy we may also use other valuation techniques and methodologies when determining our fair value measurements. The below table is not intended to be all-inclusive, but rather provides information on the significant unobservable inputs as they relate to the Company’s determination of fair values.
Quantitative Information about Level 3 Fair Value  Measurements
Fair Value as of June 30, 2014
Valuation Techniques/
Methodologies
Unobservable
Input
Range
Weighted Average
Secured Debt
$
932,750

Yield Analysis
Discount Rate
8.7%
25.0%
12.8%
25,000

Recent Transaction
Recent Transactions
N/A
N/A
N/A
236,767

Broker Quoted
Broker Quote
N/A
N/A
N/A
Unsecured Debt
400,144

Yield Analysis
Discount Rate
9.8%
18.4%
11.1%
19,900

Broker Quoted
Broker Quote
N/A
N/A
N/A
Structured Products and Other
2,158

Yield Analysis
Discount Rate
15.0%
15.0%
15.0%
250,512

Discounted Cash Flow
Discount Rate
10.5%
15.5%
12.8%
22,934

Broker Quoted
Broker Quote
N/A
N/A
N/A
Preferred Equity
72,064

Market Comparable Approach
Comparable Multiple
2.0x
10.0x
7.0x
31,560

Yield Analysis
Discount Rate
12.4%
17.6%
13.8%
Common Equity/Interests
134,111

Market Comparable Approach
Comparable Multiple
2.0x
12.0x
8.1x
161,731

Yield Analysis
Discount Rate
12.8%
30.0%
13.0%
5,830

Other
Illiquidity/ Restrictive discount
7.0%
7.0%
7.0%
133

Recent Transaction
Recent Transaction
N/A
N/A
N/A
Warrants
7,457

Market Comparable Approach
Comparable Multiple
5.0x
7.4x
6.2x
1,386

Other
Illiquidity/ Restrictive discount
20.0%
20.0%
20.0%
5,035

Recent Transaction
Recent Transaction
N/A
N/A
N/A
Total
$
2,309,472

N/A – Not applicable


45
APOLLO INVESTMENT CORPORATION
NOTES TO FINANCIAL STATEMENTS (continued)
(in thousands except share and per share amounts)


Quantitative Information about Level 3 Fair Value  Measurements
Fair Value as of March 31, 2014
Valuation Techniques/
Methodologies
Unobservable
Input
Range
Weighted Average
Secured Debt
$
714,999

Yield Analysis
Discount Rate
8.2%
27.3%
13.2%
26,370

Recent Transactions
Recent Transactions
N/A
N/A
N/A
194,313

Broker Quoted
Broker Quote
N/A
N/A
N/A
Unsecured Debt
395,630

Yield Analysis
Discount Rate
9.3%
45.0%
11.7%
19,450

Broker Quoted
Broker Quote
N/A
N/A
N/A
Structured Products and Other
30,158

Yield Analysis
Discount Rate
11.6%
15.0%
12.3
146,970

Discounted Cash Flow
Discount Rate
10.0%
15.5%
13.9%
1,097

Recent Transactions
Recent Transactions
N/A
N/A
N/A
30,675

Broker Quoted
Broker Quote
N/A
N/A
N/A
Preferred Equity
70,442

Market Comparable Approach
Comparable Multiple
2.0x
10.0x
7.1x
22,620

Yield Analysis
Discount Rate
12.3%
12.3%
12.3%
Common Equity/Interests
125,608

Market Comparable Approach
Comparable Multiple
2.0x
12.0x
8.1x
17

Net Asset Value
Underlying Assets/Liabilities
N/A
N/A
N/A
142,117

Yield Analysis
Discount Rate
13.1%
30.0%
13.2%
6,958

Other
Illiquidity/Restrictive discount
7.0%
7.0%
7.0%
Warrants
4,707

Market Comparable Approach
Comparable Multiple
5.3x
6.0x
6.0x
1,398

Other
Illiquidity/ Restrictive discount
20.0%
20.0%
20.0%
5,069

Recent Transactions
Recent Transactions
N/A
N/A
N/A
Total
$
1,938,598

N/A – Not applicable
____________________
The significant unobservable inputs used in the fair value measurement of the Company’s debt and equity securities are primarily earnings before interest, taxes, depreciation and amortization (“EBITDA”) comparable multiples and market discount rates. The Company typically uses EBITDA comparable multiples on its equity securities to determine the fair value of investments. The Company uses market discount rates for debt securities to determine if the effective yield on a debt security is commensurate with the market yields for that type of debt security. If a debt security’s effective yield is significantly less than the market yield for a similar debt security with a similar credit profile, then the resulting fair value of the debt security may be lower. Significant increases or decreases in either of these inputs in isolation would result in a significantly lower or higher fair value measurement. The significant unobservable inputs used in the fair value measurement of the structured products include the discount rate applied in the valuation models in addition to default and recovery rates applied to projected cash flows in the valuation models. Specifically, when a discounted cash flow model is used to determine fair value, the significant input used in the valuation model is the discount rate applied to present value the projected cash flows. Increases in the discount rate can significantly lower the fair value of an investment; conversely decreases in the discount rate can significantly increase the fair value of an investment. The discount rate is determined based on the market rates an investor would expect for a similar investment with similar risks.

46
APOLLO INVESTMENT CORPORATION
NOTES TO FINANCIAL STATEMENTS (continued)
(in thousands except share and per share amounts)


Capitalized PIK Income
The Company holds loans and investments, including certain preferred equity investments, that may have contractual PIK interest or dividends. PIK interest and dividends computed at the contractual rate are accrued into income and reflected as receivable up to the capitalization date. Capitalized PIK income for the three months ended June 30, 2014 and June 30, 2013 is summarized below:
Three Months Ended,
June 30, 2014
June 30, 2013
PIK balance at beginning of period
$
58,185

$
45,658

Gross PIK income capitalized
11,545

12,098

Adjustments due to investment exits
—

(26
)
PIK income received in cash
—

(818
)
PIK balance at end of period
$
69,730

$
56,912


Derivatives

During the three months ended June 30, 2013, we entered into interest rate swap and interest rate cap agreements to manage interest rate risk associated with one of our structured product investments. During the three months ended September 30, 2013, we exited the investment and unwound the derivatives. We do not hold or issue derivative contracts for speculative purposes. We recorded the accrual of periodic interest settlements in net unrealized gain/loss and subsequently recorded the cash payments as a net realized gain or loss on the interest settlement date, activities which are classified under operating activities in our statement of cash flows.

As of June 30, 2014 , we did not hold any derivative investments and during the three months ended June 30, 2014 , we did not enter into any derivative transactions. The table below summarizes the effect of derivative instruments on our statement of operations for the three months ended June 30, 2013 :

Derivative Instruments
Unrealized
Gain/(Loss)
Realized
Gain/(Loss)
Total Gain (Loss)
Interest rate swaps
$
10,088

$
—

$
10,088

Interest rate caps
(3,233
)
—

(3,233
)
Total
$
6,855

$
—

$
6,855


The interest income and interest expense on derivatives is shown in the statement of operations within net realized and unrealized gain/loss from investments, cash equivalents, foreign currencies and derivatives. For purposes of the performance-based incentive fee, interest income and interest expense derived from the derivative instruments are included in the calculation of pre-incentive fee net investment income. The interest income and interest expense on derivatives is excluded from the cumulative realized capital gains and cumulative realized capital losses for purposes of the capital gains incentive fee calculation.

Credit Risk-Related Contingent Features

The use of derivatives creates exposure to counterparty credit risk that may result in potential losses in the event that the counterparties to these instruments fail to perform their obligations under the agreements governing such derivatives. The Company seeks to minimize this risk by limiting the Company’s counterparties to major financial institutions with acceptable credit ratings and monitoring positions with individual counterparties. In addition, the Company may be required under the terms of its derivatives agreements to pledge assets as collateral to secure its obligations under the derivatives. The amount of collateral varies over time based on the fair value, notional amount and remaining term of the derivatives, and may exceed the amount owed by the Company on a fair value basis. In the event of a default by a counterparty, the Company would be an unsecured creditor to the extent of any such overcollateralization. At June 30, 2014 , there is no cash pledged as collateral.


47
APOLLO INVESTMENT CORPORATION
NOTES TO FINANCIAL STATEMENTS (continued)
(in thousands except share and per share amounts)

The International Swaps and Derivatives Association (“ISDA”) Master Agreement that the Company has in place contains customary default provisions including a cross default provision relating to third-party indebtedness in excess of a specified threshold. Following an event of default, the Company could be required to settle its obligations under the ISDA Master Agreement at their termination values. Additionally, under the Company’s ISDA Master Agreement, the Company could be required to settle its obligations under the ISDA Master Agreement at their termination values if the Company fails to maintain certain minimum stockholders’ equity thresholds or if the Company fails to comply with certain specified financial covenants.
Note 6. Foreign Currency Transactions and Translations
The Company had the following outstanding non-US borrowings on its Senior Secured Facility (as defined in note 9) at June 30, 2014 and March 31, 2014 .

As of June 30, 2014
Foreign Currency
Local
Currency

Original
Borrowing
Cost

Current
Value

Reset Date

Unrealized
Loss
British Pounds
£
21,100


$
33,722


$
36,078


7/31/2014

$
(2,356
)
Euros
€
18,200


24,474


24,919


7/31/2014

(445
)
Euros
€
9,500


12,680


13,007


7/28/2014

(327
)
Canadian Dollars
CAD 34,100


31,766


32,014


7/28/2014

(248
)



$
102,642


$
106,018




$
(3,376
)
As of March 31, 2014
Foreign Currency
Local
Currency
Original
Borrowing
Cost
Current
Value
Reset Date
Unrealized
Gain/(Loss)
British Pounds
£
45,100

$
72,078

$
75,188

4/30/2014
$
(3,110
)
Euros
€
18,200

24,474

25,084

4/30/2014
(610
)
Euros
€
9,500

12,680

13,093

4/24/2014
(413
)
Canadian Dollars
CAD 34,100

31,766

30,895

4/24/2014
871

$
140,998

$
144,260

$
(3,262
)
Note 7. Cash Equivalents
There were no cash equivalents held as of June 30, 2014 and March 31, 2014 .

48
APOLLO INVESTMENT CORPORATION
NOTES TO FINANCIAL STATEMENTS (continued)
(in thousands except share and per share amounts)

Note 8. Financial Highlights
The following is a schedule of financial highlights for the three months ended June 30, 2014 and the fiscal year ended March 31, 2014:
Three Months Ended June 30, 2014 (unaudited)
Fiscal Year Ended March 31, 2014
Per Share Data:
Net asset value, beginning of period
$
8.67

$
8.27

Net investment income (1)
0.23

0.91

Net realized and unrealized gain (loss)
0.04

0.30

Net increase in net assets resulting from operations (2)
0.27

1.20

Dividends to stockholders from income (3)
(0.20
)
(0.80
)
Dividends to stockholders from return of capital (3)
—

—

Effect of dilution
—

—

Offering costs (4)
—

—

Net asset value at end of period
$
8.74

$
8.67

Per share market value at end of period
$
8.61

$
8.31

Total return (5)
6.0
%
9.4
%
Shares outstanding at end of period
236,741,351

236,741,351

Ratio/Supplemental Data:
Net assets at end of period (in millions)
$
2,068.9

$
2,051.6

Ratio of net investment income to average net assets (7)
10.43
%
10.85
%
Ratio of operating expenses to average net assets (6) (7)
5.87
%
6.01
%
Ratio of interest and other debt expenses to average net assets (7)
3.68
%
3.70
%
Ratio of net expenses to average net assets (6) (7)
9.55
%
9.71
%
Average debt outstanding
$
1,552,268

$
1,238,940

Average debt per share
$
6.56

$
5.56

Portfolio turnover ratio (7)
58.2
%
75.9
%
(1)
Per share net investment income is based on the average shares outstanding
(2)
For fiscal year ended March 31, 2014, the net increase in net assets resulting from operations represents rounded numbers.
(3)
Dividends and distributions are determined based on taxable income calculated in accordance with income tax regulations which may differ from amounts determined under GAAP. Per share amounts reflect total dividends paid divided by average shares for the respective periods.
(4)
Offering costs per share represent less than one cent per average share for the three months ended June 30, 2014 and fiscal year ended March 31, 2014.
(5)
Total return is based on the change in market price per share during the respective periods. Total return also takes into account dividends and distributions, if any, reinvested in accordance with the Company’s dividend reinvestment plan.
(6)
The ratio of operating expenses to average net assets and the ratio of total expenses to average net assets are shown inclusive of all voluntary management and incentive fee waivers (see note 3). For the three months ended June 30, 2014, the ratio of operating expenses to average net assets and the ratio of total expenses to average net assets would be 6.68% and 10.35% , respectively, without the voluntary fee waivers. For the fiscal year ended March 31, 2014, the ratio of operating expenses to average net assets and the ratio of total expenses to average net assets would be 6.66% and 10.36% , respectively, without the voluntary fee waivers.
(7)
Annualized


49
APOLLO INVESTMENT CORPORATION
NOTES TO FINANCIAL STATEMENTS (continued)
(in thousands except share and per share amounts)

Information about our senior securities is shown in the following table as of each year ended March 31 since the Company commenced operations, unless otherwise noted. The “—” indicates information which the SEC expressly does not require to be disclosed for certain types of senior securities.
Class and Year
Total Amount
Outstanding(1)
Asset
Coverage
Per Unit(2)
Involuntary
Liquidating
Preference
Per Unit(3)
Estimated
Market Value
Senior Secured Facility
Fiscal 2015 (through June 30, 2014)
$
801,018

$
1,181

—

$
800,215

(4)
Fiscal 2014
602,261


1,095


—


602,983

(4)
Fiscal 2013
536,067

1,137

—

551,097

Fiscal 2012
539,337

1,427

—

N/A

Fiscal 2011
628,443

1,707

—

N/A

Fiscal 2010
1,060,616

2,671

—

N/A

Fiscal 2009
1,057,601

2,320

—

N/A

Fiscal 2008
1,639,122

2,158

—

N/A

Fiscal 2007
492,312

4,757

—

N/A

Fiscal 2006
323,852

4,798

—

N/A

Fiscal 2005
—

—

—

N/A

Senior Secured Notes
Fiscal 2015 (through June 30, 2014)
$
270,000

$
399

—

$
277,054

(4)
Fiscal 2014
270,000

491

—

280,067

(4)
Fiscal 2013
270,000

572

—

282,173

Fiscal 2012
270,000

714

—

N/A

Fiscal 2011
225,000

611

—

N/A

Fiscal 2010
—

—

—

N/A

Fiscal 2009
—

—

—

N/A

Fiscal 2008
—

—

—

N/A

Fiscal 2007
—

—

—

N/A

Fiscal 2006
—

—

—

N/A

Fiscal 2005
—

—

—

N/A

2042 Notes
Fiscal 2015 (through June 30, 2014)
$
150,000

$
221

—

$
147,480

(5)
Fiscal 2014
150,000

273

—

145,680

(5)
Fiscal 2013
150,000

318

—

148,920

Fiscal 2012
—

—

—

N/A

Fiscal 2011
—

—

—

N/A

Fiscal 2010
—

—

—

N/A

Fiscal 2009
—

—

—

N/A

Fiscal 2008
—

—

—

N/A

Fiscal 2007
—

—

—

N/A

Fiscal 2006
—

—

—

N/A

Fiscal 2005
—

—

—

N/A

2043 Notes
Fiscal 2015 (through June 30, 2014)
$
150,000

$
221

—

$
132,570

(5)
Fiscal 2014
150,000

273

—

128,250

(5)
Fiscal 2013
—

—

—

N/A


50
APOLLO INVESTMENT CORPORATION
NOTES TO FINANCIAL STATEMENTS (continued)
(in thousands except share and per share amounts)

Class and Year
Total Amount
Outstanding(1)
Asset
Coverage
Per Unit(2)
Involuntary
Liquidating
Preference
Per Unit(3)
Estimated
Market Value
Fiscal 2012
—

—

—

N/A

Fiscal 2011
—

—

—

N/A

Fiscal 2010
—

—

—

N/A

Fiscal 2009
—

—

—

N/A

Fiscal 2008
—

—

—

N/A

Fiscal 2007
—

—

—

N/A

Fiscal 2006
—

—

—

N/A

Fiscal 2005
—

—

—

N/A

Convertible Notes











Fiscal 2015 (through June 30, 2014)
$
200,000


$
295


—


$
209,900

(5)
Fiscal 2014
200,000


364


—


212,734

(5)
Fiscal 2013
200,000


424


—


212,000

Fiscal 2012
200,000


529


—


N/A

Fiscal 2011
200,000


544


—


N/A

Fiscal 2010
—


—


—


N/A

Fiscal 2009
—


—


—


N/A

Fiscal 2008
—


—


—


N/A

Fiscal 2007
—


—


—


N/A

Fiscal 2006
—


—


—


N/A

Fiscal 2005
—


—


—


N/A

Total Debt Securities
Fiscal 2015 (through June 30, 2014)
$
1,571,018

$
2,317

$
—

$
1,567,219

Fiscal 2014
1,372,261

2,496

—

1,369,714

Fiscal 2013
1,156,067

2,451

—

1,194,190

Fiscal 2012
1,009,337

2,670

—

N/A

Fiscal 2011
1,053,443

2,862

—

N/A

Fiscal 2010
1,060,616

2,671

—

N/A

Fiscal 2009
1,057,601

2,320

—

N/A

Fiscal 2008
1,639,122

2,158

—

N/A

Fiscal 2007
492,312

4,757

—

N/A

Fiscal 2006
323,852

4,798

—

N/A

Fiscal 2005
—

—

—

N/A

N/A - Not applicable
(1)
Total amount of each class of senior securities outstanding at the end of the period presented.
(2)
The asset coverage ratio for a class of senior securities representing indebtedness is calculated as our consolidated total assets, less all liabilities and indebtedness not represented by senior securities, divided by senior securities representing indebtedness. This asset coverage ratio is multiplied by one thousand to determine the Asset Coverage Per Unit. In order to determine the specific Asset Coverage Per Unit for each class of debt, the total Asset Coverage Per Unit was divided based on the amount outstanding at the end of the period for each.
(3)
The amount to which such class of senior security would be entitled upon the involuntary liquidation of the issuer in preference to any security junior to it.
(4)
The fair value of these debt obligations are categorized as Level 3 under ASC 820 as of June 30, 2014 and March 31, 2014 . The valuation is based on a yield analysis and discount rate commensurate with the market yields for similar types of debt.
(5)
The fair value of these debt obligations are categorized as Level 1 under ASC 820 as of June 30, 2014 and March 31, 2014 . The valuation is based on quoted prices of identical liabilities in active markets.


51
APOLLO INVESTMENT CORPORATION
NOTES TO FINANCIAL STATEMENTS (continued)
(in thousands except share and per share amounts)

Note 9. Debt
The Company’s outstanding debt obligations as of June 30, 2014 were as follows:
June 30, 2014
Date Issued /
Amended
Total Aggregate
Principal
Amount
Committed
Principal Amount
Outstanding
Final
Maturity
Date
Senior Secured Facility
2013
$
1,270,000

$
801,018

8/31/2018
Senior Secured Notes
2010
225,000

225,000

10/4/2015
Senior Secured Notes (Series A)
2011
29,000

29,000

9/26/2016
Senior Secured Notes (Series B)
2011
16,000

16,000

9/29/2018
2042 Notes
2012
150,000

150,000

10/15/2042
2043 Notes
2013
150,000

150,000

7/15/2043
Convertible Notes
2011
200,000

200,000

1/15/2016
Total Debt Obligations
$
2,040,000

$
1,571,018

Senior Secured Facility
On September 13, 2013, the Company amended and restated its senior secured, multi-currency, revolving credit facility (the “Senior Secured Facility”). The facility increased the lenders’ commitments totaling approximately $1,250,000 and extended the final maturity date to through August 31, 2018, and allows the Company to seek additional commitments from new and existing lenders in the future, up to an aggregate facility size not to exceed $1,710,000 . On April 16, 2014, the Company obtained an additional commitment from a new lender, increasing the size of the Senior Secured Facility to $1,270,000. The Senior Secured Facility is secured by substantially all of the assets in Apollo Investment’s portfolio, including cash and cash equivalents. Commencing September 30, 2017, the Company is required to repay, in twelve consecutive monthly installments of equal size, the outstanding amount under the Senior Secured Facility as of August 31, 2017. Pricing for Alternate Base Rate (ABR) borrowings is 100 basis points over the applicable Prime Rate and pricing for eurocurrency borrowings is 200 basis points over the LIBOR Rate. The Company is required to pay a commitment fee of 0.375% per annum on any unused portion of the Senior Secured Facility and a letter of credit participation fee of 2.00% per annum plus a letter of credit fronting fee of 0.25% per annum on the letters of credit issued. The Senior Secured Facility contains affirmative and restrictive covenants, including: (a) periodic financial reporting requirements, (b) maintaining minimum stockholders’ equity of the greater of (i) 40% of the total assets of Apollo Investment and its consolidated subsidiaries as at the last day of any fiscal quarter and (ii) the sum of (A) $845,000 plus (B) 25% of the net proceeds from the sale of equity interests in Apollo Investment after the closing date of the Senior Secured Facility, (c) maintaining a ratio of total assets, less total liabilities (other than indebtedness) to total indebtedness, in each case of Apollo Investment and its consolidated subsidiaries, of not less than 2.0:1.0, (d) limitations on the incurrence of additional indebtedness, including a requirement to meet a certain minimum liquidity threshold before Apollo Investment can incur such additional debt, (e) limitations on liens, (f) limitations on investments (other than in the ordinary course of Apollo Investment’s business), (g) limitations on mergers and disposition of assets (other than in the normal course of Apollo Investment’s business activities), (h) limitations on the creation or existence of agreements that permit liens on properties of Apollo Investment’s consolidated subsidiaries and (i) limitations on the repurchase or redemption of certain unsecured debt and debt securities. In addition to the asset coverage ratio described in clause (c) of the preceding sentence, borrowings under the Senior Secured Facility (and the incurrence of certain other permitted debt) are subject to compliance with a borrowing base that applies different advance rates to different types of assets in Apollo Investment’s portfolio.
The Senior Secured Facility also provides for the issuance of letters of credit for up to an aggregate amount of $125,000. As of June 30, 2014 and March 31, 2014, the Company had $25,246 and $15,746, respectively, in standby letters of credit issued through the Senior Secured Facility. The amount available for borrowing under the Senior Secured Facility is reduced by any standby letters of credit issued. Under GAAP, these letters of credit are considered commitments because no funding has been made and as such are not considered a liability. These letters of credit are not senior securities because they are not in form of a typical financial guarantee and the portfolio companies are obligated to refund any drawn amounts. The available remaining capacity

52
APOLLO INVESTMENT CORPORATION
NOTES TO FINANCIAL STATEMENTS (continued)
(in thousands except share and per share amounts)

under the Senior Secured Facility was $443,736 at June 30, 2014 . Terms used in this paragraph have the meanings set forth in the Senior Secured Facility.
Senior Secured Notes
On September 30, 2010, the Company entered into a note purchase agreement with certain institutional accredited investors providing for a private placement issuance of $225,000 in aggregate principal amount of five-year, senior secured notes with an annual fixed interest rate of 6.25% and a maturity date of October 4, 2015 (the “Senior Secured Notes”). On October 4, 2010, the Senior Secured Notes issued by Apollo Investment were sold to certain institutional accredited investors pursuant to an exemption from registration under the Securities Act of 1933, as amended. Interest on the Senior Secured Notes is due semi-annually on April 4 and October 4, commencing on April 4, 2011.
On September 29, 2011, the Company closed a private offering of $45,000 aggregate principal amount of senior secured notes (the “Notes”) consisting of two series: (1) 5.875% Senior Secured Notes, Series A, of the Company due September 29, 2016 in the aggregate principal amount of $29,000; and (2) 6.250% Senior Secured Notes, Series B, of the Company due September 29, 2018, in the aggregate principal amount of $16,000. The Notes were issued in a private placement only to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended. Interest on the Senior Secured Notes is due semi-annually on March 29 and September 29, commencing on March 29, 2012.
2042 Notes
On October 9, 2012, the Company issued $150,000 in aggregate principal amount of 6.625% senior unsecured notes due 2042 for net proceeds of $145,275 (the “2042 Notes”). Interest on the 2042 Notes is paid quarterly on January 15, April 15, July 15 and October 15, at an annual rate of 6.625%, commencing on January 15, 2013. The 2042 Notes will mature on October 15, 2042. The Company may redeem the 2042 Notes in whole or in part at any time or from time to time on or after October 15, 2017. The 2042 Notes are general, unsecured obligations and rank equal in right of payment with all of our existing and future senior, unsecured indebtedness. The 2042 Notes are listed on The New York Stock Exchange under the ticker symbol “AIB.”
2043 Notes
On June 17, 2013, the Company issued $135,000 in aggregate principal amount of 6.875% senior unsecured notes due 2043 and on June 24, 2013 an additional $15,000 in aggregate principal amount of such notes was issued pursuant to the underwriters’ over-allotment option exercise. In total, $150,000 of aggregate principal was issued for net proceeds of $145,275 (the “2043 Notes”). Interest on the 2043 Notes is paid quarterly on January 15, April 15, July 15 and October 15, at an annual rate of 6.875%, commencing on October 15, 2013. The 2043 Notes will mature on July 15, 2043. The Company may redeem the 2043 Notes in whole or in part at any time or from time to time on or after July 15, 2018. The 2043 Notes are general, unsecured obligations and rank equal in right of payment with all of our existing and future senior, unsecured indebtedness. The 2043 Notes are listed on The New York Stock Exchange under the ticker symbol “AIY.”
Convertible Notes
On January 25, 2011, the Company closed a private offering of $200,000 aggregate principal amount of senior unsecured convertible notes (the “Convertible Notes”). The Convertible Notes were issued in a private placement only to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended. The Convertible Notes bear interest at an annual rate of 5.75%, payable semi-annually in arrears on January 15 and July 15 of each year, commencing on July 15, 2011. The Convertible Notes will mature on January 15, 2016 unless earlier converted or repurchased at the holder’s option. Prior to December 15, 2015, the Convertible Notes will be convertible only upon certain corporate reorganizations, dilutive recapitalizations or dividends, or if, during specified periods our shares trade at more than 130% of the then applicable conversion price or the Convertible Notes trade at less than 97% of their conversion value and, thereafter, at any time. The Convertible Notes will be convertible by the holders into shares of common stock, initially at a conversion rate of 72.7405 shares of the Company’s common stock per $1 principal amount of Convertible Notes (14,548,100 common shares) corresponding to an initial conversion price per share of approximately $13.75, which represents a premium of 17.5% to the $11.70 per share closing price of the Company’s common stock on The NASDAQ Global Select Market on January 19, 2011. The conversion rate will be subject to adjustment upon certain events, such as stock splits and combinations, mergers, spin-offs, increases in dividends in excess of $0.28 per share per quarter and certain changes in control. Certain of these adjustments, including adjustments for increases in dividends, are subject to a conversion price floor of $11.70 per share. The Convertible Notes are senior unsecured obligations and rank senior in right of

53
APOLLO INVESTMENT CORPORATION
NOTES TO FINANCIAL STATEMENTS (continued)
(in thousands except share and per share amounts)

payment to our existing and future indebtedness that is expressly subordinated in right of payment to the Convertible Notes; equal in right of payment to our existing and future unsecured indebtedness that is not so subordinated; effectively junior in right of payment to any of our secured indebtedness (including existing unsecured indebtedness that we later secure) to the extent of the value of the assets securing such indebtedness; and structurally junior to all existing and future indebtedness (including trade payables) incurred by our subsidiaries, financing vehicles or similar facilities. As more fully reflected in note 5, the issuance is to be considered as part of the if-converted method for calculation of diluted EPS.
The following chart summarizes the components of average outstanding debt, maximum amount of debt outstanding, and the annualized interest cost, including commitment fees, for the three months ended June 30, 2014 and 2013 :
Three Months Ended June 30, 2014
Three Months Ended June 30, 2013
Average outstanding debt balance
$
1,552,268

$
1,181,527

Maximum amount of debt outstanding
1,685,389

1,353,063





Weighted average annualized interest cost, including commitment fees, but excluding debt issuance costs (1)
4.44
%
4.75
%
Annualized amortized debt issuance cost
0.43
%
0.62
%
Total annualized interest cost
4.87
%
5.37
%
_________________
(1)
Commitment fees for the three months ended June 30, 2014 and June 30, 2013 were $ 441 and $ 583 , respectively.
As of June 30, 2014 , the Company is in compliance with all debt covenants.
Note 10. Commitments and Contingencies
As of June 30, 2014 and March 31, 2014 , the Company’s unfunded commitments and contingencies were as follows:
As of June 30, 2014
As of March 31, 2014
Unfunded revolver obligations and bridge loans commitments (1) (2)
$
373,407

$
408,554

Unfunded delayed draw commitments on senior loans to portfolio companies
128,448

138,680

Unfunded delayed draw commitments on senior loans to portfolio companies (performance thresholds not met) (3)
48,591

48,923

Standby letters of credit issued for certain portfolio companies for which the Company and portfolio companies are liable
26,295

16,379

_________________
(1)
Included in this amount is $65,916 and $114,066 of the unfunded revolver commitment for Merx Aviation Finance Holdings II, LLC. as of June 30, 2014 and March 31, 2014 , respectively.
(2)
The unfunded revolver obligations may or may not be funded to the borrowing party in the future. The amounts relate to loans with various maturity dates, but the entire amount was eligible for funding to the borrowers as of June 30, 2014 , subject to the terms of each loan’s respective credit agreements.
(3)
The borrower is required to meet certain performance thresholds before the Company is obligated to fulfill the commitments and those performance thresholds were not met as of June 30, 2014 .
AIC’s commitments are subject to the consummation of the underlying corporate transactions and conditional upon receipt of all necessary stockholder, regulatory and other applicable approvals.
Note 11. Subsequent Events
On August 5, 2014, the Board of Directors declared a dividend of $0.20 per share for the first fiscal quarter of 2015, payable on October 6, 2014 to stockholders of record as of September 19, 2014.

54

Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of Apollo Investment Corporation:

We have reviewed the accompanying statement of assets and liabilities of Apollo Investment Corporation (the “Company”), including the schedule of investments, as of June 30, 2014 and the related statement of operations for the three month periods ended June 30, 2014 and June 30, 2013, the statement of cash flows for the three month periods ended June 30, 2014 and June 30, 2013 and the statement of changes in net assets for the three month period ended June 30, 2014. These interim financial statements are the responsibility of the Company’s management.

We conducted our review in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board (United States), the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

Based on our review, we are not aware of any material modifications that should be made to the accompanying interim financial statements for them to be in conformity with accounting principles generally accepted in the United States of America.

We previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the statement of assets and liabilities, including the schedule of investments, as of March 31, 2014, and the related statement of operations, statement of changes in net assets and statement of cash flows for the year then ended (not presented herein), and in our report dated May 20, 2014, we expressed an unqualified opinion on those financial statements. In our opinion, the information set forth in the accompanying balance sheet information and schedule of investments information, as of March 31, 2014 is fairly stated in all material respects in relation to the statements from which it has been derived.

/s/  PricewaterhouseCoopers LLP
New York, New York
August 7, 2014

55

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following analysis of our financial condition and results of operations should be read in conjunction with our financial statements and the notes thereto contained elsewhere in this report.
Some of the statements in this report constitute forward-looking statements, which relate to future events or our future performance or financial condition. The forward-looking statements contained herein 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;
•
the adequacy of our cash resources and working capital; and
•
the timing of cash flows, if any, from the operations of our portfolio companies.
We generally use words such as “anticipates,” “believes,” “expects,” “intends” and similar expressions to identify forward-looking statements. Our actual results could differ materially from those projected in the forward-looking statements for any reason, including any factors set forth in “Risk Factors” and elsewhere in this report.
We have based the forward-looking statements included in this report on information available to us on the date of this report, and we assume no obligation to update any such forward-looking statements. Although we undertake no obligation to revise or update any forward-looking statements, whether as a result of new information, future events or otherwise, you are advised to consult any additional disclosures that we may make directly to you or through reports that we in the future may file with the SEC, including any annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K.
OVERVIEW
Apollo Investment was incorporated under the Maryland General Corporation Law in February 2004. We have elected to be treated as a BDC under the 1940 Act. As such, we are required to comply with certain regulatory requirements. For instance, we generally have to invest at least 70% of our total assets in “qualifying assets,” including securities of private or thinly traded public U.S. companies, cash equivalents, U.S. government securities and high-quality debt investments that mature in one year or less. In addition, for federal income tax purposes we have elected to be treated as a RIC under Subchapter M of the Code. Pursuant to this election and assuming we qualify as a RIC, we generally do not have to pay corporate-level federal income taxes on any income we distribute to our stockholders. Apollo Investment commenced operations on April 8, 2004 upon completion of its initial public offering that raised $870 million in net proceeds selling 62 million shares of its common stock at a price of $15.00 per share. Since then, and through June 30, 2014 , we have raised approximately $2.21 billion in net proceeds from additional offerings of common stock.
Investments
Our level of investment activity can and does vary substantially from period to period depending on many factors, including the amount of debt and equity capital available to middle-market companies, the level of merger and acquisition activity for such companies, the general economic environment and the competitive environment for the types of investments we make. As a business development company, we must not acquire any assets other than “qualifying assets” specified in the 1940 Act unless, at the time the acquisition is made, at least 70% of our total assets are qualifying assets (with certain limited exceptions).
Revenue
We generate revenue primarily in the form of interest and dividend income from the securities we hold and capital gains, if any, on investment securities that we may acquire in portfolio companies. Our debt investments, whether in the form of mezzanine or senior secured loans, generally have a stated term of five to ten years and bear interest at a fixed rate or a floating rate usually determined on the basis of a benchmark: LIBOR, Euro Interbank Offered Rate (EURIBOR), British pound sterling LIBOR (GBP LIBOR), or the prime rate. Interest on debt securities is generally payable quarterly or semiannually and while U.S. subordinated debt and corporate notes typically accrue interest at fixed rates, some of our investments may include zero coupon and/or step-up

56

bonds that accrue income on a constant yield to call or maturity basis. In addition, some of our investments provide for PIK interest or dividends. Such amounts of accrued PIK interest or dividends are added to the cost of the investment on the respective capitalization dates and generally become due at maturity of the investment or upon the investment being called by the issuer. We may also generate revenue in the form of commitment, origination, structuring fees, fees for providing managerial assistance and, if applicable, consulting fees, etc.
Expenses
All investment professionals of the investment adviser and their staff, when and to the extent engaged in providing investment advisory and management services to us, and the compensation and routine overhead expenses of that personnel which is allocable to those services are provided and paid for by AIM. We bear all other costs and expenses of our operations and transactions, including those relating to:
•
investment advisory and management fees;
•
expenses incurred by AIM payable to third parties, including agents, consultants or other advisors, in monitoring our financial and legal affairs and in monitoring our investments and performing due diligence on our prospective portfolio companies;
•
calculation of our net asset value (including the cost and expenses of any independent valuation firm);
•
direct costs and expenses of administration, including independent registered public accounting and legal costs;
•
costs of preparing and filing reports or other documents with the SEC;
•
interest payable on debt, if any, incurred to finance our investments;
•
offerings of our common stock and other securities;
•
registration and listing fees;
•
fees payable to third parties, including agents, consultants or other advisors, relating to, or associated with, evaluating and making investments;
•
transfer agent and custodial fees;
•
taxes;
•
independent directors’ fees and expenses;
•
marketing and distribution-related expenses;
•
the costs of any reports, proxy statements or other notices to stockholders, including printing and postage costs;
•
our allocable portion of the fidelity bond, directors and officers/errors and omissions liability insurance, and any other insurance premiums;
•
organizational costs; and
•
all other expenses incurred by us or the Administrator in connection with administering our business, such as our allocable portion of overhead under the Administration Agreement, including rent and our allocable portion of the cost of our chief financial officer and chief compliance officer and their respective staffs.
We expect our general and administrative operating expenses related to our ongoing operations to increase moderately in dollar terms. During periods of asset growth, we generally expect our general and administrative operating expenses to decline as a percentage of our total assets and increase during periods of asset declines. Incentive fees, interest expense and costs relating to future offerings of securities, among others, may also increase or reduce overall operating expenses based on portfolio performance, interest rate benchmarks, and offerings of our securities relative to comparative periods, among other factors.

57

Portfolio and Investment Activity
Our portfolio and investment activity during the three months ended June 30, 2014 and 2013 is as follows:
(amounts in millions)
Three Months Ended June 30, 2014
Three Months Ended June 30, 2013
Investment made in portfolio companies (1)
$
650

$
788

Investments sold
(397
)
(105
)
Net activity before repaid investments
253

683

Investments repaid (2)
(120
)
(475
)
Net investment activity
$
133

$
208

Portfolio companies, at beginning of period
111

81

Number of new portfolio companies
25

23

Number of exited companies
(19
)
(10
)
Portfolio companies, at end of period
117

94

Number of investments in existing portfolio companies
24

23

_________________
(1)
Investments were primarily made through a combination of primary and secondary debt investments.
(2)
Investments repaid includes prepayments of $6.1 million and $7.8 million during the three months ended June 30, 2014 and three months ended June 30, 2013 , respectively.
Our portfolio composition and weighted average yields at June 30, 2014 and at March 31, 2014 are as follows:
June 30, 2014
March 31, 2014
Portfolio composition, measured at fair value:
Secured debt
59%

56%

Unsecured debt
22%

27%

Structured products and other (1)
8%

6%

Common equity, preferred equity and warrants
11%

11%

Weighted average yields, at current cost basis, exclusive of securities on non-accrual status (2):
Secured debt portfolio
10.9%

10.8%

Unsecured debt portfolio
11.5%

11.5%

Total debt portfolio
11.1%

11.1%

Income-bearing investment portfolio composition, measured at fair value:
Fixed rate amount
$
1.7
billion
$
1.7
billion
Floating rate amount
$
1.5
billion
$
1.3
billion
Fixed rate %
53%

58%

Floating rate %
47%

42%

Income-bearing investment portfolio composition, measured at cost:
Fixed rate amount
$
1.7
billion
$
1.7
billion
Floating rate amount
$
1.5
billion
$
1.2
billion
Fixed rate %
53%

58%

Floating rate %
47%

42%

_________________
(1)
Structured products and other such as collateralized loan obligations (“CLOs”) and credit-linked notes (“CLNs”) are typically a form of securitization in which the cash flows of a portfolio of loans are pooled and passed on to different classes of owners in various tranches.

58

(2)
An investor's yield may be lower than the portfolio yield due to sales loads and other expenses.
Since the initial public offering of Apollo Investment in April 2004 and through June 30, 2014 , invested capital totaled $13.8 billion in 316 portfolio companies. Over the same period, Apollo Investment completed transactions with more than 100 different financial sponsors.
CRITICAL ACCOUNTING POLICIES
Our discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America, or GAAP. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. Changes in the economic environment, financial markets and any other parameters used in determining such estimates could cause actual results to differ materially. In addition to the discussion below, our critical accounting policies are further described in the notes to the financial statements.
Fair Value Measurements
Under procedures established by our board of directors, we value investments, including certain secured debt, unsecured debt, and other debt securities with maturities greater than 60 days, for which market quotations are readily available, at such market quotations (unless they are deemed not to represent fair value). We attempt to obtain market quotations from at least two brokers or dealers (if available, otherwise from a principal market maker or a primary market dealer or other independent pricing service). We utilize mid-market pricing as a practical expedient for fair value unless a different point within the range is more representative. If and when market quotations are deemed not to represent fair value, we typically utilize independent third party valuation firms to assist us in determining fair value. Accordingly, such investments go through our multi-step valuation process as described below. In each case, our independent valuation firms consider observable market inputs together with significant unobservable inputs in arriving at their valuation recommendations for such investments. Debt investments with remaining maturities of 60 days or less may each be valued at cost with interest accrued or discount amortized to the date of maturity, unless such valuation, in the judgment of our investment adviser, does not represent fair value, in which case such investments shall be valued at fair value as determined in good faith by or under the direction of our board of directors, including using market quotations where available. Investments that are not publicly traded or whose market quotations are not readily available are valued at fair value as determined in good faith by or under the direction of our board of directors. Such determination of fair values may involve subjective judgments and estimates.
With respect to investments for which market quotations are not readily available or when such market quotations are deemed not to represent fair value, our board of directors has approved a multi-step valuation process each quarter, as described below:
(1) our quarterly valuation process begins with each portfolio company or investment being initially valued by the investment professionals of our investment adviser responsible for the portfolio investment;
(2) preliminary valuation conclusions are then documented and discussed with senior management of our investment adviser;
(3) independent valuation firms are engaged by our board of directors to conduct independent appraisals by reviewing our investment adviser’s preliminary valuations and then making their own independent assessment;
(4) the audit committee of the board of directors reviews the preliminary valuation of our investment adviser and the valuation prepared by the independent valuation firm and responds to the valuation recommendation of the independent valuation firm to reflect any comments; and
(5) the board of directors discusses valuations and determines in good faith the fair value of each investment in our portfolio based on the input of our investment adviser, the applicable independent valuation firm, third party pricing services and the audit committee.
Investments in all asset classes are valued utilizing a market approach, an income approach, or both approaches, as appropriate. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities (including a business). The income approach uses valuation techniques to convert future amounts (for example, cash flows or earnings) to a single present amount (discounted). The measurement is based on the value indicated by current market expectations about those future amounts. In following these approaches, the types of factors that we may take into account in fair value pricing our investments include, as relevant: available current market data, including relevant and applicable market trading and transaction comparables, applicable market yields and multiples, security covenants, call protection provisions, information rights, the nature and realizable value of any collateral, the portfolio company’s ability to make payments, its earnings and discounted cash flows, the markets in which the portfolio company does business, comparisons of financial ratios of peer companies that are public, M&A comparables, our principal market (as the reporting entity) and enterprise values, among other

59

factors. When readily available, broker quotations and/or quotations provided by pricing services are considered in the valuation process of independent valuation firms. As of June 30, 2014 , there was no change to the Company’s valuation techniques and related inputs considered in the valuation process.
ASC 820 classifies the inputs used to measure these fair values into the following hierarchy:
Level 1 : Quoted prices in active markets for identical assets or liabilities, accessible by the Company at the measurement date.
Level 2 : Quoted prices for similar assets or liabilities in active markets, or quoted prices for identical or similar assets or liabilities in markets that are not active, or other observable inputs other than quoted prices.
Level 3 : Unobservable inputs for the asset or liability.
In all cases, the level in the fair value hierarchy within which the fair value measurement in its entirety falls has been determined based on the lowest level of input that is significant to the fair value measurement. Our assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to each investment. Of the Company's investments at June 30, 2014 , $2.31 billion or 63% of the Company's investments were classified as Level 3.

Investment Income Recognition
The Company records interest and dividend income, adjusted for amortization of premium and accretion of discount, on an accrual basis. Some of our loans and other investments, including certain preferred equity investments, may have contractual payment-in-kind (“PIK”) interest or dividends. PIK interest and dividends computed at the contractual rate are accrued into income and reflected as receivable up to the capitalization date. PIK investments offer issuers the option at each payment date of making payments in cash or in additional securities. When additional securities are received, they typically have the same terms, including maturity dates and interest rates as the original securities issued. On these payment dates, the Company capitalizes the accrued interest or dividends receivable (reflecting such amounts as the basis in the additional securities received). PIK generally becomes due at maturity of the investment or upon the investment being called by the issuer. At the point the Company believes PIK is not expected to be realized, the PIK investment will be placed on non-accrual status. When a PIK investment is placed on non-accrual status, the accrued, uncapitalized interest or dividends are reversed from the related receivable through interest or dividend income, respectively. The Company does not reverse previously capitalized PIK interest or dividends. Upon capitalization, PIK is subject to the fair value estimates associated with their related investments. PIK investments on non-accrual status are restored to accrual status if the Company believes that PIK is expected to be realized. For the three months ended June 30, 2014 , PIK income totaled $6.8 million on total investment income of $102.6 million .

Investments that are expected to pay regularly scheduled interest and/or dividends in cash are generally placed on non-accrual status when principal or interest/dividend cash payments are past due 30 days or more and/or when it is no longer probable that principal or interest/dividend cash payments will be collected. Such non-accrual investments are restored to accrual status if past due principal and interest or dividends are paid in cash, and in management’s judgment, are likely to continue timely payment of their remaining interest or dividend obligations. Interest or dividend cash payments received on non-accrual designated investments may be recognized as income or applied to principal depending upon management’s judgment.

Loan origination fees, original issue discount, and market discounts are capitalized and amortized into income using the interest method or straight-line, as applicable. Upon the prepayment of a loan, any unamortized loan origination fees are recorded as interest income. We record prepayment premiums on loans and other investments as interest income when we receive such amounts. Other income generally includes administrative fee, bridge fee, and structuring fee which are recorded when earned.

The Company records as dividend income the accretable yield from its beneficial interests in structured products such as CLOs based upon a number of cash flow assumptions that are subject to uncertainties and contingencies. Such assumptions include the rate and timing of principal and interest receipts (which may be subject to prepayments and defaults) of the underlying pool of assets. These assumptions are updated on at least a quarterly basis to reflect changes related to a particular security, actual historical data, and market changes. Structured products typically have an underlying pool of assets and payments on structured product investments that are and will be payable solely from the cashflows from such assets. As such any unforeseen event in these underlying pool of assets might impact the expected recovery and future accrual of income.


60

Expenses
Expenses include management fees, performance-based incentive fees, insurance expenses, administrative service fees, legal fees, directors' fees, audit and tax service expenses, and other general and administrative expenses. Expenses are recognized on an accrual basis.
Net Realized Gains or Losses and Net Change in Unrealized Gain (Loss)
We measure realized gains or losses by the difference between the net proceeds from the repayment or sale and the amortized cost basis of the investment, without regard to unrealized appreciation or depreciation previously recognized, but considering unamortized upfront fees and prepayment penalties. Net change in unrealized gain (loss) reflects the net change in portfolio investment values during the reporting period, including the reversal of previously recorded unrealized gains or losses.
Within the context of these critical accounting policies, we are not currently aware of any reasonably likely events or circumstances that would result in materially different amounts being reported.
RESULTS OF OPERATIONS
Operating results for the three months ended June 30, 2014 and 2013 were as follows:
(in thousands)
Three Months Ended June 30, 2014
Three Months Ended June 30, 2013
Investment income
Interest
$
93,623

$
81,174

Dividends
6,595

10,985

Other
2,362

4,514

Total investment income
$
102,580

$
96,673

Expenses
Base management fees and performance-based incentive fees, net of amounts waived
$
(26,426
)
$
(25,232
)
Interest and other debt expenses, net of expense reimbursements
(18,882
)
(15,845
)
Administrative services expenses
(1,433
)
(1,097
)
Other general and administrative expenses
(2,288
)
(2,132
)
Net expenses
(49,029
)
(44,306
)
Net investment income
$
53,551

$
52,367

Realized and unrealized gain (loss) on investments, cash equivalents, derivatives and foreign currencies
Net realized loss
$
(13,333
)
$
(95,934
)
Net change in unrealized gain
24,418

62,371

Net realized and unrealized gain (loss) from investments, cash equivalents, derivatives and foreign currencies
11,085

(33,563
)
Net increase (decrease) in net assets resulting from operations
$
64,636

$
18,804

Net investment income per share on per average share basis
$
0.23

$
0.25

Earnings per share - basic
$
0.27

$
0.09

Earnings per share - diluted
$
0.27

$
0.09


Total Investment Income
The increase in total investment income for the three months ended June 30, 2014 compared to the three months ended June 30, 2013 was due to an increase in the investment portfolio size, which increased to an average cost of $3.53 billion for the three months ended June 30, 2014 from an average cost of $3.09 billion for the three months ended June 30, 2013 . The increase in interest income was partially offset by a decrease in income from original issue discount and prepayment fees, which totaled approximately $6.1 million and $7.8 million for the three months ended June 30, 2014 and three months ended June 30, 2013 , respectively, and a decrease in yield from debt investments ( 11.1% as of June 30, 2014 and 11.6% as of June 30, 2013 ). Dividend

61

income decreased due to $5.0 million dividend payments received from RC Coinvestment, LLC and AIC Credit Opportunity during the three months ended June 30, 2013 . Other income during the three months ended June 30, 2013 was higher due to a one-time $2.0 million fee received from a portfolio company.

Net Expenses
The increase in expenses for the three months ended June 30, 2014 compared to three months ended June 30, 2013 was primarily driven by an increase of $3.0 million in interest and other debt expenses and an increase of $1.2 million in incremental management and performance-based incentive fees (net of amounts waived). Interest and other debt costs were higher due to a higher average debt outstanding balance, which increased to $1.55 billion during the three months ended June 30, 2014 from $1.18 billion during the three months ended June 30, 2013 . Average debt outstanding increased primarily as a result of the issuance of the 2043 Notes in the latter half of June 2013. The increase was offset by a decrease in total annualized cost of debt to 4.87% for the three months ended June 30, 2014 from 5.37% for the three months ended June 30, 2013 . The decrease in cost of debt is due to the September 2013 credit facility amendment which resulted in a decrease in pricing for revolving credit facility borrowings by 25 basis points. Management and performance-based incentive fees increased primarily due to the increase in the size of the portfolio. Administrative services expenses and other general and administrative expenses remained consistent.

Net Realized Loss
Net realized losses for the three months ended June 30, 2014 were primarily the result of the sale of two portfolio companies: Altegrity, Inc. and inVentiv Health, Inc., which comprised $19.8 million of the net realized losses. These losses were partially offset by realized gains from the exit of various portfolio companies. Net realized losses were made up of $10.2 million of gross realized gains and $23.5 million of gross realized losses.
Net realized losses for the three months ended June 30, 2013 were primarily the result of the sale of two portfolio companies: Cengage Learning Acquisitions and ATI Acquisition Company, which had combined realized losses of $99.6 million. Net realized losses were made up of $12.0 million of gross realized gains and $107.9 million of gross realized losses.
The realized losses incurred upon the exit of these investments reversed out previously reported unrealized losses.

Net Change in Unrealized Gain
For the three months ended June 30, 2014 , the net change in unrealized gain was primarily derived from the reversal of previously recognized unrealized loss upon the exit of Altegrity, Inc. and inVentiv Health, Inc., which comprised $21.3 million. The remainder of the portfolio was generally impacted by stronger capital market conditions as well as improved portfolio company fundamentals. Net unrealized gain was made up of $83.2 million of gross unrealized gains and $58.8 million of gross unrealized losses.
For the three months ended June 30, 2013 the net change in unrealized loss was primarily derived from the reversal of previously recognized unrealized loss upon the exit of Cengage Learning Acquisitions and ATI Acquisition Company. The remainder of the portfolio was impacted by general capital market conditions. Net unrealized gain was made up of $158.5 million of gross unrealized gains and $96.1 million of gross unrealized losses.

LIQUIDITY AND CAPITAL RESOURCES
The Company’s liquidity and capital resources are generated and generally available through periodic follow-on equity and debt offerings, our senior secured, multi-currency Senior Secured Facility (as defined in note 9 within the Notes to Financial Statements), our senior secured notes, our senior unsecured notes, investments in special purpose entities in which we hold and finance particular investments on a non-recourse basis, as well as from cash flows from operations, investment sales of liquid assets and repayments of senior and subordinated loans and income earned from investments. For the three months ended June 30, 2014 , PIK income totaled $6.8 million , on total investment income of $102.6 million . At June 30, 2014 , the Company had $801.0 million in borrowings outstanding on its Senior Secured Facility and $443.7 million of unused capacity. As of June 30, 2014 , aggregate lender commitments under the Senior Secured Facility totaled $1.27 billion . The Senior Secured Facility allows the Company to seek additional commitments in the future up to an aggregate facility size not to exceed $1.71 billion . The Company also has investments in its portfolio that contain PIK provisions. PIK investments offer issuers the option at each payment date of making payments in cash or in additional securities. When additional securities are received, they typically have the same terms, including maturity dates and interest rates as the original securities issued. On these payment dates, the Company capitalizes the accrued interest or dividends receivable (reflecting such amounts as the basis in the additional securities received). PIK generally becomes due at maturity of the investment or upon the investment being called by the issuer. In order to maintain the Company’s status as a RIC, this non-cash source of income must be paid out to stockholders annually in the form of dividends, even though the Company has not yet collected the cash.

62

On February 24, 2014, the Company issued 12 million shares of common stock at $8.69 per share raising approximately $104 million in net proceeds.
On May 20, 2013, the Company issued 21.85 million shares of common stock at $8.60 per share (or $8.34 per share net proceeds before estimated expense) raising approximately $182 million in net proceeds. AIM has agreed to waive the base management and incentive fees associated with this equity capital for the time period beginning May 20, 2013 through March 31, 2015.
In April 2012, a subsidiary of Apollo Global Management, LLC purchased 5,847,953 newly issued shares of the Company based on the NAV as of March 31, 2012 of $8.55 per share. AIM has agreed to waive the base management and incentive fees associated with this equity capital for the time period beginning April 2, 2012 through March 31, 2015.
On June 17, 2013, the Company issued $135 million in aggregate principal amount of 6.875% senior unsecured notes due 2043 and on June 24, 2013 an additional $15 million in aggregate principal amount of such notes was issued pursuant to the underwriters’ over-allotment option exercise. In aggregate, $150 million of principal was issued for net proceeds of $145.3 million (the “2043 Notes”). Interest on the 2043 Notes is paid quarterly on January 15, April 15, July 15 and October 15, at an annual rate of 6.875% per year. The 2043 Notes mature on July 15, 2043. The Company may redeem the 2043 Notes in whole or in part at any time or from time to time on or after July 15, 2018.
On October 9, 2012, the Company issued $150 million in aggregate principal amount of 6.625% senior unsecured notes due 2042 for net proceeds of $145.3 million (the “2042 Notes”). Interest on the 2042 Notes is paid quarterly on January 15, April 15, July 15 and October 15, at an annual rate of 6.625% per year. The 2042 Notes mature on October 15, 2042. The Company may redeem the 2042 Notes in whole or in part at any time or from time to time on or after October 15, 2017.
On September 29, 2011, the Company closed a private offering of $45 million aggregate principal amount of senior secured notes (the “Notes”) consisting of two series: (1) 5.875% Senior Secured Notes, Series A, of the Company due September 29, 2016 in the aggregate principal amount of $29 million; and (2) 6.250% Senior Secured Notes, Series B, of the Company due September 29, 2018, in the aggregate principal amount of $16 million. The Notes were issued in a private placement only to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended.
On January 25, 2011, the Company closed a private offering of $200 million aggregate principal amount of senior unsecured convertible notes (the “Convertible Notes”). The Convertible Notes were issued in a private placement only to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended. The Convertible Notes bear interest at an annual rate of 5.75%, payable semi-annually in arrears on January 15 and July 15 of each year, commencing on July 15, 2011. The Convertible Notes will mature on January 15, 2016 unless earlier converted or repurchased at the holder’s option. Prior to December 15, 2015, the Convertible Notes will be convertible only upon certain corporate reorganizations, dilutive recapitalizations or dividends, or if, during specified periods our shares trade at more than 130% of the then applicable conversion price or the Convertible Notes trade at less than 97% of their conversion value and, thereafter, at any time. The Convertible Notes will be convertible by the holders into shares of common stock, initially at a conversion rate of 72.7405 shares of the Company’s common stock per $1,000 principal amount of Convertible Notes (14,548,100 common shares) corresponding to an initial conversion price of approximately $13.75, which represents a premium of 17.5% to the $11.70 per share closing price of the Company’s common stock on The NASDAQ Global Select Market on January 19, 2011. The conversion rate will be subject to adjustment upon certain events, such as stock splits and combinations, mergers, spin-offs, increases in dividends in excess of $0.28 per share per quarter and certain changes in control. Certain of these adjustments, including adjustments for increases in dividends, are subject to a conversion price floor of $11.70 per share. The Convertible Notes are senior unsecured obligations and rank senior in right of payment to our existing and future indebtedness that is expressly subordinated in right of payment to the Convertible Notes; equal in right of payment to our existing and future unsecured indebtedness that is not so subordinated; effectively junior in right of payment to any of our secured indebtedness (including existing unsecured indebtedness that we later secure) to the extent of the value of the assets securing such indebtedness; and structurally junior to all existing and future indebtedness (including trade payables) incurred by our subsidiaries, financing vehicles or similar facilities.
On September 30, 2010, the Company entered into a note purchase agreement, providing for a private placement issuance of $225 million in aggregate principal amount of five-year, senior secured notes with a fixed interest rate of 6.25% and a maturity date of October 4, 2015 (the “Senior Secured Notes”). On October 4, 2010, the Senior Secured Notes were sold to certain institutional accredited investors pursuant to an exemption from registration under the Securities Act of 1933, as amended. Interest on the Senior Secured Notes will be due semi-annually on April 4 and October 4, commencing on April 4, 2011. The proceeds from the issuance of the Senior Secured Notes were primarily used to reduce other outstanding borrowings and/or commitments on the Company’s Senior Secured Facility.
On August 11, 2011, the Company adopted a plan for the purpose of repurchasing up to $200 million of its common stock in accordance with the guidelines specified in Rule 10b-18 and Rule 10b5-1 of the Securities Exchange Act of 1934. The Company’s plan was designed to allow it to repurchase its shares both during its open window periods and at times when it otherwise might

63

be prevented from doing so under insider trading laws or because of self-imposed trading blackout periods. A broker selected by the Company will have the authority under the terms and limitations specified in the plan to repurchase shares on the Company’s behalf in accordance with the terms of the plan. Repurchases are subject to SEC regulations as well as certain price, market volume and timing constraints specified in the plan. While the portion of the plan reliant on Rule 10b-18 remains in effect, the portion reliant on Rule 10b5-1 is subject to periodic renewal and is not currently in effect. As of March 31, 2014, no shares have been repurchased.
Cash Equivalents
We deem certain U.S. Treasury bills, repurchase agreements and other high-quality, short-term debt securities as cash equivalents. (See note 2 within the accompanying financial statements.) At the end of each fiscal quarter, we consider taking proactive steps utilizing cash equivalents with the objective of enhancing our investment flexibility during the following quarter, pursuant to Section 55 of the 1940 Act. More specifically, we may purchase U.S. Treasury bills from time-to-time on the last business day of the quarter and typically close out that position on the following business day, settling the sale transaction on a net cash basis with the purchase, subsequent to quarter end. Apollo Investment may also utilize repurchase agreements or other balance sheet transactions, including drawing down on our Senior Secured Facility, as we deem appropriate. The amount of these transactions or such drawn cash for this purpose is excluded from total assets for purposes of computing the asset base upon which the management fee is determined. There were no cash equivalents held as of June 30, 2014 .
Commitments and Contingencies
Payments due by Period as of June 30, 2014 (in millions)
Total
Less than
1 year
1-3 years
3-5 years
More than
5 years
Senior Secured Facility (1)
$
801

$
—

$
—

$
801

$
—

Senior Secured Notes
$
225

$
—

$
225

$
—

$
—

Senior Secured Notes (Series A)
$
29

$
—

$
29

$
—

$
—

Senior Secured Notes (Series B)
$
16

$
—

$
—

$
16

$
—

2042 Notes
$
150

$
—

$
—

$
—

$
150

2043 Notes
$
150

$
—

$
—

$
—

$
150

Convertible Notes
$
200

$
—

$
200

$
—

$
—

_________________________
(1)
At June 30, 2014 , there was $25.2 million of letters of credit issued under the Senior Secured Facility that are not recorded as liabilities on the Company's Statement of Assets and Liabilities, and the Company had $443.7 million of unused capacity under its Senior Secured Facility.
We have entered into two contracts under which we have future commitments: the Investment Advisory Agreement, pursuant to which AIM has agreed to serve as our investment adviser, and the Administration Agreement, pursuant to which AIA has agreed to furnish us with the facilities and administrative services necessary to conduct our day-to-day operations and provide on our behalf managerial assistance to those portfolio companies to which we are required to provide such assistance. Payments under the Investment Advisory Agreement are equal to (1) a percentage of the value of our average gross assets and (2) a two-part incentive fee. Payments under the Administration Agreement are equal to an amount based upon our allocable portion of AIA’s overhead in performing its obligations under the Administration Agreement, including rent, technology systems, insurance and our allocable portion of the costs of our chief financial officer and chief compliance officer and their respective staffs. Either party may terminate each of the Investment Advisory Agreement and Administration Agreement without penalty upon not more than 60 days’ written notice to the other. Please see note 3 within our financial statements for more information.
As of June 30, 2014 and March 31, 2014 , the Company’s unfunded commitments and contingencies were as follows:
(in millions)
As of June 30, 2014
As of March 31, 2014
Unfunded revolver obligations and bridge loans commitments (1) (2)
$
373

$
409

Unfunded delayed draw commitments on senior loans to portfolio companies
128

139

Unfunded delayed draw commitments on senior loans to portfolio companies (performance thresholds not met) (3)
49

49

Standby letters of credit issued for certain portfolio companies for which the Company and portfolio companies are liable
26

16


64

_________________
(1)
Included in this amount is $65.9 and $114.1 of the unfunded revolver commitment for Merx Aviation Finance Holdings II, LLC. as of June 30, 2014 and March 31, 2014 , respectively.
(2)
The unfunded revolver obligations may or may not be funded to the borrowing party in the future. The amounts relate to loans with various maturity dates, but the entire amount was eligible for funding to the borrowers as of June 30, 2014 , subject to the terms of each loan’s respective credit agreements.
(3)
The borrower is required to meet certain performance thresholds before the Company is obligated to fulfill the commitments and those performance thresholds were not met as of June 30, 2014 .
AIC’s commitments are subject to the consummation of the underlying corporate transactions and conditional upon receipt of all necessary stockholder, regulatory and other applicable approvals.
AIC Credit Opportunity Fund LLC (amounts in thousands)
We owned all of the common member interests in AIC Credit Opportunity Fund LLC (“AIC Holdco”). AIC Holdco was formed for the purpose of holding various financed investments. AIC Holdco wholly owned three special purpose entities, each of which in 2008 acquired directly or indirectly an investment in a particular security from an unaffiliated entity that provided leverage for the investment as part of the sale. As of March 31, 2014, the three special purpose entities along with AIC Holdco were fully dissolved. Each of these transactions is described in more detail below together with summary financial statements.
In June 2008 we invested through AIC Holdco $39,500 in AIC (FDC) Holdings LLC (“Apollo FDC”). Apollo FDC used the proceeds to purchase a Junior Profit-Participating Note due 2013 in principal amount of $39,500 (the “Junior Note”) issued by Apollo I Trust (the “Trust”). The Trust also issued a Senior Floating Rate Note due 2013 (the “Senior Note”) to an unaffiliated third party in principal amount of $39,500 paying interest at the London Interbank Offered Rate (“LIBOR”) plus 1.50%, increasing over time to LIBOR plus 2.0%. The Trust used the aggregate $79,000 proceeds to acquire $100,000 face value of a senior subordinated loan of First Data Corporation (the “FDC Loan”) due 2016. The FDC Loan pays interest at 11.25% per year. The Junior Note of the Trust owned by Apollo FDC pays to Apollo FDC all of the interest and other proceeds received by the Trust on the FDC Loan after satisfying the Trust’s obligations on the Senior Note. The holder of the Senior Note has no recourse to Apollo FDC, AIC Holdco or us with respect to any interest on, or principal of, the Senior Note. However, if the value of the FDC Loan held by the Trust declines sufficiently, the investment would be unwound unless Apollo FDC posts additional collateral for the benefit of the Senior Note. During the year ended March 31, 2014, we unwound the transaction by investing $20,386 into the Trust which then repaid the Senior Note. Subsequent to the repayment of the Senior Note, $10,993 of face value of the FDC Loan was prepaid by First Data Corporation resulting in a distribution of $11,556 to the Company. The remaining FDC Loan, which consisted of $41,862 of face value, was transferred to the Company at an accreted cost of $38,728 with a fair value of $40,397 on the transfer date and the Trust was closed.
In the second of these investments, in June 2008 we invested through AIC Holdco $11,375 in AIC (TXU) Holdings LLC (“Apollo TXU”). Apollo TXU acquired exposure to $50,000 notional amount of a LIBOR plus 3.5% senior secured delayed draw term loan of Texas Competitive Electric Holdings (“TXU”) due 2014 through a non-recourse total return swap (the “TRS”) with an unaffiliated third party expiring on October 10, 2013. Pursuant to such delayed draw term loan, Apollo TXU pays an unaffiliated third-party interest at LIBOR plus 1.5% and generally receives all proceeds due under the delayed draw term loan of TXU (the “TXU Term Loan”). Like Apollo FDC, Apollo TXU is entitled to 100% of any realized appreciation in the TXU Term Loan and, since the TRS is a non-recourse arrangement, Apollo TXU is exposed only up to the amount of its investment in the TRS, plus any additional margin we decide to post, if any, during the term of the financing. The TRS does not constitute a senior security or a borrowing of Apollo TXU. In connection with the amendment and extension of the TXU Term Loan in April 2011, for which Apollo TXU received a consent fee along with an increase in the rate of the TXU Term Loan to LIBOR plus 4.5%, Apollo TXU extended its TRS to 2016 at a rate of LIBOR plus 2.0%. During the year ended March 31, 2014, Apollo TXU terminated the entire TRS resulting in a realized loss of $10,314. The excess collateral posted was returned to Apollo TXU.
In the third of these investments, in September 2008 we invested through AIC Holdco $10,022 in AIC (Boots) Holdings, LLC (“Apollo Boots”). Apollo Boots acquired €23,383 and £12,465 principal amount of senior term loans of AB Acquisitions Topco 2 Limited, a holding company for the Alliance Boots group of companies (the “Boots Term Loans”), out of the proceeds of our investment and a multicurrency $40,876 equivalent non-recourse loan to Apollo Boots (the “Acquisition Loan”) by an unaffiliated third party that was scheduled to mature in September 2013 and paid interest at LIBOR plus 1.25% or, in certain cases, the higher of the Federal Funds Rate plus 0.50% or the lender’s prime-rate. The Boots Term Loans paid interest at the rate of LIBOR plus 3% per year and are scheduled to mature in June 2015. During the fiscal year ended March 31, 2013, Apollo Boots sold the entire position of the Boots Term Loans in the amount of €23,383 and £12,465 of principal.
We do not consolidate AIC Holdco or its wholly owned subsidiaries and accordingly only the value of our investment in AIC Holdco was included on our statement of assets and liabilities. Our investment in AIC Holdco was valued in accordance with our

65

normal valuation procedures and was based on the values of the underlying assets held by each special purpose entity net of associated liabilities.
As of June 30, 2014 and March 31, 2014, the consolidated AIC Holdco had no outstanding assets and liabilities. Below is summarized financial information for AIC Holdco for the three months ended June 30, 2013 . There was no operating activity during the three months ended June 30, 2014.
Three Months Ended June 30, 2013
Net Operating Income (Loss)
Apollo FDC (1)
$
1,559

Apollo TXU (1)
329

Apollo Boots (1)
8

Other
10

Total Operating Income
$
1,906

Net Realized Gain (Loss)
Apollo FDC
$
9,634

Apollo TXU
—

Apollo Boots
—

Total Net Realized Gain (Loss)
$
9,634

Net Change in Unrealized Gain (Loss)
Apollo FDC
$
(11,509
)
Apollo TXU
(386
)
Apollo Boots
—

Total Net Change in Unrealized Gain (Loss)
$
(11,895
)
Net Income (Loss) (2)
Apollo FDC
$
(316
)
Apollo TXU
(57
)
Apollo Boots
8

Other
10

Total Net Income (Loss)
$
(355
)
____________________
(1)
In the case of Apollo FDC, net operating income consists of interest income on the Junior Note less interest paid on the senior note together with immaterial administrative expenses. In the case of Apollo TXU, net operating income consists of net payments from the swap counterparty of Apollo TXU’s obligation to pay interest and its right to receive the proceeds in respect of the reference asset, together with immaterial administrative expenses. In the case of AIC Boots, net operating income consists of interest income on the Boots Term Loans, less interest payments on the Acquisition Loan together with immaterial administrative expenses. There are no management or incentive fees.
(2)
Net income is the sum of operating income, realized gain (loss) and net change in unrealized gain (loss).

Merx Aviation Finance Holdings II, LLC
Merx Aviation Finance Holdings II, LLC. (“Merx”) and its subsidiaries ("Merx Aviation") are principally engaged in acquiring and leasing commercial aircraft to airlines. Its primary focus is on current generation aircrafts, held either domestically or internationally. Merx Aviation may acquire fleets of aircraft through securitized, non-recourse debt or individual aircraft. Merx Aviation is not intended to compete with the numerous large lessors, but rather to be complementary to them, providing them a capital base for various transactions. Merx Aviation also may outsource its aircraft servicing requirements to the large lessors that have the global staff necessary to complete such tasks.

The Company believes Merx is an operating company and therefore is not consolidated in accordance with investment company accounting. If it was determined that Merx was to be consolidated, the likely impact would be to reclass interest income attributable to Merx to dividend income for the three months period ended June 30, 2014. Additionally, on the schedule of investments, the

66

investment in Merx would likely be aggregated into one line item as an equity investment instead of currently being classified as equity and debt investments.
Dividends
Dividends paid to stockholders for the three months ended June 30, 2014 and June 30, 2013 totaled $47.3 million or $0.20 per share and $44.9 million or $0.20 per share, respectively. Tax characteristics of all dividends will be reported to stockholders on Form 1099 after the end of the calendar year. Our quarterly dividends, if any, will be determined by our Board of Directors.
We have elected to be taxed as a RIC under Subchapter M of the Code. To maintain our RIC status, we must distribute at least 90% of our ordinary income and realized net short-term capital gains in excess of realized net long-term capital losses, if any, out of the assets legally available for distribution. In addition, although we currently intend to distribute realized net capital gains ( i.e. , net long-term capital gains in excess of short-term capital losses), if any, at least annually, out of the assets legally available for such distributions, we may in the future decide to retain such capital gains for investment.
We maintain an “opt out” dividend reinvestment plan for our common stockholders. As a result, if we declare a dividend, then stockholders’ cash dividends will be automatically reinvested in additional shares of our common stock, unless they specifically “opt out” of the dividend reinvestment plan so as to receive cash dividends.
We may not be able to achieve operating results that will allow us to make distributions at a specific level or to increase the amount of these distributions from time to time. In addition, due to the asset coverage test applicable to us as a business development company, we may in the future be limited in our ability to make distributions. Also, our revolving credit facility may limit our ability to declare dividends if we default under certain provisions or fail to satisfy certain other conditions. If we do not distribute a certain percentage of our income annually, we may suffer adverse tax consequences, including possible loss of the tax benefits available to us as a regulated investment company. In addition, in accordance with U.S. generally accepted accounting principles and tax regulations, we include in income certain amounts that we have not yet received in cash, such as contractual payment-in-kind interest, which represents contractual interest added to the loan balance that becomes due at the end of the loan term, or the accrual of original issue or market discount. Since we may recognize income before or without receiving cash representing such income, we may not be able to meet the requirement to distribute at least 90% of our investment company taxable income to obtain tax benefits as a regulated investment company.
With respect to the dividends to stockholders, income from origination, structuring, closing, commitment and other upfront fees associated with investments in portfolio companies is treated as taxable income and accordingly, distributed to stockholders.
Item 3. Quantitative and Qualitative Disclosure about Market Risk
We are subject to financial market risks, including changes in interest rates. During the three months ended June 30, 2014 , many of the loans in our portfolio had floating interest rates. These loans are usually based on floating LIBOR and typically have durations of one to six months after which they reset to current market interest rates. The Company also has a Senior Secured Facility that is based on floating LIBOR rates.
The following table shows the approximate annual impact on net investment income of base rate changes in interest rates (considering interest rate flows for variable rate instruments) to our loan portfolio and outstanding debt as of June 30, 2014 , assuming no changes in our investment and borrowing structure:
(in thousands except per share data)
Basis Point Change
Net Investment Income
Net Investment Income per Share
Up 400 basis points
$
11,248

$
0.048

Up 300 basis points
$
5,673

$
0.024

Up 200 basis points
$
(12
)
$
0.000

Up 100 basis points
$
(3,639
)
$
(0.015
)
We may hedge against interest rate fluctuations from time-to-time by using standard hedging instruments such as futures, options and forward contracts subject to the requirements of the 1940 Act and applicable commodities laws. While hedging activities may insulate us against adverse changes in interest rates, they may also limit our ability to participate in the benefits of lower interest rates with respect to our portfolio of investments.


67

Item 4. Controls and Procedures
(a) Evaluation of Disclosure Controls and Procedures
As of June 30, 2014 (the end of the period covered by this report), we, including our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) of the 1934 Act). Based on that evaluation, our management, including the Chief Executive Officer and Chief Financial Officer, concluded that our disclosure controls and procedures were effective and provided reasonable assurance that information required to be disclosed in our periodic SEC filings is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. However, in evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated can provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of such possible controls and procedures.
(b) Changes in Internal Controls Over Financial Reporting
Management has not identified any change in the Company’s internal control over financing reporting that occurred during the first fiscal quarter of 2015 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
PART II
Item 1. Legal Proceedings
From time to time, we may become involved in various investigations, claims and legal proceedings that arise in the ordinary course of our business. Furthermore, third parties may try to seek to impose liability on us in connection with the activities of our portfolio companies. While we do not expect that the resolution of these matters if they arise would materially affect our business, financial condition or results of operations, resolution will be subject to various uncertainties and could result in the expenditure of significant financial and managerial resources.
On May 20, 2013, the Company was named as a defendant in a complaint by the bankruptcy trustee of DSI Renal Holdings and related companies (“DSI”). The complaint alleges, among other things, that the Company participated in a “fraudulent conveyance” involving a restructuring and subsequent sale of DSI in 2010 and 2011. The complaint seeks, jointly and severally from all defendants, (1) damages of approximately $425 million, of which the Company’s share would be approximately $41 million, and the return of 9,000 shares of common stock of DSI obtained by the Company in the restructuring and sale and (2) punitive damages. At this point in time, the Company is unable to assess whether it may have any liability in this action. The Company has not made any determination that this action is or may be material to the Company and intends to vigorously defend itself. The Company has filed a motion to dismiss this litigation.

Item 1A. Risk Factors
In addition to the other information set forth in this report, you should carefully consider the factors discussed in the “Risk Factors” section of our Form 10-K filed on May 20, 2014, which could materially affect our business, financial condition and/or operating results. These risks are not the only risks facing our Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially and adversely affect our business, financial condition and/or operating results.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not Applicable.

68

Item 5. Other Information
None.

Item 6. Exhibits
(a)
Exhibits
3.1
Articles of Amendment and Restatement, as amended (1)
3.2
Third Amended and Restated Bylaws (2)
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).
_________________
*
Filed herewith.
(1)
Incorporated by reference from the Registrant’s post-effective Amendment No. 1 to the Registration Statement under the Securities Act of 1933, as amended, on Form N-2, filed on August 14, 2006.
(2)
Incorporated by reference from the Registrant’s Form 8-K, filed on November 6, 2009.

SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on August 7, 2014 .
APOLLO INVESTMENT CORPORATION
By:
/s/ JAMES C. ZELTER
James C. Zelter
Chief Executive Officer
By:
/s/ GREGORY W. HUNT
Gregory W. Hunt
Chief Financial Officer and Treasurer


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TABLE OF CONTENTS