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Filed Pursuant to Rule 497(e)
File No. 333-170519

 

 

PROSPECTUS    SUPPLEMENT

(To the prospectus dated September 14, 2012)

$135,000,000

 

6.875% Senior Notes due 2043

 

 

We are offering $135,000,000 in aggregate principal amount of our 6.875% Senior Notes due 2043, which we refer to in this prospectus supplement as the Notes. The Notes will mature on July 15, 2043. We will pay interest on the Notes on January 15, April 15, July 15 and October 15 of each year, beginning October 15, 2013. We may redeem the Notes in whole or in part at any time or from time to time on or after July 15, 2018, at the redemption price discussed under the caption “Specific Terms of the Notes and the Offering—Optional redemption” in this prospectus supplement. The Notes will be issued in minimum denominations of $25 and integral multiples of $25 in excess thereof. We may offer other debt securities from time to time other than the Notes under our Registration Statement or in private placements.

The Notes will be our direct senior unsecured obligations and rank pari passu with all outstanding and future unsecured unsubordinated indebtedness issued by Apollo Investment Corporation.

We intend to apply to list the Notes on The New York Stock Exchange under the symbol “AIY” and, if the application is approved, we expect trading in the Notes on The New York Stock Exchange to begin within 30 days of the original issue date. The Notes are expected to trade “flat.” This means that purchasers will not pay, and sellers will not receive, any accrued and unpaid interest on the Notes that is not reflected in the trading price. Currently, there is no public market for the Notes and it is not expected that a market for the Notes will develop unless and until the Notes are listed on The New York Stock Exchange.

Apollo Investment Corporation is an externally managed closed-end, non-diversified management investment company that has elected to be treated as a business development company, or “BDC,” under the Investment Company Act of 1940, or “1940 Act.” Our primary investment objective is to generate current income and capital appreciation. We invest primarily in various forms of debt investments, including senior secured loans, subordinated and mezzanine investments and/or equity in private middle market companies. From time to time, we may also invest in the securities of public companies.

Investing in our Notes involves risks that are described in the “Risk Factors” sections beginning on page S-8 of this prospectus supplement and page 8 of the accompanying prospectus.

 

 

 

		Per Note				Total
Public Offering Price			100.00	%		$	135,000,000
Underwriting Discounts			3.15	%		$	4,252,500
Proceeds, before expenses, to Apollo Investment Corporation (1)			96.85	%		$	130,747,500

(1) Before deducting expenses payable by us related to this offering, estimated at $300,000.

The public offering price set forth above does not include accrued interest, if any. Interest on the Notes will accrue from June 17, 2013 and must be paid by the purchaser if the Notes are delivered after June 17, 2013.

We have granted the underwriters an option to purchase up to an additional $20,250,000 total aggregate principal amount of Notes solely to cover overallotments, if any, within 30 days of the date of this prospectus supplement. If the underwriters exercise this option in full, the total public offering price will be $155,250,000, the total underwriting discounts and commissions (sales load) paid by us will be $4,890,375, and total proceeds, before expenses, will be $150,359,625.

THE NOTES ARE NOT DEPOSITS OR OTHER OBLIGATIONS OF A BANK AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY.

Delivery of the Notes in book-entry form only through the facilities of The Depository Trust Company will be made on or about June 17, 2013.

This prospectus supplement and the accompanying prospectus contain important information you should know before investing in our Notes. Please read it before you invest and keep it for future reference. We file annual, quarterly and current reports, proxy statements and other information about us with the Securities and Exchange Commission, or the “SEC.” This information is available free of charge by contacting us at 9 West 57th Street, New York, New York 10019, or by calling us at (212) 515-3450. The SEC maintains a website at www.sec.gov where such information is available without charge upon written or oral request. Our Internet website address is www.apolloic.com. Information contained on our website is not incorporated by reference into this prospectus supplement or the accompanying prospectus and you should not consider information contained on our website to be part of this prospectus.

We invest in securities that have been rated below investment grade by independent rating agencies or that would be rated below investment grade if they were rated. These securities, which are often referred to as “junk,” have predominantly speculative characteristics with respect to the issuer’s capacity to pay interest and repay principal. They may also be difficult to value and illiquid.

Neither the SEC nor any state securities commission, nor any other regulatory body, has approved or disapproved of these securities or determined if this prospectus supplement or the accompanying prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

 

 

Joint Book-Running Managers

 

Morgan Stanley		BofA Merrill Lynch		UBS Investment Bank

 

 

Co-Managers

 

Citigroup		Credit Suisse		J.P. Morgan

 

 

The date of this prospectus supplement is June 10, 2013

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You should rely only on the information contained in this prospectus supplement and the accompanying prospectus. We have not, and the underwriters have not, authorized anyone to provide you with additional information, or information different from that contained in this prospectus supplement and the accompanying prospectus. If anyone provides you with different or additional information, you should not rely on it. We are not, and the underwriters are not, offering to sell, and seeking offers to buy, securities in any jurisdictions where offers and sales are not permitted. The information contained in this prospectus supplement and the accompanying prospectus is accurate only as of the date of this prospectus supplement or such prospectus, respectively. Our business, financial condition, results of operations and prospects may have changed since then.

 

 

 

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TABLE OF CONTENTS

PROSPECTUS SUPPLEMENT

 

Specific Terms of the Notes and the Offering			S-1
Recent Developments			S-5
Business			S-6
Risk Factors			S-8
Use of Proceeds			S-12
Selected Financial Data			S-13
Capitalization			S-14
Forward-Looking Statements			S-15
Management’s Discussion and Analysis of Financial Condition and Results of Operations			S-16
Senior Securities			S-30
Ratio of Earnings to Fixed Charges			S-32
Supplement To Material U.S. Federal Income Tax Considerations			S-33
Management Supplement			S-37
Registration and Settlement			S-41
Underwriting			S-45
Trustee, Paying Agent, Registrar and Transfer Agent			S-49
Legal Matters			S-49
Experts			S-49
Index to Financial Statements			S-F-1

 

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PROSPECTUS

 

Prospectus Summary			1
Fees and Expenses			5
Risk Factors			8
Use of Proceeds			30
Dividends			31
Selected Financial Data			33
Forward-Looking Statements			34
Management’s Discussion and Analysis of Financial Condition and Results of Operations			35
Sales of Common Stock Below Net Asset Value			51
Price Range of Common Stock			56
Business			57
Management			68
Certain Relationships			88
Control Persons and Principal Stockholders			89
Portfolio Companies			90
Determination of Net Asset Value			97
Dividend Reinvestment Plan			98
Material U.S. Federal Income Tax Considerations			99
Description of our Capital Stock			106
Description of our Preferred Stock			113
Description of our Warrants			114
Description of our Debt Securities			115
Description of our Units			130
Description of our Subscription Rights			131
Description of our Purchase Contracts			132
Regulation			133
Custodian, Transfer and Dividend Paying Agent, Registrar and Trustee			137
Brokerage Allocation and Other Practices			137
Plan of Distribution			138
Legal Matters			139
Independent Registered Public Accounting Firm			139
Available Information			139

 

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RECENT DEVELOPMENTS

On June 7, 2013, Ashok Bakhru, a member of our Board of Directors (the “Board”) and the chairman of the Board’s Audit Committee, tendered a letter of resignation from the Board effective as of June 14, 2013, which was accepted by the Board. There was no disagreement between Mr. Bakhru and the Company on any matter relating to the Company’s operations, policies or practices.

On June 7, 2013, our Board elected R. Rudolph Reinfrank to the Board, effective as of June 14, 2013, to serve as a Class II director to fill the vacancy created by the resignation of Mr. Bakhru, and elected Mr. Reinfrank to serve as chairman of the Board’s Audit Committee, effective as of June 14, 2013. We are aware of no arrangement or understanding between Mr. Reinfrank and any other person pursuant to which he was appointed as a director. Mr. Reinfrank has no direct or indirect material interest in any transaction or series of similar transactions contemplated by Item 404(a) of Regulation S-K.

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.

On May 20, 2013, we issued 21.85 million shares of our common stock at $8.60 per share (or $8.342 per share net proceeds before estimated expenses), raising $181.9 million of net proceeds. Apollo Investment Management, L.P. (“AIM”), our investment adviser, has agreed to waive the base management and incentive fees associated with the incremental shares issued in such offering through March 31, 2014.

 

 

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BUSINESS

This summary highlights some of the information in this prospectus supplement. It is not complete and may not contain all of the information that you may want to consider. You should read carefully the more detailed information set forth under “Risk Factors” in this prospectus supplement and the accompanying prospectus and the other information included in this prospectus supplement and the accompanying prospectus. In this prospectus supplement and the accompanying prospectus, except where the context suggests otherwise, the terms “we,” “us,” “our,” the “Company,” and “Apollo Investment” refer to Apollo Investment Corporation; “AIM” or “investment adviser” refers to Apollo Investment Management, L.P.; “Apollo Administration” or “AIA” refers to Apollo Investment Administration, LLC; and “Apollo” refers to the affiliated companies of Apollo Investment Management, L.P.

Apollo Investment

Apollo Investment Corporation, 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, mezzanine investments and/or equity in private middle market companies. We may also invest in the securities of public companies and structured products such as collateralized loan obligations.

Our portfolio is comprised primarily of investments in debt, including secured, unsecured and mezzanine 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. In this prospectus supplement, we use the term “middle-market” to refer to companies with annual revenues between $50 million and $2 billion. While our investment objective is to generate current income and capital appreciation through investments in U.S. secured and unsecured loans, other debt securities and equity, we may also invest a portion of the portfolio in other investment opportunities, including foreign securities and structured products. Most of the debt instruments we invest in are unrated or rated below investment grade, which is an indication of size, creditworthiness and speculative nature relative to the capacity to pay interest and principal.

AIM is our investment adviser and an affiliate of Apollo Global Management, LLC, and its consolidated subsidiaries (“AGM”). AGM and other affiliates manage other funds that may have investment mandates that are similar, in whole or in part, with ours. AIM and its affiliates may determine that an investment is appropriate both for us and for one or more of those other funds. In such event, depending on the availability of such investment and other appropriate factors, AIM may determine that we should invest on a side-by-side basis with one or more other funds. We make all such investments subject to compliance with applicable regulations and interpretations, and our allocation procedures. In certain circumstances negotiated co-investments may be made only if we receive an order from the SEC permitting us to do so. There can be no assurance that any such order will be obtained.

During our fiscal year ended March 31, 2013, we invested $1.5 billion across 49 new and 36 existing portfolio companies through a combination of primary and secondary market purchases. This compares to $1.5 billion across 21 new and 18 existing portfolio companies for the previous fiscal year ended March 31, 2012. Investments sold or repaid during the fiscal year ended March 31, 2013 totaled $1.3 billion versus $1.6 billion for the fiscal year ended March 31, 2012. The weighted average yields on our secured loan portfolio, unsecured debt portfolio and total debt portfolio as of March 31, 2013 at our current cost basis were 11.2%, 12.7% and 11.9%, respectively. At March 31, 2012, the yields were 10.2%, 12.7% and 11.9%, respectively.

 

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Our targeted investment size typically ranges between $20 million and $250 million, although this investment size may vary proportionately as the size of our available capital base changes. At March 31, 2013, our net portfolio consisted of 81 portfolio companies and was invested 44% in secured debt, 43% in unsecured debt, 7% in structured products, 0% in preferred equity and 6% in common equity and warrants measured at fair value versus 62 portfolio companies invested 32% in secured debt, 57% in unsecured debt, 3% in structured products, 1% in preferred equity and 7% in common equity and warrants at March 31, 2012.

Since the initial public offering of Apollo Investment in April 2004 and through March 31, 2013, invested capital totaled $10.3 billion in 215 portfolio companies. Over the same period, Apollo Investment completed transactions with more than 100 different financial sponsors.

At March 31, 2013, 64% or $1.6 billion of our income-bearing investment portfolio is fixed rate debt and 36% or $0.9 billion is floating rate debt, measured at fair value. On a cost basis, 65% or $1.6 billion of our income-bearing investment portfolio is fixed rate debt and 35% or $0.9 billion is floating rate debt. At March 31, 2012, 67% or $1.6 billion of our income-bearing investment portfolio was fixed rate debt and 33% or $0.8 billion was floating rate debt. On a cost basis, 65% or $1.7 billion of our income-bearing investment portfolio was fixed rate debt and 35% or $0.9 billion was floating rate debt.

About Apollo Investment Management

AIM, our investment adviser, is led by John Hannan, James Zelter and Edward Goldthorpe. Potential investment opportunities are generally approved by an investment committee composed of senior personnel across AGM including Mr. Zelter and Mr. Goldthorpe. The composition of the investment committee and its approval process for Apollo Investment’s investments may change from time to time. AIM draws upon AGM’s more than 20 year history and benefits from the broader firm’s significant capital markets, trading and research expertise developed through investments in many core sectors in over 200 companies since inception.

About Apollo Investment Administration

In addition to furnishing us with office facilities, equipment, and clerical, bookkeeping and record keeping services, AIA, an affiliate of AGM, also oversees our financial records as well as prepares our reports to stockholders and reports filed with the SEC. AIA also performs the calculation and publication of our net asset value, the payment of our expenses and oversees the performance of various third-party service providers and the preparation and filing of our tax returns. Furthermore, AIA provides on our behalf managerial assistance to those portfolio companies to which we are required to provide such assistance.

Our Corporate Information

Our administrative and principal executive offices are located at 730 Fifth Avenue, New York, NY 10019 and 9 West 57th Street, New York, NY, 10019, respectively. Our common stock is quoted on The NASDAQ Global Select Market under the symbol “AINV.” Our Internet website address is www.apolloic.com. Information contained on our website is not incorporated by reference into this prospectus supplement and you should not consider information contained on our website to be part of this prospectus supplement or the accompanying prospectus.

 

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RISK FACTORS

Your investment in the Notes will involve certain risks. You should carefully consider the risks described below and all of the information contained in this prospectus supplement and the accompanying prospectus before deciding whether to purchase any Notes. The risks and uncertainties described below are not the only risks and uncertainties we face. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also impair our business operations. If any of the following risks actually occur, our business, financial condition and results of operations would suffer. The risks discussed below also include forward-looking statements and our actual results may differ substantially from those discussed in these forward-looking statements. See the section entitled “Forward-Looking Statements” included elsewhere in this prospectus supplement. You should, in consultation with your own financial and legal advisors, carefully consider the following discussion of risks before deciding whether an investment in the Notes is suitable for you.

Our amount of debt outstanding may increase as a result of this offering. Our current indebtedness could adversely affect our business, financial condition and results of operations and our ability to meet our payment obligations under the Notes and our other debt.

As of May 31, 2013, we and our subsidiaries had approximately $1,026 million of senior indebtedness outstanding, $676 million of which was secured indebtedness and $350 million of which was unsecured indebtedness.

The use of debt could have significant consequences on our future operations, including:

 

•

making it more difficult for us to meet our payment and other obligations under the Notes and our other outstanding debt;

 

•

resulting in an event of default if we fail to comply with the financial and other restrictive covenants contained in our debt agreements, which event of default could result in substantially all of our debt becoming immediately due and payable;

 

•

reducing the availability of our cash flow to fund investments, acquisitions and other general corporate purposes, and limiting our ability to obtain additional financing for these purposes;

 

•

subjecting us to the risk of increased sensitivity to interest rate increases on our indebtedness with variable interest rates, including borrowings under our senior secured facility; and

 

•

limiting our flexibility in planning for, or reacting to, and increasing our vulnerability to, changes in our business, the industry in which we operate and the general economy.

Any of the above-listed factors could have an adverse effect on our business, financial condition and results of operations and our ability to meet our payment obligations under the Notes and our other debt.

Our ability to meet our payment and other obligations under our debt instruments depends on our ability to generate significant cash flow in the future. This, to some extent, is subject to general economic, financial, competitive, legislative and regulatory factors as well as other factors that are beyond our control. We cannot assure you that our business will generate cash flow from operations, or that future borrowings will be available to us under our senior secured facility or otherwise, in an amount sufficient to enable us to meet our payment obligations under the Notes and our other debt and to fund other liquidity needs. If we are not able to generate sufficient cash flow to service our debt obligations, we may need to refinance or restructure our debt, including the Notes, sell assets, reduce or delay capital investments, or seek to raise additional capital. If we are unable to implement one or more of these alternatives, we may not be able to meet our payment obligations under the Notes and our other debt.

 

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A downgrade, suspension or withdrawal of the rating assigned by a rating agency to us or the Notes, if any, could cause the liquidity or market value of the Notes to decline significantly.

Our credit ratings are an assessment by rating agencies of our ability to pay our debts when due. Consequently, real or anticipated changes in our credit ratings will generally affect the market value of the Notes. These credit ratings may not reflect the potential impact of risks relating to the structure or marketing of the Notes. Credit ratings are not a recommendation to buy, sell or hold any security, and may be revised or withdrawn at any time by the issuing organization in its sole discretion. Neither we nor any underwriter undertakes any obligation to maintain the ratings or to advise holders of Notes of any changes in ratings.

The Notes will be rated by Standard & Poor’s Ratings Services, or “S&P,” and Fitch Ratings, or “Fitch.” There can be no assurance that their respective ratings will remain for any given period of time or that such ratings will not be lowered or withdrawn entirely by S&P or Fitch if in either of their respective judgments future circumstances relating to the basis of the rating, such as adverse changes in our company, so warrant.

The Notes will be effectively subordinated to any existing and future secured indebtedness and structurally subordinated to existing and future liabilities and other indebtedness of our subsidiaries, and are due after our other outstanding notes.

The Notes will be our general, unsecured obligations and will rank equal in right of payment with all of our existing and future senior, unsecured indebtedness (including, but not limited to, our $200 million in aggregate principal amount of our Unsecured Notes and our $150 million in aggregate principal amount of our 2042 Notes, and senior in right of payment to any of our subordinated indebtedness. As a result, the Notes will be effectively subordinated to our existing and future secured indebtedness (including, but not limited to, as of May 31, 2013, approximately $406 million aggregate principal amount of our indebtedness under our $1.14 billion senior secured facility, our $225 million in aggregate principal amount of our 2015 Notes, our $29 million in aggregate principal amount of our 2016 Notes, and our $16 million in aggregate principal amount of our 2018 Notes to the extent of the value of the assets securing such indebtedness and structurally subordinated to any existing and future liabilities and other indebtedness of our subsidiaries. These liabilities may include indebtedness, trade payables, guarantees, lease obligations and letter of credit obligations. The Notes do not restrict us or our subsidiaries from incurring indebtedness, including senior secured indebtedness in the future, nor do they limit the amount of indebtedness we can issue that is equal in right of payment to the Notes. As of May 31, 2013, we and our subsidiaries had approximately $1,026 million of senior indebtedness outstanding, $676 million of which was secured indebtedness and $350 million of which was unsecured indebtedness.

Each of the Unsecured Notes, the 2042 Notes and the Senior Secured Notes are due prior to the Notes. We do not currently know whether we will be able to replace any of the Unsecured Notes, the 2042 Notes or the Senior Secured Notes, or if we do, whether we will be able to do so on terms that are as favorable as such notes. In the event that we are not able to replace the Unsecured Notes, the 2042 Notes or any of the Senior Secured Notes at the time of their respective maturities, this could have a material adverse effect on our liquidity and ability to fund new investments, our ability to make distributions to our stockholders, our ability to repay the Notes and our ability to qualify as a regulated investment company.

The Indenture under which the Notes will be issued will contain limited protection for holders of the Notes.

The Indenture under which the Notes will be issued will offer limited protection to holders of the Notes. The terms of the Indenture and the Notes do not restrict our or any of our subsidiaries’ ability to engage in, or otherwise be a party to, a variety of corporate transactions, circumstances or events that could have an adverse impact on your investment in the Notes. In particular, the terms of the Indenture and the Notes will not place any restrictions on our or our subsidiaries’ ability to:

 

•

issue securities or otherwise incur additional indebtedness or other obligations, including (1) any indebtedness or other obligations that would be equal in right of payment to the Notes, (2) any

 

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indebtedness or other obligations that would be secured and therefore rank effectively senior in right of payment to the Notes to the extent of the values of the assets securing such debt, (3) indebtedness of ours that is guaranteed by one or more of our subsidiaries and which therefore is structurally senior to the Notes and (4) securities, indebtedness or obligations issued or incurred by our subsidiaries that would be senior to our equity interests in our subsidiaries and therefore rank structurally senior to the Notes with respect to the assets of our subsidiaries, in each case other than an incurrence of indebtedness or other obligation that would cause a violation of Section 18(a)(1)(A) as modified by Section 61(a)(1) of the 1940 Act or any successor provisions;

 

•

pay dividends on, or purchase or redeem or make any payments in respect of, capital stock or other securities ranking junior in right of payment to the Notes;

 

•

sell assets (other than certain limited restrictions on our ability to consolidate, merge or sell all or substantially all of our assets);

 

•

enter into transactions with affiliates;

 

•

create liens (including liens on the shares of our subsidiaries) or enter into sale and leaseback transactions;

 

•

make investments; or

 

•

create restrictions on the payment of dividends or other amounts to us from our subsidiaries.

Furthermore, the terms of the Indenture and the Notes do not protect holders of the Notes in the event that we experience changes (including significant adverse changes) in our financial condition, results of operations or credit ratings, as they do not require that we or our subsidiaries adhere to any financial tests or ratios or specified levels of net worth, revenues, income, cash flow, or liquidity.

Our ability to recapitalize, incur additional debt and take a number of other actions that are not limited by the terms of the Notes may have important consequences for you as a holder of the Notes, including making it more difficult for us to satisfy our obligations with respect to the Notes or negatively affecting the trading value of the Notes.

Certain of our current debt instruments include more protections for their holders than the Indenture and the Notes. See in the accompanying prospectus “Risk Factors—We currently use borrowed funds to make investments and are exposed to the typical risks associated with leverage.” In addition, other debt we issue or incur in the future could contain more protections for its holders than the Indenture and the Notes, including additional covenants and events of default. The issuance or incurrence of any such debt with incremental protections could affect the market for and trading levels and prices of the Notes.

We may be subject to certain corporate-level taxes which could adversely affect our cash flow and consequently adversely affect our ability to make payments on the Notes.

We may be subject to certain corporate-level taxes regardless of whether we continue to qualify as a RIC. Additionally, should we fail to qualify as a RIC, we would be subject to corporate-level taxes on all of our taxable income. The imposition of corporate-level taxes could adversely affect our cash flow and consequently adversely affect our ability to make payments on the Notes.

The Notes may not be approved by The New York Stock Exchange and an active trading market for the Notes may not develop, which could limit the market price of the Notes or your ability to sell them.

The Notes are a new issue of debt securities for which there currently is no trading market. Although we expect the Notes to be listed on The New York Stock Exchange, we cannot provide any assurances that The New

 

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York Stock Exchange will approve the listing of the Notes or that an active trading market will develop for the Notes or that you will be able to sell your Notes. If the Notes are traded after their initial issuance, they may trade at a discount from their initial offering price depending on prevailing interest rates, the market for similar securities, our credit ratings, general economic conditions, our financial condition, performance and prospects and other factors. The underwriters have advised us that they intend to make a market in the Notes, but they are not obligated to do so. The underwriters may discontinue any market-making in the Notes at any time at their sole discretion. Accordingly, we cannot assure you that a liquid trading market will develop for the Notes, that you will be able to sell your Notes at a particular time or that the price you receive when you sell will be favorable. To the extent an active trading market does not develop, the liquidity and trading price for the Notes may be harmed. Accordingly, you may be required to bear the financial risk of an investment in the Notes for an indefinite period of time.

The optional redemption provision may materially adversely affect your return on the Notes.

The Notes are redeemable in whole or in part upon certain conditions at any time or from time to time at our option on or after July 15, 2018. We may choose to redeem the Notes at times when prevailing interest rates are lower than the interest rate paid on the Notes. In this circumstance, you may not be able to reinvest the redemption proceeds in a comparable security at an effective interest rate as high as the Notes being redeemed.

 

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USE OF PROCEEDS

We estimate that the net proceeds from this offering will be approximately $130.45 million (or approximately $150.06 million if the option to purchase up to an additional $20.25 million in aggregate principal amount of Notes is exercised in full) after deducting estimated underwriting discounts and commissions and estimated offering expenses of approximately $0.30 million payable by us.

We expect to use the net proceeds from the sale of the Notes to repay indebtedness owed under our senior secured facility.

At May 31, 2013, we had approximately $406 million outstanding under our senior secured facility. Our senior secured facility matures on May 23, 2016 and bears interest at an annual rate of 225 basis points over the London Interbank Offered Rate, or “LIBOR.”

Affiliates of the underwriters are lenders under the senior secured facility. Accordingly, affiliates of the underwriters will receive the net proceeds of this offering.

We intend to use any net proceeds from this offering that are not applied as described above for general corporate purposes, which includes investing in portfolio companies in accordance with our investment objective.

 

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SELECTED FINANCIAL DATA

The Statement of Operations, Per Share and Balance Sheet data for the fiscal years ended March 31, 2013, 2012, 2011, 2010, and 2009 are derived from our financial statements which have been audited by PricewaterhouseCoopers LLP, our independent registered public accounting firm.

This selected financial data should be read in conjunction with our financial statements and related notes thereto and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in this prospectus supplement and the accompanying prospectus.

 

		For the Year Ended March 31, (dollar amounts in thousands, except per share data)
Statement of Operations Data:		2013				2012				2011				2010				2009
Total Investment Income		$	331,994			$	357,584			$	358,779			$	340,238			$	377,304
Net Expenses (including excise taxes)		$	164,634			$	184,842			$	167,607			$	140,828			$	170,973
Net Investment Income		$	167,360			$	172,742			$	191,172			$	199,410			$	206,331
Net Realized and Unrealized Gains (Losses)		$	(62,889	)		$	(259,006	)		$	(10,760	)		$	63,880			$	(818,210	)
Net Increase (Decrease) in Net Assets Resulting from Operations		$	104,471			$	(86,264	)		$	180,412			$	263,290			$	(611,879	)
Per Share Data:
Net Asset Value		$	8.27			$	8.55			$	10.03			$	10.06			$	9.82
Net Investment Income		$	0.83			$	0.88			$	0.99			$	1.26			$	1.48
Net Increase (Decrease) in Net Assets Resulting from Operations (Basic and Diluted)		$	0.51			$	(0.44	)		$	0.93			$	1.65			$	(4.39	)
Distributions Declared		$	0.80			$	1.04			$	1.12			$	1.10			$	1.82
Balance Sheet Data:
Total Assets		$	2,944,312			$	2,775,263			$	3,148,813			$	3,465,116			$	2,548,639
Debt Outstanding		$	1,156,067			$	1,009,337			$	1,053,443			$	1,060,616			$	1,057,601
Total Net Assets		$	1,677,389			$	1,685,231			$	1,961,031			$	1,772,806			$	1,396,138
Other Data:
Total Return (1)			28.2	%			(32.4	)%			5.1	%			313.0	%			(73.9	)%
Number of Portfolio Companies at Year End			81				62				69				67				72
Total Portfolio Investments for the Year		$	1,537,366			$	1,480,508			$	1,085,601			$	716,425			$	434,995
Investment Sales and Repayments for the Year		$	1,337,431			$	1,634,520			$	977,493			$	451,687			$	339,724
Weighted Average Yield on Debt Portfolio at Year End			11.9	%			11.9	%			11.6	%			11.8	%			11.7	%
Weighted Average Shares Outstanding at Year End (Basic) (2)			202,875				196,584				193,192				159,369				139,469

 

(1)	Total return is based on the change in market price per share and takes into account dividends and distributions, if any, reinvested in accordance with our dividend reinvestment plan.

 

(2)

Weighted Average Shares Outstanding on a diluted basis for the fiscal year ended March 31, 2013 were 217,423. Weighted Average Shares Outstanding on a diluted basis for the fiscal year ended March 31, 2012 were 211,132. Weighted Average Shares Outstanding on a diluted basis for the fiscal year ended March 31, 2011 were 195,823. For the fiscal years ended 2010 and 2009, basic and diluted weighted average shares were the same.

 

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CAPITALIZATION

The following table sets forth our cash and capitalization as of March 31, 2013 (1) on an actual basis, (2) on an as adjusted basis giving effect to the sale of 21.85 million shares of our common stock on May 20, 2013 and (3) as further adjusted to reflect the effects of the offering of the Notes and the application of net proceeds from this offering as described under “Use of Proceeds.” You should read this table together with “Use of Proceeds” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” set forth in this prospectus supplement and our financial statements and notes thereto, as well as “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our financial statements and notes thereto included in the accompanying prospectus. The adjusted information is illustrative only; our capitalization following the completion of this offering is subject to adjustment based on the actual offering of the Notes, which will be determined at pricing.

All amounts in thousands, except per share data

 

		As of March 31, 2013
		Actual (audited)				As Adjusted for Stock Offering (unaudited)				As further Adjusted for this Offering (1) (unaudited)
Cash		$	6,197			$	6,197			$	6,197
Debt
Borrowings under senior secured facility (2)			536,067				354,144				223,697
Senior Secured Notes			270,000				270,000				270,000
Unsecured Notes			200,000				200,000				200,000
2042 Notes			150,000				150,000				150,000
Notes			—				—				135,000
Stockholders’ Equity
Common stock, par value $0.001 per share; 400,000,000 shares authorized, 202,891,351 shares issued and outstanding, 224,741,351 shares issued and outstanding as adjusted, 224,741,351 shares issued and outstanding as further adjusted			203				225				225
Capital in excess of par value			2,933,636				3,115,537				3,115,537
Distributable earnings (3)			(1,256,450	)			(1,256,450	)			(1,256,450	)
Total stockholders’ equity			1,677,389				1,859,312				1,859,312
Total capitalization		$	2,833,456			$	2,833,456			$	2,838,009

 

(1)	Does not include the underwriters’ over-allotment option.

 

(2)	As described under “Use of Proceeds,” we intend to use the net proceeds from this offering to repay a portion of the borrowings outstanding under our senior secured facility.

 

(3)

Includes cumulative net investment income or loss, cumulative amounts of gains and losses realized from investment and foreign currency transactions and net unrealized appreciation or depreciation of investments and foreign currencies, and distributions paid to stockholders other than tax return of capital distributions. Distributable earnings is not intended to represent amounts we may or will distribute to our stockholders.

 

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FORWARD-LOOKING STATEMENTS

Some of the statements in this prospectus supplement constitute forward-looking statements, which relate to future events or our future performance or financial condition. The forward-looking statements contained in this prospectus supplement involve risks and uncertainties, including statements as to:

 

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our future operating results;

 

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our business prospects and the prospects of our portfolio companies;

 

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the impact of investments that we expect to make or have made;

 

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our contractual arrangements and relationships with third parties;

 

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

 

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the ability of our portfolio companies to achieve their objectives;

 

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our expected financings and investments;

 

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the adequacy of our cash resources and working capital; and

 

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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 the factors set forth in “Risk Factors” and elsewhere in this prospectus supplement.

We have based the forward-looking statements included in this prospectus on information available to us on the date of this prospectus. Although we undertake no obligation to revise or update any forward-looking statements, whether as a result of new information, future events or otherwise, we have a general obligation to update to reflect material changes in our disclosures and 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 annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K.

 

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion should be read in conjunction with our financial statements and related notes and other financial information appearing elsewhere in this prospectus supplement and the accompanying prospectus. In addition to historical information, the following discussion and other parts of this prospectus supplement contain forward-looking information that involves risks and uncertainties. Our actual results could differ materially from those anticipated by such forward-looking information due to the factors discussed under “Risk Factors” and “Forward-Looking Statements” appearing elsewhere in this prospectus supplement and the accompanying prospectus.

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 March 31, 2013, we have raised approximately $1.9 billion in net proceeds from additional offerings of common stock. Subsequent to March 31, 2013, we raised an additional $0.2 billion in net proceeds from an offering 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 unsecured or 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 bonds that accrue income on a constant yield to call or maturity basis. In addition, some of our investments provide for payment-in-kind (“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.

 

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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:

 

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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;

 

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

 

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direct costs and expenses of administration, including independent registered public accounting and legal costs;

 

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costs of preparing and filing reports or other documents with the SEC;

 

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interest payable on debt, if any, incurred to finance our investments;

 

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offerings of our common stock and other securities;

 

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registration and listing fees;

 

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fees payable to third parties, including agents, consultants or other advisors, relating to, or associated with, evaluating and making investments;

 

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transfer agent and custodial fees;

 

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taxes;

 

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independent directors’ fees and expenses;

 

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marketing and distribution-related expenses;

 

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the costs of any reports, proxy statements or other notices to stockholders, including printing and postage costs;

 

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our allocable portion of the fidelity bond, directors and officers/errors and omissions liability insurance, and any other insurance premiums;

 

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organizational costs; and

 

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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.

 

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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.

Portfolio and Investment Activity

During our fiscal year ended March 31, 2013, we invested $1.5 billion across 49 new and 36 existing portfolio companies through a combination of primary and secondary market purchases. This compares to investing $1.5 billion in 21 new and 18 existing portfolio companies for the previous fiscal year ended March 31, 2012. Investments sold or repaid during the fiscal year ended March 31, 2013 totaled $1.3 billion versus $1.6 billion for the fiscal year ended March 31, 2012.

At March 31, 2013, our net portfolio consisted of 81 portfolio companies and was invested 44% in secured debt, 43% in unsecured debt, 7% in structured products, 0% in preferred equity and 6% in common equity and warrants measured at fair value versus 62 portfolio companies invested 32% in secured debt, 57% in unsecured debt, 3% in structured products, 1% in preferred equity and 7% in common equity and warrants at March 31, 2012.

The weighted average yields on our secured loan portfolio, unsecured debt portfolio and total debt portfolio as of March 31, 2013 at our current cost basis were 11.2%, 12.7% and 11.9%, respectively. At March 31, 2012, the yields were 10.2%, 12.7%, and 11.9%, respectively.

Since the initial public offering of Apollo Investment in April 2004 and through March 31, 2013, invested capital totaled $10.3 billion in 215 portfolio companies. Over the same period, Apollo Investment completed transactions with more than 100 different financial sponsors.

At March 31, 2013, 64% or $1.6 billion of our income-bearing debt investment portfolio is fixed rate debt and 36% or $0.9 billion is floating rate debt, measured at fair value. On a cost basis, 65% or $1.6 billion of our income-bearing investment portfolio is fixed rate debt and 35% or $0.9 billion is floating rate debt. At March 31, 2012, 67% or $1.6 billion of our income-bearing investment portfolio was fixed rate debt and 33% or $0.8 billion was floating rate debt. On a cost basis, 65% or $1.7 billion of our income-bearing investment portfolio was fixed rate debt and 35% or $0.9 billion was floating rate debt.

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.

Valuation of Portfolio Investments

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

 

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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 Level 3 categorized assets. Debt investments with remaining maturities of 60 days or less shall 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. 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 in the valuation process of independent valuation firms. For the fiscal year ended March 31, 2013, there was no change to Apollo Investment’s valuation techniques and related inputs considered in the valuation process.

 

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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 Apollo Investment 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.

Revenue Recognition

Apollo Investment 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 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, Apollo Investment 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 Apollo Investment 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. Apollo Investment 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 Apollo Investment believes that PIK is expected to be realized. For the fiscal year ended March 31, 2013, accrued PIK totaled $20.3 million, on total investment income of $332.0 million. 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. Structuring fees are recorded as other income when earned. 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.

Net Realized Gains or Losses and Net Change in Unrealized Appreciation or Depreciation

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 appreciation or depreciation reflects the change in portfolio investment values during the reporting period, including the reversal of previously recorded unrealized appreciation or depreciation.

 

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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

Results comparisons are for the fiscal years ended March 31, 2013, March 31, 2012 and March 31, 2011.

Investment Income

For the fiscal years ended March 31, 2013, 2012 and 2011, gross investment income totaled $332.0 million, $357.6 million and $358.8 million, respectively. The decrease in gross investment income from fiscal year 2012 to fiscal year 2013 was primarily driven by a smaller portfolio, on average with which to generate income. This was partially offset by slightly higher yields on the debt portfolio. Also contributing to the decrease in gross investment income was lower non-recurring income of $9.1 million in fiscal year 2013. The decrease in gross investment income from fiscal year 2011 to fiscal year 2012 was primarily due to a decrease in the size of the income-producing portfolio as compared to the previous fiscal year and was partially offset by an increase in the weighted average portfolio yield as well as an increase in other income.

Net Expenses

Net expenses totaled $164.6 million, $184.8 million and $167.6 million, respectively, for the fiscal years ended March 31, 2013, 2012 and 2011, of which $94.1 million, $100.0 million and $107.6 million, respectively, were base management fees and performance-based incentive fees and $58.2 million, $66.4 million and $48.0 million, respectively, were interest and other debt expenses. Administrative services and other general and administrative expenses totaled $12.3 million, $18.5 million and $12.0 million, respectively, for the fiscal years ended March 31, 2013, 2012 and 2011. Net expenses consist of base investment advisory and management fees, insurance expenses, administrative services fees, legal fees, directors’ fees, audit and tax services expenses, and other general and administrative expenses. The decrease in net expenses from fiscal 2012 to fiscal 2013 was primarily due to lower interest and debt costs as a result of less debt outstanding, on average, during the fiscal year-ended March 31, 2013, lower management and incentive fees as a result of the implementation of the fee waiver in fiscal 2013 coupled with a smaller asset base in which to generate management fees. Lastly, in fiscal 2012 there were $4 million of non-recurring expenses as compared to $1 million of non-recurring expense in fiscal 2013. The increase in net expenses from fiscal 2011 to fiscal 2012 was primarily due to an increase in interest and other debt expenses as our net weighted average annual interest cost increased by approximately 100 basis points. This increase was due to the impact of fixed rate debt issuances. Additionally, during fiscal 2012 there were net non-recurring general and administrative expenses that totaled over $4 million. There were no accrued excise tax expenses for the fiscal years ended March 31, 2013, 2012 and 2011.

Net Investment Income

Apollo Investment’s net investment income totaled $167.4 million, $172.7 million and $191.2 million, or $0.83, $0.88 and $0.99 on a per average share basis, respectively, for the fiscal years ended March 31, 2013, 2012 and 2011.

Net Realized Losses

Apollo Investment had investment sales and repayments totaling $1.3 billion, $1.6 billion and $977 million, respectively, for the fiscal years ended March 31, 2013, 2012 and 2011. Net realized losses for the fiscal years ended March 31, 2013, 2012, and 2011 were $74.7 million, $341.4 million and $152.0 million, respectively. Net realized losses incurred during fiscal year 2013 were primarily derived from the exits of select investments, specifically New Omaha Holdings equity, Cengage Learning Acquisitions 2nd Lien, and RBS Holdings 1st Lien which comprised approximately $78 million of the net realized loss totals. The realized losses

 

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incurred upon the exit of New Omaha Holdings equity and RBS Holdings 1st Lien reversed out $40 million and $5 million, respectively, of previously reported unrealized losses. Net realized losses incurred during fiscal year 2012 were primarily derived from the exits of select investments, specifically Grand Prix Holdings, which accounted for over $273 million of the realized loss totals, but also included Playpower Holdings, TL Acquisitions and FSC Holdings, among others. The realized losses incurred upon the exit of these investments reversed out previously reported unrealized losses. Net realized losses incurred during fiscal year 2011 were primarily related to sales and restructurings of certain underperforming portfolio companies such as American Safety Razor, LVI Devices and Pacific Crane Maintenance Company, various portfolio optimization measures, and our liquidity management strategy during the financial crisis early in the 2010 fiscal year.

Net Unrealized Appreciation (Depreciation) on Investments, Cash Equivalents and Foreign Currencies

For the fiscal years ended March 31, 2013, 2012 and 2011 net change in unrealized appreciation on Apollo Investment’s investments, cash equivalents, foreign currencies and other assets and liabilities totaled $11.8 million, $82.4 million and $141.3 million, respectively. Driving the positive impact to unrealized appreciation was New Omaha and AB Acquisitions which were both exited in the fiscal year 2013 which resulted in the reversal of approximately $50 million of previously recognized negative unrealized depreciation. Other significant contributors to the positive change in unrealized depreciation for the period were investments in AIC Credit Opportunity Fund, LVI Services, Penton Business Media Holdings, LLC and Ceridian Corporation. Offsetting the positive impact of these investments were select holdings in certain portfolio companies such as Cengage, Playpower, Delta and Garden Fresh which resulted in negative unrealized depreciation during fiscal 2013. Net unrealized appreciation for fiscal 2012 included the reclassification of over $273 million of previously recognized unrealized depreciation on our investment in Grand Prix Holdings to a realized loss. This reclassification was offset by generally weaker capital market conditions as compared to the year ago period. Net unrealized appreciation for fiscal 2011 was primarily due to the recognition of realized losses which reversed unrealized depreciation, net changes in specific portfolio company fundamentals, and improving capital market conditions.

Net Increase (Decrease) in Net Assets From Operations

For the fiscal year ended March 31, 2013, Apollo Investment had a net increase in net assets resulting from operations of $104.5 million. For the fiscal year ended March 31, 2012, Apollo Investment had a net decrease in net assets resulting from operations of $86.3 million. For the fiscal years ended March 31, 2011, Apollo Investment had a net increase in net assets resulting from operations of $180.4 million. For the year ended March 31, 2013, basic and diluted income per average share were $0.51. For the year ended March 31, 2012, basic and diluted losses per average share were $0.44. For the year ended March 31, 2011, basic and diluted earnings per average share were $0.93.

LIQUIDITY AND CAPITAL RESOURCES

Apollo Investment’s liquidity and capital resources are generated and generally available through periodic follow-on equity and debt offerings, our senior secured, multi-currency $1.14 billion Senior Secured Facility maturing on May 23, 2016 (see note 12 of our financial statements dated March 31, 2013 included herein), 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. Apollo Investment 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, Apollo Investment 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 Apollo Investment’s status as a RIC, this non-cash source of income must be paid out to stockholders annually in

 

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the form of dividends, even though Apollo Investment has not yet collected the cash. For the fiscal year ended March 31, 2013, accrued PIK totaled $20.3 million, on total investment income of $332.0 million. At March 31, 2013, Apollo Investment had $536 million in borrowings outstanding on its Senior Secured Facility and $604 million of unused capacity. As of March 31, 2013, aggregate lender commitments under the Senior Secured Facility totaled $1.140 billion.

On September 30, 2010, Apollo Investment 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 Apollo Investment’s Senior Secured Facility.

On January 25, 2011, we 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. 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 Apollo Investment’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 Apollo Investment’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 August 11, 2011, Apollo Investment 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. Apollo Investment’s plan was designed to allow it to repurchase its shares both during its open window periods and at times when it otherwise might be prevented from doing so under insider trading laws or because of self-imposed trading blackout periods. A broker selected by Apollo Investment will have the authority under the terms and limitations specified in the plan to repurchase shares on Apollo Investment’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, 2013, no shares have been repurchased.

On September 29, 2011, Apollo Investment 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

 

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A, of Apollo Investment due September 29, 2016 in the aggregate principal amount of $29 million; and (2) 6.250% Senior Secured Notes, Series B, of Apollo Investment 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.

In April 2012, Apollo Investment announced that a subsidiary of Apollo Global Management, LLC purchased 5,847,953 newly issued shares of Apollo Investment 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, 2014.

On October 9, 2012, Apollo Investment 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 a rate of 6.625% per year, commencing on January 15, 2013. The 2042 Notes mature on October 15, 2042. Apollo Investment may redeem the 2042 Notes in whole or in part at any time or from time to time on or after October 15, 2017.

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(n) of our financial statements dated March 31, 2013 included herein). 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 March 31, 2013.

Contractual Obligations

 

		Payments due by Period as of March 31, 2013 (dollars  in millions)
		Total				Less than 1 year				1-3 years				3-5 years				More than 5 years
Senior Secured Facility (1)		$	536			$	—			$	447			$	89			$	—
Senior Secured Notes		$	225			$	—			$	225			$	—			$	—
Senior Secured Notes (Series A)		$	29			$	—			$	—			$	29			$	—
Senior Secured Notes (Series B)		$	16			$	—			$	—			$	—			$	16
2042 Notes		$	150			$	—			$	—			$	—			$	150
Convertible Notes		$	200			$	—			$	—			$	200			$	—

 

(1)	At March 31, 2013, the Senior Secured Facility had $604 million of unused capacity.

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

 

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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 of our financial statements dated March 31, 2013 included herein.

Off-Balance Sheet Arrangements

As of March 31, 2013, Apollo Investment had outstanding commitments with banks to purchase secured term loans and unsecured bridge loans in the aggregate amount of $105 million. Apollo Investment’s commitments are subject to the consummation of the underlying corporate transactions and conditional upon receipt of all necessary shareholder, regulatory and other applicable approvals.

As of May 23, 2013 the outstanding commitments with banks to purchase secured term loans and unsecured bridge loans in the aggregate was $220 million.

Apollo Investment had unfunded commitments on senior loans as of March 31, 2013 of $59 million. Apollo Investment also had unfunded commitments on senior loans of $83 million which require the borrower to meet certain performance thresholds before Apollo Investment is obligated to fulfill the commitments. Those performance thresholds were not met as of March 31, 2013.

AIC Credit Opportunity Fund LLC (currencies in thousands)

We own 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 owns 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. Each of these transactions is described in more detail below together with summary financial information.

In the first of these investments, 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 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. Consequently, the maximum exposure on this investment is the amount of our investment in the Junior Note and any additional collateral we determine to post. During the fiscal year ended March 31, 2012 the Trust sold $47,145 face value of the FDC Loan. As a result of this transaction, as of March 31, 2013, the FDC Loan balance is $52,855, the Junior Note balance is $21,472 and the Senior Note balance is $20,283.

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

 

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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%. As of March 31, 2013, Apollo TXU’s notional exposure to the TXU term loan is $47,471.

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. At March 31, 2013, there was no outstanding principal balance of the Boots Term Loans.

We do not consolidate AIC Holdco or its wholly owned subsidiaries and accordingly only the value of our investment in AIC Holdco is included on our statement of assets and liabilities. Our investment in AIC Holdco is valued in accordance with our normal valuation procedures and is based on the values of the underlying assets held by each of Apollo FDC, Apollo TXU and Apollo Boots net of associated liabilities.

The Senior Note, TRS and Acquisition Loan are non-recourse to AIC Holdco, its subsidiaries and us and have standard events of default including failure to pay contractual amounts when due and failure by each of the underlying Apollo special purpose entities to provide additional credit support, sell assets or prepay a portion of its obligations if the value of the FDC Term Loan, the TXU Term Loan or the Boots Term Loans, as applicable, declines below specified levels. We may unwind any of these transactions at any time without penalty. From time to time we may provide additional capital to AIC Holdco for purposes of reserving for or funding margin calls under one or more of the transactions described above among other reasons. During the fiscal year ended March 31, 2011, $1,700 of net capital was provided to AIC Holdco. During the fiscal year ended March 31, 2012, $8,712 of net capital was returned to us from AIC Holdco. During the fiscal year ended March 31, 2013, $17,891 of net capital was returned to us from AIC Holdco. The Junior Note, TRS and Boots Term Loans were performing assets as of the date of these financial statements.

 

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Below is summarized financial information for AIC Holdco for the fiscal years ended March 31, 2013 and March 31, 2012.

 

		March 31, 2013				March 31, 2012
Assets
Cash		$	10			$	15
Apollo FDC (1)			32,981				27,947
Apollo TXU (2)			26,641				26,066
Apollo Boots (3)			—				47,999
Other Assets			2,702				2,886
Total Assets		$	62,334			$	104,913
Liabilities
Apollo FDC (4)		$	—			$	—
Apollo TXU (5)			8,936				16,045
Apollo Boots (6)			—				29,948
Other Liabilities			2,702				2,886
Total Liabilities		$	11,638			$	48,879
Net Assets
Apollo FDC		$	32,981			$	27,947
Apollo TXU			17,705				10,021
Apollo Boots			—				18,051
Other			10				15
Total Net Assets		$	50,696			$	56,034

 

		Fiscal Year End     March 31, 2013				Fiscal Year End     March 31, 2012
Net Operating Income (Loss)
Apollo FDC (7)		$	5,388			$	9,412
Apollo TXU (7)			1,237				2,809
Apollo Boots (7)			745				1,243
Other			(5	)			(26	)
Total Operating Income		$	7,365			$	13,438
Net Realized Gain
Apollo Boots		$	659			$	—
Apollo FDC			—				2,862
Total Net Realized Gain (Loss)		$	659			$	2,862
Net Change in Unrealized Gain (Loss)
Apollo FDC		$	5,034			$	(14,484	)
Apollo TXU			7,110				(13,126	)
Apollo Boots			(244	)			(2,852	)
Total Net Change in Unrealized Gain (Loss)		$	11,900			$	(30,462	)
Net Income (Loss) (8)
Apollo FDC		$	10,422			$	(2,210	)
Apollo TXU			8,347				(10,317	)
Apollo Boots			1,160				(1,609	)
Other			(5	)			(26	)
Total Net Income (Loss)		$	19,924			$	(14,162	)

 

(1)	Includes fair value of the Junior Note held by Apollo FDC. Cost: $21,472 and $21,472, respectively.

 

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(2)	Represents fair value of collateral posted in relation to the TRS held by Apollo TXU. Cost: $26,641 and $26,066, respectively.

(3)	Represents fair value of the Boots Term Loans held by Apollo Boots and fair value of receivable for Boots Term Loans sold during the period. Cost of outstanding par was $50,109 at March 31, 2012. There was no outstanding par at March 31, 2013.

(4)	Apollo FDC’s interest in the Trust is subject to a senior note of a separate entity of $20,283 and $20,283 at March 31, 2013 and March 31, 2012, respectively; However, Apollo FDC has no liability for such senior note.

(5)	Represents liability on the TRS held by Apollo TXU.

(6)	Represents liability of Apollo Boots on the Acquisition Loan.

(7)

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 (to) 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.

(8)	Net income is the sum of operating income, realized gain (loss) and net change in unrealized appreciation / depreciation.

Dividends

Dividends paid to stockholders for the fiscal years ended March 31, 2013, 2012 and 2011 totaled $162.3 million or $0.80 per share, $204.4 million or $1.04 per share, and $218.1 million or $1.12 per share, respectively. Tax characteristics of all dividends will be reported to shareholders on Form 1099 after the end of the calendar year. Our quarterly dividends, if any, will be determined by our Board of Directors.

The following table summarizes our quarterly dividends paid to stockholders for the fiscal years ended March 31, 2013, 2012 and 2011, respectively:

 

		Declared Dividends
Fiscal Year Ending March 31, 2013
Fourth Fiscal Quarter		$	0.20
Third Fiscal Quarter		$	0.20
Second Fiscal Quarter		$	0.20
First Fiscal Quarter		$	0.20
Fiscal Year Ending March 31, 2012
Fourth Fiscal Quarter		$	0.20
Third Fiscal Quarter		$	0.28
Second Fiscal Quarter		$	0.28
First Fiscal Quarter		$	0.28
Fiscal Year Ending March 31, 2011
Fourth Fiscal Quarter		$	0.28
Third Fiscal Quarter		$	0.28
Second Fiscal Quarter		$	0.28
First Fiscal Quarter		$	0.28

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.

 

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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.

Recent Events

The Board of Directors declared a dividend of $0.20 per share for the first fiscal quarter of 2014, payable on July 5, 2013 to stockholders of record as of June 20, 2013.

On May 20, 2013, we issued 21.85 million shares of our common stock at $8.60 per share (or $8.342 per share net proceeds before estimated expenses), raising $181.9 million of net proceeds. AIM, our investment adviser, has agreed to waive the base management and incentive fees associated with the incremental shares issued in the offering through March 31, 2014.

QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

We are subject to financial market risks, including changes in interest rates. During the fiscal year ended March 31, 2013, 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. As the percentage of our U.S. mezzanine and other subordinated loans increase as a percentage of our total investments, we expect that more of the loans in our portfolio will have fixed rates. Apollo Investment also has a revolving credit facility that is based on floating LIBOR rates. Assuming no changes to our balance sheet as of March 31, 2013, a hypothetical one percent increase in LIBOR on our floating rate assets and liabilities would decrease our earnings by approximately two cents per average share over the next twelve months. Assuming no changes to our balance sheet as of March 31, 2013, a hypothetical two percent increase in LIBOR on our floating rate assets and liabilities would increase our earnings by three cents per average share over the next twelve months. Assuming no changes to our balance sheet as of March 31, 2013, a hypothetical three percent increase in LIBOR on our floating rate assets and liabilities would increase our earnings by approximately five cents per average share over the next twelve months. However, 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. During the fiscal year ended March 31, 2013, we did not engage in interest rate hedging activities.

 

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SENIOR SECURITIES

Information about our senior securities is shown in the following table as of each year ended March 31 since we commenced operations, unless otherwise noted. The “—” indicates information which the SEC expressly does not require to be disclosed for certain types of senior securities. The report of our independent registered public accounting firm covering the total amount of senior securities outstanding as of March 31, 2013, 2012, 2011, 2010, 2009, 2008, 2007 and 2006 is attached as an exhibit to the registration statement of which this prospectus supplement and accompanying prospectus are a part.

 

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 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 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 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
Convertible Notes
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

 

(1)	Total amount of each class of senior securities outstanding at the end of the period presented.

 

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(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 $1 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.

 

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RATIO OF EARNINGS TO FIXED CHARGES

For the years ended March 31, 2013, 2012, 2011, 2010 and 2009, the ratios of earnings to fixed charges of the Company, computed as set forth below, were as follows:

 

		For the Year Ended March 31, 2013				For the Year Ended March 31, 2012				For the Year Ended March 31, 2011				For the Year Ended March 31, 2010				For the Year Ended March 31, 2009
Earnings to Fixed Charges (1)			2.80					(2)			4.76				11.81					(2)

For purposes of computing the ratios of earnings to fixed charges, earnings represent net increase in net assets resulting from operations plus (or minus) income tax expense including excise tax expense plus fixed charges. Fixed charges include interest and senior secured facility fees expense and amortization of debt issuance costs.

(1) Earnings include the net change in unrealized appreciation or depreciation. Net change in unrealized appreciation or depreciation can vary substantially from year to year. Excluding the net change in unrealized appreciation or depreciation, the earnings to fixed charges ratio would be 2.59 for the year ended March 31, 2013, 1.82 for the year ended March 31, 2011 and 3.52 for the year ended March 31, 2009. Excluding the net change in unrealized appreciation or depreciation, the ratio coverage for the years ended March 31, 2012 and March 31, 2010, was less than one-to-one. The Company would have needed to generate additional earnings of $168,701 and $272,399 (in thousands) to achieve a coverage of one-to-one in 2012 and 2010, respectively. Excluding the net change in unrealized appreciation or depreciation in the calculation of earnings to fixed charges ratio is a non-GAAP measure.

(2) Due to the Company’s loss for the years ended March 31, 2012 and March 31, 2009, the ratio coverage was less than one-to-one. The Company would have needed to generate additional earnings of $86,264 and $611,359 (in thousands) to achieve a coverage of one-to-one for the years ended March 31, 2012 and March 31, 2009, respectively.

 

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SUPPLEMENT TO MATERIAL U.S. FEDERAL INCOME TAX CONSIDERATIONS

The following summary of certain U.S. federal income tax considerations supplements the discussion set forth under the heading “Material U.S. Federal Income Tax Considerations” in the accompanying prospectus and is subject to the qualifications and assumptions set forth therein.

The following is a general summary of certain U.S. federal income tax considerations relating to the purchase, ownership and disposition of the Notes. This discussion is based upon the Code, Treasury Regulations and judicial decisions and administrative interpretations thereof, all as of the date hereof and all of which are subject to change or differing interpretations, possibly with retroactive effect. No ruling from the IRS has been sought regarding any matter discussed herein. No assurance can be given that the IRS would not assert, or that a court would not sustain, a position contrary to any of the tax aspects set forth below.

This discussion applies only to a holder of Notes that acquires the Notes for cash pursuant to this offering at the initial offering price and who holds the Notes as a capital asset (generally, property held for investment) under the Code. This discussion does not address any U.S. federal estate or gift tax consequences or any state, local or non-U.S. tax consequences. In addition, this discussion does not address all aspects of U.S. federal income taxation that may be applicable to investors in light of their particular circumstances, or to investors subject to special treatment under U.S. federal income tax law, including, but not limited to:

 

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banks, insurance companies or other financial institutions;

 

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persons subject to the alternative minimum tax;

 

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cooperatives;

 

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tax-exempt organizations;

 

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dealers in securities;

 

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traders in securities that elect a mark-to-market method of accounting;

 

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“U.S. Noteholders” (as defined below) whose functional currency is not the U.S. dollar;

 

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U.S. expatriates;

 

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foreign persons or entities (except to the extent set forth below);

 

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persons deemed to sell the Notes under the constructive sale provisions of the Code; or

 

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persons that hold the Notes as part of a straddle, hedge, conversion transaction or other integrated investment.

If a partnership (including any entity or arrangement treated as a partnership for U.S. federal income tax purposes) owns Notes, the tax treatment of a partner in the partnership will depend upon the status of the partner and the activities of the partnership. Partners in a partnership that owns Notes should consult their tax advisors as to the particular U.S. federal income tax consequences applicable to them.

We encourage investors to consult their tax advisors regarding the specific consequences of an investment in our Notes, including tax reporting requirements, the applicability of U.S. federal, state, local and non-U.S. tax laws, eligibility for the benefits of any applicable tax treaty and the effect of any possible changes in the tax laws.

Consequences to U.S. Noteholders

The following is a general summary of certain U.S. federal income tax consequences that will apply to you if you are a U.S. Noteholder. Certain U.S. federal income tax consequences to non-U.S. Noteholders are described under “Consequences to Non-U.S. Noteholders” below. For purposes of this summary, the term “U.S.

 

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Noteholder” means a beneficial owner of a Note that is, for U.S. federal income tax purposes (i) an individual who is a citizen or resident of the U.S., (ii) a corporation, or other entity treated as a corporation for U.S. federal income tax purposes, that is created or organized under the laws of the U.S., any of the States or the District of Columbia, (iii) an estate the income of which is subject to U.S. federal income taxation regardless of its source, or (iv) a trust (A) if a court within the U.S. is able to exercise primary supervision over its administration and one or more U.S. persons have the authority to control all substantial decisions of such trust, or (B) that has made a valid election to be treated as a U.S. person for U.S. federal income tax purposes.

Stated interest on the Notes

A U.S. Noteholder generally will be required to recognize stated interest as ordinary income at the time it is paid or accrued on the Notes in accordance with its regular method of accounting for U.S. federal income tax purposes. The Notes are not being issued with original issue discount for U.S. federal income tax purposes.

Sale, exchange, redemption or other taxable disposition of the Notes

Upon the sale, exchange, redemption or other taxable disposition of a Note, a U.S. Noteholder generally will recognize capital gain or loss in an amount equal to the difference between (1) the sum of cash plus the fair market value of all other property received on such disposition (except to the extent such cash or property is attributable to accrued but unpaid interest, which, to the extent not previously included in income, generally will be taxable as ordinary income) and (2) its adjusted tax basis in the Note. A U.S. Noteholder’s adjusted tax basis in a Note generally will equal the price the U.S. Noteholder paid for the Note. Such capital gain or loss will be long-term capital gain or loss if, at the time of such taxable disposition, the U.S. Noteholder has held the Note for more than one year. The deductibility of capital losses is subject to limitations.

Medicare Tax

Certain U.S. Noteholders who are individuals, estates or trusts and whose income exceeds certain thresholds will be required to pay a 3.8% Medicare tax on all or a portion of their interest and other investment income, including interest on the Notes and capital gains from the sale or other disposition of the Notes.

Consequences to Non-U.S. Noteholders

The following is a general summary of certain U.S. federal income tax consequences that will apply to you if you are a non-U.S. Noteholder. A beneficial owner of a Note that is not a partnership or other pass through entity for U.S. federal income tax purposes or a U.S. Noteholder is referred to herein as a “non-U.S. Noteholder.”

Stated interest on the Notes

Stated interest paid or accrued to a non-U.S. Noteholder will generally not be subject to U.S. federal income or withholding tax if the interest is not effectively connected with its conduct of a trade or business within the U.S., and the non-U.S. Noteholder:

 

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does not own, actually or constructively, 10% or more of the total combined voting power of all classes of our stock entitled to vote;

 

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is not a “controlled foreign corporation” with respect to which we are, directly or indirectly, a “related person;”

 

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is not a bank whose receipt of interest on the Notes is described in section 881(c)(3)(A) of the Code; and

 

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provides its name and address, and certifies, under penalties of perjury, that it is not a U.S. person (on a properly executed IRS Form W-8BEN or other applicable form), or holds its Notes through certain foreign intermediaries and satisfies the certification requirements of applicable Treasury Regulations.

If a non-U.S. Noteholder does not qualify for an exemption under these rules, interest income from the Notes may be subject to withholding tax at the rate of 30% (or lower applicable treaty rate). Stated interest that is effectively connected with a non-U.S. Noteholder’s conduct of a U.S. trade or business (and, if required by an applicable income tax treaty, is attributable to a United States permanent establishment), however, would not be subject to a 30% withholding tax so long as the non-U.S. Noteholder provides us or our paying agent an adequate certification (currently on IRS Form W-8ECI); such payments of interest generally would be subject to U.S. federal income tax on a net basis at the rates applicable to U.S. persons generally. In addition, if a non-U.S. Noteholder is a foreign corporation and the stated interest is effectively connected with its conduct of a U.S. trade or business (and, if required by an applicable income tax treaty, is attributable to a United States permanent establishment), it may also be subject to a 30% (or lower applicable treaty rate) branch profits tax on its effectively connected earnings and profits for the taxable year, subject to adjustments. To claim the benefit of a tax treaty, a non-U.S. Noteholder must provide a properly executed IRS Form W-8BEN (or other applicable form) to us or our paying agent before the payment of stated interest and may be required to obtain a U.S. taxpayer identification number and provide documentary evidence issued by foreign governmental authorities to prove residence in the foreign country.

Sale, exchange, redemption or other taxable disposition of the Notes

Any gain recognized by a non-U.S. Noteholder on the sale, exchange, redemption or other taxable disposition of the Notes (except with respect to accrued and unpaid interest, which would be taxed as described under “Consequences to Non-U.S. Noteholders—Stated interest on the Notes” above) generally will not be subject to U.S. federal income tax unless:

 

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the non-U.S. Noteholder’s gain is effectively connected with its conduct of a U.S. trade or business (and, if required by an applicable income tax treaty, is attributable to a United States permanent establishment); or

 

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the non-U.S. Noteholder is a nonresident alien individual present in the U.S. for 183 or more days in the taxable year within which the sale, exchange, redemption or other disposition takes place and certain other requirements are met.

If a non-U.S. Noteholder is a holder described in the first bullet point above, the net gain derived from the sale, exchange, redemption or other taxable disposition of its Notes generally will be subject to U.S. federal income tax on a net basis at the rates applicable to U.S. persons generally. In addition, if such non-U.S. Noteholder is a foreign corporation, it may also be subject to a 30% (or lower applicable treaty rate) branch profits tax on its effectively connected earnings and profits for the taxable year, subject to adjustments. If a non-U.S. Noteholder is a holder described in the second bullet point above, it will be subject to a flat 30% U.S. federal income tax on the gain derived from the sale, exchange, redemption or other taxable disposition of its Notes, which may be offset by U.S. source capital losses, even though it is not considered a resident of the United States.

Non-U.S. Noteholders should consult any applicable income tax treaties that may provide for different rules. In addition, non-U.S. Noteholders are urged to consult their tax advisors regarding the tax consequences of the purchase, ownership and disposition of the Notes.

 

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Information Reporting and Backup Withholding

U.S. Noteholders

Payments of principal and interest on, or the proceeds of the sale or other disposition of, a note are generally subject to information reporting unless the U.S. Noteholder is an exempt recipient (such as a corporation). Such payments may also be subject to U.S. federal backup withholding tax at the applicable rate if the recipient of such payment fails to supply a taxpayer identification number, certified under penalties of perjury, as well as certain other information or otherwise fails to establish an exemption from backup withholding. Any amounts withheld under the backup withholding rules will be allowed as a refund or credit against that U.S. Noteholder’s U.S. federal income tax liability provided the required information is timely furnished to the IRS.

Non-U.S. Noteholders

A non-U.S. Noteholder may be required to comply with certain certification procedures to establish that the holder is not a U.S. person (as defined under the Code) in order to avoid backup withholding tax with respect to our payment of principal and interest on, or the proceeds of the sale or other disposition of, a Note. Any amounts withheld under the backup withholding rules will be allowed as a refund or a credit against that non-U.S. Noteholder’s U.S. federal income tax liability provided the required information is timely furnished to the IRS. In certain circumstances, the name and address of the beneficial owner and the amount of interest paid on a Note, as well as the amount, if any, of tax withheld, may be reported to the IRS. Copies of these information returns may also be made available under the provisions of a specific treaty or agreement to the tax authorities of the country in which the non-U.S. Noteholder resides.

 

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MANAGEMENT SUPPLEMENT

The information below replaces in its entirety the information in the accompanying prospectus under the heading “Management—Portfolio Managers” and provides biographies of each portfolio manager.

AIM, our investment adviser, is led by John Hannan, James C. Zelter and Edward Goldthorpe. Potential investment opportunities are generally approved by an investment committee comprised of senior personnel across AGM, including Mr. Zelter and Mr. Goldthorpe. The composition of the investment committee and its approval process for the Company’s investments may change from time to time. AIM draws upon AGM’s more than 20 year history and benefits from the broader firm’s significant capital markets, trading and research expertise developed through investments in many core sectors in over 200 companies since inception.

The following individuals (the “Portfolio Managers”) have senior responsibility for the management of our investment portfolio: Edward Goldthorpe, James C. Zelter, Phil Guerin, Justin Sendak and Robert Ruberrton. In addition Mr. Zelter and Mr. Goldthorpe are members of the investment committee that generally approves potential investment opportunities for the Company, and Mr. Goldthorpe is also our Chief Investment Officer and has primary responsibility for the day-to-day implementation and management of our investment portfolio.

Other Accounts Managed. As of March 31, 2013, the Portfolio Managers were primarily responsible for the day-to-day portfolio management of the following accounts:

 

Name of Portfolio Manager		Type of Accounts		Total Number of  Accounts Managed				Total Assets (in millions)(1)				Number of Accounts Managed for which Advisory Fee is Based on Performance				Total Assets for which Advisory Fee is Based on Performance (in millions)(2)
Edward Goldthorpe		Registered Investment Companies:			None				—				—				—
		Other Pooled Investment Vehicles:			8			$	2,522				8			$	2,522
		Other Accounts:			1			$	31				1			$	31
James C. Zelter		Registered Investment Companies:			None				—				—				—
		Other Pooled Investment Vehicles:			None				—				—				—
		Other Accounts:			None				—				—				—
Phil Guerin		Registered Investment Companies:			None				—				—				—
		Other Pooled Investment Vehicles:			None				—				—				—
		Other Accounts:			None				—				—				—
Justin Sendak		Registered Investment Companies:			None				—				—				—
		Other Pooled Investment Vehicles:			None				—				—				—
		Other Accounts:			None				—				—				—
Robert Ruberton		Registered Investment Companies:			None				—				—				—
		Other Pooled Investment Vehicles:			8			$	5,202				8			$	5,202
		Other Accounts:			1			$	96				—				—

 

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(1)	Total assets represents assets under management as defined by Apollo Global Management, LLC, which includes unfunded commitments.

(2)	Represents the assets under management of the accounts managed that generate incremental fees in addition to management fees.

Compensation. AIM’s financial arrangements with the Portfolio Managers, its competitive compensation and its career path emphasis at all levels reflect the value senior management places on key resources. Compensation may include a variety of components and may vary from year to year based on a number of factors. The principal components of compensation include base compensation and discretionary compensation.

Base Compensation. Generally, Portfolio Managers receive an annual salary that is consistent with the market rate of annual salaries paid to similarly situated investment professionals.

Discretionary Compensation. Portfolio Managers also receive discretionary compensation generally consisting of two components: an annual bonus and carried interest.

 

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Annual Bonus. Generally, a Portfolio Manager receives an annual bonus based on such person’s individual performance, operational performance for the Apollo-advised accounts for which such person serves, and such Portfolio Manager’s impact on the overall operating performance and potential to contribute to long-term value and growth. A portion of each annual bonus may be deferred, and, at the discretion of Apollo, may be in the form of cash or equity of an Apollo entity, such as restricted stock units of Apollo Global Management, LLC.

 

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Carried Interest. Generally, a Portfolio Manager receives carried interests with respect to the Apollo-advised accounts for which such person serves as a Portfolio Manager, subject to standard terms and conditions, including vesting.

Material Conflicts of Interest. Actual or apparent conflicts of interest may arise when a Portfolio Manager has day-to-day management responsibilities with respect to more than one fund or other account.

Certain inherent conflicts of interest arise from the fact that the Portfolio Managers, AIM and its affiliates provide investment management services both to us and the other Apollo-advised accounts, including other funds, client accounts, proprietary accounts and any other investment vehicles that AIM and its affiliates may establish from time to time, in which we will not have an interest. The Portfolio Managers, AIM and its affiliates may give advice and recommend securities to the other Apollo-advised accounts that may differ from advice given to, or securities recommended or bought for, us, even though their investment objectives may be the same or similar to ours.

AIM will seek to manage potential conflicts of interest in good faith; nonetheless, the portfolio strategies employed by the Portfolio Managers, AIM and its affiliates in managing the other Apollo-advised accounts could conflict with the transactions and strategies employed by the Portfolio Managers in managing us and may affect the prices and availability of the securities and instruments in which we invest. Conversely, participation in specific investment opportunities may be appropriate, at times, for both us and the other Apollo-advised accounts. It is the policy of AIM to generally share appropriate investment opportunities (and sale opportunities) with the other Apollo-advised accounts to the extent consistent with applicable legal requirements. In general, this policy will result in such opportunities being allocated pro rata among us and the other Apollo-advised accounts. Nevertheless, investment and/or opportunities may be allocated other than on a pro rata basis, to the extent it is done in good faith and does not, or is not reasonably expected to, result in an improper disadvantage or advantage to one participating Apollo-advised account as compared to another participating Apollo-advised account.

 

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In the event investment opportunities are allocated among us and the other Apollo-advised accounts, we may not be able to structure its investment portfolio in the manner desired. Although AIM endeavors to allocate investment opportunities in a fair and equitable manner, it is possible that we may not be given the opportunity to participate in certain investments made by the other Apollo-advised accounts or portfolio managers affiliated with AIM. Furthermore, we and the other Apollo-advised accounts may make investments in securities where the prevailing trading activity may make impossible the receipt of the same price or execution on the entire volume of securities purchased or sold by us and the other Apollo-advised accounts. When this occurs, the various prices may be averaged, and we will be charged or credited with the average price. Thus, the effect of the aggregation may operate on some occasions to our disadvantage. In addition, under certain circumstances, we may not be charged the same commission or commission equivalent rates in connection with a bunched or aggregated order.

It is possible that other Apollo-advised accounts may make investments in the same or similar securities at different times and on different terms than us. From time to time, we and the other Apollo-advised accounts may make investments at different levels of an issuer’s capital structure or otherwise in different classes of an issuer’s securities. Such investments may inherently give rise to conflicts of interest or perceived conflicts of interest between or among the various classes of securities that may be held by such entities. Conflicts may also arise because portfolio decisions regarding us may benefit the other Apollo-advised accounts. For example, the sale of a long position or establishment of a short position by us may impair the price of the same security sold short by (and therefore benefit) one or more Apollo-advised accounts, and the purchase of a security or covering of a short position in a security by us may increase the price of the same security held by (and therefore benefit) one or more Apollo-advised accounts.

Although the professional staff of AIM will devote as much time to our management as AIM deems appropriate to perform its obligations, the professional staff of AIM may have conflicts in allocating its time and services among us and AIM’s other investment vehicles and accounts. AIM and its affiliates are not restricted from forming additional investment funds, from entering into other investment advisory relationships or from engaging in other business activities, even though such activities may be in competition with us and/or may involve substantial time and resources of AIM and its professional staff. These activities could be viewed as creating a conflict of interest in that the time and effort of the members of AIM and their officers and employees will not be devoted exclusively to our business but will be allocated between our business and the management of the monies of other clients of AIM.

Variation in Compensation. A conflict of interest may arise where the financial or other benefits available to a Portfolio Manager differ among the accounts that he or she manages. If the structure of AIM’s management fee or the Portfolio Manager’s compensation differs among accounts (such as where certain accounts pay higher management fees or performance based management fees), the Portfolio Managers may be motivated to favor certain accounts over others. The Portfolio Managers also may be motivated to favor accounts in which they have investment interests, or in which AIM or its affiliates have investment interests. Similarly, the desire to maintain assets under management or to enhance a Portfolio Manager’s performance record or to derive other rewards, financial or otherwise, could influence the Portfolio Manager in affording preferential treatment to those accounts that could most significantly benefit the Portfolio Manager. For example, as reflected above, if a Portfolio Manager manages accounts which have performance fee arrangements, certain portions of his or her compensation will depend on the achievement of performance milestones on those accounts. The Portfolio Manager could be incented to afford preferential treatment to those accounts and thereby be subject to a potential conflict of interest.

We and AIM have adopted compliance policies and procedures that are reasonably designed to address the various conflicts of interest that may arise for AIM and its staff members. However, there is no guarantee that such policies and procedures will be able to detect and prevent every situation in which an actual or potential conflict may arise.

 

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Beneficial Ownership of Securities. The following table sets forth the dollar range of our equity securities beneficially owned by each of the Portfolio Managers as of March 31, 2013.

 

Name of Portfolio Manager		Dollar Range of Equity Securities in Apollo Investment(1)
Edward Goldthorpe			$100,001 - $500,000
Phil Guerin			None
Robert Ruberton			$10,001 - $50,000
Justin Sendak			$10,001 - $50,000
James C. Zelter			over $1,000,000

 

(1)	Dollar ranges are as follows: None, $1—$10,000, $10,001—$50,000, $50,001—$100,000, $100,001—$500,000, $500,001—$1,000,000 or over $1,000,000.

 

 

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REGISTRATION AND SETTLEMENT

The Depository Trust Company

The Notes will be issued in book-entry only form. This means that we will not issue certificates for the Notes, except in the limited case described below. Instead, we will issue the global note in registered form. The global note will be held through DTC and will be registered in the name of Cede & Co., as nominee of DTC.

Accordingly, Cede & Co. will be the holder of record of the Notes. The Notes represented by the global note evidences a beneficial interest in the global note.

Beneficial interest in the global note will be shown on, and transfers are effected through, records maintained by DTC or its participants. In order to own a beneficial interest in the Notes, you must be an institution that has an account with DTC or have a direct or indirect account with such an institution. Transfers of ownership interests in the Notes will be accomplished by making entries in DTC participants’ books acting on behalf of beneficial owners.

So long as DTC or its nominee is the registered holder of the global note, DTC or its nominee, as the case may be, will be the sole holder and owner of the Notes represented thereby for all purposes, including payment of principal and interest, under the indenture. Except as otherwise provided below, you will not be entitled to receive physical delivery of certificated notes and will not be considered the holder of the Notes for any purpose under the indenture. Accordingly, you must rely on the procedures of DTC and the procedures of the DTC participant through which you own your Note in order to exercise any rights of a holder of a Note under the indenture. The laws of some jurisdictions require that certain purchasers of notes take physical delivery of such notes in certificated form. Those limits and laws may impair the ability to transfer beneficial interests in the Notes.

The global note representing the Notes will be exchangeable for certificated notes of like tenor and terms and of differing authorized denominations in a like aggregate principal amount, only if (1) DTC notifies us that it is unwilling or unable to continue as depositary for the global note or we become aware that DTC has ceased to be a clearing agency registered under the Exchange Act and, in any such case we fail to appoint a successor to DTC within 60 calendar days, (2) we, in our sole discretion, determine that the global note shall be exchangeable for certificated notes or (3) an event of default has occurred and is continuing with respect to the Notes under the indenture. Upon any such exchange, the certificated notes shall be registered in the names of the beneficial owners of the global note representing the Notes.

The following is based on information furnished by DTC:

DTC will act as securities depositary for the Notes. The Notes will be issued as fully-registered notes registered in the name of Cede & Co. (DTC’s partnership nominee) or such other name as may be requested by an authorized representative of DTC. One fully registered global note will be issued for all of the principal amount of the Notes.

The global note representing the Notes will be exchangeable for certificated notes of like tenor and terms and of differing authorized denominations in a like aggregate principal amount, only if (1) DTC notifies us that it is unwilling or unable to continue as depositary for the global note or we become aware that DTC has ceased to be a clearing agency registered under the Exchange Act and, in any such case we fail to appoint a successor to DTC within 60 calendar days, (2) we, in our sole discretion, determine that the global note shall be exchangeable for certificated notes or (3) an event of default has occurred and is continuing with respect to the Notes under the indenture. Upon any such exchange, the certificated notes shall be registered in the names of the beneficial owners of the global note representing the Notes.

 

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DTC is a limited-purpose trust company organized under the New York Banking Law, a “banking organization” within the meaning of the New York Banking Law, a member of the Federal Reserve System, a “clearing corporation” within the meaning of the New York Uniform Commercial Code, and a “clearing agency” registered pursuant to the provisions of Section 17A of the Exchange Act. DTC holds and provides asset servicing for over 3.5 million issues of U.S. and non-U.S. equity issues, corporate and municipal debt issues and money market instruments from over 100 countries that DTC’s direct participants deposit with DTC.

DTC also facilitates the post-trade settlement among direct participants of sales and other securities transactions in deposited securities, through electronic computerized book-entry transfers and pledges between direct participants’ accounts. This eliminates the need for physical movement of securities certificates. Direct participants include both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is a wholly-owned subsidiary of The Depository Trust & Clearing Corporation (“DTCC”). DTCC, in turn, is owned by a number of direct participants of DTC and members of the National Securities Clearing Corporation, Government Securities Clearing Corporation, MBS Clearing Corporation, and Emerging Markets Clearing Corporation, as well as by The New York Stock Exchange, Inc., the American Stock Exchange LLC, and the Financial Industry Regulatory Authority, Inc. Access to the DTC system is also available to others such as both U.S. and non-U.S. securities brokers and dealers, banks, trust companies and clearing corporations that clear through or maintain a custodial relationship with a direct participant, either directly or indirectly. The DTC rules applicable to its participants are on file with the SEC. More information about DTC can be found at www.dtcc.com.

Purchases of the Notes under the DTC system must be made by or through direct participants, which will receive a credit for the Notes on DTC’s records. The beneficial interest of each actual purchaser of the Notes is in turn to be recorded on the direct and indirect participants’ records. Beneficial owners will not receive written confirmation from DTC of their purchase. Beneficial owners are, however, expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the direct or indirect participant through which the beneficial owner entered into the transaction. Transfers of beneficial interests in the Notes are to be accomplished by entries made on the books of direct and indirect participants acting on behalf of beneficial owners. Beneficial owners will not receive certificates representing their beneficial interests in the Notes, except in the event that use of the book-entry system for the Notes is discontinued.

To facilitate subsequent transfers, all Notes deposited by direct participants with DTC will be registered in the name of DTC’s partnership nominee, Cede & Co. or such other name as may be requested by an authorized representative of DTC. The deposit of the Notes with DTC and their registration in the name of Cede & Co. or such other nominee do not effect any change in beneficial ownership. DTC has no knowledge of the actual beneficial owners of the Notes; DTC’s records reflect only the identity of the direct participants to whose accounts such Notes will be credited, which may or may not be the beneficial owners. The direct and indirect participants will remain responsible for keeping account of their holdings on behalf of their customers.

Conveyance of notices and other communications by DTC to direct participants, by direct participants to indirect participants, and by direct participants and indirect participants to beneficial owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. Beneficial owners of the Notes may wish to take certain steps to augment the transmission to them of notices of significant events with respect to the Notes, such as redemption, tenders, defaults, and proposed amendments to the security documents. For example, beneficial owners of the Notes may wish to ascertain that the nominee holding the Notes for their benefit has agreed to obtain and transmit notices to beneficial owners. In the alternative, beneficial owners may wish to provide their names and addresses to the registrar of the Notes and request that copies of the notices be provided to them directly. Any such request may or may not be successful.

Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with respect to the Notes unless authorized by a direct participant in accordance with DTC’s procedures. Under its usual procedures,

 

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DTC mails an Omnibus Proxy to us as soon as possible after the regular record date. The Omnibus Proxy assigns Cede & Co.’s consenting or voting rights to those direct participants to whose accounts the notes are credited on the record date (identified in a listing attached to the Omnibus Proxy).

We will pay principal and or interest payments on the Notes in same-day funds directly to Cede & Co., or such other nominee as may be requested by an authorized representative of DTC. DTC’s practice is to credit direct participants’ accounts on the applicable payment date in accordance with their respective holdings shown on DTC’s records upon DTC’s receipt of funds and corresponding detail information. Payments by participants to beneficial owners will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in “street name,” and will be the responsibility of these participants and not of DTC or any other party, subject to any statutory or regulatory requirements that may be in effect from time to time. Payment of principal and interest to Cede & Co., or such other nominee as may be requested by an authorized representative of DTC, is our responsibility, disbursement of such payments to direct participants is the responsibility of DTC, and disbursement of such payments to the beneficial owners is the responsibility of the direct or indirect participant.

We will send any redemption notices to DTC. If less than all of the Notes are being redeemed, DTC’s practice is to determine by lot the amount of the interest of each direct participant in such issue to be redeemed.

A beneficial owner, or its authorized representative, shall give notice to elect to have its Notes repaid by us, through its direct or indirect participant, to the trustee, and shall effect delivery of such Notes by causing the direct participant to transfer that participant’s interest in the global note representing the Notes, on DTC’s records, to the trustee. The requirement for physical delivery of the Notes in connection with a demand for repayment will be deemed satisfied when the ownership rights in the global note representing the Notes are transferred by the direct participants on DTC’s records.

DTC may discontinue providing its services as securities depository for the Notes at any time by giving us reasonable notice. Under such circumstances, if a successor securities depositary is not obtained, we will print and deliver certificated notes. We may decide to discontinue use of the system of book-entry transfers through DTC (or a successor securities depositary). In that event, we will print and deliver certificated notes.

The information in this section concerning DTC and DTC’s system has been obtained from sources that we believe to be reliable, but neither we, the underwriters nor any agent takes any responsibility for its accuracy.

Registration, Transfer and Payment of Certificated Notes

If we ever issue notes in certificated form, those notes may be presented for registration, transfer and payment at the office of the registrar or at the office of any transfer agent designated and maintained by us. We have originally designated U.S. Bank National Association to act in those capacities for the Notes. The registrar or transfer agent will make the transfer or registration only if it is satisfied with the documents of title and identity of the person making the request. There will not be a service charge for any exchange or registration of transfer of the Notes, but we may require payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection with the exchange. At any time, we may change transfer agents or approve a change in the location through which any transfer agent acts. We also may designate additional transfer agents for any notes at any time.

We will not be required to: (1) issue, exchange or register the transfer of any Note to be redeemed for a period of 15 days after the selection of the Notes to be redeemed; (2) exchange or register the transfer of any Note that was selected, called or is being called for redemption, except the unredeemed portion of any Note being redeemed in part; or (3) exchange or register the transfer of any Note as to which an election for repayment by the holder has been made, except the unrepaid portion of any Note being repaid in part.

 

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We will pay principal of and interest on any certificated notes at the offices of the paying agents we may designate from time to time. Generally, we will pay interest on a note by check on any interest payment date other than at stated maturity or upon earlier redemption or repayment to the person in whose name the note is registered at the close of business on the regular record date for that payment. We will pay principal and interest at stated maturity or upon earlier redemption or repayment in same-day funds against presentation and surrender of the applicable notes.

 

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UNDERWRITING

Morgan Stanley & Co. LLC, Merrill Lynch, Pierce, Fenner & Smith Incorporated and UBS Securities LLC are acting as representatives of each of the underwriters named below. Subject to the terms and conditions set forth in a firm commitment underwriting agreement among us and the underwriters, we have agreed to sell to the underwriters, and each of the underwriters has agreed, severally and not jointly, to purchase from us, the principal amount of Notes set forth opposite its name below.

 

Underwriter		Principal Amount  of Notes
Morgan Stanley & Co. LLC		$	37,080,000
Merrill Lynch, Pierce, Fenner & Smith                        Incorporated			37,080,000
UBS Securities LLC			37,080,000
Citigroup Global Markets Inc.			4,050,000
Credit Suisse Securities (USA) LLC			4,050,000
J.P. Morgan Securities LLC			4,050,000
Natixis Securities Americas LLC			3,510,000
C. L. King & Associates, Inc.			1,350,000
HRC Investment Services, Inc			1,350,000
Janney Montgomery Scott LLC			1,350,000
Oppenheimer & Co. Inc.			1,350,000
RBC Capital Markets, LLC			1,350,000
Wedbush Morgan Securities Inc.			1,350,000
Total		$	135,000,000

Subject to the terms and conditions set forth in the underwriting agreement, the underwriters have agreed, severally and not jointly, to purchase all of the Notes sold under the underwriting agreement if any of these Notes are purchased. If an underwriter defaults, the underwriting agreement provides that the purchase commitments of the nondefaulting underwriters may be increased or the underwriting agreement may be terminated.

We, AIM and AIA have agreed to indemnify the underwriters and their controlling persons against certain liabilities in connection with this offering, including liabilities under the Securities Act, or to contribute to payments the underwriters may be required to make in respect of those liabilities.

The underwriters are offering the Notes, subject to prior sale, when, as and if issued to and accepted by them, subject to approval of legal matters by their counsel, including the validity of the Notes, and other conditions contained in the underwriting agreement, such as the receipt by the underwriters of officer’s certificates and legal opinions. The underwriters reserve the right to withdraw, cancel or modify offers to the public and to reject orders in whole or in part.

Overallotment Option

We have granted an option to the underwriters, exercisable for 30 days from the date of this prospectus supplement, to purchase up to an additional $20,250,000 aggregate principal amount of the Notes offered hereby at the public offering price listed on the cover page of this prospectus supplement, less underwriting discounts and commissions, solely to cover any overallotments, if any. If the underwriters exercise this option, each underwriter will become obligated, subject to conditions contained in the underwriting agreement, to purchase a principal amount of additional Notes proportionate to that underwriter’s initial principal amount reflected in the above table.

 

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Commissions and Discounts

The following table shows the total underwriting discounts and commissions (assuming no exercise of the overallotment option) that we are to pay to the underwriters in connection with this offering.

 

		Per Note				Total
Public offering price			100.00	%		$	135,000,000
Underwriting discounts (sales load)			3.15	%		$	4,252,500
Proceeds, before expenses, to us			96.85	%		$	130,747,500

The representatives have advised us that the underwriters propose initially to offer the Notes to the public at the public offering price set forth on the cover page of this prospectus supplement and to certain dealers at such price less a concession not in excess of 2.00% of the principal amount of the Notes. Any underwriter may allow, and any such dealer may reallow, a concession not in excess of 1.80% of the principal amount of the Notes to certain other dealers. After the initial offering, the public offering price, concession or any other term of the offering may be changed.

The expenses of the offering, not including the underwriting discount, are estimated at $300,000 and are payable by us.

New Issue of Notes

The Notes are a new issue of securities with no established trading market. We intend to apply to list the Notes on The New York Stock Exchange. If the application is approved, we expect trading in the Notes on The New York Stock Exchange to begin within 30 days after the original issue date. Currently there is no public market for the Notes. We have been advised by the underwriters that they presently intend to make a market in the Notes after completion of the offering. However, they are under no obligation to do so and may in their sole discretion discontinue any market-making activities at any time without any notice. We cannot assure the liquidity of the trading market for the Notes or that an active public market for the Notes will develop. If an active public trading market for the Notes does not develop, the market price and liquidity of the Notes may be adversely affected. If the Notes are traded, they may trade at a discount from their initial offering price, depending on prevailing interest rates, the market for similar securities, our operating performance and financial condition, general economic conditions and other factors.

Settlement

We expect that delivery of the Notes will be made to investors on or about June 17, 2013, which will be the fifth business day following the date of this prospectus supplement (such settlement being referred to as “T+5”). Under Rule 15c6-1 under the Exchange Act, trades in the secondary market are required to settle in three business days, unless the parties to any such trade expressly agree otherwise. Accordingly, purchasers who wish to trade Notes prior to the delivery of the Notes hereunder will be required, by virtue of the fact that the Notes initially settle in T+5, to specify an alternate settlement arrangement at the time of any such trade to prevent a failed settlement. Purchasers of the Notes who wish to trade the Notes prior to their date of delivery hereunder should consult their advisors.

No Sales of Similar Securities

We have agreed that for a period of 30 days after the date of this prospectus supplement we will not, without first obtaining the prior written consent of the representatives, directly or indirectly, issue, sell, offer to contract or grant any option to sell, pledge, transfer or otherwise dispose of, any debt securities or securities exchangeable for or convertible into debt securities, except for the Notes sold to the underwriters pursuant to the underwriting agreement and any increase in borrowings under our senior secured facility.

 

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Short Positions and Price Stabilization

In connection with the offering, the underwriters may purchase and sell the Notes in the open market. These transactions may include short sales and purchases on the open market to cover positions created by short sales. Short sales involve the sale by the underwriters of a greater principal amount of Notes than they are required to purchase in the offering. The underwriters must close out any short position by purchasing Notes in the open market. A short position is more likely to be created if the underwriters are concerned that there may be downward pressure on the price of the Notes in the open market after pricing that could adversely affect investors who purchase in the offering.

Similar to other purchase transactions, the underwriters’ purchases to cover the syndicate short sales may have the effect of raising or maintaining the market price of the Notes or preventing or retarding a decline in the market price of the Notes. As a result, the price of the Notes may be higher than the price that might otherwise exist in the open market.

Neither we nor any of the underwriters make any representation or prediction as to the direction or magnitude of any effect that the transactions described above may have on the price of the Notes. In addition, neither we nor any of the underwriters make any representation that the representatives will engage in these transactions or that these transactions, once commenced, will not be discontinued without notice.

Other Relationships

Some of the underwriters and their affiliates have engaged in, and may in the future engage in, investment banking and other commercial dealings in the ordinary course of business with us or our affiliates. They have received, or may in the future receive, customary fees and commissions for these transactions.

In addition, in the ordinary course of their business activities, the underwriters and their affiliates may make or hold a broad array of investments and actively trade debt and equity securities (or related derivative securities) and financial instruments (including bank loans) for their own account and for the accounts of their customers. Such investments and securities activities may involve securities and/or instruments of ours or our affiliates. If any of the underwriters or their affiliates has a lending relationship with us, certain of those underwriters or their affiliates routinely hedge, and certain other of those underwriters or their affiliates may hedge, their credit exposure to us consistent with their customary risk management policies. Typically, these underwriters and their affiliates would hedge such exposure by entering into transactions which consist of either the purchase of credit default swaps or the creation of short positions in our securities, including potentially the Notes offered hereby. Any such credit default swaps or short positions could adversely affect future trading prices of the Notes offered hereby. The underwriters and their respective affiliates may also make investment recommendations and/ or publish or express independent research views in respect of such securities or instruments and may at any time hold, or recommend to clients that they acquire, long and/or short positions in such securities and instruments.

We intend to use the proceeds of this offering to repay indebtedness owed under our senior secured facility. See “Use of Proceeds.” The underwriters and their respective affiliates are full service financial institutions engaged in various investment activities. Certain affiliates of the underwriters are lenders under the senior secured facility being repaid and as a result will receive the net proceeds of this offering. Amounts repaid under our senior secured facility will remain available for future borrowings.

The principal business address of Morgan Stanley & Co. is 1585 Broadway, New York, NY 10036. The principal business address of Merrill Lynch, Pierce, Fenner & Smith Incorporated is One Bryant Park, New York, NY 10036. The principal business address of UBS Securities LLC is 677 Washington Boulevard, Stamford, CT 06901.

 

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Other Jurisdictions

Other than in the United States, no action has been taken by us or the underwriters that would permit a public offering of the Notes offered by this prospectus supplement in any jurisdiction where action for that purpose is required. The Notes offered by this prospectus supplement may not be offered or sold, directly or indirectly, nor may this prospectus supplement or any other offering material or advertisements in connection with the offer and sale of any such Notes be distributed or published in any jurisdiction, except under circumstances that will result in compliance with the applicable rules and regulations of that jurisdiction. Persons into whose possession this prospectus supplement comes are advised to inform themselves about and to observe any restriction relating to the offering and the distribution of this prospectus supplement. This prospectus supplement and the accompanying prospectus do not constitute an offer to sell or a solicitation of an offer to buy the Notes offered by this prospectus supplement and the accompanying prospectus in any jurisdiction in which such an offer or a solicitation is unlawful.

 

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TRUSTEE, PAYING AGENT, REGISTRAR AND TRANSFER AGENT

U.S. Bank National Association will act as the trustee. The principal business address of U.S. Bank National Association is 100 Wall Street, Suite 1600, New York, NY 10005.

LEGAL MATTERS

Certain legal matters regarding the securities offered by this prospectus will be passed upon for Apollo Investment by Skadden, Arps, Slate, Meagher & Flom LLP, New York, NY, and Venable LLP, Baltimore, MD. Certain legal matters will be passed upon for the underwriters by Simpson Thacher & Bartlett LLP, New York, NY. Simpson Thacher & Bartlett LLP may rely as to certain matters of Maryland law upon the opinion of Venable LLP.

EXPERTS

The financial statements as of March 31, 2013 and 2012 and for each of the three years in the period ended March 31, 2013 and management’s assessment of the effectiveness of internal control over financial reporting (which is included in Management’s Report on Internal Control over Financial Reporting) as of March 31, 2013 included in this prospectus supplement have been so included in reliance upon the report of PricewaterhouseCoopers LLP, an independent registered public accounting firm, given on the authority of said firm as experts in auditing and accounting.

 

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INDEX TO FINANCIAL STATEMENTS

 

Index to Financial Statements
Management’s Report on Internal Control over Financial Reporting			S-F-2
Report of Independent Registered Public Accounting Firm			S-F-3
Statements of Assets & Liabilities as of March 31, 2013 and March 31, 2012			S-F-4
Statement of Operations for the years ended March 31, 2013, March  31, 2012 and March 31, 2011			S-F-5
Statement of Changes in Net Assets for the years ended March 31, 2013, March  31, 2012 and March 31, 2011			S-F-6
Statement of Cash Flows for the years ended March 31, 2013, March  31, 2012 and March 31, 2011			S-F-7
Schedule of Investments as of March 31, 2013 and March 31, 2012			S-F-8
Notes to Financial Statements			S-F-26

 

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MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

Management is responsible for establishing and maintaining adequate internal control over financial reporting, and for performing an assessment of the effectiveness of internal control over financial reporting as of March 31, 2013. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. The Company’s internal control over financial reporting includes those policies and procedures that (i) pertain to assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements.

Management performed an assessment of the effectiveness of the Company’s internal control over financial reporting as of March 31, 2013 based upon criteria in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Based on our assessment, management determined that the Company’s internal control over financial reporting was effective as of March 31, 2013 based on the criteria on Internal Control—Integrated Framework issued by COSO.

The effectiveness of the Company’s internal control over financial reporting as of March 31, 2013 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which appears herein.

 

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Report of Independent Registered Public Accounting Firm

To the Board of Directors and Shareholders of

Apollo Investment Corporation:

In our opinion, the accompanying statements of assets and liabilities including the schedules of investments, and the related statements of operations, changes in net assets and cash flows present fairly, in all material respects, the financial position of Apollo Investment Corporation (“the Company”) at March 31, 2013 and March 31, 2012, and the results of its operations, the changes in net assets, and its cash flows for each of the three years in the period ended March 31, 2013 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of March 31, 2013, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Report on Internal Control over Financial Reporting appearing on page 53 of the annual report to shareholders. Our responsibility is to express opinions on these financial statements and on the Company’s internal control over financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. Our procedures included confirmation of securities at March 31, 2013 by correspondence with the custodian, and where replies were not received, we performed other auditing procedures. We believe that our audits provide a reasonable basis for our opinions.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ PricewaterhouseCoopers LLP

New York, New York

May 23, 2013

 

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APOLLO INVESTMENT CORPORATION

STATEMENTS OF ASSETS AND LIABILITIES

(in thousands, except per share amounts)

 

		March 31, 2013				March 31, 2012
Assets
Non-controlled/non-affiliated investments, at value (cost—$2,550,091 and $2,642,702, respectively)		$	2,414,307			$	2,490,672
Controlled investments, at value (cost—$469,210 and $208,882, respectively)			436,092				186,408
Cash			3,902				1,665
Foreign currency (cost—$2,293 and $1,013, respectively)			2,295				1,013
Receivable for investments sold			5,713				19,606
Interest receivable			51,990				54,409
Dividends receivable			2,703				2,898
Deferred financing costs			26,990				17,309
Prepaid expenses and other assets			320				1,283
Total assets		$	2,944,312			$	2,775,263
Liabilities
Debt (see note 7 & 12)		$	1,156,067			$	1,009,337
Payable for investments purchased			26,021				—
Dividends payable			40,578				39,409
Management and performance-based incentive fees payable (see note 3)			26,509				24,402
Interest payable			12,012				10,102
Accrued administrative expenses			2,219				3,420
Other liabilities and accrued expenses			3,517				3,362
Total liabilities		$	1,266,923			$	1,090,032
Net Assets
Common stock, par value $.001 per share, 400,000 and 400,000 common shares authorized, respectively, and 202,891 and 197,043 issued and outstanding, respectively		$	203			$	197
Paid-in capital in excess of par (see note 2f)			2,933,636				2,886,327
Over-distributed net investment income (see note 2f)			(44,183	)			(34,896	)
Accumulated net realized loss (see note 2f)			(1,053,080	)			(995,426	)
Net unrealized depreciation			(159,187	)			(170,971	)
Total net assets		$	1,677,389			$	1,685,231
Total liabilities and net assets		$	2,944,312			$	2,775,263
Net asset value per share		$	8.27			$	8.55

See notes to financial statements.

 

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APOLLO INVESTMENT CORPORATION

STATEMENTS OF OPERATIONS

(in thousands, except per share amounts)

 

		Year Ended March 31,
		2013				2012				2011
INVESTMENT INCOME:
From non-controlled/non-affiliated investments:
Interest		$	287,032			$	313,992			$	316,183
Dividends			4,813				6,998				4,713
Other income			16,532				18,505				15,143
From non-controlled/affiliated investments:
Interest			—				899				10,296
From controlled investments:
Interest			9,173				3,746				—
Dividends			14,247				13,444				12,334
Other income			197				—				110
Total Investment Income		$	331,994			$	357,584			$	358,779
EXPENSES:
Management fees (see note 3)		$	54,115			$	60,321			$	59,831
Performance-based incentive fees (see note 3)			39,961				39,651				47,793
Interest and other debt expenses			58,200				66,360				48,025
Administrative services expense			4,389				5,387				5,529
Other general and administrative expenses			7,969				13,123				6,429
Total expenses			164,634				184,842				167,607
Net investment income		$	167,360			$	172,742			$	191,172
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS, CASH EQUIVALENTS AND FOREIGN CURRENCIES:
Net realized loss:
Investments and cash equivalents		$	(75,644	)		$	(340,915	)		$	(144,350	)
Foreign currencies			971				(528	)			(7,667	)
Net realized loss			(74,673	)			(341,443	)			(152,017	)
Net change in unrealized depreciation/appreciation:
Investments and cash equivalents			5,604				74,233				140,227
Foreign currencies			6,180				8,204				1,030
Net change in unrealized depreciation/appreciation			11,784				82,437				141,257
Net realized and unrealized gain (loss) from investments, cash equivalents and foreign currencies			(62,889	)			(259,006	)			(10,760	)
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS		$	104,471			$	(86,264	)		$	180,412
EARNINGS GAIN (LOSS) PER SHARE—BASIC (see note 5)		$	0.51			$	(0.44	)		$	0.93
EARNINGS GAIN (LOSS) PER SHARE—DILUTED (see note 5)		$	0.51			$	(0.44	)		$	0.93

See notes to financial statements.

 

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APOLLO INVESTMENT CORPORATION

STATEMENTS OF CHANGES IN NET ASSETS

(in thousands, except shares)

 

		Year Ended March 31,
		2013				2012				2011
Increase (decrease) in net assets from operations:
Net investment income		$	167,360			$	172,742			$	191,172
Net realized loss			(74,673	)			(341,443	)			(152,017	)
Net change in unrealized depreciation/appreciation			11,784				82,437				141,257
Net increase (decrease) in net assets resulting from operations			104,471				(86,264	)			180,412
Dividends and distributions to stockholders (see note 13):			(162,313	)			(204,427	)			(218,079	)
Capital share transactions:
Net proceeds from shares sold			50,000				—				204,275
Less offering costs			—				(6	)			(233	)
Reinvestment of dividends			—				14,897				21,850
Net increase in net assets from capital share transactions			50,000				14,891				225,892
Total decrease (increase) in net assets:			(7,842	)			(275,800	)			188,225
Net assets at beginning of period			1,685,231				1,961,031				1,772,806
Net assets at end of period		$	1,677,389			$	1,685,231			$	1,961,031
Capital share activity
Shares sold			5,847,953				—				17,250,000
Shares issued from reinvestment of dividends			—				1,541,849				2,037,631
Net increase from capital share activity			5,847,953				1,541,849				19,287,631

See notes to financial statements.

 

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APOLLO INVESTMENT CORPORATION

STATEMENTS OF CASH FLOWS

(in thousands)

 

		Year Ended March 31,
		2013				2012				2011
CASH FLOWS FROM OPERATING ACTIVITIES:
Net increase (decrease) in net assets resulting from operations		$	104,471			$	(86,264	)		$	180,412
Adjustments to reconcile net increase (decrease):
PIK interest and dividends			(17,891	)			(14,915	)			(39,853	)
Net amortization on investments			(25,579	)			(18,807	)			(41,433	)
Amortization of deferred financing costs			8,889				10,014				8,393
Increase (decrease) from foreign currency transactions			769				(660	)			(7,520	)
Net change in unrealized depreciation/(appreciation) on investments, cash equivalents and foreign currencies			(11,784	)			(82,437	)			(141,257	)
Net realized loss on investments, cash equivalents and foreign currencies			74,673				341,443				152,017
Changes in operating assets and liabilities:
Purchase of investments			(1,537,366	)			(1,517,735	)			(1,070,581	)
Proceeds from disposition of investments and cash equivalents			1,337,427				1,657,907				951,168
Decrease (increase) in interest and dividends receivable (see note 2)			2,614				(6,490	)			(1,978	)
Decrease in prepaid expenses and other assets			963				227				837
Increase (decrease) in management and performance-based incentive fees payable			2,107				(3,151	)			1,190
Increase in interest payable			1,910				399				7,571
Decrease (increase) in accrued expenses and other liabilities			(1,046	)			1,821				111
Increase (decrease) in payable for investments purchased			26,021				(37,382	)			(511,627	)
Decrease (increase) in receivables for investments sold			13,893				(6,145	)			36,182
Net cash provided used in (provided by) operating activities		$	(19,929	)		$	237,825			$	(476,368	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from the issuance of common stock		$	50,000			$	—			$	204,275
Offering costs from the issuance of common stock			—				(6	)			(233	)
Dividends paid in cash			(161,144	)			(204,861	)			(190,829	)
Proceeds from debt			1,374,940				2,034,652				2,260,795
Payments on debt			(1,221,780	)			(2,070,474	)			(2,267,076	)
Deferred financing costs paid			(18,570	)			(810	)			(11,785	)
Net cash provided by (used in) financing activities		$	23,446			$	(241,499	)		$	(4,853	)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		$	3,517			$	(3,674	)		$	(481,221	)
Effect of exchange rates on cash balances			2				(2	)			(10	)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR		$	2,678			$	6,354			$	487,585
CASH AND CASH EQUIVALENTS, END OF YEAR		$	6,197			$	2,678			$	6,354
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash interest paid during the year		$	44,757			$	53,407			$	29,205

Non-cash financing activities consist of the reinvestment of dividends totaling $0, $14,897 and $21,850, respectively.

See notes to financial statements.

 

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APOLLO INVESTMENT CORPORATION

SCHEDULE OF INVESTMENTS

March 31, 2013

(in thousands)

 

INVESTMENTS IN NON-CONTROLLED/NON-AFFILIATED INVESTMENTS—143.9%		Industry		Par Amount*				Cost				Fair Value(1)
CORPORATE DEBT—138.7%
SECURED DEBT—68.5%
1st Lien Secured Debt—21.9%
Amaya Gaming Group, Inc., L+775, 11/05/15		Consumer Products		$	14,813			$	14,617			$	14,813
ATI Acquisition Company, P+1400 (P+10.00% Cash/4.00% PIK), 6/30/12 *** †		Education			4,676				3,895				500
ATI Acquisition Company, P+900 (P+5.00% Cash/4.00% PIK), 12/30/14 *** †		Education			15,491				12,596				—
Aventine Renewable Energy Holdings, Inc., 12.00%, 9/24/16 †		Chemicals			3,966				3,850				3,866
Aventine Renewable Energy Holdings, Inc., 10.50% Cash or 15.00% PIK, 9/24/17 †		Chemicals			12,102				16,007				9,682
Aveta, Inc., L+825, 12/12/17		Healthcare			69,594				67,607				69,985
Dark Castle Holdings, LLC, L+225, 3/25/13		Media			34,777				11,061				13,260
Delta Educational Systems, Inc., 16.00% (8.00% Cash/8.00% PIK), 12/11/16		Education			5,018				5,018				5,018
Endeavour International, 12.00%, 3/01/18 ‡		Oil and Gas			14,993				14,471				14,421
Evergreen Tank Solutions, Inc., L+800, 9/28/18		Manufacturing			31,600				31,004				31,580
Garden Fresh Restaurant Corp., L+525 (L+475 Cash/0.5% PIK), 6/11/13 †		Retail			2,503				2,503				2,503
Garden Fresh Restaurant Corp., L+625 (L+575 Cash/0.5% PIK), 6/11/13 †		Retail			2,503				2,481				2,503
Miller Energy Resources, Inc., 18.00% (15.00% Cash/3.00% PIK Option), 6/29/17		Energy			45,307				45,307				45,307
Nara Cable Funding Limited, 8.875%, 12/01/18 ¿ ‡		Broadcasting & Entertainment			6,284				5,424				6,497
Osage Exploration & Development, Inc., L+1500, 4/27/15 ‡		Energy			7,000				6,872				7,000
Panda Sherman Power, LLC, L+750, 9/14/18		Power			15,000				14,790				15,338
Panda Temple Power, LLC, L+1000, 7/18/18		Power			25,500				25,031				26,233
Pelican Energy, LLC, 10.00% (7% Cash/3% PIK), 12/31/18 ‡		Energy			8,371				8,176				8,539
Penton Media, Inc., L+400 (L+300 Cash/2.00% PIK), 8/01/14		Printing & Publishing			29,923				27,404				28,876
Spotted Hawk Development LLC, 14.00% (13.00% Cash/ 1.00% PIK), 6/30/16 ‡		Energy			24,003				23,200				22,983
Sunrun Solar Owner IX, LLC, 9.079%, 12/31/24 Financial Services		Energy			1,103				1,053				1,103
Texas Competitive Electric Holdings, 11.50%, 10/01/20 ¿		Utilities			50,000				49,693				37,656
Total 1st Lien Secured Debt								$	392,060			$	367,663

See notes to financial statements.

 

S-F-8

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Table of Contents

APOLLO INVESTMENT CORPORATION

SCHEDULE OF INVESTMENTS (continued)

March 31, 2013

 

(in thousands)

 

 

INVESTMENTS IN NON-CONTROLLED/NON-AFFILIATED INVESTMENTS—143.9%		Industry		Par Amount*				Cost				Fair Value(1)
2nd Lien Secured Debt—46.6%
AI Chem & Cy US AcquiCo, Inc. (Monarch) L+700, 3/20/20 ‡×		Chemicals		$	10,000			$	9,950			$	10,263
Allied Security Holdings, LLC, L+825, 2/02/18		Business Services			31,000				30,764				31,194
Ardent Medical Services, Inc, L+950, 7/02/19		Healthcare			20,000				19,515				20,500
Avaya Inc., 10.5% Cash, 3/01/21 ¿		Telecommunications			16,577				15,835				15,824
Brock Holdings III, Inc., L+825, 3/16/18		Environmental & Facilities Services			27,000				26,579				27,439
Cengage Learning Acquisitions Inc., 12.00%, 6/30/19 ***		Education			69,597				59,918				15,659
Clean Earth, Inc., 13.00%, 8/1/14		Environmental & Facilities Services			25,000				25,000				25,000
Confie Seguros II, L+900, 5/8/19		Consumer Products			15,000				14,711				15,375
EZE Software Group LLC, L+750 3/14/21 ×		Business Services			6,132				6,071				6,270
Garden Fresh Restaurant Corp., L+1175 (L+975 Cash/2.00% PIK), 12/11/13		Retail			47,075				47,790				32,952
GCA Services Group, Inc., L+800, 10/31/20		Environmental & Facilities Services			19,547				19,358				19,596
Grocery Outlet Inc., L+925, 6/17/19		Grocery			10,500				10,296				10,539
Healogics Inc., L+800, 2/05/20		Healthcare			5,000				4,951				5,181
Insight Pharmaceuticals, LLC., L+1175, 8/25/17		Consumer Products			15,448				15,199				15,603
IPC Systems, Inc., L+525, 5/31/15		Telecommunications			44,250				42,752				39,604
Kronos, Inc., L+850, 4/26/20		Electronics			56,358				55,269				59,035
Ozburn-Hessey Holding Company LLC, L+950, 10/11/16		Transportation			25,333				25,309				24,320
PH Holdings LLC, 9.75%, 12/31/17		Homebuilding			20,000				19,631				20,800
Ranpak Corp., L+750, 10/20/17 †		Packaging			85,000				85,000				85,000
Ranpak Corp., E+775, 10/20/17 †		Packaging		€	40,000				58,042				51,364
Sedgwick Holdings, Inc., L+750, 5/28/17		Business Services		$	15,225				15,072				15,453
SESAC International LLC, L+875, 8/08/19		Broadcasting & Entertainment			4,500				4,433				4,613
Smart & Final Stores LLC, L+925, 11/08/20		Grocery			17,260				16,756				17,929
SquareTwo Financial Corp. (Collect America, Ltd.), 11.625%, 4/01/17 ‡		Finance			51,079				49,432				52,037
TransFirst Holdings Inc., L+9.75%, 6/27/18		Financial Services			61,250				59,476				62,858
U.S. Renal Care, Inc., L+900, 1/03/20		Healthcare			4,910				4,818				5,008
Valerus Compression Services, LP, 11.50%, 3/26/18		Manufacturing			40,000				40,000				41,200
Vertafore, Inc., L+825, 10/29/17		Business Services			49,260				48,901				50,615
Total 2nd Lien Secured Debt								$	830,828			$	781,231
TOTAL SECURED DEBT								$	1,222,888			$	1,148,894

See notes to financial statements.

 

S-F-9

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Table of Contents

APOLLO INVESTMENT CORPORATION

SCHEDULE OF INVESTMENTS (continued)

March 31, 2013

 

(in thousands)

 

 

INVESTMENTS IN NON-CONTROLLED/NON-AFFILIATED INVESTMENTS—143.9%		Industry		Par Amount*				Cost				Fair Value(1)
UNSECURED DEBT—70.2%
Advantage Sales & Marketing, Inc., 13.00%, 12/31/18		Grocery		$	25,000			$	25,000			$	25,000
Altegrity, Inc., 0.00%, 8/02/16 ¿ †		Diversified Service			3,545				2,358				1,524
Altegrity, Inc., 11.75%, 5/01/16 ¿ †		Diversified Service			14,639				11,885				10,394
Altegrity, Inc., 12.00%, 11/01/15 ¿ †		Diversified Service			100,000				100,000				89,000
American Tire Distributors, Inc., 11.50%, 06/01/18 ¿		Distribution			25,000				25,000				26,300
Angelica Corporation, 15.00% (12.00% Cash/3.00% PIK), 10/15/16		Healthcare			46,284				46,284				47,210
ATI Acquisition Company, P+1400 (P+10.00% Cash/4.00% PIK), 12/30/15 ***		Education			45,153				37,867				—
BCA Osprey II Limited (British Car Auctions), 12.50% PIK, 8/17/17 ‡		Transportation		£	25,609				40,643				36,359
BCA Osprey II Limited (British Car Auctions), 12.50% PIK, 8/17/17 ‡		Transportation		€	15,528				21,507				18,643
Ceridian Corp., 12.25% Cash or 13.00% PIK, 11/15/15 †		Diversified Service		$	80,950				80,892				83,803
Ceridian Corp., 11.25%, 11/15/15 †		Diversified Service			35,800				35,812				37,023
Ceridian Corp., 11.00%, 3/15/21 ¿ †		Diversified Service			67,500				67,500				72,731
Delta Educational Systems, Inc., 16.00% (10.00% Cash/ 6% PIK), 5/12/17		Education			20,430				20,024				19,143
Denver Parent (Venoco, Inc.), 18.00%, 10/03/15 ¿		Energy			20,000				20,000				23,400
Exova Limited, 10.50%, 10/15/18 ¿ ‡ †		Business Services		£	10,000				16,013				16,627
Exova Limited, 10.50%, 10/15/18 ‡†		Business Services		£	12,655				17,116				21,041
First Data Corporation, 11.25%, 1/15/21¿ †		Financial Services		$	67,000				66,975				69,868
First Data Corporation, 10.625% 06/15/21 †×		Financial Services			10,000				10,000				10,150
Intelsat Bermuda Ltd., 11.25%, 2/04/17 ‡		Broadcasting & Entertainment			44,000				45,153				46,877
Intelsat Bermuda Ltd., 11.50% Cash or 12.50% PIK, 2/04/17 ¿ ‡		Broadcasting & Entertainment			20,000				20,035				21,250
inVentiv Health, Inc., 11.00%, 8/15/18 ¿		Healthcare			160,000				160,000				139,200

See notes to financial statements.

 

S-F-10

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Table of Contents

APOLLO INVESTMENT CORPORATION

SCHEDULE OF INVESTMENTS (continued)

March 31, 2013

 

(in thousands, except shares)

 

 

INVESTMENTS IN NON-CONTROLLED/NON-AFFILIATED INVESTMENTS—143.9%		Industry		Par Amount*				Cost				Fair Value(1)
UNSECURED DEBT—(continued)
Laureate Education, Inc., 12.75%, 8/15/17 ¿ ‡		Education		$	53,540			$	55,012			$	57,823
Lonestar Intermediate Super Holdings (Asurion), LLC, L+950, 9/02/19		Insurance			41,922				41,776				45,223
Molycorp Inc., 10.00%, 6/01/20 ‡		Precious Metals & Minerals			5,158				4,990				5,123
Niacet Corp., 13.00%, 8/28/18		Chemicals			12,500				12,500				12,500
SeaCube Container Leasing Ltd., 11.00%, 4/28/16 ‡		Transportation			50,000				50,000				51,500
Univar Inc., 10.50%, 6/30/18		Distribution			20,000				20,000				20,000
U.S. Security Associates Holdings, Inc., 11.00%, 7/28/18		Business Services			135,000				135,000				139,455
Varietal Distribution, 10.75%, 6/30/17 ¿ †		Distribution		€	5,187				6,385				6,994
Varietal Distribution, 10.75%, 6/30/17 ¿ †		Distribution		$	22,204				21,837				23,328
TOTAL UNSECURED DEBT								$	1,217,564			$	1,177,489
TOTAL CORPORATE DEBT								$	2,440,452			$	2,326,383
STRUCTURED PRODUCTS—0.6%
Westbrook CLO Ltd., Series 2006-1A Class E, L+370, 12/20/20 ‡ ¿		Finance			11,000			$	7,367			$	9,625
TOTAL STRUCTURED PRODUCTS								$	7,367			$	9,625
				Shares
PREFERRED EQUITY—0.7%
CA Holding, Inc. (Collect America, Ltd.), Series A ** ‡		Finance			7,961			$	788			$	1,592
Gryphon Colleges Corporation (Delta Educational Systems, Inc.), 13.50% PIK, 05/12/14 ***		Education			12,360				27,685				7,208
Gryphon Colleges Corporation (Delta Educational Systems, Inc.), 12.50% PIK, (Convertible) ***		Education			332,500				6,863				—
Varietal Distribution Holdings, LLC, Class A, 8.00% PIK		Distribution			3,097				4,885				2,750
TOTAL PREFERRED EQUITY								$	40,221			$	11,550
EQUITY—3.9%
Common Equity/Interests—3.4%
Accelerate Parent Corp. (American Tire Distributors) **		Distribution			3,125,000			$	3,125			$	4,160
AHC Mezzanine LLC (Advanstar) **		Media			—				1,063				242
Altegrity Holding Corp. **		Diversified Service			353,399				13,797				1,111
Aventine Renewable Energy Holdings, Inc. **		Chemicals			262,036				4,684				2,347

See notes to financial statements.

 

S-F-11

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Table of Contents

APOLLO INVESTMENT CORPORATION

SCHEDULE OF INVESTMENTS (continued)

March 31, 2013

 

(in thousands, except shares and warrants)

 

 

INVESTMENTS IN NON-CONTROLLED/NON-AFFILIATED INVESTMENTS—143.9%		Industry		Shares				Cost				Fair Value(1)
Common Equity/Interests—(continued)
CA Holding, Inc. (Collect America, Ltd.) Series A ** ‡		Finance			25,000			$	2,500			$	2,498
CA Holding, Inc. (Collect America, Ltd.) Series AA ** ‡		Finance			4,294				429				859
Clothesline Holdings, Inc. (Angelica Corporation) **		Healthcare			6,000				6,000				3,059
Explorer Coinvest LLC (Booz Allen) ** ‡		Consulting Services			430				3,322				5,319
Garden Fresh Restaurant Holding, LLC **		Retail			50,000				5,000				—
Gryphon Colleges Corporation (Delta Educational Systems, Inc.) **		Education			17,500				175				—
GS Prysmian Co-Invest L.P. (Prysmian Cables & Systems) (2,3) ** ‡		Manufacturing			—				—				123
JV Note Holdco LLC (DSI Renal Inc.) **		Healthcare			9,303				85				91
Pelican Energy, LLC ** ‡		Energy			—				138				146
Penton Business Media Holdings, LLC **		Printing & Publishing			124				4,950				15,778
RC Coinvestment, LLC (Ranpak Corp.) **		Packaging			50,000				5,000				8,233
Sorenson Communications Holdings, LLC Class A **		Consumer Products			454,828				45				1,990
Univar Inc.**		Distribution			900,000				9,000				11,520
Varietal Distribution Holdings, LLC Class A **		Distribution			28,028				28				—
Total Common Equity/Interests								$	59,341			$	57,476
				Warrants
Warrants—0.5%
CA Holding, Inc. (Collect America, Ltd.), Common ** ‡		Finance			7,961			$	8				—
Fidji Luxco (BC) S.C.A., Common (FCI)(2) ** ‡		Electronics			24,862				250			$	5,788
Gryphon Colleges Corporation (Delta Educational Systems, Inc.), Common **		Education			9,820				98				—
Gryphon Colleges Corporation (Delta Educational Systems, Inc.), Class A-1 Preferred **		Education			45,947				459				—
Gryphon Colleges Corporation (Delta Educational Systems, Inc.), Class B-1 Preferred **		Education			104,314				1,043				—
Osage Exploration & Development, Inc. ** ‡		Energy			1,496,843				—				1,841
Spotted Hawk Development LLC, Common ** ‡		Energy			54,545				852				1,644
Total Warrants								$	2,710			$	9,273
TOTAL EQUITY								$	62,051			$	66,749
Total Investments in Non-Controlled/ Non-Affiliated Investments								$	2,550,091			$	2,414,307

See notes to financial statements.

 

S-F-12

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Table of Contents

APOLLO INVESTMENT CORPORATION

SCHEDULE OF INVESTMENTS (continued)

March 31, 2013

 

(in thousands)

 

 

INVESTMENTS IN CONTROLLED INVESTMENTS—26.0% (4)		Industry		Par Amount*				Cost				Fair Value(1)
CORPORATE DEBT—9.2%
SECURED DEBT—6.7%
1st Lien Secured Debt—6.1%
Merx Aviation Finance Holdings, LLC, 12.00%, 1/09/21		Aviation		$	92,000			$	92,000			$	92,000
Merx Aviation Finance Holdings, LLC, 12.00%, 2/01/21		Aviation			5,303				5,303				5,303
Merx Aviation Finance Holdings, LLC, 12.00% 3/28/21		Aviation			4,684				4,684				4,684
Total 1st Lien Secured Debt								$	101,987			$	101,987
2nd Lien Secured Debt—0.6%
LVI Services, Inc., 12.50%, 3/06/2018		Environmental & Facilities Services		$	10,000			$	9,815			$	10,000
Total 2nd Lien Secured Debt								$	9,815			$	10,000
TOTAL SECURED DEBT								$	111,802			$	111,987
UNSECURED DEBT—2.5%
Playpower Holdings Inc., 14.00% PIK, 12/15/15		Leisure Equipment		€	19,064			$	25,285			$	24,173
Playpower, Inc., 12.50% PIK, 12/31/15		Leisure Equipment		£	12,310				18,838				18,458
TOTAL UNSECURED DEBT								$	44,123			$	42,631
TOTAL CORPORATE DEBT								$	155,925			$	154,618
STRUCTURED PRODUCTS—10.5%
AIC Credit Opportunity Fund LLC (5)		Finance			—			$	48,102			$	50,696
Highbridge Loan, Ltd., Preference Shares ** ‡		Finance		$	6,174				6,174				6,174
Jamestown CLO I LTD, Subordinated Notes, 11/5/24 ‡ †		Finance			15,075				14,053				13,568
Jamestown CLO I LTD, Class D L+550, 11/05/24 ‡ †		Finance			3,800				3,373				3,537
Jamestown CLO I LTD, Class C L+400, 11/05/24 ‡†		Finance			1,120				1,024				1,109
Kirkwood Fund II LLC, Common Interest ‡		Finance			—				41,067				43,144
MCF CLO I LLC, Membership Interests ‡		Finance			38,918				38,918				38,918
MCF CLO I LLC, Class E Notes L+575, 4/20/23 ‡ †		Finance			13,000				12,278				12,273
Slater Mill Loan Fund LP, Common Stock ‡		Finance			8,375				7,119				6,951
TOTAL STRUCTURED PRODUCTS								$	172,108			$	176,370

See notes to financial statements.

 

S-F-13

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Table of Contents

APOLLO INVESTMENT CORPORATION

SCHEDULE OF INVESTMENTS (continued)

March 31, 2013

 

(in thousands, except shares and warrants)

 

 

INVESTMENTS IN CONTROLLED INVESTMENTS—26.0%(4)		Industry		Shares				Cost				Fair Value(1)
EQUITY—6.3%
Common Equity/Interests—6.3%
Generation Brands Holdings, Inc. (Quality Home Brands) **		Consumer Products			9,007				—			$	432
Generation Brands Holdings, Inc. Series H (Quality Home Brands) **		Consumer Products			7,500			$	2,297				360
Generation Brands Holdings, Inc. Series 2L (Quality Home Brands) **		Consumer Products			36,700				11,242				1,760
LVI Parent Corp. (LVI Services, Inc.) **		Environmental & Facilities Services			14,981				16,096				30,575
Merx Aviation Finance Holdings, LLC **		Aviation			—				33,820				33,820
Playpower Holdings Inc. **		Leisure Equipment			1,000				77,722				38,157
Total Common Equity/Interests								$	141,177			$	105,104
TOTAL EQUITY								$	141,177			$	105,104
Total Investments in Controlled Investments								$	469,210			$	436,092
Total Investments—169.9%(6,7)								$	3,019,301			$	2,850,399
Liabilities in Excess of Other Assets—(69.9%)													(1,173,010	)
Net Assets—100.0%												$	1,677,389

 

(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)	Denominated in foreign currency as indicated.

 

(3)	The Company is the sole Limited Partner in GS Prysmian Co-Invest L.P.

See notes to financial statements.

 

S-F-14

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Table of Contents

APOLLO INVESTMENT CORPORATION

SCHEDULE OF INVESTMENTS (continued)

March 31, 2013

 

(in thousands)

 

 

(4)

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. Transactions during the fiscal year ended March 31, 2013 in these Controlled investments are as follows:

 

Name of Issuer		Fair Value at March 31, 2012				Gross Additions				Gross Reductions				Interest/Dividend/ Other Income				Fair Value at March  31, 2013
Merx Aviation Finance Holdings, LLC, 12.00%, 1/09/21			N/A			$	92,000			$	—			$	2,480			$	92,000
Merx Aviation Finance Holdings, LLC, 12.00%, 2/01/21			N/A				5,303				—				103				5,303
Merx Aviation Finance Holdings, LLC, 12.00% 3/28/21			N/A				4,684				—				6				4,684
LVI Services, Inc.,12.50%, 03/06/2018			N/A				9,800				—				916				10,000
Playpower Holdings, Inc., 14.00% PIK		$	21,576				3,155				—				3,154				24,173
Playpower, Inc., 12.50% PIK			16,960				2,250				—				2,469				18,458
AIC Credit Opportunity Fund LLC Common Equity			56,034				575				(18,466	)			7,422				50,696
Highbridge Loan, Ltd., Preference Shares **‡			N/A				4,410				—				—				6,174
Jamestown CLO I LTD, Subordinated Notes, 11/5/24 ‡†			N/A				14,020				—				34				13,568
Jamestown CLO I LTD, Class D L+550, 11/05/24 ‡†			N/A				3,364				—				101				3,537
Jamestown CLO I LTD, Class C L+400, 11/05/24 ‡†			N/A				1,021				—				23				1,109
Kirkwood Fund II LLC, Common Interest ‡			N/A				41,067				—				—				43,144
MCF CLO I LLC, Membership Interests ‡			N/A				40,385				(1,467	)			5,896				38,918
MCF CLO I LLC, Class E Notes L+575, 4/20/23 ‡†			N/A				12,273				—				84				12,273
Slater Mill Loan Fund LP, Common Stock ‡			N/A				7,370				(251	)			929				6,951
Generation Brands Holdings, Inc. (Quality Home Brands) Common Equity			130				—				—				—				432
Generation Brands Holdings, Inc. (Quality Home Brands) Series H Common Equity			1,300				—				—				—				360
Generation Brands Holdings, Inc. (Quality Home Brands) Series 2L Common Equity			7,793				—				—				—				1,760
LVI Parent Corp. Common Equity			21,504				—				—				—				30,575
Merx Aviation Finance Holdings, LLC Equity Interest			N/A				33,820				—				—				33,820
Playpower Holdings Inc. Common Equity			61,111				—				—				—				38,157
		$	186,408			$	275,497			$	(20,184	)		$	23,617			$	436,092

See notes to financial statements.

 

S-F-15

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Table of Contents

APOLLO INVESTMENT CORPORATION

SCHEDULE OF INVESTMENTS (continued)

March 31, 2013

 

(in thousands)

 

As of March 31, 2013, the Company has a 100%, 32%, 32%, 100%, 100%, 32%, 31%, 98%, 97%, and 26% equity ownership interest in AIC Credit Opportunity Fund LLC, Generation Brands Holdings, Inc., LVI Parent Corp., Playpower Holdings Inc., Merx Aviation Financing Holdings LLC, Highbridge Loan, Ltd, Jamestown CLO I Ltd, Kirkwood Fund II LLC, MCF CLO I LLC, and Slater Mill Loan Fund LP, respectively.

 

(5)	See Note 6.

 

(6)	Aggregate gross unrealized appreciation for federal income tax purposes is $127,303; aggregate gross unrealized depreciation for federal income tax purposes is $396,790. Net unrealized depreciation is $269,487 based on a tax cost of $3,119,886.

 

(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.

 

¿	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.

 

**	Non-income producing security

 

***	Non-accrual status (see Note 2d)

 

†

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 a “when issued” security that settled after March 31, 2013.

See notes to financial statements.

 

S-F-16

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Table of Contents

APOLLO INVESTMENT CORPORATION

SCHEDULE OF INVESTMENTS (continued)

 

Industry Classification		Percentage of Total Investments (at fair value) as of March 31, 2013
Diversified Service			10.4	%
Healthcare			10.2	%
Business Services			9.8	%
Finance			8.5	%
Packaging			5.1	%
Financial Services			5.0	%
Aviation			4.8	%
Transportation			4.6	%
Environmental & Facilities Services			4.0	%
Energy			3.9	%
Education			3.7	%
Distribution			3.3	%
Leisure Equipment			2.8	%
Broadcasting & Entertainment			2.8	%
Manufacturing			2.5	%
Electronics			2.3	%
Telecommunications			1.9	%
Grocery			1.9	%
Consumer Products			1.8	%
Insurance