##### Table of Contents

FORM 10-Q

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UNITED STATES

SECURITIES AND
EXCHANGE COMMISSION

Washington, D.C. 20549



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FORM 10-Q



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



For the Quarter Ended December 31, 2005



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



Commission File Number: 333-112591



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APOLLO INVESTMENT CORPORATION

(Exact name of registrant as specified in its charter)



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|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Maryland                                                       |  | 52-2439556                          
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification No.)
|                                                               | 
|9 West 57thStreet, 41st Floor, New York, N.Y.                  |  | 10019                               
|(Address of principal executive office)                        |  | (Zip Code)                          



(212) 515-3200

(Registrants telephone number, including area code)



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



Indicate by check mark whether the registrant is an
accelerated filer (as defined in Rule 12b-2 of the Exchange Act).    Yes ̈No  x



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



The number of shares of the registrants Common Stock, $.001 par value, outstanding as of December 31, 2005 was 63,547,969.



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##### Table of Contents

APOLLO INVESTMENT CORPORATION

FORM 10-Q FOR THE QUARTER ENDED DECEMBER 31, 2005

TABLE OF CONTENTS



|        |  |                                                                                                                           |  |     
|------- |  | ------------------------------------------------------------------------------------------------------------------------- |  | ----
|        |  |                                                                                                                           |  | PAGE
|PART I  |  | FINANCIAL INFORMATION                                                                                                     |  |     
|        |  |                                                                                                                          
|Item 1. |  | FINANCIAL STATEMENTS (unaudited)                                                                                          |  | 3   
|        |  |                                                                                                                          
|        |  | Statements of Assets and Liabilities as of December 31, 2005 and March 31, 2005                                           |  | 3   
|        |  |                                                                                                                          
|        |  | Statements of Operations for the three and nine months ended December 31, 2005 and 2004                                   |  | 4   
|        |  |                                                                                                                          
|        |  | Statements of Changes in Net Assets for the nine months ended December 31, 2005 and the fiscal year ending March 31, 2005 |  | 5   
|        |  |                                                                                                                          
|        |  | Statements of Cash Flows for the nine months ended December 31, 2005 and 2004                                             |  | 6   
|        |  |                                                                                                                          
|        |  | Schedule of Investments as of December 31, 2005                                                                           |  | 7   
|        |  |                                                                                                                          
|        |  | Notes to Financial Statements                                                                                             |  | 11  
|        |  |                                                                                                                          
|        |  | Report of Independent Registered Public Accounting Firm                                                                   |  | 18  
|        |  |                                                                                                                          
|Item 2. |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                                     |  | 19  
|        |  |                                                                                                                          
|Item 3. |  | Quantitative and Qualitative Disclosures About Market Risk                                                                |  | 22  
|        |  |                                                                                                                          
|Item 4. |  | Controls and Procedures                                                                                                   |  | 23  
|        |  |                                                                                                                          
|PART II |  | OTHER INFORMATION                                                                                                         |  |     
|        |  |                                                                                                                          
|Item 1. |  | Legal Proceedings                                                                                                         |  | 23  
|        |  |                                                                                                                          
|Item 2. |  | Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities                                          |  | 23  
|        |  |                                                                                                                          
|Item 3. |  | Defaults upon Senior Securities                                                                                           |  | 23  
|        |  |                                                                                                                          
|Item 4. |  | Submission of Matters to a Vote of Security Holders                                                                       |  | 23  
|        |  |                                                                                                                          
|Item 5. |  | Other Information                                                                                                         |  | 23  
|        |  |                                                                                                                          
|Item 6. |  | Exhibits and Reports on Form 8-K                                                                                          |  | 24  
|        |  |                                                                                                                          
|        |  | Signatures                                                                                                                |  | 25  



2



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##### Table of Contents

PART I. FINANCIAL INFORMATION



In this Quarterly Report, Company, AIC, Fund, we, us and our refer to Apollo Investment Corporation unless the context otherwise states.



Item 1. Financial Statements

APOLLO INVESTMENT CORPORATION

STATEMENTS OF ASSETS AND LIABILITIES

(in thousands, except per share amounts)

|                                                                                                                                                                |  |                              |           |   |                 |   |           |  
|--------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------------------- | --------- | - | --------------- | - | --------- | -
|                                                                                                                                                                |  | December 31, 2005(unaudited) |           |   | March 31, 2005# |  
|Assets                                                                                                                                                          |  |                              |           |   |                 |   |           |  
|Investments, at fair value (cost - $1,336,073 and $821,232, respectively) (1)                                                                                   |  | $                            | 1,350,229 |   |                 | $ | 838,482   |  
|Cash equivalents, at fair value (cost - $449,298 and $873,061, respectively)                                                                                    |  |                              | 449,298   |   |                 |   | 873,056   |  
|Cash                                                                                                                                                            |  |                              | 4,897     |   |                 |   | 5,208     |  
|Foreign currency, at value*                                                                                                                                     |  |                              | 240       |   |                 |   |          |  
|Interest receivable, at value*                                                                                                                                  |  |                              | 21,670    |   |                 |   | 14,805    |  
|Dividends receivable                                                                                                                                            |  |                              | 58        |   |                 |   |          |  
|Unrealized appreciation on forward foreign currency contract                                                                                                    |  |                              |          |   |                 |   | 978       |  
|Receivable from investments                                                                                                                                     |  |                              | 387       |   |                 |   |          |  
|Prepaid expenses and other assets                                                                                                                               |  |                              | 3,920     |   |                 |   | 855       |  
|                                                                                                                                                                |  |                              |           |   |                 |   |           |  
|Total assets                                                                                                                                                    |  | $                            | 1,830,699 |   |                 | $ | 1,733,384 |  
|Liabilities                                                                                                                                                     |  |                              |           |   |                 |   |           |  
|Payable for investments and cash equivalents purchased                                                                                                          |  | $                            | 487,110   |   |                 | $ | 834,891   |  
|Credit facility payable, at value*                                                                                                                              |  |                              | 413,237   |   |                 |   |          |  
|Unrealized depreciation on forward foreign currency contract (see note 7)                                                                                       |  |                              | 117       |   |                 |   |          |  
|Management and performance-based incentive fees payable (see note 3)                                                                                            |  |                              | 11,559    |   |                 |   | 4,492     |  
|Interest payable                                                                                                                                                |  |                              | 1,791     |   |                 |   |          |  
|Directors fees payable                                                                                                                                         |  |                              |          |   |                 |   | 125       |  
|Accrued administrative expenses                                                                                                                                 |  |                              | 316       |   |                 |   | 42        |  
|Other accrued expenses                                                                                                                                          |  |                              | 1,105     |   |                 |   | 948       |  
|                                                                                                                                                                |  |                              |           |   |                 |   |           |  
|Total liabilities                                                                                                                                               |  | $                            | 915,235   |   |                 | $ | 840,498   |  
|Net Assets                                                                                                                                                      |  |                              |           |   |                 |   |           |  
|Common stock, par value $.001 per share, 400,000 and 100,000 common shares authorized, respectively, and 63,548 and 62,555 issued and
outstanding, respectively |  | $                            | 64        |   |                 | $ | 63        |  
|Paid-in capital in excess of par                                                                                                                                |  |                              | 897,438   |   |                 |   | 878,838   |  
|Accumulated under (over) distributed net investment income (see note 2g)                                                                                        |  |                              | (11,715   | ) |                 |   | (4,067    | )
|Accumulated net realized gains (losses)                                                                                                                         |  |                              | 10,747    |   |                 |   | (145      | )
|Net unrealized appreciation                                                                                                                                     |  |                              | 18,930    |   |                 |   | 18,197    |  
|                                                                                                                                                                |  |                              |           |   |                 |   |           |  
|Total Net Assets                                                                                                                                                |  | $                            | 915,464   |   |                 | $ | 892,886   |  
|                                                                                                                                                                |  |                              |           |   |                 |   |           |  
|Total liabilities and net assets                                                                                                                                |  | $                            | 1,830,699 |   |                 | $ | 1,733,384 |  
|                                                                                                                                                                |  |                              |           |   |                 |   |           |  
|Net Asset Value Per Share                                                                                                                                       |  | $                            | 14.41     |   |                 | $ | 14.27     |  
|                                                                                                                                                                |  |                              |           |   |                 |   |           |  

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|(1) | None of our portfolio companies are controlled by or affiliated to the Company as defined by the Investment Company Act of 1940.
|--- | --------------------------------------------------------------------------------------------------------------------------------

|* | Foreign currency at value includes net unrealized depreciation at December 31, 2005 and March 31, 2005 totaling $1 and $0 (in 000s), respectively. Interest
receivable at value includes net unrealized depreciation at December 31, 2005 and March 31, 2005 totaling $34 and $26 (in 000s), respectively. Credit facility payable at value includes net unrealized appreciation at December 31,
2005 and March 31, 2005 totaling $4,972 and $0 (in 000s), respectively (see note 7).
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|# | Certain amounts have been reclassified to conform to the current periods presentation.
|- | ---------------------------------------------------------------------------------------



See notes to financial statements.



3



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##### Table of Contents

APOLLO INVESTMENT CORPORATION

STATEMENTS OF OPERATIONS (unaudited)

(in thousands, except per share amounts)



|                                                                                                |  |                                        |        |   |                                       |   |        |      |  |   |         |   |  |   |        |  
|----------------------------------------------------------------------------------------------- |  | -------------------------------------- | ------ | - | ------------------------------------- | - | ------ | ---- |  | - | ------- | - |  | - | ------ | -
|                                                                                                |  | For the Three Months EndedDecember 31, |        |   | For the Nine Months EndedDecember 31, |  
|                                                                                                |  | 2005                                   |        |   | 2004#                                 |   |        | 2005 |  |   | 2004*#  |  
|INVESTMENT INCOME:                                                                              |  |                                        |        |   |                                       |   |        |      |  |   |         |   |  |   |        |  
|Interest                                                                                        |  | $                                      | 37,425 |   |                                       | $ | 14,816 |      |  | $ | 97,753  |   |  | $ | 26,512 |  
|Dividends                                                                                       |  |                                        | 58     |   |                                       |   |       |      |  |   | 3,542   |   |  |   |       |  
|Other Income                                                                                    |  |                                        | 84     |   |                                       |   |       |      |  |   | 9,079   |   |  |   |       |  
|                                                                                                |  |                                        |        |   |                                       |   |        |      |  |   |         |   |  |   |        |  
|Total Investment Income                                                                         |  |                                        | 37,567 |   |                                       |   | 14,816 |      |  |   | 110,374 |   |  |   | 26,512 |  
|                                                                                                |  |                                        |        |  
|EXPENSES:                                                                                       |  |                                        |        |   |                                       |   |        |      |  |   |         |   |  |   |        |  
|Management fees                                                                                 |  | $                                      | 6,421  |   |                                       | $ | 4,475  |      |  | $ | 16,222  |   |  | $ | 12,886 |  
|Performance-based incentive fees                                                                |  |                                        | 5,138  |   |                                       |   |       |      |  |   | 16,622  |   |  |   |       |  
|Interest and other credit facility expenses                                                     |  |                                        | 4,205  |   |                                       |   |       |      |  |   | 6,980   |   |  |   |       |  
|Administrative services expense                                                                 |  |                                        | 359    |   |                                       |   | 112    |      |  |   | 1,074   |   |  |   | 560    |  
|Insurance expense                                                                               |  |                                        | 213    |   |                                       |   | 404    |      |  |   | 636     |   |  |   | 1,178  |  
|General and administrative expenses                                                             |  |                                        | 707    |   |                                       |   | 717    |      |  |   | 2,379   |   |  |   | 1,994  |  
|                                                                                                |  |                                        |        |   |                                       |   |        |      |  |   |         |   |  |   |        |  
|Total expenses                                                                                  |  |                                        | 17,043 |   |                                       |   | 5,708  |      |  |   | 43,913  |   |  |   | 16,618 |  
|                                                                                                |  |                                        |        |   |                                       |   |        |      |  |   |         |   |  |   |        |  
|Expense offset arrangement                                                                      |  |                                        | (30    | ) |                                       |   | 0      |      |  |   | (30     | ) |  |   | 0      |  
|                                                                                                |  |                                        |        |   |                                       |   |        |      |  |   |         |   |  |   |        |  
|Net expenses                                                                                    |  |                                        | 17,013 |   |                                       |   | 5,708  |      |  |   | 43,883  |   |  |   | 16,618 |  
|                                                                                                |  |                                        |        |   |                                       |   |        |      |  |   |         |   |  |   |        |  
|Net investment income                                                                           |  | $                                      | 20,554 |   |                                       | $ | 9,108  |      |  | $ | 66,491  |   |  | $ | 9,894  |  
|                                                                                                |  |                                        |        |   |                                       |   |        |      |  |   |         |   |  |   |        |  
|REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS, CASH EQUIVALENTS AND FOREIGN CURRENCIES:    |  |                                        |        |   |                                       |   |        |      |  |   |         |   |  |   |        |  
|Net realized gain (loss):                                                                       |  |                                        |        |   |                                       |   |        |      |  |   |         |   |  |   |        |  
|Investments                                                                                     |  | $                                      | 2,058  |   |                                       |   |       |      |  | $ | 5,568   |   |  | $ | (1     | )
|Foreign currency transactions                                                                   |  |                                        | 2,638  |   |                                       |   |       |      |  |   | 5,361   |   |  |   |       |  
|Cash equivalents                                                                                |  |                                        | (35    | ) |                                       |   | (120   | )    |  |   | (37     | ) |  |   | (120   | )
|                                                                                                |  |                                        |        |   |                                       |   |        |      |  |   |         |   |  |   |        |  
|Net realized gains (losses)                                                                     |  |                                        | 4,661  |   |                                       |   | (120   | )    |  |   | 10,892  |   |  |   | (121   | )
|                                                                                                |  |                                        |        |   |                                       |   |        |      |  |   |         |   |  |   |        |  
|Net change in unrealized gain (loss):                                                           |  |                                        |        |   |                                       |   |        |      |  |   |         |   |  |   |        |  
|Investments                                                                                     |  |                                        | 7,500  |   |                                       |   | 16,499 |      |  |   | (3,093  | ) |  |   | 22,440 |  
|Cash equivalents                                                                                |  |                                        |       |   |                                       |   | 64     |      |  |   | 5       |   |  |   | (13    | )
|Foreign currency translations                                                                   |  |                                        | 831    |   |                                       |   | (380   | )    |  |   | 3,821   |   |  |   | (380   | )
|                                                                                                |  |                                        |        |   |                                       |   |        |      |  |   |         |   |  |   |        |  
|Net change in unrealized gain (loss)                                                            |  |                                        | 8,331  |   |                                       |   | 16,183 |      |  |   | 733     |   |  |   | 22,047 |  
|                                                                                                |  |                                        |        |   |                                       |   |        |      |  |   |         |   |  |   |        |  
|Net realized and unrealized gain (loss) on investments, cash equivalents and foreign currencies |  |                                        | 12,992 |   |                                       |   | 16,063 |      |  |   | 11,625  |   |  |   | 21,926 |  
|                                                                                                |  |                                        |        |   |                                       |   |        |      |  |   |         |   |  |   |        |  
|NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS                                            |  | $                                      | 33,546 |   |                                       | $ | 25,171 |      |  | $ | 78,116  |   |  | $ | 31,820 |  
|                                                                                                |  |                                        |        |   |                                       |   |        |      |  |   |         |   |  |   |        |  
|EARNINGS PER COMMON SHARE (see note 5)                                                          |  | $                                      | 0.53   |   |                                       | $ | 0.41   |      |  | $ | 1.25    |   |  | $ | 0.51   |  
|                                                                                                |  |                                        |        |   |                                       |   |        |      |  |   |         |   |  |   |        |  

---

|* | Commencement of operations on April 8, 2004
|- | -------------------------------------------

|# | Certain amounts have been reclassified to conform to the current periods presentation.
|- | ---------------------------------------------------------------------------------------



See notes to financial statements.



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##### Table of Contents

APOLLO INVESTMENT CORPORATION

STATEMENTS OF CHANGES IN NET ASSETS

(unaudited)

(in thousands, except
shares)



|                                                           |  |                                     |         |   |                                       |   |            |  
|---------------------------------------------------------- |  | ----------------------------------- | ------- | - | ------------------------------------- | - | ---------- | -
|                                                           |  | Nine Months Ended December 31, 2005 |         |   | April 8, 2004* through March 31, 2005 |  
|Increase in net assets from operations:                    |  |                                     |         |   |                                       |   |            |  
|Net investment income                                      |  | $                                   | 66,491  |   |                                       | $ | 25,453     |  
|Net realized gains                                         |  |                                     | 10,892  |   |                                       |   | 495        |  
|Net change in unrealized gain                              |  |                                     | 733     |   |                                       |   | 18,197     |  
|                                                           |  |                                     |         |   |                                       |   |            |  
|Net increase in net assets resulting from operations       |  |                                     | 78,116  |   |                                       |   | 44,145     |  
|                                                           |  |                                     |         |   |                                       |   |            |  
|Dividends and distributions to shareholders:               |  |                                     | (74,139 | ) |                                       |   | (30,160    | )
|                                                           |  |                                     |         |   |                                       |   |            |  
|Capital share transactions:                                |  |                                     |         |   |                                       |   |            |  
|Proceeds from shares sold                                  |  |                                     |        |   |                                       |   | 871,875    |  
|Less offering costs of initial public offering             |  |                                     |        |   |                                       |   | (1,722     | )
|Reinvestment of dividends                                  |  |                                     | 18,601  |   |                                       |   | 8,747      |  
|                                                           |  |                                     |         |   |                                       |   |            |  
|Net increase in net assets from capital share transactions |  |                                     | 18,601  |   |                                       |   | 878,900    |  
|                                                           |  |                                     |         |   |                                       |   |            |  
|Total increase in net assets:                              |  |                                     | 22,578  |   |                                       |   | 892,885    |  
|                                                           |  |                                    
|Net assets at beginning of period                          |  |                                     | 892,886 |   |                                       |   | 1          |  
|                                                           |  |                                     |         |   |                                       |   |            |  
|Net assets at end of period                                |  | $                                   | 915,464 |   |                                       | $ | 892,886    |  
|                                                           |  |                                     |         |   |                                       |   |            |  
|Capital share activity                                     |  |                                     |         |   |                                       |   |            |  
|Shares sold                                                |  |                                     |        |   |                                       |   | 62,000,100 |  
|Shares issued from reinvestment of dividends               |  |                                     | 992,993 |   |                                       |   | 554,876    |  
|                                                           |  |                                     |         |   |                                       |   |            |  
|Net increase in capital share activity                     |  |                                     | 992,993 |   |                                       |   | 62,554,976 |  
|                                                           |  |                                     |         |   |                                       |   |            |  

---

|* | Commencement of operations
|- | --------------------------



See notes to financial statements.



5



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##### Table of Contents

APOLLO INVESTMENT CORPORATION

STATEMENTS OF CASH FLOWS (unaudited)

(in thousands)



|                                                                                                                                                      |  |                                  |          |   |                                         |   |          |  
|----------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------------------------- | -------- | - | --------------------------------------- | - | -------- | -
|                                                                                                                                                      |  | Nine monthsendedDecember 31,2005 |          |   | April 8, 2004*throughDecember 31, 2004# |  
|Cash Flows from Operating Activities:                                                                                                                 |  |                                  |          |   |                                         |   |          |  
|Net Increase in Net Assets Resulting from Operations                                                                                                  |  | $                                | 78,116   |   |                                         | $ | 31,820   |  
|Adjustments to reconcile net increase:                                                                                                                |  |                                  |          |   |                                         |   |          |  
|Purchase of investment securities                                                                                                                     |  |                                  | (866,187 | ) |                                         |   | (728,725 | )
|Proceeds from disposition of investment securities                                                                                                    |  |                                  | 356,886  |   |                                         |   | 25,222   |  
|Increase from forward foreign currency contracts                                                                                                      |  |                                  | 5,321    |   |                                         |   |         |  
|Increase in interest and dividends receivable                                                                                                         |  |                                  | (6,930   | ) |                                         |   | (6,586   | )
|Increase in prepaid expenses and other assets                                                                                                         |  |                                  | (3,065   | ) |                                         |   | (381     | )
|Increase in management and performance-based incentive fee payable                                                                                    |  |                                  | 7,067    |   |                                         |   | 4,475    |  
|Increase in interest payable                                                                                                                          |  |                                  | 1,791    |   |                                         |   |         |  
|Increase in accrued expenses                                                                                                                          |  |                                  | 306      |   |                                         |   | 910      |  
|(Decrease) increase in payable for investments and cash equivalents purchased                                                                         |  |                                  | (347,790 | ) |                                         |   | 649,304  |  
|Increase in receivables for securities sold                                                                                                           |  |                                  | (388     | ) |                                         |   |         |  
|Net change in unrealized (appreciation)/depreciation on investments, cash equivalents, foreign currency translations and other assets and
liabilities |  |                                  | (733     | ) |                                         |   | (22,047  | )
|Net realized (gain) loss on investments and cash equivalents                                                                                          |  |                                  | (10,892  | ) |                                         |   | 121      |  
|                                                                                                                                                      |  |                                  |          |   |                                         |   |          |  
|Net Cash (Used) Provided by Operating Activities                                                                                                      |  | $                                | (786,498 | ) |                                         | $ | (45,887  | )
|                                                                                                                                                      |  |                                 
|Cash Flows from Financing Activities:                                                                                                                 |  |                                  |          |   |                                         |   |          |  
|Net proceeds from the issuance of common stock                                                                                                        |  |                                  |         |   |                                         | $ | 871,875  |  
|Offering costs from the issuance of common stock                                                                                                      |  |                                  |         |   |                                         |   | (1,722   | )
|Dividends paid in cash                                                                                                                                |  |                                  | (55,538  | ) |                                         |   | (9,698   | )
|Borrowings under credit facility                                                                                                                      |  |                                  | 571,908  |   |                                         |   |         |  
|Repayments under credit facility                                                                                                                      |  |                                  | (153,700 | ) |                                         |   |         |  
|                                                                                                                                                      |  |                                  |          |   |                                         |   |          |  
|Net Cash Provided by Financing Activities                                                                                                             |  | $                                | 362,670  |   |                                         | $ | 860,455  |  
|                                                                                                                                                      |  |                                 
|NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS                                                                                                  |  | $                                | (423,828 | ) |                                         | $ | 814,568  |  
|                                                                                                                                                      |  |                                 
|Effect of exchange rates on cash balances                                                                                                             |  |                                  | (1       | ) |                                         |   |         |  
|                                                                                                                                                      |  |                                 
|CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD                                                                                                        |  |                                  | 878,264  |   |                                         |   | 1        |  
|                                                                                                                                                      |  |                                  |          |   |                                         |   |          |  
|CASH AND CASH EQUIVALENTS, END OF PERIOD                                                                                                              |  | $                                | 454,435  |   |                                         | $ | 814,569  |  
|                                                                                                                                                      |  |                                 
|Non-cash financing activities consist of the reinvestment of dividends totaling $18,601 and $4,267, respectively (in
thousands).                      |  |                                  |          |   |                                         |   |          |  

---

|* | Commencement of operations
|- | --------------------------

|# | Certain amounts have been reclassified to conform to the current periods presentation.
|- | ---------------------------------------------------------------------------------------



See notes to financial statements.



6



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##### Table of Contents

APOLLO INVESTMENT CORPORATION

SCHEDULE OF INVESTMENTS (unaudited)

December 31, 2005

(in
thousands, except shares)



|                                                                     |  |                    |  |             |        |      |   |                |  |   |        
|-------------------------------------------------------------------- |  | ------------------ |  | ----------- | ------ | ---- | - | -------------- |  | - | -------
|Portfolio Company (1)                                                |  | Industry           |  | Par Amount* |        | Cost |   | Fair Value (2)
|Subordinated Debt/Corporate Notes  88.4%                            |  |                    |  |             |        |      |   |                |  |   |        
|ALM Media Holdings, Inc., 13.00%, 3/15/13  ̈                          |  | Publishing         |  | $           | 17,649 |      | $ | 17,499         |  | $ | 17,649 
|AMH Holdings II, Inc., 13.625%, 12/1/14  ̈                            |  | Building Products  |  |             | 45,992 |      |   | 45,034         |  |   | 44,843 
|Anthony, Inc., 13.50%, 9/01/12  ̈                                     |  | Manufacturing      |  |             | 9,670  |      |   | 9,544          |  |   | 9,670  
|API Heat Transfer, Inc., 13.75%, 12/31/12                            |  | Manufacturing      |  |             | 19,134 |      |   | 18,816         |  |   | 19,134 
|Brenntag Holding GmbH & Co. KG, E+900, 1/20/16                       |  | Chemicals          |  |            | 15,000 |      |   | 17,766         |  |   | 17,901 
|Collect America, Ltd., 13.50%, 8/5/2012  ̈                            |  | Financial Services |  |             | 36,320 |      |   | 35,619         |  |   | 36,320 
|Eurofresh, Inc., 0% / 14.50%, 1/15/14  ̈                              |  | Agriculture        |  |             | 26,504 |      |   | 15,074         |  |   | 15,000 
|Eurofresh, Inc., 11.50%, 1/15/13  ̈                                   |  | Agriculture        |  |             | 50,000 |      |   | 50,000         |  |   | 50,250 
|European Directories (DH5) B.V., 15.735%, 7/1/16                     |  | Publishing         |  |            | 1,857  |      |   | 2,228          |  |   | 2,249  
|European Directories (DH7) B.V., E+950, 7/1/15                       |  | Publishing         |  |            | 14,179 |      |   | 17,297         |  |   | 17,321 
|Hanley Wood LLC, 12.25%, 8/1/2013  ̈                                  |  | Media              |  |             | 60,000 |      |   | 59,419         |  |   | 60,000 
|Invista, 9.25%, 5/1/12  ̈                                             |  | Chemicals          |  |             | 11,500 |      |   | 11,500         |  |   | 12,334 
|Language Line Holdings, Inc., 0% / 14.125%, 6/15/13                  |  | Business Services  |  |             | 27,678 |      |   | 17,815         |  |   | 13,424 
|Language Line Inc., 11.125%, 6/15/12                                 |  | Business Services  |  |             | 27,081 |      |   | 26,765         |  |   | 25,185 
|Latham Manufacturing Corp., 14.00%, 6/30/11                          |  | Leisure Equipment  |  |             | 43,651 |      |   | 42,857         |  |   | 43,651 
|Lexicon Marketing (USA), Inc., 13.75%, 1/2/12                        |  | Direct Marketing   |  |             | 27,526 |      |   | 27,036         |  |   | 27,526 
|LVI Services, Inc., 13.25%, 11/16/12                                 |  | Environmental      |  |             | 43,000 |      |   | 42,149         |  |   | 43,000 
|N.E.W. Customer Service Companies Inc., 14.00%, Convertible, 8/17/13 |  | Consumer Services  |  |             | 8,320  |      |   | 8,320          |  |   | 9,761  
|NSP Holdings LLC, 11.75%, 1/1/2012  ̈                                 |  | Manufacturing      |  |             | 25,589 |      |   | 25,069         |  |   | 25,845 
|Playpower Holdings Inc., 15.50%, 11/30/12  ̈                          |  | Leisure Equipment  |  |             | 70,560 |      |   | 70,560         |  |   | 70,560 
|Pro Mach Merger Sub, Inc., 13.75%, 6/15/12                           |  | Machinery          |  |             | 19,275 |      |   | 18,928         |  |   | 19,275 
|SCI Holdings, Inc., 13.00%, 11/15/13                                 |  | Consumer Services  |  |             | 28,465 |      |   | 28,465         |  |   | 28,465 
|Sigmakalon Holdco B.V., E+1000, 12/31/2015                           |  | Chemicals          |  |            | 45,000 |      |   | 54,664         |  |   | 53,881 
|Sirona Dental Services GmbH, E+950, 7/1/12                           |  | Healthcare         |  |            | 21,824 |      |   | 26,152         |  |   | 26,660 
|Source Media Holdings Inc., 13.00%, 11/30/12  ̈                       |  | Publishing         |  |             | 18,240 |      |   | 17,893         |  |   | 18,240 
|T/Y Merger Corp., 14.75%, 2/26/10                                    |  | Logistics          |  |             | 18,565 |      |   | 18,316         |  |   | 18,565 
|Travelex Global, GBP L+950, 10/30/2015                               |  | Financial Services |  | £           | 13,172 |      |   | 24,223         |  |   | 23,292 
|Tumi Holdings, Inc., L+1100, 12/31/14                                |  | Consumer Products  |  |             | 13,011 |      |   | 13,011         |  |   | 13,271 
|WDAC Intermediate Corp., 13.75%, 6/1/15                              |  | Publishing         |  |            | 37,613 |      |   | 49,992         |  |   | 45,492 
|                                                                     |  |                    |  |             |        |      |   |                |  |   |        
|Total Subordinated Debt/Corporate Notes                              |  |                    |  |             |        |      | $ | 812,011        |  | $ | 808,764
|                                                                     |  |                    |  |             |        |      |   |                |  |   |        



See notes to financial
statements.



7



---

##### Table of Contents

APOLLO INVESTMENT CORPORATION

SCHEDULE OF INVESTMENTS (unaudited) (continued)

December 31, 2005

(in thousands, except shares)



|                                                                |  |                       |  |             |           |      |   |                |  |   |       
|--------------------------------------------------------------- |  | --------------------- |  | ----------- | --------- | ---- | - | -------------- |  | - | ------
|Equity/Partnership Interests  9.3%                             |  | Industry              |  | Shares      |           | Cost |   | Fair Value (2)
|CA Holding, Inc.                                                |  | Financial Services    |  |             | 25,000    |      | $ | 2,500          |  | $ | 2,617 
|DTPI Holdings, Inc.                                             |  | Infrastructure        |  |             | 200,000   |      |   | 2,000          |  |   | 677   
|FSC Holdings Inc.                                               |  | Media                 |  |             | 10,000    |      |   | 10,000         |  |   | 10,000
|Garden Fresh Restaurant Holding, LLC                            |  | Retail                |  |             | 50,000    |      |   | 5,000          |  |   | 5,000 
|GS Prysmian Co-Invest L.P. (4,5)                                |  | Industrial            |  |             |           |      |   | 24,928         |  |   | 36,748
|Latham Acquisition Corp.**                                      |  | Leisure Equipment     |  |             | 33,091    |      |   | 3,309          |  |   | 3,509 
|LM Acquisition Ltd. **                                          |  | Direct Marketing      |  |             | 10,000    |      |   | 10,000         |  |   | 14,692
|LVI Acquisition Corp.                                           |  | Environmental         |  |             | 6,250     |      |   | 625            |  |   | 625   
|LVI Acquisition Corp, 14.00% Preferred                          |  | Environmental         |  |             | 1,875     |      |   | 1,875          |  |   | 1,875 
|N.E.W. Customer Service Companies, Inc.                         |  | Consumer Services     |  |             | 1,105,961 |      |   | 3,415          |  |   | 5,298 
|Pro Mach Co-investment, LLC**                                   |  | Machinery             |  |             | 150,000   |      |   | 1,500          |  |   | 1,500 
|Sorenson Communications Holdings, LLC Class A                   |  | Consumer Services     |  |             | 570,120   |      |   | 57             |  |   | 57    
|Sorenson Communications Holdings, LLC Class B, 10.00% Preferred |  | Consumer Services     |  |             | 1,943     |      |   | 1,943          |  |   | 1,943 
|T/Y Merger Corp.**                                              |  | Logistics             |  |             | 250,000   |      |   | 2,500          |  |   | 780   
|                                                                |  |                       |  |             |           |      |   |                |  |   |       
|Total Equity and Partnership Interests                          |  |                       |  |             |           |      | $ | 69,652         |  | $ | 85,321
|                                                                |  |                       |  |             |           |      |   |                |  |   |       
|                                                                |  |                       |  |            
|Bank Debt/Senior Secured Loans (3)  49.8%                      |  |                       |  | Par Amount* |           |      |   |               
|1stLien Bank
Debt/Senior Secured Loans  7.1 %                  |  |                       |  |             |           |      |   |                |  |   |       
|Alliance Mortgage Investments, Inc., 6/1/10                     |  | Consumer Finance      |  | $           | 36,562    |      | $ | 36,564         |  | $ | 36,562
|Cygnus Business Media, Inc., 7/13/09                            |  | Media                 |  |             | 13,450    |      |   | 13,401         |  |   | 13,383
|Healthy Directions, LLC, 8/31/10                                |  | Vitamins, Supplements |  |             | 14,963    |      |   | 14,893         |  |   | 14,963
|                                                                |  |                       |  |             |           |      |   |                |  |   |       
|Total 1st Lien Bank Debt/Senior Secured Loans                   |  |                       |  |             |           |      | $ | 64,858         |  | $ | 64,908
|                                                                |  |                       |  |             |           |      |   |                |  |   |       
|                                                                |  |                       |  |            
|2nd Lien Bank Debt/Senior Secured Loans  42.7%                 |  |                       |  |             |           |      |   |                |  |   |       
|ALM Media Holdings, Inc., 3/7/11                                |  | Publishing            |  | $           | 27,750    |      | $ | 27,750         |  | $ | 27,750
|American Asphalt & Grading Co., 7/1/11                          |  | Infrastructure        |  |             | 26,500    |      |   | 26,500         |  |   | 26,367
|American Safety Razor, 9/21/12                                  |  | Consumer Products     |  |             | 13,500    |      |   | 13,500         |  |   | 13,601
|Anthony International, 9/1/11                                   |  | Manufacturing         |  |             | 13,000    |      |   | 12,890         |  |   | 13,000
|Brenntag Holding GmbH & Co. KG, 1/20/16                         |  | Chemicals             |  |             | 20,000    |      |   | 20,000         |  |   | 20,525
|C.H.I. Overhead Doors, Inc., 10/22/11                           |  | Building Products     |  |             | 10,000    |      |   | 9,956          |  |   | 10,113



See notes to financial
statements



8



---

##### Table of Contents

APOLLO INVESTMENT CORPORATION

SCHEDULE OF INVESTMENTS (unaudited) (continued)

December 31, 2005

(in thousands, except shares)



|                                                  |  |                       |  |             |         |      |   |                |  |   |           |  
|------------------------------------------------- |  | --------------------- |  | ----------- | ------- | ---- | - | -------------- |  | - | --------- | -
|                                                  |  | Industry              |  | Par Amount* |         | Cost |   | Fair Value (2) | 
|2nd Lien Bank Debt/Senior Secured Loans  contd. |  |                       |  |             |         |      |   |                |  |   |           |  
|Clean Earth, Inc., 10/14/11                       |  | Environmental         |  | $           | 25,000  |      | $ | 24,969         |  | $ | 25,312    |  
|Cygnus Business Media, Inc., 1/13/10              |  | Media                 |  |             | 10,000  |      |   | 9,924          |  |   | 9,950     |  
|Diam International, 7/1/12                        |  | Consumer Products     |  |             | 20,000  |      |   | 20,000         |  |   | 18,200    |  
|Dr. Leonards Healthcare Corp., 7/31/12           |  | Direct Marketing      |  |             | 22,000  |      |   | 22,000         |  |   | 22,055    |  
|Garden Fresh Restaurant Corp., 12/22/11           |  | Retail                |  |             | 25,000  |      |   | 24,751         |  |   | 25,000    |  
|Healthy Directions, LLC, 8/31/11                  |  | Vitamins, Supplements |  |             | 14,963  |      |   | 14,963         |  |   | 15,037    |  
|Natural Products Group LLC, 8/16/2012             |  | Direct Marketing      |  |             | 25,000  |      |   | 24,734         |  |   | 25,063    |  
|NES Rentals Holdings Inc., 8/17/10                |  | Equipment Rental      |  |             | 24,688  |      |   | 24,688         |  |   | 25,120    |  
|N.E.W. Customer Service Companies, 7/1/12         |  | Consumer Services     |  |             | 50,000  |      |   | 50,000         |  |   | 50,875    |  
|Sigmakalon Holdco B.V., 6/30/2015                 |  | Chemicals             |  |            | 10,000  |      |   | 12,148         |  |   | 11,667    |  
|Sorenson Communications, Inc., 11/15/12           |  | Consumer Services     |  |             | 17,000  |      |   | 17,000         |  |   | 17,398    |  
|Survey Sampling International, LLC, 5/7/12        |  | Market Research       |  |             | 7,500   |      |   | 7,482          |  |   | 7,561     |  
|Tumi Holdings, Inc., 6/30/14                      |  | Consumer Products     |  |             | 3,000   |      |   | 3,000          |  |   | 3,030     |  
|United Site Services, Inc., 6/30/10               |  | Environmental         |  |             | 13,462  |      |   | 13,297         |  |   | 13,462    |  
|Wyle Laboratories, Inc., 7/28/11                  |  | Aerospace/Defense     |  |             | 10,000  |      |   | 10,000         |  |   | 10,150    |  
|                                                  |  |                       |  |             |         |      |   |                |  |   |           |  
|Total 2nd Lien Bank Debt/Senior Secured Loans     |  |                       |  |             |         |      | $ | 389,552        |  | $ | 391,236   |  
|                                                  |  |                       |  |             |         |      |   |                |  |   |           |  
|Total Bank Debt/Senior Secured Loans              |  |                       |  |             |         |      | $ | 454,410        |  | $ | 456,144   |  
|                                                  |  |                       |  |             |         |      |   |                |  |   |           |  
|Total Investments                                 |  |                       |  |             |         |      | $ | 1,336,073      |  | $ | 1,350,229 |  
|                                                  |  |                       |  |             |         |      |   |                |  |   |           |  
|Cash Equivalents  49.1%                          |  |                       |  |             |         |      |   |                |  |   |           |  
|U.S. Cash Management Bill, 4.16%, 1/17/06         |  | Government            |  |             | 450,000 |      | $ | 449,298        |  | $ | 449,298   |  
|                                                  |  |                       |  |             |         |      |   |                |  |   |           |  
|Total Investments & Cash Equivalents 196.6%      |  |                       |  |             |         |      | $ | 1,785,371      |  | $ | 1,799,527 |  
|                                                  |  |                       |  |            
|Liabilities in excess of other assets  (96.6%)   |  |                       |  |             |         |      |   |                |  |   | (884,063  | )
|                                                  |  |                       |  |             |         |      |   |                |  |   |           |  
|Net Assets  100.0%                               |  |                       |  |             |         |      |   |                |  | $ | 915,464   |  
|                                                  |  |                       |  |             |         |      |   |                |  |   |           |  

---

|(1) | None of our portfolio companies is controlled or affiliated as defined by the Investment Company Act of 1940.
|--- | -------------------------------------------------------------------------------------------------------------

|(2) | Fair value is determined by or under the direction of the Board of Directors of the Company (see Note 2).
|--- | ---------------------------------------------------------------------------------------------------------

|(3) | Represent floating rate instruments that accrue interest at a predetermined spread relative to an index, typically the LIBOR (London Inter-bank Offer Rate), EURIBOR (Euro Inter-bank
Offered Rate), GBP Libor (London Interbank Offer Rate for British Pounds), or the Prime Rate.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) | Denominated in Euro ()
|--- | -----------------------

|(5) | The Company is the sole Limited Partner in GS Prysmian Co-Invest L.P.
|--- | ---------------------------------------------------------------------

| ̈ | 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.
|-- | ------------------------------



See notes to financial statements



9



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##### Table of Contents

APOLLO INVESTMENT CORPORATION

SCHEDULE OF INVESTMENTS (unaudited) (continued)

December 31, 2005



|                        |  |            |  
|----------------------- |  | ---------- | -
|Industry Classification |  | Percentage |  
|Publishing              |  | 9.5        | %
|Leisure Equipment       |  | 8.7        | %
|Chemicals               |  | 8.6        | %
|Consumer Services       |  | 8.4        | %
|Media                   |  | 6.9        | %
|Direct Marketing        |  | 6.6        | %
|Environmental           |  | 6.3        | %
|Manufacturing           |  | 5.0        | %
|Agriculture             |  | 4.8        | %
|Financial Services      |  | 4.6        | %
|Building Products       |  | 4.1        | %
|Consumer Products       |  | 3.6        | %
|Business Services       |  | 2.9        | %
|Industrial              |  | 2.7        | %
|Consumer Finance        |  | 2.7        | %
|Retail                  |  | 2.2        | %
|Vitamins, Supplements   |  | 2.2        | %
|Infrastructure          |  | 2.0        | %
|Healthcare              |  | 2.0        | %
|Equipment Rental        |  | 1.9        | %
|Machinery               |  | 1.5        | %
|Logistics               |  | 1.4        | %
|Aerospace/Defense       |  | 0.8        | %
|Market Research         |  | 0.6        | %
|                        |  |            |  
|Total                   |  | 100.0      | %



See notes to financial
statements



10



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##### Table of Contents

Apollo Investment Corporation

Notes To Financial Statements (unaudited)

(in thousands except share and per share amounts)



Note 1. Organization



Apollo Investment Corporation (Apollo Investment or the Company), a Maryland corporation organized on February 2, 2004, is a closed-end, non-diversified management investment company that
has filed an election to be treated as a business development company (BDC) under the Investment Company Act of 1940. In addition, for tax purposes we have elected to be treated as a regulated investment company, or RIC, under the
Internal Revenue Code of 1986, as amended. Our investment objective is to generate both current income and capital appreciation through debt and equity investments. We invest primarily in middle-market companies in the form of mezzanine and senior
secured loans, each of which may include an equity component, and, to a lesser extent, by making direct equity investments in such companies.



On April 8, 2004, Apollo Investment closed its initial public offering and sold 62,000,000 shares of its common stock at a price of $15.00 per share, less an
underwriting discount and commissions totaling $0.9375 per share. We commenced operations on April 8, 2004 as we received $870.15 million in total net proceeds from the offering.



Note 2. Significant Accounting Policies



The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America
(GAAP) requires management to make estimates and assumptions that affect the reported amount of assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reported period.
Changes in the economic environment, financial markets and any other parameters used in determining these estimates could cause actual results to differ.



Interim financial statements are prepared in accordance with GAAP for interim financial information and pursuant to the requirements for reporting on Form 10-Q and
Article 6 or 10 of Regulation S-X, as appropriate. Accordingly, certain disclosures accompanying financial statements prepared in accordance with GAAP are omitted. In accordance with Article 6-09 of Regulation S-X under the Exchange Act, we are
providing a Statement of Changes in Net Assets in lieu of a Statement of Changes in Stockholders' Equity. In addition, certain prior period amounts have been reclassified to conform with the current period presentation. In the opinion of management,
all adjustments, consisting solely of normal recurring accruals, considered necessary for the fair presentation of financial statements for the interim period, have been included.



The significant accounting policies consistently followed by Apollo Investment are:



|(a) | Security transactions are accounted for on the trade date;
|--- | ----------------------------------------------------------



|(b) | Investments for which market quotations are readily available are valued at such market quotations; debt and equity securities that are not publicly traded or whose market prices
are not readily available are valued at fair value as determined in good faith by or under the direction of our Board of Directors. Subordinated debt, senior secured debt and other debt securities with maturities greater than 60 days are valued by
an independent pricing service or at the mean between the bid and ask prices from at least two brokers or dealers (if available, otherwise by a principal market maker or a primary market dealer). With respect to certain private equity securities,
each investment is valued using comparisons of financial ratios of the portfolio companies that issued such private equity securities to peer companies that are public. The value is then discounted to reflect the illiquid nature of the investment.
When an external event such as a purchase transaction, public offering or subsequent equity sale occurs, we will use the pricing indicated by the external event to corroborate our private equity valuation. Because we expect that there will not be a
readily available market value for most of the investments in our portfolio, we expect to value substantially all of our portfolio investments at fair value as determined in good faith by or under the direction of our Board of Directors using a
documented valuation policy and a consistently applied valuation process. Due to the inherent uncertainty of determining the fair value of investments that do not have a readily available market value, the fair value of our investments may differ
significantly from the values that would have been used had a readily available market value existed for such investments, and the differences could be material.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



11



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##### Table of Contents

Apollo Investment Corporation

Notes to Financial Statements (unaudited) (continued)

(in thousands except
share and per share amounts)



With respect to our
investments for which market quotations are not readily available, our Board of Directors undertakes 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 responsible for the portfolio investment;
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (2) | Preliminary valuation conclusions are then documented and discussed with our senior management;
| | --- | -----------------------------------------------------------------------------------------------

| | (3) | Independent valuation firms engaged by our board of directors conduct independent appraisals and review managements preliminary valuations and their own independent
assessment;
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (4) | The audit committee of our board of directors reviews the preliminary valuation of our investment adviser and that of the independent valuation firms and responds and supplements
the valuation recommendation of the independent valuation firm to reflect any comments; and
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (5) | The board of directors discusses valuations and determines the fair value of each investment in our portfolio in good faith based on the input of our investment adviser, the
respective independent valuation firms and the audit committee.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The types of factors that we may take into account in fair value pricing our investments include, as relevant, the nature and realizable value of any collateral, the portfolio companys ability to make payments
and its earnings and discounted cash flow, the markets in which the portfolio company does business, comparison to publicly traded securities and other relevant factors.



Determination of fair values involves subjective judgments and estimates. Accordingly, these notes to our financial
statements express the uncertainty with respect to the possible effect of such valuations, and any change in such valuations, on our financial statements.



|(c) | Investments purchased within 60 days of maturity are valued at cost plus accreted discount, or minus amortized premium, which approximates value;
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------

|(d) | Gains or losses on the sale of investments are calculated by using the specific identification method;
|--- | ------------------------------------------------------------------------------------------------------

|(e) | Interest income, adjusted for amortization of premium and accretion of discount, is recorded on an accrual basis. Origination, closing and/or commitment fees associated with
investments in portfolio companies are accreted into interest income over the respective terms of the applicable loans. Upon the prepayment of a loan or debt security, any prepayment penalties and unamortized loan origination, closing and commitment
fees are recorded as interest income;
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(f) | The Company intends to comply with the applicable provisions of the Internal Revenue Code of 1986, as amended, pertaining to regulated investment companies to make distributions of
taxable income sufficient to relieve it from substantially all Federal income and excise taxes;
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(g) | In accordance with Statement of Position 93-2 Determination, Disclosure, and Financial Statement Presentation of Income, Capital Gain, and Return of Capital Distributions by
Investment Companies, book and tax basis differences relating to stockholder dividends and distributions and other permanent book and tax differences are reclassified to paid-in capital. In addition, the character of income and gains to be
distributed is determined in accordance with income tax regulations that may differ from accounting principles generally accepted in the United States of America;
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(h) | Dividends and distributions to common stockholders are recorded as of record date. The amount to be paid out as a dividend is determined by the Board of Directors each quarter and
is generally based upon the earnings estimated by management. Net realized capital gains, if any, are distributed at least annually.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(i) | The accounting records of the Company are maintained in U.S. dollars. All assets and liabilities denominated in foreign currencies are translated into U.S. dollars based on the rate
of exchange of such currencies against U.S. dollars on the date of valuation. The Companys investments in foreign securities may involve certain risks such as foreign exchange restrictions, expropriation, taxation or other political, social or
economic risks, all of which could affect the market and/or credit risk of the investment. In addition, changes in the relationship of foreign currencies to the U.S. dollar can significantly affect the value of these investments and therefore the
earnings of the Company.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(j) | The Company may enter into forward exchange contracts in order to hedge against foreign currency risk. These contracts are marked-to-market by recognizing the difference between the
contract exchange rate and the current market rate as unrealized appreciation or depreciation. Realized gains or losses are recognized when contracts are settled.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(k) | The Company records origination expenses related to its multi-currency credit facility as prepaid assets. These expenses are deferred and amortized using the straight-line method
over the stated life of the facility and in accordance with FAS 91.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(l) | The Company records registration expenses related to Shelf filings as prepaid assets. These expenses will be charged as a reduction of capital upon utilization, in accordance with
Section 8.24 of the AICPA Audit and Accounting Guide for Investment Companies.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



12



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##### Table of Contents

Apollo Investment Corporation

Notes to Financial Statements (unaudited) (continued)

(in thousands except
share and per share amounts)



Note 3. Agreements



Apollo Investment has an Investment Advisory and Management Agreement with the Investment
Adviser, Apollo Investment Management, L.P., under which the Investment Adviser, subject to the overall supervision of Apollo Investments Board of Directors, will manage the day-to-day operations of, and provide investment advisory services
to, Apollo Investment. For providing these services, the Investment Adviser receives a fee from Apollo Investment, consisting of two componentsa base management fee and an incentive fee. The base management fee is calculated at an annual rate
of 2.00% of Apollo Investments gross assets. The incentive fee has two parts, as follows: one part is calculated and payable quarterly in arrears based on Apollo Investments pre-incentive fee net investment income for the immediately
preceding calendar quarter. For this purpose, pre-incentive fee net investment income means interest income, dividend income and any other income (including any other fees (other than fees for providing managerial assistance), such as commitment,
origination, structuring, diligence and consulting fees or other fees that we receive from portfolio companies) accrued during the calendar quarter, minus Apollo Investments operating expenses for the quarter (including the base management
fee, any expenses payable under the Administration Agreement, and any interest expense and dividends paid on any issued and outstanding preferred stock, but excluding the incentive fee). Pre-incentive fee net investment income does not include any
realized capital gains computed net of all realized capital losses and unrealized capital depreciation. Pre-incentive fee net investment income, expressed as a rate of return on the value of Apollo Investments net assets at the end of the
immediately preceding calendar quarter, is compared to the hurdle rate of 1.75% per quarter (7% annualized). Our net investment income used to calculate this part of the incentive fee is also included in the amount of our gross assets used to
calculate the 2% base management fee. Apollo Investment pays the Investment Adviser an incentive fee with respect to Apollo Investments pre-incentive fee net investment income in each calendar quarter as follows: (1) no incentive fee in
any calendar quarter in which Apollo Investments pre-incentive fee net investment income does not exceed the hurdle rate; (2) 100% of Apollo Investments pre-incentive fee net investment income with respect to that portion of such
pre-incentive fee net investment income, if any, that exceeds the hurdle rate but is less than 2.1875% in any calendar quarter; and (3) 20% of the amount of Apollo Investments pre-incentive fee net investment income, if any, that exceeds
2.1875% in any calendar quarter. These calculations are appropriately pro rated for any period of less than three months and adjusted for any share issuances or repurchases during the relevant quarter. The second part of the incentive fee is
determined and payable in arrears as of the end of each calendar year (or upon termination of the Investment Advisory and Management Agreement, as of the termination date), commencing on December 31, 2004, and will equal 20.0% of Apollo
Investments cumulative realized capital gains less cumulative realized capital losses, unrealized capital depreciation (unrealized depreciation on a gross investment-by-investment basis at the end of each calendar year) and all capital gains
upon which prior performance-based capital gains incentive fee payments were previously made to the advisor.



For the three and nine month periods ended December 31, 2005, the Investment Adviser received $6,421 and $16,222, respectively, in base investment advisory and management fees and $5,138 and $16,622,
respectively, in performance-based net investment income incentive fees from Apollo Investment.



Apollo Investment has also entered into an Administration Agreement with Apollo Investment Administration, LLC (the Administrator) under which the Administrator provides administrative services for Apollo
Investment. For providing these services, facilities and personnel, Apollo Investment reimburses the Administrator for Apollo Investments allocable portion of overhead and other expenses incurred by Apollo Administration in performing its
obligations under the Administration Agreement, including rent and Apollo Investments allocable portion of its chief compliance officer and chief financial officer and their respective staffs. The Administrator will also provide on Apollo
Investments behalf managerial assistance to these portfolio companies to which Apollo Investment is required to provide such assistance.



For the three and nine month periods ended December 31, 2005, the Administrator was reimbursed $298 and $757, respectively, from Apollo Investment on the $359 and
$1,074, respectively, of expenses accrued under the Administration Agreement.



On April 14, 2005, Apollo Investment entered into an $800 million Senior Secured Revolving Credit Agreement (the Credit Agreement), among Apollo Investment, the lenders party thereto and JPMorgan Chase Bank, N.A.
(JPMorgan), as administrative agent for the lenders. On December 29, 2005, the Credit Agreement was expanded to $900 million of commitments. From time to time, certain of the lenders provide customary commercial and investment
banking services to affiliates of Apollo Investment. JPMorgan also serves as custodian and fund accounting agent for Apollo Investment.



13



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##### Table of Contents

Apollo Investment Corporation

Notes To Financial Statements (unaudited) (continued)

(in thousands except
share and per share amounts)



Note 4. Net Asset Value Per Share



At December 31, 2005, the Company's total net assets and net asset
value per share were $915,464 and $14.41, respectively.



Note
5. Earnings Per Share



The following information sets forth the
computation of basic and diluted per share net investment income and net increase in net assets resulting from operations for the three and nine month periods ended December 31, 2005 and 2004, respectively:



|                                                                                  |  |                                    |            |                                    |   |                                   |  |                                          |            |  |   |           
|--------------------------------------------------------------------------------- |  | ---------------------------------- | ---------- | ---------------------------------- | - | --------------------------------- |  | ---------------------------------------- | ---------- |  | - | ----------
|                                                                                  |  | Three monthsended December 31,2005 |            | Three monthsended December 31,2004 |   | Nine monthsended December 31,2005 |  | April 8, 2004* through December 31, 2004
|Numerator for net investment income per share:                                    |  | $                                  | 20,554     |                                    | $ | 9,108                             |  | $                                        | 66,491     |  | $ | 9,894     
|Numerator for increase in net assets per share:                                   |  | $                                  | 33,546     |                                    | $ | 25,171                            |  | $                                        | 78,116     |  | $ | 31,820    
|Denominator for basic and diluted weighted average shares:                        |  |                                    | 63,093,222 |                                    |   | 62,082,041                        |  |                                          | 62,809,381 |  |   | 62,028,229
|Basic and diluted net investment income per share:                                |  | $                                  | 0.33       |                                    | $ | 0.15                              |  | $                                        | 1.06       |  | $ | 0.16      
|Basic and diluted net increase in net assets per share resulting from operations: |  | $                                  | 0.53       |                                    | $ | 0.41                              |  | $                                        | 1.25       |  | $ | 0.51      

---

|* | Commencement of Operations
|- | --------------------------



Note 6. Investments



As of
December 31, 2005 and December 31, 2004, respectively, investments and cash equivalents consisted of the following:



|                                  |  |                   |           |                   |   |           |  |            |           |  |   |          
|--------------------------------- |  | ----------------- | --------- | ----------------- | - | --------- |  | ---------- | --------- |  | - | ---------
|                                  |  | December 31, 2005 |           | December 31, 2004
|                                  |  | Cost              |           | Fair Value        |   | Cost      |  | Fair Value
|Subordinated Debt/Corporate Notes |  | $                 | 812,011   |                   | $ | 808,764   |  | $          | 397,268   |  | $ | 415,829  
|Equity/Partnership Interests      |  |                   | 69,652    |                   |   | 85,321    |  |            | 20,404    |  |   | 20,695   
|Bank Debt/Senior Secured Debt     |  |                   | 454,410   |                   |   | 456,144   |  |            | 285,831   |  |   | 289,419  
|Cash Equivalents                  |  |                   | 449,298   |                   |   | 449,298   |  |            | 810,757   |  |   | 810,744  
|                                  |  |                   |           |                   |   |           |  |            |           |  |   |          
|Totals                            |  | $                 | 1,785,371 |                   | $ | 1,799,527 |  | $          | 1,514,260 |  | $ | 1,536,687



Note 7. Foreign Currency
Transactions and Translations



At December 31, 2005, the Company had
an open foreign currency contract to sell euro forward and bears the market risk that arises from changes in foreign currency exchange rates. Unrealized depreciation on the contract is reflected in the accompanying financial statements as follows:



|                 |  |               |        |      |   |             |  |                |        |                        |          |  |   |    
|---------------- |  | ------------- | ------ | ---- | - | ----------- |  | -------------- | ------ | ---------------------- | -------- |  | - | ---
|Foreign Currency |  | LocalCurrency |        | Cost |   | MarketValue |  | SettlementDate |        | UnrealizedDepreciation
|To Sell: Euro    |  |              | 38,250 |      | $ | 45,304      |  | $              | 45,421 |                        | 03/08/06 |  | $ | 117



14



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##### Table of Contents

Apollo Investment Corporation

Notes To Financial Statements (unaudited) (continued)

(in thousands except
share and per share amounts)



At December 31, 2005, the Company had
outstanding non-US borrowings on its $900 million multicurrency revolving credit facility denominated in both euro and pounds sterling. Unrealized appreciation on these outstanding borrowings is indicated in the table below:



|                 |  |          |        |      |   |         |  |      |         |              |           |  |   |      
|---------------- |  | -------- | ------ | ---- | - | ------- |  | ---- | ------- | ------------ | --------- |  | - | -----
|Foreign Currency |  | Currency |        | Cost |   | Value   |  | Date |         | Appreciation
|Euro             |  |         | 10,090 |      | $ | 12,489  |  | $    | 11,981  |              | 1/11/2006 |  | $ | 508  
|Euro             |  |         | 25,061 |      |   | 30,246  |  |      | 29,760  |              | 1/23/2006 |  |   | 486  
|Euro             |  |         | 20,022 |      |   | 24,888  |  |      | 23,775  |              | 3/6/2006  |  |   | 1,113
|Pounds Sterling  |  | £        | 13,000 |      |   | 23,917  |  |      | 22,318  |              | 3/7/2006  |  |   | 1,599
|Euro             |  |         | 55,525 |      |   | 67,167  |  |      | 65,934  |              | 3/20/2006 |  |   | 1,233
|Euro             |  |         | 2,500  |      |   | 3,001   |  |      | 2,968   |              | 6/16/2006 |  |   | 33   
|                 |  |          |        |      |   |         |  |      |         |              |           |  |   |      
|                 |  |          |        |      | $ | 161,708 |  | $    | 156,736 |              |           |  | $ | 4,972



Note 8. Expense Offset
Arrangement



The company benefits from an expense offset arrangement with
JPMorgan Chase Bank, N.A. (custodian bank) whereby the company earns credits on any uninvested US dollar cash balances held by the custodian bank. These credits are applied by the custodian bank as a reduction of the monthly custody fees
charged to the company. The total amount of credits earned during the nine months ended December 31, 2005 is $30.



Note 9. Cash Equivalents



Pending investment in longer-term portfolio holdings, Apollo Investment makes temporary investments in U.S. Treasury bills (of varying maturities) and repurchase
agreements as outlined in our prospectus. These temporary investments are deemed cash equivalents by us and are included in our Schedule of Investments. At the end of each fiscal quarter, the Company typically takes proactive steps to prospectively
preserve investment flexibility in the next quarter which is assessed against the Companys total assets at its most recent quarter end. The Company can accomplish this in many ways including its current practice of purchasing U.S. Treasury
bills and closing out its position on a net cash basis subsequent to quarter end. The Company may also utilize repurchase agreements or other balance sheet transactions as it deems appropriate for this purpose and these amounts are excluded from
total assets for purposes of computing the asset base upon which the management fee is determined. U.S. Treasury bills with maturities of greater than 60 days from the time of purchase are marked-to-market as per our valuation policy. U.S. Treasury
bills settle regular way on trade date plus one.



Note
10. Repurchase Agreements



The Company enters into repurchase
agreements as part of its investment program. The Company's custodian takes possession of collateral pledged by the counterparty. The collateral is marked-to-market daily to ensure that the value, plus accrued interest, is at least equal to the
repurchase price. In the event of default of the obligor to repurchase, the Company has the right to liquidate the collateral and apply the proceeds in satisfaction of the obligation. Under certain circumstances, in the event of default or
bankruptcy by the counterparty to the agreement, realization and/or retention of the collateral or proceeds may be subject to legal proceedings. There were no repurchase agreements outstanding at December 31, 2005.



15



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##### Table of Contents

Apollo Investment Corporation

Notes To Financial Statements (unaudited) (continued)

(in thousands except
share and per share amounts)



Note 11. Financial Highlights



The following is a schedule of financial highlights for the nine months
ended December 31, 2005 and the period April 8, 2004 (commencement of operations) through March 31, 2005:



|                                                                |  |                                  |            |   |                                    |   |            |     
|--------------------------------------------------------------- |  | -------------------------------- | ---------- | - | ---------------------------------- | - | ---------- | ----
|                                                                |  | Nine MonthsEndedDecember 31,2005 |            |   | April 8, 2004*throughMarch 31,2005 |  
|Per Share Data:                                                 |  |                                  |            |   |                                    |   |            |     
|Net asset value, beginning of period                            |  | $                                | 14.27      |   |                                    | $ | 14.06      |     
|                                                                |  |                                  |            |   |                                    |   |            |     
|Net investment income                                           |  |                                  | 1.06       |   |                                    |   | 0.41       |     
|Net realized and unrealized gain                                |  |                                  | 0.19       |   |                                    |   | 0.31       |     
|                                                                |  |                                  |            |   |                                    |   |            |     
|Net increase in net assets resulting from operations            |  |                                  | 1.25       |   |                                    |   | 0.72       |     
|Dividends to shareholders (1)                                   |  |                                  | (1.18      | ) |                                    |   | (0.48      | )   
|Effect of anti-dilution                                         |  |                                  | 0.07       |   |                                    |   |           |     
|Costs related to the initial public offering                    |  |                                  |           |   |                                    |   | (0.03      | )   
|                                                                |  |                                  |            |   |                                    |   |            |     
|Net asset value at end of period                                |  | $                                | 14.41      |   |                                    | $ | 14.27      |     
|                                                                |  |                                  |            |   |                                    |   |            |     
|Per share market value at end of period                         |  | $                                | 17.93      |   |                                    | $ | 16.78      |     
|Total return (2)                                                |  |                                  | 13.70      | % |                                    |   | 15.32      | %   
|Shares outstanding at end of period                             |  |                                  | 63,547,969 |   |                                    |   | 62,554,976 |     
|                                                                |  |                                 
|Ratio/Supplemental Data:                                        |  |                                  |            |   |                                    |   |            |     
|Net assets at end of period (in millions)                       |  | $                                | 915.5      |   |                                    | $ | 892.9      |     
|                                                                |  |                                 
|Ratio of net investment income to average net assets            |  |                                  | 7.43       | % |                                    |   | 2.96       | %(3)
|                                                                |  |                                 
|Ratio of operating expenses to average net assets**             |  |                                  | 4.13       | % |                                    |   | 2.60       | %(3)
|Ratio of credit facility related expenses to average net assets |  |                                  | 0.78       | % |                                    |   |           |     
|                                                                |  |                                  |            |   |                                    |   |            |     
|Ratio of total expenses to average net assets                   |  |                                  | 4.91       | % |                                    |   | 2.60       | %(3)
|                                                                |  |                                 
|Average debt outstanding***                                     |  | $                                | 261,754    |   |                                    | $ | 0          |     
|Average debt per share***                                       |  | $                                | 4.16       |   |                                    | $ | 0          |     
|Portfolio turnover ratio                                        |  |                                  | 34.1       | % |                                    |   | 14.7       | %   

---

|(1) | Dividends and distributions are determined in accordance with income tax regulations which may differ from amounts determined under accounting principles generally accepted in the
United States of America.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Total return is based on the change in market price per share during the respective periods. It also takes into account dividends and distributions, if any, reinvested in accordance
with the Companys dividend reinvestment plan. Total return is not annualized.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | Annualized for the period April 8, 2004 through March 31, 2005.
|--- | ---------------------------------------------------------------

|* | Commencement of operations
|- | --------------------------

|** | The ratio of net operating expenses to average net assets and the ratio of total net expenses to average net assets is 4.12% and 4.90%, respectively, inclusive of the expense offset
arrangement (see Note 8).
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|*** | Average debt outstanding and per share is calculated from July 8, 2005 (the date of the Companys first borrowing from its revolving credit facility) through
December 31, 2005, and average debt per share is calculated as average debt outstanding divided by the average shares outstanding during the period (in 000s).
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

Apollo Investment Corporation

Notes To Financial Statements (unaudited) (continued)

(in thousands except
share and per share/unit amounts)



Information about our senior securities
is shown in the following table as of each fiscal year ended March 31 since the Company commenced operations, unless otherwise noted. The "" indicates information which the SEC expressly does not require to be disclosed for certain types
of senior securities.



|                                      |  |                             |         |                            |   |                                             |  |                                |   |  |    
|------------------------------------- |  | --------------------------- | ------- | -------------------------- | - | ------------------------------------------- |  | ------------------------------ | - |  | ---
|Class and Year                        |  | Total AmountOutstanding (1) |         | AssetCoverage Per Unit (2) |   | InvoluntaryLiquidatingPreferencePer Unit(3) |  | AverageMarket ValuePer Unit(4)
|Revolving Credit Facility             |  |                             |         |                            |   |                                             |  |                                |   |  |    
|Fiscal 2006 (as of December 31, 2005) |  | $                           | 413,237 |                            | $ | 3,215                                       |  | $                              |  |  | N/A
|Fiscal 2005                           |  | $                           | 0       |                            | $ | 0                                           |  | $                              |  |  | N/A

---

|(1) | Total amount of each class of senior securities outstanding at the end of the period presented (in 000s).
|--- | ----------------------------------------------------------------------------------------------------------

|(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 $1,000 to determine the Asset Coverage Per Unit.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | The amount to which such class of senior security would be entitled upon the involuntary liquidation of the issuer in preference to any security junior to it.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) | Not applicable, as senior securities are not registered for public trading.
|--- | ---------------------------------------------------------------------------



Note 12. Credit Agreement and Borrowings



At December 31, 2005 and under the terms of the Credit Agreement, the lenders agree to extend credit to Apollo Investment in an aggregate principal or face amount
not exceeding $900 million at any one time outstanding. The Credit Agreement is a five-year revolving facility (with a stated maturity date of April 14, 2010) and is secured by substantially all of the assets in Apollo Investments
portfolio, including cash and cash equivalents. Pricing is set at 100 basis points over LIBOR. The Credit Agreement contains affirmative and restrictive covenants, including: (a) periodic financial reporting requirements, (b) maintaining
minimum shareholders equity of the greater of (i) 40% of the total assets of Apollo Investment and its subsidiaries as at the last day of any fiscal quarter and (ii) the sum of (A) $300 million plus (B) 25% of the net
proceeds from the sale of equity interests in Apollo Investment after the closing date of the Credit Agreement, (c) maintaining a ratio of total assets (less total liabilities) to total indebtedness, in each case of Apollo Investment and its
subsidiaries, of not less than 2.0:1.0, (d) maintaining minimum liquidity, (e) limitations on the incurrence of additional indebtedness, (f) limitations on liens, (g) limitations on investments (other than in the ordinary course
of Apollo Investments business), (h) limitations on mergers and disposition of assets (other than in the normal course of Apollo Investments business activities) and (i) limitations on the creation or existence of agreements
that prohibit liens on properties of Apollo Investments subsidiaries. In addition to the asset coverage ratio described in clause (c) of the preceding sentence, borrowings under the Credit Agreement (and the incurrence of certain other
permitted debt) are subject to compliance with a borrowing base that applies different advance rates to different types of assets in Apollo Investments portfolio. The Credit Agreement currently provides for the ability of Apollo Investment to
seek additional commitments from lenders in an aggregate amount of up to $300 million. The Credit Agreement is used to supplement Apollo Investments equity capital to make additional portfolio investments and for other general corporate
purposes.



At December 31, 2005, the Company had $413,237 (at value) drawn
on its $900,000 revolving credit facility. The weighted average annual interest cost for the nine months ended December 31, 2005 was 4.35%, exclusive of 0.20% for commitment fees and for other prepaid expenses related to establishing the credit
facility.



The average debt outstanding on the credit facility was $261,754 for
the period that borrowings were outstanding from July 8, 2005 through December 31, 2005. The maximum amount borrowed during this period was $413,237. The remaining amount available under the facility was $486,763 at December 31, 2005.



At December 31, 2005, the Company was in compliance with all financial
and operational covenants required by the Credit Agreement.



17



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##### Table of Contents

Report of Independent Registered Public Accounting Firm



To the Board of Directors and Shareholders of

Apollo Investment Corporation



We have reviewed the accompanying statement of assets and liabilities of Apollo Investment Corporation (the Company) as of December 31, 2005, including
the schedule of investments, the related statements of operations for each of the three-month and nine-month periods ended December 31, 2005, the three-month period ended December 31, 2004 and for the period April 8, 2004 through
December 31, 2004 and the statements of cash flows and of changes in net assets for the nine-month period ended December 31, 2005 and for the period April 8, 2004 through December 31, 2004. These interim financial statements are
the responsibility of the Companys management.



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



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



We previously audited in accordance with the standards of the Public
Company Accounting Oversight Board (United States), the statement of assets and liabilities of the Company as of March 31, 2005, including the schedule of investments and the related statements of operations, of cash flows and of changes in net
assets for the period from April 8, 2004 through March 31, 2005 and in our report dated June 14, 2005, we expressed an unqualified opinion on those financial statements.



/s/ PricewaterhouseCoopers LLP

New York, New York

February 6, 2006



18



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##### Table of Contents

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



Certain statements in this report that relate to estimates or expectations of our future performance or financial condition may constitute forward-looking
statements as defined under the Private Securities Litigation Reform Act of 1995. The forward-looking statements involve risks and uncertainties, including, but not limited to, statements as to:



| |  | our future operating results;
|- |  | -----------------------------



| |  | our business prospects and the prospects of our portfolio companies;
|- |  | --------------------------------------------------------------------



| |  | the impact of investments that we expect to make;
|- |  | -------------------------------------------------



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



| |  | the ability of our portfolio companies to achieve their objectives;
|- |  | -------------------------------------------------------------------



| |  | our expected financings and investments;
|- |  | ----------------------------------------



| |  | the adequacy of our cash resources and working capital; and
|- |  | -----------------------------------------------------------



| |  | the timing of cash flows, if any, from the operations of our portfolio companies.
|- |  | ---------------------------------------------------------------------------------



We may use words such as anticipates, believes, expects, intends, will,
should, may and similar expressions to identify forward-looking statements. Such statements are based on currently available operating, financial and competitive information and are subject to various risks and uncertainties
that could cause actual results to differ materially from our historical experience and our present expectations. Undue reliance should not be placed on such forward-looking statements, as such statements speak only as of the date on which they are
made. Additional information regarding these and other risks and uncertainties is contained in our periodic filings with the Securities and Exchange Commission.



Overview



Apollo Investment was incorporated under the Maryland General Corporation Law in February 2004. We have elected to be treated as a business development company 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, cash equivalents, U.S.
government securities and high-quality debt investments that mature in one year or less.



On April 5, 2004, we completed our initial public offering and became an externally managed, non-diversified, closed-end investment company that elected to be treated as a business development company under the
Investment Company Act of 1940. In addition, for tax purposes we have elected to be treated as a regulated investment company, or RIC, under the Internal Revenue Code of 1986, as amended. Pursuant to these elections, we generally will not have to
pay corporate-level taxes on any income we distribute to our stockholders.



Portfolio and Investment Activity



After two active investment
quarters, we entered our third fiscal quarter well positioned with a quality portfolio and significant debt capital available for investment. Due to our robust deal sourcing network and our consistent and credible capital, we are pleased to report
that we found significant opportunities to invest in larger middle market companies with strong management teams generating high free cash flow. Accordingly, and during the quarter ended December 31, 2005, we invested $257.3 million across five
new and two existing portfolio companies. All investments were in our targeted asset classes with $161.0 million invested in subordinated debt, $86.8 million invested in second lien bank debt and $9.5 million invested in private equity. For the
fiscal year-to-date period April 1, 2005 through December 31, 2005, we invested $840.9 million across 20 new and 9 existing portfolio companies.



19



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##### Table of Contents

Also during the quarter we were able to further rationalize our portfolio by selectively exiting $26.7 million of our
positions in lower-yielding senior bank debt and corporate notes. We also saw well-performing portfolio companies pre-pay $75.9 million of their debt. For the quarter and nine months ended December 31, 2005, we had proceeds from exits and
prepayments totaling $102.6 million and $361.3 million, respectively. Of the $361.3 million of total fiscal year exits and prepayments, $216.7 million were planned exits of senior loans and lower yielding corporate notes. The remaining $144.6
million were pre-payments by eight successful companies.



We continued
utilizing our $900 million, multi-currency credit facility this quarter and had $413 million drawn and outstanding at December 31 with $487 million available. Our net portfolio reached $1.35 billion and was invested 59.9% in subordinated
debt, 6.3% in private equity and 33.8% in senior secured loans. A year earlier at December 31, 2004, our net portfolio of $887.2 million was invested 46.9% in subordinated debt, 32.6% senior secured loans, 2.3% in private equity and 18.2% in
cash equivalents.



At December 31, 2005, the weighted average yield on our
debt portfolio was up to 12.6% versus 12.2% at September 30, 2005 and 10.9% at December 31, 2004. The weighted average yield on our subordinated debt was 13.4% at December 31, 2005 versus 13.4% at September 30, 2005 and 13.8% at
December 31, 2004. Our total bank debt/senior secured loan portfolio yielded 11.3% at December 31, 2005 versus 10.4% at September 30, 2005 and 7.6% at December 31, 2004. Yields are computed using interest rates as of the balance
sheet date and include amortization of loan origination and commitment fees, original issue discount and market premium or discount, weighted by their respective costs when averaged.



Bank debt/senior secured debt and European mezzanine loans typically accrue interest at variable rates determined on the basis of a
benchmark LIBOR, EURIBOR or prime rate with stated maturities at origination that range from 5 to 10 years. While subordinated debt issued within the United States will typically accrue interest at fixed rates, some of these investments may include
zero coupon, PIK and/or step bonds that accrue income on a constant yield to call or maturity basis. At December 31, 2005, 52% or $656.4 million of our debt portfolio is fixed rate debt and 48% or $608.5 million is floating rate debt.



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). If we invest in an issuer that, at the time we make the investment,
has outstanding securities as to which a broker or dealer may extend or maintain margin credit or "marginable securities," these acquired assets cannot normally be treated as qualifying assets. This results from the definition of "eligible portfolio
company" under the 1940 Act, which in part looks to whether a company has outstanding securities that are eligible for margin credit. Amendments promulgated in 1998 by the Board of Governors of the Federal Reserve System to Regulation T under the
Securities Exchange Act of 1934, as amended, or the Exchange Act, expanded the definition of marginable security to include any non-equity security. These amendments have raised questions as to whether a private company that has outstanding debt
securities would qualify as an eligible portfolio company. We note that under applicable self-regulatory organization rules that govern the ability of brokers and dealers to extend margin credit, many non-equity securities issued by private
companies may not be effectively marginable. While we understand the SEC is considering these issues, we do not believe the SEC or the Staff has made any determinations with respect to the above. We continue to monitor this issue closely and intend
to adjust our investment focus as needed to comply with and/or take advantage of any future administrative position, judicial decision or legislative action.



In August 2004, our board of directors approved an amendment to our investment policy to eliminate the 5% limitation on investments on foreign securities. As such, these
investments are included in our 30% "non-qualifying assets" bucket.



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Results of Operations



Results comparisons are for the three and nine months ended December 2005 and 2004.



Investment Income



Gross investment income totaled $37.6 million and $110.4 million, respectively, for the three and nine months ended December 31, 2005
compared to $14.8 million and $26.5 million, respectively, for the three and nine months ended December 31, 2004. The increases in gross investment income were primarily due to the growth of our investment portfolio compared to the December
2004 comparative periods.



Expenses



Expenses totaled $17.0 million and $43.9 million, respectively, for the three and nine
months ended December 31, 2005 of which $5.1 million and $16.6 million, respectively, were performance-based incentive fees and $4.2 million and $7.0 million, respectively, were interest and other credit facility expenses. Expenses net of
performance-based incentive fees and interest and other credit facility expenses for the three and nine months ended December 31, 2005 were $7.7 million and $20.3 million, respectively, versus the $5.7 million and $16.6 million, respectively,
for the three and nine months ended December 31, 2004. Expenses consist of base investment advisory and management fees, insurance expenses, administrative services fees, professional fees, directors fees, audit and tax services expenses,
and other general and administrative expenses. The increase in expenses was primarily due to the increase in base management fees related to the growth of our investment portfolio as compared to the December 2004 comparative periods.



Net Investment Income



The Companys net investment income totaled $20.6 million and $66.5 million or $0.33 per share and $1.06 per share, respectively, for
the three and nine months ended December 31, 2005 versus $9.1 million and $9.9 million or $0.15 per share and $0.16 per share, respectively, for the three and nine months ended December 31, 2004.



Net Realized Gains/Losses



The Company had exits and prepayments totaling $102.6 million and $361.3 million,
respectively, for the three and nine months ended December 31, 2005 versus $25.3 million and $25.8 million, respectively, for the three and nine months ended December 31, 2004. Net realized gains on investments totaled $2.1 million and
$5.6 million, respectively, for the three and nine months ended December 31, 2005, versus $0.0 million for the three and nine months ended December 31, 2004. The Company also had net realized gains on its foreign currency transactions of
$2.6 million and $5.4 million, respectively, during the three and nine months ended December 31, 2005 versus $0.0 million for both the three and nine month periods ended December 31, 2004. Total net realized gains for the three and nine
months ended December 31, 2005 were $4.7 million and $10.9 million, respectively, versus a loss of $0.1 million for both the three and nine months ended December 31, 2004.



Net Unrealized Appreciation on Investments and Foreign Currency Contracts and Translations



For the three and nine months ended December 31, 2005, the Companys investments,
foreign currencies and other assets and liabilities had a net increase in appreciation of $8.3 million and $0.7 million, respectively. This compared to an increase in net appreciation of $16.2 million and $22.0 million, respectively, on the
portfolio for the three and nine months ended December 31, 2004. At December 31, 2005, net unrealized appreciation totaled $18.9 million of which $2.0 million was attributable to net unrealized appreciation on our bank debt/senior secured
debt and $16.9 million was attributable to net unrealized appreciation on our subordinated debt and private equity (after considering the effects of foreign currency hedging for our non-U.S. investments).



Net Increase in Net Assets From Operations



For the three and nine months ended December 31, 2005, the Company had a net increase
in net assets resulting from operations of $33.5 million and $78.1 million, respectively, versus $25.2 million and $31.8 million, respectively, for the three and nine months ended December 31, 2004. The net change in net assets from operations
per share was $0.53 and $1.25, respectively, for the three and nine months ended December 31, 2005 versus $0.41 and $0.51 per share for the three and nine months ended December 31, 2004.



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Financial Condition, Liquidity and Capital Resources



The Companys liquidity and capital resources are generated primarily through its
senior secured, multi-currency, $900 million, five-year credit facility as well as from cash flows from operations, including exits and prepayments of senior and subordinated loans and income earned from investments and cash equivalents (which
normally comprise of U.S. government securities and other high-quality debt investments that mature in one year or less). At December 31, 2005, the Company has $413 million in borrowings outstanding and $487 million available for its use. In
the future, the Company may raise additional equity capital through the filing of its shelf registration or may securitize a portion of its investments. It may also further access $300 million of additional credit commitments available under the
terms of its credit facility as the Companys equity capital base grows. The primary use of funds will be investments in portfolio companies and cash distributions to holders of common stock.



Dividends



Dividends paid to stockholders for the quarter totaled $27.8 million or $0.44 per share versus $11.2 million or $0.18 per share for the
quarter ended December 31, 2004. For the period April 1, 2005 through December 31, 2005, dividends paid to stockholders totaled $74.1 million or $1.18 per share. Tax characteristics of all dividends will be reported to shareholders on
Form 1099 after the end of the calendar year.



We have elected to be taxed as a
regulated investment company under Subchapter M of the Internal Revenue Code of 1986. In order to maintain our status as a regulated investment company, we are required to (1) distribute at least 90% of our investment company taxable income and
(2) distribute at least 98% of our income (both ordinary income and net capital gains) to avoid an excise tax. We intend to make distributions to our stockholders on a quarterly basis of substantially all of our taxable net income. We also
intend to make distributions of net realized capital gains, if any, at least annually.



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, we may be limited in our ability to make
distributions due to the asset coverage test for borrowings when applicable to us as a business development company under the Investment Company Act of 1940 and due to provisions in our credit facilities. If we do not distribute a certain percentage
of our income annually, we will suffer adverse tax consequences, including possible loss of our status as a regulated investment company. We cannot assure stockholders that they will receive any distributions or distributions at a particular level.



With respect to the dividends paid to shareholders, income from origination,
closing, commitment and other upfront fees associated with investments in portfolio companies is treated as taxable income and accordingly, distributed to shareholders. For the period from April 1, 2005 through December 31, 2005 these fees
totaled $3.4 million. For the fiscal year ended March 31, 2005, these fees totaled $4.5 million.



Item 3. Quantitative and Qualitative Disclosures about Market Risk



We are subject to financial market risks, including changes in interest rates. Many of the investments in our debt portfolio have floating rates. We also have a significant portion of our investments with fixed rates.
At December 31, 2005, 52% or $656.4 million of our debt portfolio is fixed rate debt and 48% or $608.5 million is floating rate debt.



As appropriate, we may hedge against interest rate fluctuations by using standard hedging instruments such as futures, options and forward contracts subject to the
requirements of the 1940 Act. 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 three and nine month periods ended December 31, 2005, we did not engage in interest rate hedging activities.



On December 8, 2005, we entered into a forward foreign currency contract to hedge our exposure to the currency risk associated with our investment in WDAC
Intermediate Corp. Accordingly, we sold 38,250,000 euro forward at a rate of 1.184 dollars per euro for settlement on March 8, 2006. Unrealized depreciation on this contract is represented on our statement of assets and liabilities as of
December 31, 2005 and described further in footnote 7 to the financial statements.



Additionally, we currently have and may continue to have outstanding borrowings denominated in foreign currencies. These borrowings are primarily used to fund foreign investments. As a result of borrowing and subsequently investing in the
same foreign currency denominated investments, we are able to effectively hedge our exposure to currency risk resulting from these foreign investments. Unrealized appreciation on these borrowings is reflected in the value of the outstanding
liability for credit facility payable on our statement of assets and liabilities as of December 31, 2005 and described further in footnote 7 to the financial statements.



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Item 4. Controls and Procedures



As of the
end of the period covered by this report, Apollo Investment carried out an evaluation, under the supervision and with the participation of AICs management, including AICs Chief Executive Officer and Chief Financial Officer, of the
effectiveness of the design and operation of AICs disclosure controls and procedures (as defined in Rule 13a-15 of the Securities Exchange Act of 1934). Based on that evaluation, the Chief Executive Officer and the Chief Financial Officer have
concluded that AICs current disclosure controls and procedures are effective in timely alerting them of material information relating to AIC that is required to be disclosed by AIC in the reports it files or submits under the Securities
Exchange Act of 1934. There have been no changes in AICs internal control over financial reporting that occurred during the period October 1, 2005 through December 31, 2005 that have materially affected, or are reasonably likely to
materially affect, AICs internal control over financial reporting.



PART II. OTHER INFORMATION



Item 1. Legal Proceedings



We are not a
defendant in any material pending legal proceeding, and no such material proceedings are known to be contemplated.



Item 2. Changes in Securities and Use of Proceeds



We intend to use the net proceeds from selling securities pursuant to our registration statement filed on Form N-2 effective June 24, 2005 for general corporate purposes, which includes investing in portfolio companies in accordance
with our investment objective and strategies and, pending such investments, reducing our debt outstanding and/or investing in cash equivalents, U.S. government securities and other high-quality debt investments that mature in one year or less from
the date of investment and other general corporate purposes. Supplements to the registration statement that relate to an offering will more fully identify the use of the proceeds from such offering.



We anticipate that substantially all of the net proceeds of an offering of securities will be
used for the above purposes depending on our level of outstanding debt and the availability of appropriate investment opportunities consistent with our investment objective and market conditions. Our portfolio currently consists primarily of
mezzanine and senior loans and equity securities. Pending our investments, we may invest a portion of the net proceeds in cash equivalents, U.S. government securities and other high-quality debt investments that mature in one year or less from the
date of investment and other general corporate purposes.



We did not repurchase any shares of our common stock during the quarter ended December 31, 2005.



Item 3. Defaults Upon Senior Securities



Not Applicable



Item 4. Submission of Matters to a Vote of Security Holders



On October 12, 2005, Apollo Investment Corporation held its 2005 Annual Meeting of Stockholders in New York, N.Y. for the purpose of considering and voting upon the election of Directors. Votes were cast as
follows:



|                   |  |            |  |          
|------------------ |  | ---------- |  | ---------
|Nominee            |  | For        |  | Withheld 
|Martin E. Franklin |  | 51,294,625 |  | 4,911,124
|Carl Spielvogel    |  | 54,227,375 |  | 1,978,374



Item 5. Other Information



The
Companys 2006 Annual Meeting of Stockholders will be August 3, 2006. If a stockholder desires to have a stockholder proposal (including Director nominations) included in the Company's proxy materials and form of proxy, or otherwise have a
proposal considered at the meeting, written notice of the proposal must be received by the Company's Secretary at the principal executive office of the Company no earlier than March 6, 2006 and no later than 5 p.m., Eastern time on
April 5, 2006. Stockholder proposals must comply with applicable requirements of the SEC and the Company's bylaws and Nominating and Corporate Governance Committee charter (as filed by the Company with the SEC and available to the public at
www.sec.gov). Stockholder proposals not timely received and not complying with applicable requirements will be excluded from the proxy materials and consideration at the meeting.



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Item 6. Exhibits and Reports on Form 8-K



(a) Exhibits



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



|              |  |                                                                                                                       
|------------- |  | ----------------------------------------------------------------------------------------------------------------------
|ExhibitNumber |  | Description of Document                                                                                               
|31.1*         |  | Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934.        
|              | 
|31.2*         |  | Certification of Chief Financial Officer Pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934.        
|              | 
|32.1*         |  | Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U. S. C. 1350).
|              | 
|32.2*         |  | Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U. S. C. 1350).

---

|* | Submitted herewith
|- | ------------------



(b) Reports on Form 8-K



On April 14, 2005, we filed a current report on Form 8-K, pursuant to Item 1.01 and 9.01 reporting the entry into a senior secured revolving
credit agreement in the amount of $800,000,000.



On
May 13, 2005, we filed a current report on Form 8-K, pursuant to Item 8.01 reporting the issuance of a press release announcing the scheduling of fourth quarter and fiscal year 2005 results.



On May 24, 2005, we filed a current report on Form 8-K, pursuant to
Item 9.01 reporting the issuance of a press release announcing fiscal year ended March 31, 2005 financial results.



On June 16, 2005, we filed a current report on Form 8-K, pursuant to Item 7.01 reporting the issuance of a press release announcing a first
fiscal quarter dividend of $0.31 per share.



On July 21,
2005, we filed a current report on Form 8-K, pursuant to Item 8.01 reporting the issuance of a press release announcing the scheduling of the release of earnings for the first quarter of fiscal year 2006.



On August 3, 2005, we filed a current report on Form 8-K, pursuant to
Item 9.01 reporting the issuance of a press release announcing financial results for the first quarter of fiscal year 2006.



On September 12, 2005, we filed a current report on Form 8-K, pursuant to Item 7.01 reporting the issuance of a press release announcing a
second fiscal quarter dividend of $0.43 per share.



On
October 12, 2005, we filed a current report on Form 8-K, pursuant to Item 8.01 reporting the issuance of a press release announcing the scheduling of the release of financial results for the second quarter of fiscal year 2006.



On November 3, 2005, we filed a current report on Form 8-K, pursuant
to Item 9.01 reporting the issuance of a press release announcing the financial results for the second quarter of fiscal year 2006.



On December 12, 2005, we filed a current report on Form 8-K, pursuant to Item 7.01 reporting the issuance of a press release announcing a third
fiscal quarter dividend of $0.44 per share.



On
December 30, 2005, we filed a current report on Form 8-K, pursuant to Item 1.01 reporting the expansion of the senior secured credit agreement entered into on April 14, 2005 from $800 million to $900 million.



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SIGNATURES



Pursuant to the
requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on February 7, 2006.



APOLLO INVESTMENT CORPORATIONBy:

/s/ Michael S. GrossMichael S. GrossPresident, Chief Executive Officer and Chairman of the
BoardBy:

/s/ Richard L. PetekaRichard L. PetekaChief Financial Officer and Treasurer




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