Welcome, everyone, to the Apollo Investment Corporation third quarter 2008 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks there will be a question and answer period. (Operator Instructions). Thank you. It is now my pleasure to turn the floor over to John Hannan, Chairman and Chief Executive Officer. Sir, you may begin.

Thank you. Good morning, everyone. I’d like to welcome you to our third fiscal quarter 2008 earnings conference call. I’m joined today by Jim Zelter, AIC’s president and COO, Patrick Dalton, AIC’s corporate executive vice president and CIO, and Rich Peteka, our chief financial officer. Rich, will you give some opening comments and disclosure issues?

Thank you, John. I’d like to remind everyone that today’s call and webcast is being recorded. Please note that they are the property of Apollo Investment Corporation and that any unauthorized broadcast in any form is strictly prohibited. Audio replay information is available in our earnings press release. I’d also like to call your attention the customary safe harbour disclosure in our press release regarding forward-looking information. Today’s conference call and web cast may include forward-looking statements and projections and we ask that you refer to our most recent filings with the SEC for important factors that could cause actual results to differ materially from these projections. We do not undertake to update our forward-looking statements unless required by law. To obtain copies of our latest SEC filings please visit our website at www.apolloic.com or call us at 212-515-3450. At this time I’d like to turn the call back to our chairman and chief executive officer, John Hannan.

Thanks, Rich. In light of the general volatility and certainty in the marketplace today, especially for financial stock, I believe it’s worthwhile to reiterate some of the specific business of Apollo Investment Corporation. AIC is an investment company that seeks to generate current income and capital gains in support of its quarterly dividends to stockholders. The company is managed by its own dedicated and seasoned team of investment professionals who have deep credit and underwriting experience and strong long-term relationships with middle-market financial sponsors and commercial and investment banks. This dedicated team supplements their own experiences, relationships, deal flow, and investment acumen with that of more than 175 professionals from our affiliate, Apollo Global Management LLC – a global alternative asset manager. AGM has over 18 years experience investing throughout market cycles, having invested in more than 150 companies across many different industries. Apollo Investment Corporation has the full benefit of that additional experience and insight. The investment portfolio of Apollo Investment Corporation is invested primarily in senior secured and subordinated loans and some private equity. AIC’s portfolio does not contain investment in sub-prime or any other residential real estate. In addition, AIC does not purchase debt securities of any Apollo controlled portfolio company. Let me also state clearly that our portfolio and investment strategy remains unchanged since our IPLs from three years ago. It continues to focus on matching our assets and what we deem to be our obligation. That is, our dividend to stockholders. We continue to focus on the middle of the capital structure of larger middle-market companies in an effort to better protect principal and have always thought the best relative value, whether public or private, whether in the primary or secondary market. And with many of the stocks in the financial sector trading with depressed valuation our strategy provides a relative advantage over strategies of investing at the top and/or bottom of the capital structure of generally smaller companies. Now let me turn to our quarterly results. For the quarter ended December 31, 2007, we invested $360 million across five new and 10 existing portfolio companies. This brings our invested capital since our IPO to over $5 billion in 110 portfolio companies. The quarter also saw two prepayments and other exits totalling approximately $123 million. In addition, our LP interest in GS Prysmian Co-Invest LP was reduced, thereby resulting in realized capital gains and added to both our liquidity and already harvested distributable earnings. At December 31, 2007, our portfolio consisted of investments in 70 different companies and was invested 24% in senior secured loans, 55% in subordinated debt, 5% in preferred equity, and 16% in common equity and warrants measured at fair value. With that, let me turn the call over to our CFO, Rich Peteka, to provide us with details on our third quarter results. Rich?

Thanks, John. We closed our books on December 31st, 2007, with a net asset value of $17.71 per share, down $0.73 for approximately 4% from our NAB of $18.44 per share at September 30th, 2007. This was largely a result of a decrease in net unrealized appreciation during the quarter due to various mark-to-market quotes. Year over year our December 31st, 2007, NAB increased by 8.25% or $1.35 per share from $16.36 per share at December 31st, 2006. Adding back dividends of $2.06 per share paid during the calendar year of 2007, the NAB would have increased by $3.41 per share or more than 20%. Gross investment income for the quarter totalled $92.9 million. This is compared to $86.1 million for the quarter ended September 30th, 2007, and $71.1 million for the comparable quarter a year earlier. Accordingly, our gross investment income increased 8% for the quarter and was 31% higher than the comparable quarter a year earlier. Net operating expenses for the quarter totalled $49.7 million of which $32 million was management and net performance based incentive fees, $16 million was interest expense and $1.7 million was G&A expenses. This compares to the September quarter of $24.4 million in net operating expenses of which $7.5 million was management and net performance based fees, $15.1 million was interest expense, and $1.8 million was general and administrative expenses. For the comparable quarter a year earlier the net operating expenses totalled $32.4 million of which $18.1 million was management and net performance based incentive fees, $12.8 million was interest expense, and $1.5 million was G&A expenses. The increase in expenses from the prior quarter is primarily driven by an increase in base management fees and interest expense due to the growth of our investment portfolio and an increase in the net realized…

Thanks, Rich. As seasoned credit market investors, the current environment comes neither as new nor unexpected to the entire Apollo team. What began as a technical overhang in senior debt and high-yield bridges in early summer of ’07 has now developed into a full credit crunch. The primarily lending environment over the last five years has virtually stopped. And while the fed has acted quickly and vigilantly, we believe there are significant opportunities in the current market. We are convinced that our access to long-term capital continues to be a strategic tool that we will expect will benefit our shareholders in the long run. We clearly outlined three strategies in the fall that we believe this current environment brings to our company. They are: one, opportunistically making secondary market purchases in current portfolio companies at meaningful discounts to long-term value as many mark-to-market participants alter their short-term strategies; two, investing in the committed debt deals that are stuck on many of the financial institution’s balance sheets; and three, traditional sponsor-driven mezzanine investments priced to reflect the current lending environment. We have executed on all three strategies in the last quarter and intend to continue to do so in this quarter and in quarters ahead. Permanent capital and liquidity are strategic tools as I mentioned earlier in today’s marketplace and we will not be daunted by short term mark-to-market challenges in we believe we are investing in strong companies at a discount to future value. Patrick will discuss our portfolio in more detail, but now let me discuss this quarter’s activity. As John noted earlier in the call, we closed our third quarter having invested $360 million across five new and 10 existing portfolio companies. The quarter also saw prepayments in other exits totalling $123 million. Since our IPO in April…

Thanks, Jim. During the quarter we were patient yet opportunistic investors. Again, as a relative value investor we reviewed a wide range of opportunities from a variety of different sources. First, we were showing several investment opportunities from both new and existing middle-market sponsors. We also saw extraordinary value developed in the secondary market for subordinated debt of larger companies and, as a result, accessed our strong relationships with investment and commercial banks to partner with a few of these institutions that were seeking to free up capital by selling selected high-quality bridge loans and high-yield securities of larger companies to us at significantly discounted prices. As part of the Apollo franchise we are generally afforded the benefit of Apollo’s overall relationship with these banks, including the business leaders within the capital markets and leverage finance groups, to source both primary and secondary market opportunities. Furthermore, we continue to focus on industries where we believe Apollo’s expertise offers us an edge. Since the very beginning we have had this flexible and unique sourcing model where we source deal flowed directly from financial sponsors as well as from investment in commercial banks. We have built a large portfolio of investments by directly backing financial sponsors, like our investment in Anthony Incorporated alongside Aurora Capital back in July of 2004, as well as our recent investment in Ranpac Corp. alongside Odyssey Investment Partners just this past December, and the many, many more investments in between. Additionally, we have also utilized the broad based relationships of the entire Apollo platform to create partnerships with leading investment and commercial banks to obtain access to upcoming transactions and to assist in the structuring and underwriting of these investments alongside these banks where we can truly add value. For example, in 2004 we invested in the…

Thank you. (Operator Instructions). Your first question comes from Carl Drake of Suntrust Robinson. Carl G. Drake – Suntrust Robinson Humphrey: Thanks for the additional disclosure on the portfolio. That’s helpful. In terms of maybe talking about the current portfolio, if you could talk a little bit more about certain sectors that you’re seeing perhaps weakness in. There’s been consumer and housing. There’s been some, anything directly tied. There’s been some softening there, of course. I don’t think Eurofresh is necessarily a macro-economic problem, but maybe you could touch on other sectors, if you’re seeing any signs of stress in the industrial, retail, transportation sectors.

Well, let me start off broadly, Carl, and then I’ll pass it over to Patrick. Certainly since last summer everybody was talking about the home building sector and residential real estate. It’s certainly safe to say that the cause of consumer slow down, the ensuing consumer slow down has hit more businesses per say across the overall with the exception of probably some energy and other industries. We also see the companies that are more global, i.e. the larger companies, are showing a great deal of resilience, quite frankly, than the companies that are domestically based. So that’s what the continued theme over the last 12 to 18 months larger companies with more heft, if you would, we have found that to benefit our portfolio. So to answer your specific question, we have seen a little bit of a widening out to some situations in the transport sector, some consumer oriented businesses like restaurants and retail, per se. But that’s my generic comment. I’ll pass it over to Patrick if he has anything else to add in particular.

Sure. Thanks, Jim. Hi, Carl. What we’re seeing, as Jim mentioned, is there has been some stress in the consumer businesses, retail, restaurants, transportation, but what we are pleased to see is that for the vast majority of our portfolio companies the budgets that we are reviewing for 2008 appear to be strong to us. We are keeping a very close eye on economic indicators by industry. We are looking at the companies that we think may see some stress. We are very pleased, as Jim mentioned, the larger companies. The vast majority or showing pretty strong for 2008, but we are not necessarily going to agree with all that growth. We’re going to manage our portfolio as if it’s going to see more stress. We are in active dialogues with all of our companies, all of our management teams, and all the sponsors who control these companies. To the extent that we see something it will be reflected in our ratings as well as our valuations. Carl G. Drake – Suntrust Robinson Humphrey: Patrick, what about year-over-year EBIDTA growth? Is that something that is slowing to kind of a flattish number for the broad portfolio?

Yeah, I would say it’s generally correct in that there’s less growth than there was before, but we’re still seeing year over year better performance to date. For ’08 I’d say on balance we are assuming modest growth for the entire portfolio projected, but we are not necessarily behaving in a way that we’re going to expect to see growth. And as a debt provider mostly we are very happy that we don’t necessarily need growth. As long as we’re underwriting companies with strong free cash flow we’ll see deleveraging even at flat to slightly down EBITDA in revenue. Carl G. Drake – Suntrust Robinson Humphrey: Thank you. That’s helpful. How should we think about investment pace going forward given the fairly tight capital out there? You all are in good position with pretty good runway, but how should we think about investment pace? You’ve got some natural liquidity. It looks like prepays are slowing as well.

Yeah, Carl. Yes, prepay, we always had the view that in a robust capital market the average life of our portfolio would be around two, two and a half years. We think the average life of our portfolio now will be certainly north of three, three and a half years. As I outline those three opportunities we have found that we’ve never been ahead of budget on investment pace, but certainly we’re seeing more opportunities in the first two buckets and the last bucket that we did the Ranpac investment in the fourth quarter – which we’re very pleased about – I think you’re going to see more of that traditional middle-market mez as the MNA market. There’s more clarity in it into the second and third quarter, as the senior loan markets open up and there’s a little bit more clarity in the middle-markets (inaudible). That third area will increase in size, but again, we’re highly demanding in what the rates we’re charging right now and we’ll continue to do so. But it’s hard for us to translate that into a pace, per se. Carl G. Drake – Suntrust Robinson Humphrey: Yeah, I understand. The best opportunities right now are in the secondary market at discounts, it sounds like. And the mezzanine market hasn’t truly reprised. Is that fair?

Yeah, that’s an accurate statement. I think the first two opportunities that I pointed out, those have been actionable, which we have done, and I think that third bucket is one that will, that is our core business and again we’re finding, as we’ve always said, there’s lots of competition for $25 million or $30 million mez deals and that pricing in our mind has not really re-priced, quite frankly. And since we are a relative value investor we want to find the best relative value for our dollars in investment capital. Carl G. Drake – Suntrust Robinson Humphrey: Okay. Thank you.

Thank you. Your next question comes from Jim Shanahan of Wachovia. Jim Shanahan – Wachovia Capital Markets: Good morning. I had a question about a couple of the investments as well. I’m really curious about R-ban (sp) Natural Products Group. It looks like over the course of the last few quarters it was kind of on a downward trend from say June to September and then the fair value increased. But it looks like it was also, there was an incremental investment there in R-ban. Can you talk about what’s happening there with R-ban and why you elected to make an incremental investment in a company given the downward trend?

Yeah, Jim. Hi. It’s Patrick. There was no incremental investment in the company. That was the result of pick interest that was received on the holding company. So we have not made any new investments in the company. And that was with the security we invested in. Jim Shanahan – Wachovia Capital Markets: So the pick increased your cost basis by about $4.4 million but the fair value only increased by $3.3 million?

That’s a quoted instrument by (inaudible) deals and third parties, so we just take the quote as they present it to us. Jim Shanahan – Wachovia Capital Markets: Understood. And a question about Innkeepers. Is there anything you can update us on regarding the strategy there? We’re starting to hear in fact some operators of lower-end hotel changes actually reporting lower revenue per room trends. Are you seeing anything like that with Innkeepers and what is the strategy here as you can update (inaudible).

Sure, Jim. And that’s a great question. Certainly we’re spending a lot of time on Innkeepers given the size of the investment. I’m happy to report that as of today we’re not seeing any degradation in performance of the business in total. Regionally we’re keeping a very close eye on what’s going on when we have strong assets and with the generation of performance, especially in the west coast. But at an extended stay hotel maybe the full service top of the line hotels will probably see pressure first. We’re not seeing pressure yet. We have just finished the renegotiations for group rates for corporates. We’re very pleased that the ADR rates are up for negotiated prices for rooms, which is always a very good sign. We’re working very closely with the management team. We put in place several contingency plans should the economic environment start to put pressure on results. We spent our last week budgeting with the management team and are pleased with that progress. But we’re keeping a very close eye on it. We are getting a lot of inbound inquiry on acquisition opportunities, which we will prudently take a look at if it makes sense for us to execute on or not. Jim Shanahan – Wachovia Capital Markets: Okay. And how did the opportunity to make the incremental investment in Innkeepers come about and why make another $39 million investment in Innkeepers?

You know, this was something that was generally part of the original plan is that we were going to acquire the company for the capital that it took to acquire the company. We have several development projects and pit programs which I’m sure, Jim, you realize, given your background, are improvements that are required to be made when you do a change in control with some of our brands. We are not going to decelerate those programs. We are going to accelerate those programs. We also are going to look at opportunistic acquisitions going forward and want the company and management team to know that we’re backing them in this environment. Jim Shanahan – Wachovia Capital Markets: Thank you, Patrick.

Thank you. Your next question comes from Vernon Plack of BB&T Capital Markets. Vernon Plack – BB&T Capital Markets: Thank you. How much you’ll leverage your balance sheet in this type of environment? Where can we expect over the next 12 months that your debt to equity ratio will go?

We have always been consistent in saying that we operate lower than some of our peers and yet in times of opportunity like we’re seeing right now we would edge up to a higher level. I think that we will never operate, you know, close to one-on-one that would get us into any kind of challenging environment. I think you should expect us this 0.75, 0.821, somewhere in that zip code. Again, if we believe that we are adding incremental assets that benefit the bottom line of our business. But certainly in the past we’ve been under 50%. This quarter you saw it ticked up a bit and in that 0.7, 0.75 is the zip code that we’re probably most comfortable operating in. Vernon Plack – BB&T Capital Markets: Thank you.

Thank you. Your next question comes from Dan Wirth (sp) of Bear Stearns. Dan Wirth – Bear Stearns: Yeah, good afternoon, gentlemen. A couple of questions, if I may. First of all, do you have any hedging instruments in a CDX or LCDX or the European itraxes (sic).

That’s a very good question. We review that all the time to see if it makes sense for our portfolio. We like the investments we make in our portfolio to the extent that we saw something that was acute and we wanted to protect against it we would evaluate it. We at the firm understand those instruments and how they work, but as of today we’re not using any of those instruments. Dan Wirth – Bear Stearns: Okay. Second one is, after the yield you talked about how much of those are actually in (inaudible) pick if we spread out the liables. On a spread basis how much is pick, how much is cash across the portfolio.

We haven’t disclosed that information historically. It’s one of the reasons why we don’t disclose it. It’s a number that we have many or have had many since our IPO securities that have been structured as pick, but they cash cash. Quite frankly, when they cash cash every quarter occasionally they make pick. Again, it becomes a number where cash and pick is (inaudible) and ultimately we’re underwriting good credit to big companies. It’s just not a number that we’ve ever segregated out because the change would be hard to track because of these securities that have cash then they’ve got pick. Not (inaudible), but we may have cash for the two quarters or we may say pick once and then maybe cash all the way until the maturity or till they pick us out. So it’s really hard to categorize that. That’s the best I can tell you. Dan Wirth – Bear Stearns: Okay. What (inaudible) earlier is marked by independent brokers or independent sources who use broker quotes?

About half the portfolio is quoted by broker dealers as guided by primary dealers and the rest of the portfolio is valued by independent valuation firms. Dan Wirth – Bear Stearns: And for making sort of available investments, what’s the debt capacity you have on the revolver and how much cash are you sitting on if you need to put to work?

Well, we have approximately $600 million left on the revolver to be drawn and probably another $400 million over and above that within our leverage restrictions to the extent we need to add that debt capacity. Dan Wirth – Bear Stearns: Okay. And lastly, just as a technical question. On the balance sheet, what is the “payable for investments and cash equivalents purchase” mean? Are they future expenditure you’ve already committed to in the form of new investments?

Yeah, I would point you to our cash equivalents note nine in our financial statements. You get a clear definition of what that is, but largely those are open trade and including some of those treasury bills over quarter end. Again, I would ask you to read our footnote nine in our financial statements. That’s been there every quarter. Dan Wirth – Bear Stearns: Okay. Thanks a lot then.

Thank you.

Thank you. Your next question comes from Greg Mason of Stifel Nicolaus. Greg Mason – Stifel Nicolaus & Co.: On top of the $1 billion of excess capital you have now you said you have good long-term access to capital. Could you talk about some of those means you have for additional capital? And also, what are your thoughts on some of the BDCs developing these off-balance-sheet funds, like the Allied mez fund? What are your take on those kind of products and are you interested in them?

Well, as I said earlier, as Rich said, we have our existing credit facility which gives us ample liquidity right now for the opportunities we’re seeing. And certainly with our prominent position as part of Apollo, we believe that there are plenty of opportunities for us to augment that at the proper time through a variety of vehicles. So we’re not concerned about having access to our full leverage capacity when that does come in the future. In terms of your second question, certainly there’s a variety of paths that some BDCs have gone with how they’re turning their business and growing their business. Certainly we have been, we are very proud of our current portfolio and if there are things that we think make some sense for incrementally providing those types of vehicles underneath our business that would benefit our investors we’re going to consider that in due course, but have not felt the need in the past. But again, as we’re in the market of a new credit environment, as people want to be a part of our investment structure, we’ll consider those as appropriate. Greg Mason – Stifel Nicolaus & Co.: And can you talk about the current investing period, what you’re actually aquantifial (sic) major, what you’re seeing spreads going out to, as well as asset quality of investments out there.

Well, let me start out. I could pass you to Patrick if I miss anything. I mean, certainly I use my term credit crunch. We’re asked all the time, are we in a recession? Are we going in a recession? As credit investors we live and breathe the credit market every day, so it’s argued that by the time the economists actually declare a recession we’ll probably be six months into it. So what we were saying earlier is we’re not seeing a lot of new paper hit the markets. What you’re seeing is an overhang on the senior debt and on the bridge market. So we know those credits, some of them are very large and some we think highly of, some we have issues with. But in terms of new product hitting the market, there has not been a great degree of new names that have come because of the lag effect of the middle-market, MNA market, and the overall MNA market. So in terms of, we are seeing lots of $25 million to $30 million mez opportunities that we quite frankly think are companies that we don’t think have the robust nature that we’d want to invest on the current terms are being provided to us. I.e., that type of market we don’t believe has re-priced respectively to what it should relative to the other opportunities in front of us. That will happen over the course of the year and we will see product in that space, but we would expect it to re-price by a few hundred basis points at least and certainly not only in coupon pricing, but we’ve always talked about and Patrick’s been consistent in redemption provisions. We expect we’re seeing better redemption provisions, non-call, six months, going out to non-call two and three, that’s the minute we see coming back and obviously better covenants overall. Greg Mason – Stifel Nicolaus & Co.: Touch on Eurofresh. I know that has traded down, but it also seems like they are paying their cash interests. Could you give us an update there?

Sure. Obviously it’s been publicly disclosed that Eurofresh was originally late on its payment, but did make a cash interest payment. As some middle-market companies do as they’re working through challenges if they have them and we are encouraged and you’ll see the prices actually come back up over the last couple of days in Eurofresh. The sponsorship group is working very, very hard with its lenders across the board, including us, on ways to continue to perform over time. The company actually has good products, it’s just a matter of some operational challenges that they’re facing and we’re very much in a dialogue with them. Greg Mason – Stifel Nicolaus & Co.: And lastly, could you update us obviously with the big write-down in Lexicon this quarter what the future outlook is for that investment?

As you can see from our write-off of our investment in totals, we are not confident at this point in time that they be valued through our securities. We hope and we are still in active dialogue with the sponsor group and the lenders to give the company the best shot it possibly can have to come through the cycle, but at this point in time we’re not confident enough to see value in our security. Greg Mason – Stifel Nicolaus & Co.: Great. Thanks, guys.

Thank you. Your next question comes from Robert Lacoursiere of Banc of America. Robert Lacoursiere – Banc of America Securities: Question on one of the strategies you talked about buying, making incremental investments in existing portfolio companies through secondary transactions. You characterize them as being made less than your original cost basis, but how were they made recently relative to what you had them at fair value or markdown?

Fair value, at fair value that’s the prices we’re paying. For secondary trades that we’re making in assets. When we bought them they were fairly valued, in our opinion. The markets have gotten heavy. Prices have come down. We purchase them. What you see in our fair value is the weighted average cost. Robert Lacoursiere – Banc of America Securities: Okay. So it didn’t, because you made a subsequent investment at lower than your previous cost that you’re just doing weighted average not re-pricing everything down.

Yeah, our cost is weighted average, but the fair market value is the latest price. Robert Lacoursiere – Banc of America Securities: Okay. All right. Thank you.

Thank you. (Operator Instructions). Your next question comes from Russell Green of Wunderlich Securities. Russell Green – Wunderlich Securities: Hello? Yeah, I’m just trying to understand just a couple, I’m from the retail side. Two things: How comfortable are you currently with the dividend policy? And the other question is concerning, do you have any sort of ability to do some sort of stock buy-back given the price of the stock compared to what the net asset value is at the moment?

This is John Hannan. On the dividend policy we’ve been very consistent that we’ve looked at that as an integral part of our business and our policy is to have a steady, stable dividend. We’ve continued to do that and that’s going to be part of our focus going forward. As to a buy-back, it doesn’t make a lot of sense in a structure that we have to be going in buying back stock in these volatile markets because basically we want that capital to grow the business. And it doesn’t make sense to spend a lot of money raising equity and then to turn around and buy it back. Russell Green – Wunderlich Securities: All right. Thank you very much.

Thank you.

Thank you. This concludes the question and answer portion of today’s call. Thank you. This concludes today’s conference call. You may now disconnect.