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PROSPECTUS SUPPLEMENT
(To Prospectus dated March 26, 2007)

2,300,000 Shares

GRAPHIC

Common Stock

               Ares Capital Corporation is a specialty finance company that is a closed-end, non-diversified management investment company incorporated in Maryland that is regulated as a business development company under the Investment Company Act of 1940. We were founded in April 2004 and completed our initial public offering on October 8, 2004. Our investment objective is to generate both current income and capital appreciation through debt and equity investments. We invest primarily in first and second lien senior loans and mezzanine debt, which in some cases may include an equity component, and, to a lesser extent, in equity investments, in private middle market companies.

               We are managed by Ares Capital Management LLC, an affiliate of Ares Management LLC, an independent Los Angeles based firm that currently manages investment funds that have approximately $16.7 billion of committed capital. Ares Operations LLC provides the administrative services necessary for us to operate.

               Our common stock is quoted on The NASDAQ Global Select Market under the symbol "ARCC." On August 22, 2007, the last reported sale price of our common stock on The NASDAQ Global Select Market was $16.88 per share.

               Investing in our common stock involves risks that are described in the "Risk Factors" section beginning on page 16 of the accompanying prospectus.

               This prospectus supplement and the accompanying prospectus concisely provide important information you should know before investing in our common stock. Please read this prospectus supplement and the accompanying prospectus before you invest and keep it for future reference. Our Internet address is http://www.arescapitalcorp.com. We make available free of charge on our website our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports as soon as reasonably practicable after we electronically file such material with, or furnish it to, the Securities and Exchange Commission or the "SEC." The SEC also maintains a website at www.sec.gov that contains such information.

 
   Per Share
   Total
Public offering price   $16.30   $37,490,000
Underwriting discount (sales load)   $.22   $506,000
Proceeds, before expenses, to Ares Capital Corporation(1)   $16.08   $36,984,000
(1)
Before deducting expenses payable by us related to this offering, estimated at $200,000.

               The underwriters may also purchase up to an additional 345,000 shares from us at the public offering price, less the underwriting discount, within 30 days from the date of this prospectus to cover overallotments. If the underwriters exercise this option in full, the total public offering price will be $43,113,500, the total underwriting discount (sales load) paid by us will be $581,900, and total proceeds, before expenses, will be $42,531,600.

               Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

               The shares will be ready for delivery on or about August 28, 2007.

Merrill Lynch & Co.

 
 

 
 

The date of this prospectus supplement is August 23, 2007.

              You should rely only on the information contained in this prospectus supplement and the accompanying prospectus. We have not authorized any other person to provide you with different information. If anyone provides you with different or inconsistent information, you should not rely on it. We are not making an offer to sell these securities in any jurisdiction where the offer or sale is not permitted. You should assume that the information appearing in this prospectus supplement and the accompanying prospectus is accurate only as of the date on the front cover of this prospectus supplement or such prospectus, as applicable. Our business, financial condition, results of operations and prospects may have changed since that date.


Prospectus Supplement
TABLE OF CONTENTS

 
   Page
Forward-Looking Statements   S-1
The Company   S-2
Fees and Expenses   S-5
Recent Developments   S-9
Selected Financial and Other Data   S-10
Use of Proceeds   S-13
Price Range of Common Stock and Distributions   S-14
Management's Discussion and Analysis of Financial Condition and Results of Operations   S-16
Capitalization   S-24
Underwriting   S-25
Legal Matters   S-28
Financial Statements   S-29


Prospectus
TABLE OF CONTENTS

 
   Page
Prospectus Summary   1
The Company   1
Offerings   8
Fees and Expenses   10
Selected Financial and Other Data   13
Risk Factors   16
Forward-Looking Statements   33
Use of Proceeds   34
Price Range of Common Stock and Distributions   35
Management's Discussion and Analysis of Financial Conditions and Results of Operations   38
Senior Securities   52
Business   53
Portfolio Companies   66
Management   71
Certain Relationships   89
Control Persons and Principal Stockholders   90
Determination of Net Asset Value   92
Dividend Reinvestment Plan   93
Material U.S. Federal Income Tax Considerations   94
Description of our Capital Stock   102
Description of our Preferred Stock   109
Description of our Warrants   110
Description of our Debt Securities   112
Regulation   124
Custodian, Transfer and Dividend Paying Agent and Registrar   129
Brokerage Allocation and Other Practices   129
Plan of Distribution   130
Legal Matters   131
Independent Registered Public Accountants   131
Available Information   131
Financial Statements   F-1

i


FORWARD-LOOKING STATEMENTS

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

              We use words such as "anticipates," "believes," "expects," "intends" and similar expressions to identify forward-looking statements. Our actual results could differ materially from those projected in the forward-looking statements for any reason, including the factors set forth in "Risk Factors" and elsewhere in this prospectus supplement or the accompanying prospectus.

              We have based the forward-looking statements included in this prospectus supplement on information available to us on the date of this prospectus supplement, and we assume no obligation to update any such forward-looking statements. Although we undertake no obligation to revise or update any forward-looking statements, whether as a result of new information, future events or otherwise, you are advised to consult any additional disclosures that we may make directly to you or through reports that we have filed or in the future may file with the SEC, including annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K.

              You should understand that under Sections 27A(b)(2)(B) and (D) of the Securities Act of 1933 (the "Securities Act") and Sections 21E(b)(2)(B) and (D) of the Exchange Act, the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995 do not apply to statements made in connection with this offering.

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THE COMPANY

              This summary highlights some of the information contained elsewhere in this prospectus supplement and the accompanying prospectus. It is not complete and may not contain all of the information that you may want to consider. You should read carefully the more detailed information set forth under "Risk Factors" and the other information included in this prospectus supplement and the accompanying prospectus. Except where the context suggests otherwise, the terms "we," "us," "our," "the Company" and "Ares Capital" refer to Ares Capital Corporation and its subsidiaries; "Ares Capital Management" or "investment adviser" or "Investment Adviser" refers to Ares Capital Management LLC; "Ares Administration" refers to Ares Operations LLC; and "Ares" refers to Ares Partners Management Company LLC and its affiliated companies, including Ares Management LLC.


Ares Capital

              Ares Capital is a specialty finance company that is a closed-end, non-diversified management investment company, regulated as a business development company, or a "BDC," under the Investment Company Act of 1940, or the "1940 Act." We were founded in April 2004 and completed our initial public offering on October 8, 2004. Ares Capital's investment objective is to generate both current income and capital appreciation through debt and equity investments. We primarily invest in U.S. middle market companies, where we believe the supply of primary capital is limited and the investment opportunities are most attractive.

              We primarily invest in first and second lien senior loans and long-term mezzanine debt. First and second lien senior loans generally are senior debt instruments that rank ahead of subordinated debt of a given portfolio company. These loans also have the benefit of security interests on the assets of the portfolio company, which may rank ahead of or be junior to other security interests. Mezzanine debt is subordinated to senior loans and is generally unsecured. In some cases, we may also receive warrants or options in connection with our debt instruments. Our investments have generally ranged between $10 million and $50 million each, although the investment sizes may be more or less than the targeted range and are expected to grow with our capital availability. We also, to a lesser extent, make equity investments in private middle market companies. These investments have generally been less than $10 million each but may grow with our capital availability and are usually made in conjunction with loans we make to these companies. In connection with our investing activities, we may make commitments with respect to indebtedness or securities of a potential portfolio company substantially in excess of our final investment. In such situations, while we may initially agree to fund up to a certain dollar amount of an investment, we may syndicate a portion of such amount to third parties prior to closing such investment, such that we make a smaller investment than what was reflected in our original commitment. In this prospectus, we generally use the term "middle market" to refer to companies with annual EBITDA between $5 million and $50 million. EBITDA represents net income before net interest expense, income tax expense, depreciation and amortization.

              The first and second lien senior loans generally have stated terms of three to ten years and the mezzanine debt investments generally have stated terms of up to ten years, but the expected average life of such first and second lien loans and mezzanine debt is generally between three and seven years. However, there is no limit on the maturity or duration of any security in our portfolio. The debt that we invest in typically is not initially rated by any rating agency, but we believe that if such investments were rated, they would be below investment grade (rated lower than "Baa3" by Moody's Investors Service or lower than "BBB-" by Standard & Poor's Corporation). We may initially invest without limit in debt of any rating, as well as debt that has not been rated by any nationally recognized statistical rating organization.

              We believe that our investment adviser, Ares Capital Management, is able to leverage Ares' current investment platform, resources and existing relationships with financial sponsors, financial

S-2


institutions, hedge funds and other investment firms to provide us with attractive investments. In addition to deal flow, the Ares investment platform assists our investment adviser in analyzing, structuring and monitoring investments. Ares' senior principals have worked together for many years and have substantial experience in investing in senior loans, high yield bonds, mezzanine debt and private equity. The Company has access to the Ares staff of approximately 84 investment professionals and to the 72 administrative professionals employed by Ares who provide assistance in accounting, legal, compliance and investor relations.

              While our primary focus is to generate current income and capital appreciation through investments in first and second lien senior loans and mezzanine debt and, to a lesser extent, equity securities of private companies, we also may invest up to 30% of the portfolio in opportunistic investments. Such investments may include investments in high-yield bonds, debt and equity securities in collateralized debt obligation vehicles and distressed debt or equity securities of public companies. We expect that these public companies generally will have debt that is non-investment grade. As part of this 30% of the portfolio, we may also invest in debt of middle market companies located outside of the United States, which investments are not anticipated to be in excess of 10% of the portfolio at the time such investments are made.


About Ares

              Ares is an independent firm with approximately $16.7 billion of total committed capital and over 190 employees as of the date of this prospectus supplement. Ares was founded in 1997 by a group of highly experienced investment professionals.

              Ares specializes in originating and managing assets in both the leveraged finance and private equity markets. Ares' leveraged finance activities include the acquisition and management of senior loans, high yield bonds, mezzanine and special situation investments. Ares' private equity activities focus on providing flexible, junior capital to middle market companies. Ares has the ability to invest across a capital structure, from senior secured floating rate debt to common equity.

              Ares is comprised of the following groups:


              Ares' senior principals have been working together as a group for many years and have an average of over 20 years of experience in leveraged finance, private equity, distressed debt, investment banking and capital markets. They are backed by a large team of highly-disciplined professionals. Ares' rigorous investment approach is based upon an intensive, independent financial analysis, with a focus on preservation of capital, diversification and active portfolio management. These fundamentals

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underlie Ares' investment strategy and have resulted in large pension funds, banks, insurance companies, endowments and high net worth individuals investing in Ares funds.


Ares Capital Management

              Ares Capital Management, our investment adviser, is served by a dedicated origination and transaction development team of 28 investment professionals, including our President, Michael J. Arougheti, which team is augmented by Ares' additional investment professionals, primarily its 33 member Capital Markets Group. Ares Capital Management's investment committee has five members, including Mr. Arougheti and four founding members of Ares. In addition, Ares Capital Management leverages off of Ares' entire investment platform and benefits from the Ares investment professionals' significant capital markets, trading and research expertise developed through Ares industry analysts. Ares funds have made investments in over 1,100 companies in over 30 different industries and currently hold over 450 investments in over 30 different industries.


Our Corporate Information

              Our administrative offices are located at 1999 Avenue of the Stars, Suite 1900, Los Angeles, California, 90067, telephone number (310) 201-4200, and our executive offices are located at 280 Park Avenue, 22nd Floor, Building East, New York, New York 10017, telephone number (212) 750-7300.

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FEES AND EXPENSES

              The following table is intended to assist you in understanding the costs and expenses that an investor in our common stock will bear directly or indirectly. We caution you that some of the percentages indicated in the table below are estimates and may vary. Except where the context suggests otherwise, whenever this prospectus contains a reference to fees or expenses paid by "you," "us" or "Ares Capital," or that "we" will pay fees or expenses, stockholders will indirectly bear such fees or expenses as investors in Ares Capital.

Stockholder transaction expenses (as a percentage of offering price):      
Sales load paid by us   1.35% (1)
Offering expenses borne by us   0.53% (2)
Dividend reinvestment plan expenses   None (3)
   
 
Total stockholder transaction expenses paid by us   1.88%  
   
 

Estimated annual expenses (as a percentage of consolidated net assets attributable to common stock)(4):
 
 
 
Management fees   2.24% (5)
Incentive fees payable under investment advisory and management agreement (20% of realized capital gains and 20% of pre-incentive fee net investment income, subject to certain limitations)   1.94% (6)
Interest payments on borrowed funds   2.85% (7)
Other expenses   0.92% (8)
Acquired fund fees and expenses   0.86% (9)
   
 
Total annual expenses (estimated)   8.81% (10)
   
 
(1)
The underwriting discounts and commissions with respect to the shares sold in this offering, which is a one-time fee, is the only sales load paid in connection with this offering.

(2)
Amount reflects estimated offering expenses of approximately $200,000 and based on the 2,300,000 shares offered in this offering.

(3)
The expenses of the dividend reinvestment plan are included in "other expenses."

(4)
"Consolidated net assets attributable to common stock" equals net asset value at June 30, 2007 plus the anticipated net proceeds from this offering.

(5)
Our management fee is 1.5% of our total assets other than cash and cash equivalents (which includes assets purchased with borrowed amounts). For the purposes of this table, we have assumed that we maintain no cash or cash equivalents. The 8.81% reflected on the table is calculated on our net assets (rather than our total assets). See "Management—Investment Advisory and Management Agreement."

(6)
This item represents our incentive fees based on annualizing actual amounts earned on our pre-incentive fee net income for the six months ended June 30, 2007 and assumes that the incentive fees earned at the end of the 2007 calendar year will be based on the actual realized capital gains as of June 30, 2007, computed net of realized capital losses and unrealized capital depreciation. It also assumes that this fee will remain constant although it is based on our performance and will not be paid unless we achieve certain goals. In addition, we may realize additional capital gains or losses, or suffer additional unrealized capital depreciation in the third or fourth quarters that could result in an increase or decrease of the capital gains portion of the incentive fee payable to our investment adviser. Since our inception, the average quarterly incentive fee payable to our investment adviser has been approximately 0.85% of our weighted net assets (3.41% on an

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(7)
"Interest payments on borrowed funds" represents our annualized interest expenses based on actual interest and credit facility expense incurred for the six months ended June 30, 2007. During the six months ended June 30, 2007, the average borrowings were $500.9 million and cash paid for interest expense was $13.8 million. We had outstanding borrowings of $552.0 million at June 30, 2007. The item is based on our assumption that our borrowings and interest costs after an offering will remain similar to those prior to such offering. The amount of leverage that we employ at any particular time will depend on, among other things, our investment adviser's and our board of directors' assessment of market and other factors at the time of any proposed borrowing. See "Risk Factors—We borrow money, which magnifies the potential for gain or loss on amounts invested and may increase the risk of investing with us." We expect to use the net proceeds of this offering to repay outstanding indebtedness under our Revolving Credit Facility ($182.0 million outstanding as of August 21, 2007) or the CP Funding Facility ($85.0 million outstanding as of August 21, 2007).

(8)
Includes our overhead expenses, including payments under the administration agreement based on our allocable portion of overhead and other expenses incurred by Ares Administration in performing its obligations under the administration agreement. Such expenses are based on other expenses for the six months ended June 30, 2007. See "Management—Administration Agreement." The holders of shares of our common stock (and not the holders of our debt securities or preferred stock, if any) indirectly bear the cost associated with our annual expenses.

(9)
The Company's stockholders indirectly bear the expenses of underlying investment companies in which the Company invests. This amount includes the fees and expenses of investment companies

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(10)
"Total annual expenses" as a percentage of consolidated net assets attributable to common stock are higher than the total annual expenses percentage would be for a company that is not leveraged. We borrow money to leverage our net assets and increase our total assets. The SEC requires that the "Total annual expenses" percentage be calculated as a percentage of net assets (defined as total assets less indebtedness), rather than the total assets, including assets that have been funded with borrowed monies. If the "Total annual expenses" percentage were calculated instead as a percentage of consolidated total assets, our "Total annual expenses" would be 5.81% of consolidated total assets.


Example

              The following example demonstrates the projected dollar amount of total cumulative expenses over various periods with respect to a hypothetical investment in our common stock. In calculating the following expense amounts, we have assumed we would have no additional leverage, that none of our assets are cash or cash equivalents, and that our annual operating expenses would remain at the levels set forth in the table above.

 
   1 year
   3 years
   5 years
   10 years
You would pay the following expenses on a $1,000 investment, assuming a 5% annual return(1)   $ 88   $ 222   $ 350   $ 649
(1)
The above illustration assumes that we will not realize any capital gains computed net of all realized capital losses and unrealized capital depreciation. The expenses you would pay, based on a $1,000 investment and assuming a 5% annual return resulting entirely from net realized capital gains (and therefore subject to the capital gain incentive fee), and otherwise making the same assumptions in the example above, would be: 1 year, $98; 3 years, $250; 5 years, $394; and 10 years, $725. However, cash payment of the capital incentive fee would be deferred if during the most recent four full calendar quarter period ending on or prior to the date the payment set forth in the example is to be made, the sum of (a) our aggregate distributions to our stockholders and (b) our change in net assets (defined as total assets less indebtedness) was less than 8.0% of our net assets at the beginning of such period (as adjusted for any share issuances or repurchases).

              The foregoing table is to assist you in understanding the various costs and expenses that an investor in our common stock will bear directly or indirectly. While the example assumes, as required by the SEC, a 5% annual return, our performance will vary and may result in a return greater or less than 5%. The incentive fee under the investment advisory and management agreement, which, assuming a 5% annual return, would either not be payable or have an insignificant impact on the expense amounts shown above, is not included in the example. If we achieve sufficient returns on our investments, including through the realization of capital gains, to trigger an incentive fee of a material amount, our expenses, and returns to our investors, would be higher. In addition, while the example

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assumes reinvestment of all dividends and distributions at net asset value, participants in our dividend reinvestment plan who have not otherwise elected to receive cash will receive a number of shares of our common stock, determined by dividing the total dollar amount of the dividend payable to a participant by the market price per share of our common stock at the close of trading on the valuation date for the dividend. See "Dividend Reinvestment Plan" for additional information regarding our dividend reinvestment plan.

              This example and the expenses in the table above should not be considered a representation of our future expenses, and actual expenses (including the cost of debt, if any, and other expenses) may be greater or less than those shown.

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RECENT DEVELOPMENTS

              As of August 21, 2007, in addition to $54.2 million of investments that Ares Capital has made since June 30, 2007, the Company has outstanding commitments to fund an aggregate of approximately $360.0 million of investments. The Company expects to syndicate a portion of these commitments to third parties but cannot assure you that it will be able to do so. In addition, Ares Capital has an investment pipeline of approximately $440.0 million as of August 21, 2007. The consummation of any of the investments in this backlog and pipeline depends upon, among other things: satisfactory completion of our due diligence investigation of the prospective portfolio company, our acceptance of the terms and structure of such investment and the execution and delivery of satisfactory transaction documentation. We cannot assure you that we will make any of these investments.

              On August 9, 2007, we declared a quarterly dividend of $0.42 per share to stockholders of record as of the close of business on September 14, 2007, payable on September 28, 2007.

              On July 31, 2007, the Company announced that Moody's Investors Service assigned the Company a long-term issuer rating of Baa3 and Standard & Poor's Ratings Service assigned the Company a long-term counterparty credit rating of BBB. There can be no assurance that our ratings will continue for any given period of time or that they will not be changed.

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SELECTED FINANCIAL AND OTHER DATA

              The following selected financial and other data for the period from June 23, 2004 (inception) through December 31, 2004 and the years ended December 31, 2005 and 2006, are derived from our consolidated financial statements that have been audited by KPMG LLP, an independent registered public accounting firm whose report thereon is included elsewhere in the accompanying prospectus. The selected financial and other data for the six months ended June 30, 2007 and 2006 and other quarterly financial information is derived from our unaudited financial statements, but in the opinion of management, reflects all adjustments (consisting only of normal recurring adjustments) that are necessary to present fairly the results of such interim periods. Interim results at and for the six months ended June 30, 2007 are not necessarily indicative of the results that may be expected for the year ending December 31, 2007. The data should be read in conjunction with our consolidated financial statements and notes thereto and "Management's Discussion and Analysis of Financial Condition and Results of Operations," which are included elsewhere in this prospectus supplement and our audited consolidated financial statements and notes thereto and "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the accompanying prospectus.

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ARES CAPITAL CORPORATION AND SUBSIDIARIES
SELECTED FINANCIAL DATA
As of and for the Six Months Ended June 30, 2007 and June 30, 2006
As of and For the Years Ended December 31, 2006 and December 31, 2005
and As of and For the Period June 23, 2004 (inception) Through December 31, 2004

 
   As of and For the
Six Months Ended
June 30, 2007
   As of and For the
Six Months Ended
June 30, 2006
   As of and For the
Year Ended
December 31, 2006
   As of and For the
Year Ended
December 31, 2005
   As of and For
the Period
June 23, 2004
(inception)
Through
December 31, 2004
  
Total Investment Income   $ 87,113,941   $ 50,681,056   $ 120,020,908   $ 41,850,477   $ 4,380,848  
Net Realized and Unrealized Gain on Investments     13,220,362     9,551,283     13,063,717     14,727,276     475,393  

Total Expenses
 
 
43,211,423
 
 
24,516,110
 
 
58,458,015
 
 
14,568,677
 
 
1,665,753
 
Income Tax Expense (Benefit), Including Excise Tax     (33,281 )   5,180,515     4,931,288     158,000     —  
   
 
 
 
 
 
Net Increase in Stockholders' Equity Resulting from Operations   $ 57,156,161   $ 30,535,714   $ 69,695,322   $ 41,851,076   $ 3,190,488  
   
 
 
 
 
 
Per Share Data:                                
  Net Increase in Stockholder's Equity Resulting from Operations:                                
    Basic:   $ 0.93   $ 0.80   $ 1.61   $ 1.78   $ 0.29  
    Diluted:   $ 0.93   $ 0.80   $ 1.61   $ 1.78   $ 0.29  
 
Cash Dividend Declared:
 
$
0.82
 
$
0.74
 
$
1.64
 
$
1.30
 
$
0.30
 
Total Assets   $ 1,704,490,354   $ 942,430,333   $ 1,347,990,954   $ 613,645,144   $ 220,455,614  
Total Debt   $ 552,000,000   $ 345,200,000   $ 482,000,000   $ 18,000,000   $ 55,500,000  
Total Stockholders' Equity   $ 1,105,140,155   $ 576,984,134   $ 789,433,404   $ 569,612,199   $ 159,708,305  

Other Data:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  Number of Portfolio Companies at Period End     71     50     60     38     20  
  Principal Amount of Investments Purchased(1)   $ 701,690,000   $ 450,511,000   $ 1,087,507,000   $ 504,299,000   $ 234,102,000  
  Principal Amount of Investments Sold and Repayments(2)   $ 340,261,000   $ 145,949,000   $ 430,021,000   $ 108,415,000   $ 52,272,000  
  Total Return Based on Market Value(3)     (7.54 )%   9.96 %   29.12 %   (10.60 )%   31.53 %
  Total Return Based on Net Asset Value(4)     6.15 %   5.33 %   10.73 %   12.04 %   (1.80 )%
  Weighted Average Yield of Debt and Income Producing Equity Securities(5):     11.63 %   12.42 %   11.95 %   11.25 %   12.36 %
(1)
The information presented for the period June 23, 2004 (inception) through December 31, 2004 includes $140.8 million of the assets purchased from the Royal Bank of Canada and excludes $9.7 million of publicly traded fixed income securities.

(2)
The information presented for the period June 23, 2004 (inception) through December 31, 2004 excludes $9.7 million of publicly traded fixed income securities.

(3)
Total return based on market value for the six months ended June 30, 2007 equals the decrease of the ending market value at June 30, 2007 of $16.85 per share over the ending market value at December 31, 2006 of $19.11, plus the declared dividends of $0.82 per share for the six months ended June 30, 2007, divided by the market value at December 31, 2006. For the six months ended June 30, 2006, the total return based on market value equals the increase of the ending market value at June 30, 2006 of $16.93 per share over the ending market value at December 31, 2005 of $16.07, plus the declared dividends of $0.74 per share for the six months ended June 30, 2006, divided by the market value at December 31, 2005. Total return based on market value for the year ended December 31, 2006 equals the increase of the ending market value at December 31, 2006 of $19.11 per share over the ending market value at December 31, 2005 of $16.07 per share plus the declared dividends of $1.64 per share for the year ended

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(4)
Total return based on net asset value for the six months ended June 30, 2007 equals the change in net asset value during the period plus the declared dividends of $0.82 per share for the six months ended June 30, 2007, divided by the beginning net asset value during the period (adjusted for share issuances). For the six months ended June 30, 2006, the total return based on net asset value equals the change in net asset value during the period plus the declared dividends of $0.74 per share for the six months ended June 30, 2006, divided by the beginning net asset value during the period (adjusted for share issuances). Total return based on net asset value for the year ended December 31, 2006 equals the change in net asset value during the period (adjusted for share issuances) plus the declared dividends of $1.64 per share for the year ended December 31, 2006, divided by the beginning net asset value. Total return based on net asset value for the year ended December 31, 2005 equals the change in net asset value during the period (adjusted for share issuances) plus the declared dividends of $1.30 per share for the year ended December 31, 2005, divided by the beginning net asset value. Total return based on net asset value for the period June 23, 2004 (inception) through December 31, 2004 equals the change in net asset value during the period plus the declared dividend of $0.30 per share (includes return of capital of $0.01 per share) for holders of record on December 27, 2004, divided by the beginning net asset value. Total return based on net asset value is not annualized. The Company's performance changes over time and currently may be different than that shown. Past performance is no guarantee of future results.

(5)
Weighted average yield on debt and income producing equity securities is computed as (a) the annual stated interest rate or yield earned plus the net annual amortization of original issue discount and market discount on accruing debt divided by (b) total debt and income producing equity securities at fair value.


SELECTED QUARTERLY DATA (Unaudited)

 
   2007
   2006
   2005
   2004
 
   Q2
   Q1
   Q4
   Q3
   Q2
   Q1
   Q4
   Q3
   Q2
   Q1
   Q4(1)
Total investment income   $ 47,398,918   $ 39,715,023   $ 37,508,058   $ 31,831,794   $ 30,489,751   $ 20,191,305   $ 14,890,281   $ 11,607,989   $ 9,601,615   $ 5,750,592   $ 4,380,848
Net investment income before net realized and unrealized gain on investments and incentive compensation   $ 31,219,979   $ 23,698,990   $ 23,508,149   $ 21,792,136   $ 16,233,294   $ 14,614,419   $ 11,071,081   $ 8,887,631   $ 7,567,053   $ 3,800,113   $ 3,009,749
Incentive compensation   $ 6,228,506   $ 4,754,664   $ 5,188,969   $ 4,464,141   $ 6,940,399   $ 2,922,884   $ (510,478 ) $ 2,643,353   $ 1,798,919   $ 270,284   $ 95,471
Net investment income before net realized and unrealized gain on investments   $ 24,991,473   $ 18,944,326   $ 18,319,180   $ 17,327,995   $ 9,292,895   $ 11,691,535   $ 11,581,559   $ 6,244,278   $ 5,768,134   $ 3,529,829   $ 2,914,278
Net realized and unrealized gain on investments   $ 8,575,860   $ 4,644,501   $ 2,699,307   $ 813,127   $ 7,399,785   $ 2,151,498   $ 4,281,465   $ 3,637,612   $ 1,834,122   $ 4,974,077   $ 475,393
Net increase in stockholders' equity resulting from
operations		   $ 33,567,333   $ 23,588,827   $ 21,018,487   $ 18,141,122   $ 16,692,680   $ 13,843,033   $ 15,863,024   $ 9,881,890   $ 7,602,256   $ 8,503,906   $ 3,389,671
Basic and diluted earnings per common share   $ 0.49   $ 0.44   $ 0.42   $ 0.39   $ 0.44   $ 0.36   $ 0.45   $ 0.42   $ 0.33   $ 0.69   $ 0.34
Net asset value per share as of the end of the quarter   $ 15.84   $ 15.34   $ 15.17   $ 15.06   $ 15.10   $ 15.03   $ 15.03   $ 15.08   $ 14.97   $ 14.96   $ 14.43
(1)
The Company was initially funded on June 23, 2004 (inception) but had no significant operations until the fourth quarter of 2004. The sole activity for the second and third quarters of 2004 was the incurrence of $199,183 in organizational expenses.

S-12


USE OF PROCEEDS

              We estimate that the net proceeds we will receive from the sale of 2,300,000 shares of our common stock in this offering will be approximately $36.8 million (or approximately $42.3 million if the underwriters fully exercise their overallotment option), in each case based upon a public offering price of $16.30 per share, after deducting the underwriting discounts and commissions of $506,000 (or approximately $581,900 if the underwriters fully exercise their overallotment option) payable by us and estimated offering expenses of approximately $200,000 payable by us.

              We expect to use substantially all of the net proceeds of this offering to repay outstanding indebtedness under our Revolving Credit Facility ($182.0 million outstanding as of August 21, 2007) or the CP Funding Facility ($85.0 million outstanding as of August 21, 2007). We expect such repayment will occur within 5 business days after the closing of this offering. The interest charged on the indebtedness incurred under the Revolving Credit Facility is based on LIBOR (one, two, three or six month) plus 1.00%, generally. As of August 21, 2007, the one, two, three and six month LIBOR were 5.50%, 5.50%, 5.49% and 5.33%, respectively. The Revolving Credit Facility expires on December 28, 2010. The interest charged on the indebtedness incurred under our CP Funding Facility is based on the commercial paper rate plus 0.70% and is payable quarterly. As of August 21, 2007, the commercial paper rate was 5.58%.The CP Funding Facility is scheduled to expire on October 31, 2007 (unless extended prior to such date with the consent of the lenders). We intend to use the remainder of the net proceeds for general corporate purposes, including additional repayments of outstanding debt.

              We intend to invest primarily in first and second lien senior loans and mezzanine debt of middle market companies, each of which may include an equity component, and, to a lesser extent, in equity securities in such companies. In addition to such investments, we may invest up to 30% of the portfolio in opportunistic investments, including high-yield bonds, debt and equity securities in collateralized debt obligation vehicles, distressed debt or equity securities of public companies. As part of this 30%, we may also invest in debt of middle market companies located outside of the United States, which investments are not anticipated to be in excess of 10% of the portfolio. Pending such investments, we will invest a portion of the net proceeds primarily in cash, cash equivalents, U.S. government securities and other high-quality short-term investments. These securities may earn yields substantially lower than the income that we anticipate receiving once we are fully invested in accordance with our investment objective. As a result, we may not be able to achieve our investment objective and/or pay any dividends during this period or, if we are able to do so, such dividends may be substantially lower than the dividends that we expect to pay when our portfolio is fully invested. If we do not realize yields in excess of our expenses, we may incur operating losses and the market price of our shares may decline. See "Regulation—Temporary Investments" for additional information about temporary investments we may make while waiting to make longer-term investments in pursuit of our investment objective.

S-13


PRICE RANGE OF COMMON STOCK AND DISTRIBUTIONS

              Our common stock is quoted on The NASDAQ Global Select Market under the symbol "ARCC." We completed our initial public offering in October 2004 at the price of $15.00 per share. Prior to such date there was no public market for our common stock. Our common stock continues to trade in excess of net asset value. There can be no assurance, however, that our shares will continue to trade at a premium to our net asset value.

              The following table sets forth the net asset value of our common stock, the range of high and low closing prices of our common stock as reported on The NASDAQ Global Select Market and the dividends declared by us for each fiscal quarter since our initial public offering. The stock quotations are interdealer quotations and do not include markups, markdowns or commissions and may not necessarily represent actual transactions.

 
    
   Price Range
   Premium/
Discount of High
Sales Price to
NAV
   Premium/
Discount of Low
Sales Price to
NAV
    
  
 
    
   Cash Dividend
Per Share(2)
  
 
   NAV(1)
   High
   Low
  
Fiscal 2004                                  
  Fourth quarter   $ 14.43   $ 19.75   $ 15.00   136.9 % 104.1 % $ 0.30  

Fiscal 2005
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  First quarter   $ 14.96   $ 18.74   $ 15.57   125.3 % 104.0 % $ 0.30  
  Second quarter   $ 14.97   $ 18.14   $ 15.96   121.2 % 106.6 % $ 0.32  
  Third quarter   $ 15.08   $ 19.25   $ 16.18   127.7 % 107.3 % $ 0.34  
  Fourth quarter   $ 15.03   $ 16.73   $ 15.08   111.3 % 100.3 % $ 0.34  

Fiscal 2006
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  First quarter   $ 15.03   $ 17.97   $ 16.23   119.6 % 108.0 % $ 0.36  
  Second quarter   $ 15.10   $ 17.50   $ 16.36   115.9 % 108.3 % $ 0.38  
  Third quarter   $ 15.06   $ 17.51   $ 15.67   116.3 % 104.1 % $ 0.40  
  Fourth quarter   $ 15.17   $ 19.31   $ 17.39   127.3 % 114.6 % $ 0.50 (3)

Fiscal 2007
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  First quarter   $ 15.34   $ 20.46   $ 17.82   133.4 % 116.2 % $ 0.41  
  Second quarter   $ 15.84   $ 18.84   $ 16.85   118.9 % 106.4 % $ 0.41  
  Third quarter
(through August 22, 2007)		     *   $ 17.53   $ 14.92   *   *   $ 0.42  
(1)
Net asset value per share is determined as of the last day in the relevant quarter and therefore may not reflect the net asset value per share on the date of the high and low closing sales prices. The net asset values shown are based on outstanding shares at the end of each period.

(2)
Represents the dividend declared in the specified quarter.

(3)
Includes an additional cash dividend of $0.10 per share.

*
Net asset value has not yet been calculated for this period.

              On August 22, 2007, the last reported sales price of our common stock on The NASDAQ Global Select Market was $16.88 per share.

              We currently intend to distribute quarterly dividends to our stockholders. Our quarterly dividends, if any, will be determined by our board of directors. Because of our limited operating history, these are the only dividends to date that we have declared on our common stock.

S-14


              The following table summarizes our dividends declared to date:

Date Declared
   Record Date
   Payment Date
   Amount
December 16, 2004   December 27, 2004   January 26, 2005   $ 0.30
           
  Total declared for 2004           $ 0.30
           
February 23, 2005   March 7, 2005   April 15, 2005   $ 0.30
June 20, 2005   June 30, 2005   July 15, 2005   $ 0.32
September 6, 2005   September 16, 2005   September 30, 2005   $ 0.34
December 12, 2005   December 22, 2005   January 16, 2006   $ 0.34
           
  Total declared for 2005           $ 1.30
           
February 28, 2006   March 24, 2006   April 14, 2006   $ 0.36
May 8, 2006   June 15, 2006   June 30, 2006   $ 0.38
August 9, 2006   September 15, 2006   September 29, 2006   $ 0.40
November 8, 2006   December 15, 2006   December 29, 2006   $ 0.40
November 8, 2006   December 15, 2006   December 29, 2006   $ 0.10
           
  Total declared for 2006           $ 1.64
           
March 8, 2007   March 19, 2007   March 30, 2007   $ 0.41
May 10, 2007   June 15, 2007   June 29, 2007   $ 0.41
August 9, 2007   September 14, 2007   September 28, 2007   $ 0.42
           
  Total declared for 2007           $ 1.24
           

              To maintain our RIC status, we must distribute an amount equal to at least 90% of our ordinary income and realized net short-term capital gains in excess of realized net long-term capital losses, if any, reduced by deductible expenses, out of the assets legally available for distribution. To avoid certain excise taxes imposed on RICs, we are generally required to distribute during each calendar year an amount at least equal to the sum of (1) 98% of our ordinary income for the calendar year, (2) 98% of our capital gains in excess of capital losses for the one-year period ending on October 31 of the calendar year and (3) any ordinary income and net capital gains for preceding years that were not distributed during such years. If this requirement is not met, we will be required to pay a nondeductible excise tax equal to 4% of the amount by which 98% of the current year's taxable income exceeds the distribution for the year. The taxable income on which an excise tax is paid is generally carried forward and distributed to stockholders in the next tax year. Depending on the level of taxable income earned in a tax year, we may choose to carry forward taxable income in excess of current year distributions into the next tax year and pay a 4% excise tax on such income, as required. Our excise tax liability for the year ended December 31, 2006 was approximately $570,000.

              We cannot assure you that we will achieve results that will permit the payment of any cash distributions and, if we incur indebtedness or issue senior securities, we will be prohibited from making distributions if doing so causes us to fail to maintain the asset coverage ratios stipulated by the 1940 Act or if distributions are limited by the terms of any of our borrowings.

              We maintain an "opt out" dividend reinvestment plan for our common stockholders. As a result, if we declare a dividend, then stockholders' cash dividends will be automatically reinvested in additional shares of our common stock, unless they specifically "opt out" of the dividend reinvestment plan so as to receive cash dividends. See "Dividend Reinvestment Plan."

S-15


MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

              The information contained in this section should be read in conjunction with the Selected Financial and Other Data and our financial statements and notes thereto appearing elsewhere in this prospectus supplement and the accompanying prospectus.


OVERVIEW

              We are a specialty finance company that is a closed-end, non-diversified management investment company incorporated in Maryland that is regulated as a business development company (a "BDC") under the Investment Company Act of 1940 (the "1940 Act"). We were founded on April 16, 2004 and were initially funded on June 23, 2004. On October 8, 2004, we completed our initial public offering (the "IPO").

              Our investment objective is to generate both current income and capital appreciation through debt and equity investments. We invest primarily in first and second lien senior loans and mezzanine debt, which in some cases includes an equity component, and, to a lesser extent, in equity investments in private U.S. middle market companies.

              We are externally managed by Ares Capital Management LLC (the "Investment Adviser"), an affiliate of Ares Management LLC, an independent Los Angeles based firm that manages investment funds. Ares Operations LLC ("Ares Administration"), an affiliate of Ares Management LLC, provides the administrative services necessary for us to operate pursuant to an amended and restated administration agreement (the "Administration Agreement).

              As a BDC, 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 U.S. companies, cash, cash equivalents, U.S. government securities and high-quality debt investments that mature in one year or less.

              We have qualified and elected to be treated as a regulated investment company, or a RIC, under Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"). To qualify as a RIC, we must, among other things, meet certain source-of-income and asset diversification requirements and timely distribute to our stockholders at least 90% of our investment company taxable income, as defined by the Code, for each year. Pursuant to these elections, we generally will not have to pay corporate-level taxes on any income that we distribute to our stockholders.


PORTFOLIO AND INVESTMENT ACTIVITY

              For the three months ended June 30, 2007, we issued 11 new commitments in an aggregate amount of $392.9 million ($318.2 million to new portfolio companies and $74.7 million to existing portfolio companies) where the average commitment amount was approximately $35.7 million and the weighted average commitment terms were approximately 63 months, compared to 16 new commitments in an aggregate amount of $269.5 million ($194.0 million to new portfolio companies and $75.5 million to existing portfolio companies) where the average commitment amount was approximately $16.8 million and the weighted average commitment terms were approximately 67 months for the three months ended June 30, 2006. During the three months ended June 30, 2007, we funded $337.3 million of such commitments ($262.6 million to new portfolio companies and $74.7 million to existing portfolio companies) compared to funding $242.7 million of commitments ($167.2 million to new portfolio companies and $75.5 million to existing portfolio companies) for the three months ended June 30, 2006. Also during the three months ended June 30, 2007, we had $206.7 million in exits and repayments of commitments resulting in net commitments of $186.2 million for the period. For the three months ended June 30, 2006, we had $101.3 million in exits and repayments of commitments

S-16


resulting in net commitments of $168.2 million for the period. We have remaining contractual obligations for $60.8 million with respect to commitments funded as of June 30, 2007. The weighted average yield of debt and income producing equity securities funded during the three months ended June 30, 2007 and June 30, 2006 was approximately 11.93% and 12.25%, respectively, and the weighted average yield of debt and income producing equity securities exited or repaid during the three months ended June 30, 2007 and June 30, 2006 was approximately 11.73% and 10.44%, respectively (computed as (a) annual stated interest rate or yield earned plus the net annual amortization of original issue discount and market discount earned on accruing debt divided by (b) total debt and income producing equity securities at fair value).

              For the three months ended June 30, 2007, the Company funded (A) $250.2 million aggregate principal amount of senior term debt, (B) $77.2 million aggregate principal amount of senior subordinated debt and (C) $65.2 million of investments in equity securities. For the three months ended June 30, 2006, the Company funded (1) $152.3 million aggregate principal amount of senior term debt, (2) $72.0 million aggregate principal amount of senior subordinated debt, and (3) $30.8 million of investments in equity securities.

              During the three months ended June 30, 2007, (A) $36.7 million aggregate principal amount of senior term debt and (B) $25.9 million aggregate principal amount of senior subordinated debt were redeemed. Additionally, $159.8 million aggregate principal amount of senior term debt was sold or syndicated. As of June 30, 2007, the Company held investments in 71 portfolio companies compared to 60 portfolio companies as of December 31, 2006. During the three months ended June 30, 2006, (1) $45.7 million aggregate principal amount of senior term debt and (2) $9.0 million aggregate principal amount of collateralized debt obligation notes were redeemed. Additionally, $54.4 million aggregate principal amount of equity securities was sold.

              The Investment Adviser employs an investment rating system to categorize our investments. In addition to various risk management and monitoring tools, we grade all loans on a scale of 1 to 4 no less frequently than quarterly. This system is intended to reflect the performance of the borrower's business, the collateral coverage of the loans and other factors considered relevant. Under this system, loans with a grade of 4 involve the least amount of risk in our portfolio. The borrower is performing above expectations and the trends and risk factors are generally favorable (including a potential exit). Loans graded 3 involve a level of risk that is similar to the risk at the time of origination. The borrower is performing as expected and the risk factors are neutral to favorable. All new loans are initially graded 3. Loans graded 2 involve a borrower performing below expectations and indicates that the loan's risk has increased materially since origination. The borrower may be out of compliance with debt covenants, however, loan payments are generally not more than 120 days past due. For loans graded 2, we increase procedures to monitor the borrower and we will write down the fair value of the investment if it is deemed to be impaired. A loan grade of 1 indicates that the borrower is performing materially below expectations and that the loan risk has substantially increased since origination. Most or all of the debt covenants are out of compliance and payments are substantially delinquent. Loans graded 1 are not anticipated to be repaid in full and we will reduce the fair market value of the investment to the amount we anticipate will be recovered. As of June 30, 2007, the weighted average investment grade of the debt in our portfolio was 3.0 and no loans were past due or on non-accrual. The weighted average investment grade of the debt in our portfolio as of December 31, 2006 was 3.0.

S-17


The following is a distribution of the grades of our portfolio companies as of June 30, 2007 and December 31, 2006:

 
   June 30, 2007
   December 31, 2006
 
   Fair Value
   Number of
Companies
   Fair Value
   Number of
Companies
Grade 1   $ —   —   $ 504,206   1
Grade 2     53,840,956   4     14,206,419   1
Grade 3     1,457,724,272   61     1,189,399,643   56
Grade 4     104,448,014   6     31,711,568   2
   
 
 
 
    $ 1,616,013,242   71   $ 1,235,821,836   60
   
 
 
 

              As of June 30, 2007, the weighted average yield of the debt and income producing equity securities in our portfolio was approximately 11.63%. As of June 30, 2007, the weighted average yield on our entire portfolio was 10.25%. The weighted average yield on our senior term debt, senior subordinated debt and income producing equity securities was 11.28%, 12.84% and 9.57%, respectively. Of the senior term debt, the weighted average yield attributable to first lien senior term debt and second lien senior term debt was 11.06% and 11.71%, respectively.

              As of December 31, 2006, the weighted average yield of the debt and income producing equity securities in our portfolio was approximately 11.95%. As of December 31, 2006, the weighted average yield on our entire portfolio was 10.79%. The weighted average yield on our senior term debt, senior subordinated debt and income producing equity securities was 11.52%, 13.16% and 10.00%, respectively. Of the senior term debt, the weighted average yield attributable to first lien senior term debt and second lien senior term debt was 11.22% and 11.94%, respectively.

              The weighted average yield on our debt and income producing equity securities was lower as of June 30, 2007 compared to the weighted average yield on our debt and income producing equity securities as of December 31, 2006 because we added a higher percentage of lower yielding first lien investments during the six months ended June 30, 2007, and the average yield on our exits and repayments was higher than the investments added during the period.


RESULTS OF OPERATIONS

For the three and six months ended June 30, 2007 and June 30, 2006

              Operating results for the three and six months ended June 30, 2007 and June 30, 2006 were as follows:

 
   For the Three Months
Ended June 30,
   For the Six Months
Ended June 30,
  
 
   2007
   2006
   2007
   2006
  
Total Investment Income   $ 47,398,918   $ 30,489,751   $ 87,113,941   $ 50,681,056  
Total Expenses     22,450,892     16,225,221     43,211,423     24,516,110  
   
 
 
 
 
Net Investment Income Before Income Taxes     24,948,026     14,264,530     43,902,518     26,164,946  
Income Tax Expense, Including Excise Tax     (43,447 )   4,971,635     (33,281 )   5,180,515  
   
 
 
 
 
Net Investment Income     24,991,473     9,292,895     43,935,799     20,984,431  
Net Realized Gain (Loss)     (7,883,073 )   23,879,988     (7,523,787 )   24,490,874  
Net Unrealized Gain (Loss)     16,458,933     (16,480,203 )   20,744,149     (14,939,591 )
   
 
 
 
 
Net Increase in Stockholders' Equity Resulting From Operations   $ 33,567,333   $ 16,692,680   $ 57,156,161   $ 30,535,714  
   
 
 
 
 

S-18


Investment Income

              For the three months ended June 30, 2007, total investment income increased $16.9 million, or 56%, over the three months ended June 30, 2006. For the three months ended June 30, 2007, total investment income consisted of $39.8 million in interest income from investments, $5.4 million in capital structuring service fees, $878,000 in dividend income, $703,000 in other income and $671,000 in interest income from cash and cash equivalents. Interest income from investments increased $16.3 million, or 69%, to $39.8 million for the three months ended June 30, 2007 from $23.5 million for the comparable period in 2006. The increase in interest income from investments was primarily due to the increase in the size of the portfolio. The average investments, at fair value, for the quarter increased from $818.1 million in the three months ended June 30, 2006 to $1.5 billion in the comparable period in 2007.

              For the six months ended June 30, 2007, total investment income increased $36.4 million, or 72%, over the six months ended June 30, 2006. For the six months ended June 30, 2007, total investment income consisted of $73.6 million in interest income from investments, $9.7 million in capital structuring service fees, $1.1 million in other income and $1.5 million in interest income from cash and cash equivalents. Interest income from investments increased $32.6 million, or 79%, to $73.6 million for the six months ended June 30, 2007 from $41.0 million for the comparable period in 2006. The increase in interest income from investments was primarily due to the increase in the size of the portfolio. The average investments, at fair value, for the period increased from $730.5 million in the six months ended June 30, 2006 to $1.3 billion in the comparable period in 2007. Capital structuring service fees increased $2.1 million, or 28%, to $9.7 million for the six months ended June 30, 2007 from $7.6 million for the comparable period in 2006. The increase in capital structuring service fees was primarily due to the increased amount of originations. The amount of commitments increased from $471.9 million during the six months ended June 30, 2006 to $757.1 million during the comparable period in 2007.


Expenses

              For the three months ended June 30, 2007, total expenses increased $6.2 million, or 38%, over the three months ended June 30, 2006. Base management fees increased $2.7 million, or 87%, to $5.8 million for the three months ended June 30, 2007 from $3.1 million for the comparable period in 2006, primarily due to the increase in the size of the portfolio. Incentive fees related to pre-incentive fee net investment income increased $2.1 million, or 53%, to $6.2 million for the three months ended June 30, 2007 from $4.1 million for the comparable period in 2006, primarily due to the increase in the size of the portfolio and the related increase in net investment income. For the three months ended June 30, 2006 there were $2.9 million in incentive fees accrued related to realized gains compared to no incentive fees accrued related to realized gains for the three months ended June 30, 2007, due to higher net realized gains recognized during the three months ended June 30, 2006. Net realized gains for the three months ended June 30, 2006 were $23.9 million offset by $4.2 million in income tax expense related to realized gains compared to $7.9 million in net realized losses for the three months ended June 30, 2007. Interest expense and credit facility fees increased $2.8 million, or 59%, to $7.6 million for the three months ended June 30, 2007 from $4.8 million for the comparable period in 2006, primarily due to the significant increase in the borrowings outstanding. There were $472.4 million in average outstanding borrowings during the three months ended June 30, 2007 compared to average outstanding borrowings of $265.7 million in the comparable period in 2006.

              For the six months ended June 30, 2007, total expenses increased $18.7 million, or 76%, over the six months ended June 30, 2006. Base management fees increased $5.2 million, or 93%, to $10.9 million for the six months ended June 30, 2007 from $5.7 million for the comparable period in 2006, primarily due to the increase in the size of the portfolio. Incentive fees related to pre-incentive fee net investment income increased $4.0 million, or 57%, to $11.0 million for the six months ended

S-19


June 30, 2007 from $7.0 million for the comparable period in 2006, primarily due to the increase in the size of the portfolio and the related increase in net investment income. For the six months ended June 30, 2006 there were $2.9 million in incentive fees accrued related to realized gains compared to no incentive fees accrued related to realized gains for the six months ended June 30, 2007, due to higher net realized gains recognized during the six months ended June 30, 2006. Interest expense and credit facility fees increased $9.6 million, or 148%, to $16.1 million for the six months ended June 30, 2007 from $6.5 million for the comparable period in 2006, primarily due to the significant increase in the borrowings outstanding. The average outstanding borrowings during the six months ended June 30, 2007 were $500.9 million compared to average outstanding borrowings of $171.6 million in the comparable period in 2006.


Income Tax Expense, Including Excise Tax

              The Company has qualified and elected and intends to continue to qualify for the tax treatment applicable to regulated investment companies under the Code, and, among other things, has made and intends to continue to make the requisite distributions to its stockholders which will relieve the Company from federal income taxes.

              Depending on the level of taxable income earned in a tax year, we may choose to carry forward taxable income in excess of current year dividend distributions into the next tax year and pay a 4% excise tax on such income, as required. To the extent that the Company determines that its estimated current year annual taxable income will be in excess of estimated current year dividend distributions, the Company accrues excise tax, if any, on estimated excess taxable income as taxable income is earned. For the three months ended June 30, 2007, the Company recorded a provision of approximately $34,000. For the six months ended June 30, 2007, the Company recognized a net benefit of approximately $30,000 for federal excise tax which consisted of the current year estimated excise tax expense net of a $64,000 tax benefit recognized to reverse an over-accrual of estimated excise tax at December 31, 2006. For the three and six months ended June 30, 2006, the Company recorded a provision of approximately $727,000 and $826,000, respectively for federal excise tax.

              Certain of our wholly owned subsidiaries are subject to federal and state income taxes. For the three and six months ended June 30, 2007, we recognized tax benefits of approximately $77,000 and $3,000, respectively, for these subsidiaries. For the three and six months ended June 30, 2006, we recorded a tax provision of approximately $4,244,000 and $4,354,000, respectively, for these subsidiaries.


Net Unrealized Appreciation on Investments

              For the three months ended June 30, 2007, the Company's investments had an increase in net unrealized appreciation of $16.5 million, which primarily related to the reversal of prior periods unrealized depreciation of $8.3 million for the investment in Berkline/Benchcraft Holdings LLC ("Berkline"), which was realized during the period as well as $8.9 million in net unrealized appreciation recognized during the period. The most significant changes in unrealized appreciation were $6.3 million for the investment in Reflexite Corporation ("Reflexite"), $5.6 million for the investment in The GSI Group, Inc. ("GSI") and $1.0 million for the investment in Waste Pro USA, Inc. ("Waste Pro"), offset by unrealized depreciation of $3.6 million for the investment in Universal Trailer Corporation ("UTC") and $341,000 for the investment in Abingdon Investments Limited. For the three months ended June 30, 2006, the Company's investments had a decrease in net unrealized appreciation of $16.5 million, which primarily related to the reversal of the prior period's unrealized appreciation of $13.3 million for the investment in CICQ, LP, which was realized during the period, and the increase in unrealized depreciation of $3.7 million for the investment in Berkline, offset by the increase in unrealized appreciation in Varel Holdings, Inc of $1.0 million.

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              For the six months ended June 30, 2007, the Company's investments had an increase in net unrealized appreciation of $20.7 million, which primarily related to the reversal of prior periods unrealized depreciation of $8.3 million for the investment in Berkline, and $13.4 million in net unrealized appreciation recognized during the period. The most significant changes in unrealized appreciation were $7.4 million for the investment in Reflexite, $5.6 million for the investment in GSI, $3.6 million for the investment in Daily Candy, Inc., $1.9 million for the investment in Waste Pro and $1.7 million for the investment in Industrial Container Services, Inc., offset by unrealized depreciation of $3.6 million for the investment in UTC and $3.0 million for the investment in Diversified Collection Services, Inc. For the six months ended June 30, 2006, the Company's investments had a decrease in net unrealized appreciation of $14.9 million, which primarily related to the reversal of the prior period unrealized appreciation of $9.3 million for the investment in CICQ, LP, which was realized during the period, and the increase in unrealized depreciation of $3.7 million for the investment in Berkline and $2.4 million for the investment in Making Memories Wholesale, Inc.


Net Realized Gains/Losses

              During the three months ended June 30, 2007, the Company had $222.8 million of sales and repayments resulting in $7.9 million of net realized losses. The most significant realized loss during the three months ended June 30, 2007 was the $8.3 million loss for the investment in Berkline. During the three months ended June 30, 2006, the Company had $133.1 million of sales and repayments resulting in $23.9 million of net realized gains. The most significant realized gains during the three months ended June 30, 2006 were the sales of the investments in CICQ, LP and United Site Services, Inc. of $18.6 million and $4.7 million, respectively.

              During the six months ended June 30, 2007, the Company had $341.0 million of sales and repayments resulting in $7.5 million of net realized losses. During the six months ended June 30, 2006, the Company had $170.4 million of sales and repayments resulting in $24.5 million of net realized gains.


Net Increase in Stockholders' Equity Resulting From Operations

              Net increase in stockholders' equity resulting from operations for the three and six months ended June 30, 2007 was approximately $33.6 million and $57.2 million, respectively. Based on the weighted average shares outstanding during the three and six months ended June 30, 2007, our net increase in stockholders' equity resulting from operations per common share was $0.49 and $0.93, respectively.

              Net increase in stockholders' equity resulting from operations for the three and six months ended June 30, 2006 was approximately $16.7 million and $30.5 million, respectively. Based on the weighted average shares outstanding during the three and six months ended June 30, 2006, our net increase in stockholders' equity resulting from operations per common share was $0.44 and $0.80, respectively.


FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES

              Since the Company's inception, the Company's liquidity and capital resources have been generated primarily from the net proceeds of its initial public offering and subsequent add-on public offerings of common stock, the Debt Securitization, advances from the CP Funding Facility and the Revolving Credit Facility (each as defined in Note 7 to the consolidated financial statements), as well as cash flows from operations. During 2007, we received $7.5 million in proceeds net of underwriting and offering costs related to the underwriter's exercise of the over-allotment option granted to it in connection with the December 19, 2006 add-on public offering, $27.2 million in proceeds net of underwriting and offering costs from our February 9, 2007 add-on public offering and $267.2 million in

S-21


proceeds net of underwriting and offering costs from our April 4, 2007 add-on public offering. As of June 30, 2007 total market capitalization for the Company was $1.2 billion compared to $994.4 million as of December 31, 2006.

              A portion of the proceeds from our public offerings in 2007 were used to repay outstanding indebtedness under the Revolving Credit Facility. The remaining unused portion of the proceeds from our public offerings was used to fund investments in portfolio companies in accordance with our investment objectives and strategies.

              We expect to continue to raise new capital in order to fund our investment objectives by issuing both debt and equity securities in the future, by amending our Facilities or by recycling lower yielding investments. However, the terms of any future debt and equity issuances, amendments or our ability to recycle cannot be determined and there can be no assurances that the debt or equity markets or the ability to recycle will be available to us on terms we deem favorable or that our cost of capital will not increase.

              The weighted average stated interest rate of all our outstanding borrowings for the six months ended June 30, 2007 and June 30, 2006 was 6.03% and 6.32%, respectively. As of June 30, 2007 and December 31, 2006, the weighted average maturity of all our outstanding borrowings was 8.1 years and 9.0 years, respectively. As of June 30, 2007 and December 31, 2006, the fair value of investments and cash and cash equivalents, and the outstanding borrowings under the Debt Securitization, CP Funding Facility and the Revolving Credit Facility were as follows:

 
   June 30,
2007
   December 31,
2006
Cash and cash equivalents   $ 61,543,795   $ 91,538,878
Senior term debt     1,019,855,888     791,677,723
Senior notes     11,600,000     10,000,000
Senior subordinated debt     361,503,842     299,877,755
Equity securities     223,053,512     134,266,358
   
 
  Total   $ 1,677,557,037   $ 1,327,360,714
   
 
Outstanding borrowings   $ 552,000,000   $ 482,000,000
   
 

The available amount for borrowing under the CP Funding Facility is $350.0 million (see Note 7 to the consolidated financial statements for more detail on the CP Funding Facility arrangement). As of June 30, 2007, there was $85.0 million outstanding under the CP Funding Facility. The CP Funding Facility expires on October 31, 2007 unless extended prior to such date with the consent of the lenders. The available outstanding committed amount for borrowing under the Revolving Credit Facility is $350.0 million (see Note 7 to the consolidated financial statements for more detail on the Revolving Credit Facility arrangement). As of June 30, 2007, there was $153.0 million outstanding under the Revolving Credit Facility. The Revolving Credit Facility expires on December 28, 2010. As part of the Debt Securitization, $314.0 million principal amount of asset-backed notes (including $50.0 million revolving notes all of which had been drawn as of June 30, 2007) were issued to third parties and secured by a pool of middle market loans that had been purchased or originated by the Company. We retained approximately $86.0 million of certain BBB and non-rated securities in the Debt Securitization. As of June 30, 2007, there was $314.0 million aggregate principal amount of CLO Notes (as defined in Note 7 to the consolidated financial statements) outstanding. The CLO Notes mature on December 20, 2019.

              For the three months ending June 30, 2007, average total assets were $1.5 billion. The ratio of total debt outstanding to stockholders' equity as of June 30, 2007 was 0.50:1.00 compared to 0.61:1.00 as of December 31, 2006.

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OFF BALANCE SHEET ARRANGEMENTS

              As of June 30, 2007, the Company had committed to make a total of approximately $260.6 million of investments in various revolving senior secured and subordinated loans. As of June 30, 2007, $181.4 million was unfunded. Additionally, $216.2 million of the $260.6 million in commitments extend beyond the maturity date of our Revolving Credit Facility. Included within the $260.6 million in commitments in revolving senior secured and subordinated loans are commitments to issue up to $9.9 million in standby letters of credit through a financial intermediary on behalf of certain portfolio companies. Under these arrangements, the Company would be required to make payments to third-party beneficiaries if the portfolio companies were to default on their related payment obligations. As of June 30, 2007, the Company had $9.2 million in standby letters of credit issued and outstanding on behalf of the portfolio companies, of which no amounts were recorded as a liability. Of these letters of credit, $500,000 expire on August 31, 2010, $6.1 million expire on February 28, 2009 and $2.6 million expire on September 30, 2007. These letters of credit may be extended under substantially similar terms for additional one-year terms at the Company's option until the Revolving Credit Facility, under which the letters of credit were issued, matures on December 28, 2010.

              As of June 30, 2007, the Company was subject to a subscription agreement to fund up to $6.8 million of equity commitments in a private equity investment partnership. As of June 30, 2007, $1.2 million was funded to this partnership.

              As of December 31, 2006, the Company had committed to make a total of approximately $174.0 million of investments in various revolving senior secured and subordinated loans. As of December 31, 2006, $117.0 million was unfunded. Additionally, $129.8 million of the $174.0 million in commitments extended beyond the maturity date of our Revolving Credit Facility. Included within the $174.0 million in commitments in revolving secured and subordinated loans were commitments to issue up to $3.8 million in standby letters of credit through a financial intermediary on behalf of certain portfolio companies. Under these arrangements, the Company would be required to make payments to third-party beneficiaries if the portfolio companies were to default on their related payment obligations. As of December 31, 2006, the Company had $2.8 million in standby letters of credit issued and outstanding on behalf of the portfolio companies, of which no amounts were recorded as a liability.

              As of December 31, 2006, the Company was subject to a subscription agreement to fund up to $10.0 million of equity commitments in a private equity investment partnership. As of December 31, 2006, $225,000 was funded to this partnership.

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CAPITALIZATION

              The following table sets forth (1) our actual capitalization at June 30, 2007 and (2) our capitalization as adjusted to reflect the effects of the sale of our common stock in this offering (assuming no exercise of the underwriters' overallotment option) at the public offering price of $16.30 per share, after deducting the underwriting discounts and commissions and offering expenses payable by us. You should read this table together with "Use of Proceeds" and our balance sheet included in the accompanying prospectus.

 
   As of June 30, 2007
  
 
   Actual
   As Adjusted
  
Cash and cash equivalents   $ 61,543,795   $ 61,543,795  
   
 
 

Debt
 
 
 
 
 
 
 
Credit facilities(1)   $ 552,000,000   $ 515,216,000  

Stockholders' Equity
 
 
 
 
 
 
 
Common stock, par value $.001 per share, 100,000,000 common shares authorized, 69,757,588 and 72,057,588 common shares issued and outstanding, respectively   $ 69,757   $ 72,058  
Capital in excess of par value     1,094,284,316     1,131,066,015  
Accumulated undistributed net investment income     415,395     415,395  
Accumulated net realized gains (losses) on sale of investments     (437,258 )   (437,258 )
Net unrealized appreciation (depreciation) on investments     10,807,945     10,807,945  
   
 
 
Total stockholders' equity   $ 1,105,140,155   $ 1,141,924,155  
   
 
 
Total capitalization   $ 1,657,140,155     1,657,140,155  
   
 
 
(1)
The above table reflects indebtedness outstanding as of June 30, 2007. However, as of August 21, 2007, our total outstanding indebtedness was approximately $581.0 million. The net proceeds from the sale of our common stock in this offering are expected to be used to pay down outstanding indebtedness.

S-24


UNDERWRITING

              We intend to offer the shares through Merrill Lynch, Pierce, Fenner & Smith Incorporated. Subject to the terms and conditions described in a purchase agreement among us and the underwriter, we have agreed to sell to the underwriter, and the underwriter has agreed to purchase from us, 2,300,000 shares of our common stock.

              The underwriter has agreed that it must purchase all of the shares sold under the purchase agreement if it purchases any of them. However, the underwriter is not required to take or pay for the shares covered by the underwriter's overallotment option described below.

              We have agreed to indemnify the underwriter against certain liabilities, including liabilities under the Securities Act, or to contribute to payments the underwriter may be required to make in respect of those liabilities.

              The underwriter is offering the shares, subject to prior sale, when, as and if issued to and accepted by them, subject to approval of legal matters by their counsel, including the validity of the shares, and other conditions contained in the purchase agreement, such as the receipt by the underwriter of officer's certificates and legal opinions. The underwriter reserves the right to withdraw, cancel or modify offers to the public and to reject orders in whole or in part.


Commissions and Discounts

              The underwriter has advised us that it proposes initially to offer the shares to the public at the public offering price on the cover page of this prospectus and to dealers at that price less a concession not in excess of $.20 per share. After the public offering, the public offering price and concession may be changed.

              The following table shows the per share and total underwriting discounts and commissions we will pay to the underwriter assuming both no exercise and full exercise of the underwriter's overallotment option to purchase up to an additional 345,000 shares.

 
   Per Share
   Without Option
   With Option
Public offering price   $16.30   $37,490,000   $43,113,500
Underwriting discount   $.22   $506,000   $581,900
Proceeds, before expenses, to the Company   $16.08   $36,984,000   $42,531,600

              We estimate that the total expenses of the offering payable by us, not including underwriting discounts and commissions, will be approximately $200,000.


Overallotment Option

              We have granted an option to the underwriter to purchase up to 345,000 additional shares at the public offering price less the underwriting discount. The underwriter may exercise this option for 30 days from the date of this prospectus solely to cover any overallotments. If the underwriter exercises this option, it will be obligated, subject to conditions contained in the purchase agreement, to purchase the additional shares.


No Sales of Similar Securities

              We have agreed, with exceptions, not to sell or transfer any common stock for 30 days after the date of this prospectus without first obtaining the written consent of Merrill Lynch, Pierce, Fenner & Smith Incorporated.

              Our executive officers and directors and Ares Capital Management and certain of its affiliates have agreed, with exceptions, not to sell or transfer any common stock for 90 days after the date of this

S-25


prospectus supplement without first obtaining the written consent of the underwriter. Specifically, we and these other individuals and entities have agreed not to directly or indirectly:

              This lockup provision applies to common stock and to securities convertible into or exchangeable or exercisable for or repayable with common stock. It also applies to common stock owned now or acquired later by the person executing the agreement or for which the person executing the agreement later acquires the power of disposition.


Quotation on the NASDAQ Global Select Market

              Our common stock is quoted on The NASDAQ Global Select Market under the symbol "ARCC."


Price Stabilization and Short Positions

              Until the distribution of the shares is completed, SEC rules may limit the underwriter from bidding for and purchasing our common stock. However, the underwriter may engage in transactions that stabilize the price of the common stock, such as bids or purchases to peg, fix or maintain that price.

              If the underwriter creates a short position in the common stock in connection with the offering, i.e., if it sells more shares than are listed on the cover of this prospectus supplement, the underwriter may reduce that short position by purchasing shares in the open market. The underwriter may also elect to reduce any short position by exercising all or part of the overallotment option described above. Purchases of the common stock to stabilize its price or to reduce a short position may cause the price of the common stock to be higher than it might be in the absence of such purchases.

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


Electronic Delivery

              The underwriter may make prospectuses available in electronic (PDF) format. A prospectus in electronic (PDF) format may be made available on a web site maintained by the underwriter, and the underwriter may distribute such prospectuses electronically. The underwriter intends to allocate a limited number of shares for sale to its online brokerage customers.

S-26



Other Relationships

              The underwriter and its affiliates have provided in the past to Ares and may provide from time to time in the future in the ordinary course of their business certain commercial banking, financial advisory, investment banking and other services to Ares, Ares Capital or our portfolio companies for which they will be entitled to receive separate fees. In particular, the underwriter or its affiliates may execute transactions with Ares Capital or on behalf of Ares Capital, Ares or any of our portfolio companies. In addition, the underwriter or its affiliates may act as arrangers, underwriters or placement agents for companies whose securities are sold to or whose loans are syndicated to Ares, Ares Capital or Ares Capital Management.

              Affiliates of Merrill Lynch, Pierce, Fenner & Smith Incorporated are limited partners of each of Ares Corporate Opportunities Fund, L.P. and Ares Capital Europe, L.P., private investment funds affiliated with our investment adviser, Ares Capital Management LLC.

              The underwriter or its affiliates may also trade in our securities, securities of our portfolio companies or other financial instruments related thereto for their own accounts or for the account of others and may extend loans or financing directly or through derivative transactions to Ares, Ares Capital, Ares Capital Management or any of the portfolio companies.

              We may purchase securities of third parties from the underwriter or its affiliates after the offering. However, we have not entered into any agreement or arrangement regarding the acquisition of any such securities, and we may not purchase any such securities. We would only purchase any such securities if—among other things—we identified securities that satisfied our investment needs and completed our due diligence review of such securities.

              After the date of this prospectus supplement, the underwriter and its affiliates may from time to time obtain information regarding specific portfolio companies or us that may not be available to the general public. Any such information is obtained by the underwriter and its affiliates in the ordinary course of its business and not in connection with the offering of the common stock. In addition, after the offering period for the sale of our common stock, the underwriter or its affiliates may develop analyses or opinions related to Ares, Ares Capital or our portfolio companies and buy or sell interests in one or more of our portfolio companies on behalf of their proprietary or client accounts and may engage in competitive activities. There is no obligation on behalf of these parties to disclose their respective analyses, opinions or purchase and sale activities regarding any portfolio company or regarding Ares Capital to our stockholders.

              Merrill Lynch, Pierce, Fenner & Smith Incorporated was an underwriter of our October 2004 initial public offering and our March 2005, October 2005, July 2006, December 2006, February 2007 and April 2007 common stock offerings, for which it received customary fees. Merrill Lynch Capital Corporation is a syndication agent and lender under the Revolving Credit Facility.

              Affiliates of the underwriter will receive part of the proceeds of the offering by reason of the repayment of amounts outstanding under the Revolving Credit Facility. Because more than 10% of the net proceeds of the offering may be paid to members or affiliates of members of the NASD participating in the offering, the offering will be conducted in accordance with NASD Conduct Rule 2710(h).

              The principal business address of Merrill Lynch is 4 World Financial Center, New York, New York 10080.

S-27



LEGAL MATTERS

              Certain legal matters regarding the securities offered by this prospectus supplement will be passed upon for Ares Capital by Proskauer Rose LLP, New York, New York, Sutherland Asbill & Brennan LLP, Washington, D.C., and Venable LLP, Baltimore, Maryland. Proskauer Rose LLP has from time to time represented the underwriter, Ares and Ares Capital Management on unrelated matters. Certain legal matters in connection with the offering will be passed upon for the underwriter by Fried, Frank, Harris, Shriver & Jacobson LLP, New York, New York.

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ARES CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

 
   As of
  
 
   June 30,
2007
   December 31,
2006
  
 
   (unaudited)

    
  
ASSETS              
  Investments at fair value (amortized cost of $1,605,205,297 and $1,245,758,040, respectively)              
    Non-control/non-affiliate investments   $ 1,231,614,106   $ 991,529,464  
    Non-control affiliated company investments     377,418,736     244,292,372  
    Control affiliated company investments     6,980,400     —  
   
 
 
    Total investments at fair value     1,616,013,242     1,235,821,836  
  Cash and cash equivalents     61,543,795     91,538,878  
  Receivable for open trades     1,023,688     1,026,053  
  Interest receivable     17,966,360     10,121,104  
  Other assets     7,943,269     9,483,083  
   
 
 
  Total assets   $ 1,704,490,354   $ 1,347,990,954  
   
 
 

LIABILITIES
 
 
 
 
 
 
 
 
Debt
 
$
552,000,000
 
$
482,000,000
 
  Payable for open trades     30,000,000     60,000,000  
  Accounts payable and accrued expenses     2,218,476     2,027,948  
  Management and incentive fees payable     12,042,680     12,485,016  
  Interest and facility fees payable     3,089,043     2,044,586  
   
 
 
  Total liabilities     599,350,199     558,557,550  
   
 
 
 
Commitments and contingencies (Note 6)
 
 
 
 
 
 
 

STOCKHOLDERS' EQUITY
 
 
 
 
 
 
 
 
Common stock, par value $.001 per share, 100,000,000 common shares authorized, 69,757,588 and 52,036,527 common shares issued and outstanding, respectively
 
 
69,757
 
 
52,037
 
  Capital in excess of par value     1,094,284,316     785,192,573  
  Accumulated undistributed net investment income     415,395     7,038,469  
  Accumulated net realized gains (losses) on sale of investments     (437,258 )   7,086,529  
  Net unrealized appreciation (depreciation) on investments     10,807,945     (9,936,204 )
   
 
 
  Total stockholders' equity     1,105,140,155     789,433,404  
   
 
 
  Total liabilities and stockholders' equity   $ 1,704,490,354   $ 1,347,990,954  
   
 
 
NET ASSETS PER SHARE   $ 15.84   $ 15.17  
   
 
 

See accompanying notes to consolidated financial statements.

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ARES CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS

 
   For the Three
Months
Ended
June 30,
2007
   For the Three
Months
Ended
June 30,
2006
   For the Six
Months
Ended
June 30,
2007
   For the Six
Months
Ended
June 30,
2006
  
 
   (unaudited)

   (unaudited)

   (unaudited)

   (unaudited)

  
INVESTMENT INCOME:                          
  From non-control/non-affiliate investments:                          
    Interest from investments   $ 34,250,691   $ 20,737,226   $ 64,145,489   $ 35,788,359  
    Capital structuring service fees     1,982,411     4,670,493     6,266,957     6,416,698  
    Interest from cash & cash equivalents     671,122     199,948     1,491,956     431,177  
    Dividend income     375,000     1,170,000     750,000     1,170,000  
    Other income     388,589     244,466     506,681     287,009  
   
 
 
 
 
      Total investment income from non-control/non-affiliate investments     37,667,813     27,022,133     73,161,083     44,093,243  
  From non-control affiliated company investments:                          
    Interest from investments     5,469,490     2,760,198     9,416,130     5,237,130  
    Capital structuring service fees     3,224,500     600,000     3,262,000     1,183,810  
    Dividend income     502,705     —     502,705     —  
    Other income     314,010     107,420     551,623     166,873  
   
 
 
 
 
      Total investment income from non-control affiliated company investments     9,510,705     3,467,618     13,732,458     6,587,812  
  From control affiliated company investments:                          
    Interest from investments     55,400     —     55,400     —  
    Capital structuring service fees     165,000     —     165,000     —  
   
 
 
 
 
      Total investment income from control affiliated company investments     220,400     —     220,400     —  
   
 
 
 
 
    Total investment income     47,398,918     30,489,751     87,113,941     50,681,056  
   
 
 
 
 
EXPENSES:                          
  Interest and credit facility fees     7,564,573     4,773,743     16,113,887     6,503,364  
  Base management fees     5,814,174     3,107,197     10,903,671     5,650,856  
  Incentive management fees     6,228,506     6,940,399     10,983,170     9,863,283  
  Professional fees     1,523,592     676,637     2,489,406     1,148,088  
  Insurance     266,039     198,431     530,856     386,532  
  Administrative     235,000     188,488     445,357     366,025  
  Depreciation     102,301     49,302     203,478     49,302  
  Directors fees     63,250     73,919     128,000     137,169  
  Interest to the Investment Adviser     —     —     —     25,879  
  Other     653,457     217,105     1,413,598     385,612  
   
 
 
 
 
    Total expenses     22,450,892     16,225,221     43,211,423     24,516,110  
NET INVESTMENT INCOME BEFORE INCOME TAXES     24,948,026     14,264,530     43,902,518     26,164,946  
   
 
 
 
 
Income tax expense (benefit), including excise tax     (43,447 )   4,971,635     (33,281 )   5,180,515  
   
 
 
 
 
NET INVESTMENT INCOME     24,991,473     9,292,895     43,935,799     20,984,431  
   
 
 
 
 
REALIZED AND UNREALIZED NET GAINS ON INVESTMENTS:                          
  Net realized gains (losses):                          
    Net realized gains (losses) from non-control/non-affiliate investments     (8,113,543 )   23,879,988     (7,844,257 )   24,443,591  
    Net realized gains (losses) from non-control affiliated company investments     230,470     —     320,470     47,283  
   
 
 
 
 
      Net realized gains (losses) from investments     (7,883,073 )   23,879,988     (7,523,787 )   24,490,874  
  Net unrealized gains (losses):                          
    Net unrealized gains (losses) from non-control/non-affiliate investments     14,376,312     (16,480,203 )   12,283,900     (12,494,673 )
    Net unrealized gains (losses) from non-control affiliated company investments     2,082,621     —     8,460,249     (2,444,918 )
   
 
 
 
 
      Net unrealized gains (losses) from investments     16,458,933     (16,480,203 )   20,744,149     (14,939,591 )
   
 
 
 
 
      Net realized and unrealized gains (losses) from investments     8,575,860     7,399,785     13,220,362     9,551,283  
   
 
 
 
 
NET INCREASE IN STOCKHOLDERS' EQUITY RESULTING FROM OPERATIONS   $ 33,567,333   $ 16,692,680   $ 57,156,161   $ 30,535,714  
   
 
 
 
 
BASIC AND DILUTED EARNINGS PER COMMON SHARE (see Note 4)   $ 0.49   $ 0.44   $ 0.93   $ 0.80  
   
 
 
 
 
WEIGHTED AVERAGE SHARES OF COMMON STOCK OUTSTANDING (see Note 4)     68,806,785     38,089,889     61,375,116     38,039,574  
   
 
 
 
 

See accompanying notes to consolidated financial statements.

S-30


ARES CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULE OF INVESTMENTS
As of June 30, 2007

Company(1)
   Industry
   Investment
   Interest(21)
   Initial
Acquisition
Date
   Amortized
Cost
   Fair Value
   Fair Value
Per Unit
   Percentage
of Net
Assets
  
Healthcare—Services                                
American Renal Associates, Inc.   Dialysis provider   Senior secured loan ($2,688,524 par due 12/2010)   8.61% (Libor + 3.25%/Q)   12/14/05   $ 2,688,524   $ 2,688,524   $ 1.00 (3)    
        Senior secured loan ($16,393 par due 12/2010)   10.00% (Base Rate + 1.75%/D)   12/14/05     16,393     16,393   $ 1.00 (3)    
        Senior secured loan ($5,788,525 par due 12/2011)   8.61% (Libor + 3.25%/Q)   12/14/05     5,788,525     5,788,525   $ 1.00 (3)    
        Senior secured loan ($39,344 par due 12/2011)   10.00% (Base Rate + 1.75%/D)   12/14/05     39,344     39,344   $ 1.00 (3)    
        Senior secured loan ($393,741 par due 12/2011)   8.61% (Libor + 3.25%/Q)   12/14/05     393,741     393,741   $ 1.00      
        Senior secured loan ($261,997 par due 12/2011)   8.61% (Libor + 3.25%/Q)   12/14/05     261,997     261,997   $ 1.00 (3)    
        Senior secured loan ($3,937,406 par due 12/2011)   8.60% (Libor + 3.25% /Q)   12/14/05     3,937,406     3,937,406   $ 1.00      
        Senior secured loan ($2,619,971 par due 12/2011)   8.60% (Libor + 3.25% /Q)   12/14/05     2,619,971     2,619,971   $ 1.00 (3)    
Capella Healthcare, Inc.   Acute care hospital operator   Junior secured loan ($19,000,000 par due 11/2013)   10.86% (Libor + 5.50%/Q)   12/1/05     19,000,000     19,000,000   $ 1.00      
        Junior secured loan ($30,000,000 par due 11/2013)   10.86% (Libor + 5.50%/Q)   12/1/05     30,000,000     30,000,000   $ 1.00 (2)    
CT Technologies Intermediate Holdings, Inc. and   Healthcare information management   Senior secured revolving loan ($2,430,000 par due 3/2012)   12.25% (Base Rate + 4.00%/D)   6/15/07     2,430,000     2,430,000   $ 1.00      
CT Technologies Holdings, LLC (15)   services   Senior secured loan ($61,000,000 par due 3/2012)   12.25% (Base Rate + 4.00%/D)   6/15/07     61,000,000     61,000,000   $ 1.00      
        Preferred Stock (6,000 shares)       6/15/07     6,000,000     6,000,000   $ 1,000.00 (5)    
        Common Stock (9,679 shares)       6/15/07     4,000,000     4,000,000   $ 413.27 (5)    
DSI Renal, Inc.   Dialysis provider   Senior subordinated note ($55,196,910 par due 4/2014)   12.00% Cash, 2.00% PIK   4/4/06     55,196,911     55,196,910   $ 1.00 (4)    
        Senior subordinated note ($11,460,271 par due 4/2014)   12.00% Cash, 2.00% PIK   4/4/06     11,460,272     11,460,271   $ 1.00 (4)(3)    
        Senior secured revolving loan ($3,200,000 par due 3/2013)   8.38% (Libor + 3.00%/Q)   4/4/06     3,200,000     3,200,000   $ 1.00      
        Senior secured revolving loan ($960,000 par due 3/2013)   8.38% (Libor + 3.00%/Q)   4/4/06     960,000     960,000   $ 1.00      
        Senior secured revolving loan ($2,400,000 par due 3/2013)   8.38% (Libor + 3.00%/Q)   4/4/06     2,400,000     2,400,000   $ 1.00      
        Senior secured revolving loan ($1,600,000 par due 3/2013)   8.38% (Libor + 3.00%/Q)   4/4/06     1,600,000     1,600,000   $ 1.00      
        Senior secured revolving loan ($1,440,000 par due 3/2013)   10.75% (Base Rate + 2.50%/D)   4/4/06     1,440,000     1,440,000   $ 1.00      
MPBP Holdings, Inc., Cohr Holdings, Inc.   Healthcare equipment   Junior secured loan ($20,000,000 par due 1/2014)   11.61% (Libor + 6.25%/Q)   1/31/07     20,000,000     20,000,000   $ 1.00      
and MPBP Acquisition Co., Inc.   services   Junior secured loan ($12,000,000 par due 1/2014)   11.61% (Libor + 6.25%/Q)   1/31/07     12,000,000     12,000,000   $ 1.00 (3)    
        Common stock (50,000 shares)       1/31/07     5,000,000     5,000,000   $ 100.00 (5)    
MWD Acquisition Sub, Inc.   Dental services   Senior secured loan ($4,987,500 par due 5/2013)   8.61% (Libor + 3.25%/B)   5/3/07     4,987,500     4,987,500   $ 1.00      

S-31

        Junior secured loan ($5,000,000 par due 5/2012)   11.61% (Libor + 6.25%/B)   5/3/07     5,000,000     5,000,000   $ 1.00      
OnCURE Medical Corp.   Radiation oncology care   Senior subordinated note ($25,857,583 par due 8/2013)   11.00% Cash, 1.50% PIK   8/18/06     25,857,583     25,857,583   $ 1.00 (4)    
    provider   Senior secured loan ($696,690 par due 8/2008)   8.82% (Libor + 3.50%/Q)   8/23/06     696,690     696,690   $ 1.00      
        Senior secured loan ($720,000 par due 8/2008)   10.25% (Base Rate + 2.00%D)   8/23/06     720,000     720,000   $ 1.00      
        Senior secured loan ($3,259,375 par due 8/2011)   8.82% (Libor + 3.50%/S)   8/23/06     3,259,375     3,259,375   $ 1.00      
        Common stock (857,143 shares)       8/18/06     3,000,000     3,000,000   $ 3.50 (5)    
The Parker Group, Inc.(23)   Diversified healthcare   Senior secured loan ($16,222,500 par due 3/2012)   12.32% (Libor + 7.00%/M)   3/1/07     15,750,000     15,750,000   $ 1.00      
    services   Senior secured loan ($12,360,000 par due 3/2012)   12.32% (Libor + 7.00%/M)   3/1/07     12,000,000     12,000,000   $ 1.00 (3)    
Triad Laboratory Alliance, LLC   Laboratory services   Senior subordinated note ($14,959,352 par due 12/2012)   12.00% cash, 1.75% PIK   12/21/05     14,959,352     14,959,352   $ 1.00 (4)    
        Senior secured loan ($6,895,000 par due 12/2011)   8.61% (Libor + 3.25%/Q)   12/21/05     6,895,000     6,895,000   $ 1.00      
        Senior secured loan ($2,955,000 par due 12/2011)   8.61% (Libor + 3.25%/Q)   12/21/05     2,955,000     2,955,000   $ 1.00 (3)    
                   
 
           
                      347,513,585     347,513,583         31.70 %
                   
 
           
Printing, Publishing and Media                                
Canon Communications   Print publications   Junior secured loan ($7,525,000 par due 11/2011)   12.07% (Libor + 6.75%/M)   5/25/05     7,525,000     7,525,000   $ 1.00      
  LLC   services   Junior secured loan ($4,250,000 par due 11/2011)   12.07% (Libor + 6.75%/M)   5/25/05     4,250,000     4,250,000   $ 1.00 (2)    
        Junior secured loan ($12,000,000 par due 11/2011)   12.07% (Libor + 6.75%/M)   5/25/05     12,000,000     12,000,000   $ 1.00 (3)    
Courtside Acquisition Corp.   Community newspaper publisher   Senior subordinated loan ($30,000,000 par due 6/2014)   15.00% PIK   6/29/07     30,000,000     30,000,000   $ 1.00 (4)    
Daily Candy, Inc.(11)   Internet publication   Senior secured loan ($10,355,330 par due 5/2009)   10.38% (Libor + 5.00%/S)   5/25/06     10,917,986     10,355,330   $ 1.00      
    provider   Senior secured loan ($11,695,431 par due 5/2009)   10.38% (Libor + 5.00%/S)   5/25/06     12,330,901     11,695,431   $ 1.00 (3)    
        Senior secured loan ($152,267 par due 5/2009)   10.38% (Libor + 5.00%/S)   5/25/06     160,540     152,267   $ 1.00      
        Senior secured loan ($171,972 par due 5/2009)   10.38% (Libor + 5.00%/S)   5/25/06     181,316     171,972   $ 1.00 (3)    
        Senior secured loan ($58,701 par due 5/2009)   10.36% (Libor + 5.00%/Q)   5/25/06     61,891     58,701   $ 1.00      
        Senior secured loan ($66,299 par due 5/2009)   10.36% (Libor + 5.00%/Q)   5/25/06     69,901     66,299   $ 1.00 (3)    
        Common stock (1,250,000 shares)       5/25/06     2,375,000     4,085,000   $ 3.27 (5)    
        Warrants to purchase 1,381,578 shares       5/25/06     2,624,998     4,514,997   $ 3.27 (5)    
National Print Group, Inc.   Printing management services   Senior secured revolving loan ($905,238 par due 3/2012)   10.75% (Base Rate + 2.50%/D)   3/2/06     905,238     905,238   $ 1.00      
        Senior secured revolving loan ($684,783 par due 3/2012)   8.82% (Libor + 3.50%/M)   3/2/06     684,783     684,783   $ 1.00      
        Senior secured loan ($5,147,283 par due 3/2012)   8.86% (Libor + 3.50%/Q)   3/2/06     5,147,283     5,147,283   $ 1.00 (3)    
        Senior secured loan ($239,674 par due 3/2012)   10.75% (Base Rate + 2.50%/D)   3/2/06     239,674     239,674   $ 1.00 (3)    
        Senior secured loan ($5,295,652 par due 3/2012)   8.86% (Libor + 3.50%/Q)   3/2/06     5,295,652     5,295,652   $ 1.00 (3)    
        Senior secured loan ($2,319,368 par due 8/2012)   12.34% (Libor + 7.00%/B)   3/2/06     2,319,368     2,319,368   $ 1.00      

S-32

        Senior secured loan ($419,763 par due 8/2012)   12.34% (Libor + 7.00%/B)   3/2/06     419,763     419,763   $ 1.00 (3)    
        Senior secured loan ($1,932,806 par due 8/2012)   12.36% (Libor + 7.00%/Q)   3/2/06     1,932,806     1,932,806   $ 1.00      
        Senior secured loan ($349,802 par due 8/2012)   12.36% (Libor + 7.00%/Q)   3/2/06     349,802     349,802   $ 1.00 (3)    
        Preferred stock (9,344 shares)       3/2/06     2,000,000     2,000,000   $ 214.04 (5)    
The Teaching Company, LLC and   Education publications   Senior secured loan ($40,000,000 par due 9/2012)   10.50%   9/29/06     40,000,000     40,000,000   $ 1.00      
The Teaching Company Holdings,   provider   Preferred stock (29,969 shares)       9/29/06     2,996,921     2,996,921   $ 100.00 (5)    
  Inc.(22)       Common stock (15,393 shares)       9/29/06     3,079     3,079   $ 0.20 (5)    
                   
 
           
                      144,791,902     147,169,366         13.42 %
                   
 
           
Education                                
ELC Acquisition Corporation   Developer, manufacturer   Senior secured loan ($2,728,379 par due 11/2012)   9.13% (Libor + 3.75%/S)   11/30/06     2,728,379     2,728,379   $ 1.00      
    and retailer of educational   Junior secured loan ($8,333,333 par due 11/2013)   12.36% (Libor + 7.00%/S)   11/30/06     8,333,333     8,333,333   $ 1.00 (3)    
    products   Senior secured loan ($357,335 par due 11/2012)   9.13% (Libor + 3.75%/Q)   11/30/06     357,335     357,335   $ 1.00 (3)    
Equinox EIC Partners LLC and MUA Management   Medical school operator   Senior secured revolving loan ($4,000,000 par due 12/2012)   11.36% (Libor + 6.00%/Q)   4/3/07     4,000,000     4,000,000   $ 1.00      
Company, LTD.(18)(19)       Senior secured revolving loan ($4,738,503 par due 12/2012)   13.25% (Base Rate + 5.00%/D)   4/3/07     4,738,503     4,738,503   $ 1.00      
        Senior secured loan ($7,500,000 par due 12/2012)   11.36% (Libor + 6.00%/Q)   4/3/07     7,500,000     7,500,000   $ 1.00 (3)    
        Senior secured loan ($2,500,000 par due 12/2012)   11.36% (Libor + 6.00%/Q)   4/3/07     2,500,000     2,500,000   $ 1.00      
        Preferred membership interest (22,222 shares)       4/3/07     4,444,400     4,444,400   $ 200.00 (5)    
        Common membership interest (15,556 shares)       4/3/07     1,555,600     1,555,600   $ 100.00 (5)    
Equinox SMU Partners LLC and SMU Acquisition   Medical school operator   Senior secured revolving loan ($3,482,342 par due 12/2010)   13.25% (Base Rate + 5.00%/D)   1/26/06     3,482,342     3,482,342   $ 1.00      
Corp.(9)(19)       Senior secured revolving loan ($2,000,000 par due 12/2010)   11.33% (Libor + 6.00%/S)   1/26/06     2,000,000     2,000,000   $ 1.00      
        Senior secured loan ($8,475,000 par due 12/2010)   11.36% (Libor + 6.00%/Q)   1/26/06     8,475,000     8,475,000   $ 1.00      
        Senior secured loan ($500,000 par due 12/2010)   11.36% (Libor + 6.00%/Q)   1/26/06     500,000     500,000   $ 1.00      
        Common stock (15,251 shares)       1/25/06     4,000,000     4,000,000     262.28 (5)    
Instituto de Banca y Comercio, Inc.(19)   Private school operator   Senior secured revolving loan ($1,125,000 par due 3/2014)   8.32% (Libor + 3.00%/M)   3/15/07     1,125,000     1,125,000   $ 1.00      
        Senior secured revolving loan ($2,625,000 par due 3/2014)   8.32% (Libor + 3.00%/M)   3/15/07     2,625,000     2,625,000   $ 1.00      
        Senior secured revolving loan ($750,000 par due 3/2014)   8.34% (Libor + 3.00%/B)   3/15/07     750,000     750,000   $ 1.00      
        Senior secured loan ($37,000,000 par due 3/2014)   10.34% (Libor + 5.00%/M)   3/15/07     37,000,000     37,000,000   $ 1.00      
        Senior secured loan ($12,000,000 par due 3/2014)   10.34% (Libor + 5.00%/M)   3/15/07     12,000,000     12,000,000   $ 1.00 (3)    
Lakeland Finance, LLC   Private school operator   Senior secured note ($18,000,000 par due 12/2012)   11.50%   12/13/05     18,000,000     18,000,000   $ 1.00      

S-33

        Senior secured note ($15,000,000 par due 12/2012)   11.50%   12/13/05     15,000,000     15,000,000   $ 1.00 (2)    
                   
 
           
                      141,114,892     141,114,893         12.87 %
                   
 
           
Financial                                
Abingdon Investments Limited(13)(19)(20)   Investment company   Ordinary shares (948,500 shares)       12/15/06     9,032,978     9,143,540   $ 9.64 (5)    
Firstlight Financial Corporation(14)(20)   Investment company   Senior subordinated loan ($61,773,712 par due 12/2016)   10.00% PIK   12/31/06     61,773,712     61,773,712   $ 1.00 (4)    
        Common stock (10,000 shares)       12/31/06     10,000,000     10,000,000   $ 1,000.00 (5)    
        Common stock (30,000 shares)       12/31/06     30,000,000     30,000,000   $ 1,000.00 (5)    
Imperial Capital Group, LLC(20)   Investment banking services   Membership units (7,710 shares)       5/10/07     14,997,159     14,997,159   $ 1,945.16 (5)    
        Membership units (2,526 shares)       5/10/07     2,526     2,526   $ 1.00 (5)    
        Membership units (315 units)       5/10/07     315     315   $ 1.00 (5)    
Partnership Capital Growth Fund I, L.P.(20)   Investment partnership   Limited partnership interest (25% interest)       6/16/06     1,232,810     1,232,810(5 )          
                   
 
           
                      127,039,499     127,150,061         11.60 %
                   
 
           
Retail                                
Apogee Retail, LLC   For-profit thrift retailer   Senior secured loan ($19,445,769 par due 3/2012)   10.58% (Libor + 5.25%/S)   3/27/07     19,445,769     19,445,769   $ 1.00      
        Senior secured loan ($19,950,000 par due 3/2012)   10.58% (Libor + 5.25%/S)   3/27/07     19,950,000     19,950,000   $ 1.00 (2)    
        Senior secured loan ($11,970,000 par due 3/2012)   10.58% (Libor + 5.25%/S)   3/27/07     11,970,000     11,970,000   $ 1.00 (3)    
Savers, Inc. and SAI Acquisition   For-profit thrift retailer   Senior subordinated note ($28,556,391 par due 8/2014)   10.00% cash, 2.00% PIK   8/8/06     28,556,391     28,556,391   $ 1.00 (2)(4)    
  Corporation       Common stock (1,170,182 shares)       8/8/06     4,500,000     4,500,000   $ 3.85 (5)    
Things Remembered, Inc. and TRM   Personalized gifts retailer   Senior secured loan ($2,388,000 par due 9/2012)   10.11% (Libor + 4.75%/M)   9/28/06     2,388,000     2,388,000   $ 1.00 (3)    
Holdings Corporation       Senior secured loan ($2,388,000 par due 9/2012)   10.07% (Libor + 4.75%/M)   9/28/06     2,388,000     2,388,000   $ 1.00 (3)    
        Senior secured loan ($2,795,792 par due 9/2012)   11.36% (Libor + 6.00%/Q)   9/28/06     2,795,792     2,795,792   $ 1.00 (2)    
        Senior secured loan ($2,795,792 par due 9/2012)   11.36% (Libor + 6.00%/Q)   9/28/06     2,795,792     2,795,792   $ 1.00      
        Senior secured loan ($1,437,836 par due 9/2012)   11.36% (Libor + 6.00%/Q)   9/28/06     1,437,836     1,437,836   $ 1.00 (3)    
        Senior secured loan ($11,204,208 par due 9/2012)   11.32% (Libor + 6.00%/M)   9/28/06     11,204,208     11,204,208   $ 1.00 (2)    
        Senior secured loan ($11,204,208 par due 9/2012)   11.32% (Libor + 6.00%/M)   9/28/06     11,204,208     11,204,208   $ 1.00      
        Senior secured loan ($5,762,164 par due 9/2012)   11.32% (Libor + 6.00%/M)   9/28/06     5,762,164     5,762,164   $ 1.00 (3)    
        Preferred stock (80 shares)       9/28/06     1,800,000     1,800,000   $ 22,500.00 (5)    
        Common stock (800 shares)       9/28/06     200,000     200,000   $ 250.00 (5)    
                   
 
           
                      126,398,160     126,398,160         11.53 %
                   
 
           
Services—Other                                
American Residential Services, LLC   Plumbing, heating and air-conditioning services   Junior secured loan ($10,041,666 par due 4/2015)   10.00% Cash, 2.00% PIK   4/17/07     10,041,666     10,041,666   $ 1.00 (4)    
Diversified Collection Services, Inc.   Collections services   Senior secured loan ($5,126,932 par due 2/2011)   10.32% (Libor + 5.00%/M)   2/2/05     5,126,932     4,460,431   $ 0.87 (3)    
        Senior secured loan ($1,742,026 par due 8/2011)   13.25% (Base rate + 5.00%/D)   2/2/05     1,742,026     1,358,781   $ 0.78 (2)    

S-34

        Senior secured loan ($6,757,974 par due 8/2011)   13.25% (Base rate + 5.00%/D)   2/2/05     6,757,974     5,271,219   $ 0.78 (3)    
        Preferred stock (14,927 shares)       5/18/06     169,123     —   $ — (5)    
        Common stock (114,004 shares)       2/2/05     295,270     —   $ — (5)    
GCA Services Group, Inc.   Custodial services   Senior secured loan ($8,000,000 par due 12/2011)   12.00%   12/15/06     8,000,000     8,000,000   $ 1.00      
        Senior secured loan ($30,000,000 par due 12/2011)   12.00%   12/15/06     30,000,000     30,000,000   $ 1.00 (2)    
        Senior secured loan ($12,000,000 par due 12/2011)   12.00%   12/15/06     12,000,000     12,000,000   $ 1.00 (3)    
Growing Family, Inc. and GFH Holdings, LLC   Photography services   Senior secured revolving loan ($900,000 par due 8/2011)   9.75% (Base Rate + 1.50%/D)   3/16/07     900,000     900,000   $ 1.00      
        Senior secured loan ($319,764 par due 8/2011)   8.86% (Libor + 3.50%/Q)   3/16/07     319,764     319,764   $ 1.00      
        Senior secured loan ($8,405,236 par due 8/2011)   8.86% (Libor + 3.50%/Q)   3/16/07     8,405,236     8,405,236   $ 1.00 (3)    
        Senior secured loan ($47,186 par due 8/2011)   8.86% (Libor + 3.50%/Q)   3/16/07     47,186     47,186   $ 1.00      
        Senior secured loan ($1,240,314 par due 8/2011)   8.86% (Libor + 3.50%/Q)   3/16/07     1,240,314     1,240,314   $ 1.00 (3)    
        Senior secured loan ($70,550 par due 8/2011)   8.85% (Libor + 3.50%/Q)   3/16/07     70,550     70,550   $ 1.00      
        Senior secured loan ($1,854,450 par due 8/2011)   8.85% (Libor + 3.50%/Q)   3/16/07     1,854,450     1,854,450   $ 1.00 (3)    
        Senior secured loan ($3,575,000 par due 8/2011)   11.36% (Libor + 6.00%/Q)   3/16/07     3,575,000     3,575,000   $ 1.00      
        Senior secured loan ($16,000 par due 8/2011)   9.75% (Base Rate + 1.50%/D)   3/16/07     16,000     16,000   $ 1.00      
        Common stock (552,430 shares)       3/16/07     872,286     872,286   $ 1.58 (5)    
NPA Acquisition, LLC   Powersport vehicle auction   Senior secured loan ($4,466,667 par due 8/2012)   8.57% (Libor + 3.25%/M)   8/28/06     4,466,667     4,466,667   $ 1.00      
    operator   Senior secured loan ($50,000 par due 8/2012)   10.25% (Base Rate + 2.00%/D)   8/28/06     50,000     50,000   $ 1.00      
        Junior secured loan ($2,000,000 par due 2/2013)   12.08% (Libor + 6.75%/S)   8/23/06     2,000,000     2,000,000   $ 1.00      
        Junior secured loan ($12,000,000 par due 2/2013)   12.08% (Libor + 6.75%/S)   8/23/06     12,000,000     12,000,000   $ 1.00 (3)    
        Common units (1,709 units)       8/23/06     1,000,000     1,000,000   $ 585.14 (5)    
                   
 
           
                      110,950,444     107,949,549         9.85 %
                   
 
           
Consumer Products—Non-Durable                                
Badanco Enterprises, Inc.   Luggage manufacturer   Senior secured loan ($312,500 par due 1/2012)   11.50% (Base Rate + 3.25%/D)   1/24/07     312,500     312,500   $ 1.00 (3)    
        Senior secured loan ($5,937,500 par due 1/2012)   9.86% (Libor + 4.50%/Q)   1/24/07     5,937,500     5,937,500   $ 1.00 (3)    
        Senior secured loan ($5,312,500 par due 1/2012)   9.86% (Libor + 4.50%/Q)   1/24/07     5,312,500     5,312,500   $ 1.00 (3)    
Innovative Brands, LLC   Consumer products and   Senior secured loan ($12,935,000 par due 9/2011)   11.13%   10/12/06     12,935,000     12,935,000   $ 1.00      
    personal care manufacturer   Senior secured loan ($11,940,000 par due 9/2011)   11.13%   10/12/06     11,940,000     11,940,000   $ 1.00 (3)    
Making Memories Wholesale, Inc.(7)   Scrapbooking branded   Senior secured loan ($7,441,667 par due 3/2011)   9.88% (Libor + 4.50%/Q)   5/5/05     7,441,667     7,441,667   $ 1.00 (3)    
    products manufacturer   Senior subordinated loan ($10,320,959 par due 5/2012)   12.50% cash, 2.00% PIK   5/5/05     10,320,959     10,320,959   $ 1.00 (2)(4)    
        Preferred stock (3,759 shares)       5/5/05     3,758,800     1,320,000   $ 351.16 (5)    

S-35

Shoes for Crews, LLC   Safety footwear and slip-related   Senior secured loan ($1,120,241 par due 7/2010)   8.63% (Libor + 3.25%/S)   10/8/04     1,120,241     1,120,241   $ 1.00 (3)    
    mats   Senior secured loan ($74,683 par due 7/2010)   8.57% (Libor + 3.25%/S)   10/8/04     74,683     74,683   $ 1.00 (3)    
        Senior secured loan ($61,104 par due 7/2010)   10.25% (Base Rate + 2.00%/D)   10/8/04     61,104     61,104   $ 1.00 (3)    
        Senior secured revolving loan ($3,333,333 par due 7/2010)   10.25% (Base Rate + 2.00%/D)   6/16/06     3,333,333     3,333,333   $ 1.00      
The Thymes, LLC(17)   Cosmetic products manufacturer   Preferred stock (6,925 shares)   8.00% PIK   6/21/07     6,980,400     6,980,400   $ 1,008.00 (4)    
Wear Me Apparel, LLC   Clothing manufacturer   Senior subordinated notes ($22,556,875 par due 4/2013)   12.60% cash, 1.00% PIK   4/2/07     22,556,875     22,556,875   $ 1.00 (2)(4)    
        Common stock (10,000 shares)       4/2/07     10,000,000     10,000,000     1,000.00 (5)    
                   
 
           
                      102,085,562     99,646,762         9.09 %
                   
 
           
Restaurants                                
ADF Capital, Inc. & ADF Restaurant Group, LLC   Restaurant owner and operator   Senior secured revolving loan ($1,000,000 par due 11/2013)   10.25% (Base Rate + 2.00%/D)   11/27/06     1,000,000     1,000,000   $ 1.00      
        Senior secured revolving loan ($1,236,726 par due 11/2013)   8.37% (Libor + 3.00%/S)   11/27/06     1,236,726     1,236,726   $ 1.00      
        Senior secured loan ($19,705,339 par due 11/2012)   12.87% (Libor + 7.50%/S)   11/27/06     19,705,339     19,705,339   $ 1.00      
        Senior secured loan ($995,000 par due 11/2012)   12.87% (Libor + 7.50%/S)   11/27/06     995,000     995,000   $ 1.00 (2)    
        Senior secured loan ($14,124,661 par due 11/2012)   12.87% (Libor + 7.50%/S)   11/27/06     14,124,661     14,124,661   $ 1.00 (3)    
        Promissory note ($10,205,556 par due 11/2016)   10.00% PIK   6/1/06     10,193,756     10,205,556   $ 1.00 (4)(5)    
        Warrants to purchase 0.61 shares       6/1/06     —     —   $ — (5)    
Encanto Restaurants, Inc.(19)   Restaurant owner and   Junior secured loan ($24,352,333 par due 8/2013)   7.50% Cash, 3.50% PIK   8/16/06     24,352,333     24,352,333   $ 1.00 (4)    
    operator   Junior secured loan ($1,014,681 par due 8/2013)   7.50% Cash, 3.50% PIK   8/16/06     1,014,681     1,014,681   $ 1.00 (3)(4)    
                   
 
           
                      72,622,496     72,634,296         6.63 %
                   
 
           
Containers—Packaging                                
Captive Plastics, Inc.   Plastics container   Junior secured loan ($15,500,000 par due 2/2012)   12.61% (Libor + 7.25%/Q)   12/19/05     15,500,000     15,500,000   $ 1.00      
    manufacturer   Junior secured loan ($12,000,000 par due 2/2012)   12.61% (Libor + 7.25%/Q)   12/19/05     12,000,000     12,000,000   $ 1.00 (3)    
Industrial Container Services, LLC(8)   Industrial container   Senior secured loan ($9,900,000 par due 9/2011)   11.34% (Libor + 6.00%/S)   9/30/05     9,900,000     9,900,000   $ 1.00      
    manufacturer, reconditioner   Senior secured loan ($13,181,953 par due 9/2011)   9.84% (Libor + 4.50%/S)   6/21/06     13,181,953     13,181,953   $ 1.00      
    and servicer   Senior secured loan ($994,937 par due 9/2011)   9.84% (Libor + 4.50%/S)   6/21/06     994,937     994,937   $ 1.00 (2)    
        Senior secured loan ($14,123,383 par due 9/2011)   9.84% (Libor + 4.50%/Q)   6/21/06     14,123,383     14,123,383   $ 1.00 (3)    
        Senior secured revolving loan ($1,239,130 par due 9/2011)   9.82% (Libor + 4.50%/M)   9/30/05     1,239,130     1,239,130   $ 1.00      
        Senior secured revolving loan ($867,391 par due 9/2011)   11.25% (Base Rate + 3.00%/D)   9/30/05     867,391     867,391   $ 1.00      

S-36

        Common stock (1,800,000 shares)       9/29/05     1,800,000     3,499,992   $ 1.94 (5)    
                   
 
           
                      69,606,794     71,306,786         6.50 %
                   
 
           
Manufacturing                                
Arrow Group Industries, Inc.   Residential and outdoor shed manufacturer   Senior secured loan ($5,650,664 par due 4/2010)   10.36% (Libor + 5.00%/Q)   3/28/05     5,650,664     5,616,000   $ 0.99 (3)    
Emerald Performance Materials, LLC   Polymers and performance   Senior secured loan ($10,294,259 par due 5/2011)   9.61% (Libor + 4.25%/Q)   5/16/06     10,294,259     10,294,259   $ 1.00 (3)    
    materials manufacturer   Senior secured loan ($3,728,092 par due 5/2011)   11.36% (Libor + 6.00%/Q)   5/16/06     3,728,092     3,728,092   $ 1.00      
        Senior secured loan ($1,522,742 par due 5/2011)   11.36% (Libor + 6.00%/Q)   5/16/06     1,522,742     1,522,742   $ 1.00 (3)    
        Senior secured loan ($4,354,846 par due 5/2011)   13.00% cash, 3.00% PIK   5/16/06     4,354,846     4,354,846   $ 1.00 (4)    
Saw Mill PCG Partners LLC   Precision components manufacturer   Common units (1,000 units)       2/2/07     1,000,000     1,000,000     1,000.00 (5)    
Qualitor, Inc.   Automotive aftermarket   Senior secured loan ($1,950,000 par due 12/2011)   9.61% (Libor + 4.25%/Q)   12/29/04     1,950,000     1,950,000   $ 1.00 (3)    
    components supplier   Junior secured loan ($5,000,000 par due 6/2012)   12.61% (Libor + 7.25%/Q)   12/29/04     5,000,000     5,000,000   $ 1.00 (3)    
Professional Paint, Inc.   Paint manufacturer   Junior secured loan ($1,000,000 par due 5/2013)   11.63% (Libor + 6.25%/M)   5/25/06     1,000,000     1,000,000   $ 1.00 (3)    
Reflexite Corporation(10)   Developer and manufacturer of high-visibility reflective products   Common stock (1,729,627 shares)       3/28/06     25,682,891     32,862,913   $ 19.00 (5)    
Universal Trailer Corporation(6)   Livestock and specialty trailer   Common stock (50,000 shares)       10/8/04     6,424,645     1,331,814   $ 59.97 (5)    
    manufacturer   Warrants to purchase 22,208 shares       10/8/04     1,505,776     2,998,500   $ 59.97 (5)    
Varel Holdings, Inc.   Drill bit manufacturer   Common stock (30,451 shares)       5/18/05     3,045     1,011,569   $ 33.22 (5)    
                   
 
           
                      68,116,960     72,670,734         6.63 %
                   
 
           
Environmental Services                                
AWTP, LLC   Water treatment services   Junior secured loan ($1,600,000 par due 12/2012)   13.86% (Libor + 8.50%/Q)   12/23/05     1,600,000     1,600,000   $ 1.00      
        Junior secured loan ($12,000,000 par due 12/2012)   13.86% (Libor + 8.50%/Q)   12/23/05     12,000,000     12,000,000   $ 1.00 (3)    
Mactec, Inc.   Engineering and   Common stock (16 shares)       11/3/04     —     334   $ 20.78 (5)    
    environmental services   Common stock (5,556 shares)       11/3/04     —     115,444   $ 20.78 (5)    
Waste Pro USA, Inc.   Waste management services   Senior subordinated loan ($25,000,000 par due 11/2013)   11.50%   11/9/06     25,000,000     25,000,000   $ 1.00 (2)    
        Preferred stock (15,000 shares)   10.00% PIK   11/9/06     15,000,000     15,000,000   $ 1,000.00 (4)    
        Warrants to purchase 882,671 shares       11/9/06     —     1,900,037   $ 2.15 (5)    
Wastequip, Inc.   Waste management   Senior subordinated loan ($12,500,000 par due 2/2015)   12.00%   2/5/07     12,500,000     12,500,000   $ 1.00      
    equipment manufacturer   Common stock (13,889 shares)       2/2/07     1,388,889     1,388,889   $ 100.00 (5)    
                   
 
           
                      67,488,889     69,504,704         6.34 %
                   
 
           
Business Services                                
Investor Group Services, LLC(16)   Financial services   Senior secured loan ($1,500,000 par due 6/2011)   12.00%   6/22/06     1,500,000     1,500,000   $ 1.00 (3)    
        Limited liability company membership interest (10.00% interest)       6/22/06     —     —       (5)    
                                         

S-37

Miller Heiman, Inc.   Sales consulting services   Senior secured loan ($2,802,917 par due 6/2010)   8.57% (Libor + 3.25%/M)   6/20/05     2,802,917     2,802,917   $ 1.00 (3)    
        Senior secured loan ($3,997,197 par due 6/2012)   9.10% (Libor + 3.75%/Q)   6/20/05     3,997,197     3,997,197   $ 1.00 (3)    
MR Processing Holding Corp.   Bankruptcy and foreclosure   Senior subordinated note ($29,226,379 par due 2/2014)   11.50% Cash, 2.00% PIK   2/8/07     29,226,379     29,226,379   $ 1.00 (2)(4)    
    processing services   Preferred stock (30,000 shares)       4/11/06     3,000,000     3,000,000   $ 100.00 (5)    
Primis Marketing Group, Inc. and   Database marketing   Senior subordinated note ($10,212,604 par due 2/2013)   11.00% Cash, 2.50% PIK   8/24/06     10,212,604     10,212,604   $ 1.00 (2)(4)    
Primis Holdings,   services   Preferred units (4,000 units)       8/24/06     3,600,000     3,600,000   $ 900.00 (5)    
  LLC(12)       Common units (4,000,000 units)       8/24/06     400,000     400,000   $ 0.10 (5)    
R2 Acquisition Corp.   Advertising agency   Senior secured loan ($2,000,000 par due 5/2013)   9.86% (Libor +4.50%/Q)   5/29/07     2,000,000     2,000,000   $ 1.00      
        Common stock (250,000 shares)       5/29/07     250,000     250,000   $ 1.00 (5)    
Summit Business Media, LLC   Business media consulting services   Junior secured loan ($10,200,000 par due 11/2013)   12.32% (Libor + 7.00%/M)   12/18/06     10,000,000     10,200,000   $ 1.02 (3)    
                   
 
           
                      66,989,097     67,189,097         6.13 %
                   
 
           
Beverage, Food and Tobacco                                
Best Brands Corporation   Baked goods manufacturer   Junior secured loan ($26,170,754 par due 6/2013)   11.82% (Libor + 6.50%/M)   12/14/06     26,170,754     26,170,754   $ 1.00 (2)    
        Junior secured loan ($11,744,367.65 par due 6/2013)   11.82% (Libor + 6.50%/M)   12/14/06     11,744,368     11,744,368   $ 1.00 (3)    
Charter Baking Company, Inc.   Baked goods manufacturer   Preferred stock (6,258 shares)       9/1/06     2,500,000     2,500,000   $ 399.49 (5)    
Farley's & Sathers Candy Company, Inc.   Branded candy manufacturer   Junior secured loan ($10,000,000 par due 3/2011)   11.38% (Libor + 6.00%/S)   3/23/06     10,000,000     10,000,000   $ 1.00 (3)    
                   
 
           
                      50,415,122     50,415,122         4.60 %
                   
 
           
Computers and Electronics                                
RedPrairie Corporation   Software manufacturer   Junior secured loan ($6,500,000 par due 1/2013)   11.86% (Libor + 6.50%/Q)   7/13/06     6,500,000     6,500,000   $ 1.00      
        Junior secured loan ($12,000,000 par due 1/2013)   11.86% (Libor + 6.50%/Q)   7/13/06     12,000,000     12,000,000   $ 1.00 (3)    
X-rite, Incorporated   Artwork software manufacturer   Junior secured loan ($10,000,000 par due 7/2013)   10.36% (Libor + 5.00%/Q)   7/6/06     10,000,000     10,000,000   $ 1.00 (3)    
                   
 
           
                      28,500,000     28,500,000         2.60 %
                   
 
           
Aerospace & Defense                                
ILC Industries, Inc.   Industrial products   Junior secured loan ($12,000,000 par due 8/2012)   11.50%   6/27/06     12,000,000     12,000,000   $ 1.00 (3)    
    provider   Junior secured loan ($3,000,000 par due 8/2012)   11.50%   6/27/06     3,000,000     3,000,000   $ 1.00      
Thermal Solutions LLC and TSI   Thermal management   Senior secured loan ($3,217,500 par due 3/2012)   9.61% (Libor + 4.25%/Q)   3/28/05     3,217,500     3,217,500   $ 1.00 (3)    
  Group, Inc.   and electronics packaging   Senior secured loan ($1,565,789 par due 3/2011)   9.11% (Libor + 3.75%/Q)   3/28/05     1,565,789     1,565,789   $ 1.00 (3)    
    manufacturer   Senior subordinated notes ($3,205,955 par due 9/2012)   11.50% cash, 2.75% PIK   3/28/05     3,205,955     3,190,956   $ 1.00 (2)(4)    
        Senior subordinated notes ($2,580,889 par due 3/2013)   11.50% cash, 2.50% PIK   3/21/06     2,580,889     2,580,889   $ 1.00 (2)(4)    
        Preferred stock (53,900 shares)       3/28/05     539,000     539,000   $ 10.00 (5)    
        Common stock (1,100,000 shares)       3/28/05     11,000     11,000   $ 0.01 (5)    
                   
 
           
                      26,120,133     26,105,134         2.38 %
                   
 
           

S-38

Broadcasting and Cable                                
Pappas Telecasting Incorporated   Television broadcasting   Senior secured loan ($7,098,705 par due 2/2010)   15.17% (Libor + 4.79% cash, 5.00% PIK/Q)   3/1/06     8,029,106     7,908,705   $ 0.99 (4)    
        Senior secured loan ($11,378,145 par due 2/2010)   15.17% (Libor + 4.79% cash, 5.00% PIK/Q)   3/1/06     11,551,364     11,378,145   $ 0.99 (4)(3)    
        Senior secured loan ($613,133 par due 2/2010)   15.17% (Libor + 4.79% cash, 5.00% PIK/Q)   3/1/06     622,467     613,133   $ 0.99 (4)    
        Senior secured loan ($882,105 par due 2/2010)   15.17% (Libor + 4.79% cash, 5.00% PIK/Q)   3/1/06     895,534     882,105   $ 0.99 (4)(3)    
                   
 
           
                      21,098,471     20,782,088         1.90 %
                   
 
           
Cargo Transport                                
The Kenan Advantage Group, Inc.   Fuel transportation   Senior subordinated notes ($9,359,807 par due 12/2013)   9.50% cash, 3.50% PIK   12/15/05     9,359,807     9,359,807   $ 1.00 (2)(4)    
    provider   Senior secured loan ($2,462,517 par due 12/2011)   8.11% (Libor + 2.75%/Q)   12/15/05     2,462,517     2,462,517   $ 1.00 (3)    
        Preferred stock (10,984 shares)       12/15/05     1,098,400     1,098,400   $ 100.00 (5)    
        Common stock (30,575 shares)       12/15/05     30,575     30,575   $ 1.00 (5)    
                   
 
           
                      12,951,299     12,951,299         1.18 %
                   
 
           
Farming and Agriculture                                
The GSI Group, Inc.   Agricultural equipment   Senior notes ($11,900,000 par due 5/2013)   12.00%   5/11/05     10,000,000     11,600,000   $ 1.16 (3)    
    manufacturer   Common stock (7,500 shares)       5/12/05     750,000     4,749,975   $ 633.33 (5)    
                   
 
           
                      10,750,000     16,349,975         1.49 %
                   
 
           
Housing—Building Materials                                
HB&G Building Products   Synthetic and wood product   Senior subordinated loan ($8,751,151 par due 3/2011)   13.00% cash, 2.00% PIK   10/8/04     8,741,514     8,751,151   $ 1.00 (2)(4)    
    manufacturer   Common stock (2,743 shares)       10/8/04     752,888     752,888   $ 274.48 (5)    
        Warrants to purchase (4,464 shares)       10/8/04     652,503     652,503   $ 146.17 (5)    
                   
 
           
                      10,146,905     10,156,542         0.93 %
                   
 
           
Consumer Products—Durable                                
Berkline/Benchcraft Holdings LLC   Furniture manufacturer and distributor   Promissory note ($1,000,000 par due 11/2012)       5/9/07     505,088     505,090   $ 0.10 (5)    
                   
 
           
                      505,088     505,090         0.05 %
                   
 
           
Total                   $ 1,605,205,297   $ 1,616,013,242            
                   
 
           
(1)
Other than our investment in The Thymes, LLC, we do not "Control" any of our portfolio companies, as defined in the Investment Company Act of 1940 (the "1940 Act"). In general, under the 1940 Act, we would "Control" a portfolio company if we owned 25% or more of its voting securities. All of our portfolio company investments are subject to legal restriction on sales which as of June 30, 2007 represented 146% of the Company's net assets.

(2)
Pledged as collateral for the CP Funding Facility and unless otherwise noted, all other investments are pledged as collateral for the Revolving Credit Facility (see Note 7 to the consolidated financial statements).

(3)
Pledged as collateral for the ARCC CLO and unless otherwise noted, all other investments are pledged as collateral for the Revolving Credit Facility (see Note 7 to the consolidated financial statements).

(4)
Has a payment-in-kind interest feature (see Note 2 to the consolidated financial statements).

(5)
Non-income producing at June 30, 2007.

(6)
As defined in the 1940 Act, we are an "Affiliate" of this portfolio company because we own more than 5% of the portfolio company's outstanding voting securities. For the six months ended June 30, 2007, for this portfolio company there was unrealized depreciation of ($3,612,566).

(7)
As defined in the 1940 Act, we are an "Affiliate" of this portfolio company because we own more than 5% of the portfolio company's outstanding voting securities. For the six months ended June 30, 2007, for this portfolio company there were total redemptions of $316,667 (cost), interest income of $1,132,951 and other income of $421.

S-39

(8)
As defined in the 1940 Act, we are an "Affiliate" of this portfolio company because we own more than 5% of the portfolio company's outstanding voting securities. For the six months ended June 30, 2007, for this portfolio company there were total purchases of $3,676,087, redemptions of $7,215,761 (cost), interest income of $1,985,966, other income of $71,942 and net unrealized appreciation of $1,699,992.

(9)
As defined in the 1940 Act, we are an "Affiliate" of this portfolio company because we own more than 5% of the portfolio company's outstanding voting securities. For the six months ended June 30, 2007, for this portfolio company there were total purchases of $17,250,000, redemptions of $20,200,000 (cost), interest income of $787,897 and other income of $10,756.

(10)
As defined in the 1940 Act, we are an "Affiliate" of this portfolio company because we own more than 5% of the portfolio company's outstanding voting securities. For the six months ended June 30, 2007, there were total redemptions of $10,682,338, interest income of $451,518, net realized gains of $320,470 and net unrealized appreciation of $7,410,493.

(11)
As defined in the 1940 Act, we are an "Affiliate" of this portfolio company because we own more than 5% of the portfolio company's outstanding voting securities. For the six months ended June 30, 2007, there were total redemptions of $2,374,999 (cost), interest income of $1,555,754 and net unrealized appreciation of $3,303,790.

(12)
As defined in the 1940 Act, we are an "Affiliate" of this portfolio company because we own more than 5% of the portfolio company's outstanding voting securities. For the six months ended June 30, 2007, there was total interest income of $518,920.

(13)
As defined in the 1940 Act, we are an "Affiliate" of this portfolio company because we own more than 5% of the portfolio company's outstanding voting securities. For the six months ended June 30, 2007, there was total dividend income of $502,705 and unrealized depreciation of ($341,460).

(14)
As defined in the 1940 Act, we are an "Affiliate" of this portfolio company because we own more than 5% of the portfolio company's outstanding voting securities. For the six months ended June 30, 2007, there were total purchases of $40,000,000, interest income of $1,756,792, capital structuring service fees of $37,500 and other income of $375,000.

(15)
As defined in the 1940 Act, we are an "Affiliate" of this portfolio company because we own more than 5% of the portfolio company's outstanding voting securities. For the six months ended June 30, 2007, there were total purchases of $135,930,000, sales of $62,500,000, capital structuring service fees of $2,597,500, interest income of $537,809 and other income of $68,021.

(16)
As defined in the 1940 Act, we are an "Affiliate" of this portfolio company because we own more than 5% of the portfolio company's outstanding voting securities. For the six months ended June 30, 2007, there were total purchases of $150,000, redemptions of $650,000, interest income of $157,576 and other income of $18,626.

(17)
As defined in the 1940 Act, we are an "Affiliate" of this portfolio company because we own more than 5% of the portfolio company's outstanding voting securities. In addition, as defined in the 1940 Act, we "Control" this portfolio company because we own more than 25% of the portfolio company's outstanding voting securities. For the six months ended June 30, 2007, there were total purchases of $6,925,000, capital structuring service fees of $165,000 and interest income of $55,400.

(18)
As defined in the 1940 Act, we are an "Affiliate" of this portfolio company because we own more than 5% of the portfolio company's outstanding voting securities. For the six months ended June 30, 2007, there were total purchases of $30,488,503, capital structuring service fees of $627,000, interest income of $530,947 and other income of $6,857.

(19)
Non-U.S. company or principal place of business outside the U.S.

(20)
Non-registered investment company.

(21)
A majority of the variable rate loans to our portfolio companies bear interest at a rate that may be determined by reference to either Libor or an alternate Base Rate (commonly based on the Federal Funds Rate or the Prime Rate), at the borrower's option, which reset semi-annually (S), quarterly (Q), bi-monthly (B), monthly (M) or daily (D). For each such loan, we have provided the current interest rate in effect at June 30, 2007.

(22)
In addition to the interest earned based on the stated interest rate of this security, we are entitled to receive an additional interest amount of 2.50% on $24,166,667 aggregate principal amount of the portfolio company's senior term debt previously syndicated by us.

(23)
In addition to the interest earned based on the stated interest rate of this security, we are entitled to receive an additional interest amount of 3.75% on $12,000,000 aggregate principal amount of the portfolio company's senior term debt previously syndicated by us.

See accompanying notes to consolidated financial statements.

S-40


ARES CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULE OF INVESTMENTS
As of December 31, 2006

Company(1)
   Industry
   Investment
   Interest(17)
   Initial Acquisition
Date
   Amortized
Cost
   Fair Value
   Fair Value Per
Unit
   Percentage of Net Assets
  
Healthcare—Services                                
American Renal Associates, Inc.   Dialysis provider   Senior secured loan ($2,688,524 par due 12/2010)   9.37% (Libor+ 4.00%/S)   12/14/05   $ 2,688,524   $ 2,688,524   $ 1.00 (3)    
        Senior secured loan ($377,049 par due 12/2010)   10.75% (Base Rate + 2.50%/D)   12/14/05     377,049     377,049   $ 1.00 (3)    
        Senior secured loan ($5,803,279 par due 12/2011)   9.87% (Libor + 4.50%/S)   12/14/05     5,803,279     5,803,279   $ 1.00 (3)    
        Senior secured loan ($54,098 par due 12/2011)   11.25% (Base Rate + 3.00%/D)   12/14/05     54,098     54,098   $ 1.00 (3)    
        Senior secured loan ($393,741 par due 12/2011)   12.37% (Libor + 7.00%/S)   12/14/05     393,741     393,741   $ 1.00      
        Senior secured loan ($261,997 par due 12/2011)   12.37 (Libor + 7.00%/S)   12/14/05     261,997     261,997   $ 1.00 (3)    
        Senior secured loan ($3,937,406 par due 12/2011)   12.37% (Libor + 7.00% /Q)   12/14/05     3,937,406     3,937,406   $ 1.00      
        Senior secured loan ($2,619,971 par due 12/2011)   12.37% (Libor + 7.00% /Q)   12/14/05     2,619,971     2,619,971   $ 1.00 (3)    
Capella Healthcare, Inc.   Acute care hospital operator   Junior secured loan ($31,000,000 par due 11/2013)   11.36% (Libor + 6.00%/Q)   12/1/05     31,000,000     31,000,000   $ 1.00      
DSI Renal, Inc.   Dialysis provider   Senior subordinated note ($60,940,868 par due 4/2014)   12.00% Cash,
2.00% PIK		   4/4/06     60,940,868     60,940,868   $ 1.00 (4)    
        Senior subordinated note ($5,050,125 par due 4/2014)   12.00% Cash,
2.00% PIK		   4/4/06     5,050,125     5,050,125   $ 1.00 (4)(3)    
        Senior secured revolving loan ($4,000,000 par due 3/2013)   8.38% (Libor + 3.00%/Q)   4/4/06     4,000,000     4,000,000   $ 1.00      
        Senior secured revolving loan ($960,000 par due 3/2013)   8.38% (Libor + 3.00%/Q)   4/4/06     960,000     960,000   $ 1.00      
        Senior secured revolving loan ($1,600,000 par due 3/2013)   8.38% (Libor + 3.00%/Q)   4/4/06     1,600,000     1,600,000   $ 1.00      
        Senior secured revolving loan ($1,600,000 par due 3/2013)   8.38% (Libor + 3.00%/Q)   4/4/06     1,600,000     1,600,000   $ 1.00      
        Senior secured revolving loan ($2,096,000 par due 3/2013)   10.75% (Base Rate + 2.50%/D)   4/4/06     2,096,000     2,096,000   $ 1.00      
OnCURE Medical Corp.   Radiation oncology care   Senior subordinated note ($23,318,089 par due 8/2013)   11.00% cash,
1.50% PIK		   8/18/06     23,318,089     23,318,089   $ 1.00 (4)    
    provider   Senior secured loan ($3,403,750 par due 8/2011)   8.94% (Libor + 3.50%/S)   8/23/06     3,403,750     3,403,750   $ 1.00      
        Common stock (857,143 shares)       8/18/06     3,000,000     3,000,000   $ 3.50 (5)    
Triad Laboratory Alliance, LLC   Laboratory services   Senior subordinated note ($14,829,356 par due 12/2012)   12.00% cash,
1.75% PIK		   12/21/05     14,829,356     14,829,355   $ 1.00 (4)    
        Senior secured loan ($6,930,000 par due 12/2011)   8.61% (Libor + 3.25%/Q)   12/21/05     6,930,000     6,930,000   $ 1.00      
        Senior secured loan ($2,970,000 par due 12/2011)   8.61% (Libor + 3.25%/Q)   12/21/05     2,970,000     2,970,000   $ 1.00 (3)    
                   
 
           
                      177,834,253     177,834,252         22.53 %
                   
 
           
Printing, Publishing and Media                                
Canon Communications   Print publications   Junior secured loan ($7,525,000 par due 11/2011)   12.10% (Libor + 6.75%/M)   5/25/05     7,525,000     7,525,000   $ 1.00      
    LLC   services   Junior secured loan ($4,250,000 par due 11/2011)   12.10% (Libor + 6.75%/M)   5/25/05     4,250,000     4,250,000   $ 1.00 (2)    
                                         

S-41

        Junior secured loan ($12,000,000 par due 11/2011)   12.10% (Libor + 6.75%/M)   5/25/05     12,000,000     12,000,000   $ 1.00 (3)    
Daily Candy,   Internet   Senior secured loan   10.36% (Libor +   5/25/06     12,744,556     12,422,111   $ 1.00      
Inc.(11)(19)   publication   ($12,422,111 par due 5/2009)   5.00%/S)                            
    provider   Senior secured loan ($11,577,889 par due 5/2009)   10.36% (Libor + 5.00%/S)   5/25/06     11,878,414     11,577,889   $ 1.00 (3)    
        Senior secured loan ($388,191 par due 5/2009)   10.36% (Libor + 5.00%/Q)   5/25/06     398,267     388,191   $ 1.00      
        Senior secured loan ($361,809 par due 5/2009)   10.36% (Libor + 5.00%Q)   5/25/06     371,200     361,809   $ 1.00 (3)    
        Senior secured loan ($64,698 par due 5/2009)   12.25% (Base Rate + 4.00%/D)   5/25/06     66,378     64,698   $ 1.00      
        Senior secured loan ($60,302 par due 5/2009)   12.25% (Base Rate + 4.00%/D)   5/25/06     61,867     60,302   $ 1.00 (3)    
        Common stock (1,250,000 shares)       5/25/06     2,375,000     2,375,000   $ 1.90 (5)    
        Warrants to purchase 1,381,578 shares       5/25/06     2,624,998     2,624,998   $ 1.90 (5)    
National Print Group, Inc.   Printing management services   Senior secured revolving loan ($2,336,173 par due 3/2012)   10.75% (Base Rate + 2.50%/D)   3/2/06     2,336,173     2,336,173   $ 1.00      
        Senior secured loan ($5,295,652 par due 3/2012)   8.86% (Libor + 3.50%/Q)   3/2/06     5,295,652     5,295,652   $ 1.00 (3)    
        Senior secured loan ($273,913 par due 3/2012)   10.75% (Base Rate + 2.50%/D)   3/2/06     273,913     273,913   $ 1.00 (3)    
        Senior secured loan ($5,295,652 par due 3/2012)   8.85% (Libor + 3.50%/B)   3/2/06     5,295,652     5,295,652   $ 1.00 (3)    
        Senior secured loan ($2,319,368 par due 8/2012)   12.37% (Libor + 7.00%/Q)   3/2/06     2,319,368     2,319,368   $ 1.00      
        Senior secured loan ($419,763 par due 8/2012)   12.37% (Libor + 7.00%/Q)   3/2/06     419,763     419,763   $ 1.00 (3)    
        Senior secured loan ($1,932,806 par due 8/2012)   12.38% (Libor + 7.00%/Q)   3/2/06     1,932,806     1,932,806   $ 1.00      
        Senior secured loan ($349,802 par due 8/2012)   12.38% (Libor + 7.00%/Q)   3/2/06     349,802     349,802   $ 1.00 (3)    
        Preferred stock (9,344 shares)       3/2/06     2,000,000     2,000,000   $ 214.04 (5)    
The Teaching Company, LLC   Education publications   Senior secured loan ($28,000,000 par due 9/2012)   10.50%   9/29/06     28,000,000     28,000,000   $ 1.00      
    and The Teaching Company   provider   Senior secured loan ($12,000,000 par due 9/2012)   10.50%   9/29/06     12,000,000     12,000,000   $ 1.00 (3)    
Holdings, Inc.(18)       Preferred stock (29,969 shares)       9/29/06     2,996,921     2,996,921   $ 100.00 (5)    
        Common stock (15,393 shares)       9/29/06     3,079     3,079   $ 1.00 (5)    
                   
 
           
                      117,518,809     116,873,127     14.80 %    
                   
 
           
Manufacturing                                
Arrow Group Industries, Inc.   Residential and outdoor shed manufacturer   Senior secured loan ($6,000,000 par due 4/2010)   10.36% (Libor + 5.00%/Q)   3/28/05     6,038,283     6,000,000   $ 1.00 (3)    
Emerald Performance Materials, LLC   Polymers and performance   Senior secured loan ($10,421,053 par due 5/2011)   9.60% (Libor + 4.25%/B)   5/22/06     10,421,053     10,421,053   $ 1.00 (3)    
    materials manufacturer   Senior secured loan ($3,736,842 par due 5/2011)   11.35% (Libor + 6.00%/M)   5/22/06     3,736,842     3,736,842   $ 1.00      
        Senior secured loan ($1,526,316 par due 5/2011)   11.35% (Libor + 6.00%/M)   5/22/06     1,526,316     1,526,316   $ 1.00 (3)    
        Senior secured loan ($4,210,526 par due 5/2011)   13.00%   5/22/06     4,210,526     4,210,526   $ 1.00      
Qualitor, Inc.   Automotive aftermarket   Senior secured loan ($1,960,000 par due 12/2011)   9.61% (Libor + 4.25%/Q)   12/29/04     1,960,000     1,960,000   $ 1.00 (3)    
    components supplier   Junior secured loan ($5,000,000 par due 6/2012)   12.61% (Libor + 7.25%/Q)   12/29/04     5,000,000     5,000,000   $ 1.00 (3)    
Professional Paint, Inc.   Paint manufacturer   Junior secured loan ($4,500,000 par due 5/2013)   11.13% (Libor + 5.75%/S)   5/25/06     4,500,000     4,500,000   $ 1.00      

S-42

        Junior secured loan ($12,000,000 par due 5/2013)   11.13% (Libor + 5.75%/S)   5/25/06     12,000,000     12,000,000   $ 1.00 (3)    
Reflexite   Developer and   Senior subordinated loan   11.00% cash,   12/30/04     10,616,954     10,616,954   $ 1.00 (2)(4)    
Corporation(10)(19)   manufacturer of high visibility   ($10,616,954 par due 12/2011)   3.00% PIK                            
    reflective products   Common Stock (1,729,627 shares)       3/28/06     25,682,891     25,682,891   $ 14.85 (5)    
Universal Trailer Corporation(6)(19)   Livestock and specialty trailer   Common stock (50,000 shares)       10/8/04     6,424,645     5,500,000   $ 110.00 (5)    
    manufacturer   Warrants to purchase 22,208 shares       10/8/04     1,505,776     2,442,880   $ 110.00 (5)    
Varel Holdings, Inc.   Drill bit manufacturer   Common stock (30,451 shares)       5/18/05     3,045     1,011,569   $ 33.22 (5)    
                   
 
           
                      93,626,331     94,609,031         11.98 %
                   
 
           
Services—Other                                
American Residential Services, LLC   Plumbing, heating and air-conditioning services   Senior subordinated note ($8,767,425 par due 9/2013)   12.00% Cash,
3.00% PIK		   11/9/06     8,767,425     8,767,425   $ 1.00 (4)    
Diversified Collection Services, Inc.   Collections services   Senior secured loan ($5,242,026 par due 2/2011)   9.60% (Libor + 4.25%/M)   2/2/05     5,242,026     5,242,026   $ 1.00 (3)    
        Senior secured loan ($1,742,026 par due 8/2011)   11.35% (Libor + 6.00%/M)   2/2/05     1,742,026     1,742,026   $ 1.00 (2)    
        Senior secured loan ($6,757,974 par due 8/2011)   11.35% (Libor + 6.00%/M)   2/2/05     6,757,974     6,757,974   $ 1.00 (3)    
        Preferred stock (14,927 shares)       5/18/06     169,123     169,123   $ 11.33 (5)    
        Common stock (114,004 shares)       2/2/05     295,270     295,270   $ 2.59 (5)    
GCA Services Group, Inc.   Custodial services   Senior secured loan ($50,000,000 par due 12/2011)   12.00%   12/15/06     50,000,000     50,000,000   $ 1.00 (4)    
NPA Acquisition, LLC   Powersport vehicle auction operator   Senior secured loan ($4,533,333 par due 8/2012)   8.57% (Libor + 3.25%/S)   8/28/06     4,533,333     4,533,333   $ 1.00      
        Senior secured loan ($400,000 par due 8/2012)   8.60% (Libor + 3.25%/Q)   8/28/06     400,000     400,000   $ 1.00      
        Senior secured loan ($66,667 par due 8/2012)   10.25% (Base Rate + 2.00%/D)   8/28/06     66,667     66,667   $ 1.00      
        Junior secured loan ($2,000,000 par due 2/2013)   12.11% (Libor + 6.75%/Q)   8/23/06     2,000,000     2,000,000   $ 1.00      
        Junior secured loan ($12,000,000 par due 2/2013)   12.11% (Libor + 6.75%/Q)   8/23/06     12,000,000     12,000,000   $ 1.00 (3)    
        Common units (1,709 units)       8/23/06     1,000,000     1,000,000   $ 585.14 (5)    
                   
 
           
                      92,973,844     92,973,844         11.78 %
                   
 
           
Containers—Packaging                                
Captive Plastics, Inc.   Plastics container manufacturer   Junior secured loan ($15,500,000 par due 2/2012)   12.63% (Libor + 7.25%/Q)   12/19/05     15,500,000     15,500,000   $ 1.00      
        Junior secured loan ($12,000,000 par due 2/2012)   12.63% (Libor + 7.25%/Q)   12/19/05     12,000,000     12,000,000   $ 1.00 (3)    
Industrial Container Services,   Industrial container   Senior secured loan ($11,939,547 par due 9/2011)   11.94% (Libor + 6.50%/S)   9/30/05     11,939,547     11,939,547   $ 1.00 (3)    
LLC(8)(19)   manufacturer, reconditioner   Senior secured loan ($16,504,747 par due 9/2011)   11.94% (Libor + 6.50%/S)   6/21/06     16,504,747     16,504,747   $ 1.00      
    and servicer   Senior secured loan ($9,950,000 par due 9/2011)   11.94% (Libor + 6.50.%/S)   9/30/05     9,950,000     9,950,000   $ 1.00      
        Senior secured revolving loan ($4,130,435 par due 9/2011)   9.88% (Libor + 4.50%/Q)   9/30/05     4,130,435     4,130,435   $ 1.00      
        Senior secured revolving loan ($1,239,130 par due 9/2011)   11.25% (Base Rate + 3.00%/D)   9/30/05     1,239,130     1,239,130   $ 1.00      

S-43

        Common stock (1,800,000 shares)       9/29/05     1,800,000     1,800,000   $ 1.00 (5)    
LabelCorp Holdings, Inc.   Consumer product labels manufacturer   Senior subordinated notes ($9,320,235 par due 9/2012)   12.00% cash,
3.00% PIK		   3/16/06     9,320,235     9,320,235   $ 1.00 (4)    
                   
 
           
                      82,384,094     82,384,094         10.44 %
                   
 
           
Restaurants                                
ADF Capital, Inc. & ADF Restaurant Group, LLC   Restaurant owner and operator   Senior secured revolving loan ($4,236,726 par due 11/2013)   10.25% (Base Rate + 2.00%/D)   11/27/06     4,236,726     4,236,726   $ 1.00      
        Senior secured loan ($4,937,500 par due 11/2013)   10.25% (Base Rate + 2.00%/D)   11/27/06     4,937,500     4,937,500   $ 1.00      
        Senior secured loan ($23,060,000 par due 11/2012)   14.75% (Base Rate + 6.50%/D)   11/27/06     23,060,000     23,060,000   $ 1.00      
        Senior secured loan ($11,940,000 par due 11/2012)   14.75% (Base Rate + 6.50%/D)   11/27/06     11,940,000     11,940,000   $ 1.00 (3)    
        Warrants to purchase 9,500,000 units       6/1/06     9,488,200     9,500,000   $ 1.00 (5)    
Encanto Restaurants, Inc.(15)   Restaurant owner and   Junior secured loan ($13,170,625 par due 8/2013)   7.50% Cash,
3.50% PIK		   8/16/06     13,170,625     13,170,625   $ 1.00 (4)    
    operator   Junior secured loan ($12,157,500 par due 8/2013)   7.50% Cash,
3.50% PIK		   8/16/06     12,157,500     12,157,500   $ 1.00 (3)(4)    
                   
 
           
                      78,990,551     79,002,351         10.01 %
                   
 
           
Retail                                
Savers, Inc and SAI Acquisition   For-profit thrift retailer   Senior subordinated note ($28,220,888 par due 8/2014)   10.00% cash,
2.00% PIK		   8/8/06     28,220,888     28,220,888   $ 1.00 (4)    
Corporation       Common stock (1,170,182 shares)       8/8/06     4,500,000     4,500,000   $ 3.85 (5)    
Things Remembered, Inc. and TRM   Personalized gifts retailer   Senior secured loan ($4,800,000 par due 9/2012)   10.10% (Libor + 4.75%/M)   9/28/06     4,800,000     4,800,000   $ 1.00 (3)    
Holdings Corporation       Senior secured loan ($28,000,000 par due 9/2012)   11.35% (Libor + 6.00%/M)   9/28/06     28,000,000     28,000,000   $ 1.00      
        Senior secured loan ($7,200,000 par due 9/2012)   11.35% (Libor + 6.00%/M)   9/28/06     7,200,000     7,200,000   $ 1.00 (3)    
        Preferred stock (80 shares)       9/28/06     1,800,000     1,800,000   $ 22,500.00 (5)    
        Common stock (800 shares)       9/28/06     200,000     200,000   $ 250.00 (5)    
                   
 
           
                      74,720,888     74,720,888         9.47 %
                   
 
           
Consumer Products—Non-Durable                                
AWTP, LLC   Water treatment services   Junior secured loan ($1,600,000 par due 12/2012)   12.86% (Libor + 7.50%/Q)   12/21/05     1,600,000     1,600,000   $ 1.00      
        Junior secured loan ($12,000,000 par due 12/2012)   12.86% (Libor + 7.50%/Q)   12/21/05     12,000,000     12,000,000   $ 1.00 (3)    
Making Memories Wholesale,   Scrapbooking branded   Senior secured loan ($7,758,333 par due 3/2011)   9.88% (Libor + 4.50%/Q)   5/5/05     7,758,333     7,758,333   $ 1.00 (3)    
Inc.(7)(19)   products manufacturer   Senior subordinated loan ($10,204,325 par due 5/2012)   12.50% cash,
2.00% PIK		   5/5/05     10,204,325     10,204,325   $ 1.00 (4)    
        Preferred stock (3,759 shares)   5/5/05         3,758,800     1,320,000   $ 351.16 (5)    
Shoes for Crews, LLC   Safety footwear and slip-related   Senior secured loan ($1,248,680 par due 7/2010)   8.61% (Libor + 3.25%/S)   10/8/04     1,256,027     1,256,027   $ 1.01 (3)    
    mats   Senior secured loan ($60,747 par due 7/2010)   8.61% (Libor + 3.25%/Q)   10/8/04     61,104     61,104   $ 1.01 (3)    
        Senior secured loan ($60,747 par due 7/2010)   10.25% (Base Rate + 2.00%/D)   10/8/04     61,104     61,104   $ 1.01 (3)    
        Senior secured revolving loan ($3,333,333 par due 7/2010)   10.25% (Base Rate + 2.00%/D)   6/16/06     3,333,333     3,333,333   $ 1.00      

S-44

Tumi Holdings, Inc.   Branded luggage   Senior secured loan ($2,500,000 par due 12/2012)   8.11% (Libor + 2.75%/Q)   5/24/05     2,500,000     2,500,000   $ 1.00 (3)    
    designer, marketer and   Senior secured loan ($5,000,000 par due 12/2013)   8.61% (Libor + 3.25%/Q)   3/14/05     5,000,000     5,000,000   $ 1.00 (3)    
    distributor   Senior subordinated loan ($13,682,839 par due 12/2014)   16.36% (Libor + 6.00% cash, 5.00% PIK/Q)   3/14/05     13,682,839     13,682,839   $ 1.00 (2)(4)    
UCG Paper Crafts, Inc.   Scrapbooking materials   Senior secured loan ($1,985,000 par due 2/2013)   8.60% (Libor + 3.25%/M)   2/23/06     1,985,000     1,985,000   $ 1.00 (3)    
    manufacturer   Junior secured loan ($2,952,625 par due 2/2013)   12.85% (Libor + 7.50%/M)   2/23/06     2,952,625     2,952,625   $ 1.00      
        Junior secured loan ($9,949,875 par due 2/2013)   12.85% (Libor + 7.50%/M)   2/23/06     9,949,875     9,949,875   $ 1.00 (3)    
                   
 
           
                      76,103,365     73,664,565         9.33 %
                   
 
           
Financial                                
Abingdon Investments Limited(13)
(15)(16)(19)		   Investment company   Ordinary shares (948,500 shares)       12/15/06     9,032,978     9,485,000   $ 10.00 (5)    
Firstlight Financial Corporation(14)
(16)(19)		   Investment company   Senior subordinated loan ($36,000,000 par due 12/2016)   10.00% PIK   12/31/06     36,000,000     36,000,000   $ 1.00 (4)    
        Common stock (6,000 shares)       12/31/06     6,000,000     6,000,000   $ 1,000.00 (5)    
        Common stock (18,000 shares)       12/31/06     18,000,000     18,000,000   $ 1,000.00 (5)    
Partnership Capital Growth Fund I, L.P.(16)   Investment partnership   Limited partnership interest (25% interest)       6/16/06     225,260     225,260       (5)    
                   
 
           
                      69,258,238     69,710,260         8.83 %
                   
 
           
Environmental Services                                
Mactec, Inc.   Engineering and environmental services   Common stock (5,572 shares)       11/3/04     —     —   $ — (5)    
Waste Pro USA, Inc.   Waste management services   Senior subordinated loan ($25,000,000 par due 11/2013)   11.50%   11/9/06     25,000,000     25,000,000   $ 1.00      
        Preferred stock (15,000 shares)   10.00% PIK   11/9/06     15,000,000     15,000,000   $ 1,000.00 (4)    
        Warrants to purchase 882,671 shares       11/9/06     —     —   $ — (5)    
Wastequip, Inc.   Waste management   Junior secured loan ($15,000,000 par due 7/2012)   10.85% (Libor + 5.50%/M)   8/4/05     15,000,000     15,000,000   $ 1.00      
    equipment manufacturer   Junior secured loan ($12,000,000 par due 7/2012)   10.85% (Libor + 5.50%/M)   8/4/05     12,000,000     12,000,000   $ 1.00 (3)    
                   
 
           
                      67,000,000     67,000,000         8.49 %
                   
 
           
Education                                
Equinox SMU Partners LLC and SMU Acquisition   Medical school operator   Senior secured revolving loan ($1,932,342 par due 12/2010)   13.25% (Base Rate + 5.00%/Q)   1/26/06     1,932,342     1,932,342   $ 1.00      
Corp.(9)(15)(19)       Senior secured revolving loan ($3,000,000 par due 12/2010)   11.36% (Libor + 6.00%/B)   1/26/06     3,000,000     3,000,000   $ 1.00      
        Senior secured loan ($4,858,118 par due 12/2010)   11.37% (Libor + 6.00%/Q)   1/26/06     4,858,118     4,858,118   $ 1.00      
        Senior secured loan ($4,966,882 par due 12/2010)   11.37% (Libor + 6.00%/Q)   1/26/06     4,966,882     4,966,882   $ 1.00 (3)    
        Senior secured loan ($1,500,000 par due 12/2010)   11.37% (Libor + 6.00%/Q)   1/26/06     1,500,000     1,500,000   $ 1.00      
        Senior secured loan ($1,500,000 par due 12/2010)   11.37% (Libor + 6.00%/Q)   1/26/06     1,500,000     1,500,000   $ 1.00 (3)    
        Limited liability company membership interest (17.39% interest)       1/25/06     4,000,000     4,000,000       (5)    
                                         

S-45

ELC Acquisition Corporation   Developer, manufacturer and retailer of educational products   Junior secured loan ($8,333,333 par due 11/2013)   12.37% (Libor + 7.00%/Q)   11/30/06     8,333,333     8,333,333   $ 1.00 (3)    
Lakeland Finance, LLC   Private school operator   Senior secured note ($33,000,000 par due 12/2012)   11.50%   12/13/05     33,000,000     33,000,000   $ 1.00      
                   
 
           
                      63,090,675     63,090,675         7.99 %
                   
 
           
Business Services                                
Investor Group Services, LLC   Financial services   Senior secured loan ($1,500,000 par due 6/2011)   12.00%   6/22/06     1,500,000     1,500,000   $ 1.00 (3)    
        Senior secured revolving loan ($500,000 par due 6/2011)   11.04% (Libor + 5.50%/S)   6/22/06     500,000     500,000   $ 1.00      
        Limited liability company membership interest (10.00% interest)       6/22/06     —     —       (5)    
Miller Heiman, Inc.   Sales consulting services   Senior secured loan ($3,093,785 par due 6/2010)   8.60% (Libor + 3.25%/M)   6/20/05     3,093,785     3,093,785   $ 1.00 (3)    
        Senior secured loan ($4,017,591 par due 6/2012)   9.12% (Libor + 3.75%/Q)   6/20/05     4,017,591     4,017,591   $ 1.00 (3)    
MR Processing Holding Corp.   Bankruptcy and foreclosure   Senior subordinated note ($20,303,747 par due 2/2013)   12.00% Cash, 2.00% PIK   3/23/06     20,303,747     20,303,747   $ 1.00 (4)    
    processing services   Senior secured loan ($1,990,000 par due 2/2012)   9.02% (Libor + 3.50%/S)   3/28/06     1,990,000     1,990,000   $ 1.00      
        Preferred stock (30,000 shares)       4/11/06     3,000,000     3,000,000   $ 100.00 (5)    
Primis Marketing Group, Inc. and   Database marketing   Senior subordinated note ($10,085,790 par due 2/2013)   11.00% Cash, 2.50% PIK   8/24/06     10,085,790     10,085,790   $ 1.00 (4)    
Primis Holdings,   services   Preferred units (4,000 units)       8/24/06     3,600,000     3,600,000   $ 9.00 (5)    
LLC(12)(19)       Common units (4,000,000 units)       8/24/06     400,000     400,000   $ 0.10 (5)    
Summit Business Media, LLC   Business media consulting services   Junior secured loan ($10,000,000 par due 11/2013)   12.35% (Libor + 7.00%/M)   12/18/06     10,000,000     10,000,000   $ 1.00      
                   
 
           
                      58,490,913     58,490,913         7.41 %
                   
 
           
Beverage, Food and Tobacco                                
Best Brands Corporation   Baked goods manufacturer   Junior secured loan ($40,000,000 par due 6/2013)   11.85% (Libor + 6.50%/M)   12/14/06     40,000,000     40,000,000   $ 1.00      
Charter Baking Company, Inc.   Baked goods manufacturer   Preferred stock (6,258 shares)       9/1/06     2,500,000     2,500,000   $ 399.49 (5)    
Farley's & Sathers Candy Company, Inc.   Branded candy manufacturer   Junior secured loan ($10,000,000 par due 3/2011)   11.36% (Libor + 6.00%/S)   3/23/06     10,000,000     10,000,000   $ 1.00 (3)    
                   
 
           
                      52,500,000     52,500,000         6.65 %
                   
 
           
Aerospace & Defense                                
ILC Industries, Inc.   Industrial products   Junior secured loan ($12,000,000 par due 8/2012)   11.50%   6/27/06     12,000,000     12,000,000   $ 1.00 (3)    
    provider   Junior secured loan ($3,000,000 par due 8/2012)   11.50%   6/27/06     3,000,000     3,000,000   $ 1.00      
Thermal Solutions LLC and TSI   Thermal management   Senior secured loan ($3,225,625 par due 3/2012)   9.37% (Libor + 4.00%/Q)   3/28/05     3,225,625     3,225,625   $ 1.00 (3)    
Group, Inc.   and electronics packaging   Senior secured loan ($8,125 par due 3/2012)   11.25% (Base Rate + 3.00%/D)   3/28/05     8,125     8,125   $ 1.00 (3)    
    manufacturer   Senior secured loan ($1,611,842 par due 3/2011)   9.02% (Libor + 3.50%/Q)   3/28/05     1,611,842     1,611,849   $ 1.00 (3)    
        Senior secured loan ($46,053 par due 3/2011)   10.75% (Base Rate + 2.50%/D)   3/28/05     46,053     46,053   $ 1.00 (3)    
        Senior subordinated notes ($3,126,808 par due 9/2012)   11.50% cash, 2.75% PIK   3/28/05     3,137,948     3,126,808   $ 1.00 (2)(4)    
        Senior subordinated notes ($2,548,751 par due 3/2013)   11.50% cash, 2.50% PIK   3/21/06     2,548,752     2,548,752   $ 1.00 (2)(4)    
                                         

S-46

        Preferred stock (53,900 shares)       3/28/05     539,000     539,000   $ 10.00 (5)    
        Common stock (1,100,000 shares)       3/28/05     11,000     11,000   $ 0.01 (5)    
                   
 
           
                      26,128,345     26,117,212         3.31 %
                   
 
           
Broadcasting and Cable                                
Patriot Media & Communications CNJ, LLC   Cable services   Junior secured loan ($5,000,000 par due 10/2013)   10.50% (Libor + 5.00%/S)   10/6/05     5,000,000     5,000,000   $ 1.00 (3)    
Pappas Telecasting Incorporated   Television broadcasting   Senior secured loan ($11,695,696 par due 2/2010)   14.73% (Libor + 4.48% cash, 5.00% PIK/Q)   3/1/06     11,695,696     11,695,696   $ 1.00 (4)(3)    
        Senior secured loan ($8,129,405 par due 2/2010)   14.73% (Libor + 4.48% cash, 5.00% PIK/Q)   3/1/06     8,129,405     8,129,405   $ 1.00 (4)    
        Senior secured loan ($369,212 par due 2/2010)   14.25% (Libor + 4.00% cash, 5.00% PIK/Q)   3/1/06     369,212     369,212   $ 1.00 (4)    
        Senior secured loan ($531,180 par due 2/2010)   14.25% (Libor + 4.00% cash, 5.00% PIK/Q)   3/1/06     531,180     531,180   $ 1.00 (4)(3)    
                   
 
           
                      25,725,493     25,725,493         3.26 %
                   
 
           
Consumer Products—Durable                                
Berkline/Benchcraft Holdings LLC   Furniture manufacturer   Junior secured loan ($5,000,000 par due 5/2012)   5.25% (Base Rate + 5.00%, 2.00%PIK/D)   11/3/04     5,000,000     504,206   $ 0.10 (2)    
    and distributor   Preferred units (2,536 units)       10/8/04     1,046,343     —   $ — (5)    
        Warrants to purchase 483,020 units       10/8/04     2,752,559     —   $ — (5)    
Innovative Brands, LLC   Consumer products and   Senior Secured Loan ($13,000,000 par due 9/2011)   11.13%   10/12/06     13,000,000     13,000,000   $ 1.00      
    personal care manufacturer   Senior Secured Loan ($12,000,000 par due 9/2011)   11.13%   10/12/06     12,000,000     12,000,000   $ 1.00 (3)    
                   
 
           
                      33,798,902     25,504,206         3.23 %
                   
 
           
Computers and Electronics                                
RedPrairie Corporation   Software manufacturer   Junior secured loan ($12,00,000 par due 1/2013)   11.87% (Libor + 6.50%/Q)   7/13/06     12,000,000     12,000,000   $ 1.00 (3)    
X-rite, Incorporated   Artwork software manufacturer   Junior secured loan ($10,000,000 par due 7/2013)   10.37% (Libor + 5.00%/Q)   7/6/06     10,000,000     10,000,000   $ 1.00      
                   
 
           
                      22,000,000     22,000,000         2.79 %
                   
 
           
Cargo Transport                                
The Kenan Advantage Group, Inc.   Fuel transportation   Senior subordinated notes ($9,198,136 par due 12/2013)   9.5% cash, 3.50% PIK   12/15/05     9,198,136     9,198,136   $ 1.00 (4)    
    provider   Senior secured loan ($2,475,008 par due 12/2011)   8.36% (Libor + 3.00%/Q)   12/15/05     2,475,008     2,475,008   $ 1.00 (3)    
        Preferred stock (10,984 shares)       12/15/05     1,098,400     1,098,400   $ 100.00 (5)    
        Common stock (30,575 shares)       12/15/05     30,575     30,575   $ 1.00 (5)    
                   
 
           
                      12,802,119     12,802,119         1.62 %
                   
 
           
Farming and Agriculture                                
The GSI Group, Inc.   Agricultural equipment   Senior notes ($10,000,000 par due 5/2013)   12.00%   5/11/05     10,000,000     10,000,000   $ 1.00      
    manufacturer   Common stock (7,500 shares)       5/12/05     750,000     750,000   $ 100.00 (5)    
                   
 
           
                      10,750,000     10,750,000     1.36 %    
                   
 
           

S-47

Housing—Building Materials                                
HB&G Building Products   Synthetic and wood product   Senior subordinated loan ($8,655,829 par due 3/2011)   13.00% cash,
2.00% PIK		   10/8/04     8,655,829     8,663,415   $ 1.01 (2)(4)    
    manufacturer   Common stock (2,743 shares)       10/8/04     752,888     752,888   $ 274.48 (5)    
        Warrants to purchase (4,464 shares)       10/8/04     652,503     652,503   $ 146.17 (5)    
                   
 
           
                      10,061,220     10,068,806         1.28 %
                   
 
           
Total                   $ 1,245,758,040   $ 1,235,821,836            
                   
 
           
(1)
We do not "Control" any of our portfolio companies, as defined in the Investment Company Act of 1940 (the "1940 Act"). In general, under the 1940 Act, we would "Control" a portfolio company if we owned 25% or more of its voting securities. All of our portfolio company investments are subject to legal restriction on sales which as of December 31, 2006 represented 157% of the Company's net assets.

(2)
Pledged as collateral for the CP Funding Facility and unless otherwise noted, all other investments are pledged as collateral for the Revolving Credit Facility (see Note 7 to the consolidated financial statements).

(3)
Pledged as collateral for the ARCC CLO and unless otherwise noted, all other investments are pledged as collateral for the Revolving Credit Facility (see Note 7 to the consolidated financial statements).

(4)
Has a payment-in-kind interest feature (see Note 2 to the consolidated financial statements).

(5)
Non-income producing at December 31, 2006.

(6)
For the year ended December 31, 2006, for this portfolio company there were total purchases of $5,000,000, redemptions of $7,528,880 (cost), sales of $6,054,725 (cost), interest income of $176,732, other income of $3,125, net realized gains of $47,283 and net unrealized gains of $3,440,585.

(7)
For the year ended December 31, 2006, for this portfolio company there were total redemptions of $1,385,417 (cost), interest income of $2,356,449 other income of $83,567 and net unrealized losses of $2,438,800.

(8)
For the year ended December 31, 2006, for this portfolio company there were total purchases of $23,754,739 redemptions of $13,065,631 (cost), interest income of $4,523,901, capital structuring service fees of $350,000 and other income of $124,297.

(9)
For the year ended December 31, 2006, for this portfolio company there were total purchases of $41,782,342, redemptions of $20,025,000 (cost), interest income of $2,061,440, capital structuring service fees of $583,810 and other income of $19,219.

(10)
For the year ended December 31, 2006, there were total purchases of $25,682,89, interest income of $1,4,58,918 and dividend income of $242,148.

(11)
For the year ended December 31, 2006, there were total purchases of $30,000,000, redemptions of $125,000 (cost), interest income of $1,647,946 and capital structuring service fees of $250,000.

(12)
For the year ended December 31, 2006, there were total purchases of $14,000,000, interest income of $463,266 and capital structuring service fees of $200,000.

(13)
For the year ended December 31, 2006, there were total purchases of $9,032,978.

(14)
For the year ended December 31, 2006, there were total purchases of $60,000,000.

(15)
Non-U.S. company or principal place of business outside the U.S.

(16)
Non-registered investment company.

(17)
A majority of the variable rate loans to our portfolio companies bear interest at a rate that may be determined by reference to either Libor or an alternate Base Rate (commonly based on the Federal Funds Rate or the Prime Rate), at the borrower's option, which reset semi-annually (S), quarterly (Q), bi-monthly (B) monthly (M) or daily (D). For each such loan, we have provided the current interest rate in effect at December 31, 2006.

(18)
In addition to the interest earned based on the stated interest rate of this security, we are entitled to receive an additional interest amount of 2.50% on $24,166,667 aggregate principal amount of the portfolio company's senior term debt previously syndicated by us.

(19)
Under the 1940 Act, we are required to deem this non-controlled and non-related portfolio company an "affiliated" company, because we own more than 5% of the portfolio company's outstanding voting securities.

S-48


ARES CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
For the Six Months Ended June 30, 2007 (unaudited)

 
    
    
    
    
   Accumulated
Net Realized
Gains (Losses)
on Sale of
Investments
    
    
  
 
   Common Stock
    
   Accumulated
Undistributed
Net Investment
income
   Net Unrealized
Appreciation
(Depreciation)
on Investments
    
  
 
   Capital in
Excess of Par
Value
   Total
Stockholders'
Equity
  
 
   Shares
   Amount
  
Balance at December 31, 2006   52,036,527   $ 52,037   $ 785,192,573   $ 7,038,469   $ 7,086,529   $ (9,936,204 ) $ 789,433,404  
  Shares issued in connection with dividend reinvestment plan   404,483     404     7,283,632                       7,284,036  
  Issuance of common stock from add-on offerings (net of offering and underwriting costs)   17,316,578     17,316     301,808,111                       301,825,427  
  Net increase in stockholders' equity resulting from operations                     43,935,799     (7,523,787 )   20,744,149     57,156,161  
  Dividend declared ($0.82 per share)                     (50,558,873 )               (50,558,873 )
   
 
 
 
 
 
 
 
Balance at June 30, 2007   69,757,588   $ 69,757   $ 1,094,284,316   $ 415,395   $ (437,258 ) $ 10,807,945   $ 1,105,140,155  
   
 
 
 
 
 
 
 

See accompanying notes to consolidated financial statements.

S-49


ARES CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
For the Six Months Ended June 30, 2006 (unaudited)

 
    
    
    
   Accumulated
Undistributed
Net
Investment
income
   Accumulated
Net Realized
Gains (Losses)
on Sale of
Investments
    
    
  
 
   Common Stock
    
   Net Unrealized
Appreciation
(Depreciation)
on Investments
    
  
 
   Capital in
Excess of Par
Value
   Total
Stockholders'
Equity
  
 
   Shares
   Amount
  
Balance at December 31, 2005   37,909,484   $ 37,910   $ 559,192,554   $ —   $ 5,765,225   $ 4,616,510   $ 569,612,199  
  Shares issued in connection with dividend reinvestment plan   297,770     298     4,999,876     —     —     —     5,000,174  
  Net increase in stockholders' equity resulting from operations   —     —     —     20,984,431     24,490,874     (14,939,591 )   30,535,714  
  Dividend declared ($0.74 per share)   —     —     —     (20,984,431 )   (7,179,522 )   —     (28,163,953 )
   
 
 
 
 
 
 
 
Balance at June 30, 2006   38,207,254   $ 38,208   $ 564,192,430   $ —   $ 23,076,577   $ (10,323,081 ) $ 576,984,134  
   
 
 
 
 
 
 
 

See accompanying notes to consolidated financial statements.

S-50


ARES CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS

 
   For the Six
Months Ended
June 30, 2007
   For the Six
Months Ended
June 30, 2006
  
 
   (unaudited)

   (unaudited)

  
OPERATING ACTIVITIES:              
  Net increase in stockholders' equity resulting from operations   $ 57,156,161   $ 30,535,714  
  Adjustments to reconcile net increase in stockholders' equity resulting from operations:              
    Net realized losses (gains) from investment transactions     7,523,787     (24,490,874 )
    Net unrealized losses (gains) from investment transactions     (20,744,149 )   14,939,591  
    Net accretion of discount on securities     (577,689 )   (20,292 )
    Increase in accrued payment-in-kind dividends and interest     (5,733,582 )   (2,555,781 )
    Amortization of debt issuance costs     1,012,284     819,147  
    Depreciation     203,478     49,302  
    Proceeds from sale and redemption of investments     341,033,540     165,065,734  
    Purchases of investments     (731,690,948 )   (456,011,118 )
    Changes in operating assets and liabilities:              
      Interest receivable     (7,845,256 )   (2,025,940 )
      Other assets     569,052     (1,823,595 )
      Accounts payable and accrued expenses     190,528     5,869,978  
      Management and incentive fees payable     (442,336 )   6,569,562  
      Interest and facility fees payable     1,044,457     2,792,017  
      Interest payable to the Investment Adviser     —     (154,078 )
   
 
 
        Net cash used in operating activities     (358,300,673 )   (260,440,633 )
   
 
 
FINANCING ACTIVITIES:              
  Net proceeds from issuance of common stock     301,825,427     —  
  Borrowings on debt     370,000,000     374,200,000  
  Repayments on debt     (300,000,000 )   (47,000,000 )
  Credit facility financing costs     (245,000 )   —  
  Underwriting costs payable to the Investment Adviser     —     (2,475,000 )
  Dividends paid in cash     (43,274,837 )   (36,053,004 )
   
 
 
        Net cash provided by financing activities     328,305,590     288,671,996  
   
 
 
CHANGE IN CASH AND CASH EQUIVALENTS     (29,995,083 )   28,231,363  
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD     91,538,878     16,613,334  
   
 
 
CASH AND CASH EQUIVALENTS, END OF PERIOD   $ 61,543,795   $ 44,844,697  
   
 
 

Supplemental Information:
 
 
 
 
 
 
 
  Interest paid during the period   $ 13,764,455   $ 2,571,846  
  Taxes paid during the period   $ 605,923   $ 1,010,000  
  Dividends declared during the period   $ 50,558,873   $ 28,163,953  

See accompanying notes to consolidated financial statements.

S-51


ARES CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of June 30, 2007 (unaudited)


1.    ORGANIZATION

              Ares Capital Corporation (the "Company" or "ARCC" or "we") is a specialty finance company that is a closed-end, non-diversified management investment company incorporated in Maryland that is regulated as a business development company under the Investment Company Act of 1940 (the "1940 Act"). We were incorporated on April 16, 2004 and initially funded on June 23, 2004. On October 8, 2004, we completed our initial public offering (the "IPO"). On the same date, we commenced substantial investment operations.

              The Company has qualified and has elected to be treated for tax purposes as a regulated investment company, or a "RIC", under the Internal Revenue Code of 1986, as amended (the "Code"). The Company expects to continue to qualify to be treated for tax purposes as a RIC. Our investment objective is to generate both current income and capital appreciation through debt and equity investments. We invest primarily in first and second lien senior loans and mezzanine debt, which in some cases includes an equity component, and, to a lesser extent, in equity investments in private U.S. middle market companies.

              We are externally managed by Ares Capital Management LLC (the "Investment Adviser"), an affiliate of Ares Management LLC ("Ares Management"), an independent Los Angeles based firm that manages investment funds. Ares Operations LLC ("Ares Administration"), an affiliate of Ares Management, provides the administrative services necessary for us to operate pursuant to an amended and restated administration agreement (the "Administration Agreement").

              Interim financial statements are prepared in accordance with generally accepted accounting principles in the United States ("GAAP") for interim financial information and pursuant to the requirements for reporting on Form 10-Q and Article 10 of Regulation S-X. Accordingly, certain disclosures accompanying financial statements prepared in accordance with GAAP are omitted. 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 current period's results of operations will not necessarily be indicative of results that ultimately may be achieved for the fiscal year ending December 31, 2007.


2.    SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

              The accompanying consolidated financial statements have been prepared on the accrual basis of accounting in conformity with GAAP, and include the accounts of the Company and its wholly owned subsidiaries. The consolidated financial statements reflect all adjustments and reclassifications which, in the opinion of management, are necessary for the fair presentation of the results of the operations and financial condition for the periods presented. All significant intercompany balances and transactions have been eliminated.

Cash and Cash Equivalents

              Cash and cash equivalents include short-term, liquid investments in a money market fund. Cash and cash equivalents are carried at cost which approximates fair value.

S-52


Concentration of Credit Risk

              The Company places its cash and cash equivalents with financial institutions and, at times, cash held in money market accounts may exceed the Federal Deposit Insurance Corporation insured limit.

Investments

              Investment transactions are recorded on the trade date. Realized gains or losses are computed using the specific identification method. 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 price is not readily available are valued at fair value as determined in good faith by our board of directors based on the input of our management and audit committee. In addition, the board of directors currently receives input from independent valuation firms that have been engaged at the direction of the board to assist in the valuation of each portfolio investment at least once during a trailing 12 month period. The valuation process is conducted at the end of each fiscal quarter, with approximately a quarter of our valuations of portfolio companies without market quotations subject to review by an independent valuation firm each quarter. The types of factors that the board may take into account in fair value valuation of 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.

              When an external event such as a purchase transaction, public offering or subsequent equity sale occurs, we use the pricing indicated by the external event to corroborate our valuation. Because there is not a readily available market value for most of the investments in our portfolio, we value substantially all of our portfolio investments at fair value as determined in good faith by our board under a 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 ready market existed for such investments and may differ materially from the values that we may ultimately realize.

              With respect to investments for which market quotations are not readily available, our board of directors undertakes a multi-step valuation process each quarter, as described below:

Interest Income Recognition

              Interest income, adjusted for amortization of premium and accretion of discount, is recorded on an accrual basis. Discounts and premiums on securities purchased are accreted/amortized over the life of the respective security using the effective yield method. The amortized cost of investments represents the original cost adjusted for the accretion of discounts and amortizations of premiums.

S-53


              Loans are generally placed on non-accrual status when principal or interest payments are past due 30 days or more or when there is reasonable doubt that principal or interest will be collected. Accrued interest is generally reversed when a loan is placed on non-accrual status. Interest payments received on non-accrual loans may be recognized as income or applied to principal depending upon management's judgment. Non-accrual loans are restored to accrual status when past due principal and interest is paid and, in management's judgment, are likely to remain current. The Company may make exceptions to this if the loan has sufficient collateral value and is in the process of collection. As of June 30, 2007, we had no loans placed on non-accrual status. As of December 31, 2006, $5,000,000 par amount of loans were placed on non-accrual status.

Payment in Kind Interest

              The Company has loans in its portfolio that contain a payment-in-kind ("PIK") provision. The PIK interest, computed at the contractual rate specified in each loan agreement, is added to the principal balance of the loan and recorded as interest income. To maintain the Company's status as a RIC, this non-cash source of income must be paid out to stockholders in the form of dividends even though the Company has not yet collected the cash. For the three and six months ended June 30, 2007, $3,646,222 and $5,733,582 in PIK income was recorded. For the three and six months ended June 30, 2006, $1,610,327 and $2,555,781 in PIK income was recorded.

Capital Structuring Service Fees

              The Company's Investment Adviser seeks to provide assistance to our portfolio companies in connection with the Company's investments and in return the Company may receive fees for capital structuring services. These fees are normally paid at the closing of the investments, are generally non-recurring and are recognized as revenue when earned upon closing of the investment. The services that the Company's Investment Adviser provides vary by investment, but generally consist of reviewing existing credit facilities, arranging bank financing, arranging equity financing, structuring financing from multiple lenders, structuring financing from multiple equity investors, restructuring existing loans, raising equity and debt capital, and providing general financial advice, which concludes upon closing of the investment. Any services of the above nature subsequent to the closing would generally generate a separate fee payable to the Company. In certain instances where the Company is invited to participate as a co-lender in a transaction and does not provide significant services in connection with the investment, a portion of loan fees paid to the Company in such situations will be deferred and amortized over the estimated life of the loan. The Company's Investment Adviser may also take a seat on the board of directors of a portfolio company, or observe the meetings of the board of directors without taking a formal seat.

Foreign Currency Translation

              The Company's books and records are maintained in U.S. dollars. Any foreign currency amounts are translated into U.S. dollars on the following basis:


              Although net assets and fair values are presented based on the applicable foreign exchange rates described above, the Company does not isolate the portion of its results of operations based on changes in foreign exchange rates from the portion of its results of operations based on changes in the fair value of its investments. Such exchange rate fluctuations are included with the net realized and unrealized gains or losses from investments. Foreign security and currency translations may involve

S-54

certain considerations and risks not typically associated with investing in U.S. companies and U.S. government securities. These risks include, but are not limited to, currency fluctuations and revaluations and future adverse political, social and economic developments, which could cause investments in their markets to be less liquid and prices more volatile than those of comparable U.S. companies or U.S. government securities.

Offering Expenses

              The Company's offering costs were charged against the proceeds from the February Add-on Offering (as defined in Note 10) and the April Add-on Offering (as defined in Note 10) when received. For the six months ended June 30, 2007, the Company incurred approximately $673,000 of such costs.

Debt Issuance Costs

              Debt issuance costs are being amortized over the life of the debt obligation using the straight line method, which closely approximates the effective yield method.

Federal Income Taxes

              The Company has qualified and elected, and intends to continue to qualify, for the tax treatment applicable to regulated investment companies under Subchapter M of the Code and, among other things, has made and intends to continue to make the requisite distributions to its stockholders which will relieve the Company from federal income taxes. In order to qualify as a RIC, among other factors, the Company is required to timely distribute to its stockholders at least 90% of investment company taxable income, as defined by the Code, for each year.

              Depending on the level of taxable income earned in a tax year, we may choose to carry forward taxable income in excess of current year dividend distributions into the next tax year and pay a 4% excise tax on such income, as required. To the extent that the Company determines that its estimated current year annual taxable income will be in excess of estimated current year dividend distributions, the Company accrues excise tax, if any, on estimated excess taxable income as taxable income is earned. For the three months ended June 30, 2007, the Company recorded a provision of approximately $34,000. For the six months ended June 30, 2007 the Company recognized a net benefit of approximately $30,000 for federal excise tax, which consisted of the current year estimated excise tax expense net of a tax benefit recognized to reverse an over-accrual of estimated excise tax at December 31, 2006. For the three and six months ended June 30, 2006, the Company recorded a provision of approximately $727,000 and $826,000, respectively for Federal excise tax.

              Certain of our wholly owned subsidiaries are subject to federal and state income taxes. For the three and six months ended June 30, 2007, we recognized tax benefits of approximately $77,000 and $3,000, respectively, for these subsidiaries. For the three and six months ended June 30, 2006, we recorded a tax provision of approximately $4,244,000 and $4,354,000, respectively, for these subsidiaries.

Dividends

              Dividends and distributions to common stockholders are recorded on the 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 generally distributed at least annually, although we may decide to retain such capital gains for re-investment.

              We have adopted a dividend reinvestment plan that provides for reinvestment of our distributions on behalf of our stockholders, unless a stockholder elects to receive cash. As a result, if our board of directors authorizes, and we declare, a cash dividend, then our stockholders who have not

S-55


"opted out" of our dividend reinvestment plan will have their cash dividends automatically reinvested in additional shares of our common stock, rather than receiving the cash dividends.

Use of Estimates in the Preparation of Financial Statements

              The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of actual and contingent assets and liabilities at the date of the financial statements and the reported amounts of income or loss and expenses during the reporting period. Actual results could differ from those estimated or assumed. Significant estimates include the valuation of investments.

Fair Value of Financial Instruments

              The carrying value of the Company's financial instruments approximate fair value. The carrying value of interest and open trade receivables, accounts payable and accrued expenses, as well as the credit facilities payable approximate fair value due to their short maturity. The fair value of the CLO Notes (as defined in Note 7) approximates the carrying value as the variable interest rates are considered to be at market.


3.    AGREEMENTS

              The Company has entered into an amended and restated investment advisory and management agreement (the "Advisory Agreement") with the Investment Adviser under which the Investment Adviser, subject to the overall supervision of our board of directors, provides investment advisory services to the Company. For providing these services, the Investment Adviser receives a fee from us, consisting of two components—a base management fee and an incentive fee. The base management fee is calculated at an annual rate of 1.5% of our total assets (other than cash or cash equivalents but including assets purchased with borrowed funds). The base management fee is payable quarterly in arrears. The base management fee is calculated based on the average value of our total assets (other than cash or cash equivalents but including assets purchased with borrowed funds) at the end of the two most recently completed calendar quarters.

              The incentive fee has two parts. One part is calculated and payable quarterly in arrears based on our pre-incentive fee net investment income for the quarter. Pre-incentive fee net investment income means interest income, dividend income and any other income (including any other fees such as commitment, origination, structuring, diligence and consulting fees or other fees that we receive from portfolio companies but excluding fees for providing managerial assistance) accrued during the calendar quarter, minus 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 outstanding preferred stock, but excluding the incentive fee). Pre-incentive fee net investment income includes, in the case of investments with a deferred interest feature such as market discount, debt instruments with payment-in-kind interest, preferred stock with payment-in-kind dividends and zero coupon securities, accrued income that we have not yet received in cash. The Investment Adviser is not under any obligation to reimburse us for any part of the incentive fee it received that was based on accrued income that we never received as a result of a default by an entity on the obligation that resulted in the accrual of such income.

              Pre-incentive fee net investment income does not include any realized capital gains, realized capital losses or unrealized capital appreciation or depreciation. Pre-incentive fee net investment income, expressed as a rate of return on the value of our net assets (defined as total assets less indebtedness) at the end of the immediately preceding calendar quarter, is compared to a fixed "hurdle rate" of 2.00% per quarter.

S-56

              We pay the Investment Adviser an incentive fee with respect to our pre-incentive fee net investment income in each calendar quarter as follows:

              These calculations are adjusted for any share issuances or repurchases during the quarter.

              The second part of the incentive fee (the "Capital Gains Fee") is determined and payable in arrears as of the end of each calendar year (or upon termination of the Advisory Agreement, as of the termination date), commencing with the calendar year ending on December 31, 2004, and is calculated at the end of each applicable year by subtracting (a) the sum of the Company's cumulative aggregate realized capital losses and aggregate unrealized capital depreciation from (b) the Company's cumulative aggregate realized capital gains, in each case calculated from October 8, 2004. If such amount is positive at the end of such year, then the Capital Gains Fee for such year is equal to 20.0% of such amount, less the aggregate amount of Capital Gains Fees paid in all prior years. If such amount is negative, then there is no Capital Gains Fee for such year.

              The cumulative aggregate realized capital gains are calculated as the sum of the differences, if positive, between (a) the net sales price of each investment in the Company's portfolio when sold and (b) the accreted or amortized cost basis of such investment.

              The cumulative aggregate realized capital losses are calculated as the sum of the amounts by which (a) the net sales price of each investment in the Company's portfolio when sold is less than (b) the accreted or amortized cost basis of such investment.

              The aggregate unrealized capital depreciation is calculated as the sum of the differences, if negative, between (a) the valuation of each investment in the Company's portfolio as of the applicable Capital Gains Fee calculation date and (b) the accreted or amortized cost basis of such investment.

              We defer cash payment of any incentive fee otherwise earned by the Investment Adviser if during the most recent four full calendar quarter period ending on or prior to the date such payment is to be made the sum of (a) the aggregate distributions to our stockholders and (b) the change in net assets (before taking into account any incentive fees payable during that period) is less than 8.0% of our net assets at the beginning of such period. These calculations were appropriately pro rated during the first three calendar quarters following October 8, 2004 and are adjusted for any share issuances or repurchases.

              For the three and six months ended June 30, 2007, we incurred $5,814,174, and $10,903,671, respectively, in base management fees and $6,228,506 and $10,983,170, respectively, in incentive management fees related to pre-incentive fee net investment income. For the three and six months ended June 30, 2007, we accrued no incentive management fees related to net realized capital gains. As of June 30, 2007, $12,042,680 was unpaid and included in management and incentive fees payable in the accompanying consolidated balance sheet.

S-57


              For the three and six months ended June 30, 2006, we incurred $3,107,197 and $5,650,856, respectively, in base management fees and $4,083,937 and $7,006,821, respectively, in incentive management fees related to pre-incentive fee net investment income. For the three and six months ended June 30, 2006, we accrued $2,856,462 in incentive management fees related to net realized capital gains.

              We also entered into the Administration Agreement with Ares Administration under which Ares Administration furnishes us with office, equipment and clerical, bookkeeping and record keeping services at our office facilities. Payments under the Administration Agreement are equal to an amount based upon our allocable portion of Ares Administration's overhead and other expenses incurred in performing its obligations under the Administration Agreement, including our allocable portion of the cost of certain of our officers and their res