Apollo Senior Floating Rate Fund Inc.
Apollo Tactical Income Fund Inc.
Statements of Assets and Liabilities
June 30, 2020 (unaudited)
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Apollo
Senior
Floating Rate
Fund Inc.
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Apollo
Tactical
Income
Fund Inc.
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Assets:
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|
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|
|
Investment securities at fair value (cost $379,269,319 and $345,344,104, respectively)
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|
$
|
348,057,622
|
|
|
$
|
316,450,944
|
|
Cash and cash equivalents
|
|
|
15,634,376
|
|
|
|
8,891,651
|
|
Interest receivable
|
|
|
1,110,512
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|
|
|
2,007,461
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|
Receivable for investment securities sold
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|
41,540,991
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|
|
|
30,437,026
|
|
Net unrealized appreciation on unfunded loan commitments (Note 9)
|
|
|
65,659
|
|
|
|
50,689
|
|
Prepaid expenses
|
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|
298,360
|
|
|
|
298,489
|
|
|
|
|
|
|
|
|
|
|
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|
|
Total assets
|
|
$
|
406,707,520
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|
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$
|
358,136,260
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|
|
|
|
|
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Liabilities:
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Borrowings under credit facility (principal $121,000,000 and $110,000,000, respectively, less unamortized
deferred financing costs of $113,276 and $206,932, respectively) (Note 8)
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|
$
|
120,886,724
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|
|
$
|
109,793,068
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|
Payable for investment securities purchased
|
|
|
55,594,307
|
|
|
|
37,523,170
|
|
Interest payable
|
|
|
17,723
|
|
|
|
16,110
|
|
Investment advisory fee payable
|
|
|
288,375
|
|
|
|
263,389
|
|
Other payables and accrued expenses due to affiliates
|
|
|
150,791
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|
|
|
152,585
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|
Other payables and accrued expenses
|
|
|
466,754
|
|
|
|
452,072
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
$
|
177,404,674
|
|
|
$
|
148,200,394
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|
|
|
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|
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|
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|
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Commitments and Contingencies (Note 9)
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|
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Net Assets (Applicable to Common Shareholders)
|
|
$
|
229,302,846
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|
|
$
|
209,935,866
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Net Assets Consist of:
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Paid-in capital ($0.001 par value, 999,998,466 and 1,000,000,000
common shares authorized, respectively, and 15,573,061 and 14,464,026 issued and outstanding, respectively) (Note 6)
|
|
$
|
296,608,448
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|
|
$
|
275,624,904
|
|
Total accumulated loss
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|
|
(67,305,602)
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|
|
|
(65,689,038
|
)
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|
|
|
|
|
|
|
|
|
|
|
|
Net Assets (Applicable to Common Shareholders)
|
|
$
|
229,302,846
|
|
|
$
|
209,935,866
|
|
|
|
|
|
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Number of Common Shares Outstanding
|
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|
15,573,061
|
|
|
|
14,464,026
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Net Asset Value, per Common Share
|
|
$
|
14.72
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|
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$
|
14.51
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See accompanying Notes to Financial
Statements. | 23
Apollo Senior Floating Rate Fund Inc.
Apollo Tactical Income Fund Inc.
Statements of Operations
For the Six Months Ended June 30, 2020 (unaudited)
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Apollo
Senior
Floating Rate
Fund Inc.
|
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Apollo
Tactical
Income
Fund Inc.
|
|
Investment Income:
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|
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|
|
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|
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Interest
|
|
$
|
11,772,689
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|
|
$
|
11,236,392
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|
Dividends
|
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|
39,416
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|
39,416
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|
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|
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Total investment income
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|
|
11,812,105
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|
|
|
11,275,808
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|
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|
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Expenses:
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|
|
|
|
|
|
|
|
Investment advisory fee (Note 3)
|
|
|
1,818,501
|
|
|
|
1,658,621
|
|
Interest and commitment fee expense (Note 8)
|
|
|
1,298,563
|
|
|
|
1,191,369
|
|
Professional fees
|
|
|
121,388
|
|
|
|
118,167
|
|
Administrative services of the Adviser (Note 3)
|
|
|
368,071
|
|
|
|
373,551
|
|
Fund administration and accounting services (Note 3)
|
|
|
98,881
|
|
|
|
93,171
|
|
Insurance expense
|
|
|
134,740
|
|
|
|
134,740
|
|
Amortization of deferred financing costs (Note 8)
|
|
|
84,741
|
|
|
|
83,519
|
|
Board of Directors fees (Note 3)
|
|
|
75,915
|
|
|
|
75,915
|
|
Other operating expenses
|
|
|
54,768
|
|
|
|
55,895
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
4,055,568
|
|
|
|
3,784,948
|
|
Expense reimbursement waived by the Adviser (Note 3)
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|
|
|
|
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|
|
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|
|
|
|
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|
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|
|
Net expenses
|
|
|
4,055,568
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|
|
|
3,784,948
|
|
|
|
|
|
|
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|
|
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|
|
Net Investment Income
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|
7,756,537
|
|
|
|
7,490,860
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|
|
|
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Net Realized and Unrealized Gain/(Loss) on Investments
|
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|
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|
|
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|
|
Net realized loss on investments
|
|
|
(11,422,425
|
)
|
|
|
(10,075,404
|
)
|
Net change in unrealized depreciation on investments and unfunded loan commitments (Note 9)
|
|
|
(22,864,787
|
)
|
|
|
(23,405,442
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Net realized and unrealized loss on investments
|
|
|
(34,287,212
|
)
|
|
|
(33,480,846
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Decrease in Net Assets, Applicable to Common Shareholders,
Resulting From Operations
|
|
$
|
(26,530,675
|
)
|
|
$
|
(25,989,986
|
)
|
|
|
|
|
|
|
|
|
|
24 | See accompanying Notes
to Financial Statements.
Apollo Senior Floating Rate Fund Inc.
Statements of Changes in Net Assets
|
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|
|
For the Six
Months Ended
June 30, 2020
(unaudited)
|
|
|
For
the
Year Ended
December 31, 2019
|
|
Increase/(Decrease) in Net Assets from:
|
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|
|
|
|
|
|
|
|
|
Operations
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
$
|
7,756,537
|
|
|
$
|
18,910,317
|
|
Net realized loss on investments
|
|
|
(11,422,425
|
)
|
|
|
(3,212,968
|
)
|
Net change in unrealized appreciation/(depreciation) on investments and unfunded loan commitments
|
|
|
(22,864,787
|
)
|
|
|
12,370,286
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase/(decrease) in net assets from operations
|
|
|
(26,530,675
|
)
|
|
|
28,067,635
|
|
|
|
|
|
|
|
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|
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Distributions to Common Shareholders
|
|
|
|
|
|
|
|
|
|
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|
Total distributable earnings
|
|
|
(7,973,407
|
)
|
|
|
(18,687,673
|
)
|
|
|
|
|
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|
|
|
|
Total distributions to common shareholders
|
|
|
(7,973,407
|
)
|
|
|
(18,687,673
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Total increase/(decrease) in net assets
|
|
$
|
(34,504,082
|
)
|
|
$
|
9,379,962
|
|
|
|
|
Net Assets Applicable to Common Shares
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of period
|
|
$
|
263,806,928
|
|
|
|
254,426,966
|
|
|
|
|
|
|
|
|
|
|
End of period
|
|
$
|
229,302,846
|
|
|
$
|
263,806,928
|
|
|
|
|
|
|
|
|
|
|
See accompanying Notes to Financial
Statements. | 25
Apollo Tactical Income Fund Inc.
Statements of Changes in Net Assets
|
|
|
|
|
|
|
|
|
|
|
For the Six
Months Ended
June 30, 2020
(unaudited)
|
|
|
For the
Year Ended
December 31, 2019
|
|
Increase/(Decrease) in Net Assets from:
|
|
|
|
|
|
|
|
|
|
|
|
Operations
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
$
|
7,490,860
|
|
|
$
|
18,097,636
|
|
Net realized loss on investments
|
|
|
(10,075,404
|
)
|
|
|
(2,074,997
|
)
|
Net change in unrealized appreciation/(depreciation) on investments and unfunded loan commitments
|
|
|
(23,405,442
|
)
|
|
|
13,231,677
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase/(decrease) in net assets from operations
|
|
|
(25,989,986
|
)
|
|
|
29,254,316
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions to Common Shareholders
|
|
|
|
|
|
|
|
|
|
|
|
Total distributable earnings
|
|
|
(7,825,038
|
)
|
|
|
(17,935,392
|
)
|
|
|
|
|
|
|
|
|
|
Total distributions to common shareholders
|
|
|
(7,825,038
|
)
|
|
|
(17,935,392
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Total increase/(decrease) in net assets
|
|
$
|
(33,815,024
|
)
|
|
$
|
11,318,924
|
|
|
|
|
Net Assets Applicable to Common Shares
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of period
|
|
$
|
243,750,890
|
|
|
|
232,431,966
|
|
|
|
|
|
|
|
|
|
|
End of period
|
|
$
|
209,935,866
|
|
|
$
|
243,750,890
|
|
|
|
|
|
|
|
|
|
|
26 | See accompanying Notes
to Financial Statements.
Apollo Senior Floating Rate Fund Inc.
Statement of Cash Flows
For the Six Months Ended June 30, 2020 (unaudited)
|
|
|
|
|
Cash Flows from Operating Activities:
|
|
|
|
|
|
|
Net decrease in net assets from operations
|
|
$
|
(26,530,675
|
)
|
|
|
Adjustments to Reconcile Net Decrease in Net Assets from Operations to Net Cash Flows Provided
By
|
|
|
|
|
Operating Activities:
|
|
|
|
|
Net realized loss on investments
|
|
|
11,422,425
|
|
Net change in unrealized depreciation on investments and unfunded loan commitments
|
|
|
22,864,787
|
|
Net amortization/(accretion) of premium/(discount)
|
|
|
(1,375,406
|
)
|
Purchase of investment securities
|
|
|
(162,560,305
|
)
|
Proceeds from disposition of investment securities and principal paydowns
|
|
|
185,054,709
|
|
Payment-in-kind
interest
|
|
|
(150,018
|
)
|
Amortization of deferred financing costs
|
|
|
84,741
|
|
Changes in Operating Assets and Liabilities:
|
|
|
|
|
Decrease in interest receivable
|
|
|
730,092
|
|
Increase in prepaid expenses
|
|
|
(199,602
|
)
|
Decrease in interest payable
|
|
|
(116,640
|
)
|
Decrease in investment advisory fee payable
|
|
|
(53,811
|
)
|
Increase in other payables and accrued expenses due to affiliates
|
|
|
150,791
|
|
Increase in other payables and accrued expenses
|
|
|
326,611
|
|
|
|
|
|
|
|
|
Net cash flows provided by operating activities
|
|
|
29,647,699
|
|
|
|
|
|
|
|
|
Cash Flows from Financing Activities:
|
|
|
|
|
Repayment of credit facility
|
|
|
(20,000,000
|
)
|
Distributions paid to common shareholders (net of change in distributions payable to common
shareholders)
|
|
|
(8,033,556
|
)
|
|
|
|
|
|
Net cash flows used in financing activities
|
|
|
(28,033,556
|
)
|
|
|
|
|
|
|
|
Net Increase in Cash and Cash Equivalents
|
|
|
1,614,143
|
|
|
|
Cash and cash equivalents, beginning of period
|
|
|
14,020,233
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period
|
|
$
|
15,634,376
|
|
|
|
|
|
|
|
|
Supplemental Disclosure of Cash Flow Information
|
|
|
|
|
Cash paid during the period for interest
|
|
$
|
1,415,203
|
|
|
|
|
|
|
See accompanying Notes to Financial
Statements. | 27
Apollo Tactical Income Fund Inc.
Statement of Cash Flows
For the Six Months Ended June 30, 2020 (unaudited)
|
|
|
|
|
Cash Flows from Operating Activities:
|
|
|
|
|
|
|
Net decrease in net assets from operations
|
|
$
|
(25,989,986
|
)
|
|
|
Adjustments to Reconcile Net Decrease in Net Assets from Operations to Net Cash Flows Provided By
Operating Activities:
|
|
|
|
|
Net realized loss on investments
|
|
|
10,075,404
|
|
Net change in unrealized depreciation on investments and unfunded loan commitments
|
|
|
23,405,442
|
|
Net amortization/(accretion) of premium/(discount)
|
|
|
(1,023,202
|
)
|
Purchase of investment securities
|
|
|
(160,344,645
|
)
|
Proceeds from disposition of investment securities and principal paydowns
|
|
|
181,434,458
|
|
Payment-in-kind
interest
|
|
|
(122,067
|
)
|
Amortization of deferred financing costs
|
|
|
83,519
|
|
Changes in Operating Assets and Liabilities:
|
|
|
|
|
Decrease in interest receivable
|
|
|
937,121
|
|
Increase in prepaid expenses
|
|
|
(199,731
|
)
|
Decrease in interest payable
|
|
|
(64,582
|
)
|
Decrease in investment advisory fee payable
|
|
|
(48,548
|
)
|
Increase in other payables and accrued expenses due to affiliates
|
|
|
152,585
|
|
Increase in other payables and accrued expenses
|
|
|
302,295
|
|
|
|
|
|
|
|
|
Net cash flows provided by operating activities
|
|
|
28,598,063
|
|
|
|
|
|
|
|
|
Cash Flows from Financing Activities:
|
|
|
|
|
Deferred financing cost
|
|
|
(236,500
|
)
|
Repayment of credit facility
|
|
|
(16,500,000
|
)
|
Distributions paid to common shareholders (net of change in distributions payable to common
shareholders)
|
|
|
(7,868,444
|
)
|
|
|
|
|
|
Net cash flows used in financing activities
|
|
|
(24,604,944
|
)
|
|
|
|
|
|
|
|
Net Increase in Cash and Cash Equivalents
|
|
|
3,993,119
|
|
|
|
Cash and cash equivalents, beginning of period
|
|
|
4,898,532
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period
|
|
$
|
8,891,651
|
|
|
|
|
|
|
|
|
Supplemental Disclosure of Cash Flow Information
|
|
|
|
|
Cash paid during the year for interest and commitment fee
|
|
$
|
1,255,951
|
|
|
|
|
|
|
28 | See accompanying Notes
to Financial Statements.
Apollo Senior Floating Rate Fund Inc.
Financial Highlights
For a Common Share Outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per Common Share Operating Performance:
|
|
For the Six
Months Ended
June 30, 2020
(unaudited)
|
|
|
For the Year
Ended
December 31,
2019
|
|
|
For the Year
Ended
December 31,
2018
|
|
|
For the Year
Ended
December 31,
2017
|
|
|
For the Year
Ended
December 31,
2016
|
|
|
For the Year
Ended
December 31,
2015
|
|
Net Asset Value, Beginning of Period
|
|
$
|
16.94
|
|
|
$
|
16.34
|
|
|
$
|
17.86
|
|
|
$
|
18.07
|
|
|
$
|
16.92
|
|
|
$
|
18.30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from Investment Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income(a)
|
|
|
0.50
|
|
|
|
1.21
|
|
|
|
1.25
|
|
|
|
1.13
|
|
|
|
1.24
|
|
|
|
1.22
|
|
Net realized and unrealized gain/(loss) on investments and unfunded loan commitments
|
|
|
(2.21
|
)
|
|
|
0.59
|
|
|
|
(1.51
|
)
|
|
|
(0.18
|
)
|
|
|
1.15
|
|
|
|
(1.37
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total from investment operations
|
|
|
(1.71
|
)
|
|
|
1.80
|
|
|
|
(0.26
|
)
|
|
|
0.95
|
|
|
|
2.39
|
|
|
|
(0.15
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less Distributions Paid to Common Shareholders from:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
|
(0.51
|
)
|
|
|
(1.20
|
)
|
|
|
(1.26
|
)
|
|
|
(1.16
|
)
|
|
|
(1.24
|
)
|
|
|
(1.23
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total distributions paid to Common Shareholders
|
|
|
(0.51
|
)
|
|
|
(1.20
|
)
|
|
|
(1.26
|
)
|
|
|
(1.16
|
)
|
|
|
(1.24
|
)
|
|
|
(1.23
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Asset Value, End of Period
|
|
$
|
14.72
|
|
|
$
|
16.94
|
|
|
$
|
16.34
|
|
|
$
|
17.86
|
|
|
$
|
18.07
|
|
|
$
|
16.92
|
|
Market Value, End of Period
|
|
$
|
12.43
|
|
|
$
|
15.14
|
|
|
$
|
14.39
|
|
|
$
|
16.22
|
|
|
$
|
17.40
|
|
|
$
|
15.15
|
|
Total return based on net asset value(b)
|
|
|
(9.59
|
)%(c)
|
|
|
12.35
|
%
|
|
|
(0.98
|
)%
|
|
|
5.80
|
%
|
|
|
15.33
|
%
|
|
|
(0.52
|
)%
|
Total return based on market value(b)
|
|
|
(14.58
|
)%(c)
|
|
|
14.02
|
%
|
|
|
(3.98
|
)%
|
|
|
(0.22
|
)%
|
|
|
24.03
|
%
|
|
|
(1.98
|
)%
|
Ratios to Average Net Assets Applicable to Common Shareholders:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratio of total expenses to average net assets
|
|
|
3.14
|
%(d)
|
|
|
4.01
|
%
|
|
|
3.84
|
%
|
|
|
3.33
|
%
|
|
|
3.21
|
%
|
|
|
3.01
|
%
|
Ratio of net expenses to average net assets
|
|
|
3.14
|
%(d)
|
|
|
4.01
|
%
|
|
|
3.84
|
%
|
|
|
3.33
|
%
|
|
|
3.21
|
%
|
|
|
3.01
|
%
|
Ratio of net investment income to average net assets
|
|
|
6.87
|
%(d)
|
|
|
7.23
|
%
|
|
|
7.10
|
%
|
|
|
6.24
|
%
|
|
|
7.11
|
%
|
|
|
6.71
|
%
|
Supplemental Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Portfolio turnover rate
|
|
|
49.55
|
%(c)
|
|
|
101.2
|
%
|
|
|
122.4
|
%
|
|
|
102.2
|
%
|
|
|
109.5
|
%
|
|
|
66.1
|
%
|
Net assets at end of period (000s)
|
|
$
|
229,303
|
|
|
$
|
263,807
|
|
|
$
|
254,427
|
|
|
$
|
278,070
|
|
|
$
|
281,328
|
|
|
$
|
263,438
|
|
Senior Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal loan outstanding (in 000s)
|
|
$
|
121,000
|
|
|
$
|
141,000
|
|
|
$
|
141,000
|
|
|
$
|
141,000
|
|
|
$
|
141,000
|
|
|
$
|
149,269
|
|
Asset coverage per $1,000 of loan
outstanding(e)
|
|
$
|
2,895
|
|
|
$
|
2,871
|
|
|
$
|
2,804
|
|
|
$
|
2,972
|
|
|
$
|
2,995
|
|
|
$
|
2,765
|
|
(a)
|
Based on the weighted average outstanding shares.
|
(b)
|
Total return based on net asset value and total return based on market value assuming all distributions reinvested at
reinvestment rate.
|
(e)
|
Calculated by subtracting the Funds total liabilities (not including the borrowings outstanding) from the
Funds total assets, and dividing this by the amount of borrowings outstanding.
|
See accompanying Notes to Financial
Statements. | 29
Apollo Tactical Income Fund Inc.
Financial Highlights
For a Common Share Outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per Common Share Operating Performance:
|
|
For the Six
Months Ended
June 20, 2020
(unaudited)
|
|
|
For the Year
Ended
December 31,
2019
|
|
|
For the Year
Ended
December 31,
2018
|
|
|
For the Year
Ended
December 31,
2017
|
|
|
For the Year
Ended
December 31,
2016
|
|
|
For the Year
Ended
December 31,
2015
|
|
Net Asset Value, Beginning of Period
|
|
$
|
16.85
|
|
|
$
|
16.07
|
|
|
$
|
17.44
|
|
|
$
|
17.18
|
|
|
$
|
15.97
|
|
|
$
|
18.21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from Investment Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income(a)
|
|
|
0.52
|
|
|
|
1.25
|
|
|
|
1.33
|
|
|
|
1.27
|
|
|
|
1.50
|
|
|
|
1.48
|
|
Net realized and unrealized gain/(loss) on investments and unfunded loan commitments
|
|
|
(2.32
|
)
|
|
|
0.77
|
|
|
|
(1.38
|
)
|
|
|
0.28
|
|
|
|
1.23
|
|
|
|
(2.16
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total from investment operations
|
|
|
(1.80
|
)
|
|
|
2.02
|
|
|
|
(0.05
|
)
|
|
|
1.55
|
|
|
|
2.73
|
|
|
|
(0.68
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less Distributions Paid to Common Shareholders from:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
|
(0.54
|
)
|
|
|
(1.24
|
)
|
|
|
(1.32
|
)
|
|
|
(1.29
|
)
|
|
|
(1.52
|
)
|
|
|
(1.55
|
)
|
Net realized gain on investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.01
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total distributions paid to Common Shareholders
|
|
|
(0.54
|
)
|
|
|
(1.24
|
)
|
|
|
(1.32
|
)
|
|
|
(1.29
|
)
|
|
|
(1.52
|
)
|
|
|
(1.56
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Asset Value, End of Period
|
|
$
|
14.51
|
|
|
$
|
16.85
|
|
|
$
|
16.07
|
|
|
$
|
17.44
|
|
|
$
|
17.18
|
|
|
$
|
15.97
|
|
Market Value, End of Period
|
|
$
|
12.42
|
|
|
$
|
15.10
|
|
|
$
|
13.77
|
|
|
$
|
15.75
|
|
|
$
|
15.43
|
|
|
$
|
13.89
|
|
Total return based on net asset value(b)
|
|
|
(10.18
|
)%(c)
|
|
|
13.97
|
%
|
|
|
0.47
|
%
|
|
|
9.87
|
%
|
|
|
19.34
|
%
|
|
|
(2.91
|
)%
|
Total return based on market value(b)
|
|
|
(14.21
|
)%(c)
|
|
|
19.20
|
%
|
|
|
(4.67
|
)%
|
|
|
10.47
|
%
|
|
|
23.24
|
%
|
|
|
(3.65
|
)%
|
Ratios to Average Net Assets Applicable to Common Shareholders:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratio of total expenses to average net assets
|
|
|
3.19
|
%(d)
|
|
|
4.03
|
%
|
|
|
3.85
|
%
|
|
|
3.53
|
%
|
|
|
3.36
|
%
|
|
|
2.97
|
%
|
Ratio of net expenses to average net assets
|
|
|
3.19
|
%(d)
|
|
|
4.03
|
%
|
|
|
3.85
|
%
|
|
|
3.53
|
%
|
|
|
3.36
|
%
|
|
|
2.97
|
%
|
Ratio of net investment income to average net assets
|
|
|
7.23
|
%(d)
|
|
|
7.53
|
%
|
|
|
7.65
|
%
|
|
|
7.27
|
%
|
|
|
9.20
|
%
|
|
|
8.22
|
%
|
Supplemental Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Portfolio turnover rate
|
|
|
50.63
|
%(c)
|
|
|
112.3
|
%
|
|
|
130.9
|
%
|
|
|
111.8
|
%
|
|
|
111.6
|
%
|
|
|
67.6
|
%
|
Net assets at end of period (000s)
|
|
$
|
209,936
|
|
|
$
|
243,751
|
|
|
$
|
232,432
|
|
|
$
|
252,265
|
|
|
$
|
248,424
|
|
|
$
|
230,995
|
|
Senior Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal loan outstanding (in 000s)
|
|
$
|
110,000
|
|
|
$
|
126,500
|
|
|
$
|
126,500
|
|
|
$
|
138,000
|
|
|
$
|
138,000
|
|
|
$
|
138,000
|
|
Asset coverage per $1,000 of loan
outstanding(e)
|
|
$
|
2,909
|
|
|
$
|
2,927
|
|
|
$
|
2,837
|
|
|
$
|
2,828
|
|
|
$
|
2,800
|
|
|
$
|
2,674
|
|
(a)
|
Based on the weighted average outstanding shares.
|
(b)
|
Total return based on net asset value and total return based on market value assuming all distributions reinvested at
reinvestment rate.
|
(e)
|
Calculated by subtracting the Funds total liabilities (not including the borrowings outstanding) from the
Funds total assets, and dividing this by the amount of borrowings outstanding.
|
30 | See accompanying Notes
to Financial Statements.
Apollo Senior Floating Rate Fund Inc.
Apollo Tactical Income Fund Inc.
Notes to
Financial Statements
June 30, 2020 (unaudited)
Note 1. Organization and Operation
Apollo Senior Floating
Rate Fund Inc. (AFT) and Apollo Tactical Income Fund Inc. (AIF) (individually, a Fund or, together, the Funds) are corporations organized under the laws of the State of Maryland and registered with the
U.S. Securities and Exchange Commission (the SEC) under the Investment Company Act of 1940 (the Investment Company Act) as diversified, closed-end management investment companies. AFT
and AIF commenced operations on February 23, 2011 and February 25, 2013, respectively. Prior to that, the Funds had no operations other than matters relating to their organization and the sale and issuance of 5,236 shares of common stock
in each Fund to Apollo Credit Management, LLC (the Adviser) at a price of $19.10 per share. The Adviser serves as the Funds investment adviser and is an affiliate of Apollo Global Management, Inc. (AGM). The Funds
common shares are listed on the New York Stock Exchange (NYSE) and trade under the symbols AFT and AIF, respectively.
Investment Objective
AFTs investment objective is to
seek current income and preservation of capital. AFT seeks to achieve its investment objective by investing primarily in senior, secured loans made to companies whose debt is rated below investment grade (Senior Loans) and investments
with similar characteristics. Senior Loans typically hold a first lien priority and pay interest at rates that are determined periodically on the basis of a floating base lending rate plus a spread. These base lending rates are primarily the London
Interbank Offered Rate (LIBOR), and secondarily the prime rate offered by one or more major U.S. banks and the certificate of deposit rate used by commercial lenders. Senior Loans are typically made to U.S. and, to a limited extent, non-U.S. corporations, partnerships and other business entities (Borrower(s)) that operate in various industries and geographical regions. AFT seeks to generate current income and preservation of capital
through a disciplined approach to credit selection and under normal market conditions will invest at least 80% of its managed assets in floating rate Senior Loans and investments with similar economic characteristics. This policy and AFTs
investment objective are not fundamental and may be changed by the board of directors of AFT with at least 60 days prior written notice provided to shareholders. Part of AFTs investment objective is to seek preservation of capital.
AFTs ability to achieve capital preservation may be limited by its investment in credit instruments that have speculative characteristics. There can be no assurance that AFT will achieve its investment objective.
AIFs primary investment objective is to seek current income with a secondary objective of preservation of capital. AIF seeks to achieve its
investment objectives primarily by allocating its assets among different types of credit instruments based on absolute and relative value considerations and its analysis of the credit markets. This ability to dynamically allocate AIFs assets
may result in AIFs portfolio becoming concentrated in a particular type of credit instrument (such as Senior Loans or high yield corporate bonds) and substantially less invested in other types of credit instruments. Under normal market
conditions, at least 80% of AIFs managed assets will be invested in credit instruments and investments with similar economic characteristics. For purposes of this policy, credit instruments will include Senior Loans, subordinated
loans, high yield corporate bonds, notes, bills, debentures, distressed securities, mezzanine securities, structured products (including, without limitation, collateralized debt obligations (CDOs), collateralized loan obligations
(CLOs) and asset-backed securities), bank loans, corporate loans, convertible and preferred securities, government and municipal obligations, mortgage-backed securities, repurchase agreements, and other fixed-income instruments of a
similar nature that may be represented by derivatives such as options, forwards, futures contracts or swap agreements. This policy and AIFs investment objectives are not fundamental and may be changed by the board of directors of AIF (together
with the board of directors of AFT, the Board of Directors or Board) with at least 60 days prior written notice provided to shareholders. AIF will seek to preserve capital to the extent consistent with its primary
investment objective. AIFs ability to achieve capital preservation may be limited by its investment in credit instruments that have speculative characteristics. There can be no assurance that AIF will achieve its investment objectives.
Note 2. Significant Accounting Policies
The Funds are
investment companies that follow the accounting and reporting guidance of Accounting Standards Codification Topic 946 applicable to investment companies. The Funds financial statements have been prepared in conformity with accounting
principles generally accepted in the United States of America (U.S. GAAP), which require
Semi-Annual
Report | 31
Apollo Senior Floating Rate Fund Inc.
Apollo Tactical Income Fund Inc.
Notes to Financial Statements (continued)
June 30, 2020 (unaudited)
management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results may differ from
those estimates.
Fund Valuation
Each Funds net
asset value (NAV) per share will be determined daily generally as of 4:00 pm on each day that the NYSE is open for trading, or at other times as determined by the Board. The NAV of each Funds common shares is the total assets of
the Fund (including all securities, cash and other assets) minus the sum of the Funds total liabilities (including accrued expenses, dividends payable, borrowings and the liquidation value of any preferred stock) divided by the total number of
common shares of the Fund outstanding.
Security Valuation
The Funds value their investments primarily using the mean of the bid and ask prices provided by a nationally recognized security pricing service or
broker. Senior Loans, corporate notes and bonds, common stock, structured products, preferred stock and warrants are priced based on valuations provided by an approved independent pricing service or broker, if available. If market or broker
quotations are not available, or a price is not available from an independent pricing service or broker, or if the price provided by the independent pricing service or broker is believed to be unreliable, the security will be fair valued pursuant to
procedures adopted by the Board. In general, the fair value of a security is the amount that the Funds might reasonably expect to receive upon the sale of an asset or pay to transfer a liability in an orderly transaction between willing market
participants at the reporting date. Fair value procedures generally take into account any factors deemed relevant, which may include, among others, (i) the nature and pricing history of the security, (ii) the liquidity or illiquidity of
the market for the particular security, (iii) recent purchases or sales transactions for the particular security or similar securities and (iv) press releases and other information published about the issuer. In these cases, a Funds
NAV will reflect the affected portfolio securities fair value as determined in the judgment of the Board or its designee instead of being determined by the market. Using a fair value pricing methodology to value securities may result in a
value that is different from a securitys most recent sale price and from the prices used by other investment companies to calculate their NAV. Determination of fair value is uncertain because it involves subjective judgments and estimates.
There can be no assurance that a Funds valuation of a security will not differ from the amount that it realizes upon the sale of such security.
Fair Value
Measurements
Each Fund has performed an analysis of all existing investments to determine the significance and character of all inputs to their
fair value determination. The levels of fair value inputs used to measure the Funds investments are characterized into a fair value hierarchy. The three levels of the fair value hierarchy are described below:
Level 1 Quoted unadjusted prices for identical assets and liabilities in active markets to which the Funds
have access at the date of measurement;
Level 2 Quoted prices for similar assets and liabilities in
active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, but are valued based on executed trades, broker quotations that constitute an executable price, and alternative pricing sources supported
by observable inputs which, in each case, are either directly or indirectly observable for the asset in connection with market data at the measurement date; and
Level 3 Model derived valuations in which one or more significant inputs or significant value drivers are
unobservable. In certain cases, investments classified within Level 3 may include securities for which the Funds have obtained indicative quotes from broker-dealers that do not necessarily represent prices the broker may be willing to trade on,
as such quotes can be subject to material management judgment. Unobservable inputs are those inputs that reflect the Funds own assumptions that market participants would use to price the asset or liability based on the best available
information.
At the end of each reporting period, management evaluates the Level 2 and Level 3 assets, if any, for changes in liquidity,
including but not limited to: whether a broker is willing to execute at the quoted price, the depth and consistency of prices from independent pricing services, and the existence of contemporaneous, observable trades in the market.
32 | Semi-Annual Report
Apollo Senior Floating Rate Fund Inc.
Apollo Tactical Income Fund Inc.
Notes to Financial Statements (continued)
June 30, 2020 (unaudited)
The valuation techniques used by the Funds to measure fair value at June 30, 2020 maximized the use of observable inputs and minimized the use of
unobservable inputs. The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities. Summaries of the Funds investments categorized in the fair value hierarchy
as of June 30, 2020 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Apollo Senior Floating Rate Fund Inc.
|
|
|
|
|
|
Total Fair Value at
June 30, 2020
|
|
Level 1
Quoted Price
|
|
Level 2
Significant
Observable
Inputs
|
|
Level 3
Significant
Unobservable
Inputs
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and Cash Equivalents
|
|
|
$
|
15,634,376
|
|
|
|
$
|
15,634,376
|
|
|
|
$
|
|
|
|
|
$
|
|
|
Senior Loans
|
|
|
|
333,767,138
|
|
|
|
|
|
|
|
|
|
328,631,976
|
|
|
|
|
5,135,162
|
|
Corporate Notes and Bonds
|
|
|
|
10,609,012
|
|
|
|
|
|
|
|
|
|
10,609,012
|
|
|
|
|
|
|
Common Stocks
|
|
|
|
2,564,154
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,564,154
|
|
Preferred Stocks
|
|
|
|
1,116,992
|
|
|
|
|
|
|
|
|
|
946,575
|
|
|
|
|
170,417
|
|
Warrants
|
|
|
|
326
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
326
|
|
Unrealized appreciation on Unfunded Loan Commitments
|
|
|
|
95,564
|
|
|
|
|
|
|
|
|
|
30,288
|
|
|
|
|
65,276
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
|
$
|
363,787,562
|
|
|
|
$
|
15,634,376
|
|
|
|
$
|
340,217,851
|
|
|
|
$
|
7,935,335
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized depreciation on Unfunded Loan Commitments
|
|
|
|
(29,905
|
)
|
|
|
|
|
|
|
|
|
(143
|
)
|
|
|
|
(29,762
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
|
|
(29,905
|
)
|
|
|
|
|
|
|
|
|
(143
|
)
|
|
|
|
(29,762
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
363,757,657
|
|
|
|
$
|
15,634,376
|
|
|
|
$
|
340,217,708
|
|
|
|
$
|
7,905,573
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following is a reconciliation of Level 3 holdings for which significant unobservable inputs were used in
determining fair value as of June 30, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Apollo Senior Floating Rate Fund Inc.
|
|
|
|
|
|
Total
|
|
Senior
Loans
|
|
Corporate
Notes
and
Bonds
|
|
Common
Stocks
|
|
Preferred
Stock
|
|
Warrants
|
|
Unfunded
Loan
Commitments
|
|
|
|
Total Fair Value, beginning of period
|
|
|
$
|
8,806,870
|
|
|
|
$
|
6,969,076
|
|
|
|
$
|
|
|
|
|
$
|
1,664,855
|
|
|
|
$
|
170,417
|
|
|
|
$
|
2,522
|
|
|
|
$
|
|
|
Purchases, including capitalized PIK
|
|
|
|
1,720,026
|
|
|
|
|
1,720,026
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales/Paydowns
|
|
|
|
(657,754
|
)
|
|
|
|
(648,730
|
)
|
|
|
|
|
|
|
|
|
(9,024
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accretion/(amortization) of discounts/ (premiums)
|
|
|
|
21,042
|
|
|
|
|
21,042
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net realized gain/(loss)
|
|
|
|
(53,001
|
)
|
|
|
|
4,085
|
|
|
|
|
(8,060
|
)
|
|
|
|
(49,026
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in net unrealized appreciation/ (depreciation)
|
|
|
|
281,264
|
|
|
|
|
(556,188
|
)
|
|
|
|
8,060
|
|
|
|
|
796,074
|
|
|
|
|
|
|
|
|
|
(2,196
|
)
|
|
|
|
35,514
|
|
Transfers into Level 3
|
|
|
|
2,905,610
|
|
|
|
|
2,744,335
|
|
|
|
|
|
|
|
|
|
161,275
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transfers out of Level 3
|
|
|
|
(5,118,484
|
)
|
|
|
|
(5,118,484
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Fair Value, end of period
|
|
|
$
|
7,905,573
|
|
|
|
$
|
5,135,162
|
|
|
|
$
|
|
|
|
|
$
|
2,564,154
|
|
|
|
$
|
170,417
|
|
|
|
$
|
326
|
|
|
|
$
|
35,514
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets were transferred from Level 2 to Level 3 or from Level 3 to Level 2 as a result of changes in
levels of liquid market observability when subject to various criteria as discussed above. The net change in unrealized appreciation/(depreciation) attributable to Level 3 investments still held at June 30, 2020 was $698,710.
Semi-Annual
Report | 33
Apollo Senior Floating Rate Fund Inc.
Apollo Tactical Income Fund Inc.
Notes to Financial Statements (continued)
June 30, 2020 (unaudited)
The following table provides quantitative measures used to determine the fair values of the Level 3 investments as of June 30, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Apollo Senior Floating Rate Fund Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets/Liabilities
|
|
Fair Value at
June 30, 2020
|
|
Valuation Technique(s)(a)
|
|
Unobservable Input(s)
|
|
Range of
Unobservable
Input(s) Utilized
|
|
Weighted Average
Unobservable Input(s)
|
|
|
Senior Loans
|
|
|
$
|
608,803
|
|
|
Independent pricing service and/or broker quotes
|
|
Vendor and/or broker quotes
|
|
N/A
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
32,379
|
|
|
Recoverability(b)
|
|
Estimated Proceeds(b)
|
|
$843k
|
|
$843k
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recoverability(b)
|
|
Estimated Proceeds(b)
|
|
$
|
|
$
|
|
|
|
|
|
|
|
|
|
|
754,280
|
|
|
Discounted Cash Flow(c)
Guideline Public Company(d)
|
|
Discount Rate(c)
TEV | EBITDA Multiple(d)
|
|
21.0%
9.25x - 10.75x
|
|
21.0%
10.0x
|
|
|
|
|
|
|
|
|
|
|
3,609,800
|
|
|
Discounted Cash Flow(c)
Guideline Public Company(d)
Option Model(e)
|
|
Discount Rate(c)
TEV | EBITDA
Multiple(d)
Volatility(e)
|
|
11.49% - 11.99%
6.0x - 8.0x
28.8%
|
|
11.74%
7.0x
28.8%
|
|
|
|
|
|
|
|
|
|
|
129,900
|
|
|
Guideline Public Company(d)
|
|
TEV | EBITDA Multiple(d)
|
|
2.0x - 3.0x
|
|
2.5x
|
|
|
|
|
|
|
Corporate Notes and Bonds
|
|
|
|
|
|
|
Recoverability(b)
|
|
Estimated Proceeds(b)
|
|
$
|
|
$
|
|
|
|
|
|
|
Common Stocks
|
|
|
|
27,655
|
|
|
Transaction Approach(f)
|
|
TEV | EBITDA Multiple(f)
|
|
5.4x
|
|
5.4x
|
|
|
|
|
|
|
|
|
|
|
161,275
|
|
|
Guideline Public Company(d)
|
|
TEV | EBITDA Multiple(d)
|
|
4.75x - 5.75x
|
|
5.25x
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recoverability(b)
|
|
Estimated Proceeds(b)
|
|
$843k
|
|
$843k
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recoverability(b)
|
|
Estimated Proceeds(b)
|
|
$
|
|
$
|
|
|
|
|
|
|
|
|
|
|
2,296,664
|
|
|
Guideline Public Company(d)
Transaction Approach(f)
|
|
TEV | EBITDA Multiple(d)(f)
|
|
2.9x - 3.0x
|
|
2.98x
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guideline Public Company(d)
|
|
TEV | EBITDA Multiple(d)
|
|
2.0x - 3.0x
|
|
2.5x
|
|
|
|
|
|
|
|
|
|
|
78,560
|
|
|
Independent pricing service and/or broker quotes
|
|
Vendor and/or broker quotes
|
|
N/A
|
|
N/A
|
|
|
|
|
|
|
Preferred Stock
|
|
|
|
170,417
|
|
|
Transaction Approach(f)
|
|
TEV | EBITDA Multiple(f)
|
|
5.4x
|
|
5.4x
|
|
|
|
|
|
|
Warrants
|
|
|
|
326
|
|
|
Option Model(e)
|
|
Volatility(e)
|
|
60.0%
|
|
60.0%
|
|
|
|
|
|
|
Unfunded Loan Commitments
|
|
|
|
(29,762
|
)
|
|
Discounted Cash Flow(c)
|
|
Discount Rate(c)
|
|
11.49% - 11.99%
|
|
11.74%
|
|
|
|
|
|
|
|
|
|
|
65,276
|
|
|
Independent pricing service and/or broker quotes
|
|
Vendor and/or broker quotes
|
|
N/A
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Fair Value
|
|
|
$
|
7,905,573
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
For the assets which have multiple valuation techniques, the Fund may rely on the techniques individually or in aggregate
based on a weight ranging from 0-100%.
|
34 | Semi-Annual Report
Apollo Senior Floating Rate Fund Inc.
Apollo Tactical Income Fund Inc.
Notes to Financial Statements (continued)
June 30, 2020 (unaudited)
(b)
|
The Fund utilized a recoverability approach to fair value these securities, specifically a liquidation analysis. There are
various, company specific inputs used in the valuation analysis that relate to the liquidation value of a companys assets. The significant unobservable inputs used in the valuation model were estimated proceeds. Significant increases or
decreases in the input in isolation may result in a significantly higher or lower fair value measurement.
|
(c)
|
The Fund utilized a discounted cash flow model to fair value this security. The significant unobservable input used in the
valuation model was the discount rate, which was determined based on the market rates an investor would expect for a similar investment with similar risks. The discount rate was applied to present value the projected cash flows in the valuation
model. Significant increases in the discount rate may significantly lower the fair value of an investment; conversely, significant decreases in the discount rate may significantly increase the fair value of an investment.
|
(d)
|
The Fund utilized a guideline public company method to fair value this security. The significant unobservable inputs used
in the valuation model were total enterprise value (TEV) and earnings before interest, taxes, depreciation and amortization (EBITDA) based on comparable multiples for a similar investment with similar risks. Significant
increases or decreases in either of these inputs in isolation may result in a significantly higher or lower fair value measurement.
|
(e)
|
The Fund utilized an options pricing model to fair value this security. The significant unobservable input used in the
valuation model was volatility. Significant increases or decreases in the input in isolation may result in a significantly higher or lower fair value measurement.
|
(f)
|
The Fund utilized a transaction approach to fair value this security. The significant unobservable inputs used in the
valuation model were total enterprise value TEV and EBITDA. Significant increases or decreases in either of these inputs in isolation may result in a significantly higher or lower fair value measurement.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Apollo Tactical Income Fund Inc.
|
|
|
|
|
|
Total Fair Value at
June 30, 2020
|
|
Level 1
Quoted Price
|
|
Level 2
Significant
Observable
Inputs
|
|
Level 3
Significant
Unobservable
Inputs
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and Cash Equivalents
|
|
|
$
|
8,891,651
|
|
|
|
$
|
8,891,651
|
|
|
|
$
|
|
|
|
|
$
|
|
|
Senior Loans
|
|
|
|
218,554,086
|
|
|
|
|
|
|
|
|
|
213,645,382
|
|
|
|
|
4,908,704
|
|
Corporate Notes and Bonds
|
|
|
|
76,055,839
|
|
|
|
|
|
|
|
|
|
76,055,839
|
|
|
|
|
|
|
Structured Products
|
|
|
|
18,482,236
|
|
|
|
|
|
|
|
|
|
12,697,966
|
|
|
|
|
5,784,270
|
|
Common Stocks
|
|
|
|
2,241,624
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,241,624
|
|
Preferred Stocks
|
|
|
|
1,116,992
|
|
|
|
|
|
|
|
|
|
946,575
|
|
|
|
|
170,417
|
|
Warrants
|
|
|
|
166
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
166
|
|
Unrealized appreciation on Unfunded Loan Commitments
|
|
|
|
80,594
|
|
|
|
|
|
|
|
|
|
31,234
|
|
|
|
|
49,360
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
|
$
|
325,423,188
|
|
|
|
$
|
8,891,651
|
|
|
|
$
|
303,376,996
|
|
|
|
$
|
13,154,541
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized depreciation on Unfunded Loan Commitments
|
|
|
|
(29,905
|
)
|
|
|
|
|
|
|
|
|
(143
|
)
|
|
|
|
(29,762
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
|
|
(29,905
|
)
|
|
|
|
|
|
|
|
|
(143
|
)
|
|
|
|
(29,762
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
325,393,283
|
|
|
|
$
|
8,891,651
|
|
|
|
$
|
303,376,853
|
|
|
|
$
|
13,124,779
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following is a reconciliation of Level 3 holdings for which significant unobservable inputs were used in
determining fair value as of June 30, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Apollo Tactical Income Fund Inc.
|
|
|
|
|
|
Total
|
|
Senior
Loans
|
|
Corporate
Notes
and
Bonds
|
|
Structured
Products
|
|
Common
Stocks
|
|
Preferred
Stock
|
|
Warrants
|
|
Unfunded
Loan
Commitments
|
|
|
|
Total Fair Value, beginning of period
|
|
|
$
|
7,122,713
|
|
|
|
$
|
5,489,236
|
|
|
|
$
|
|
|
|
|
$
|
|
|
|
|
$
|
1,461,773
|
|
|
|
$
|
170,417
|
|
|
|
$
|
1,287
|
|
|
|
$
|
|
|
Purchases, including capitalized PIK
|
|
|
|
1,517,409
|
|
|
|
|
1,517,409
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales/Paydowns
|
|
|
|
(615,280
|
)
|
|
|
|
(606,256
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(9,024
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accretion/(amortization) of discounts/ (premiums)
|
|
|
|
15,575
|
|
|
|
|
15,575
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net realized gain/(loss)
|
|
|
|
(82,934
|
)
|
|
|
|
3,141
|
|
|
|
|
(37,049
|
)
|
|
|
|
|
|
|
|
|
(49,026
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in net unrealized appreciation/ (depreciation)
|
|
|
|
400,011
|
|
|
|
|
(411,148
|
)
|
|
|
|
37,049
|
|
|
|
|
|
|
|
|
|
755,633
|
|
|
|
|
|
|
|
|
|
(1,121
|
)
|
|
|
|
19,598
|
|
Transfers into Level 3
|
|
|
|
8,610,872
|
|
|
|
|
2,744,334
|
|
|
|
|
|
|
|
|
|
5,784,270
|
|
|
|
|
82,268
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transfers out of Level 3
|
|
|
|
(3,843,587
|
)
|
|
|
|
(3,843,587
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Fair Value, end of period
|
|
|
$
|
13,124,779
|
|
|
|
$
|
4,908,704
|
|
|
|
$
|
|
|
|
|
$
|
5,784,270
|
|
|
|
$
|
2,241,624
|
|
|
|
$
|
170,417
|
|
|
|
$
|
166
|
|
|
|
$
|
19,598
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets were transferred from Level 2 to Level 3 or from Level 3 to Level 2 as a result of changes in
levels of liquid market observability when subject to various criteria as discussed above. The net change in unrealized appreciation/(depreciation) attributable to Level 3 investments still held at June 30, 2020 was $709,650.
Semi-Annual
Report | 35
Apollo Senior Floating Rate Fund Inc.
Apollo Tactical Income Fund Inc.
Notes to Financial Statements (continued)
June 30, 2020 (unaudited)
The following table provides quantitative measures used to determine the fair values of the Level 3 investments as of June 30, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Apollo Tactical Income Fund Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets/Liabilities
|
|
Fair Value at
June 30,
2020
|
|
Valuation Technique(s)(a)
|
|
Unobservable Input(s)
|
|
Range of
Unobservable
Input(s) Utilized
|
|
Weighted Average
Unobservable Input(s)
|
|
|
Senior Loans
|
|
|
$
|
499,268
|
|
|
Independent pricing service and/or broker quotes
|
|
Vendor and/or broker quotes
|
|
N/A
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
9,757
|
|
|
Recoverability(b)
|
|
Estimated Proceeds(b)
|
|
$843k
|
|
$843k
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recoverability(b)
|
|
Estimated Proceeds(b)
|
|
$
|
|
$
|
|
|
|
|
|
|
|
|
|
|
754,280
|
|
|
Discounted Cash Flow(c)
Guideline Public Company(d)
|
|
Discount Rate(c)
TEV | EBITDA Multiple(d)
|
|
21.0%
9.25x - 10.75x
|
|
21.0%
10.0x
|
|
|
|
|
|
|
|
|
|
|
3,609,800
|
|
|
Discounted Cash Flow(c)
Guideline Public
Company(d)
Option
Model(e)
|
|
Discount Rate(c)
TEV | EBITDA
Multiple(d)
Volatility(e)
|
|
11.49% - 11.99%
6.0x - 8.0x
28.8%
|
|
11.74%
7.0x
28.8%
|
|
|
|
|
|
|
|
|
|
|
35,599
|
|
|
Guideline Public Company(d)
|
|
TEV | EBITDA Multiple(d)
|
|
2.0x - 3.0x
|
|
2.5x
|
|
|
|
|
|
|
Corporate Notes and Bonds
|
|
|
|
|
|
|
Recoverability(b)
|
|
Estimated Proceeds(b)
|
|
$
|
|
$
|
|
|
|
|
|
|
Structured Products
|
|
|
|
5,784,270
|
|
|
Independent pricing service and/or broker quotes
|
|
Vendor and/or broker quotes
|
|
N/A
|
|
N/A
|
|
|
|
|
|
|
Common Stocks
|
|
|
|
27,655
|
|
|
Transaction Approach(f)
|
|
TEV | EBITDA Multiple(f)
|
|
5.4x
|
|
5.4x
|
|
|
|
|
|
|
|
|
|
|
82,269
|
|
|
Guideline Public Company(d)
|
|
TEV | EBITDA Multiple(d)
|
|
4.75x - 5.75x
|
|
5.25x
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recoverability(b)
|
|
Estimated Proceeds(b)
|
|
$843k
|
|
$843k
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recoverability(b)
|
|
Estimated Proceeds(b)
|
|
$
|
|
$
|
|
|
|
|
|
|
|
|
|
|
2,119,996
|
|
|
Guideline Public Company(d)
Transaction Approach(f)
|
|
TEV | EBITDA Multiple(d)(f)
|
|
2.9x - 3.0x
|
|
2.98x
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guideline Public Company(d)
|
|
TEV | EBITDA Multiple(d)
|
|
2.0x - 3.0x
|
|
2.5x
|
|
|
|
|
|
|
|
|
|
|
11,704
|
|
|
Independent pricing service and/or broker quotes
|
|
Vendor and/or broker quotes
|
|
N/A
|
|
N/A
|
|
|
|
|
|
|
Preferred Stock
|
|
|
|
170,417
|
|
|
Transaction Approach(f)
|
|
TEV | EBITDA Multiple(f)
|
|
5.4x
|
|
5.4x
|
|
|
|
|
|
|
Warrants
|
|
|
|
166
|
|
|
Option Model(e)
|
|
Volatility(e)
|
|
60.00%
|
|
60.00%
|
|
|
|
|
|
|
Unfunded Loan Commitments
|
|
|
|
(29,762
|
)
|
|
Discounted Cash Flow(c)
|
|
Discount Rate(c)
|
|
11.49% - 11.99%
|
|
11.74%
|
|
|
|
|
|
|
|
|
|
|
49,360
|
|
|
Independent pricing service and/or broker quotes
|
|
Vendor and/or broker quotes
|
|
N/A
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Fair Value
|
|
|
$
|
13,124,779
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
36 | Semi-Annual Report
Apollo Senior Floating Rate Fund Inc.
Apollo Tactical Income Fund Inc.
Notes to Financial Statements (continued)
June 30, 2020 (unaudited)
(a)
|
For the assets which have multiple valuation techniques, the Fund may rely on the techniques individually or in aggregate
based on a weight ranging from 0-100%.
|
(b)
|
The Fund utilized a recoverability approach to fair value these securities, specifically a liquidation analysis. There are
various, company specific inputs used in the valuation analysis that relate to the liquidation value of a companys assets. The significant unobservable inputs used in the valuation model were estimated proceeds. Significant increases or
decreases in the input in isolation may result in a significantly higher or lower fair value measurement.
|
(c)
|
The Fund utilized a discounted cash flow model to fair value this security. The significant unobservable input used in the
valuation model was the discount rate, which was determined based on the market rates an investor would expect for a similar investment with similar risks. The discount rate was applied to present value the projected cash flows in the valuation
model. Significant increases in the discount rate may significantly lower the fair value of an investment; conversely, significant decreases in the discount rate may significantly increase the fair value of an investment.
|
(d)
|
The Fund utilized a guideline public company method to fair value this security. The significant unobservable inputs used
in the valuation model were total enterprise value (TEV) and earnings before interest, taxes, depreciation and amortization (EBITDA) based on comparable multiples for a similar investment with similar risks. Significant
increases or decreases in either of these inputs in isolation may result in a significantly higher or lower fair value measurement.
|
(e)
|
The Fund utilized an options pricing model to fair value this security. The significant unobservable input used in the
valuation model was volatility. Significant increases or decreases in the input in isolation may result in a significantly higher or lower fair value measurement.
|
(f)
|
The Fund utilized a transaction approach to fair value this security. The significant unobservable inputs used in the
valuation model were total enterprise value TEV and EBITDA. Significant increases or decreases in either of these inputs in isolation may result in a significantly higher or lower fair value measurement.
|
Cash and Cash Equivalents
Cash and cash equivalents of the
Funds consist of cash held in bank accounts and liquid investments with maturities, at the date of acquisition, not exceeding 90 days that, at times, may exceed federally insured limits. As of June 30, 2020, cash and cash equivalents were comprised
of cash deposited with U.S. financial institutions in which carrying value approximated fair value and are considered to be Level 1 in the fair value hierarchy.
Industry Classifications
The industry classifications of the
Funds investments, as presented in the accompanying Schedules of Investments, represent managements belief as to the most meaningful presentation of the classification of such investments. For Fund compliance purposes, the Funds
industry classifications refer to any one or more of the industry sub-classifications used by one or more widely recognized market indexes or rating group indexes, with the primary source being Moodys,
and/or as defined by the Funds management. These definitions may not apply for purposes of this report, which may combine industry sub-classifications.
Fair Value of Financial Instruments
The fair value of the
Funds assets and liabilities that qualify as financial instruments under U.S. GAAP approximates the carrying amounts presented in the accompanying Statements of Assets and Liabilities.
Securities Transactions and Investment Income
Securities
transactions of the Funds are recorded on the trade date for financial reporting purposes. Cost is determined based on consideration given, and the unrealized appreciation/(depreciation) on investment securities is the difference between fair value
determined in compliance with the valuation policy approved by the Board and the cost. Realized gains and losses from securities transactions and foreign currency transactions, if any, are recorded on the basis of identified cost and stated
separately in the Statements of Operations. Interest and dividend income is recorded on the accrual basis and includes the accretion of original issue discounts and amortization of premiums where applicable using the effective interest rate method
over the lives of the respective debt securities.
The Funds hold investments that have designated payment-in-kind (PIK) interest. PIK interest is included in interest income and reflected as a receivable in accrued interest up to the payment date. On payment dates, the Funds capitalize the
accrued interest receivable as an additional investment and mark it at the fair value associated with the position.
Semi-Annual
Report | 37
Apollo Senior Floating Rate Fund Inc.
Apollo Tactical Income Fund Inc.
Notes to Financial Statements (continued)
June 30, 2020 (unaudited)
U.S. Federal Income Tax Status
The Funds intend to maintain
their status each year as regulated investment companies under Subchapter M of the Internal Revenue Code of 1986, as amended, applicable to regulated investment companies and will distribute substantially all of their net investment income and net
capital gains, if any, for their tax years. The Funds may elect to incur excise tax if it is deemed prudent by the Board from a cash management perspective or in the best interest of shareholders due to other facts and circumstances. For the year
ended December 31, 2019, AFT and AIF did not record a U.S. federal excise tax provision. The Funds did not pay any excise tax during 2020 related to the 2019 tax year. No federal income tax provision or excise tax provision is required for the
six months ended June 30, 2020.
The Funds have followed the authoritative guidance on accounting for and disclosure of uncertainty in tax
positions, which requires the Funds to determine whether a tax position is more likely than not to be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits of the position. The
Funds have determined that there was no material effect on the financial statements from following this authoritative guidance. In the normal course of business, the Funds are subject to examination by federal, state and local jurisdictions, where
applicable, for tax years for which applicable statutes of limitations have not expired. The statute of limitations on AFTs federal and state tax filings remains open for the years ended December 31, 2016 to 2019. The statute of
limitations on AIFs federal and state fillings remains open for the years ended December 31, 2016 to 2019.
Distributions to Common Shareholders
The Funds intend to make regular monthly cash distributions of all or a portion of their net investment income available to common shareholders.
The Funds intend to pay common shareholders at least annually all or substantially all of their capital gains and net investment income after the payment of dividends and interest owed with respect to outstanding preferred shares and/or notes or
other forms of leverage utilized by the Funds, although for cash management purposes, the Funds may elect to retain distributable amounts and pay excise tax as described above. If the Funds make a long-term capital gain distribution, they will be
required to allocate such gain between the common shares and any preferred shares issued by the Funds in proportion to the total dividends paid to each class for the year in which the income is realized.
The distributions for any full or partial year might not be made in equal amounts, and one distribution may be larger than the other. The Funds will
make a distribution only if authorized by the Board and declared by the Funds out of assets legally available for these distributions. The Funds may pay a special distribution at the end of each calendar year, if necessary, to comply with U.S.
federal income tax requirements. This distribution policy may, under certain circumstances, have certain adverse consequences to the Funds and their shareholders because it may result in a return of capital to shareholders, which would reduce the
Funds NAV and, over time, potentially increase the Funds expense ratios. If the Funds distribute a return of capital, it means that the Funds are returning to shareholders a portion of their investment rather than making a distribution
that is funded from the Funds earned income or other profits. The Board may elect to change AFTs or AIFs distribution policy at any time.
Asset Segregation
In accordance with the Investment Company
Act and various SEC and SEC staff interpretive positions, a Fund may set aside liquid assets (often referred to as asset segregation), or engage in measures in accordance with SEC or Staff guidance, to cover open
positions with respect to certain kinds of financial instruments that could otherwise be considered senior securities as defined in Section 18(g) of the Investment Company Act. With respect to certain derivative contracts that are
contractually required to cash settle, for example, a Fund is permitted to set aside liquid assets in an amount equal to the Funds daily marked-to-market net
obligations (i.e., the Funds daily net liability) under the contracts, if any, rather than such contracts full notional value. In other circumstances, a Fund may be required to set aside liquid assets equal to such a financial
instruments full notional value, or enter into appropriate offsetting transactions, while the position is open. Each Fund reserves the right to modify its asset segregation policies in the future to comply with any changes in the positions
from time to time announced by the SEC or its staff regarding asset segregation. These segregation and coverage requirements could result in a Fund maintaining securities positions that it would otherwise liquidate, segregating assets at a time when
it might be disadvantageous to do so or otherwise restricting portfolio management. Such segregation and coverage requirements will not limit or offset losses on related positions.
38 | Semi-Annual Report
Apollo Senior Floating Rate Fund Inc.
Apollo Tactical Income Fund Inc.
Notes to Financial Statements (continued)
June 30, 2020 (unaudited)
Note 3. Investment Advisory, Administration and Other Agreements with Affiliates
Investment Advisory Fee
The Adviser provides certain
investment advisory, management and administrative services to the Funds pursuant to investment advisory and management agreements with each of the Funds. For its services, each Fund pays the Adviser monthly at the annual rate of 1.0% of the average
daily value of the Funds managed assets. Managed assets are defined as the total assets of a Fund (including any assets attributable to any preferred shares that may be issued or to money borrowed or notes issued by the Fund) minus the sum of
the Funds accrued liabilities, including accrued interest and accumulated dividends (other than liabilities for money borrowed (including the liquidation preference of preferred shares) or notes issued). The Adviser may elect from time to
time, in its sole discretion, to waive its receipt of the advisory fee from a Fund. If the Adviser elects to waive its compensation, such action may have a positive effect on the Funds performance or yield. The Adviser is under no obligation
to waive its fees, may elect not to do so, may decide to waive its compensation periodically or may decide to waive its compensation on only one of the Funds at any given time. For the six months ended June 30, 2020, the Adviser earned fees of
$1,818,501 and $1,658,621 from AFT and AIF, respectively.
Administrative Services and Expense Reimbursements
The Funds and the Adviser have entered into Administrative Services and Expense Reimbursement Agreements pursuant to which the Adviser provides certain
administrative services, personnel and facilities to the Funds and performs operational services necessary for the operation of the Funds not otherwise provided by other service providers of the Funds. These services may include, without limitation,
certain bookkeeping and recordkeeping services, compliance and legal services, investor relations assistance, and accounting and auditing support. Pursuant to these agreements, the Funds will reimburse the Adviser at cost, at the Advisers
request, for certain costs and expenses incurred by the Adviser that are necessary for the administration and operation of the Funds. In addition, the Adviser or one of its affiliates may pay certain expenses on behalf of the Funds and then allocate
these expenses to the Funds for reimbursement. For the six months ended June 30, 2020, the Adviser provided services under these agreements totaling $368,071 and $373,551 for AFT and AIF, respectively, which is shown in the Statements of Operations
as administrative services of the Adviser. Included in these amounts is approximately $34,000 and $34,000 for AFT and AIF, respectively, of remuneration for officers of the Funds. The Adviser did not waive the right to expense reimbursements and
investment advisory fees for either Fund during the six months ended June 30, 2020.
Each Fund has entered into separate agreements with U.S.
Bancorp Fund Services, LLC, d/b/a U.S. Bank Global Fund Services, to provide accounting and administrative services, as well as separate agreements with U.S. Bank National Association to provide custodial services (together U.S. Bank).
Under the terms of the agreements, U.S. Bank is responsible for providing services necessary in the daily operations of the Funds such as maintaining the Funds books and records, calculating the Funds NAV, settling all portfolio trades,
preparing regulatory filings and acting as the corporate secretary. Each Fund has also entered into separate agreements with American Stock Transfer & Trust Company, LLC (AST), to serve as the Funds transfer agent,
dividend disbursing agent and reinvestment plan administrator. U.S. Bank and AST provided services totaling $98,881 and $93,171 for AFT and AIF, respectively, for the six months ended June 30, 2020, which are included in fund administration and
accounting services in the Statements of Operations.
Board of Directors Fees
On an annual basis, AFT and AIF pay each member of the Board who is not an interested person (as defined in the Investment Company Act) (an
Independent Board Member) of the Funds an annual retainer of $23,000 per Fund, plus $2,000 for each in-person Board meeting (including meetings held via video-conference) of a single Fund ($3,000,
or $1,500 per Fund, for a joint meeting of both Funds), plus $1,000 for attendance at telephonic Board meetings of a single Fund or participation in special committee meetings of a single Fund not held in conjunction with regularly scheduled Board
meetings ($1,500, or $750 per Fund, for a joint meeting of both Funds). In addition, the chairman of the audit committee receives $5,000 per year from each Fund. The Funds also reimburse Independent Board Members for travel and out-of-pocket expenses incurred in connection with such meetings, and the Funds split the cost of such
Semi-Annual
Report | 39
Apollo Senior Floating Rate Fund Inc.
Apollo Tactical Income Fund Inc.
Notes to Financial Statements (continued)
June 30, 2020 (unaudited)
expenses for meetings involving both AFT and AIF. Included in the Statements of Operations in Board of Directors fees for the six months ended June 30,
2020 is $75,915 and $75,915 of expenses related to the Board for each of AFT and AIF, respectively.
Note 4. Investment Transactions
For the six months ended June 30, 2020, the cost of investment purchases and proceeds from sales of securities and principal paydowns were as follows:
|
|
|
|
|
|
|
|
|
|
|
Fund
|
|
Purchases
|
|
Sales
|
|
|
|
Apollo Senior Floating Rate Fund Inc.
|
|
|
$
|
183,751,458
|
|
|
|
$
|
204,502,291
|
|
Apollo Tactical Income Fund Inc.
|
|
|
|
170,657,361
|
|
|
|
|
190,706,711
|
|
|
|
|
The Funds are permitted to purchase and sell securities (Cross-Trade) from and to other Apollo entities
pursuant to procedures approved by the Board in compliance with Rule 17a-7 under the Investment Company Act (the Rule). Each Cross-Trade is executed at a fair market price in compliance with the
provisions of the Rule. For the six months ended June 30, 2020, the Funds did not engage in any Cross-Trade activities.
Note 5. Risks
Senior Loans
Senior Loans are usually rated below investment
grade and may also be unrated. As a result, the risks associated with Senior Loans are similar to the risks of below investment grade fixed income instruments, although Senior Loans are senior and secured, in contrast to other below investment grade
fixed income instruments, which are often subordinated or unsecured. Investments in Senior Loans rated below investment grade are considered speculative because of the credit risk of their issuers. Such issuers are considered more likely than
investment grade issuers to default on their payments of interest and principal owed to the Funds, and such defaults could reduce the Funds NAV and income distributions. An economic downturn would generally lead to a higher non-payment rate, and a Senior Loan may lose significant market value before a default occurs. Moreover, any specific collateral used to secure a Senior Loan may decline in value or become illiquid, which would
adversely affect the Senior Loans value. Senior Loans are subject to a number of risks, including liquidity risk and the risk of investing in below investment grade fixed income instruments.
Senior Loans are subject to the risk of non-payment of scheduled interest or principal. Such non-payment would result in a reduction of income to the Funds, a reduction in the value of the investment and a potential decrease in the NAV of the Funds. There can be no assurance that the liquidation of any
collateral securing a Senior Loan would satisfy the Borrowers obligation in the event of non-payment of scheduled interest or principal payments, or that the collateral could be readily liquidated. In
the event of bankruptcy or insolvency of a Borrower, the Funds could experience delays or limitations with respect to their ability to realize the benefits of the collateral securing a Senior Loan. The collateral securing a Senior Loan may lose all
or substantially all of its value in the event of the bankruptcy or insolvency of a Borrower. Some Senior Loans are subject to the risk that a court, pursuant to fraudulent conveyance or other similar laws, could subordinate such Senior Loans to
presently existing or future indebtedness of the Borrower or take other action detrimental to the holders of Senior Loans including, in certain circumstances, invalidating such Senior Loans or causing interest previously paid to be refunded to the
Borrower.
There may be less readily available and reliable information about most Senior Loans than is the case for many other types of securities,
including securities issued in transactions registered under the Securities Act of 1933 (the 1933 Act) or registered under the Securities Exchange Act of 1934. As a result, the Adviser will rely primarily on its own evaluation of a
Borrowers credit quality, rather than on any available independent sources. Therefore, the Funds will be particularly dependent on the analytical abilities of the Adviser.
In general, the secondary trading market for Senior Loans is not well developed. No active trading market may exist for certain Senior Loans, which may
make it difficult to value them. Illiquidity and adverse market conditions may mean
40 | Semi-Annual Report
Apollo Senior Floating Rate Fund Inc.
Apollo Tactical Income Fund Inc.
Notes to Financial Statements (continued)
June 30, 2020 (unaudited)
that the Funds may not be able to sell Senior Loans quickly or at a fair price. To the extent that a secondary market does exist for certain Senior
Loans, the market for them may be subject to irregular trading activity, wide bid/ask spreads and extended trade settlement periods.
Senior Loans
are generally not registered under the 1933 Act and often contain certain restrictions on resale and cannot be sold publicly. Senior Loans often require prepayments from excess cash flow or permit the Borrower to repay at its election. The degree to
which Borrowers repay, whether as a contractual requirement or at their election, cannot be predicted with accuracy. As a result, the actual maturity may be substantially less than the stated maturity shown on the Schedules of Investments.
The Funds may acquire Senior Loans through assignments or participations. The purchaser of an assignment typically succeeds to all the rights and
obligations of the assigning institution and becomes a lender under the credit agreement with respect to the debt obligation; however, the purchasers rights can be more restricted than those of the assigning institution, and the Funds may not
be able to unilaterally enforce all rights and remedies under the loan and with regard to any associated collateral. In general, a participation is a contractual relationship only with the institution participating out the interest, not with the
Borrower. Sellers of participations typically include banks, broker-dealers and other financial and lending institutions. In purchasing participations, the Funds generally will have no right to enforce compliance by the Borrower with the terms of
the loan agreement against the Borrower, and the Funds may not directly benefit from the collateral supporting the debt obligation in which they have purchased the participation. As a result, the Funds will be exposed to the credit risk of both the
Borrower and the institution selling the participation. Further, in purchasing participations in lending syndicates, the Funds will not be able to conduct the due diligence on the Borrower or the quality of the Senior Loan with respect to which they
are buying a participation that the Funds would otherwise conduct if they were investing directly in the Senior Loan, which may result in the Funds being exposed to greater credit or fraud risk with respect to the Borrower or the Senior Loan.
Corporate Bonds
The Funds may invest in a wide variety of
bonds of varying maturities issued by U.S. and foreign corporations, other business entities, governments and municipalities and other issuers. Corporate bonds are issued with varying features and may differ in the way that interest is calculated,
the amount and frequency of payments, the type of collateral, if any, and the presence of special features (e.g., conversion rights, call rights or other rights of the issuer). The Funds investments in corporate bonds may include, but are not
limited to, senior, junior, secured and unsecured bonds, notes and other debt securities, and may be fixed rate, variable rate or floating rate, among other things.
The Adviser expects most of the corporate bonds in which the Funds invest will be high yield bonds (commonly referred to as junk bonds). An
issuer of corporate bonds typically pays the investor a fixed rate of interest and must repay the amount borrowed on or before maturity. The investment return of corporate bonds reflects interest on the security and changes in the market value of
the security. The market value of a corporate bond generally may be expected to rise and fall inversely with interest rates. The value of intermediate and longer-term corporate bonds normally fluctuates more in response to changes in interest rates
than does the value of shorter-term corporate bonds. The market value of a corporate bond also may be affected by investors perceptions of the creditworthiness of the issuer, the issuers performance and perceptions of the issuer in the
marketplace.
Subordinated Loans
Subordinated loans
generally are subject to similar risks as those associated with investments in Senior Loans, except that such loans are subordinated in payment and/or lower in lien priority to first lien holders. In the event of default on a subordinated loan, the
first priority lien holder has first claim to the underlying collateral of the loan. Subordinated loans are subject to the additional risk that the cash flow of the Borrower and property securing the loan or debt, if any, may be insufficient to meet
scheduled payments after giving effect to the senior unsecured or senior secured obligations of the Borrower. This risk is generally higher for subordinated unsecured loans or debt that are not backed by a security interest in any specific
collateral. Subordinated loans generally have greater price volatility than Senior Loans and may be less liquid.
Semi-Annual
Report | 41
Apollo Senior Floating Rate Fund Inc.
Apollo Tactical Income Fund Inc.
Notes to Financial Statements (continued)
June 30, 2020 (unaudited)
Structured Products
Investments in structured products
involve risks, including credit risk and market risk. When the Funds investments in structured products (such as CDOs, CLOs and asset-backed securities) are based upon the movement of one or more factors, including currency exchange rates,
interest rates, reference bonds (or loans) or stock indices, depending on the factor used and the use of multipliers or deflators, changes in interest rates and movement of any factor may cause significant price fluctuations. Additionally, changes
in the reference instrument or security may cause the interest rate on a structured product to be reduced to zero and any further changes in the reference instrument may then reduce the principal amount payable on maturity of the structured product.
Structured products may be less liquid than other types of securities and more volatile than the reference instrument or security underlying the product.
The Funds may have the right to receive payments only from the structured product and generally do not have direct rights against the issuer or the
entity that sold the assets to be securitized. While certain structured products enable the investor to acquire interests in a pool of securities without the brokerage and other expenses associated with directly holding the same securities,
investors in structured products generally pay their share of the structured products administrative and other expenses. Although it is difficult to predict whether the prices of indices and securities underlying structured products will rise
or fall, these prices (and, therefore, the prices of structured products) will be influenced by the same types of political and economic events that generally affect issuers of securities and capital markets. If the issuer of a structured product
uses shorter-term financing to purchase longer-term securities, the issuer may be forced to sell its securities at below market prices if it experiences difficulty in obtaining short-term financing, which may adversely affect the value of the
structured products owned by the Funds.
Certain structured products may be thinly traded or have a limited trading market. CLOs are typically
privately offered and sold. As a result, investments in CLOs may be characterized by the Funds as illiquid securities. CLOs carry additional risks, including, but not limited to: (i) the possibility that distributions from collateral securities
will not be adequate to make interest or other payments, (ii) the quality of the collateral may decline in value or default, (iii) the possibility that the investments in CLOs are subordinate to other classes or tranches of the CLOs and
(iv) the complex structure of the security may not be fully understood at the time of investment and may produce disputes with the issuer or unexpected investment results.
LIBOR
A Fund may invest in certain debt securities, loans,
derivatives or other credit or financial instruments that utilize the London Interbank Offered Rate, or LIBOR, as a benchmark or reference rate for variable various interest rate calculations. In July 2017, the
United Kingdom Financial Conduct Authority, which regulates LIBOR, announced a desire to phase out the use of LIBOR by the end of 2021. Although financial regulators and industry working groups have suggested alternative reference rates, such as
European Interbank Offer Rate, Sterling Overnight Interbank Average Rate and Secured Overnight Financing Rate, global consensus on alternative rates is lacking and the process for amending existing contracts or instruments to transition away from
LIBOR remains unclear. The elimination of LIBOR or changes to other reference rates or any other changes or reforms to the determination or supervision of reference rates could have an adverse impact on the market for, or value of, any securities or
payments linked to those reference rates, which may adversely affect a Funds performance and/or net asset value. Uncertainty and risk also remain regarding the willingness and ability of issuers and lenders to include revised provisions in new
and existing contracts or instruments. Consequently, the transition away from LIBOR to other reference rates may lead to increased volatility and illiquidity in markets that are tied to LIBOR, fluctuations in values of LIBOR-related investments or
investments in issuers that utilize LIBOR, increased difficulty in borrowing or refinancing and diminished effectiveness of hedging strategies, adversely affecting a Funds performance. Furthermore, the risks associated with the expected
discontinuation of LIBOR and transition may be exacerbated if the work necessary to effect an orderly transition to an alternative reference rate is not completed in a timely manner. Because the usefulness of LIBOR as a benchmark could deteriorate
during the transition period, these effects could occur prior to the end of 2021.
42 | Semi-Annual Report
Apollo Senior Floating Rate Fund Inc.
Apollo Tactical Income Fund Inc.
Notes to Financial Statements (continued)
June 30, 2020 (unaudited)
Note 6. Common Shares
Common share transactions were as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Apollo Senior Floating Rate Fund Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
June 30,
2020
|
|
Year Ended
December 31, 2019
|
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shares outstanding, beginning of the period
|
|
|
|
15,573,061
|
|
|
|
$
|
296,608,448
|
|
|
|
|
15,573,061
|
|
|
|
$
|
296,608,448
|
|
Common shares issued as reinvestment of dividends
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Permanent differences reclassified (primarily non-deductible
expenses)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shares outstanding, end of the period
|
|
|
|
15,573,061
|
|
|
|
$
|
296,608,448
|
|
|
|
|
15,573,061
|
|
|
|
$
|
296,608,448
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Apollo Tactical Income Fund Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
June 30,
2020
|
|
Year Ended
December 31,
2019
|
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shares outstanding, beginning of the period
|
|
|
|
14,464,026
|
|
|
|
$
|
275,624,904
|
|
|
|
|
14,464,026
|
|
|
|
$
|
275,624,904
|
|
Common shares issued as reinvestment of dividends
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Permanent differences reclassified (primarily non-deductible
expenses)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shares outstanding, end of the period
|
|
|
|
14,464,026
|
|
|
|
$
|
275,624,904
|
|
|
|
|
14,464,026
|
|
|
|
$
|
275,624,904
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends declared on common shares with a record date of January 1, 2020 or later through the date of this report
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Apollo Senior Floating Rate Fund Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividend
Declaration
Date
|
|
Ex-Dividend
Date
|
|
Record Date
|
|
Payment Date
|
|
Per
Share
Amount
|
|
Gross
Distribution
|
|
Cash
Distribution
|
|
Value of new
Common
Shares
Issued
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 6, 2020
|
|
January 16, 2020
|
|
January 17, 2020
|
|
January 31, 2020
|
|
|
$
|
0.096
|
|
|
|
$
|
1,495,014
|
|
|
|
$
|
1,495,014
|
|
|
|
|
|
|
January 31, 2020
|
|
February 13, 2020
|
|
February 14, 2020
|
|
February 28, 2020
|
|
|
$
|
0.096
|
|
|
|
$
|
1,495,014
|
|
|
|
$
|
1,495,014
|
|
|
|
|
|
|
March 4, 2020
|
|
March 17, 2020
|
|
March 18, 2020
|
|
March 31, 2020
|
|
|
$
|
0.093
|
|
|
|
$
|
1,448,295
|
|
|
|
$
|
1,448,295
|
|
|
|
|
|
|
April 7, 2020
|
|
April 16, 2020
|
|
April 17, 2020
|
|
April 30, 2020
|
|
|
$
|
0.084
|
|
|
|
$
|
1,308,137
|
|
|
|
$
|
1,308,137
|
|
|
|
|
|
|
May 4, 2020
|
|
May 14, 2020
|
|
May 15, 2020
|
|
May 29, 2020
|
|
|
$
|
0.077
|
|
|
|
$
|
1,199,126
|
|
|
|
$
|
1,199,126
|
|
|
|
|
|
|
June 4, 2020
|
|
June 16, 2020
|
|
June 17, 2020
|
|
June 30, 2020
|
|
|
$
|
0.066
|
|
|
|
$
|
1,027,822
|
|
|
|
$
|
1,027,822
|
|
|
|
|
|
|
July 8, 2020*
|
|
July 17, 2020
|
|
July 20, 2020
|
|
July 31, 2020
|
|
|
$
|
0.066
|
|
|
|
$
|
1,027,822
|
|
|
|
$
|
1,027,822
|
|
|
|
|
|
|
August 6, 2020*
|
|
August 17, 2020
|
|
August 18, 2020
|
|
August 31, 2020
|
|
|
$
|
0.066
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* Declared subsequent to June 30, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Apollo Tactical Income Fund Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividend
Declaration
Date
|
|
Ex-Dividend
Date
|
|
Record Date
|
|
Payment Date
|
|
Per
Share
Amount
|
|
Gross
Distribution
|
|
Cash
Distribution
|
|
Value of new
Common
Shares
Issued
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 6, 2020
|
|
January 16, 2020
|
|
January 17, 2020
|
|
January 31, 2020
|
|
|
$
|
0.100
|
|
|
|
$
|
1,446,403
|
|
|
|
$
|
1,446,403
|
|
|
|
|
|
|
January 31, 2020
|
|
February 13, 2020
|
|
February 14, 2020
|
|
February 28, 2020
|
|
|
$
|
0.100
|
|
|
|
$
|
1,446,403
|
|
|
|
$
|
1,446,403
|
|
|
|
|
|
|
March 4, 2020
|
|
March 17, 2020
|
|
March 18, 2020
|
|
March 31, 2020
|
|
|
$
|
0.097
|
|
|
|
$
|
1,403,011
|
|
|
|
$
|
1,403,011
|
|
|
|
|
|
|
April 7, 2020
|
|
April 16, 2020
|
|
April 17, 2020
|
|
April 30, 2020
|
|
|
$
|
0.091
|
|
|
|
$
|
1,316,226
|
|
|
|
$
|
1,316,226
|
|
|
|
|
|
|
May 4, 2020
|
|
May 14, 2020
|
|
May 15, 2020
|
|
May 29, 2020
|
|
|
$
|
0.081
|
|
|
|
$
|
1,171,586
|
|
|
|
$
|
1,171,586
|
|
|
|
|
|
|
June 4, 2020
|
|
June 16, 2020
|
|
June 17, 2020
|
|
June 30, 2020
|
|
|
$
|
0.072
|
|
|
|
$
|
1,041,410
|
|
|
|
$
|
1,041,410
|
|
|
|
|
|
|
July 8, 2020*
|
|
July 17, 2020
|
|
July 20, 2020
|
|
July 31, 2020
|
|
|
$
|
0.072
|
|
|
|
$
|
1,041,410
|
|
|
|
$
|
1,041,410
|
|
|
|
|
|
|
August 6, 2020*
|
|
August 17, 2020
|
|
August 18, 2020
|
|
August 31, 2020
|
|
|
$
|
0.068
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* Declared subsequent to June 30, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Semi-Annual
Report | 43
Apollo Senior Floating Rate Fund Inc.
Apollo Tactical Income Fund Inc.
Notes to Financial Statements (continued)
June 30, 2020 (unaudited)
Note 7. Federal Tax Information
The timing and character of
income and capital gain distributions are determined in accordance with income tax regulations, which may differ from U.S. GAAP. As a result, net investment income/(loss) and net realized gain/(loss) on investment transactions for a reporting period
may differ significantly from distributions during such period.
The tax character of distributions paid by AFT during the fiscal year ended
December 31, 2019 was as follows:
|
|
|
|
|
|
Apollo Senior Floating Rate Fund Inc.
|
|
|
|
Distributions Paid from Ordinary Income:*
|
|
2019
|
|
|
|
Common Shareholders
|
|
|
$
|
18,687,673
|
|
|
|
|
|
|
|
Total Distributions
|
|
|
$
|
18,687,673
|
|
|
|
|
|
|
|
* For tax purposes, short-term capital gains distributions, if any, are considered ordinary income distributions.
The tax character of distributions paid by AIF during the fiscal year ended December 31, 2019 was as follows:
|
|
|
|
|
|
Apollo Tactical Income Fund Inc.
|
|
|
|
Distributions Paid from Ordinary Income:*
|
|
2019
|
|
|
|
Common Shareholders
|
|
|
$
|
17,935,392
|
|
|
|
|
|
|
|
Total Distributions
|
|
|
$
|
17,935,392
|
|
|
|
|
|
|
|
* For tax purposes, short-term capital gains distributions, if any, are considered ordinary income distributions.
As of December 31, 2019, the most recent tax year end, the components of accumulated losses on a tax basis were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fund
|
|
Undistributed
Ordinary
Income
|
|
Undistributed
Long-Term
Capital Gains
|
|
Net Unrealized
Appreciation/
(Depreciation)*
|
|
Accumulated
Capital and
Other Losses
|
|
|
|
Apollo Senior Floating Rate Fund Inc.
|
|
|
$
|
538,898
|
|
|
|
$
|
|
|
|
|
$
|
(9,404,324
|
)
|
|
|
$
|
(23,936,094
|
)
|
Apollo Tactical Income Fund Inc.
|
|
|
|
600,233
|
|
|
|
|
|
|
|
|
|
(6,671,512
|
)
|
|
|
|
(25,802,735
|
)
|
* Any differences between book basis and tax basis net unrealized appreciation/(depreciation) are primarily due to the deferral of losses
from wash sales, defaulted security interest adjustments, underlying investment partnership adjustments and disallowed losses due to restructuring.
For federal income tax purposes, capital loss carryforwards are available to offset future capital gains. As of December 31, 2019, short-term and
long-term capital loss carryforwards totaled $1,997,163 and $21,938,931, respectively, for AFT and $ and $25,802,735, respectively, for AIF, which may be carried forward for an unlimited period.
Unrealized appreciation/(depreciation) and basis of investments for U.S. federal income tax purposes at June 30, 2020 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Apollo Senior
Floating Rate
Fund Inc.
|
|
Apollo Tactical
Income Fund
Inc.
|
Federal tax basis, cost
|
|
|
$
|
380,508,265
|
|
|
|
$
|
346,570,874
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized appreciation
|
|
|
$
|
4,053,389
|
|
|
|
$
|
3,988,376
|
|
Unrealized depreciation
|
|
|
|
(36,504,032
|
)
|
|
|
|
(34,108,306
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized appreciation/(depreciation)*
|
|
|
$
|
(32,450,643
|
)
|
|
|
$
|
(30,119,930
|
)
|
|
|
|
|
|
|
|
|
|
|
|
* Any differences between book basis and tax basis net unrealized appreciation/(depreciation) are primarily due to the deferral of losses
from wash sales, defaulted security interest adjustments, underlying investment partnership adjustments and disallowed losses due to restructuring.
44 | Semi-Annual Report
Apollo Senior Floating Rate Fund Inc.
Apollo Tactical Income Fund Inc.
Notes to Financial Statements (continued)
June 30, 2020 (unaudited)
Note 8. Credit Agreements and Preferred Shares
The Funds
utilize leverage and may utilize leverage to the maximum extent permitted by law for investment and other general corporate purposes. The Funds may obtain leverage by issuing preferred shares and/or notes and may also borrow funds from banks and
other financial institutions. The Funds may also gain leverage synthetically through swaps and other derivatives. The use of leverage to purchase additional securities creates an opportunity for increased common share dividends, but also creates
risks for common shareholders, including increased variability of the Funds net income, distributions and/or NAV in relation to market changes. Leverage is a speculative technique that exposes the Funds to greater risk and increased costs than
if it were not implemented. Increases and decreases in the value of the Funds portfolios will be magnified due to the use of leverage. In particular, leverage may magnify interest rate risk, which is the risk that the prices of portfolio
securities will fall (or rise) if market interest rates for those types of securities rise (or fall). As a result, leverage may cause greater changes in the Funds NAV, which will be borne entirely by the Funds common shareholders. If the
Funds issue preferred shares and/or notes or engage in other borrowings, they will have to pay dividends on their shares or interest on their notes or borrowings, which will increase expenses and may reduce the Funds return. These dividend
payments or interest expenses (which will be borne entirely by the common shareholders) may be greater than the Funds return on the underlying investments. The Funds leveraging strategy may not be successful.
Apollo Senior Floating Rate Fund Inc.
On March 1, 2019,
AFT entered into an amended and restated credit facility (the Amended Credit Facility) with Sumitomo Mitsui Banking Corporation (SMBC) as lender, which matures on March 1, 2021. Under the terms of the Amended Credit
Facility, AFT may borrow a single term loan not to exceed $141,000,000. Borrowings under this facility bear interest at a rate of LIBOR plus 0.875%. AFT has granted a security interest in substantially all of its assets in the event of default under
the Amended Credit Facility. As of June 30, 2020, AFT has $121,000,000 of principal outstanding under the Amended Credit Facility.
For the six
months ended June 30, 2020, the average daily principal loan balance outstanding was $129,670,330, the weighted average annual interest rate was 2.01% and the interest expense, which is included on the Statements of Operations in interest and
commitment fee expense, was $1,298,563.
The fair value of AFTs borrowings under the Amended Credit Facility approximates the carrying amount
presented in the accompanying Statements of Assets and Liabilities based on a yield analysis and remaining maturities for which AFT has determined would be categorized as Level 2 in the fair-value hierarchy.
The Amended Credit Facility contains certain customary affirmative and negative covenants, including limitations on debt, liens and restricted payments,
as well as certain portfolio limitations and customary prepayment provisions, including a requirement to prepay loans or take certain other actions if certain asset value tests are not met. As of June 30, 2020, AFT was not aware of any
instances of non-compliance related to the Amended Credit Facility.
In connection with AFTs entry
into the Amended Credit Facility, certain debt financing costs were incurred by AFT and are shown net of the principal amount in the Statements of Assets and Liabilities. The deferred financing costs are amortized over the life of the credit
facility. The amortization of the deferred financing costs is included in the Statements of Operations.
Apollo Tactical Income Fund Inc.
On April 2, 2020, AIF entered into an amended and restated credit facility (the Newly Amended Credit Facility) with SMBC as lender,
which matures on April 4, 2022. Under the terms of the Newly Amended Credit Facility, AIF may borrow a single term loan not to exceed $110,000,000. Borrowings under this facility bear interest at a rate of LIBOR plus 0.875%. AIF has granted a
security interest in substantially all of its assets in the event of default under the Newly Amended Credit Facility. As of June 30, 2020, AIF has $110,000,000 of principal outstanding under the Newly Amended Credit Facility.
Semi-Annual
Report | 45
Apollo Senior Floating Rate Fund Inc.
Apollo Tactical Income Fund Inc.
Notes to Financial Statements (continued)
June 30, 2020 (unaudited)
Prior to April 21, 2020, AIF had entered into a $133,000,000 credit facility (the Prior Credit Facility) with SMBC as lender. Borrowings
under this facility bore interest at a rate of LIBOR plus 0.90%. Under the terms of the Prior Credit Facility, AIF could borrow a single term loan not to exceed $125,000,000 (the Prior Term Loan) and could borrow up to an additional
$8,000,000 on a revolving basis (the Prior Revolving Loan). AIF had granted a security interest in substantially all of its assets in the event of default under the Prior Credit Facility. The unused portion of the Prior Revolving Loan
was subject to a quarterly commitment fee equal to 0.15% per annum on the average daily amount of available commitments.
For the six months
ended June 30, 2020, the average daily principal loan balance outstanding was $117,222,527, the weighted average annual interest rate was 2.04% and the interest expense, which is included on the Statements of Operations in interest and
commitment fee expense, was $1,188,756.
The fair value of AIFs borrowings under the Newly Amended Credit Facility approximates the carrying
amount presented in the accompanying Statements of Assets and Liabilities based on a yield analysis and remaining maturities for which AIF has determined would be categorized as Level 2 in the fair-value hierarchy.
The Newly Amended Credit Facility contains certain customary affirmative and negative covenants, including limitations on debt, liens and restricted
payments, as well as certain portfolio limitations and customary prepayment provisions, including a requirement to prepay loans or take certain other actions if certain asset value tests are not met. As of June 30, 2020, AIF was not aware of
any instances of non-compliance related to the Newly Amended Credit Facility.
In connection with AIFs entry into the Newly Amended Credit
Facility, certain debt financing costs were incurred by AIF and are shown net of the principal amount in the Statements of Assets and Liabilities. The deferred financing costs are amortized over the life of the Newly Amended Credit Facility. The
amortization of the deferred financing costs is included in the Statements of Operations.
Note 9. General Commitments and Contingencies
As of June 30, 2020, the Funds had unfunded loan commitments outstanding, which could be extended at the option of the borrower, as detailed below:
|
|
|
|
|
|
|
|
|
|
|
Borrower
|
|
AFT
|
|
AIF
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
APC Automotive Technologies, LLC DIP Delayed Draw Term Loan*
|
|
|
$
|
661,373
|
|
|
|
$
|
661,373
|
|
Electronics for Imaging, Inc. Revolving Term Loan
|
|
|
|
944,250
|
|
|
|
|
714,016
|
|
Intelsat Jackson Holdings S.A. DIP Bridge Loan
|
|
|
|
1,700,159
|
|
|
|
|
1,753,211
|
|
Pathway Vet Alliance, LLC Delayed Draw Term Loan
|
|
|
|
114,443
|
|
|
|
|
114,443
|
|
|
|
|
|
|
|
|
|
|
|
|
Total unfunded loan commitments
|
|
|
$
|
3,420,225
|
|
|
|
$
|
3,243,043
|
|
|
|
|
|
|
|
|
|
|
|
|
* The loan commitment was partially funded subsequent to June 30, 2020.
Unfunded loan commitments are marked to market on the relevant day of the valuation in accordance with the Funds valuation policies. Any related
unrealized appreciation/(depreciation) on unfunded loan commitments is recorded on the Statements of Assets and Liabilities and the Statements of Operations. For the six months ended June 30, 2020, AFT and AIF recorded a net change in unrealized
appreciation on unfunded loan commitments totaling $59,720 and $50,689, respectively.
Note 10. Indemnification
The Funds each have a variety of indemnification obligations under contracts with their service providers. The Funds maximum exposure under these
arrangements is unknown as this would be dependent on future claims that may be made against the Funds. Based upon historical experience, the risk of loss from such claims is currently considered remote; however, there can be no assurance that
losses will not occur or if claims are made against the Funds the losses will not be material.
46 | Semi-Annual Report
Apollo Senior Floating Rate Fund Inc.
Apollo Tactical Income Fund Inc.
Notes to Financial Statements (continued)
June 30, 2020 (unaudited)
Note 11. Subsequent Events
Management has evaluated the
impact of all subsequent events on the Funds through the date the financial statements were issued and has determined that there were no subsequent events that would require disclosure in or adjustments to the financial statements.
Semi-Annual
Report | 47
Apollo Senior Floating Rate Fund Inc.
Apollo Tactical Income Fund Inc.
Additional
Information
June 30, 2020 (unaudited)
Dividend Reinvestment Plan
Unless a shareholder specifically
elects to receive common stock of the Funds as set forth below, all net investment income dividends and all capital gains distributions declared by the Board will be payable in cash.
A shareholder may elect to have net investment income dividends and capital gains distributions reinvested in common stock of the Funds. To exercise
this option, such shareholder must notify AST, the plan administrator and the Funds transfer agent and registrar, in writing so that such notice is received by the plan administrator not less than 10 days prior to the record date fixed by the
Board for the net investment income dividend and/or capital gains distribution involved.
The plan administrator will set up an account for shares
acquired pursuant to the plan for each shareholder that elects to receive dividends and distributions in additional shares of common stock of the Funds (each a Participant). The plan administrator may hold each Participants shares,
together with the shares of other Participants, in non-certificated form in the plan administrators name or that of its nominee.
The shares are acquired by the plan administrator for a participants account, depending upon the circumstances described below, either
(i) through receipt of additional unissued but authorized shares of common stock from the Funds (Newly Issued Shares) or (ii) by purchase of outstanding shares of common stock on the open market (Open-Market
Purchases) on the NYSE or elsewhere. If, on the dividend payment date, the NAV per share of the common stock is equal to or less than the market price per share of the common stock plus estimated brokerage commissions (such condition being
referred to as market premium), the plan administrator will invest the dividend amount in Newly Issued Shares on behalf of the Participant. The number of Newly Issued Shares of common stock to be credited to the Participants
account will be determined by dividing the dollar amount of the dividend by the NAV per share on the date the shares are issued, unless the NAV is less than 95% of the then current market price per share, in which case the dollar amount of the
dividend will be divided by 95% of the then current market price per share. If, on the dividend payment date, the NAV per share is greater than the market value (such condition being referred to as market discount), the plan
administrator will invest the dividend amount in shares acquired on behalf of the Participant in Open-Market Purchases.
The plan
administrators service fee, if any, and expenses for administering the plan will be paid for by the Funds. If a Participant elects by written notice to the plan administrator to have the plan administrator sell part or all of the shares held
by the plan administrator in the Participants account and remit the proceeds to the Participant, the plan administrator is authorized to deduct a $15 transaction fee plus a 12¢ per share brokerage commission from the proceeds.
Shareholders who receive dividends in the form of stock are subject to the same federal, state and local tax consequences as are shareholders who elect
to receive their dividends in cash. A shareholders basis for determining gain or loss upon the sale of stock received in a dividend from the Funds will be equal to the total dollar amount of the dividend payable to the shareholders. Any stock
received in a dividend will have a new holding period for tax purposes commencing on the day following the day on which the shares are credited to the U.S. shareholders account.
Participants may terminate their accounts under the plan by notifying the plan administrator via its website at www.astfinancial.com, by filling out the
transaction request form located at the bottom of the Participants statement and sending it to the plan administrator at American Stock Transfer and Trust Company, LLC, P.O. Box 922 Wall Street Station, New York, NY 10269-0560 or by calling
the plan administrator at 1-877-864-4834.
The plan may be
terminated by the Funds upon notice in writing mailed to each Participant at least 30 days prior to any record date for the payment of any dividend or distribution by the Funds. All correspondence, including requests for additional information,
concerning the plan should be directed to the plan administrator by mail at American Stock Transfer and Trust Company, LLC, 6201 15th Avenue, Brooklyn NY 11219.
48 | Semi-Annual Report
Apollo Senior Floating Rate Fund Inc.
Apollo Tactical Income Fund Inc.
Additional Information (continued)
June 30, 2020 (unaudited)
European Risk
The Funds may invest a portion of their assets
in credit instruments issued by issuers domiciled in Europe, including issuers domiciled in the United Kingdom (UK). Investments in the Eurozone remain subject to the risks of substantial write-downs and reductions in the face value of
the sovereign debt of certain countries and the possibility that one or more countries might leave the European Union (EU) or the Eurozone. Sovereign debt write-downs or defaults and EU and/or Eurozone exits could have material adverse
effects on investments by the Funds in securities of European companies, including but not limited to the availability of credit to support such companies financing needs, uncertainty and disruption in relation to financing, customer and
supply contracts denominated in Euro and wider economic disruption in markets served by those companies, while measures that have been introduced in order to limit or contain these issues may themselves lead to economic contraction and result in
adverse effects on the investments made by the Funds. Legal uncertainty about the funding of Euro denominated obligations following any breakup or exits from the Eurozone (particularly in the case of investments in securities of companies in
affected countries) could also have material adverse effects on the Funds. The UK formally withdrew from the EU on January 31, 2020 (Brexit), and is now in a transition period through December 31, 2020, during which the UK and the
EU will seek to agree on the terms of their future relationship. Although the UK will remain in the EU single market and customs union during the transition period, the long-term nature of the UKs relationship with the EU is unclear, and there
is considerable uncertainty as to when any agreement will be reached and implemented. The uncertainty surrounding the implementation and effect of Brexit, the uncertainty in relation to the legal and regulatory framework that may apply to the UK and
its relationship with the remaining members of the EU (including, in relation to trade) has caused and is likely to cause increased economic volatility and market uncertainty globally. During the transition period and beyond, the impact on the UK
and European economies and the broader global economy could be significant, resulting in increased volatility and illiquidity, currency fluctuations, impacts on arrangements for trading and on other existing cross-border cooperation arrangements
(whether economic, tax, fiscal, legal, regulatory or otherwise), and in potentially lower growth for companies in the UK, Europe and globally, which could have an adverse effect on the value of the Funds investments.
Current Market Conditions and Governmental Actions Risk
The
coronavirus pandemic and the related governmental and public responses have had and may continue to have an adverse effect on a Funds investments and net asset value, and have led and may continue to lead to increased market volatility.
Preventative or protective actions that governments may take in respect of pandemic or epidemic diseases may result in periods of business disruption, inability of companies to obtain raw materials, supplies and component parts, increases in
unemployment, greater incurrence of debt and the lack of ability to service existing debt, changes in interest rates and reduced or disrupted operations for a Funds investments. The occurrence and pendency of such diseases could adversely
affect the economies and financial markets in the U.S., other specific countries or worldwide.
Approval of the Investment Advisory and Management Agreements for
AFT and AIF
At a meeting of the Boards of Directors (together, the Board or the Directors) of Apollo Senior Floating
Rate Fund Inc. (AFT) and Apollo Tactical Income Fund Inc. (AIF) (each, a Fund and together, the Funds) held on February 13, 2020, the Directors met in person to consider the approval of the
Investment Advisory and Management Agreement between AFT and Apollo Credit Management, LLC (the Adviser) and the Investment Advisory and Management Agreement between AIF and the Adviser (each, an Advisory Agreement and
together, the Advisory Agreements) for an additional one-year term. While the meetings occurred at the same time, the Directors considered each Advisory Agreement separately.
The Board has the responsibility under the Investment Company Act of 1940, as amended (the 1940 Act), to approve annual renewal of each
Funds Advisory Agreement at meetings of the Board called for the purpose of voting on such renewal. The Board generally receives, reviews and evaluates information concerning the services and personnel of the Adviser and its affiliates at
quarterly meetings of the Board. While particular emphasis might be placed on information concerning the investment performance of each Fund, each Funds fees and expenses in comparison with other funds fees and expenses and the
Advisers profitability at the meeting at which the renewal of the Advisory
Semi-Annual
Report | 49
Apollo Senior Floating Rate Fund Inc.
Apollo Tactical Income Fund Inc.
Additional Information (continued)
June 30, 2020 (unaudited)
Agreements is considered, the process of evaluating each Funds investment advisory and management arrangements is an ongoing one.
In preparation for their review of the Advisory Agreements, all of the Directors who are not interested persons, as defined in the 1940 Act
(the Independent Directors), of the Funds present at the meeting met with their independent counsel in an executive session. In considering whether to approve the Advisory Agreements, the Directors, including the Independent Directors,
reviewed materials provided in advance of the meeting by the Adviser and counsel to the Independent Directors and other materials which included, among other things: (i) information concerning the services rendered to each Fund by the Adviser;
(ii) information concerning the revenues generated and expenses incurred by the Adviser from the operation of each Fund; and (iii) a memorandum outlining the legal duties of the Board under the 1940 Act. The Board also reviewed information
prepared by Strategic Insight, a third party service provider, which included information in respect of each Fund comparing (1) the Funds performance with that of a group of comparable funds selected by Strategic Insight (the Peer
Group) and with a broader group of funds (the Morningstar Category) and (2) the Funds contractual and net management fees and total net expenses with those of its Peer Group and Morningstar Category.
Counsel to the Independent Directors discussed the factors outlined by the federal courts as relevant to a boards consideration of the approval of
an investment advisory agreement and referred the Directors to the materials provided in connection with the meeting. The Directors also received information regarding each Funds operations, expenses and performance periodically throughout the
year.
The nature, extent and quality of services provided by the Adviser. Representatives of the Adviser discussed the nature, extent and
quality of the services provided by the Adviser to each Fund, including the Advisers expertise in managing loan portfolios, the integrated platform of the Adviser and its affiliates and the benefits, resources and opportunities of the platform
that the Adviser is able to access. Fund management discussed the size and experience of the Advisers staff, the experience of its key personnel in providing investment management services, the systems used by the Advisers personnel and
the ability of the Adviser to attract and retain capable personnel. Representatives of the Adviser discussed the reputation, compliance history, compliance program and financial condition of the Adviser. They discussed the terms of each Advisory
Agreement and the Advisers responsibilities with respect to each Fund.
Investment performance of the Funds and the Adviser.
Representatives of the Adviser reviewed with the Board the performance of each Fund. Fund management discussed each Funds stock price, and its yield. Representatives of the Adviser compared each Funds yield (based on the ratio of net
investment income to average net assets) to the average yield of certain of its peer funds identified by the Adviser for each calendar year since the Funds inception. Fund management then discussed each Funds investment performance as
compared to the performance of relevant reference indexes (the Benchmarks) for various periods.
On a net asset value basis, AFT
outperformed the Benchmarks for the one-, three- and five-year periods ended December 31, 2019 and for the period since inception (February 23, 2011) through December 31, 2019. On a net asset value basis, AIF outperformed the Benchmarks
for the one-, three- and five-year periods ended December 31, 2019 and for the period since inception (February 25, 2013) through December 31, 2019. On a market value basis, AFT underperformed its Benchmarks for the three-year period ended
December 31, 2019 and the period since inception through December 31, 2019, but outperformed its Benchmarks for the one- and five-year periods ended December 31, 2019. On a market value basis, AIF outperformed its Benchmarks for the
one-, three- and five-year periods ended December 31, 2019 and for the period since inception through December 31, 2019.
Representatives
of the Adviser next reviewed each Funds investment performance as compared to that of its Peer Group and Morningstar Category for various annual periods ended December 31, 2019. Each Fund ranked above the averages of its Peer Group and
Morningstar Category for the various annual periods, except that AIF ranked below the average of its Morningstar Category for the one-year period.
50 | Semi-Annual Report
Apollo Senior Floating Rate Fund Inc.
Apollo Tactical Income Fund Inc.
Additional Information (continued)
June 30, 2020 (unaudited)
Cost of services provided and profits realized by the Adviser and its affiliates from the relationship with the Funds. The Directors received
information from the Adviser regarding the profitability of each Fund to the Adviser and its affiliate and the methodology used by the Adviser in allocating its costs regarding the operations of the Funds and calculating profitability. In addition,
the Directors considered whether any direct or indirect collateral benefits inured to the Adviser as a result of its affiliation with the Funds. It was noted that each Fund has entered into an Administrative Services and Reimbursement Agreement with
the Adviser pursuant to which the Adviser provides the Fund with certain personnel and services not otherwise provided under the relevant Advisory Agreement, which services are required for the operations of the Fund, and the Fund generally
reimburses the Adviser on an at cost basis for such services.
The extent to which economies of scale would be realized as the Funds grow and
whether fee levels would reflect such economies of scale. The Directors considered the extent to which economies of scale are relevant for the Funds. It was noted that, because each Fund is a closed-end fund, any increase in asset levels
generally would have to come from material appreciation through investment performance. It was also noted that an investment objective of each Fund is to seek current income and that much of each Funds realized income is expected to be
distributed to its shareholders through monthly dividends.
Comparison of services rendered and fees paid to those under other investment
advisory contracts, such as contracts of the same and other investment advisers or other clients. The Board discussed the net management fee and net expense ratio comparisons set forth in the Strategic Insight report with representatives of the
Adviser. For each Fund, the Funds contractual management fee was within the range of those of its Peer Group funds. Each Funds net total expense ratio at both managed and common asset levels ranked in the fourth quartile of its Peer
Group and Morningstar Category. In considering the comparison of services rendered to and fees paid by each Fund to those under other investment advisory contracts, the Directors were aware of the nature of the investment strategies of each Fund and
the fact that the relevant comparison funds may have investment strategies, restrictions and leverage different from those of the Fund. In regard to compensation paid to the Adviser with respect to other funds or accounts, the Adviser stated that
none of the other funds or accounts advised by it or any of its affiliates are comparable to either Fund with respect to investment strategies.
Conclusion. After consideration of the factors discussed above, the Directors, including the Independent Directors, unanimously voted to approve
each Advisory Agreement for an additional one-year term.