Apollo Senior Floating Rate Fund Inc.
Apollo Tactical Income Fund Inc.
Statements of Assets and Liabilities
December 31, 2019
|
|
|
|
|
|
|
|
|
|
|
Apollo
Senior
Floating Rate
Fund Inc.
|
|
|
Apollo
Tactical
Income
Fund Inc.
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
Investment securities at fair value (cost $409,917,153 and $374,323,589, respectively)
|
|
$
|
401,629,963
|
|
|
$
|
368,886,560
|
|
Cash and cash equivalents
|
|
|
14,020,233
|
|
|
|
4,898,532
|
|
Interest receivable
|
|
|
1,840,604
|
|
|
|
2,944,582
|
|
Receivable for investment securities sold
|
|
|
22,093,409
|
|
|
|
21,164,773
|
|
Unrealized appreciation on unfunded loan commitments (Note 9)
|
|
|
5,939
|
|
|
|
|
|
Prepaid expenses
|
|
|
98,758
|
|
|
|
98,758
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
|
439,688,906
|
|
|
|
397,993,205
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings under credit facility (principal $141,000,000 and $126,500,000, respectively, less unamortized
deferred financing costs of $198,017 and $53,951, respectively) (Note 8)
|
|
|
140,801,983
|
|
|
|
126,446,049
|
|
Payable for investment securities purchased
|
|
|
34,403,154
|
|
|
|
27,210,454
|
|
Interest payable
|
|
|
134,363
|
|
|
|
80,692
|
|
Distributions payable to common shareholders
|
|
|
60,149
|
|
|
|
43,406
|
|
Investment advisory fee payable
|
|
|
342,186
|
|
|
|
311,937
|
|
Other payables and accrued expenses
|
|
|
140,143
|
|
|
|
149,777
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
175,881,978
|
|
|
|
154,242,315
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and Contingencies (Note 9)
|
|
|
|
|
|
|
|
|
|
|
|
Net Assets (Applicable to Common Shareholders)
|
|
$
|
263,806,928
|
|
|
$
|
243,750,890
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Assets Consist of:
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
$
|
275,624,904
|
|
Total accumulated loss
|
|
|
(32,801,520
|
)
|
|
|
(31,874,014
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Assets (Applicable to Common Shareholders)
|
|
$
|
263,806,928
|
|
|
$
|
243,750,890
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Common Shares Outstanding
|
|
|
15,573,061
|
|
|
|
14,464,026
|
|
Net Asset Value, per Common Share
|
|
$
|
16.94
|
|
|
$
|
16.85
|
|
24 | See accompanying Notes
to Financial Statements.
Apollo Senior Floating Rate Fund Inc.
Apollo Tactical Income Fund Inc.
Statements of Operations
For the Year Ended December 31, 2019
|
|
|
|
|
|
|
|
|
|
|
Apollo
Senior
Floating Rate
Fund Inc.
|
|
|
Apollo
Tactical
Income
Fund Inc.
|
|
Investment Income:
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
29,135,444
|
|
|
$
|
27,506,176
|
|
Dividends
|
|
|
275,739
|
|
|
|
275,739
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investment income
|
|
|
29,411,183
|
|
|
|
27,781,915
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
Investment advisory fee (Note 3)
|
|
|
4,030,100
|
|
|
|
3,670,685
|
|
Interest and commitment fee expense (Note 8)
|
|
|
4,526,457
|
|
|
|
4,093,234
|
|
Professional fees
|
|
|
249,640
|
|
|
|
250,640
|
|
Administrative services of the Adviser (Note 3)
|
|
|
806,805
|
|
|
|
801,110
|
|
Fund administration and accounting services (Note 3)
|
|
|
173,940
|
|
|
|
164,062
|
|
Insurance expense
|
|
|
287,775
|
|
|
|
287,775
|
|
Amortization of deferred financing costs (Note 8)
|
|
|
188,531
|
|
|
|
177,474
|
|
Board of Directors fees (Note 3)
|
|
|
134,841
|
|
|
|
134,841
|
|
Other operating expenses
|
|
|
102,777
|
|
|
|
104,458
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
10,500,866
|
|
|
|
9,684,279
|
|
Expense reimbursement waived by the Adviser (Note 3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net expenses
|
|
|
10,500,866
|
|
|
|
9,684,279
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Investment Income
|
|
|
18,910,317
|
|
|
|
18,097,636
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Realized and Unrealized Gain/(Loss) on Investments
|
|
|
|
|
|
|
|
|
|
|
|
Net realized loss on investments
|
|
|
(3,212,968
|
)
|
|
|
(2,074,997
|
)
|
Net change in unrealized appreciation on investments and unfunded loan commitments (Note 9)
|
|
|
12,370,286
|
|
|
|
13,231,677
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net realized and unrealized gain on investments
|
|
|
9,157,318
|
|
|
|
11,156,680
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Increase in Net Assets, Applicable to Common Shareholders,
Resulting From Operations
|
|
$
|
28,067,635
|
|
|
$
|
29,254,316
|
|
|
|
|
|
|
|
|
|
|
See accompanying Notes to Financial
Statements. | 25
Apollo Senior Floating Rate Fund Inc.
Statements of Changes in Net Assets
|
|
|
|
|
|
|
|
|
|
|
For
the
Year Ended
December 31, 2019
|
|
|
For the
Year Ended
December 31, 2018
|
|
Increase/(Decrease) in Net Assets from:
|
|
|
|
|
|
|
|
|
|
|
|
Operations
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
$
|
18,910,317
|
|
|
$
|
19,528,159
|
|
Net realized loss on investments
|
|
|
(3,212,968
|
)
|
|
|
(10,329,855
|
)
|
Net change in unrealized appreciation/(depreciation) on investments and unfunded loan commitments
|
|
|
12,370,286
|
|
|
|
(13,265,878
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase/(decrease) in net assets from operations
|
|
|
28,067,635
|
|
|
|
(4,067,574
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions to Common Shareholders
|
|
|
|
|
|
|
|
|
|
|
|
Total distributable earnings
|
|
|
(18,687,673
|
)
|
|
|
(19,575,338
|
)
|
|
|
|
|
|
|
|
|
|
Total distributions to common shareholders
|
|
|
(18,687,673
|
)
|
|
|
(19,575,338
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Total increase/(decrease) in net assets
|
|
$
|
9,379,962
|
|
|
$
|
(23,642,912
|
)
|
|
|
|
Net Assets Applicable to Common Shares
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of year
|
|
|
254,426,966
|
|
|
|
278,069,878
|
|
|
|
|
|
|
|
|
|
|
End of year
|
|
$
|
263,806,928
|
|
|
$
|
254,426,966
|
|
|
|
|
|
|
|
|
|
|
26 | See accompanying Notes
to Financial Statements.
Apollo Tactical Income Fund Inc.
Statements of Changes in Net Assets
|
|
|
|
|
|
|
|
|
|
|
For the
Year Ended
December 31, 2019
|
|
|
For the
Year Ended
December 31, 2018
|
|
Increase/(Decrease) in Net Assets from:
|
|
|
|
|
|
|
|
|
|
|
|
Operations
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
$
|
18,097,636
|
|
|
$
|
19,180,753
|
|
Net realized loss on investments
|
|
|
(2,074,997
|
)
|
|
|
(4,191,263
|
)
|
Net change in unrealized appreciation/(depreciation) on investments and unfunded loan commitments
|
|
|
13,231,677
|
|
|
|
(15,729,673
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase/(decrease) in net assets from operations
|
|
|
29,254,316
|
|
|
|
(740,183
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions to Common Shareholders
|
|
|
|
|
|
|
|
|
|
|
|
Total distributable earnings
|
|
|
(17,935,392
|
)
|
|
|
(19,092,514
|
)
|
|
|
|
|
|
|
|
|
|
Total distributions to common shareholders
|
|
|
(17,935,392
|
)
|
|
|
(19,092,514
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Total increase/(decrease) in net assets
|
|
$
|
11,318,924
|
|
|
$
|
(19,832,697
|
)
|
|
|
|
Net Assets Applicable to Common Shares
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of year
|
|
|
232,431,966
|
|
|
|
252,264,663
|
|
|
|
|
|
|
|
|
|
|
End of year
|
|
$
|
243,750,890
|
|
|
$
|
232,431,966
|
|
|
|
|
|
|
|
|
|
|
See accompanying Notes to Financial
Statements. | 27
Apollo Senior Floating Rate Fund Inc.
Statement of Cash Flows
For the Year Ended December 31, 2019
|
|
|
|
|
Cash Flows from Operating Activities:
|
|
|
|
|
|
|
Net increase in net assets from operations
|
|
$
|
28,067,635
|
|
|
|
Adjustments to Reconcile Net Increase in Net Assets from Operations to Net Cash Flows Provided
By
|
|
|
|
|
Operating Activities:
|
|
|
|
|
Net realized loss on investments
|
|
|
3,212,968
|
|
Net change in unrealized appreciation on investments and unfunded loan commitments
|
|
|
(12,370,286
|
)
|
Net amortization/(accretion) of premium/(discount)
|
|
|
(2,294,290
|
)
|
Purchase of investment securities
|
|
|
(433,315,511
|
)
|
Proceeds from disposition of investment securities and principal paydowns
|
|
|
426,568,191
|
|
Payment-in-kind interest
|
|
|
(295,826
|
)
|
Amortization of deferred financing costs
|
|
|
188,531
|
|
Changes in Operating Assets and Liabilities:
|
|
|
|
|
Decrease in interest receivable
|
|
|
190,173
|
|
Increase in prepaid expenses
|
|
|
(19,973
|
)
|
Decrease in interest payable
|
|
|
(161,824
|
)
|
Increase in investment advisory fee payable
|
|
|
251
|
|
Decrease in other payables and accrued expenses
|
|
|
(31,428
|
)
|
|
|
|
|
|
|
|
Net cash flows provided by operating activities
|
|
|
9,738,611
|
|
|
|
|
|
|
|
|
Cash Flows from Financing Activities:
|
|
|
|
|
Deferred financing cost
|
|
|
(307,969
|
)
|
Distributions paid to common shareholders (net of change in distributions payable to common
shareholders)
|
|
|
(18,720,671
|
)
|
|
|
|
|
|
Net cash flows used in financing activities
|
|
|
(19,028,640
|
)
|
|
|
|
|
|
|
|
Net Decrease in Cash and Cash Equivalents
|
|
|
(9,290,029
|
)
|
|
|
Cash and cash equivalents, beginning of year
|
|
|
23,310,262
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of year
|
|
$
|
14,020,233
|
|
|
|
|
|
|
|
|
Supplemental Disclosure of Cash Flow Information
|
|
|
|
|
Cash paid during the period for interest and commitment fee
|
|
$
|
4,688,281
|
|
|
|
|
|
|
28 | See accompanying Notes
to Financial Statements.
Apollo Tactical Income Fund Inc.
Statement of Cash Flows
For the Year Ended December 31, 2019
|
|
|
|
|
Cash Flows from Operating Activities:
|
|
|
|
|
|
|
Net increase in net assets from operations
|
|
$
|
29,254,316
|
|
|
|
Adjustments to Reconcile Net Increase in Net Assets from Operations to Net Cash Flows Provided
By
|
|
|
|
|
Operating Activities:
|
|
|
|
|
Net realized loss on investments
|
|
|
2,074,997
|
|
Net change in unrealized appreciation on investments and unfunded loan commitments
|
|
|
(13,231,677
|
)
|
Net amortization/(accretion) of premium/(discount)
|
|
|
(2,063,178
|
)
|
Purchase of investment securities
|
|
|
(434,854,158
|
)
|
Proceeds from disposition of investment securities and principal paydowns
|
|
|
429,507,636
|
|
Payment-in-kind interest
|
|
|
(174,078
|
)
|
Amortization of deferred financing costs
|
|
|
177,474
|
|
Changes in Operating Assets and Liabilities:
|
|
|
|
|
Increase in interest receivable
|
|
|
(553,630
|
)
|
Increase in prepaid expenses
|
|
|
(19,845
|
)
|
Decrease in interest payable
|
|
|
(96,178
|
)
|
Increase in investment advisory fee payable
|
|
|
1,532
|
|
Decrease in other payables and accrued expenses
|
|
|
(30,995
|
)
|
|
|
|
|
|
|
|
Net cash flows provided by operating activities
|
|
|
9,992,216
|
|
|
|
|
|
|
|
|
Cash Flows from Financing Activities:
|
|
|
|
|
Distributions paid to common shareholders (net of change in distributions payable to common
shareholders)
|
|
|
(17,950,079
|
)
|
|
|
|
|
|
Net cash flows used in financing activities
|
|
|
(17,950,079
|
)
|
|
|
|
|
|
|
|
Net Decrease in Cash and Cash Equivalents
|
|
|
(7,957,863
|
)
|
|
|
Cash and cash equivalents, beginning of year
|
|
|
12,856,395
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of year
|
|
$
|
4,898,532
|
|
|
|
|
|
|
|
|
Supplemental Disclosure of Cash Flow Information
|
|
|
|
|
Cash paid during the year for interest and commitment fee
|
|
$
|
4,189,412
|
|
|
|
|
|
|
See accompanying Notes to Financial
Statements. | 29
Apollo Senior Floating Rate Fund Inc.
Financial Highlights
For a Common Share Outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per Common Share Operating Performance:
|
|
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 Year
|
|
$
|
16.34
|
|
|
$
|
17.86
|
|
|
$
|
18.07
|
|
|
$
|
16.92
|
|
|
$
|
18.30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from Investment Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income(a)
|
|
|
1.21
|
|
|
|
1.25
|
|
|
|
1.13
|
|
|
|
1.24
|
|
|
|
1.22
|
|
Net realized and unrealized gain/(loss) on investments and unfunded loan commitments
|
|
|
0.59
|
|
|
|
(1.51
|
)
|
|
|
(0.18
|
)
|
|
|
1.15
|
|
|
|
(1.37
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total from investment operations
|
|
|
1.80
|
|
|
|
(0.26
|
)
|
|
|
0.95
|
|
|
|
2.39
|
|
|
|
(0.15
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less Distributions Paid to Common Shareholders from:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
|
(1.20
|
)
|
|
|
(1.26
|
)
|
|
|
(1.16
|
)
|
|
|
(1.24
|
)
|
|
|
(1.23
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total distributions paid to Common Shareholders
|
|
|
(1.20
|
)
|
|
|
(1.26
|
)
|
|
|
(1.16
|
)
|
|
|
(1.24
|
)
|
|
|
(1.23
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Asset Value, End of Year
|
|
$
|
16.94
|
|
|
$
|
16.34
|
|
|
$
|
17.86
|
|
|
$
|
18.07
|
|
|
$
|
16.92
|
|
Market Value, End of Year
|
|
$
|
15.14
|
|
|
$
|
14.39
|
|
|
$
|
16.22
|
|
|
$
|
17.40
|
|
|
$
|
15.15
|
|
Total return based on net asset value(b)
|
|
|
12.35
|
%
|
|
|
(0.98
|
)%
|
|
|
5.80
|
%
|
|
|
15.33
|
%
|
|
|
(0.52
|
)%
|
Total return based on market value(b)
|
|
|
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
|
|
|
4.01
|
%
|
|
|
3.84
|
%
|
|
|
3.33
|
%
|
|
|
3.21
|
%
|
|
|
3.01
|
%
|
Ratio of net expenses to average net assets
|
|
|
4.01
|
%
|
|
|
3.84
|
%
|
|
|
3.33
|
%
|
|
|
3.21
|
%
|
|
|
3.01
|
%
|
Ratio of net investment income to average net assets
|
|
|
7.23
|
%
|
|
|
7.10
|
%
|
|
|
6.24
|
%
|
|
|
7.11
|
%
|
|
|
6.71
|
%
|
Supplemental Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Portfolio turnover rate
|
|
|
101.2
|
%
|
|
|
122.4
|
%
|
|
|
102.2
|
%
|
|
|
109.5
|
%
|
|
|
66.1
|
%
|
Net assets at end of year (000s)
|
|
$
|
263,807
|
|
|
$
|
254,427
|
|
|
$
|
278,070
|
|
|
$
|
281,328
|
|
|
$
|
263,438
|
|
Senior Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal loan outstanding (in 000s)
|
|
$
|
141,000
|
|
|
$
|
141,000
|
|
|
$
|
141,000
|
|
|
$
|
141,000
|
|
|
$
|
149,269
|
|
Asset coverage per $1,000 of loan
outstanding(c)
|
|
$
|
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.
|
(c)
|
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 Tactical Income Fund Inc.
Financial Highlights
For a Common Share Outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per Common Share Operating Performance:
|
|
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 Year
|
|
$
|
16.07
|
|
|
$
|
17.44
|
|
|
$
|
17.18
|
|
|
$
|
15.97
|
|
|
$
|
18.21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from Investment Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income(a)
|
|
|
1.25
|
|
|
|
1.33
|
|
|
|
1.27
|
|
|
|
1.50
|
|
|
|
1.48
|
|
Net realized and unrealized gain/(loss) on investments and unfunded loan commitments
|
|
|
0.77
|
|
|
|
(1.38
|
)
|
|
|
0.28
|
|
|
|
1.23
|
|
|
|
(2.16
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total from investment operations
|
|
|
2.02
|
|
|
|
(0.05
|
)
|
|
|
1.55
|
|
|
|
2.73
|
|
|
|
(0.68
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less Distributions Paid to Common Shareholders from:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
|
(1.24
|
)
|
|
|
(1.32
|
)
|
|
|
(1.29
|
)
|
|
|
(1.52
|
)
|
|
|
(1.55
|
)
|
Net realized gain on investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.01
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total distributions paid to Common Shareholders
|
|
|
(1.24
|
)
|
|
|
(1.32
|
)
|
|
|
(1.29
|
)
|
|
|
(1.52
|
)
|
|
|
(1.56
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Asset Value, End of Year
|
|
$
|
16.85
|
|
|
$
|
16.07
|
|
|
$
|
17.44
|
|
|
$
|
17.18
|
|
|
$
|
15.97
|
|
Market Value, End of Year
|
|
$
|
15.10
|
|
|
$
|
13.77
|
|
|
$
|
15.75
|
|
|
$
|
15.43
|
|
|
$
|
13.89
|
|
Total return based on net asset value(b)
|
|
|
13.97
|
%
|
|
|
0.47
|
%
|
|
|
9.87
|
%
|
|
|
19.34
|
%
|
|
|
(2.91
|
)%
|
Total return based on market value(b)
|
|
|
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
|
|
|
4.03
|
%
|
|
|
3.85
|
%
|
|
|
3.53
|
%
|
|
|
3.36
|
%
|
|
|
2.97
|
%
|
Ratio of net expenses to average net assets
|
|
|
4.03
|
%
|
|
|
3.85
|
%
|
|
|
3.53
|
%
|
|
|
3.36
|
%
|
|
|
2.97
|
%
|
Ratio of net investment income to average net assets
|
|
|
7.53
|
%
|
|
|
7.65
|
%
|
|
|
7.27
|
%
|
|
|
9.20
|
%
|
|
|
8.22
|
%
|
Supplemental Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Portfolio turnover rate
|
|
|
112.3
|
%
|
|
|
130.9
|
%
|
|
|
111.8
|
%
|
|
|
111.6
|
%
|
|
|
67.6
|
%
|
Net assets at end of year (000s)
|
|
$
|
243,751
|
|
|
$
|
232,432
|
|
|
$
|
252,265
|
|
|
$
|
248,424
|
|
|
$
|
230,995
|
|
Senior Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal loan outstanding (in 000s)
|
|
$
|
126,500
|
|
|
$
|
126,500
|
|
|
$
|
138,000
|
|
|
$
|
138,000
|
|
|
$
|
138,000
|
|
Asset coverage per $1,000 of loan
outstanding(c)
|
|
$
|
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.
|
(c)
|
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. | 31
Apollo Senior Floating Rate Fund Inc.
Apollo Tactical Income Fund Inc.
Notes to
Financial Statements
December 31, 2019
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
32 | Annual Report
Apollo Senior Floating Rate Fund Inc.
Apollo Tactical Income Fund Inc.
Notes to Financial Statements (continued)
December 31, 2019
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 and preferred stock 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.
Annual
Report | 33
Apollo Senior Floating Rate Fund Inc.
Apollo Tactical Income Fund Inc.
Notes to Financial Statements (continued)
December 31, 2019
The valuation techniques used by the Funds to measure fair value at December 31, 2019 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 December 31, 2019 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Apollo Senior Floating Rate Fund Inc.
|
|
|
|
|
|
Total Fair Value at
December 31, 2019
|
|
Level 1
Quoted Price
|
|
Level 2
Significant
Observable
Inputs
|
|
Level 3
Significant
Unobservable
Inputs
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and Cash Equivalents
|
|
|
$
|
14,020,233
|
|
|
|
$
|
14,020,233
|
|
|
|
$
|
|
|
|
|
$
|
|
|
Senior Loans
|
|
|
|
373,802,629
|
|
|
|
|
|
|
|
|
|
366,833,553
|
|
|
|
|
6,969,076
|
|
Corporate Notes and Bonds
|
|
|
|
24,424,631
|
|
|
|
|
|
|
|
|
|
24,424,631
|
|
|
|
|
|
|
Common Stocks
|
|
|
|
2,245,326
|
|
|
|
|
|
|
|
|
|
580,471
|
|
|
|
|
1,664,855
|
|
Preferred Stocks
|
|
|
|
1,154,855
|
|
|
|
|
|
|
|
|
|
984,438
|
|
|
|
|
170,417
|
|
Warrants
|
|
|
|
2,522
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,522
|
|
Unrealized appreciation on Unfunded Loan Commitments
|
|
|
|
5,939
|
|
|
|
|
|
|
|
|
|
5,939
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
|
$
|
415,656,135
|
|
|
|
$
|
14,020,233
|
|
|
|
$
|
392,829,032
|
|
|
|
$
|
8,806,870
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following is a reconciliation of Level 3 holdings for which significant unobservable inputs were used in
determining fair value as of December 31, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Apollo Senior Floating Rate Fund Inc.
|
|
|
|
|
|
Total
|
|
Senior
Loans
|
|
Corporate
Notes and
Bonds
|
|
Common
Stocks
|
|
Preferred
Stocks
|
|
Warrants
|
|
|
|
Total Fair Value, beginning of year
|
|
|
$
|
12,903,157
|
|
|
|
$
|
8,720,408
|
|
|
|
$
|
3,066
|
|
|
|
$
|
532,168
|
|
|
|
$
|
3,644,993
|
|
|
|
$
|
2,522
|
|
Purchases, including capitalized PIK
|
|
|
|
6,725,300
|
|
|
|
|
6,527,232
|
|
|
|
|
|
|
|
|
|
27,644
|
|
|
|
|
170,424
|
|
|
|
|
|
|
Sales/Paydowns
|
|
|
|
(11,761,882
|
)
|
|
|
|
(8,700,868
|
)
|
|
|
|
(7,589
|
)
|
|
|
|
|
|
|
|
|
(3,053,425
|
)
|
|
|
|
|
|
Accretion/(amortization) of discounts/(premiums)
|
|
|
|
376,854
|
|
|
|
|
376,854
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net realized gain/(loss)
|
|
|
|
(409,931
|
)
|
|
|
|
(475,349
|
)
|
|
|
|
4,349
|
|
|
|
|
|
|
|
|
|
61,069
|
|
|
|
|
|
|
Change in net unrealized appreciation/ (depreciation)
|
|
|
|
1,597,545
|
|
|
|
|
160,534
|
|
|
|
|
174
|
|
|
|
|
1,105,043
|
|
|
|
|
331,794
|
|
|
|
|
|
|
Transfers into Level 3
|
|
|
|
760,869
|
|
|
|
|
760,869
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transfers out of Level 3
|
|
|
|
(1,385,042
|
)
|
|
|
|
(400,604
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(984,438
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Fair Value, end of year
|
|
|
$
|
8,806,870
|
|
|
|
$
|
6,969,076
|
|
|
|
$
|
|
|
|
|
$
|
1,664,855
|
|
|
|
$
|
170,417
|
|
|
|
$
|
2,522
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 December 31, 2019 was $327,763.
34 | Annual Report
Apollo Senior Floating Rate Fund Inc.
Apollo Tactical Income Fund Inc.
Notes to Financial Statements (continued)
December 31, 2019
The following table provides quantitative measures used to determine the fair values of the Level 3 investments as of December 31, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Apollo Senior Floating Rate Fund Inc.
|
|
|
|
Assets
|
|
Fair Value at
December 31, 2019
|
|
Valuation Technique(s)(a)
|
|
Unobservable Input(s)
|
|
Range of
Unobservable
Input(s) Utilized
|
|
Weighted Average
Unobservable Input(s)
|
|
|
|
Senior Loans
|
|
|
$
|
6,861,425
|
|
|
Independent pricing service and/or broker quotes
|
|
Vendor and/or broker quotes
|
|
|
|
N/A
|
|
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
107,651
|
|
|
Recoverability(b)
|
|
Estimated Proceeds(b)
|
|
|
|
$3.38m - $3.54m
|
|
|
|
|
$3.46m
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recoverability(b)
|
|
Estimated Proceeds(b)
|
|
|
|
$0
|
|
|
|
|
$0
|
|
|
|
|
|
|
|
Corporate Notes and Bonds
|
|
|
|
|
|
|
Recoverability(b)
|
|
Estimated Proceeds(b)
|
|
|
|
$0
|
|
|
|
|
$0
|
|
|
|
|
|
|
|
Common Stocks
|
|
|
|
27,644
|
|
|
Transaction Approach(c)
|
|
TEV | EBITDA Multiple(c)
|
|
|
|
5.4x
|
|
|
|
|
5.4x
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recoverability(b)
|
|
Estimated Proceeds(b)
|
|
|
|
$3.38m - $3.54m
|
|
|
|
|
$3.46m
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recoverability(b)
|
|
Estimated Proceeds(b)
|
|
|
|
$0
|
|
|
|
|
$0
|
|
|
|
|
|
|
|
|
|
|
|
1,526,494
|
|
|
Transaction Approach(c)
Guideline Public
Company(d)
|
|
TEV | EBITDA Multiple(c)(d)
|
|
|
|
2.2x - 2.9x
|
|
|
|
|
2.3x
|
|
|
|
|
|
|
|
|
|
|
|
110,717
|
|
|
Independent pricing service and/or broker quotes
|
|
Vendor and/or broker quotes
|
|
|
|
N/A
|
|
|
|
|
N/A
|
|
|
|
|
|
|
|
Preferred Stock
|
|
|
|
170,417
|
|
|
Transaction Approach(c)
|
|
TEV | EBITDA Multiple(c)
|
|
|
|
5.4x
|
|
|
|
|
5.4x
|
|
|
|
|
|
|
|
Warrants
|
|
|
|
2,522
|
|
|
Independent pricing service and/or broker quotes
|
|
Vendor and/or broker quotes
|
|
|
|
N/A
|
|
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Fair Value
|
|
|
$
|
8,806,870
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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 transaction approach 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). Significant increases or decreases in either of these inputs in isolation may result in a
significantly higher or lower fair value measurement.
|
(d)
|
The Fund utilized a guideline public company method to fair value this security. The significant unobservable inputs used
in the valuation model were TEV and 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.
|
Annual
Report | 35
Apollo Senior Floating Rate Fund Inc.
Apollo Tactical Income Fund Inc.
Notes to Financial Statements (continued)
December 31, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Apollo Tactical Income Fund Inc.
|
|
|
|
|
|
Total Fair Value at
December 31, 2019
|
|
Level 1
Quoted Price
|
|
Level 2
Significant
Observable
Inputs
|
|
Level 3
Significant
Unobservable
Inputs
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and Cash Equivalents
|
|
|
$
|
4,898,532
|
|
|
|
$
|
4,898,532
|
|
|
|
$
|
|
|
|
|
$
|
|
|
Senior Loans
|
|
|
|
258,853,689
|
|
|
|
|
|
|
|
|
|
253,364,453
|
|
|
|
|
5,489,236
|
|
Corporate Notes and Bonds
|
|
|
|
79,886,217
|
|
|
|
|
|
|
|
|
|
79,886,217
|
|
|
|
|
|
|
Structured Products
|
|
|
|
27,232,633
|
|
|
|
|
|
|
|
|
|
27,232,633
|
|
|
|
|
|
|
Common Stocks
|
|
|
|
1,757,879
|
|
|
|
|
|
|
|
|
|
296,106
|
|
|
|
|
1,461,773
|
|
Preferred Stocks
|
|
|
|
1,154,855
|
|
|
|
|
|
|
|
|
|
984,438
|
|
|
|
|
170,417
|
|
Warrants
|
|
|
|
1,287
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,287
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
|
$
|
373,785,092
|
|
|
|
$
|
4,898,532
|
|
|
|
$
|
361,763,847
|
|
|
|
$
|
7,122,713
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following is a reconciliation of Level 3 holdings for which significant unobservable inputs were used in
determining fair value as of December 31, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Apollo Tactical Income Fund Inc.
|
|
|
|
|
|
Total
|
|
Senior
Loans
|
|
Corporate
Notes and
Bonds
|
|
Common
Stocks
|
|
Preferred
Stocks
|
|
Warrants
|
|
|
|
Total Fair Value, beginning of year
|
|
|
$
|
12,247,797
|
|
|
|
$
|
8,406,696
|
|
|
|
$
|
14,095
|
|
|
|
$
|
180,726
|
|
|
|
$
|
3,644,993
|
|
|
|
$
|
1,287
|
|
Purchases, including capitalized PIK
|
|
|
|
5,055,716
|
|
|
|
|
4,857,648
|
|
|
|
|
|
|
|
|
|
27,644
|
|
|
|
|
170,424
|
|
|
|
|
|
|
Sales/Paydowns
|
|
|
|
(11,513,581
|
)
|
|
|
|
(8,425,269
|
)
|
|
|
|
(34,887
|
)
|
|
|
|
|
|
|
|
|
(3,053,425
|
)
|
|
|
|
|
|
Accretion/(amortization) of discounts/(premiums)
|
|
|
|
265,009
|
|
|
|
|
265,009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net realized gain/(loss)
|
|
|
|
(467,685
|
)
|
|
|
|
(548,746
|
)
|
|
|
|
19,992
|
|
|
|
|
|
|
|
|
|
61,069
|
|
|
|
|
|
|
Change in net unrealized appreciation/ (depreciation)
|
|
|
|
2,203,023
|
|
|
|
|
617,026
|
|
|
|
|
800
|
|
|
|
|
1,253,403
|
|
|
|
|
331,794
|
|
|
|
|
|
|
Transfers into Level 3
|
|
|
|
760,869
|
|
|
|
|
760,869
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transfers out of Level 3
|
|
|
|
(1,428,435
|
)
|
|
|
|
(443,997
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(984,438
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Fair Value, end of year
|
|
|
$
|
7,122,713
|
|
|
|
$
|
5,489,236
|
|
|
|
$
|
|
|
|
|
$
|
1,461,773
|
|
|
|
$
|
170,417
|
|
|
|
$
|
1,287
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 December 31, 2019 was $811,243.
36 | Annual Report
Apollo Senior Floating Rate Fund Inc.
Apollo Tactical Income Fund Inc.
Notes to Financial Statements (continued)
December 31, 2019
The following table provides quantitative measures used to determine the fair values of the Level 3 investments as of December 31, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Apollo Tactical Income Fund Inc.
|
|
|
|
Assets
|
|
Fair Value at
December 31, 2019
|
|
Valuation Technique(s)(a)
|
|
Unobservable Input(s)
|
|
Range of
Unobservable
Input(s) Utilized
|
|
Weighted Average
Unobservable Input(s)
|
|
|
|
Senior Loans
|
|
|
$
|
5,456,795
|
|
|
Independent pricing service and/or broker quotes
|
|
Vendor and/or broker quotes
|
|
|
|
N/A
|
|
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
32,441
|
|
|
Recoverability(b)
|
|
Estimated Proceeds(b)
|
|
|
|
$3.38m - $3.54m
|
|
|
|
|
$3.46m
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recoverability(b)
|
|
Estimated Proceeds(b)
|
|
|
|
$0
|
|
|
|
|
$0
|
|
|
|
|
|
|
|
Corporate Notes and Bonds
|
|
|
|
|
|
|
Recoverability(b)
|
|
Estimated Proceeds(b)
|
|
|
|
$0
|
|
|
|
|
$0
|
|
|
|
|
|
|
|
Common Stocks
|
|
|
|
27,644
|
|
|
Transaction Approach(c)
|
|
TEV | EBITDA Multiple(c)
|
|
|
|
5.4x
|
|
|
|
|
5.4x
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recoverability(b)
|
|
Estimated Proceeds(b)
|
|
|
|
$3.38m - $3.54m
|
|
|
|
|
$3.46m
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recoverability(b)
|
|
Estimated Proceeds(b)
|
|
|
|
$0
|
|
|
|
|
$0
|
|
|
|
|
|
|
|
|
|
|
|
1,409,071
|
|
|
Transaction Approach(c)
Guideline Public
Company(d)
|
|
TEV | EBITDA Multiple(c)(d)
|
|
|
|
2.2x - 2.9x
|
|
|
|
|
2.3x
|
|
|
|
|
|
|
|
|
|
|
|
25,058
|
|
|
Independent pricing service and/or broker quotes
|
|
Vendor and/or broker quotes
|
|
|
|
N/A
|
|
|
|
|
N/A
|
|
|
|
|
|
|
|
Preferred Stock
|
|
|
|
170,417
|
|
|
Transaction Approach(c)
|
|
TEV | EBITDA Multiple(c)
|
|
|
|
5.4x
|
|
|
|
|
5.4x
|
|
|
|
|
|
|
|
Warrants
|
|
|
|
1,287
|
|
|
Independent pricing service and/or broker quotes
|
|
Vendor and/or broker quotes
|
|
|
|
N/A
|
|
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Fair Value
|
|
|
$
|
7,122,713
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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 transaction approach to fair value this security. The significant unobservable inputs used in the
valuation model were 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.
|
(d)
|
The Fund utilized a guideline public company method to fair value this security. The significant unobservable inputs used
in the valuation model were TEV and 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.
|
Annual
Report | 37
Apollo Senior Floating Rate Fund Inc.
Apollo Tactical Income Fund Inc.
Notes to Financial Statements (continued)
December 31, 2019
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 December 31, 2019, 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.
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 2019 related to the 2018 tax year. No federal income tax provision or excise tax provision is required for the year ended December 31, 2019.
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.
38 | Annual Report
Apollo Senior Floating Rate Fund Inc.
Apollo Tactical Income Fund Inc.
Notes to Financial Statements (continued)
December 31, 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.
New Accounting Pronouncements
In
August 2018, the Financial Accounting Standards Board issued Accounting Standards Update 2018-13 Changes to the Disclosure Requirements for Fair Value Measurement which modifies disclosure
requirements for fair value measurements. The guidance is effective for fiscal years beginning after December 15, 2019 and for interim period within those fiscal years. As of December 31, 2019, the Funds have fully adopted the provisions of the
2018-13 Accounting Standards Update, which did not have a significant impact on the Funds financial statements and related disclosures.
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
Annual
Report | 39
Apollo Senior Floating Rate Fund Inc.
Apollo Tactical Income Fund Inc.
Notes to Financial Statements (continued)
December 31, 2019
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 year ended
December 31, 2019, the Adviser earned fees of $4,030,100 and $3,670,685 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 year ended December 31, 2019, the Adviser provided services under these agreements totaling $806,805 and $801,110 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 $79,000 and $79,000 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 year ended December 31, 2019.
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), effective March 1, 2019. 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, effective March 1, 2019. Prior to March 1, 2019, The Bank of New York Mellon (BNY Mellon) provided
certain administrative services necessary for the operation of the Funds, including maintaining the Funds books and records, providing accounting services and preparing regulatory filings. BNY Mellon also served as the Funds custodian.
BNY Mellon Investment Servicing (US) Inc. (BNYMIS) served as the Funds transfer agent. U.S. Bank, AST, BNY Mellon and BNYMIS provided services totaling $173,940 and $164,062 for AFT and AIF, respectively, for the year ended
December 31, 2019, 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 $18,000 per Fund, plus $2,000 for each in-person Board meeting 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 expenses for meetings involving both AFT and AIF. Included in the
Statements of Operations in Board of Directors fees for the year ended December 31, 2019 is $134,841 and $134,841 of expenses related to the Board for each of AFT and AIF, respectively.
40 | Annual Report
Apollo Senior Floating Rate Fund Inc.
Apollo Tactical Income Fund Inc.
Notes to Financial Statements (continued)
December 31, 2019
Note 4. Investment Transactions
For the year ended
December 31, 2019, 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.
|
|
|
$
|
413,979,490
|
|
|
|
$
|
423,416,176
|
|
Apollo Tactical Income Fund Inc.
|
|
|
|
418,089,730
|
|
|
|
|
423,758,846
|
|
|
|
|
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 year ended December 31, 2019, the Funds engaged in Cross-Trade activities with Sale Proceeds of $6,802,855 and $1,242,374 for AFT and AIF, respectively, which resulted in net realized gains of $5,391 and $1,327,
respectively.
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 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.
Annual
Report | 41
Apollo Senior Floating Rate Fund Inc.
Apollo Tactical Income Fund Inc.
Notes to Financial Statements (continued)
December 31, 2019
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.
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
42 | Annual Report
Apollo Senior Floating Rate Fund Inc.
Apollo Tactical Income Fund Inc.
Notes to Financial Statements (continued)
December 31, 2019
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.
Annual
Report | 43
Apollo Senior Floating Rate Fund Inc.
Apollo Tactical Income Fund Inc.
Notes to Financial Statements (continued)
December 31, 2019
Note 6. Common Shares
Common share transactions were as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Apollo Senior Floating Rate Fund Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
December 31,
2019
|
|
Year Ended
December 31,
2018
|
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
|
|
Common shares outstanding, beginning of the year
|
|
|
|
15,573,061
|
|
|
|
$
|
296,608,448
|
|
|
|
|
15,573,061
|
|
|
|
$
|
296,699,291
|
|
Common shares issued as reinvestment of dividends
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Permanent differences reclassified (primarily non-deductible
expenses)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(90,843
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shares outstanding, end of the year
|
|
|
|
15,573,061
|
|
|
|
$
|
296,608,448
|
|
|
|
|
15,573,061
|
|
|
|
$
|
296,608,448
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Apollo Tactical Income Fund Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
December 31,
2019
|
|
Year Ended
December 31,
2018
|
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
|
|
Common shares outstanding, beginning of the year
|
|
|
|
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 year
|
|
|
|
14,464,026
|
|
|
|
$
|
275,624,904
|
|
|
|
|
14,464,026
|
|
|
|
$
|
275,624,904
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends declared on common shares with a record date of January 1, 2019 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
|
|
|
|
December 24, 2018
|
|
January 16, 2019
|
|
January 17, 2019
|
|
January 31, 2019
|
|
|
$
|
0.100
|
|
|
|
$
|
1,557,306
|
|
|
|
$
|
1,557,306
|
|
|
|
|
|
|
January 24, 2019
|
|
February 5, 2019
|
|
February 6, 2019
|
|
February 20, 2019
|
|
|
$
|
0.100
|
|
|
|
$
|
1,557,306
|
|
|
|
$
|
1,557,306
|
|
|
|
|
|
|
February 14, 2019
|
|
March 15, 2019
|
|
March 18, 2019
|
|
March 29, 2019
|
|
|
$
|
0.100
|
|
|
|
$
|
1,557,306
|
|
|
|
$
|
1,557,306
|
|
|
|
|
|
|
April 5, 2019
|
|
April 15, 2019
|
|
April 16, 2019
|
|
April 30, 2019
|
|
|
$
|
0.100
|
|
|
|
$
|
1,557,306
|
|
|
|
$
|
1,557,306
|
|
|
|
|
|
|
May 1, 2019
|
|
May 16, 2019
|
|
May 17, 2019
|
|
May 31, 2019
|
|
|
$
|
0.100
|
|
|
|
$
|
1,557,306
|
|
|
|
$
|
1,557,306
|
|
|
|
|
|
|
June 6, 2019
|
|
June 14, 2019
|
|
June 17, 2019
|
|
June 28, 2019
|
|
|
$
|
0.100
|
|
|
|
$
|
1,557,306
|
|
|
|
$
|
1,557,306
|
|
|
|
|
|
|
July 5, 2019
|
|
July 17, 2019
|
|
July 18, 2019
|
|
July 31, 2019
|
|
|
$
|
0.100
|
|
|
|
$
|
1,557,306
|
|
|
|
$
|
1,557,306
|
|
|
|
|
|
|
August 6, 2019
|
|
August 16, 2019
|
|
August 19, 2019
|
|
August 30, 2019
|
|
|
$
|
0.100
|
|
|
|
$
|
1,557,306
|
|
|
|
$
|
1,557,306
|
|
|
|
|
|
|
September 4, 2019
|
|
September 16, 2019
|
|
September 17, 2019
|
|
September 30, 2019
|
|
|
$
|
0.100
|
|
|
|
$
|
1,557,306
|
|
|
|
$
|
1,557,306
|
|
|
|
|
|
|
October 9, 2019
|
|
October 17, 2019
|
|
October 18, 2019
|
|
October 31, 2019
|
|
|
$
|
0.100
|
|
|
|
$
|
1,557,306
|
|
|
|
$
|
1,557,306
|
|
|
|
|
|
|
November 5, 2019
|
|
November 14, 2019
|
|
November 15, 2019
|
|
November 29, 2019
|
|
|
$
|
0.100
|
|
|
|
$
|
1,557,306
|
|
|
|
$
|
1,557,306
|
|
|
|
|
|
|
December 5, 2019
|
|
December 16, 2019
|
|
December 17, 2019
|
|
December 31, 2019
|
|
|
$
|
0.100
|
|
|
|
$
|
1,557,306
|
|
|
|
$
|
1,557,306
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* Declared subsequent to December 31, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
44 | Annual Report
Apollo Senior Floating Rate Fund Inc.
Apollo Tactical Income Fund Inc.
Notes to Financial Statements (continued)
December 31, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
December 24, 2018
|
|
January 16, 2019
|
|
January 17, 2019
|
|
January 31, 2019
|
|
|
$
|
0.107
|
|
|
|
$
|
1,547,651
|
|
|
|
$
|
1,547,651
|
|
|
|
|
|
|
January 24, 2019
|
|
February 5, 2019
|
|
February 6, 2019
|
|
February 20, 2019
|
|
|
$
|
0.107
|
|
|
|
$
|
1,547,651
|
|
|
|
$
|
1,547,651
|
|
|
|
|
|
|
February 14, 2019
|
|
March 15, 2019
|
|
March 18, 2019
|
|
March 29, 2019
|
|
|
$
|
0.107
|
|
|
|
$
|
1,547,651
|
|
|
|
$
|
1,547,651
|
|
|
|
|
|
|
April 5, 2019
|
|
April 15, 2019
|
|
April 16, 2019
|
|
April 30, 2019
|
|
|
$
|
0.104
|
|
|
|
$
|
1,504,259
|
|
|
|
$
|
1,504,259
|
|
|
|
|
|
|
May 1, 2019
|
|
May 16, 2019
|
|
May 17, 2019
|
|
May 31, 2019
|
|
|
$
|
0.102
|
|
|
|
$
|
1,475,331
|
|
|
|
$
|
1,475,331
|
|
|
|
|
|
|
June 6, 2019
|
|
June 14, 2019
|
|
June 17, 2019
|
|
June 28, 2019
|
|
|
$
|
0.100
|
|
|
|
$
|
1,446,403
|
|
|
|
$
|
1,446,403
|
|
|
|
|
|
|
July 5, 2019
|
|
July 17, 2019
|
|
July 18, 2019
|
|
July 31, 2019
|
|
|
$
|
0.100
|
|
|
|
$
|
1,446,403
|
|
|
|
$
|
1,446,403
|
|
|
|
|
|
|
August 6, 2019
|
|
August 16, 2019
|
|
August 19, 2019
|
|
August 30, 2019
|
|
|
$
|
0.100
|
|
|
|
$
|
1,446,403
|
|
|
|
$
|
1,446,403
|
|
|
|
|
|
|
September 4, 2019
|
|
September 16, 2019
|
|
September 17, 2019
|
|
September 30, 2019
|
|
|
$
|
0.100
|
|
|
|
$
|
1,446,403
|
|
|
|
$
|
1,446,403
|
|
|
|
|
|
|
October 9, 2019
|
|
October 17, 2019
|
|
October 18, 2019
|
|
October 31, 2019
|
|
|
$
|
0.100
|
|
|
|
$
|
1,446,403
|
|
|
|
$
|
1,446,403
|
|
|
|
|
|
|
November 5, 2019
|
|
November 14, 2019
|
|
November 15, 2019
|
|
November 29, 2019
|
|
|
$
|
0.100
|
|
|
|
$
|
1,446,403
|
|
|
|
$
|
1,446,403
|
|
|
|
|
|
|
December 5, 2019
|
|
December 16, 2019
|
|
December 17, 2019
|
|
December 31, 2019
|
|
|
$
|
0.100
|
|
|
|
$
|
1,446,403
|
|
|
|
$
|
1,446,403
|
|
|
|
|
|
|
December 5, 2019
|
|
December 16, 2019
|
|
December 17, 2019
|
|
December 31, 2019
|
|
|
$
|
0.013
|
|
|
|
$
|
188,032
|
|
|
|
$
|
188,032
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* Declared subsequent to December 31, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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.
Reclassifications are made to the Funds capital accounts at fiscal year end for permanent tax differences to reflect income and gains available
for distribution (or available capital loss carryforwards) under income tax regulations.
For the fiscal year ended December 31, 2019, no
permanent differences were identified.
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
Loss
|
|
Paid-In
Capital
|
|
|
|
Apollo Senior Floating Rate Fund Inc.
|
|
|
$
|
|
|
|
|
$
|
|
|
Apollo Tactical Income Fund Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The tax character of distributions paid by AFT during the fiscal years ended December 31, 2019 and 2018 was as
follows:
|
|
|
|
|
|
|
|
|
|
|
Apollo Senior Floating Rate Fund Inc.
|
|
|
|
Distributions Paid from Ordinary Income:*
|
|
2019
|
|
2018
|
|
|
|
Common Shareholders
|
|
|
$
|
18,687,673
|
|
|
|
$
|
19,575,338
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Distributions
|
|
|
$
|
18,687,673
|
|
|
|
$
|
19,575,338
|
|
|
|
|
|
|
|
|
|
|
|
|
* 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 years ended December 31, 2019 and 2018 was as follows:
|
|
|
|
|
|
|
|
|
|
|
Apollo Tactical Income Fund Inc.
|
|
|
|
Distributions Paid from Ordinary Income:*
|
|
2019
|
|
2018
|
|
|
|
Common Shareholders
|
|
|
$
|
17,935,392
|
|
|
|
$
|
19,092,514
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Distributions
|
|
|
$
|
17,935,392
|
|
|
|
$
|
19,092,514
|
|
|
|
|
|
|
|
|
|
|
|
|
* For tax purposes, short-term capital gains distributions, if any, are considered ordinary income distributions.
Annual
Report | 45
Apollo Senior Floating Rate Fund Inc.
Apollo Tactical Income Fund Inc.
Notes to Financial Statements (continued)
December 31, 2019
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 $0 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 December 31, 2019 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Apollo Senior
Floating Rate
Fund Inc.
|
|
Apollo Tactical
Income
Fund Inc.
|
|
|
|
Federal tax basis, cost
|
|
|
$
|
411,040,226
|
|
|
|
$
|
375,558,072
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized appreciation
|
|
|
$
|
7,478,504
|
|
|
|
$
|
8,504,913
|
|
Unrealized depreciation
|
|
|
|
(16,888,767
|
)
|
|
|
|
(15,176,425
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized appreciation/(depreciation)*
|
|
|
$
|
(9,410,263
|
)
|
|
|
$
|
(6,671,512
|
)
|
|
|
|
|
|
|
|
|
|
|
|
* 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.
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 December 31, 2019, AFT has $141,000,000 of
principal outstanding under the Amended Credit Facility.
46 | Annual Report
Apollo Senior Floating Rate Fund Inc.
Apollo Tactical Income Fund Inc.
Notes to Financial Statements (continued)
December 31, 2019
Prior to March 1, 2019, AFT had entered into a $150,000,000 credit facility (the Prior Credit Facility) with SMBC as lender. Borrowings
under this facility bore interest at a rate of LIBOR plus 1.05%. Under the terms of the Prior Credit Facility, AFT could borrow a single term loan not to exceed $112,500,000 (the Prior Term Loan) and could borrow up to an additional
$37,500,000 on a revolving basis (the Prior Revolving Loan). AFT 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 year ended
December 31, 2019, the average daily principal loan balance outstanding was $141,000,000, the weighted average annual interest rate was 3.21% and the interest expense, which is included on the Statements of Operations in interest and commitment fee
expense, was $4,524,244.
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 December 31, 2019, 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 20, 2018, AIF entered into a $133,000,000 credit facility (the Credit Facility) with SMBC as lender. Under the terms of the
Credit Facility, AIF may borrow a single term loan not to exceed $125,000,000 (the Term Loan) and may borrow up to an additional $8,000,000 on a revolving basis (the Revolving Loans). AIF has granted a security interest in
substantially all of its assets in the event of default under the Credit Facility. AIF may borrow on a revolving basis until April 20, 2020, at which time any loans outstanding under the Credit Facility must be repaid in full. The Fund pays
SMBC a quarterly commitment fee equal to 0.15% per annum on the average daily amount of available commitments. As of December 31, 2019, $6,500,000 of the available revolving credit remains undrawn. As of December 31, 2019, AIF has $126,500,000
principal outstanding under the Credit Facility, which is comprised of a Term Loan of $125,000,000 and Revolving Loans totaling $1,500,000, all of which bear interest at a rate of LIBOR plus 0.90%.
For the year ended December 31, 2019, the average daily principal loan balance outstanding was $126,500,000, the weighted average annual interest rate
was 3.23% and the interest expense, which is included on the Statements of Operations in interest and commitment fee expense, was $4,083,349.
The
fair value of AIFs borrowings under the 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 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 December 31, 2019, AIF was not aware of any instances of non-compliance related to the Credit Facility.
In connection with AIFs entry into the 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 Credit Facility. The amortization of the deferred financing costs is included in the Statements of Operations.
Annual
Report | 47
Apollo Senior Floating Rate Fund Inc.
Apollo Tactical Income Fund Inc.
Notes to Financial Statements (continued)
December 31, 2019
Note 9. General Commitments and Contingencies
As of December
31, 2019, the Funds had unfunded loan commitments outstanding, which could be extended at the option of the borrower, as detailed below:
|
|
|
|
|
|
|
|
|
|
|
Borrower
|
|
AFT
|
|
AIF
|
|
|
|
Bleriot US Bidco, Inc.*
|
|
|
$
|
412,154
|
|
|
|
$
|
|
|
Zayo Group Holdings, LLC Backstop Term Loan
|
|
|
|
2,745,037
|
|
|
|
|
2,553,523
|
|
Zayo Group Holdings, LLC Bridge Term Loan*
|
|
|
|
1,347,254
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total unfunded loan commitments
|
|
|
$
|
4,504,445
|
|
|
|
$
|
2,553,523
|
|
|
|
|
|
|
|
|
|
|
|
|
* The loan commitment was held in AFT only.
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 year ended December 31, 2019, AFT and AIF recorded a net change in unrealized
appreciation/(depreciation) on unfunded loan commitments totaling $32,184 and $0, 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.
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
the following subsequent events were disclosable:
Effective January 1, 2020, Cindy Michel no longer serves as the Chief Compliance Officer of the
Funds. Isabelle Gold has been appointed by the Board of each Fund to serve as her replacement.
48 | Annual Report
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Directors of
Apollo Senior Floating Rate Fund Inc. and Apollo Tactical Income Fund Inc.:
Opinion on the Financial Statements and Financial Highlights
We have audited the accompanying statements of assets and liabilities of Apollo Senior Floating Rate Fund Inc. and Apollo Tactical Income Fund Inc.
(collectively referred to as the Funds), including the schedules of investments, as of December 31, 2019, the related statements of operations and cash flows for the year then ended, the statements of changes in net assets for each of
the two years in the period then ended, the financial highlights for each of the five years in the period then ended, and the related notes. In our opinion, the financial statements and financial highlights present fairly, in all material respects,
the financial position of the Funds as of December 31, 2019, and the results of their operations and their cash flows for the year then ended, the changes in their net assets for each of the two years in the period then ended, and the financial
highlights for each of the five years in the period then ended in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements and financial
highlights are the responsibility of the Funds management. Our responsibility is to express an opinion on the Funds financial statements and financial highlights based on our audits. We are a public accounting firm registered with the
Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Funds in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and
Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement, whether due to error or fraud. The Funds are not required to have, nor were we engaged to perform,
an audit of their internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the
Funds internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess
the risks of material misstatement of the financial statements and financial highlights, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding
the amounts and disclosures in the financial statements and financial highlights. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the
financial statements and financial highlights. Our procedures included confirmation of securities owned as of December 31, 2019, by correspondence with the custodian, agent banks, and brokers; when replies were not received from agent banks or
brokers, we performed other auditing procedures. We believe that our audits provide a reasonable basis for our opinion.
/s/ Deloitte & Touche
LLP
New York, New York
February 21, 2020
We have served as the auditor of the Funds since 2011.
| 49
Apollo Senior Floating Rate Fund Inc.
Apollo Tactical Income Fund Inc.
Additional
Information
December 31, 2019 (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.
50 | Annual Report
Apollo Senior Floating Rate Fund Inc.
Apollo Tactical Income Fund Inc.
Additional Information (continued)
December 31, 2019 (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 or the Eurozone. Sovereign debt write-downs or defaults and European Union 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 began its exit from the European Union (Brexit) on January 31, 2020 subject to a transitional period ending December 31, 2020. The uncertainty in
the wake of the Brexit and subsequent political developments could have a negative impact on both the UK economy and the economies of other countries in Europe. Brexit could lead to legal uncertainty and politically divergent national laws and
regulations as a new relationship between the UK and European Union is defined and the UK determines which European Union laws to replace or replicate. The Brexit process also may lead to greater volatility in the global currency and financial
markets, which could adversely affect the Funds. Global central banks may maintain historically low interest rates longer than was anticipated, which could adversely affect the ability of the Funds to achieve their investment objectives.
Shareholder Tax Information
The Funds are required by
Subchapter M of the Internal Revenue Code to advise their shareholders of the U.S. Federal tax status of distributions received by the Funds shareholders in respect of such fiscal year. During the fiscal year ended December 31, 2019, the
percentage of qualified interest income related dividends not subject to withholding tax for non-resident aliens and foreign corporations for Apollo Senior Floating Rate Fund Inc. and Apollo Tactical Income
Fund Inc. were 89.07% and 81.77%, respectively.
Annual
Report | 51
Apollo Senior Floating Rate Fund Inc.
Apollo Tactical Income Fund Inc.
Directors and Officers
The Board of Directors of each Fund is
responsible for the overall supervision of the operations of the Fund and performs the various duties imposed on the directors of investment companies by the Investment Company Act and applicable Maryland law. The directors of each Fund (the
Directors) are divided into three classes, serving staggered three-year terms. Any vacancy on the Board of Directors may be filled only by a majority of the remaining Directors, except to the extent that the Investment Company Act
requires the election of directors by shareholders.
Certain biographical and other information relating to the Directors and Executive Officers of
the Funds is set out below, including their ages, their principal occupations for at least the last five years, the length of time served, the total number of portfolios overseen in the complex of funds advised by the Adviser, specifically AFT and
AIF, and other public directorships/trusteeships.
|
|
|
|
|
|
|
|
|
|
|
Directors and Officers
Name, Address(1)
and
Year of Birth
|
|
Position(s)
Held with
the Funds
|
|
Term of Office and
Length of
Time Served
|
|
Principal Occupation(s)
During Past Five Years
|
|
Number of
Portfolios
in the Complex
of Funds
Overseen
by the Director
|
|
Other Public
Directorships/
Trusteeships
Held by the
Director During
Past Five Years
|
|
|
INTERESTED DIRECTORS(2)
|
Barry Cohen
(born 1952)
|
|
Director and
Chairman of
the Board
|
|
AFT Director since 2011 and AIF Director since 2013; current terms end at the 2021 annual meeting.
|
|
President, Elysium Management LLC since 2017. Managing Director, Apollo Management, L.P. (investment advisor) since 2008.
|
|
2
|
|
None.
|
INDEPENDENT DIRECTORS(3)
|
Robert L. Borden
(born 1963)
|
|
Director
|
|
AFT and AIF Director since November 2013, current terms end at the 2020 annual meeting.
|
|
Founding Partner, Delegate Advisors, LLC since 2012.
|
|
2
|
|
Athene
Holding Ltd.
|
Glenn N. Marchak
(born 1956)
|
|
Director;
Audit
Committee
Chair
|
|
AFT Director since 2011 and AIF Director since 2013; current terms end at the 2022 annual meeting.
|
|
Private Investor; Corporate Director/Trustee.
|
|
2
|
|
Stone Harbor
Emerging
Markets
Income Fund;
Stone Harbor
Emerging
Markets Total
Income Fund.
|
Carl J. Rickertsen
(born 1960)
|
|
Director;
Nominating
and
Corporate
Governance
Committee
Chair
|
|
AFT Director since 2011 and AIF Director since 2013; current terms end at the 2020 annual meeting.
|
|
Managing Partner, Pine Creek Partners (private equity investment firm) since 2005.
|
|
2
|
|
Berry Plastics
Group, Inc.;
MicroStrategy
Incorporated.
|
Todd J. Slotkin
(born 1953)
|
|
Lead
Independent
Director
|
|
AFT Director since 2011 and AIF Director since 2013; current terms end at the 2022 annual meeting.
|
|
Managing Director and Global Head, Alvarez & Marsal Asset Management Services, LLC since 2014; Co-Founder and Managing Partner, Newton Pointe Partners (consulting firm) from 2011 to
2014.
|
|
2
|
|
CBIZ, Inc.
|
52 | Annual Report
Apollo Senior Floating Rate Fund Inc.
Apollo Tactical Income Fund Inc.
Directors and Officers (continued)
December 31, 2019 (unaudited)
|
|
|
|
|
|
|
|
|
|
|
Directors and Officers
Name, Address(1)
and
Year of Birth
|
|
Position(s)
Held with
the Funds
|
|
Term of Office and
Length of
Time Served
|
|
Principal Occupation(s)
During Past Five Years
|
|
Number of
Portfolios
in the Complex
of Funds
Overseen
by the Director
|
|
Other Public
Directorships/
Trusteeships
Held by the
Director During
Past Five Years
|
|
|
Elliot Stein, Jr.
(born 1949)
|
|
Director
|
|
AFT Director since 2011 and AIF Director since 2013; current terms end at the 2021 annual meeting.
|
|
Private Investor; Corporate Director/Trustee.
|
|
2
|
|
Apollo
Investment
Corporation.
|
EXECUTIVE OFFICERS(4)
|
Joseph Moroney
(born 1971)
|
|
President
and Chief
Investment
Officer
|
|
AFT since 2011 and AIF since 2013.
|
|
Apollo Capital Management L.P. since 2008, Co-Head of Global Corporate Credit since 2018.
|
|
N/A
|
|
N/A
|
Frank Marra
(born 1979)
|
|
Treasurer
and Chief
Financial
Officer
|
|
AFT and AIF since 2014.
|
|
Senior Controller and Vice President, Apollo Capital Management, L.P. since 2009.
|
|
N/A
|
|
N/A
|
Joseph D. Glatt
(born 1973)
|
|
Secretary
and Chief
Legal
Officer
|
|
AFT since 2011 and AIF since 2013.
|
|
Chief Legal Officer, Secretary and Vice President, Apollo Investment Corporation since 2014, 2010 and 2009, respectively; General Counsel, Apollo Capital Management L.P. since 2007.
|
|
N/A
|
|
N/A
|
Cindy Michel(5)
(born 1973)
|
|
Chief
Compliance
Officer
|
|
AFT since 2011 and AIF since 2013.
|
|
Chief Compliance Officer and Vice President, Apollo Investment Corporation since 2010; Chief Compliance Officer of Apollo Global Management, Inc. since 2014.
|
|
N/A
|
|
N/A
|
(1)
|
The address of each Director and Officer is care of the Apollo Senior Floating Rate Fund Inc. or the Apollo Tactical
Income Fund Inc. at 9 West 57th Street, New York, NY 10019.
|
(2)
|
Interested person, as defined in the Investment Company Act, of the Funds. Mr. Cohen is an interested
person of the Funds due to his affiliation with the Adviser.
|
(3)
|
Independent Directors are the directors who are not interested persons, as defined in the
Investment Company Act, of the Funds.
|
(4)
|
Executive officers of the Funds Serve at the pleasure of the Board of Directors.
|
(5)
|
Effective January 1, 2020, Cindy Michel no longer serves as the Chief Compliance Officer of the Funds.
|
Annual
Report | 53
Important Information About This Report
Investment Adviser
Apollo
Credit Management, LLC
9 West 57th Street
New York, NY 10019
Administrator
U.S. Bancorp Fund Services, LLC
d/b/a U.S. Bank Global Fund Services
615 East Michigan Street
Milwaukee, WI 53202
Transfer Agent
American Stock Transfer & Trust Company, LLC
6201 15th Avenue
Brooklyn, NY 11219
Custodian
U.S. Bank N.A.
Corporate Trust Services
1 Federal Street
Boston, MA 02110
Independent Registered Public Accounting Firm
Deloitte & Touche LLP
30 Rockefeller Plaza
New York, NY 10112
Fund Counsel
Willkie Farr & Gallagher LLP
787 Seventh Avenue
New York, NY 10019
This report has been prepared for shareholders of Apollo Senior Floating Rate Fund Inc. and Apollo Tactical Income Fund
Inc. (the Funds). The Funds mail one shareholder report to each shareholder address. If you would like more than one report, please call shareholder services at
1-877-864-4834 and additional reports will be sent to you.
A description of the
policies and procedures that the Funds use to determine how to vote proxies relating to their portfolio securities, and the Funds proxy voting records for the most recent period ended June 30, 2019 are available (i) without charge,
upon request, by calling 1-877-864-4834 and (ii) on the SECs website at http://www.sec.gov.
The Funds file their complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form
N-Q. The Funds Forms N-Q are available on the SECs website at http://www.sec.gov and also may be reviewed and copied at the SECs Public Reference Room
in Washington, DC. Information on the Public Reference Room may be obtained by calling 1-800-SEC-0330.
54 | Annual Report
Important Information About This Report (continued)
Privacy Policy
We recognize and respect your privacy expectations, whether you are a visitor to our website, a potential shareholder, a current shareholder or even a
former shareholder.
What Information Do We Have About You?
We may have collected your personal information in connection with our solicitation and administration of your investment in Apollo Senior Floating Rate
Fund Inc. and/or Apollo Tactical Income Fund Inc., including your address, social security number, and contact information. Additionally, we may collect nonpublic personal information about you via our website, including any information captured
through the use of our cookies.
With Whom Do We Share Your Personal Information?
We may share the information we collect with our affiliates and nonaffiliated third parties for our everyday business purposes, such as to process your
transactions, maintain your investments in the Funds, and to respond to court orders and legal investigations. We also provide such information to our affiliates, attorneys, banks, auditors, securities brokers and service providers as may be
necessary to facilitate the acceptance and management of your account or your investments in the Funds and to enable them to perform services on our behalf. We may also provide your name, address, telephone number, social security number or
financial condition information to affiliates or nonaffiliated third parties, such as broker-dealers, engaged in marketing activities on our behalf, such as the solicitation of your investment in future funds managed by Apollo. We do not sell your
personal information to third parties for their independent use.
Protecting the Confidentiality of Our Investor Information
Apollo takes our responsibility to protect the privacy and confidentiality of your personal information very seriously. As such, we maintain physical,
electronic and procedural safeguards that comply with federal standards to guard your nonpublic personal information, although you should be aware that data protection cannot be guaranteed. We restrict access to nonpublic personal information about
you to our employees and agents who need to know such information to provide products or services to you. Our control policies, for example, authorize access to investor information only by individuals who need such access to do their work.
Opt-Out Notice
We reserve the right to disclose nonpublic personal information about you to a nonaffiliated third party as discussed above. If you wish to limit the
distribution of your personal information with our affiliates and nonaffiliated third parties, as described herein, you may do so by:
|
|
|
Calling
1-877-864-4834; or
|
|
|
|
Writing us at the following address:
|
Apollo Credit Management, LLC
c/o: Apollo Senior
Floating Rate Fund Inc., Apollo Tactical Income Fund Inc.
9 West 57th Street, 37th Floor, New York, NY 10019
Attn: Isabelle Gold
The ability to opt-out of disclosure of nonpublic personal information about you may not apply to arrangements necessary to effect or administer a transaction in shares of a Fund or maintain or service your account.
If you choose to write or call us, your request should include your name, address, telephone number and account number(s) to which the opt-out applies and the extent to which your personal information shall be withheld. If you are a joint account owner, we will apply those instructions to the entire account. If you have accounts or relationships
with our affiliates, you may receive multiple privacy policies from them, and will need to separately notify those companies of your privacy choices for those accounts or relationships.
Please understand that if you limit our sharing or our affiliated companies use of personal information, you and any joint account holder(s) may
not receive information about our affiliated companies products and services, including products or services that could help you manage your financial resources and achieve your investment objectives.
If your shares are held in street name at a bank or brokerage, we do not have access to your personal information, and you should refer to
your banks or brokers privacy policies for a statement of the treatment of your personal information.
If you have any questions
regarding this policy, please feel free to contact privacy@apollo.com.
Annual
Report | 55
9 West 57th Street, New York, NY 10019
1-877-864-4834 www.apollofunds.com
12/31/19