Apollo Senior Floating Rate Fund Inc.
Apollo Tactical Income Fund Inc.
Statements of Assets and Liabilities
June 30, 2021 (unaudited)
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Apollo
Senior
Floating Rate
Fund Inc.
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Apollo
Tactical
Income
Fund Inc.
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Assets:
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Investment securities at fair value (cost $387,301,927 and $359,908,800, respectively)
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$
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393,205,555
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$
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368,011,906
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Cash and cash equivalents
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24,106,674
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3,612,924
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Interest receivable
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1,044,519
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2,226,361
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Receivable for investment securities sold
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36,315,231
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39,664,802
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Net unrealized appreciation on unfunded loan commitments (Note 9)
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9,228
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10,140
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Prepaid expenses
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321,648
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321,778
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Total assets
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$
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455,002,855
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$
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413,847,911
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Liabilities:
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Borrowings under credit facility (principal $129,000,000 and $121,000,000, respectively, less unamortized
deferred financing costs of $39,184 and $126,452, respectively) (Note 8)
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$
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128,960,816
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$
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120,873,548
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Payable for investment securities purchased
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64,255,081
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48,606,339
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Investment advisory fee payable
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318,914
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297,466
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Other payables and accrued expenses due to affiliates
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79,295
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31,600
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Other payables and accrued expenses
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691,183
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688,808
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Total liabilities
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$
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194,305,289
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$
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170,497,761
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Commitments and Contingencies (Note 9)
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Net Assets (Applicable to Common Shareholders)
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$
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260,697,566
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$
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243,350,150
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Net Assets Consist of:
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Paid-in capital ($0.001 par value, 999,998,466 and 1,000,000,000
common shares authorized, respectively, and 15,573,061 and 14,464,026 issued and outstanding, respectively) (Note 6)
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$
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296,608,015
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$
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275,624,471
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Total accumulated loss
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(35,910,449
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)
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(32,274,321
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)
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Net Assets (Applicable to Common Shareholders)
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$
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260,697,566
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$
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243,350,150
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Number of Common Shares Outstanding
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15,573,061
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14,464,026
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Net Asset Value, per Common Share
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$
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16.74
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$
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16.82
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See accompanying Notes to Financial
Statements. | 21
Apollo Senior Floating Rate Fund Inc.
Apollo Tactical Income Fund Inc.
Statements of Operations
For the Six Months Ended June 30, 2021 (unaudited)
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Apollo
Senior
Floating Rate
Fund Inc.
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Apollo
Tactical
Income
Fund Inc.
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Investment Income:
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Interest
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$
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10,118,074
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$
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9,819,002
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Dividends (net of withholding taxes of $107,486 and $99,218, respectively)
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1,003,418
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929,004
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Total investment income
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11,121,492
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10,748,006
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Expenses:
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Investment advisory fee (Note 3)
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1,899,048
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1,751,486
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Interest and commitment fee expense (Note 8)
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586,895
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568,706
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Professional fees
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366,163
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372,548
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Administrative services of the Adviser (Note 3)
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378,374
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383,012
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Fund administration and accounting services (Note 3)
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113,858
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111,177
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Insurance expense
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157,898
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157,898
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Amortization of deferred financing costs (Note 8)
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79,984
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75,360
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Board of Directors fees (Note 3)
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80,925
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80,925
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Other operating expenses
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168,461
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166,367
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Total expenses
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3,831,606
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3,667,479
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Less: Expense waiver (Note 3)
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(1,147
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)
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(53,208
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)
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Net expenses
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3,830,459
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3,614,271
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Net Investment Income
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7,291,033
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7,133,735
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Net Realized and Unrealized Gain/(Loss) on Investments
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Net realized gain on investments
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39,412
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721,146
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Net change in unrealized appreciation on investments and unfunded loan commitments (Note 9)
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9,027,920
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6,913,782
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Net realized and unrealized gain on investments
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9,067,332
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7,634,928
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Net Increase in Net Assets, Applicable to Common Shareholders,
Resulting From Operations
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$
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16,358,365
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$
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14,768,663
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22 | See accompanying Notes
to Financial Statements.
Apollo Senior Floating Rate Fund Inc.
Statements of Changes in Net Assets
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For the
Six Months Ended
June 30, 2021
(unaudited)
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For the
Year Ended
December 31, 2020
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Increase/(Decrease) in Net Assets from:
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Operations
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Net investment income
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$
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7,291,033
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$
|
15,243,667
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Net realized gain/(loss) on investments
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39,412
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(16,813,877
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)
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Net change in unrealized appreciation on investments and unfunded loan commitments
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9,027,920
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5,166,187
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Net increase in net assets from operations
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16,358,365
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3,595,977
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Distributions to Common Shareholders
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Total distributions to common shareholders
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(7,194,754
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)
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(15,868,950
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)
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Total increase/(decrease) in net assets
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$
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9,163,611
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$
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(12,272,973
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)
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Net Assets Applicable to Common Shares
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Beginning of period
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251,533,955
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263,806,928
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End of period
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$
|
260,697,566
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$
|
251,533,955
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See accompanying Notes to Financial
Statements. | 23
Apollo Tactical Income Fund Inc.
Statements of Changes in Net Assets
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For the
Six Months Ended
June 30, 2021
(unaudited)
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For the
Year Ended
December 31, 2020
|
|
Increase/(Decrease) in Net Assets from:
|
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|
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|
|
Operations
|
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|
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Net investment income
|
|
$
|
7,133,735
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|
|
$
|
14,816,639
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Net realized gain/(loss) on investments
|
|
|
721,146
|
|
|
|
(14,550,431
|
)
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Net change in unrealized appreciation on investments and unfunded loan commitments
|
|
|
6,913,782
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|
|
|
6,636,493
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|
|
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|
|
|
|
|
|
|
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Net increase in net assets from operations
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|
14,768,663
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|
|
|
6,902,701
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|
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|
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|
|
|
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|
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Distributions to Common Shareholders
|
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|
|
|
|
|
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Total distributions to common shareholders
|
|
|
(6,696,844
|
)
|
|
|
(15,375,260
|
)
|
|
|
|
|
|
|
|
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|
|
|
|
Total increase/(decrease) in net assets
|
|
$
|
8,071,819
|
|
|
$
|
(8,472,559
|
)
|
|
|
|
Net Assets Applicable to Common Shares
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of period
|
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|
235,278,331
|
|
|
|
243,750,890
|
|
|
|
|
|
|
|
|
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|
End of period
|
|
$
|
243,350,150
|
|
|
$
|
235,278,331
|
|
|
|
|
|
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|
24 | See accompanying Notes
to Financial Statements.
Apollo Senior Floating Rate Fund Inc.
Statement of Cash Flows
For the Six Months Ended June 30, 2021 (unaudited)
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Cash Flows from Operating Activities:
|
|
|
|
|
|
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Net increase in net assets from operations
|
|
$
|
16,358,365
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|
|
|
Adjustments to Reconcile Net Increase in Net Assets from Operations to Net Cash Flows Provided By
Operating Activities:
|
|
|
|
|
Net realized gain on investments
|
|
|
(39,412
|
)
|
Net change in unrealized appreciation on investments and unfunded loan commitments
|
|
|
(9,027,920
|
)
|
Net amortization/(accretion) of premium/(discount)
|
|
|
(879,174
|
)
|
Purchase of investment securities
|
|
|
(223,070,163
|
)
|
Proceeds from disposition of investment securities and principal paydowns
|
|
|
236,478,247
|
|
Payment-in-kind
interest
|
|
|
(241,319
|
)
|
Amortization of deferred financing costs
|
|
|
79,984
|
|
Changes in Operating Assets and Liabilities:
|
|
|
|
|
Increase in interest receivable
|
|
|
(213,404
|
)
|
Increase in prepaid expenses
|
|
|
(194,569
|
)
|
Decrease in interest payable
|
|
|
(3,430
|
)
|
Increase in investment advisory fee payable
|
|
|
3,406
|
|
Increase in other payables and accrued expenses due to affiliates
|
|
|
79,295
|
|
Increase in other payables and accrued expenses
|
|
|
532,942
|
|
|
|
|
|
|
|
|
Net cash flows provided by operating activities
|
|
|
19,862,848
|
|
|
|
|
|
|
|
|
Cash Flows from Financing Activities:
|
|
|
|
|
Deferred financing cost
|
|
|
(91,564
|
)
|
Proceeds from borrowings under the credit facility
|
|
|
8,000,000
|
|
Distributions paid to common shareholders (net of change in distributions payable to common
shareholders)
|
|
|
(8,736,487
|
)
|
|
|
|
|
|
|
|
Net cash flows used in financing activities
|
|
|
(828,051
|
)
|
|
|
|
|
|
|
|
Net Increase in Cash and Cash Equivalents
|
|
|
19,034,797
|
|
|
|
Cash and cash equivalents, beginning of period
|
|
|
5,071,877
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period
|
|
$
|
24,106,674
|
|
|
|
|
|
|
|
|
Supplemental Disclosure of Cash Flow Information
|
|
|
|
|
Cash paid during the period for interest and commitment fee
|
|
$
|
590,325
|
|
|
|
|
|
|
See accompanying Notes to Financial
Statements. | 25
Apollo Tactical Income Fund Inc.
Statement of Cash Flows
For the Six Months Ended June 30, 2021 (unaudited)
|
|
|
|
|
Cash Flows from Operating Activities:
|
|
|
|
|
|
|
Net increase in net assets from operations
|
|
$
|
14,768,663
|
|
|
|
Adjustments to Reconcile Net Increase in Net Assets from Operations to Net Cash Flows Used In Operating
Activities:
|
|
|
|
|
Net realized gain on investments
|
|
|
(721,146
|
)
|
Net change in unrealized appreciation on investments and unfunded loan commitments
|
|
|
(6,913,782
|
)
|
Net amortization/(accretion) of premium/(discount)
|
|
|
(624,458
|
)
|
Purchase of investment securities
|
|
|
(245,213,498
|
)
|
Proceeds from disposition of investment securities and principal paydowns
|
|
|
236,388,271
|
|
Payment-in-kind
interest
|
|
|
(174,411
|
)
|
Amortization of deferred financing costs
|
|
|
75,360
|
|
Changes in Operating Assets and Liabilities:
|
|
|
|
|
Increase in interest receivable
|
|
|
(246,577
|
)
|
Increase in prepaid expenses
|
|
|
(194,699
|
)
|
Decrease in interest payable
|
|
|
(3,118
|
)
|
Increase in investment advisory fee payable
|
|
|
5,575
|
|
Increase in other payables and accrued expenses due to affiliates
|
|
|
31,600
|
|
Increase in other payables and accrued expenses
|
|
|
492,014
|
|
|
|
|
|
|
|
|
Net cash flows used in operating activities
|
|
|
(2,330,206
|
)
|
|
|
|
|
|
|
|
Cash Flows from Financing Activities:
|
|
|
|
|
Deferred financing cost
|
|
|
(22,000
|
)
|
Proceeds from borrowings under the credit facility
|
|
|
11,000,000
|
|
Distributions paid to common shareholders (net of change in distributions payable to common
shareholders)
|
|
|
(8,172,175
|
)
|
|
|
|
|
|
|
|
Net cash flows provided by financing activities
|
|
|
2,805,825
|
|
|
|
|
|
|
|
|
Net Increase in Cash and Cash Equivalents
|
|
|
475,619
|
|
|
|
Cash and cash equivalents, beginning of period
|
|
|
3,137,305
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period
|
|
$
|
3,612,924
|
|
|
|
|
|
|
|
|
Supplemental Disclosure of Cash Flow Information
|
|
|
|
|
Cash paid during the period for interest and commitment fee
|
|
$
|
571,824
|
|
|
|
|
|
|
26 | See accompanying Notes
to Financial Statements.
Apollo Senior Floating Rate Fund Inc.
Financial Highlights
For a Common Share Outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per Common Share Operating
Performance:
|
|
For the Six
Months Ended
June 30, 2021
(unaudited)
|
|
|
For the Year
Ended
December 31,
2020
|
|
|
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
|
|
Net Asset Value, Beginning of Period
|
|
$
|
16.15
|
|
|
$
|
16.94
|
|
|
$
|
16.34
|
|
|
$
|
17.86
|
|
|
$
|
18.07
|
|
|
$
|
16.92
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from Investment Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income(a)
|
|
|
0.47
|
|
|
|
0.98
|
|
|
|
1.21
|
|
|
|
1.25
|
|
|
|
1.13
|
|
|
|
1.24
|
|
Net realized and unrealized gain/(loss) on investments and unfunded loan commitments
|
|
|
0.58
|
|
|
|
(0.75
|
)
|
|
|
0.59
|
|
|
|
(1.51
|
)
|
|
|
(0.18
|
)
|
|
|
1.15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total from investment operations
|
|
|
1.05
|
|
|
|
0.23
|
|
|
|
1.80
|
|
|
|
(0.26
|
)
|
|
|
0.95
|
|
|
|
2.39
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less Distributions Paid to Common Shareholders from:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
|
(0.46
|
)
|
|
|
(1.02
|
)
|
|
|
(1.20
|
)
|
|
|
(1.26
|
)
|
|
|
(1.16
|
)
|
|
|
(1.24
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total distributions paid to Common Shareholders
|
|
|
(0.46
|
)
|
|
|
(1.02
|
)
|
|
|
(1.20
|
)
|
|
|
(1.26
|
)
|
|
|
(1.16
|
)
|
|
|
(1.24
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Asset Value, End of Period
|
|
$
|
16.74
|
|
|
$
|
16.15
|
|
|
$
|
16.94
|
|
|
$
|
16.34
|
|
|
$
|
17.86
|
|
|
$
|
18.07
|
|
Market Value, End of Period
|
|
$
|
15.78
|
|
|
$
|
14.40
|
|
|
$
|
15.14
|
|
|
$
|
14.39
|
|
|
$
|
16.22
|
|
|
$
|
17.40
|
|
Total return based on net asset value(b)
|
|
|
6.85
|
%(c)
|
|
|
2.99
|
%
|
|
|
12.35
|
%
|
|
|
(0.98
|
)%
|
|
|
5.80
|
%
|
|
|
15.33
|
%
|
Total return based on market value(b)
|
|
|
12.96
|
%(c)
|
|
|
2.75
|
%
|
|
|
14.02
|
%
|
|
|
(3.98
|
)%
|
|
|
(0.22
|
)%
|
|
|
24.03
|
%
|
Ratios to Average Net Assets Applicable to Common Shareholders:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratio of total expenses to average net assets
|
|
|
2.96
|
%(d)
|
|
|
3.12
|
%
|
|
|
4.01
|
%
|
|
|
3.84
|
%
|
|
|
3.33
|
%
|
|
|
3.21
|
%
|
Ratio of net expenses to average net assets
|
|
|
2.93
|
%(d)
|
|
|
3.12
|
%
|
|
|
4.01
|
%
|
|
|
3.84
|
%
|
|
|
3.33
|
%
|
|
|
3.21
|
%
|
Ratio of net investment income to average net assets
|
|
|
5.80
|
%(d)
|
|
|
6.37
|
%
|
|
|
7.23
|
%
|
|
|
7.10
|
%
|
|
|
6.24
|
%
|
|
|
7.11
|
%
|
Supplemental Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Portfolio turnover rate
|
|
|
67.3
|
%(c)
|
|
|
93.6
|
%
|
|
|
101.2
|
%
|
|
|
122.4
|
%
|
|
|
102.2
|
%
|
|
|
109.5
|
%
|
Net assets at end of period (000s)
|
|
$
|
260,698
|
|
|
$
|
251,534
|
|
|
$
|
263,807
|
|
|
$
|
254,427
|
|
|
$
|
278,070
|
|
|
$
|
281,328
|
|
Senior Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal loan outstanding (in 000s)
|
|
$
|
129,000
|
|
|
$
|
121,000
|
|
|
$
|
141,000
|
|
|
$
|
141,000
|
|
|
$
|
141,000
|
|
|
$
|
141,000
|
|
Asset coverage per $1,000 of loan
outstanding(e)
|
|
$
|
3,021
|
|
|
$
|
3,079
|
|
|
$
|
2,871
|
|
|
$
|
2,804
|
|
|
$
|
2,972
|
|
|
$
|
2,995
|
|
(a)
|
Based on the weighted average outstanding shares.
|
(b)
|
Total return based on net asset value and total return based on market value assuming all distributions reinvested at
reinvestment rate.
|
(e)
|
Calculated by subtracting the Funds total liabilities (not including the borrowings outstanding) from the
Funds total assets, and dividing this by the amount of borrowings outstanding.
|
See accompanying Notes to Financial
Statements. | 27
Apollo Tactical Income Fund Inc.
Financial Highlights
For a Common Share Outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per Common Share Operating
Performance:
|
|
For the Six
Months Ended
June 30, 2021
(unaudited)
|
|
|
For the Year
Ended
December 31,
2020
|
|
|
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
|
|
Net Asset Value, Beginning of Period
|
|
$
|
16.27
|
|
|
$
|
16.85
|
|
|
$
|
16.07
|
|
|
$
|
17.44
|
|
|
$
|
17.18
|
|
|
$
|
15.97
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from Investment Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income(a)
|
|
|
0.49
|
|
|
|
1.02
|
|
|
|
1.25
|
|
|
|
1.33
|
|
|
|
1.27
|
|
|
|
1.50
|
|
Net realized and unrealized gain/(loss) on investments and unfunded loan commitments
|
|
|
0.52
|
|
|
|
(0.54
|
)
|
|
|
0.77
|
|
|
|
(1.38
|
)
|
|
|
0.28
|
|
|
|
1.23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total from investment operations
|
|
|
1.01
|
|
|
|
0.48
|
|
|
|
2.02
|
|
|
|
(0.05
|
)
|
|
|
1.55
|
|
|
|
2.73
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less Distributions Paid to Common Shareholders from:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
|
(0.46
|
)
|
|
|
(1.06
|
)
|
|
|
(1.24
|
)
|
|
|
(1.32
|
)
|
|
|
(1.29
|
)
|
|
|
(1.52
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total distributions paid to Common Shareholders
|
|
|
(0.46
|
)
|
|
|
(1.06
|
)
|
|
|
(1.24
|
)
|
|
|
(1.32
|
)
|
|
|
(1.29
|
)
|
|
|
(1.52
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Asset Value, End of Period
|
|
$
|
16.82
|
|
|
$
|
16.27
|
|
|
$
|
16.85
|
|
|
$
|
16.07
|
|
|
$
|
17.44
|
|
|
$
|
17.18
|
|
Market Value, End of Period
|
|
$
|
15.65
|
|
|
$
|
14.48
|
|
|
$
|
15.10
|
|
|
$
|
13.77
|
|
|
$
|
15.75
|
|
|
$
|
15.43
|
|
Total return based on net asset value(b)
|
|
|
6.59
|
%(c)
|
|
|
4.71
|
%
|
|
|
13.97
|
%
|
|
|
0.47
|
%
|
|
|
9.87
|
%
|
|
|
19.34
|
%
|
Total return based on market value(b)
|
|
|
11.44
|
%(c)
|
|
|
3.99
|
%
|
|
|
19.20
|
%
|
|
|
(4.67
|
)%
|
|
|
10.47
|
%
|
|
|
23.24
|
%
|
Ratios to Average Net Assets Applicable to Common Shareholders:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratio of total expenses to average net assets
|
|
|
3.04
|
%(d)
|
|
|
3.16
|
%
|
|
|
4.03
|
%
|
|
|
3.85
|
%
|
|
|
3.53
|
%
|
|
|
3.36
|
%
|
Ratio of net expenses to average net assets
|
|
|
2.96
|
%(d)
|
|
|
3.16
|
%
|
|
|
4.03
|
%
|
|
|
3.85
|
%
|
|
|
3.53
|
%
|
|
|
3.36
|
%
|
Ratio of net investment income to average net assets
|
|
|
6.09
|
%(d)
|
|
|
6.72
|
%
|
|
|
7.53
|
%
|
|
|
7.65
|
%
|
|
|
7.27
|
%
|
|
|
9.20
|
%
|
Supplemental Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Portfolio turnover rate
|
|
|
74.2
|
%(c)
|
|
|
96.4
|
%
|
|
|
112.3
|
%
|
|
|
130.9
|
%
|
|
|
111.8
|
%
|
|
|
111.6
|
%
|
Net assets at end of period (000s)
|
|
$
|
243,350
|
|
|
$
|
235,278
|
|
|
$
|
243,751
|
|
|
$
|
232,432
|
|
|
$
|
252,265
|
|
|
$
|
248,424
|
|
Senior Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal loan outstanding (in 000s)
|
|
$
|
121,000
|
|
|
$
|
110,000
|
|
|
$
|
126,500
|
|
|
$
|
126,500
|
|
|
$
|
138,000
|
|
|
$
|
138,000
|
|
Asset coverage per $1,000 of loan
outstanding(e)
|
|
$
|
3,011
|
|
|
$
|
3,139
|
|
|
$
|
2,927
|
|
|
$
|
2,837
|
|
|
$
|
2,828
|
|
|
$
|
2,800
|
|
(a)
|
Based on the weighted average outstanding shares.
|
(b)
|
Total return based on net asset value and total return based on market value assuming all distributions reinvested at
reinvestment rate.
|
(e)
|
Calculated by subtracting the Funds total liabilities (not including the borrowings outstanding) from the
Funds total assets, and dividing this by the amount of borrowings outstanding.
|
28 | See accompanying Notes
to Financial Statements.
Apollo Senior Floating Rate Fund Inc.
Apollo Tactical Income Fund Inc.
Notes to
Financial Statements
June 30, 2021 (unaudited)
Note 1. Organization and Operation
Apollo Senior Floating
Rate Fund Inc. (AFT) and Apollo Tactical Income Fund Inc. (AIF) (individually, a Fund or, together, the Funds) are corporations organized under the laws of the State of Maryland and registered with the
U.S. Securities and Exchange Commission (the SEC) under the Investment Company Act of 1940 (the Investment Company Act) as diversified, closed-end management investment companies. AFT
and AIF commenced operations on February 23, 2011 and February 25, 2013, respectively. Prior to that, the Funds had no operations other than matters relating to their organization and the sale and issuance of 5,236 shares of common stock
in each Fund to Apollo Credit Management, LLC (the Adviser) at a price of $19.10 per share. The Adviser serves as the Funds investment adviser and is an affiliate of Apollo Global Management, Inc. (AGM). The Funds
common shares are listed on the New York Stock Exchange (NYSE) and trade under the symbols AFT and AIF, respectively.
Investment Objective
AFTs investment objective is to
seek current income and preservation of capital. AFT seeks to achieve its investment objective by investing primarily in senior, secured loans made to companies whose debt is rated below investment grade (Senior Loans) and investments
with similar characteristics. Senior Loans typically hold a first lien priority and pay interest at rates that are determined periodically on the basis of a floating base lending rate plus a spread. These base lending rates are primarily the London
Interbank Offered Rate (LIBOR), and secondarily the prime rate offered by one or more major U.S. banks and the certificate of deposit rate used by commercial lenders. Senior Loans are typically made to U.S. and, to a limited extent, non-U.S. corporations, partnerships and other business entities (Borrower(s)) that operate in various industries and geographical regions. AFT seeks to generate current income and preservation of capital
through a disciplined approach to credit selection and under normal market conditions will invest at least 80% of its managed assets in floating rate Senior Loans and investments with similar economic characteristics. This policy and AFTs
investment objective are not fundamental and may be changed by the board of directors of AFT with at least 60 days prior written notice provided to shareholders. Part of AFTs investment objective is to seek preservation of capital.
AFTs ability to achieve capital preservation may be limited by its investment in credit instruments that have speculative characteristics. There can be no assurance that AFT will achieve its investment objective.
AIFs primary investment objective is to seek current income with a secondary objective of preservation of capital. AIF seeks to achieve its
investment objectives primarily by allocating its assets among different types of credit instruments based on absolute and relative value considerations and its analysis of the credit markets. This ability to dynamically allocate AIFs assets
may result in AIFs portfolio becoming concentrated in a particular type of credit instrument (such as Senior Loans or high yield corporate bonds) and substantially less invested in other types of credit instruments. Under normal market
conditions, at least 80% of AIFs managed assets will be invested in credit instruments and investments with similar economic characteristics. For purposes of this policy, credit instruments will include Senior Loans, subordinated
loans, high yield corporate bonds, notes, bills, debentures, distressed securities, mezzanine securities, structured products (including, without limitation, collateralized debt obligations (CDOs), collateralized loan obligations
(CLOs) and asset-backed securities), bank loans, corporate loans, convertible and preferred securities, government and municipal obligations, mortgage-backed securities, repurchase agreements, and other fixed-income instruments of a
similar nature that may be represented by derivatives such as options, forwards, futures contracts or swap agreements. This policy and AIFs investment objectives are not fundamental and may be changed by the board of directors of AIF (together
with the board of directors of AFT, the Board of Directors or Board) with at least 60 days prior written notice provided to shareholders. AIF will seek to preserve capital to the extent consistent with its primary
investment objective. AIFs ability to achieve capital preservation may be limited by its investment in credit instruments that have speculative characteristics. There can be no assurance that AIF will achieve its investment objectives.
Note 2. Significant Accounting Policies
The Funds are
investment companies that follow the accounting and reporting guidance of Accounting Standards Codification Topic 946 applicable to investment companies. The Funds financial statements have been prepared in conformity with accounting
principles generally accepted in the United States of America (U.S. GAAP), which require
Semi-Annual
Report | 29
Apollo Senior Floating Rate Fund Inc.
Apollo Tactical Income Fund Inc.
Notes to Financial Statements (continued)
June 30, 2021 (unaudited)
management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results may differ from
those estimates.
Fund Valuation
Each Funds net
asset value (NAV) per share will be determined daily generally as of 4:00 pm on each day that the NYSE is open for trading, or at other times as determined by the Board. The NAV of each Funds common shares is the total assets of
the Fund (including all securities, cash and other assets) minus the sum of the Funds total liabilities (including accrued expenses, dividends payable, borrowings and the liquidation value of any preferred stock) divided by the total number of
common shares of the Fund outstanding.
Security Valuation
The Funds value their investments primarily using the mean of the bid and ask prices provided by a nationally recognized security pricing service or
broker. Senior Loans, corporate notes and bonds, common stock, structured products, preferred stock and warrants are priced based on valuations provided by an approved independent pricing service or broker, if available. If market or broker
quotations are not available, or a price is not available from an independent pricing service or broker, or if the price provided by the independent pricing service or broker is believed to be unreliable, the security will be fair valued pursuant to
procedures adopted by the Board. In general, the fair value of a security is the amount that the Funds might reasonably expect to receive upon the sale of an asset or pay to transfer a liability in an orderly transaction between willing market
participants at the reporting date. Fair value procedures generally take into account any factors deemed relevant, which may include, among others, (i) the nature and pricing history of the security, (ii) the liquidity or illiquidity of
the market for the particular security, (iii) recent purchases or sales transactions for the particular security or similar securities and (iv) press releases and other information published about the issuer. In these cases, a Funds
NAV will reflect the affected portfolio securities fair value as determined in the judgment of the Board or its designee instead of being determined by the market. Using a fair value pricing methodology to value securities may result in a
value that is different from a securitys most recent sale price and from the prices used by other investment companies to calculate their NAV. Determination of fair value is uncertain because it involves subjective judgments and estimates.
There can be no assurance that a Funds valuation of a security will not differ from the amount that it realizes upon the sale of such security.
Fair Value
Measurements
Each Fund has performed an analysis of all existing investments to determine the significance and character of all inputs to their
fair value determination. The levels of fair value inputs used to measure the Funds investments are characterized into a fair value hierarchy. The three levels of the fair value hierarchy are described below:
Level 1 Quoted unadjusted prices for identical assets and liabilities in active markets to which the Funds
have access at the date of measurement;
Level 2 Quoted prices for similar assets and liabilities in
active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, but are valued based on executed trades, broker quotations that constitute an executable price, and alternative pricing sources supported
by observable inputs which, in each case, are either directly or indirectly observable for the asset in connection with market data at the measurement date; and
Level 3 Model derived valuations in which one or more significant inputs or significant value drivers are
unobservable. In certain cases, investments classified within Level 3 may include securities for which the Funds have obtained indicative quotes from broker-dealers that do not necessarily represent prices the broker may be willing to trade on,
as such quotes can be subject to material management judgment. Unobservable inputs are those inputs that reflect the Funds own assumptions that market participants would use to price the asset or liability based on the best available
information.
At the end of each reporting period, management evaluates the Level 2 and Level 3 assets, if any, for changes in liquidity,
including but not limited to: whether a broker is willing to execute at the quoted price, the depth and consistency of prices from independent pricing services, and the existence of contemporaneous, observable trades in the market.
30 | Semi-Annual Report
Apollo Senior Floating Rate Fund Inc.
Apollo Tactical Income Fund Inc.
Notes to Financial Statements (continued)
June 30, 2021 (unaudited)
The valuation techniques used by the Funds to measure fair value at June 30, 2021 maximized the use of observable inputs and minimized the use of
unobservable inputs. The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities. Summaries of the Funds investments categorized in the fair value hierarchy
as of June 30, 2021 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Apollo Senior Floating Rate Fund Inc.
|
|
|
|
|
|
Total Fair Value at
June 30, 2021
|
|
Level 1
Quoted Price
|
|
Level 2
Significant
Observable
Inputs
|
|
Level 3
Significant
Unobservable
Inputs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and Cash Equivalents
|
|
|
$
|
24,106,674
|
|
|
|
$
|
24,106,674
|
|
|
|
$
|
|
|
|
|
$
|
|
|
Senior Loans
|
|
|
|
375,868,214
|
|
|
|
|
|
|
|
|
|
371,385,831
|
|
|
|
|
4,482,383
|
|
Corporate Notes and Bonds
|
|
|
|
6,491,128
|
|
|
|
|
|
|
|
|
|
6,491,128
|
|
|
|
|
|
|
Common Stocks
|
|
|
|
9,722,135
|
|
|
|
|
580,815
|
|
|
|
|
|
|
|
|
|
9,141,320
|
|
Preferred Stocks
|
|
|
|
1,124,078
|
|
|
|
|
|
|
|
|
|
967,778
|
|
|
|
|
156,300
|
|
Warrants
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized appreciation on Unfunded Loan Commitments
|
|
|
|
12,763
|
|
|
|
|
|
|
|
|
|
12,763
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
|
$
|
417,324,992
|
|
|
|
$
|
24,687,489
|
|
|
|
$
|
378,857,500
|
|
|
|
$
|
13,780,003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized depreciation on Unfunded Loan Commitments
|
|
|
|
(3,535
|
)
|
|
|
|
|
|
|
|
|
(2,895
|
)
|
|
|
|
(640
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
|
|
(3,535
|
)
|
|
|
|
|
|
|
|
|
(2,895
|
)
|
|
|
|
(640
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
417,321,457
|
|
|
|
$
|
24,687,489
|
|
|
|
$
|
378,854,605
|
|
|
|
$
|
13,779,363
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following is a reconciliation of Level 3 holdings for which significant unobservable inputs were used in
determining fair value as of June 30, 2021:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Apollo Senior Floating Rate Fund Inc.
|
|
|
|
|
|
Total
|
|
Senior Loans
|
|
Common
Stocks
|
|
Preferred
Stock
|
|
Warrants
|
|
Unfunded
Loan
Commitments
|
|
|
|
Total Fair Value, beginning of period
|
|
|
$
|
19,227,669
|
|
|
|
$
|
13,735,856
|
|
|
|
$
|
5,318,468
|
|
|
|
$
|
136,991
|
|
|
|
$
|
36,354
|
|
|
|
$
|
|
|
Purchases, including capitalized PIK
|
|
|
|
6,936,122
|
|
|
|
|
4,632,239
|
|
|
|
|
2,303,883
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales/Paydowns
|
|
|
|
(13,567,888
|
)
|
|
|
|
(11,573,423
|
)
|
|
|
|
(1,994,465
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accretion/(amortization) of discounts/ (premiums)
|
|
|
|
26,059
|
|
|
|
|
26,059
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net realized gain/(loss)
|
|
|
|
(3,300,047
|
)
|
|
|
|
(2,022,447
|
)
|
|
|
|
(1,226,574
|
)
|
|
|
|
|
|
|
|
|
(51,026
|
)
|
|
|
|
|
|
Change in net unrealized appreciation/ (depreciation)
|
|
|
|
6,843,130
|
|
|
|
|
2,069,781
|
|
|
|
|
4,740,008
|
|
|
|
|
19,309
|
|
|
|
|
14,672
|
|
|
|
|
(640
|
)
|
Transfers into Level 3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transfers out of Level 3
|
|
|
|
(2,385,682
|
)
|
|
|
|
(2,385,682
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Fair Value, end of period
|
|
|
$
|
13,779,363
|
|
|
|
$
|
4,482,383
|
|
|
|
$
|
9,141,320
|
|
|
|
$
|
156,300
|
|
|
|
$
|
|
|
|
|
$
|
(640
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets were transferred from Level 2 to Level 3 or from Level 3 to Level 2 as a result of changes in
levels of liquid market observability when subject to various criteria as discussed above. The net change in unrealized appreciation/(depreciation) attributable to Level 3 investments still held at June 30, 2021 was $3,190,828.
Semi-Annual
Report | 31
Apollo Senior Floating Rate Fund Inc.
Apollo Tactical Income Fund Inc.
Notes to Financial Statements (continued)
June 30, 2021 (unaudited)
The following table provides quantitative measures used to determine the fair values of the Level 3 investments as of June 30, 2021:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Apollo Senior Floating Rate Fund Inc.
|
|
|
|
|
Assets/Liabilities
|
|
Fair Value at
June 30, 2021
|
|
Valuation Technique(s)(a)
|
|
Unobservable Input(s)
|
|
Range of
Unobservable
Input(s) Utilized
|
|
Weighted Average
Unobservable Input(s)
|
|
|
Senior Loans
|
|
|
$
|
4,380,569
|
|
|
Independent pricing service and/or broker quotes
|
|
Vendor and/or broker quotes
|
|
N/A
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
32,379
|
|
|
Recoverability(b)
|
|
Estimated Proceeds(b)
|
|
$843k
|
|
$843k
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recoverability(b)
|
|
Estimated Proceeds(b)
|
|
$0
|
|
$0
|
|
|
|
|
|
|
|
|
|
|
69,435
|
|
|
Discounted Cash Flow(c)
|
|
Discount Rate(c)
|
|
9.28% - 10.28%
|
|
9.78%
|
|
|
|
|
|
|
Corporate Notes and Bonds
|
|
|
|
|
|
|
Recoverability(b)
|
|
Estimated Proceeds(b)
|
|
$0
|
|
$0
|
|
|
|
|
|
|
Common Stocks
|
|
|
|
25,377
|
|
|
Guideline Public
Company(d)
|
|
TEV | EBITDA Multiple(d)
|
|
6.0x
|
|
6.0x
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recoverability(b)
|
|
Estimated Proceeds(b)
|
|
$843k
|
|
$843k
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recoverability(b)
|
|
Estimated Proceeds(b)
|
|
$0
|
|
$0
|
|
|
|
|
|
|
|
|
|
|
6,507,658
|
|
|
Guideline Public
Company(d)
|
|
TEV | EBITDA Multiple(d)
|
|
6.3x
|
|
6.3x
|
|
|
|
|
|
|
|
Transaction Approach(e)
|
|
Term Sheet(e)
|
|
N/A
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recoverability(b)
|
|
Estimated Proceeds(b)
|
|
$0
|
|
$0
|
|
|
|
|
|
|
|
|
|
|
114,671
|
|
|
Recoverability(b)
|
|
Estimated Proceeds(b)
|
|
$0.47
|
|
$0.47
|
|
|
|
|
|
|
|
|
|
|
2,493,614
|
|
|
Guideline Public
Company(d)
|
|
TEV | EBITDA Multiple(d)
|
|
5.25x - 5.75x
|
|
5.5x
|
|
|
|
|
|
|
Preferred Stock
|
|
|
|
156,300
|
|
|
Guideline Public Company(d)
|
|
TEV | EBITDA Multiple(d)
|
|
6.0x
|
|
6.0x
|
|
|
|
|
|
|
Warrants
|
|
|
|
|
|
|
Recoverability(b)
|
|
Estimated Proceeds(b)
|
|
$0
|
|
$0
|
|
|
|
|
|
|
Unfunded Loan Commitments
|
|
|
|
(640
|
)
|
|
Discounted Cash Flow(c)
|
|
Discount Rate(c)
|
|
9.28% - 10.28%
|
|
9.78%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Independent pricing service and/or broker quotes
|
|
Vendor and/or broker quotes
|
|
N/A
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Fair Value
|
|
|
$
|
13,779,363
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
For the assets which have multiple valuation techniques, the Fund may rely on the techniques individually or in aggregate
based on a weight ranging from 0-100%.
|
(b)
|
The Fund utilized a recoverability approach to fair value these securities, specifically a liquidation analysis. There are
various, company specific inputs used in the valuation analysis that relate to the liquidation value of a companys assets. The significant unobservable inputs used in the valuation model were estimated proceeds. Significant increases or
decreases in the input in isolation may result in a significantly higher or lower fair value measurement.
|
(c)
|
The Fund utilized a discounted cash flow model to fair value this security. The significant unobservable input used in the
valuation model was the discount rate, which was determined based on the market rates an investor would expect for a similar investment with similar risks. The discount rate was applied to present value the projected cash flows in the valuation
model. Significant increases in the discount rate may significantly lower the fair value of an investment; conversely, significant decreases in the discount rate may significantly increase the fair value of an investment.
|
(d)
|
The Fund utilized a guideline public company method to fair value this security. The significant unobservable inputs used
in the valuation model were total enterprise value (TEV) and earnings before interest, taxes, depreciation and amortization (EBITDA) based on comparable multiples for a similar investment with similar risks. Significant
increases or decreases in either of these inputs in isolation may result in a significantly higher or lower fair value measurement.
|
(e)
|
The Fund utilized a transaction approach to fair value this security. The significant unobservable input used in the
valuation model was a term sheet. Significant increases or decreases in the input in isolation may result in a significantly higher or lower fair value measurement.
|
32 | Semi-Annual Report
Apollo Senior Floating Rate Fund Inc.
Apollo Tactical Income Fund Inc.
Notes to Financial Statements (continued)
June 30, 2021 (unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Apollo Tactical Income Fund Inc.
|
|
|
|
|
|
Total Fair Value at
June 30, 2021
|
|
Level 1
Quoted Price
|
|
Level 2
Significant
Observable
Inputs
|
|
Level 3
Significant
Unobservable
Inputs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and Cash Equivalents
|
|
|
$
|
3,612,924
|
|
|
|
$
|
3,612,924
|
|
|
|
$
|
|
|
|
|
$
|
|
|
Senior Loans
|
|
|
|
259,343,644
|
|
|
|
|
|
|
|
|
|
254,887,602
|
|
|
|
|
4,456,042
|
|
Corporate Notes and Bonds
|
|
|
|
78,674,744
|
|
|
|
|
|
|
|
|
|
78,674,744
|
|
|
|
|
|
|
Structured Products
|
|
|
|
19,781,528
|
|
|
|
|
|
|
|
|
|
19,781,528
|
|
|
|
|
|
|
Common Stocks
|
|
|
|
9,087,912
|
|
|
|
|
580,815
|
|
|
|
|
|
|
|
|
|
8,507,097
|
|
Preferred Stocks
|
|
|
|
1,124,078
|
|
|
|
|
|
|
|
|
|
967,778
|
|
|
|
|
156,300
|
|
Warrants
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized appreciation on Unfunded Loan Commitments
|
|
|
|
12,763
|
|
|
|
|
|
|
|
|
|
12,763
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
|
$
|
371,637,593
|
|
|
|
$
|
4,193,739
|
|
|
|
$
|
354,324,415
|
|
|
|
$
|
13,119,439
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized depreciation on Unfunded Loan Commitments
|
|
|
|
(2,623
|
)
|
|
|
|
|
|
|
|
|
(2,018
|
)
|
|
|
|
(605
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
|
|
(2,623
|
)
|
|
|
|
|
|
|
|
|
(2,018
|
)
|
|
|
|
(605
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
371,634,970
|
|
|
|
$
|
4,193,739
|
|
|
|
$
|
354,322,397
|
|
|
|
$
|
13,118,834
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following is a reconciliation of Level 3 holdings for which significant unobservable inputs were used in
determining fair value as of June 30, 2021:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Apollo Tactical Income Fund Inc.
|
|
|
|
|
|
Total
|
|
Senior
Loans
|
|
Structured
Product
|
|
Common
Stocks
|
|
Preferred
Stock
|
|
Warrants
|
|
Unfunded
Loan
Commitments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Fair Value, beginning of period
|
|
|
$
|
16,676,751
|
|
|
|
$
|
9,221,275
|
|
|
|
$
|
2,329,420
|
|
|
|
$
|
4,966,102
|
|
|
|
$
|
136,991
|
|
|
|
$
|
22,963
|
|
|
|
$
|
|
|
Purchases, including capitalized PIK
|
|
|
|
6,746,204
|
|
|
|
|
4,565,784
|
|
|
|
|
|
|
|
|
|
2,180,420
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales/Paydowns
|
|
|
|
(12,294,898
|
)
|
|
|
|
(7,995,537
|
)
|
|
|
|
(2,425,000
|
)
|
|
|
|
(1,874,361
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accretion/(amortization) of discounts/ (premiums)
|
|
|
|
22,805
|
|
|
|
|
21,445
|
|
|
|
|
1,360
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net realized gain/(loss)
|
|
|
|
(2,099,947
|
)
|
|
|
|
(1,967,980
|
)
|
|
|
|
(41,679
|
)
|
|
|
|
(43,381
|
)
|
|
|
|
|
|
|
|
|
(46,907
|
)
|
|
|
|
|
|
Change in net unrealized appreciation/ (depreciation)
|
|
|
|
5,181,117
|
|
|
|
|
1,724,253
|
|
|
|
|
135,899
|
|
|
|
|
3,278,317
|
|
|
|
|
19,309
|
|
|
|
|
23,944
|
|
|
|
|
(605
|
)
|
Transfers into Level 3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transfers out of Level 3
|
|
|
|
(1,113,198
|
)
|
|
|
|
(1,113,198
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Fair Value, end of period
|
|
|
$
|
13,118,834
|
|
|
|
$
|
4,456,042
|
|
|
|
$
|
|
|
|
|
$
|
8,507,097
|
|
|
|
$
|
156,300
|
|
|
|
$
|
|
|
|
|
$
|
(605
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets were transferred from Level 2 to Level 3 or from Level 3 to Level 2 as a result of changes in
levels of liquid market observability when subject to various criteria as discussed above. The net change in unrealized appreciation/(depreciation) attributable to Level 3 investments still held at June 30, 2021 was $2,963,203.
Semi-Annual
Report | 33
Apollo Senior Floating Rate Fund Inc.
Apollo Tactical Income Fund Inc.
Notes to Financial Statements (continued)
June 30, 2021 (unaudited)
The following table provides quantitative measures used to determine the fair values of the Level 3 investments as of June 30, 2021:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Apollo Tactical Income Fund Inc.
|
|
|
|
|
Assets/Liabilities
|
|
Fair Value at
June 30, 2021
|
|
Valuation Technique(s)(a)
|
|
Unobservable Input(s)
|
|
Range of
Unobservable
Input(s) Utilized
|
|
Weighted Average
Unobservable Input(s)
|
|
|
Senior Loans
|
|
|
$
|
4,380,570
|
|
|
Independent pricing service and/or broker quotes
|
|
Vendor and/or broker quotes
|
|
N/A
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
9,757
|
|
|
Recoverability(b)
|
|
Estimated Proceeds(b)
|
|
$843k
|
|
$843k
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recoverability(b)
|
|
Estimated Proceeds(b)
|
|
$0
|
|
$0
|
|
|
|
|
|
|
|
|
|
|
65,715
|
|
|
Discounted Cash Flow(c)
|
|
Discount Rate(c)
|
|
9.28% - 10.28%
|
|
9.78%
|
|
|
|
|
|
|
Corporate Notes and Bonds
|
|
|
|
|
|
|
Recoverability(b)
|
|
Estimated Proceeds(b)
|
|
$0
|
|
$0
|
|
|
|
|
|
|
Common Stocks
|
|
|
|
25,377
|
|
|
Guideline Public
Company(d)
|
|
TEV | EBITDA Multiple(d)
|
|
6.0x
|
|
6.0x
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recoverability(b)
|
|
Estimated Proceeds(b)
|
|
$843k
|
|
$843k
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recoverability(b)
|
|
Estimated Proceeds(b)
|
|
$0
|
|
$0
|
|
|
|
|
|
|
|
|
|
|
6,007,065
|
|
|
Guideline Public
Company(d)
|
|
TEV | EBITDA Multiple(d)
|
|
6.3x
|
|
6.3x
|
|
|
|
|
|
|
|
Transaction Approach(e)
|
|
Term Sheet(e)
|
|
N/A
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recoverability(b)
|
|
Estimated Proceeds(b)
|
|
$0
|
|
$0
|
|
|
|
|
|
|
|
|
|
|
114,671
|
|
|
Recoverability(b)
|
|
Estimated Proceeds(b)
|
|
$0.47
|
|
$0.47
|
|
|
|
|
|
|
|
|
|
|
2,359,984
|
|
|
Guideline Public
Company(d)
|
|
TEV | EBITDA Multiple(d)
|
|
5.25x - 5.75x
|
|
5.5x
|
|
|
|
|
|
|
Preferred Stock
|
|
|
|
156,300
|
|
|
Guideline Public
Company(d)
|
|
TEV | EBITDA Multiple(d)
|
|
6.0x
|
|
6.0x
|
|
|
|
|
|
|
Warrants
|
|
|
|
|
|
|
Recoverability(b)
|
|
Estimated Proceeds(b)
|
|
$0
|
|
$0
|
|
|
|
|
|
|
Unfunded Loan Commitments
|
|
|
|
(605
|
)
|
|
Discounted Cash Flow(c)
|
|
Discount Rate(c)
|
|
9.28% - 10.28%
|
|
9.78%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Independent pricing service and/or broker quotes
|
|
Vendor and/or broker quotes
|
|
N/A
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Fair Value
|
|
|
$
|
13,118,834
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
For the assets which have multiple valuation techniques, the Fund may rely on the techniques individually or in aggregate
based on a weight ranging from 0-100%.
|
(b)
|
The Fund utilized a recoverability approach to fair value these securities, specifically a liquidation analysis. There are
various, company specific inputs used in the valuation analysis that relate to the liquidation value of a companys assets. The significant unobservable inputs used in the valuation model were estimated proceeds. Significant increases or
decreases in the input in isolation may result in a significantly higher or lower fair value measurement.
|
(c)
|
The Fund utilized a discounted cash flow model to fair value this security. The significant unobservable input used in the
valuation model was the discount rate, which was determined based on the market rates an investor would expect for a similar investment with similar risks. The discount rate was applied to present value the projected cash flows in the valuation
model. Significant increases in the discount rate may significantly lower the fair value of an investment; conversely, significant decreases in the discount rate may significantly increase the fair value of an investment.
|
(d)
|
The Fund utilized a guideline public company method to fair value this security. The significant unobservable inputs used
in the valuation model were total enterprise value (TEV) and earnings before interest, taxes, depreciation and amortization (EBITDA) based on comparable multiples for a similar investment with similar risks. Significant
increases or decreases in either of these inputs in isolation may result in a significantly higher or lower fair value measurement.
|
(e)
|
The Fund utilized a transaction approach to fair value this security. The significant unobservable input used in the
valuation model was a term sheet. Significant increases or decreases in the input in isolation may result in a significantly higher or lower fair value measurement.
|
34 | Semi-Annual Report
Apollo Senior Floating Rate Fund Inc.
Apollo Tactical Income Fund Inc.
Notes to Financial Statements (continued)
June 30, 2021 (unaudited)
Cash and Cash Equivalents
Cash and cash equivalents of the
Funds consist of cash held in bank accounts and liquid investments with maturities, at the date of acquisition, not exceeding 90 days that, at times, may exceed federally insured limits. As of June 30, 2021, 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, 2020, AFT and AIF did not record a U.S. federal excise tax provision. The Funds did not pay
any excise tax during 2021 related to the 2020 tax year. No federal income tax provision or excise tax provision is required for the six months ended June 30, 2021.
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, 2017 to 2020. The statute of limitations on AIFs federal
and state fillings remains open for the years ended December 31, 2017 to 2020.
Semi-Annual
Report | 35
Apollo Senior Floating Rate Fund Inc.
Apollo Tactical Income Fund Inc.
Notes to Financial Statements (continued)
June 30, 2021 (unaudited)
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.
On October 28, 2020, the SEC adopted new regulations governing the use of derivatives by registered investment companies
(Rule 18f-4). The new rule will also impact a funds use of unfunded commitment agreements and reverse repurchase agreements. The Funds will be required to implement and comply with Rule 18f-4 by August 19, 2022. Once implemented,
Rule 18f-4 will impose limits on the amount of derivatives a fund can enter into, eliminate the asset segregation framework currently used by funds to comply with Section 18 of the 1940 Act, treat derivatives as senior securities and require funds
whose use of derivatives is more than a limited specified exposure amount to establish and maintain a comprehensive derivatives risk management program and appoint a derivatives risk manager. In addition, a fund entering into an unfunded commitment
agreement generally must determine, at the time it enters into such agreement, that it will have sufficient cash and cash equivalents to meet its obligations with respect to all of its unfunded commitment agreements as they come due. Additionally, a
fund entering into reverse repurchase agreements or other similar financing transactions, must either (i) comply with the asset coverage requirements of Section 18 (combining the aggregate amount of indebtedness associated with all reverse
repurchase agreements or similar financing with the aggregate amount of any other senior securities representing indebtedness when calculating the relevant asset coverage ratio) or (ii) treats all reverse repurchase agreements or similar financing
transactions as derivatives transactions for all purposes under Rule 18f-4.
36 | Semi-Annual Report
Apollo Senior Floating Rate Fund Inc.
Apollo Tactical Income Fund Inc.
Notes to Financial Statements (continued)
June 30, 2021 (unaudited)
Note 3. Investment Advisory, Administration and Other Agreements with Affiliates
Investment Advisory Fee
The Adviser provides certain
investment advisory, management and administrative services to the Funds pursuant to investment advisory and management agreements with each of the Funds. For its services, each Fund pays the Adviser monthly at the annual rate of 1.0% of the average
daily value of the Funds managed assets. Managed assets are defined as the total assets of a Fund (including any assets attributable to any preferred shares that may be issued or to money borrowed or notes issued by the Fund) minus the sum of
the Funds accrued liabilities, including accrued interest and accumulated dividends (other than liabilities for money borrowed (including the liquidation preference of preferred shares) or notes issued). The Adviser may elect from time to
time, in its sole discretion, to waive its receipt of the advisory fee from a Fund. If the Adviser elects to waive its compensation, such action may have a positive effect on the Funds performance or yield. The Adviser is under no obligation
to waive its fees, may elect not to do so, may decide to waive its compensation periodically or may decide to waive its compensation on only one of the Funds at any given time. For the six months ended June 30, 2021, the Adviser earned fees of
$1,899,048 and $1,751,486 from AFT and AIF, respectively.
Administrative Services and Expense Reimbursements
The Funds and the Adviser have entered into Administrative Services and Expense Reimbursement Agreements pursuant to which the Adviser provides certain
administrative services, personnel and facilities to the Funds and performs operational services necessary for the operation of the Funds not otherwise provided by other service providers of the Funds. These services may include, without limitation,
certain bookkeeping and recordkeeping services, compliance and legal services, investor relations assistance, and accounting and auditing support. Pursuant to these agreements, the Funds will reimburse the Adviser at cost, at the Advisers
request, for certain costs and expenses incurred by the Adviser that are necessary for the administration and operation of the Funds. In addition, the Adviser or one of its affiliates may pay certain expenses on behalf of the Funds and then allocate
these expenses to the Funds for reimbursement. For the six months ended June 30, 2021, the Adviser provided services under these agreements totaling $378,374 and $383,012 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 $65,000 and $65,000 for AFT and AIF, respectively, of remuneration for officers of the Funds. During the six months ended June 30, 2021, the Funds accrued
voluntary expense waivers totaling $1,147 and $53,208 for AFT and AIF, respectively. These amounts are reflected in other payables and accrued expenses due to affiliates for the current semi-annual period. The final amount of the waiver, if any,
will be determined at the end of the fiscal year and may be more or less than the amounts shown above for the semi-annual period. This waiver is completely voluntary by the Adviser and can be discontinued at any time without notice.
Each Fund has entered into separate agreements with U.S. Bancorp Fund Services, LLC, d/b/a U.S. Bank Global Fund Services, to provide accounting and
administrative services, as well as separate agreements with U.S. Bank National Association to provide custodial services (together, U.S. Bank). Under the terms of the agreements, U.S. Bank is responsible for providing services necessary
in the daily operations of the Funds such as maintaining the Funds books and records, calculating the Funds NAVs, settling all portfolio trades, preparing regulatory filings and acting as the corporate secretary. Each Fund has also
entered into separate agreements with American Stock Transfer & Trust Company, LLC (AST), to serve as the Funds transfer agent, dividend disbursing agent and reinvestment plan administrator. U.S. Bank and AST provided
services totaling $113,858 and $111,177 for AFT and AIF, respectively, for the six months ended June 30, 2021, which are included in fund administration and accounting services in the Statements of Operations.
Board of Directors Fees
On an annual basis, AFT and AIF pay
each member of the Board who is not an interested person (as defined in the Investment Company Act) (an Independent Board Member) of the Funds an annual retainer of $23,000 per Fund, plus $2,000 for each in-person Board meeting (including meetings held via video-conference) of a single Fund ($3,000, or $1,500 per Fund, for a joint meeting of both Funds), plus $1,000 for attendance at telephonic Board meetings of a
single Fund or participation in special committee meetings of a single Fund not held in conjunction with regularly scheduled Board meetings ($1,500, or $750 per Fund, for a joint meeting of both Funds). In addition, the chairman of
Semi-Annual
Report | 37
Apollo Senior Floating Rate Fund Inc.
Apollo Tactical Income Fund Inc.
Notes to Financial Statements (continued)
June 30, 2021 (unaudited)
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 six months ended June 30, 2021 is $80,925 and $80,925 of expenses related to the Board for each of AFT and AIF, respectively.
Note 4. Investment Transactions
For the six months ended
June 30, 2021, 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.
|
|
|
$
|
265,066,806
|
|
|
|
$
|
259,872,905
|
|
Apollo Tactical Income Fund Inc.
|
|
|
|
277,081,213
|
|
|
|
|
268,451,408
|
|
|
|
|
The Funds are permitted to purchase and sell securities (Cross-Trade) from and to other Apollo entities
pursuant to procedures approved by the Board in compliance with Rule 17a-7 under the Investment Company Act (the Rule). Each Cross-Trade is executed at a fair market price in compliance with the
provisions of the Rule. For the six months ended June 30, 2021, the Funds did not engage in any Cross-Trade activities.
Note 5. Risks
Senior Loans
Senior Loans are usually rated below investment
grade and may also be unrated. As a result, the risks associated with Senior Loans are similar to the risks of below investment grade fixed income instruments, although Senior Loans are senior and secured, in contrast to other below investment grade
fixed income instruments, which are often subordinated or unsecured. Investments in Senior Loans rated below investment grade are considered speculative because of the credit risk of their issuers. Such issuers are considered more likely than
investment grade issuers to default on their payments of interest and principal owed to the Funds, and such defaults could reduce the Funds NAV and income distributions. An economic downturn would generally lead to a higher non-payment rate, and a Senior Loan may lose significant market value before a default occurs. Moreover, any specific collateral used to secure a Senior Loan may decline in value or become illiquid, which would
adversely affect the Senior Loans value. Senior Loans are subject to a number of risks, including liquidity risk and the risk of investing in below investment grade fixed income instruments.
Senior Loans are subject to the risk of non-payment of scheduled interest or principal. Such non-payment would result in a reduction of income to the Funds, a reduction in the value of the investment and a potential decrease in the NAV of the Funds. There can be no assurance that the liquidation of any
collateral securing a Senior Loan would satisfy the Borrowers obligation in the event of non-payment of scheduled interest or principal payments, or that the collateral could be readily liquidated. In
the event of bankruptcy or insolvency of a Borrower, the Funds could experience delays or limitations with respect to their ability to realize the benefits of the collateral securing a Senior Loan. The collateral securing a Senior Loan may lose all
or substantially all of its value in the event of the bankruptcy or insolvency of a Borrower. Some Senior Loans are subject to the risk that a court, pursuant to fraudulent conveyance or other similar laws, could subordinate such Senior Loans to
presently existing or future indebtedness of the Borrower or take other action detrimental to the holders of Senior Loans including, in certain circumstances, invalidating such Senior Loans or causing interest previously paid to be refunded to the
Borrower.
There may be less readily available and reliable information about most Senior Loans than is the case for many other types of securities,
including securities issued in transactions registered under the Securities Act of 1933 (the 1933 Act) or registered under the Securities Exchange Act of 1934. As a result, the Adviser will rely primarily on its own evaluation of a
Borrowers credit quality, rather than on any available independent sources. Therefore, the Funds will be particularly dependent on the analytical abilities of the Adviser.
In general, the secondary trading market for Senior Loans is not well developed. No active trading market may exist for certain Senior Loans, which may
make it difficult to value them. Illiquidity and adverse market conditions may mean that the Funds may not be able to sell Senior Loans quickly or at a fair price. To the extent that a secondary market
38 | Semi-Annual Report
Apollo Senior Floating Rate Fund Inc.
Apollo Tactical Income Fund Inc.
Notes to Financial Statements (continued)
June 30, 2021 (unaudited)
does exist for certain Senior Loans, the market for them may be subject to irregular trading activity, wide bid/ask spreads and extended trade settlement
periods.
Senior Loans are generally not registered under the 1933 Act and often contain certain restrictions on resale and cannot be sold publicly.
Senior Loans often require prepayments from excess cash flow or permit the Borrower to repay at its election. The degree to which Borrowers repay, whether as a contractual requirement or at their election, cannot be predicted with accuracy. As a
result, the actual maturity may be substantially less than the stated maturity shown on the Schedules of Investments.
The Funds may acquire Senior
Loans through assignments or participations. The purchaser of an assignment typically succeeds to all the rights and obligations of the assigning institution and becomes a lender under the credit agreement with respect to the debt obligation;
however, the purchasers rights can be more restricted than those of the assigning institution, and the Funds may not be able to unilaterally enforce all rights and remedies under the loan and with regard to any associated collateral. In
general, a participation is a contractual relationship only with the institution participating out the interest, not with the Borrower. Sellers of participations typically include banks, broker-dealers and other financial and lending institutions.
In purchasing participations, the Funds generally will have no right to enforce compliance by the Borrower with the terms of the loan agreement against the Borrower, and the Funds may not directly benefit from the collateral supporting the debt
obligation in which they have purchased the participation. As a result, the Funds will be exposed to the credit risk of both the Borrower and the institution selling the participation. Further, in purchasing participations in lending syndicates, the
Funds will not be able to conduct the due diligence on the Borrower or the quality of the Senior Loan with respect to which they are buying a participation that the Funds would otherwise conduct if they were investing directly in the Senior Loan,
which may result in the Funds being exposed to greater credit or fraud risk with respect to the Borrower or the Senior Loan.
Corporate Bonds
The Funds may invest in a wide variety of bonds of varying maturities issued by U.S. and foreign corporations, other business entities, governments and
municipalities and other issuers. Corporate bonds are issued with varying features and may differ in the way that interest is calculated, the amount and frequency of payments, the type of collateral, if any, and the presence of special features
(e.g., conversion rights, call rights or other rights of the issuer). The Funds investments in corporate bonds may include, but are not limited to, senior, junior, secured and unsecured bonds, notes and other debt securities, and may be fixed
rate, variable rate or floating rate, among other things.
The Adviser expects most of the corporate bonds in which the Funds invest will be high
yield bonds (commonly referred to as junk bonds). An issuer of corporate bonds typically pays the investor a fixed rate of interest and must repay the amount borrowed on or before maturity. The investment return of corporate bonds
reflects interest on the security and changes in the market value of the security. The market value of a corporate bond generally may be expected to rise and fall inversely with interest rates. The value of intermediate and longer-term corporate
bonds normally fluctuates more in response to changes in interest rates than does the value of shorter-term corporate bonds. The market value of a corporate bond also may be affected by investors perceptions of the creditworthiness of the
issuer, the issuers performance and perceptions of the issuer in the marketplace.
Subordinated Loans
Subordinated loans generally are subject to similar risks as those associated with investments in Senior Loans, except that such loans are subordinated
in payment and/or lower in lien priority to first lien holders. In the event of default on a subordinated loan, the first priority lien holder has first claim to the underlying collateral of the loan. Subordinated loans are subject to the additional
risk that the cash flow of the Borrower and property securing the loan or debt, if any, may be insufficient to meet scheduled payments after giving effect to the senior unsecured or senior secured obligations of the Borrower. This risk is generally
higher for subordinated unsecured loans or debt that are not backed by a security interest in any specific collateral. Subordinated loans generally have greater price volatility than Senior Loans and may be less liquid.
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
Semi-Annual
Report | 39
Apollo Senior Floating Rate Fund Inc.
Apollo Tactical Income Fund Inc.
Notes to Financial Statements (continued)
June 30, 2021 (unaudited)
factors, including currency exchange rates, interest rates, reference bonds (or loans) or stock indices, depending on the factor used and the use of
multipliers or deflators, changes in interest rates and movement of any factor may cause significant price fluctuations. Additionally, changes in the reference instrument or security may cause the interest rate on a structured product to be reduced
to zero and any further changes in the reference instrument may then reduce the principal amount payable on maturity of the structured product. Structured products may be less liquid than other types of securities and more volatile than the
reference instrument or security underlying the product.
The Funds may have the right to receive payments only from the structured product and
generally do not have direct rights against the issuer or the entity that sold the assets to be securitized. While certain structured products enable the investor to acquire interests in a pool of securities without the brokerage and other expenses
associated with directly holding the same securities, investors in structured products generally pay their share of the structured products administrative and other expenses. Although it is difficult to predict whether the prices of indices
and securities underlying structured products will rise or fall, these prices (and, therefore, the prices of structured products) will be influenced by the same types of political and economic events that generally affect issuers of securities and
capital markets. If the issuer of a structured product uses shorter-term financing to purchase longer-term securities, the issuer may be forced to sell its securities at below market prices if it experiences difficulty in obtaining short-term
financing, which may adversely affect the value of the structured products owned by the Funds.
Certain structured products may be thinly traded or
have a limited trading market. CLOs are typically privately offered and sold. As a result, investments in CLOs may be characterized by the Funds as illiquid securities. CLOs carry additional risks, including, but not limited to: (i) the
possibility that distributions from collateral securities will not be adequate to make interest or other payments, (ii) the quality of the collateral may decline in value or default, (iii) the possibility that the investments in CLOs are
subordinate to other classes or tranches of the CLOs and (iv) the complex structure of the security may not be fully understood at the time of investment and may produce disputes with the issuer or unexpected investment results.
LIBOR
A Fund may invest in financial instruments that use or
may use a floating rate based on the London Interbank Offered Rate, or LIBOR, which is the offered rate for short-term Eurodollar deposits between major international banks. Over the course of the last several years, global regulators
have indicated an intent to phase out the use of LIBOR and similar interbank offering rates (IBOR). There still remains uncertainty regarding the nature of any replacement rates for LIBOR and the other IBORs as well as around fallback approaches for
instruments extending beyond the any phase-out of these reference rates. The lack of consensus around replacement rates and the uncertainty of the phase out of LIBOR and other IBORs may result in increased volatility in corporate or governmental
debt, bank loans, derivatives and other instruments invested in by a Fund as well as loan facilities used by the Fund. The potential effect of a transition away from LIBOR on a Fund or the financial instruments in which the Fund invests cannot yet
be determined. 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. Certain proposed replacement rates to LIBOR, such as the Secured Overnight Financing Rate (SOFR), are materially
different from LIBOR, and changes in the applicable spread for instruments previously linked to LIBOR will need to be made in order for instruments to pay similar rates. 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 reduced coupons on debt held by a Fund, higher rates required to be
paid by a Fund on bank lines of credit due to increases in spreads, 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 and the other IBORs as benchmarks could deteriorate during the transition period, these
effects could begin to be experienced by the end of 2021 and beyond until the anticipated discontinuance date in 2023 for the majority of the LIBOR rates.
40 | Semi-Annual Report
Apollo Senior Floating Rate Fund Inc.
Apollo Tactical Income Fund Inc.
Notes to Financial Statements (continued)
June 30, 2021 (unaudited)
Note 6. Common Shares
Common share transactions were as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Apollo Senior Floating Rate Fund Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
June 30,
2021
|
|
Year Ended
December 31, 2020
|
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
|
|
Common shares outstanding, beginning of the period
|
|
|
|
15,573,061
|
|
|
|
$
|
296,608,015
|
|
|
|
|
15,573,061
|
|
|
|
$
|
296,608,448
|
|
Common shares issued as reinvestment of dividends
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Permanent differences reclassified (primarily non-deductible
expenses)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(433
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shares outstanding, end of the period
|
|
|
|
15,573,061
|
|
|
|
$
|
296,608,015
|
|
|
|
|
15,573,061
|
|
|
|
$
|
296,608,015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Apollo Tactical Income Fund Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
June 30,
2021
|
|
Year Ended
December 31,
2020
|
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
|
|
Common shares outstanding, beginning of the period
|
|
|
|
14,464,026
|
|
|
|
$
|
275,624,471
|
|
|
|
|
14,464,026
|
|
|
|
$
|
275,624,904
|
|
Common shares issued as reinvestment of dividends
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Permanent differences reclassified (primarily non-deductible
expenses)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(433
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shares outstanding, end of the period
|
|
|
|
14,464,026
|
|
|
|
$
|
275,624,471
|
|
|
|
|
14,464,026
|
|
|
|
$
|
275,624,471
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends declared on common shares with a record date of January 1, 2021 or later through the date of this report
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Apollo Senior Floating Rate Fund Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividend
Declaration
Date
|
|
Ex-Dividend
Date
|
|
Record Date
|
|
Payment Date
|
|
Per
Share
Amount
|
|
Gross
Distribution
|
|
Cash
Distribution
|
|
Value of new
Common
Shares
Issued
|
|
|
|
January 4, 2021
|
|
January 14, 2021
|
|
January 15, 2021
|
|
January 29, 2021
|
|
|
$
|
0.0740
|
|
|
|
$
|
1,152,407
|
|
|
|
$
|
1,152,407
|
|
|
|
|
|
|
February 2, 2021
|
|
February 11, 2021
|
|
February 12, 2021
|
|
February 26, 2021
|
|
|
$
|
0.0740
|
|
|
|
$
|
1,152,407
|
|
|
|
$
|
1,152,407
|
|
|
|
|
|
|
March 5, 2021
|
|
March 17, 2021
|
|
March 18, 2021
|
|
March 31, 2021
|
|
|
$
|
0.0740
|
|
|
|
$
|
1,152,407
|
|
|
|
$
|
1,152,407
|
|
|
|
|
|
|
April 9, 2021
|
|
April 16, 2021
|
|
April 19, 2021
|
|
April 30, 2021
|
|
|
$
|
0.0800
|
|
|
|
$
|
1,245,845
|
|
|
|
$
|
1,245,845
|
|
|
|
|
|
|
May 6, 2021
|
|
May 14, 2021
|
|
May 17, 2021
|
|
May 28, 2021
|
|
|
$
|
0.0800
|
|
|
|
$
|
1,245,845
|
|
|
|
$
|
1,245,845
|
|
|
|
|
|
|
June 7, 2021
|
|
June 16, 2021
|
|
June 17, 2021
|
|
June 30, 2021
|
|
|
$
|
0.0800
|
|
|
|
$
|
1,245,845
|
|
|
|
$
|
1,245,845
|
|
|
|
|
|
|
July 9, 2021*
|
|
July 16, 2021
|
|
July 19, 2021
|
|
July 30, 2021
|
|
|
$
|
0.0820
|
|
|
|
$
|
1,276,991
|
|
|
|
$
|
1,276,991
|
|
|
|
|
|
|
August 11, 2021*
|
|
August 20, 2021
|
|
August 23, 2021
|
|
August 31, 2021
|
|
|
$
|
0.0850
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* Declared subsequent to June 30, 2021
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Apollo Tactical Income Fund Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividend
Declaration
Date
|
|
Ex-Dividend
Date
|
|
Record Date
|
|
Payment Date
|
|
Per
Share
Amount
|
|
Gross
Distribution
|
|
Cash
Distribution
|
|
Value of new
Common
Shares
Issued
|
|
|
|
January 4, 2021
|
|
January 14, 2021
|
|
January 15, 2021
|
|
January 29, 2021
|
|
|
$
|
0.0760
|
|
|
|
$
|
1,099,266
|
|
|
|
$
|
1,099,266
|
|
|
|
|
|
|
February 2, 2021
|
|
February 11, 2021
|
|
February 12, 2021
|
|
February 26, 2021
|
|
|
$
|
0.0760
|
|
|
|
$
|
1,099,266
|
|
|
|
$
|
1,099,266
|
|
|
|
|
|
|
March 5, 2021
|
|
March 17, 2021
|
|
March 18, 2021
|
|
March 31, 2021
|
|
|
$
|
0.0760
|
|
|
|
$
|
1,099,266
|
|
|
|
$
|
1,099,266
|
|
|
|
|
|
|
April 9, 2021
|
|
April 16, 2021
|
|
April 19, 2021
|
|
April 30, 2021
|
|
|
$
|
0.0780
|
|
|
|
$
|
1,128,194
|
|
|
|
$
|
1,128,194
|
|
|
|
|
|
|
May 6, 2021
|
|
May 14, 2021
|
|
May 17, 2021
|
|
May 28, 2021
|
|
|
$
|
0.0785
|
|
|
|
$
|
1,135,426
|
|
|
|
$
|
1,135,426
|
|
|
|
|
|
|
June 7, 2021
|
|
June 16, 2021
|
|
June 17, 2021
|
|
June 30, 2021
|
|
|
$
|
0.0785
|
|
|
|
$
|
1,135,426
|
|
|
|
$
|
1,135,426
|
|
|
|
|
|
|
July 9, 2021*
|
|
July 16, 2021
|
|
July 19, 2021
|
|
July 30, 2021
|
|
|
$
|
0.0850
|
|
|
|
$
|
1,229,442
|
|
|
|
$
|
1,229,442
|
|
|
|
|
|
|
August 11, 2021*
|
|
August 20, 2021
|
|
August 23, 2021
|
|
August 31, 2021
|
|
|
$
|
0.0900
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* Declared subsequent to June 30, 2021
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Semi-Annual
Report | 41
Apollo Senior Floating Rate Fund Inc.
Apollo Tactical Income Fund Inc.
Notes to Financial Statements (continued)
June 30, 2021 (unaudited)
Note 7. Federal Tax Information
The timing and character of
income and capital gain distributions are determined in accordance with income tax regulations, which may differ from U.S. GAAP. As a result, net investment income/(loss) and net realized gain/(loss) on investment transactions for a reporting period
may differ significantly from distributions during such period.
The tax character of distributions paid by AFT during the fiscal year ended
December 31, 2020 was as follows:
|
|
|
|
|
|
Apollo Senior Floating Rate Fund Inc.
|
|
|
|
|
|
Distributions Paid from Ordinary Income: *
|
|
2020
|
|
|
|
Common Shareholders
|
|
|
$
|
15,868,950
|
|
|
|
|
|
|
|
Total Distributions
|
|
|
$
|
15,868,950
|
|
|
|
|
|
|
|
* For tax purposes, short-term capital gains distributions, if any, are considered ordinary income distributions.
The tax character of distributions paid by AIF during the fiscal year ended December 31, 2020 was as follows:
|
|
|
|
|
|
Apollo Tactical Income Fund Inc.
|
|
|
|
|
|
Distributions Paid from Ordinary Income: *
|
|
2020
|
|
|
|
Common Shareholders
|
|
|
$
|
15,375,260
|
|
|
|
|
|
|
|
Total Distributions
|
|
|
$
|
15,375,260
|
|
|
|
|
|
|
|
* For tax purposes, short-term capital gains distributions, if any, are considered ordinary income distributions.
As of December 31, 2020, 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.
|
|
|
$
|
257,580
|
|
|
|
$
|
|
|
|
|
$
|
(4,069,846
|
)
|
|
|
$
|
(41,261,794
|
)
|
Apollo Tactical Income Fund Inc.
|
|
|
|
360,207
|
|
|
|
|
|
|
|
|
|
38,682
|
|
|
|
|
(40,745,029
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* 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, 2020, short-term and
long-term capital loss carryforwards totaled $6,640,615 and $34,621,179, respectively, for AFT and $3,996,476 and $36,748,553, respectively, for AIF, which may be carried forward for an unlimited period.
Unrealized appreciation/(depreciation) and basis of investments for U.S. federal income tax purposes at June 30, 2021 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Apollo Senior
Floating Rate
Fund Inc.
|
|
Apollo Tactical
Income
Fund Inc.
|
|
|
|
Federal tax basis, cost
|
|
|
$
|
387,594,101
|
|
|
|
$
|
360,616,514
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized appreciation
|
|
|
$
|
10,931,225
|
|
|
|
$
|
12,332,740
|
|
Unrealized depreciation
|
|
|
|
(5,319,770
|
)
|
|
|
|
(4,937,348
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized appreciation/(depreciation)*
|
|
|
$
|
5,611,455
|
|
|
|
$
|
7,395,392
|
|
|
|
|
|
|
|
|
|
|
|
|
* 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.
42 | Semi-Annual Report
Apollo Senior Floating Rate Fund Inc.
Apollo Tactical Income Fund Inc.
Notes to Financial Statements (continued)
June 30, 2021 (unaudited)
Note 8. Credit Agreements and Preferred Shares
The Funds
utilize leverage and may utilize leverage to the maximum extent permitted by law for investment and other general corporate purposes. The Funds may obtain leverage by issuing preferred shares and/or notes and may also borrow funds from banks and
other financial institutions. The Funds may also gain leverage synthetically through swaps and other derivatives. The use of leverage to purchase additional securities creates an opportunity for increased common share dividends, but also creates
risks for common shareholders, including increased variability of the Funds net income, distributions and/or NAV in relation to market changes. Leverage is a speculative technique that exposes the Funds to greater risk and increased costs than
if it were not implemented. Increases and decreases in the value of the Funds portfolios will be magnified due to the use of leverage. In particular, leverage may magnify interest rate risk, which is the risk that the prices of portfolio
securities will fall (or rise) if market interest rates for those types of securities rise (or fall). As a result, leverage may cause greater changes in the Funds NAV, which will be borne entirely by the Funds common shareholders. If the
Funds issue preferred shares and/or notes or engage in other borrowings, they will have to pay dividends on their shares or interest on their notes or borrowings, which will increase expenses and may reduce the Funds return. These dividend
payments or interest expenses (which will be borne entirely by the common shareholders) may be greater than the Funds return on the underlying investments. The Funds leveraging strategy may not be successful.
Apollo Senior Floating Rate Fund Inc.
On March 1, 2021, AFT
entered into an amended and restated credit facility (the AFT Amended Credit Facility) with Sumitomo Mitsui Banking Corporation (SMBC) as lender, which matures on September 1, 2021. Under the terms of the AFT Amended Credit
Facility, AFT may borrow a single term loan not to exceed $121,000,000 and may borrow up to an additional $12,000,000 on a revolving basis (the AFT Revolving Loan). Borrowings under this facility bear interest at a rate of LIBOR plus
0.775%. The unused portion of the AFT Revolving Loan would be subject to a quarterly commitment fee equal to 0.125% per annum on the average daily amount of available commitments. AFT has granted a security interest in substantially all of its
assets in the event of default under the AFT Amended Credit Facility. As of June 30, 2021, AFT has $129,000,000 of principal outstanding under the AFT Amended Credit Facility, which is comprised of a term loan of $121,000,000 and a revolving loan of
$8,000,000.
Prior to March 1, 2021, AFT entered into an amended and restated credit facility (the Prior AFT Credit Facility) with SMBC
as lender, which matured on March 1, 2021. Under the terms of the Prior AFT Credit Facility, AFT was permitted to borrow a single term loan not to exceed $141,000,000. Borrowings under this facility bore interest at a rate of LIBOR plus 0.875%.
For the six months ended June 30, 2021, the average daily principal loan balance outstanding was $126,154,696, the weighted average annual interest
rate was 0.94% and the interest expense, which is included on the Statements of Operations in interest and commitment fee expense, was $585,051.
The fair value of AFTs borrowings under the AFT 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 AFT Amended Credit Facility contains certain customary affirmative and negative covenants, including limitations on debt, liens and restricted
payments, as well as certain portfolio limitations and customary prepayment provisions, including a requirement to prepay loans or take certain other actions if certain asset value tests are not met. As of June 30, 2021, AFT was not aware of any
instances of non-compliance related to the AFT Amended Credit Facility.
In connection with AFTs entry
into the AFT 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.
Semi-Annual
Report | 43
Apollo Senior Floating Rate Fund Inc.
Apollo Tactical Income Fund Inc.
Notes to Financial Statements (continued)
June 30, 2021 (unaudited)
Apollo Tactical Income Fund Inc.
On April 22, 2021, AIF
entered into an amended and restated credit facility (the AIF Amended Credit Facility) with SMBC as lender, which matures on April 4, 2022. Under the terms of the AIF Amended Credit Facility, AIF may borrow a single term loan not to
exceed $110,000,000 and may borrow up to an additional $14,000,000 on a revolving basis (the AIF Revolving Loan). Borrowings under this facility bear interest at a rate of LIBOR plus 0.875%. The unused portion of the AIF Revolving Loan
would be subject to a quarterly commitment fee equal to 0.125% per annum on the average daily amount of available commitments. AIF has granted a security interest in substantially all of its assets in the event of default under the AIF Amended
Credit Facility. As of June 30, 2021, AIF has $121,000,000 of principal outstanding under the AIF Amended Credit Facility, which is comprised of a term loan of $110,000,000 and a revolving loan of $11,000,000.
Prior to April 22, 2021, AIF entered into an amended and restated credit facility (the Prior AIF Credit Facility) with SMBC as lender, which
was scheduled to mature on April 4, 2022. Under the terms of the Prior AIF Credit Facility, AIF was permitted to borrow a single term loan not to exceed $110,000,000. Borrowings under this facility bore interest at a rate of LIBOR plus 0.875%.
For the six months ended June 30, 2021, the average daily principal loan balance outstanding was $113,906,077, the weighted average annual interest
rate was 1.01% and the interest expense, which is included on the Statements of Operations in interest and commitment fee expense, was $567,758.
The fair value of AIFs borrowings under the AIF Amended Credit Facility approximates the carrying amount presented in the accompanying Statements
of Assets and Liabilities based on a yield analysis and remaining maturities for which AIF has determined would be categorized as Level 2 in the fair-value hierarchy.
The AIF Amended Credit Facility contains certain customary affirmative and negative covenants, including limitations on debt, liens and restricted
payments, as well as certain portfolio limitations and customary prepayment provisions, including a requirement to prepay loans or take certain other actions if certain asset value tests are not met. As of June 30, 2021, AIF was not aware of
any instances of non-compliance related to the AIF Amended Credit Facility.
In connection with AIFs entry into the AIF Amended Credit
Facility, certain debt financing costs were incurred by AIF and are shown net of the principal amount in the Statements of Assets and Liabilities. The deferred financing costs are amortized over the life of the AIF Amended Credit Facility. The
amortization of the deferred financing costs is included in the Statements of Operations.
Note 9. General Commitments and Contingencies
As of June 30, 2021, the Funds had unfunded loan commitments outstanding, which could be extended at the option of the borrower, as detailed below:
|
|
|
|
|
|
|
|
|
|
|
Borrower
|
|
AFT
|
|
AIF
|
|
|
|
GEE Holdings 2, LLC Delayed Draw Term Loan
|
|
|
$
|
122,790
|
|
|
|
$
|
116,210
|
|
Gibraltar Acquisition Holdings, LLC Backstop Term Loan **
|
|
|
|
333,569
|
|
|
|
|
310,386
|
|
Gibraltar Acquisition Holdings, LLC Backstop Term Loan B **
|
|
|
|
873,217
|
|
|
|
|
812,530
|
|
LBM Acquisition, LLC Delayed Draw Term Loan B1 *
|
|
|
|
430,169
|
|
|
|
|
369,563
|
|
LBM Acquisition, LLC Delayed Draw Term Loan B2
|
|
|
|
876,106
|
|
|
|
|
876,106
|
|
Standard Industries Inc. Backstop Term Loan **
|
|
|
|
1,982,891
|
|
|
|
|
1,845,084
|
|
The Hertz Corporation Revolving Term Loan **
|
|
|
|
778,993
|
|
|
|
|
778,993
|
|
TPG Holdings III, LLC Delayed Draw Term Loan
|
|
|
|
174,559
|
|
|
|
|
174,559
|
|
|
|
|
|
|
|
|
|
|
|
|
Total unfunded loan commitments
|
|
|
$
|
5,572,294
|
|
|
|
$
|
5,283,431
|
|
|
|
|
|
|
|
|
|
|
|
|
*
|
Subsequent to June 30, 2021, all or a portion of the outstanding loan commitment was funded.
|
**
|
Subsequent to June 30, 2021, the outstanding loan commitment was terminated.
|
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
44 | Semi-Annual Report
Apollo Senior Floating Rate Fund Inc.
Apollo Tactical Income Fund Inc.
Notes to Financial Statements (continued)
June 30, 2021 (unaudited)
Statements of Assets and Liabilities and the Statements of Operations. For the six months ended June 30, 2021, AFT and AIF recorded a change in
unrealized appreciation/(depreciation) on unfunded loan commitments totaling $4,937 and $5,849, 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:
At a Special Meeting of shareholders of AFT on August 9, 2021, shareholders of AFT did not
approve the proposals applicable to AFT described in the Joint Proxy Statement/Prospectus of AIF dated May 18, 2021. As a result, the Special Meeting of shareholders of AFT was concluded.
Semi-Annual
Report | 45
Apollo Senior Floating Rate Fund Inc.
Apollo Tactical Income Fund Inc.
Fund
Investment Objectives, Policies and Risks
June 30, 2021 (unaudited)
Recent Changes:
This section summarizes certain changes since
December 31, 2020. This information may not reflect all of the changes that have occurred since you purchased shares of a Fund.
On June 28,
2021 shareholders of AIF voted to change AIFs fundamental investment restriction with respect to loans. Effective as of June 28, 2021, AIFs fundamental investment restriction with respect to loans is as follows:
The Fund may not:
Make loans, except as permitted under the
Investment Company Act, as interpreted or modified or otherwise permitted by regulatory authority having jurisdiction from time to time.
Other than
as set forth above, there have been no changes in investment policies not approved by shareholders since each Funds last annual report.
AFT
Investment Objective and Policies:
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. The Fund defines managed assets as the total assets of the
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 or notes issued and the liquidation preference of preferred shares).
This 80% 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.
The Fund seeks to achieve its investment objective by investing primarily in Senior Loans and investments with similar economic characteristics. Senior
Loans hold a first lien priority and typically pay interest at rates that are determined periodically on the basis of a floating base lending rate, primarily LIBOR, plus a premium. Borrowers may obtain Senior Loans to, among other reasons, refinance
existing debt and for acquisitions, dividends, leveraged buyouts and general corporate purposes. The Fund generally targets investments in recently issued Senior Loans that have structural characteristics, including stronger lender protections, that
are more favorable for investors. These Senior Loans provide a minimum coupon (called a LIBOR floor) that helps protect the Funds income in falling or flat-rate environments. The Fund may also seek to gain exposure to Senior Loans
by investing in swaps, including single name credit default swaps, single name loan credit default swaps, total return swaps, collateralized loan obligations (including synthetic collateralized loan obligations), reverse repurchase agreements and
other similar transactions.
The Fund may invest in subordinated loans. The Fund may invest in distressed securities, including loans purchased in
the secondary market, that are the subject of bankruptcy proceedings or otherwise in default or at risk of being in default as to the repayment of principal and/or interest at the time of acquisition by the Fund. The Fund may invest in U.S. dollar
and non-U.S. dollar denominated securities of issuers located anywhere in the world, and of issuers that operate in any industry.
46 | Semi-Annual Report
Apollo Senior Floating Rate Fund Inc.
Apollo Tactical Income Fund Inc.
Fund Investment Objectives, Policies and
Risks (continued)
June 30, 2021 (unaudited)
The Fund may invest in debt securities of any maturity, including perpetual securities, and does not manage its portfolio seeking to maintain a targeted
dollar-weighted average maturity level. Under normal market conditions, the Adviser expects to maintain an average duration of less than one year (including the effect of anticipated leverage).
The Fund currently utilizes leverage from a credit facility in furtherance of this investment strategy.
In seeking to achieve the Funds investment objective, the Adviser actively constructs and manages a portfolio of Senior Loans and other
investments. The Advisers investment process is rigorous, proactive and continuous. Close monitoring of each investment in the portfolio provides foresight for making buy, sell and hold decisions. The Adviser utilizes what it believes to be a
conservative approach that focuses on credit fundamentals, collateral coverage and structural seniority. The Adviser may also employ a sector analysis to assess industry trends and characteristics that may impact a Borrowers potential future
ability to generate cash, as well as profitability, asset values, financial needs and potential liabilities. The Adviser takes a disciplined approach to its credit investment selection process in which the credit ratings of a Borrower are evaluated
but are not considered to be the sole or determinative factor of selection. The criteria used by the Adviser in credit selection may include an evaluation of whether a Senior Loan is adequately collateralized or over-collateralized and whether it is
covered by sufficient earnings and cash flow to service the Borrowers indebtedness on a timely basis. The Adviser expects to gain exposure to Borrowers across a broad range of industries and of varying characteristics and return profiles.
Similar to its investment in Senior Loans and other debt investments, the Adviser adheres to a disciplined approach with respect to the Funds
investments in structured products, including collateralized loan obligations. The Adviser will seek to select structured products which are well-structured and collateralized by portfolios of primarily Senior Loans that the Adviser believes to be
of sufficient quality, diversity and amount to support the structure and fully collateralize the tranche purchased by the Fund. Likewise, the Adviser will evaluate the creditworthiness of counterparties and the investment characteristics of
reference assets when causing the Fund to enter into swaps or other derivative transactions.
AIF Investment Objective and Policies:
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 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. The Fund defines managed assets as the total assets of the 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 or notes
issued and the liquidation preference of preferred shares).
The 80% policy and AIFs investment objectives are not fundamental and may be
changed by the board of directors of AIF 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.
Semi-Annual
Report | 47
Apollo Senior Floating Rate Fund Inc.
Apollo Tactical Income Fund Inc.
Fund Investment Objectives, Policies and
Risks (continued)
June 30, 2021 (unaudited)
Securities Rated Below Caa or CCC. AIF has adopted a policy to not invest more than 20% of its managed assets in credit instruments that are rated
Caa or lower by Moodys or CCC or lower by S&P or Fitch. Unrated credit instruments are not subject to this policy.
Structured
Products. AIF has adopted a policy to not invest more than 10% of its managed assets in structured products.
Illiquid Investments. AIF
has adopted a policy to not invest more than 25% of its managed assets in securities that the Adviser considers to be illiquid.
The Adviser seeks
to achieve the Funds investment objectives primarily by allocating the Funds assets among different types of credit instruments based on absolute and relative value considerations and its analysis of the credit markets. The Funds
investments consist primarily of Senior Loans and Corporate Bonds. The Fund, however, has provided the Adviser with the flexibility to invest in varying types of credit instruments based on its analysis of the credit markets. This ability to
dynamically allocate the Funds assets may result in the Funds portfolio becoming concentrated in a particular type of credit instrument (such as Senior Loans or Corporate Bonds) and substantially less invested in other types of credit
instruments.
The Fund may invest in subordinated loans. The Fund may invest in distressed securities, including loans purchased in the secondary
market, that are the subject of bankruptcy proceedings or otherwise in default or at risk of being in default as to the repayment of principal and/or interest at the time of acquisition by the Fund. The Fund may make investments in non-U.S. entities, including issuers in emerging markets, but expects to make any investments in foreign issuers primarily in U.S. dollar denominated securities.
The Fund reserves the right to invest in credit instruments of any maturity. The Fund reserves the right to invest in credit instruments of any
duration. It is anticipated that the duration of the Funds portfolio will be lower than that of the overall junk bond market.
The
Fund currently utilizes leverage from a credit facility in furtherance of this investment strategy.
In seeking to achieve the Funds
investment objectives, the Adviser will actively construct and manage a portfolio of credit instruments and other investments. The Adviser will periodically rebalance the Funds allocation of assets among different types of credit instruments
based on absolute and relative value considerations and its analysis of the credit markets in order to seek to optimize the Funds allocation to credit instruments that the Adviser believes are positioned to contribute to the achievement of the
Funds investment objectives under the market conditions existing at the time of investment. It is anticipated that the duration of the Funds portfolio will be lower than that of the overall junk bond market. Duration is a
measure of how sensitive a bond or the Funds portfolio may be to changes in interest rates.
The Advisers investment process is
rigorous, proactive and continuous. Close monitoring of each investment in the portfolio provides the basis for making buy, sell and hold decisions. The Adviser utilizes what it believes to be a conservative approach that focuses on credit
fundamentals, collateral coverage and structural seniority. The Adviser may also employ a sector analysis to assess industry trends and characteristics that may impact an issuers potential future ability to generate cash, as well as
profitability, asset values, financial needs and potential liabilities. The Adviser takes a disciplined approach to its credit investment selection process in which the credit ratings of an issuer are evaluated but are not considered to be the sole
or determinative factor for selection. The criteria used by the Adviser in credit selection may include an evaluation of whether an issuers debts are adequately collateralized or over-collateralized and whether it has sufficient earnings and
cash flow to service its indebtedness on a timely basis. The Adviser expects to gain exposure to issuers across a broad range of industries and of varying characteristics and return profiles.
Similar to its investment in other credit instruments, the Adviser adheres to a disciplined approach with respect to the Funds investments in
structured products. The Adviser will seek to select structured products which are well structured and collateralized by portfolios of credit instruments or other assets that the Adviser believes to be of sufficient quality, diversity and amount to
support the structure and fully collateralize the instrument purchased by the Fund. Likewise,
48 | Semi-Annual Report
Apollo Senior Floating Rate Fund Inc.
Apollo Tactical Income Fund Inc.
Fund Investment Objectives, Policies and
Risks (continued)
June 30, 2021 (unaudited)
the Adviser will evaluate the creditworthiness of counterparties and the investment characteristics of reference assets when causing the Fund to enter
into swaps or other derivative transactions.
AFT Risk Factors:
General. Investing in the common shares involves certain risks and the Fund may not be able to achieve its intended results for a variety of
reasons, including, among others, the possibility that the Fund may not be able to structure its investments as anticipated. Because the value of your investment in the Fund will fluctuate, there is a risk that you will lose money. Your investment
will decline in value if, among other things, the value of the Funds investments decreases. The value of your common shares also will be affected by the Funds ability to successfully implement its investment strategy, as well as by
market, economic and other conditions. As with any security, complete loss of your investment is possible.
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 Fund, and such defaults could reduce the Funds net asset value 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.
Market Risk. Global economies and financial markets are increasingly interconnected, which increases the probabilities that conditions in one
country or region might adversely impact issuers in a different country or region. Conditions affecting the general economy, including political, social, or economic instability at the local, regional, or global level may also affect the market
value of a security. Health crises, such as pandemic and epidemic diseases, as well as other incidents that interrupt the expected course of events, such as natural disasters, war or civil disturbance, acts of terrorism, power outages and other
unforeseeable and external events, and the public response to or fear of such diseases or events, have and may in the future have an adverse effect on the Funds investments and net asset value and can lead to increased market volatility. For
example, any preventative or protective actions that governments may take in respect of such diseases or events may result in periods of business disruption, inability to obtain raw materials, supplies and component parts, and reduced or disrupted
operations for the issuers in which the Fund invests. The occurrence and pendency of such diseases or events could adversely affect the economies and financial markets either in specific countries or worldwide.
The rapid and global spread of a highly contagious novel coronavirus respiratory disease, designated COVID-19,
has resulted in volatility in the financial markets and severe losses; reduced liquidity of many instruments; restrictions on international and, in some cases, local travel; significant disruptions to business operations (including business
closures); strained healthcare systems; disruptions to supply chains, consumer demand and employee availability; and widespread uncertainty regarding the duration and long-term effects of this pandemic. Some sectors of the economy and individual
issuers have experienced particularly large losses. In addition, the COVID-19 pandemic may result in a sustained domestic or even global economic downturn or recession, domestic and foreign political and
social instability, damage to diplomatic and international trade relations and increased volatility and/or decreased liquidity in the securities markets. Developing or emerging market countries may be more impacted by the COVID-19 pandemic as they may have less established health care systems and may be less able to control or mitigate the effects of the pandemic. The ultimate economic fallout from the pandemic, and the long-term
impact on economies, markets, industries and individual issuers, are not known. The U.S. government and the Federal Reserve, as well as certain foreign governments and central banks, have taken and may in the future take extraordinary actions to
support local and global economies and the financial markets in response to the COVID-19 pandemic, including by pushing interest rates to very low levels. This and other government intervention into the
economy and financial markets to address the COVID-19 pandemic may not work as intended, particularly if the efforts are perceived by investors as being unlikely to
Semi-Annual
Report | 49
Apollo Senior Floating Rate Fund Inc.
Apollo Tactical Income Fund Inc.
Fund Investment Objectives, Policies and
Risks (continued)
June 30, 2021 (unaudited)
achieve the desired results. Government actions to mitigate the economic impact of the pandemic have resulted in a large expansion of government deficits
and debt, the long term consequences of which are not known. The COVID-19 pandemic could adversely affect the value and liquidity of the Funds investments and negatively impact performance. In addition,
the outbreak of COVID-19, and measures taken to mitigate its effects, could result in disruptions to the services provided to the Fund by its service providers.
Senior Loans. 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 Fund, a reduction in the value of the investment and a potential decrease in the NAV of the Fund. 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 Fund could experience delays or limitations with respect to its 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 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 Fund 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 Fund may not be able
to sell Senior Loans quickly or at a fair price. To the extent that a secondary market does exist for certain Senior Loans, the market for them may be subject to irregular trading activity, wide bid/ask spreads and extended trade settlement periods.
Senior Loans are generally not registered under the 1933 Act and often contain certain restrictions on resale and cannot be sold publicly. Senior
Loans often require prepayments from excess cash flow or permit the Borrower to repay at its election. The degree to which Borrowers repay, whether as a contractual requirement or at their election, cannot be predicted with accuracy. As a result,
the actual maturity may be substantially less than the stated maturity shown on the Schedules of Investments.
The Fund 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 Fund 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 Fund generally will have no right to enforce compliance by the Borrower with the terms of the loan agreement against the Borrower, and the Fund may not directly benefit from the collateral supporting the debt
obligation in which they have purchased the participation. As a result, the Fund 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
Fund 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 Fund would otherwise conduct if they were investing directly in the Senior Loan,
which may result in the Fund being exposed to greater credit or fraud risk with respect to the Borrower or the Senior Loan.
Subordinated Loans
Risk. 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
50 | Semi-Annual Report
Apollo Senior Floating Rate Fund Inc.
Apollo Tactical Income Fund Inc.
Fund Investment Objectives, Policies and
Risks (continued)
June 30, 2021 (unaudited)
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, which 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.
Below Investment Grade Securities Risk. The Fund anticipates that it will invest the majority of its assets in
Senior Loans, subordinated loans and other debt instruments that are rated below investment grade. Non-investment grade fixed income or convertible securities, often referred to as junk bonds,
leveraged loans or high yield securities, are debt securities that are rated below investment grade by the major rating agencies or are unrated securities that the Adviser believes are of comparable quality. While generally
providing greater income and opportunity for gain, non-investment grade debt securities and similar debt instruments may be subject to greater risks than securities or instruments that have higher credit
ratings, including a high risk of default. The credit rating of a high yield security does not necessarily address its market value risk, and ratings may from time to time change, positively or negatively, to reflect developments regarding the
issuers financial condition. High yield securities and similar instruments often are considered to be speculative with respect to the capacity of the issuer to timely repay principal and pay interest or dividends in accordance with the terms
of the obligation and may have more credit risk than higher rated securities. Lower grade securities and similar debt instruments may be particularly susceptible to economic downturns. It is likely that a prolonged or deepening economic recession
could adversely affect the ability of Borrowers issuing such securities and similar debt instruments to repay principal and pay interest on the instrument, increase the incidence of default and severely disrupt the market value of the securities and
similar debt instruments.
Credit Risk. Credit risk is the risk that one or more debt securities in the Funds portfolio will decline in
price or fail to pay interest or principal when due because the issuer of the security experiences a decline in its financial status. While a senior position in the capital structure of a Borrower may provide some protection with respect to the
Funds investments in Senior Loans, losses may still occur because the market value of Senior Loans is affected by the creditworthiness of Borrowers and by general economic and specific industry conditions. To the extent the Fund invests in
below investment grade securities, it will be exposed to a greater amount of credit risk than a fund that invests in investment grade securities. The prices of lower grade securities are more sensitive to negative developments, such as a decline in
the issuers revenues or a general economic downturn, than are the prices of higher grade securities. In addition, the Fund may use credit derivatives that may expose it to additional risk in the event that the securities underlying the
derivatives default.
Prepayment Risk. During periods of declining interest rates, Borrowers may exercise their option to prepay principal
earlier than scheduled. For fixed rate securities, such payments often occur during periods of declining interest rates, which may require the Fund to reinvest in lower yielding securities, resulting in a possible decline in the Funds income
and distributions to shareholders. This is known as prepayment or call risk. Below investment grade securities frequently have call features that allow the issuer to redeem the security at dates prior to its stated maturity at a
specified price (typically greater than par) only if certain prescribed conditions are met (Call Protection). An issuer may redeem a below investment grade security if, for example, the issuer can refinance the debt at a lower cost due
to declining interest rates or an improvement in the credit standing of the issuer. Subordinated loans typically do not have Call Protection. For premium bonds (bonds acquired at prices that exceed their par or principal value) purchased by the
Fund, prepayment risk may be enhanced.
Senior Loans are subject to prepayment risk and typically do not have Call Protection. The degree to which
Borrowers prepay Senior Loans, whether as a contractual requirement or at their election, may be affected by general business conditions, the financial condition of the Borrower and competitive conditions among Senior Loan investors, among others.
For these reasons, prepayments cannot be predicted with accuracy. Upon a prepayment, either in part or in full, the outstanding debt on which the Fund derives interest income will be reduced. The Fund may not be able to reinvest the proceeds
received on terms as favorable as the prepaid loan.
Semi-Annual
Report | 51
Apollo Senior Floating Rate Fund Inc.
Apollo Tactical Income Fund Inc.
Fund Investment Objectives, Policies and
Risks (continued)
June 30, 2021 (unaudited)
Interest Rate Risk. Because Senior Loans with floating or variable rates reset their interest rates periodically, changes in prevailing interest
rates can be expected to cause some fluctuations in the Funds net asset value. Similarly, a sudden and significant increase in market interest rates (which are currently considered low by historic standards) may cause a decline in the
Funds net asset value. In addition, Senior Loans or similar securities may allow the Borrower to opt between LIBOR-based interest rates and interest rates based on bank prime rates, which may have an effect on the Funds net asset value.
LIBOR Risk. The Fund may invest in financial instruments that use or may use a floating rate based on the London Interbank Offered Rate, or
LIBOR, which is the offered rate for short-term Eurodollar deposits between major international banks. Over the course of the last several years, global regulators have indicated an intent to phase out the use of LIBOR and similar
interbank offering rates (IBOR). There still remains uncertainty regarding the nature of any replacement rates for LIBOR and the other IBORs as well as around fallback approaches for instruments extending beyond the any phase-out of these reference rates. The lack of consensus around replacement rates and the uncertainty of the phase out of LIBOR and other IBORs may result in increased volatility in corporate or governmental debt,
bank loans, derivatives and other instruments invested in by the Fund as well as loan facilities used by the Fund. The potential effect of a transition away from LIBOR on the Fund or the financial instruments in which the Fund invests cannot yet be
determined. 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 the Funds performance and/or net asset value. Certain proposed replacement rates to LIBOR, such as the Secured Overnight Financing Rate (SOFR), are materially different
from LIBOR, and changes in the applicable spread for instruments previously linked to LIBOR will need to be made in order for instruments to pay similar rates. 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 reduced coupons on debt held by the Fund, higher rates required to be paid by the
Fund on bank lines of credit due to increases in spreads, 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 the 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 and the other IBORs as benchmarks could deteriorate during the transition period, these effects
could begin to be experienced by the end of 2021 and beyond until the anticipated discontinuance date in 2023 for the majority of the LIBOR rates.
Liquidity Risk. The Fund generally considers illiquid securities to be securities that cannot be sold within seven days in the
ordinary course of business at approximately the value used by the Fund in determining its net asset value. The Fund may not be able to readily dispose of such securities at prices that approximate those at which the Fund could sell the securities
if they were more widely-traded and, as a result of that illiquidity, the Fund may have to sell other investments or engage in borrowing transactions if necessary to raise cash to meet its obligations. Limited liquidity can also affect the market
price of securities, thereby adversely affecting the Funds net asset value and ability to make dividend distributions.
Some Senior Loans are
not readily marketable and may be subject to restrictions on resale. Senior Loans generally are not listed on any national securities exchange and no active trading market may exist for the Senior Loans in which the Fund may invest. When a secondary
market exists, if at all, the market for some Senior Loans may be subject to irregular trading activity, wide bid/ask spreads and extended trade settlement periods. The Fund has no limitation on the amount of its assets that may be invested in
securities that are not readily marketable or are subject to restrictions on resale.
Distressed and Defaulted Securities Risk. The Fund may
invest in securities, including loans purchased in the secondary market, that are the subject of bankruptcy proceedings or otherwise in default or at risk of being in default as to the repayment of principal and/or interest at the time of
acquisition by the Fund. Investment in these distressed securities is speculative and involves significant risks.
52 | Semi-Annual Report
Apollo Senior Floating Rate Fund Inc.
Apollo Tactical Income Fund Inc.
Fund Investment Objectives, Policies and
Risks (continued)
June 30, 2021 (unaudited)
Leverage Risk. The Fund uses leverage and may utilize leverage to the maximum extent permitted by law for investment and other general corporate
purposes. The Fund may obtain leverage by issuing preferred shares and/or notes and it may also borrow funds from banks and other financial institutions. The Fund 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 net asset
value in relation to market changes. Leverage is a speculative technique that exposes the Fund to greater risk and increased costs than if it were not implemented. Increases and decreases in the value of the Funds portfolio will be magnified
if the Fund uses 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 net asset value, which will be borne entirely by the Funds common shareholders. To the extent that the Fund makes investments in Senior Loans or other debt instruments structured with LIBOR
floors, the Fund will not realize additional income if rates increase to levels below the LIBOR floor but the Funds cost of financing is expected to increase, resulting in the potential for a decrease in the level of income available for
dividends or distributions made by the Fund. If the Fund issues preferred shares and/or notes or engages in other borrowings, it will have to pay dividends on its shares or interest on its 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 common shareholders) may be greater than the Funds return on the underlying investments. The Funds leveraging strategy may not
be successful.
Brexit Risk. The decision made in the British referendum of June 23, 2016 to leave the European Union (EU),
an event widely referred to as Brexit, has led to volatility in the financial markets of the United Kingdom (UK) and more broadly across Europe and may also lead to weakening in consumer, corporate and financial confidence in
such markets. Pursuant to an agreement between the UK and the EU, the UK left the EU on January 31, 2020. The UK and EU have reached an agreement effective January 1, 2021 on the terms of their future trading relationship relating
principally to the trading of goods; however, negotiations are ongoing for matters not covered by the agreement, such as the trade of financial services. The longer term economic, legal, political and social framework to be put in place between the
UK and the EU remains unclear at this stage and ongoing political and economic uncertainty and periods of exacerbated volatility in both the UK and in wider European markets may continue for some time. In particular, the decision made in the British
referendum may lead to a call for similar referendums in other European jurisdictions which may cause increased economic volatility in the European and global markets. This uncertainty may have an adverse effect on the economy generally and on the
ability of the Fund and the issuers in which it invests to execute their respective strategies and to receive attractive returns. Potential decline in the value of the British Pound and/or the Euro against other currencies, along with the potential
downgrading of the UKs sovereign credit rating, may also have an impact on the performance of issuers located in the UK or Europe. In light of the above, no definitive assessment can currently be made regarding the impact that Brexit will have
on a Fund or the issuers in which it invests.
Closed-End Structure; Market Discount from Net Asset
Value. Shares of closed-end investment companies that trade in a secondary market frequently trade at market prices that are lower than their net asset values. This is commonly referred to as trading
at a discount. As a result, the Fund is designed primarily for long-term investors. Although the value of the Funds net assets is generally considered by market participants in determining whether to purchase or sell shares, whether an
investor will realize gains or losses upon the sale of the shares will depend entirely upon whether the market price of the shares at the time of sale is above or below the investors purchase price for the shares. Because the market price of
the shares will be determined by factors such as relative supply of and demand for the shares in the market, general market and economic conditions, and other factors beyond the control of the Fund, the Fund cannot predict whether the shares will
trade at, below or above net asset value. As with any security, complete loss of investment is possible.
AIF Risk Factors:
General Risk. Investing in the common shares involves certain risks and the Fund may not be able to achieve its intended results for a variety of
reasons, including, among others, the possibility that the Fund may not be able to structure its investments as anticipated. Because the value of your investment in the Fund will fluctuate, there is a risk that you will lose money. Your investment
will decline in value if, among other things, the value of the Funds investments decreases. The value of your common shares also will be affected by the Funds ability to successfully
Semi-Annual
Report | 53
Apollo Senior Floating Rate Fund Inc.
Apollo Tactical Income Fund Inc.
Fund Investment Objectives, Policies and
Risks (continued)
June 30, 2021 (unaudited)
implement its investment strategy, as well as by market, economic and other conditions. As with any security, complete loss of your investment is
possible.
Market Risk. Global economies and financial markets are increasingly interconnected, which increases the probabilities that
conditions in one country or region might adversely impact issuers in a different country or region. Conditions affecting the general economy, including political, social, or economic instability at the local, regional, or global level may also
affect the market value of a security. Health crises, such as pandemic and epidemic diseases, as well as other incidents that interrupt the expected course of events, such as natural disasters, war or civil disturbance, acts of terrorism, power
outages and other unforeseeable and external events, and the public response to or fear of such diseases or events, have and may in the future have an adverse effect on the Funds investments and net asset value and can lead to increased market
volatility. For example, any preventative or protective actions that governments may take in respect of such diseases or events may result in periods of business disruption, inability to obtain raw materials, supplies and component parts, and
reduced or disrupted operations for the issuers in which the Fund invests. The occurrence and pendency of such diseases or events could adversely affect the economies and financial markets either in specific countries or worldwide.
The rapid and global spread of a highly contagious novel coronavirus respiratory disease, designated COVID-19,
has resulted in volatility in the financial markets and severe losses; reduced liquidity of many instruments; restrictions on international and, in some cases, local travel; significant disruptions to business operations (including business
closures); strained healthcare systems; disruptions to supply chains, consumer demand and employee availability; and widespread uncertainty regarding the duration and long-term effects of this pandemic. Some sectors of the economy and individual
issuers have experienced particularly large losses. In addition, the COVID-19 pandemic may result in a sustained domestic or even global economic downturn or recession, domestic and foreign political and
social instability, damage to diplomatic and international trade relations and increased volatility and/or decreased liquidity in the securities markets. Developing or emerging market countries may be more impacted by the COVID-19 pandemic as they may have less established health care systems and may be less able to control or mitigate the effects of the pandemic. The ultimate economic fallout from the pandemic, and the long-term
impact on economies, markets, industries and individual issuers, are not known. The U.S. government and the Federal Reserve, as well as certain foreign governments and central banks, have taken and may in the future take extraordinary actions to
support local and global economies and the financial markets in response to the COVID-19 pandemic, including by pushing interest rates to very low levels. This and other government intervention into the
economy and financial markets to address the COVID-19 pandemic may not work as intended, particularly if the efforts are perceived by investors as being unlikely to achieve the desired results. Government
actions to mitigate the economic impact of the pandemic have resulted in a large expansion of government deficits and debt, the long term consequences of which are not known. The COVID-19 pandemic could
adversely affect the value and liquidity of the Funds investments and negatively impact performance. In addition, the outbreak of COVID-19, and measures taken to mitigate its effects, could result in
disruptions to the services provided to the Fund by its service providers.
Below Investment Grade Instruments Risk. The Funds
investments in below investment grade quality securities and instruments (commonly referred to as high yield securities, junk bonds or leveraged loans) are regarded as having predominantly speculative
characteristics with respect to the issuers capacity to pay interest and repay principal in accordance with the terms of the obligations and involve major risk exposure to adverse conditions. Credit instruments rated below investment grade
generally offer a higher current yield than that available from higher rated securities, but typically involve greater risk. These investments are especially sensitive to adverse changes in general economic conditions, to changes in the financial
condition of their issuers and to price fluctuation in response to changes in interest rates. During periods of economic downturn or rising interest rates, issuers of below investment grade instruments may experience financial stress that could
adversely affect their ability to make payments of principal and interest on their obligations and increase the possibility of default. The secondary market for high yield instruments may not be as liquid as the secondary market for more highly
rated instruments, a factor that may have an adverse effect on the Funds ability to dispose of a particular high yield security. There are fewer dealers in the market for high yield instruments than for investment grade obligations. The prices
quoted by different dealers may vary significantly and the spread between the bid and ask price is generally much larger for high yield instruments than for higher quality instruments. Under continuing adverse market or economic conditions, the
secondary market for high yield instruments
54 | Semi-Annual Report
Apollo Senior Floating Rate Fund Inc.
Apollo Tactical Income Fund Inc.
Fund Investment Objectives, Policies and
Risks (continued)
June 30, 2021 (unaudited)
could contract further, independent of any specific adverse changes in the condition of a particular issuer, and these instruments may become illiquid.
In addition, adverse publicity and investor perceptions, whether or not based on fundamental analysis, may also decrease the market values and liquidity of below investment grade instruments, especially in a market characterized by a low volume of
trading.
Default, or the markets perception that an issuer is likely to default, could reduce the value and liquidity of instruments held by
the Fund, which could have a material adverse impact on the Funds business, financial condition and results of operations. In addition, default may cause the Fund to incur expenses in seeking recovery of principal and/or interest on its
portfolio holdings. In any reorganization or liquidation proceeding relating to a portfolio company, the Fund may lose its entire investment or may be required to accept cash or securities or other instruments with a value less than its original
investment and/or may be subject to restrictions on the sale of such securities or instruments. Among the risks inherent in investments in a troubled entity is the fact that it frequently may be difficult to obtain information as to the true
financial condition of the issuer. The Advisers judgment about the credit quality of an issuer and the relative value of its securities may prove to be wrong. Investments in below investment grade instruments may present special tax issues for
the Fund to the extent that the issuers of these instruments default on the instruments, and the federal income tax consequences to the Fund as a holder of such instruments may not be clear.
Fixed Income Instrument Risk. In addition to the other risks described herein, fixed income credit instruments, including high yield securities,
are also subject to certain risks, including:
Issuer Risk. The value of credit instruments may decline for a number of
reasons that directly relate to the issuer, such as management performance, financial leverage and reduced demand for the issuers goods and services.
Credit Risk. Credit risk is the risk that one or more debt securities in the Funds portfolio will decline in price or fail
to pay interest or principal when due because the issuer of the security experiences a decline in its financial status. The prices of lower grade securities generally are more sensitive to negative developments, such as a decline in the
issuers revenues or a general economic downturn, than are the prices of higher grade securities.
Interest Rate Risk.
The market price of the Funds investments will change in response to changes in interest rates and other factors. During periods of declining interest rates, the market price of fixed rate instruments generally rises. Conversely, during
periods of rising interest rates, the market price of such instruments generally declines. The Fund may be subject to a greater risk of rising interest rates due to the current period of historically low rates. The magnitude of these fluctuations in
the market price of fixed rate credit instruments is generally greater for instruments with longer maturities. Fluctuations in the market price of the Funds investments will not affect interest income derived from instruments already owned by
the Fund, but will be reflected in the Funds net asset value. In addition, some credit instruments may allow an issuer to opt between London-Interbank Offered Rate (LIBOR)-based interest rates and interest rates based on bank prime
rates, which may have an effect on the Funds net asset value. The Fund may utilize certain strategies, including investments in swaps, for the purpose of reducing the interest rate sensitivity of the portfolio and decreasing the Funds
exposure to interest rate risk, although there is no assurance that it will do so or that such strategies, if utilized, will be successful.
Reinvestment Risk. Reinvestment risk is the risk that income from the Funds portfolio will decline if and when the Fund
invests the proceeds from matured, traded or called fixed income instruments at market interest rates that are below the portfolios current earnings rate. A decline in income could affect the market price of the Funds common stock or its
overall return.
Spread Risk. Wider credit spreads and decreasing market values typically reflect a deterioration of a fixed
income instruments credit soundness and a perceived greater likelihood or risk of default by the issuer. Fixed income instruments generally compensate for greater credit risk by paying interest at a higher rate. The difference (or
spread) between the yield of a security and the yield of a benchmark, such as a U.S. Treasury security with a comparable maturity, measures the additional interest paid for credit risk. As the spread on a security widens (or increases),
the price (or value) of the security generally falls. In addition to spreads widening due to greater credit risk with respect to a particular security, spread widening may also occur, among other reasons, as a result of market concerns over the
Semi-Annual
Report | 55
Apollo Senior Floating Rate Fund Inc.
Apollo Tactical Income Fund Inc.
Fund Investment Objectives, Policies and
Risks (continued)
June 30, 2021 (unaudited)
stability of the market, excess supply, general credit concerns in other markets, market-specific credit concerns or general reductions in risk
tolerance.
Prepayment Risk. During periods of declining interest rates, the issuer of a credit instrument may exercise its
option to prepay principal earlier than scheduled, forcing the Fund to reinvest the proceeds from such prepayment in lower yielding instruments, which may result in a decline in the Funds income and distributions to common stockholders. This
is known as prepayment or call risk. Credit instruments frequently have call features that allow the issuer to redeem the instrument at dates prior to its stated maturity at a specified price (typically greater than par) only if certain
prescribed conditions are met (call protection). An issuer may choose to redeem a fixed income instrument if, for example, the issuer can refinance the instrument at a lower cost due to declining interest rates or an improvement in the
credit standing of the issuer. For premium bonds (bonds acquired at prices that exceed their par or principal value) purchased by the Fund, prepayment risk may be increased and may result in losses to the Fund.
Senior Loans Risk. 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. Any
specific collateral used to secure a Senior Loan, however, may decline in value or become illiquid, which would adversely affect the Senior Loans value.
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 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 Fund 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 Fund may not be able
to sell Senior Loans quickly or at a fair price. To the extent that a secondary market does exist for certain Senior Loans, the market for them may be subject to irregular trading activity, wide bid/ask spreads and extended trade settlement periods.
Senior Loans and other variable rate debt instruments are subject to the risk of payment defaults of scheduled interest or principal. Such payment
defaults would result in a reduction of income to the Fund, a reduction in the value of the investment and a potential decrease in the net asset value of the Fund. Similarly, a sudden and significant increase in market interest rates may increase
the risk for payment defaults and cause a decline in the value of these investments and in the Funds net asset value. Other factors (including, but not limited to, rating downgrades, credit deterioration, a large downward movement in stock
prices, a disparity in supply and demand of certain securities or market conditions that reduce liquidity) can reduce the value of Senior Loans and other debt obligations, impairing the Funds net asset value.
Senior Loans are subject to legislative risk. If legislation or state or federal regulations impose additional requirements or restrictions on the
ability of financial institutions to make loans, the availability of Senior Loans for investment by the Fund may be adversely affected. In addition, such requirements or restrictions could reduce or eliminate sources of financing for certain
issuers. This would increase the risk of default. If legislation or federal or state regulations require financial institutions to increase their capital requirements, this may cause financial institutions to dispose of Senior Loans that are
considered highly levered transactions. Such sales could result in prices that, in the opinion of the Adviser, do not represent fair value. If the Fund attempts to sell a Senior Loan at a time when a financial institution is engaging in such a sale,
the price the Fund could receive for the Senior Loan may be adversely affected.
The Fund 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 Fund may not be able to unilaterally enforce all rights and remedies under the loan and with regard
56 | Semi-Annual Report
Apollo Senior Floating Rate Fund Inc.
Apollo Tactical Income Fund Inc.
Fund Investment Objectives, Policies and
Risks (continued)
June 30, 2021 (unaudited)
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, other financial institutions and lending institutions. In purchasing participations, the Fund generally will have no right to enforce compliance by the borrower
with the terms of the loan agreement against the borrower and the Fund may not directly benefit from the collateral supporting the debt obligation in which it has purchased the participation. As a result, the Fund 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 Fund will not be able to conduct the due diligence on the borrower or the quality of the Senior Loan with respect to
which it is buying a participation that the Fund would otherwise conduct if it were investing directly in the Senior Loan, which may result in the Fund being exposed to greater credit or fraud risk with respect to the borrower or the Senior Loan.
Subordinated Loans Risk. 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. These
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 is 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.
Distressed and Defaulted Securities Risk. The Fund may invest in securities that are the subject of bankruptcy proceedings or
otherwise in default or at risk of being in default as to the repayment of principal and/or interest at the time of acquisition by the Fund. Investment in these distressed securities is speculative and involves significant risks.
Leverage Risk. The Fund uses leverage and may utilize leverage to the maximum extent permitted by law for investment and other general corporate
purposes. The Fund may obtain leverage by issuing preferred shares and/or notes and it may also borrow funds from banks and other financial institutions. The Fund 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 net asset
value in relation to market changes. Leverage is a speculative technique that exposes the Fund to greater risk and increased costs than if it were not implemented. Increases and decreases in the value of the Funds portfolio will be magnified
if the Fund uses 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 net asset value, which will be borne entirely by the Funds common shareholders. To the extent that the Fund makes investments in Senior Loans or other debt instruments structured with LIBOR
floors, the Fund will not realize additional income if rates increase to levels below the LIBOR floor but the Funds cost of financing is expected to increase, resulting in the potential for a decrease in the level of income available for
dividends or distributions made by the Fund. If the Fund issues preferred shares and/or notes or engages in other borrowings, it will have to pay dividends on its shares or interest on its 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 common shareholders) may be greater than the Funds return on the underlying investments. The Funds leveraging strategy may not
be successful.
LIBOR Risk. The Fund may invest in financial instruments that use or may use a floating rate based on the London Interbank
Offered Rate, or LIBOR, which is the offered rate for short-term Eurodollar deposits between major international banks. Over the course of the last several years, global regulators have indicated an intent to phase out the use of LIBOR
and similar interbank offering rates (IBOR). There still remains uncertainty regarding the nature of any replacement rates for LIBOR and the other IBORs as well as around fallback approaches for instruments extending beyond the any phase-out of these reference rates. The lack of consensus around replacement rates and the uncertainty of the phase out of LIBOR and other IBORs may result in increased volatility in corporate or governmental debt,
bank loans, derivatives and other instruments invested in by the Fund as well as loan facilities used by the Fund. The potential effect of a transition away from LIBOR on the Fund or the financial instruments in which the Fund invests cannot yet be
determined. The elimination of LIBOR or changes to other reference rates or any other changes or
Semi-Annual
Report | 57
Apollo Senior Floating Rate Fund Inc.
Apollo Tactical Income Fund Inc.
Fund Investment Objectives, Policies and
Risks (continued)
June 30, 2021 (unaudited)
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 the Funds performance and/or net asset value. Certain proposed replacement rates to LIBOR, such as the Secured Overnight Financing Rate (SOFR), are materially different
from LIBOR, and changes in the applicable spread for instruments previously linked to LIBOR will need to be made in order for instruments to pay similar rates. 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 reduced coupons on debt held by the Fund, higher rates required to be paid by the
Fund on bank lines of credit due to increases in spreads, 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 the 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 and the other IBORs as benchmarks could deteriorate during the transition period, these effects
could begin to be experienced by the end of 2021 and beyond until the anticipated discontinuance date in 2023 for the majority of the LIBOR rates.
Brexit Risk. The decision made in the British referendum of June 23, 2016 to leave the European Union (EU), an event widely
referred to as Brexit, has led to volatility in the financial markets of the United Kingdom (UK) and more broadly across Europe and may also lead to weakening in consumer, corporate and financial confidence in such markets.
Pursuant to an agreement between the UK and the EU, the UK left the EU on January 31, 2020. The UK and EU have reached an agreement effective January 1, 2021 on the terms of their future trading relationship relating principally to the
trading of goods; however, negotiations are ongoing for matters not covered by the agreement, such as the trade of financial services. The longer term economic, legal, political and social framework to be put in place between the UK and the EU
remains unclear at this stage and ongoing political and economic uncertainty and periods of exacerbated volatility in both the UK and in wider European markets may continue for some time. In particular, the decision made in the British referendum
may lead to a call for similar referendums in other European jurisdictions which may cause increased economic volatility in the European and global markets. This uncertainty may have an adverse effect on the economy generally and on the ability of
the Fund and the issuers in which it invests to execute their respective strategies and to receive attractive returns. Potential decline in the value of the British Pound and/or the Euro against other currencies, along with the potential downgrading
of the UKs sovereign credit rating, may also have an impact on the performance of issuers located in the UK or Europe. In light of the above, no definitive assessment can currently be made regarding the impact that Brexit will have on the Fund
or the issuers in which it invests.
Closed-End Structure; Market Discount from Net Asset Value.
Shares of closed-end investment companies that trade in a secondary market frequently trade at market prices that are lower than their net asset values. This is commonly referred to as trading at a
discount. As a result, the Fund is designed primarily for long-term investors. Although the value of the Funds net assets is generally considered by market participants in determining whether to purchase or sell shares, whether an
investor will realize gains or losses upon the sale of the shares will depend entirely upon whether the market price of the shares at the time of sale is above or below the investors purchase price for the shares. Because the market price of
the shares will be determined by factors such as relative supply of and demand for the shares in the market, general market and economic conditions, and other factors beyond the control of the Fund, the Fund cannot predict whether the shares will
trade at, below or above net asset value. As with any security, complete loss of investment is possible.
AFT Fundamental Investment Restrictions:
The following investment restrictions are fundamental policies of the Fund and may not be changed without the approval of the holders of a majority of
the Funds outstanding shares of common stock (which for this purpose and under the Investment Company Act means the lesser of (i) 67% of the shares of common stock represented at a
58 | Semi-Annual Report
Apollo Senior Floating Rate Fund Inc.
Apollo Tactical Income Fund Inc.
Fund Investment Objectives, Policies and
Risks (continued)
June 30, 2021 (unaudited)
meeting at which more than 50% of the outstanding shares of common stock are represented or (ii) more than 50% of the outstanding shares). Subject
to such shareholder approval, the Fund may not:
1. Make investments for the purpose of exercising control or
management.
2. Purchase or sell real estate, commodities or commodity contracts, except that, to the extent
permitted by applicable law, the Fund may (i) invest in securities directly or indirectly secured by real estate or interests therein or issued by entities that invest in real estate or interests therein; (ii) invest in securities directly
or indirectly secured by commodities or securities issued by entities that invest in or hold such commodities; and (iii) purchase and sell forward contracts, financial futures contracts and options thereon.
3. Issue senior securities or borrow money except as permitted by Section 18 of the Investment Company Act
or otherwise as permitted by applicable law.
4. Underwrite securities of other issuers, except insofar as
the Fund may be deemed an underwriter under the Securities Act in selling portfolio securities.
5. Make
loans to other persons, except that (i) the Fund will not be deemed to be making a loan to the extent that the Fund makes investments in accordance with its stated investment strategies or otherwise purchases Senior Loans, Subordinated Loans,
bonds, debentures or other loans or debt securities of any type, preferred securities, commercial paper, pass through instruments, loan participation interests, corporate loans, certificates of deposit, bankers acceptances, repurchase agreements or
any similar instruments; (ii) the Fund may take short positions in any security or financial instrument; and (iii) the Fund may lend its portfolio securities in an amount not in excess of 33 1/3% of its total assets, taken at market value,
provided that such loans shall be made in accordance with applicable law.
AIF Fundamental Investment Restrictions:
The following investment restrictions are fundamental policies of the Fund and may not be changed without the approval of the holders of a majority of
the Funds outstanding shares of common stock (which for this purpose and under the Investment Company Act means the lesser of (i) 67% of the shares of common stock represented at a meeting at which more than 50% of the outstanding shares of
common stock are represented or (ii) more than 50% of the outstanding shares). Subject to such shareholder approval, the Fund may not:
1. Make investments for the purpose of exercising control or management;
2. Purchase or sell real estate, commodities or commodity contracts, except that, to the extent permitted by
applicable law, the Fund may (i) invest in securities directly or indirectly secured by real estate or interests therein or issued by entities that invest in real estate or interests therein; (ii) invest in securities directly or
indirectly secured by commodities or securities issued by entities that invest in or hold such commodities; and (iii) purchase and sell forward contracts, swap contracts, futures contracts and options thereon;
3. Issue senior securities or borrow money except as permitted by Section 18 of the Investment Company Act
or otherwise as permitted by applicable law;
4. Underwrite securities of other issuers, except insofar as
the Fund may be deemed an underwriter under the Securities Act in selling portfolio securities;
5. Make
loans, except as permitted under the Investment Company Act, as interpreted or modified or otherwise permitted by regulatory authority having jurisdiction from time to time.
6. Invest 25% or more of its total assets (taken at market value at the time of each investment) in the
securities of issuers in any one industry; provided that securities issued or guaranteed by the U.S. Government or its agencies or
Semi-Annual
Report | 59
Apollo Senior Floating Rate Fund Inc.
Apollo Tactical Income Fund Inc.
Fund Investment Objectives, Policies and
Risks (continued)
June 30, 2021 (unaudited)
instrumentalities and tax-exempt securities of governments or their political subdivisions will not be considered
to represent an industry. The Fund determines industries by reference to the Global Industry Classification Standard as it may be amended from time to time.
Other Corporate Governance
Each Fund has opted-in to the
Maryland Control Share Acquisition Act (the MCSAA). The election to become subject to the MCSAA limits the ability of holders of control shares to vote those shares above various threshold levels that start at 10% unless the
other stockholders of a Fund reinstate or approve those voting rights at a meeting of stockholders as provided in the MCSAA. The bylaws for each Fund provide that the provisions of the MCSAA do not apply to the voting rights of the holders of any
shares of preferred stock of the Fund (but only with respect to such preferred stock).
The above description of the MCSAA is only a high-level
summary and does not purport to be complete. Investors should refer to the actual provisions of the MCSAA and each Funds bylaws for more information, including definitions of key terms, various exclusions and exemptions from the statutes
scope, and the procedures by which stockholders may approve the reinstatement of voting rights to holders of control shares.
60 | Semi-Annual Report
Apollo Senior Floating Rate Fund Inc.
Apollo Tactical Income Fund Inc.
Additional
Information
June 30, 2021 (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.
Semi-Annual
Report | 61
Apollo Senior Floating Rate Fund Inc.
Apollo Tactical Income Fund Inc.
Additional Information (continued)
June 30, 2021 (unaudited)
Approval of the Investment Advisory and Management Agreements for AFT and AIF
At a meeting of the Boards of Directors (together, the Board or the Directors) of Apollo Senior Floating Rate Fund Inc.
(AFT) and Apollo Tactical Income Fund Inc. (AIF) (each, a Fund and together, the Funds) held on February 18, 2021, the Directors met via video conference, in reliance on temporary exemptive orders
issued by the Securities and Exchange Commission on March 13, 2020, March 25, 2020 and June 19, 2020, to consider the approval of the Investment Advisory and Management Agreement between AFT and Apollo Credit Management, LLC (the
Adviser) and the Investment Advisory and Management Agreement between AIF and the Adviser (each, an Advisory Agreement and together, the Advisory Agreements) for an additional one-year term. While the meetings
occurred at the same time, the Directors considered each Advisory Agreement separately.
The Board has the responsibility under the Investment
Company Act of 1940, as amended (the 1940 Act), to approve annual renewal of each Funds Advisory Agreement at meetings of the Board called for the purpose of voting on such renewal. The Board generally receives, reviews and
evaluates information concerning the services and personnel of the Adviser and its affiliates at quarterly meetings of the Board. While particular emphasis might be placed on information concerning the investment performance of each Fund, each
Funds fees and expenses in comparison with other funds fees and expenses and the Advisers profitability at the meeting at which the renewal of the Advisory Agreements is considered, the process of evaluating each Funds
investment advisory and management arrangements is an ongoing one.
In preparation for their review of the Advisory Agreements, all of the Directors
who are not interested persons, as defined in the 1940 Act (the Independent Directors), of the Funds present at the meeting met with their independent counsel in an executive session. In considering whether to approve the
Advisory Agreements, the Directors, including the Independent Directors, reviewed materials provided in advance of the meeting by the Adviser and counsel to the Independent Directors and other materials which included, among other things: (i)
information concerning the services rendered to each Fund by the Adviser; (ii) information concerning the revenues generated and expenses incurred by the Adviser from the operation of each Fund; and (iii) a memorandum outlining the legal duties of
the Board under the 1940 Act. The Board also reviewed information prepared by Strategic Insight, a third party service provider, which included information in respect of each Fund comparing (1) the Funds performance with that of a group of
comparable funds selected by Strategic Insight (the Peer Group) and with a broader group of funds (the Morningstar Category) and (2) the Funds contractual and net management fees and total net expenses with those of its
Peer Group and Morningstar Category.
Counsel to the Independent Directors discussed the factors outlined by the federal courts as relevant to a
boards consideration of the approval of an investment advisory agreement and referred the Directors to the materials provided in connection with the meeting. The Directors also received information regarding each Funds operations,
expenses and performance periodically throughout the year.
The nature, extent and quality of services provided by the Adviser.
Representatives of the Adviser discussed the nature, extent and quality of the services provided by the Adviser to each Fund, including the Advisers expertise in managing loan portfolios, the integrated platform of the Adviser and its
affiliates and the benefits, resources and opportunities of the platform that the Adviser is able to access. Fund management discussed the size and experience of the Advisers staff, the experience of its key personnel in providing investment
management services, the systems used by the Advisers personnel and the ability of the Adviser to attract and retain capable personnel. Representatives of the Adviser discussed the reputation, compliance history, compliance program and
financial condition of the Adviser. They discussed the terms of each Advisory Agreement and the Advisers responsibilities with respect to each Fund.
Investment performance of the Funds and the Adviser. Representatives of the Adviser reviewed with the Board the performance of each Fund. Fund
management discussed each Funds stock price and its yield. Representatives of the Adviser compared each Funds yield (based on the ratio of net investment income to average net assets) to the
62 | Semi-Annual Report
Apollo Senior Floating Rate Fund Inc.
Apollo Tactical Income Fund Inc.
Additional Information (continued)
June 30, 2021 (unaudited)
average yield of certain of its peer funds identified by the Adviser for each calendar year since the Funds inception. Fund management then
discussed each Funds investment performance as compared to the performance of relevant reference indexes (the Benchmarks) for various periods.
On a net asset value basis, AFT outperformed the Benchmarks for the three and five year periods ended December 31, 2020 and for the period since
inception (February 23, 2011) through December 31, 2020, and outperformed one Benchmark and underperformed the other Benchmark for the one-year period ended December 31, 2020. On a net asset value basis, AIF outperformed the Benchmarks for the one-,
three- and five-year periods ended December 31, 2020 and for the period since inception (February 25, 2013) through December 31, 2020. On a market value basis, AFT underperformed its Benchmarks for the one-year period ended December 31, 2020 and the
period since inception through December 31, 2020, but outperformed its Benchmarks for the five-year periods ended December 31, 2020, and outperformed one Benchmark and underperformed the other Benchmark for the three-year period ended December 31,
2020. On a market value basis, AIF outperformed its Benchmarks for the one-, three and five year periods ended December 31, 2020 and for the period since inception through December 31, 2020.
Representatives of the Adviser next reviewed each Funds investment performance as compared to that of its Peer Group and Morningstar Category for
various annual periods ended December 31, 2020. Each Fund ranked above the averages of its Peer Group and Morningstar Category for the various annual periods.
Cost of services provided and profits realized by the Adviser and its affiliates from the relationship with the Funds. The Directors received
information from the Adviser regarding the profitability of each Fund to the Adviser and its affiliate and the methodology used by the Adviser in allocating its costs regarding the operations of the Funds and calculating profitability. In addition,
the Directors considered whether any direct or indirect collateral benefits inured to the Adviser as a result of its affiliation with the Funds. It was noted that each Fund has entered into an Administrative Services and Reimbursement Agreement with
the Adviser pursuant to which the Adviser provides the Fund with certain personnel and services not otherwise provided under the relevant Advisory Agreement, which services are required for the operations of the Fund, and the Fund generally
reimburses the Adviser on an at cost basis for such services.
The extent to which economies of scale would be realized as the Funds grow and
whether fee levels would reflect such economies of scale. The Directors considered the extent to which economies of scale are relevant for the Funds. It was noted that, because each Fund is a closed-end fund, any increase in asset levels
generally would have to come from material appreciation through investment performance. It was also noted that an investment objective of each Fund is to seek current income and that much of each Funds realized income is expected to be
distributed to its shareholders through monthly dividends.
Comparison of services rendered and fees paid to those under other investment
advisory contracts, such as contracts of the same and other investment advisers or other clients. The Board discussed the net management fee and net expense ratio comparisons set forth in the Strategic Insight report with representatives of the
Adviser. For each Fund, the Funds contractual management fee was within the range of those of its Peer Group funds. Each Funds net total expense ratio at both managed and common asset levels ranked in the fourth quartile of its Peer
Group and Morningstar Category. In considering the comparison of services rendered to and fees paid by each Fund to those under other investment advisory contracts, the Directors were aware of the nature of the investment strategies of each Fund and
the fact that the relevant comparison funds may have investment strategies, restrictions and leverage different from those of the Fund. In regard to compensation paid to the Adviser with respect to other funds or accounts, the Adviser stated that
none of the other funds or accounts advised by it or any of its affiliates are comparable to either Fund with respect to their investment strategies.
Conclusion. After consideration of the factors discussed above, the Directors, including the Independent Directors, unanimously voted to approve
each Advisory Agreement for an additional one-year term.
Semi-Annual
Report | 63
Apollo Senior Floating Rate Fund Inc.
Apollo Tactical Income Fund Inc.
Additional Information (continued)
June 30, 2021 (unaudited)