Apollo Tactical Income Fund Inc.

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM N-CSR

CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT

INVESTMENT COMPANIES

Investment Company Act file number             811-22591                        

                                             Apollo Tactical Income Fund Inc.                                             

(Exact name of registrant as specified in charter)

9 West 57th Street

                                                 New York, New York 10019                                                 

(Address of principal executive offices) (Zip code)

Joseph Moroney, President

9 West 57th Street

                                                 New York, New York 10019                                                 

(Name and address of agent for service)

Registrant’s telephone number, including area code: (212) 515-3200

Date of fiscal year end: December 31

Date of reporting period: June 30, 2014


Item 1. Reports to Stockholders.

The Report to Shareholders is attached herewith.


 

LOGO

 

 

  Apollo Senior Floating Rate Fund Inc. (NYSE: AFT)

  Apollo Tactical Income Fund Inc. (NYSE: AIF)

 

 

Semi-Annual Report

 

June 30, 2014

(unaudited)



 

TABLE OF CONTENTS

 

Manager Commentary

     4   

Financial Data

  

Apollo Senior Floating Rate Fund Inc.

     5   

Apollo Tactical Income Fund Inc.

     6   

Schedule of Investments

  

Apollo Senior Floating Rate Fund Inc.

     7   

Apollo Tactical Income Fund Inc.

     13   

Statements of Assets and Liabilities

     19   

Statements of Operations

     20   

Statements of Changes in Net Assets

  

Apollo Senior Floating Rate Fund Inc.

     21   

Apollo Tactical Income Fund Inc.

     22   

Statements of Cash Flows

  

Apollo Senior Floating Rate Fund Inc.

     23   

Apollo Tactical Income Fund Inc.

     24   

Financial Highlights

  

Apollo Senior Floating Rate Fund Inc.

     25   

Apollo Tactical Income Fund Inc.

     26   

Notes to Financial Statements

     27   

Additional Information

     41   

Important Information About This Report

     44   

Economic and market conditions change frequently.

There is no assurance that the trends described in this report will continue or commence.

 

 

This report, including the financial information herein, is transmitted to shareholders of the Funds for their information. It is not a prospectus. Past performance results shown in this report should not be considered a representation of future performance. Statements and other information herein are as dated and are subject to change.


Apollo Senior Floating Rate Fund Inc.

Apollo Tactical Income Fund Inc.

Manager Commentary (unaudited)

As of June 30, 2014

Dear Shareholders,

We would like to start by saying thank you for your interest in the Apollo Senior Floating Rate Fund Inc. and the Apollo Tactical Income Fund Inc. (the “Funds”). We appreciate the trust and confidence you have placed with us through your investment in the Funds.

The first half of 2014 was an ideal environment for credit investors. Economic growth was “just right”…strong enough to inspire confidence in some, not strong enough to give the Fed the confidence to accelerate tapering or consider raising rates earlier than expected. This in turn kept treasury rates low (and in fact drove them slightly lower), providing a backdrop for strong performance from fixed income asset classes and a lack of volatility. The result was a high-yield bond market trading at all-time low yields and a leveraged loan market that saw spreads compress as demand for floating-rate product exceeded supply (again!).

Fundamentally, the benign environment seen during 2013 continued, as the default rate by number of issuers for the 12-month period ended June 30, 2014 was 0.83% for leveraged loans and by principal amount was 1.08% (excluding Energy Future Holdings Corp., formerly known as TXU Corp.). Of note, we saw zero defaults for the Funds’ portfolio holdings over that period. This compares to long-term averages of 3.9% for high-yield bonds (as referenced in the J.P. Morgan High-Yield Default Monitor) and 3.4% for leveraged loans (as measured by the J.P. Morgan Leveraged Loan Index) since 1998. The downside of this benign credit risk environment is that while the cycle churns forward and excess demand abounds, structures and lending terms tend to suffer. Leverage, particularly for new issue loans backing leveraged buyouts, has continued to increase throughout the first six months of the year, with an increasing number of transactions levered 6-7 times. The offset to this negative trend is that fixed charge coverage, which represents a company’s ability to service their interest expense and capital expenditures, remained strong at a record 3.2 times during the first half of 2014.

Year-to-date June 30, 2014, the levered loan market returned 2.6% (as measured by the S&P/LSTA Leveraged Loan Index), and the high-yield bond market returned 5.6% (as measured by the BofA Merrill Lynch High-Yield Master II Index), and appear to be trending toward a second rare “coupon-clipping” performance. However, given the lack of volatility and interest rate performance mentioned above, loans and high-yield bonds have underperformed other asset classes with the 10-year treasury gaining 6.13%, investment grade bonds gaining 5.94% (as measured by the BofA Merrill Lynch U.S. Corporate Master Index), and the S&P 500 gaining 6.97% through June 30, 2014.

That performance was a little surprising to us since coming into 2014 we were expecting more volatility than we have seen thus far. While we were right on one of our key predictions, that the string of strong inflows to loan mutual funds would reverse, we did not anticipate the new issuance of collateralized loan obligations (“CLOs”) to grow as much as it has, more than absorbing the loss of demand from retail funds and depriving our prediction of a key source of kindling for potential volatility. In fact, CLOs are likely one of the top stories in the leveraged finance world thus far in 2014, as their $61 billion of issuance through June 30, 2014 has far surpassed expectations and shows no signs of slowing down, serving to keep demand for loans, and by extension prices and spreads, steady and tight.

As the credit cycle continues to progress, it seems reasonable to assume that increasing leverage, rising interest rates and tepid economic growth will conspire to cause a gradual increase in defaults and distress over the next 1 to 2 years, pushing default rates closer to their long-term averages. That said, given the strong current tone in the market, we do not expect a material increase in defaults for the remainder of 2014.

We appreciate your interest and support in the Funds. If you have any questions about the Funds, please call 1-888-301-3838, or go to our website at www.agmfunds.com.

Sincerely,

Apollo Credit Management, LLC

 

4  |  Semi-Annual Report


Apollo Senior Floating Rate Fund Inc.

Financial Data

As of June 30, 2014 (unaudited)

 

   Portfolio Composition (as % of Current Market  
   Value of Investment Securities)  
  

Loans

     92.0%   

High-Yield Bonds

     6.6%   

Equity/Other

     1.4%   
  
   Portfolio Characteristics (a)  
  

Weighted Average Floating-Rate Spread

     4.81%   

Weighted Average Fixed-Rate Coupon

     10.25%   

Weighted Average Days to Reset (floating assets)

     62   

Weighted Average Modified Duration (in years)
(fixed assets)

     2.55   

Average Position Size

   $ 2,214,846   

Number of Positions

     192   

Weighted Average Rating

     B   
  
   Credit Quality (b)  
  

BBB- or Higher

     0.2%   

BB

     5.2%   

B

     84.5%   

CCC+ or Lower

     6.2%   

Not Rated

     3.9%   
  
   Top 5 Industries (as % of Current Market Value of  
   Investment Securities) (c)  
  

Banking, Finance, Insurance & Real Estate

     13.5%   

Services: Business

     10.9%   

Healthcare & Pharmaceuticals

     10.3%   

Telecommunications

     8.0%   

Media: Broadcasting & Subscription

     7.0%   

Total

     49.7%   
   Top 10 Issuers (as % of Current Market Value of  
   Investment Securities) (d)  
  

First Data Corp.

     2.8%   

Opal Acquisition, Inc.

     1.8%   

Global Tel*Link Corp.

     1.7%   

Asurion, LLC

     1.4%   

Securus Technologies Holdings, Inc.

     1.3%   

Hyperion Finance S.a.r.l.

     1.3%   

Charming Charlie, LLC

     1.2%   

Premier Dental Services, Inc.

     1.2%   

WideOpenWest Finance, LLC

     1.2%   

National Financial Partners Corp.

     1.2%   

Total

     15.1%   

 

   Performance Comparison
    
     Six Months
Ended
June 30,
2014
 

Since  

Inception  
on February 23,  
2011 to  
June 30,  

2014  

    

AFT - Stock Price

       3.00%(e)           3.81%(e)(f)

AFT - NAV

       3.66%(e)           7.18%(e)(f)

S&P/LSTA Leveraged Loan Index (g)

       2.60%           4.88%(f)
 

 

(a) Averages based on par value of investment securities, except for the weighted average modified duration, which is based on market value.
(b) Credit quality is calculated as a percentage of fair value of investment securities at June 30, 2014. The quality ratings reflected were issued by Standard & Poor’s Ratings Group (“S&P”), a nationally recognized statistical rating organization. Credit quality ratings reflect the rating agency’s opinion of the credit quality of the underlying positions in the Fund’s portfolio and not that of the Fund itself. Credit quality ratings are subject to change.
(c) The industry classifications reported are from widely recognized market indexes or rating group indexes, and/or as defined by Fund management, with the primary source being Moody’s Investors Service (“Moody’s”), a nationally recognized statistical rating organization.
(d) Holdings are subject to change and are provided for informational purposes only.
(e) Performance reflects total return assuming all distributions were reinvested at the dividend reinvestment rate. Past performance does not necessarily indicate how the Fund will perform in the future. The performance information provided does not reflect the deduction of taxes that a shareholder would pay on distributions received from the Fund.
(f) Annualized.
(g) The S&P/LSTA Leveraged Loan Index is a broad index designed to reflect the performance of the U.S. Dollar facilities in the leveraged loan market.

 

Semi-Annual Report  |  5


Apollo Tactical Income Fund Inc.

Financial Data

As of June 30, 2014 (unaudited)

 

   Portfolio Composition (as % of Current Market  
   Value of Investment Securities)  
  

Loans

     61.1%   

High-Yield Bonds

     29.0%   

Structured Credit

     8.9%   

Equity/Other

     1.0%   
  
   Portfolio Characteristics (a)  
  

Weighted Average Floating-Rate Spread

     5.60%   

Weighted Average Fixed-Rate Coupon

     8.75%   

Weighted Average Days to Reset
(floating assets)

     58   

Weighted Average Modified Duration (in years)
(fixed assets)

     3.12   

Average Position Size

   $ 2,588,918   

Number of Positions

     156   

Weighted Average Rating

     B   
  
   Credit Quality (b)       
  

BB

     11.2%   

B

     71.9%   

CCC+ or Lower

     12.5%   

Not Rated

     4.4%   
  
   Top 5 Industries (as % of Current Market Value of  
   Investment Securities) (c)  
  

Banking, Finance, Insurance & Real Estate

     13.0%   

Structured Finance

     8.9%   

Services: Business

     8.4%   

Healthcare & Pharmaceuticals

     7.6%   

Consumer Goods: Non-Durable

     6.5%   

Total

     44.4%   
   Top 10 Issuers (as % of Current Market Value of  
   Investment Securities) (d)  
  

StoneMor Partners, L.P. / Cornerstone Family Services of West Virginia

     2.0%   

First Data Corp.

     1.9%   

Molycorp, Inc.

     1.8%   

Atlas Senior Loan Fund Ltd.

     1.7%   

Land O’Lakes Capital Trust I

     1.7%   

TPC Group, Inc.

     1.6%   

Sidewinder Drilling, Inc.

     1.5%   

Securus Technologies Holdings, Inc.

     1.5%   

InVentiv Health, Inc.

     1.5%   

Jefferies Finance, LLC / JFIN Co-Issuer Corp.

     1.5%   

Total

     16.7%   

 

   Performance Comparison
    
     Six Months
Ended
June 30,
2014
 

Since  

Inception  
on February 25,  
2013 to June 30,  
2014  

    

AIF - Stock Price

       5.98%(e)           0.59%(e)(f)

AIF - NAV

       6.04%(e)         10.58%(e)(f)

S&P/LSTA Leveraged Loan Index (g)

       2.60%           4.93%(f)
 

 

(a) Averages based on par value of investment securities, except for the weighted average modified duration, which is based on market value.
(b) Credit quality is calculated as a percentage of fair value of investment securities at June 30, 2014. The quality ratings reflected were issued by S&P, a nationally recognized statistical rating organization. Credit quality ratings reflect the rating agency’s opinion of the credit quality of the underlying positions in the Fund’s portfolio and not that of the Fund itself. Credit quality ratings are subject to change.
(c) The industry classifications reported are from widely recognized market indexes or rating group indexes, and/or as defined by Fund management, with the primary source being Moody’s, a nationally recognized statistical rating organization.
(d) Holdings are subject to change and are provided for informational purposes only.
(e) Performance reflects total return assuming all distributions were reinvested at the dividend reinvestment rate. Past performance does not necessarily indicate how the Fund will perform in the future. The performance information provided does not reflect the deduction of taxes that a shareholder would pay on distributions received from the Fund.
(f) Annualized.
(g) The S&P/LSTA Leveraged Loan Index is a broad index designed to reflect the performance of the U.S. Dollar facilities in the leveraged loan market.

 

6  |  Semi-Annual Report


Apollo Senior Floating Rate Fund Inc.

Schedule of Investments

June 30, 2014 (unaudited)

 

   

Principal
 Amount ($) 

 

   

 Value ($) 

 

     

 

Senior Loans (a) - 132.9%

     

 

AEROSPACE & DEFENSE - 9.3%

     

 

Camp International Holding Co.

     

2013 First Lien Replacement Term Loan, 4.75%, 05/31/19

    1,300,215            1,307,795     

2013 Second Lien Replacement Term Loan, 8.25%, 11/29/19

    1,000,000            1,027,500     

Deltek, Inc.

     

First Lien Term Loan, 10/10/18 (b)

    3,498,442            3,526,867     

Second Lien Term Loan, 10.00%, 10/10/19

    1,091,000            1,116,229     

ILC Industries, LLC

     

First Lien Term Loan, 8.00%, 07/11/18

    4,422,112            4,433,167     

Photonis Technologies SAS

     

Term Loan, 8.50%, 09/18/19

    3,910,350            3,929,902     

The SI Organization, Inc. (c)

     

First Lien Term Loan, 11/23/19 (b)

    662,383            665,284     

Second Lien Term Loan, 05/23/20 (b)

    606,000            607,897     

SRA International, Inc.

     

Term Loan, 6.50%, 07/20/18

    3,573,772            3,591,659     

TASC, Inc.

     

First Lien Term Loan, 6.50%, 05/22/20

    1,570,000            1,542,525     

Second Lien Term Loan, 12.00%, 05/23/21 (d)

    2,339,943            2,316,544     

U.S. Joiner Holding Co.

     

Term Loan, 7.00%, 04/16/20 (e)

    2,493,750            2,487,516     

WP CPP Holdings, LLC

     

First Lien Term Loan, 4.75%, 12/28/19

    1,163,640            1,170,185     
   

 

 

   
              27,723,070     
   

 

 

   

 

AUTOMOTIVE - 1.2%

     

 

American Tire Distributors, Inc.

     

Delayed Draw Term Loan, 06/01/18 (b)

    139,429            140,561     

Initial Term Loan, 06/01/18 (b)

    1,249,440            1,259,591     

Fram Group Holdings Inc./Prestone Holdings Inc.

     

Second Lien Term Loan, 10.50%, 01/29/18

    2,000,000            1,910,000     

Transtar Holding Co.

     

First Lien Term Loan, 5.75%, 10/09/18

    186,536            186,711     
   

 

 

   
      3,496,863     
   

 

 

   

 

BANKING, FINANCE, INSURANCE & REAL ESTATE - 14.0%

  

 

 

Amwins Group, LLC

     

First Lien New Term Loan, 5.00%, 09/06/19

    1,729,304            1,735,789     
   

    Principal
     Amount ($) 

 

   

 Value ($) 

 

     

 

BANKING, FINANCE, INSURANCE & REAL ESTATE (continued)

  

 

 

Asurion, LLC

     

Incremental Tranche B-1 Term Loan, 5.00%, 05/24/19

    4,458,483               4,492,390     

Second Lien Term Loan, 8.50%, 03/03/21

    1,562,000               1,623,504     

Hub International Ltd.

     

Initial Term Loan, 4.25%, 10/02/20

    2,769,060               2,777,713     

Hyperion Finance S.a.r.l. (United Kingdom)

     

Term Loan, 5.75%, 10/17/19 (f)

    5,373,000               5,408,811     

Institutional Shareholder Services Inc.

     

First Lien Term Loan, 4.75%, 04/30/21 (e)

    3,250,000               3,258,125     

Medical Card System, Inc.

     

Term Loan, 12.00%, 09/17/15 (e) (g)

    4,788,268               4,716,444     

MMM Holdings, Inc.

     

MMM Term Loan, 9.75%, 12/12/17

    750,223               756,787     

MSO of Puerto Rico, Inc.

     

MSO Term Loan, 9.75%, 12/12/17

    545,432               550,204     

National Financial Partners Corp.

     

Term Loan B, 5.25%, 07/01/20

    5,138,118               5,175,369     

SG Acquisition, Inc.

     

First Lien Initial Term Loan, 7.25%, 12/21/18 (e)

    2,607,224               2,620,260     

USI, Inc.

     

Initial Term Loan, 4.25%, 12/27/19

    4,835,372               4,850,990     

VFH Parent LLC

     

Term Loan, 5.75%, 11/08/19

    691,685               688,226     

Walter Investment Management Corp.

     

Tranche B Term Loan, 4.75%, 12/18/20

    3,320,640               3,288,479     
   

 

 

   
              41,943,091     
   

 

 

   

 

BEVERAGE, FOOD & TOBACCO - 5.0%

  

   

 

AdvancePierre Foods, Inc.

     

First Lien Term Loan, 5.75%, 07/10/17

    702,132               703,666     

ARG IH Corp.

     

Term Loan, 5.00%, 11/15/20

    1,910,400               1,924,718     

Arysta LifeScience SPC, LLC

     

First Lien Initial Term Loan, 4.50%, 05/29/20

    1,194,929               1,199,411     

Second Lien Term Loan, 8.25%, 11/30/20 (e)

    1,028,000               1,048,560     

Dole Food Co., Inc.

     

Tranche B Term Loan, 4.50%, 11/01/18

    2,325,878               2,332,658     

Hearthside Group Holdings, LLC

     

Term Loan, 4.50%, 06/02/21

    1,642,000               1,655,005     

Performance Food Group, Inc.

     

Second Lien Term Loan, 6.25%, 11/14/19

    1,038,993               1,051,336     
 

 

See accompanying Notes to Financial Statements.  |  7


Apollo Senior Floating Rate Fund Inc.

Schedule of Investments  (continued)

June 30, 2014 (unaudited)

 

   

Principal
 Amount ($) 

 

   

 Value ($) 

 

     

 

Senior Loans (a)  (continued)

  

 

 

BEVERAGE, FOOD & TOBACCO (continued)

  

 

 

PFS Holding Corp.

     

First Lien Term Loan, 4.50%, 01/31/21

    2,803,973            2,761,913     

Shearer’s Foods, LLC

     

First Lien Term Loan, 06/19/21 (b)

    791,666            794,389     

Winebow Holdings, Inc. (The Vintner Group, Inc.)

     

First Lien Term Loan, 07/01/21 (b)

    699,029            701,650     

Second Lien Term Loan, 01/02/22 (b)

    744,897            746,759     
   

 

 

   
              14,920,065     
   

 

 

   

 

CAPITAL EQUIPMENT - 1.0%

  

   

 

Tank Holding Corp. (Roto Acquisition Corp.)

     

First Lien Term Loan, 4.25%, 07/09/19

    3,059,244            3,063,068     
   

 

 

   

 

CHEMICALS, PLASTICS & RUBBER - 2.2%

  

 

 

AI Chem & Cy S.C.A. (Luxembourg)

     

Tranche B-1 Term Loan, 4.50%, 10/03/19 (f)

    426,909            429,577     

Tranche B-2 Term Loan, 4.50%, 10/03/19 (f)

    221,503            222,887     

Cyanco Intermediate Corp.

     

Term Loan, 5.50%, 05/01/20

    2,774,611            2,782,935     

Kronos Worldwide, Inc.

     

Initial Term Loan, 4.75%, 02/18/20

    628,425            635,891     

Tronox Pigments B. V. (Netherlands)

     

New Term Loan, 4.00%, 03/19/20 (f)

    736,557            738,999     

Univar Inc.

     

Term Loan B, 5.00%, 06/30/17

    1,728,052            1,737,634     
   

 

 

   
      6,547,923     
   

 

 

   

 

CONSUMER GOODS: DURABLE - 0.5%

  

   

 

Bluestem Brands, Inc.

     

Term Loan, 7.50%, 12/06/18

    1,024,371            1,032,054     

Britax U.S. Holdings Inc.

     

First Lien Term Loan B, 4.50%, 10/15/20

    581,668            554,038     
   

 

 

   
      1,586,092     
   

 

 

   

 

CONSUMER GOODS: NON-DURABLE - 8.9%

 

  

 

ABG Intermediate Holdings 2 LLC

     

First Lien Term Loan, 5.50%, 05/27/21

    3,541,125            3,563,256     

Allflex Holdings III, Inc.

     

Second Lien Initial Term Loan, 8.00%, 07/19/21

    2,400,000            2,427,000     

BRG Sports, Inc.

     

First Lien Term Loan, 6.50%, 04/15/21 (e)

    2,140,000            2,164,075     
   

Principal
 Amount ($) 

 

   

 Value ($) 

 

     

 

CONSUMER GOODS: NON-DURABLE (continued)

 

  

 

Fender Musical Instruments Corp.

     

Initial Term Loan, 5.75%, 04/03/19

    445,000               449,450     

Herff Jones, Inc.

     

Term Loan B, 5.50%, 06/25/19

    3,660,577               3,693,742     

Insight Pharmaceuticals LLC

     

First Lien Term Loan, 6.26%, 08/25/16 (e)

    3,132,937               3,138,811     

The Men’s Wearhouse, Inc.

     

Tranche B Term Loan, 4.50%, 06/18/21

    2,430,000               2,446,961     

Nine West Holdings, Inc.

     

Initial Term Loan, 4.75%, 10/08/19

    1,320,000               1,328,705     

Unsecured Initial Term Loan, 6.25%, 01/08/20

    1,000,000               1,005,935     

Polyconcept Investments B.V.

     

Term Loan, 06/28/19 (b)

    3,800,897               3,791,395     

The Topps Co., Inc.

     

Term Loan, 7.25%, 10/02/18 (e)

    2,517,350               2,492,176     
   

 

 

   
              26,501,506     
   

 

 

   

 

CONTAINERS, PACKAGING & GLASS - 1.2%

  

 

 

Berlin Packaging LLC

     

Term Loan B, 4.75%, 04/02/19

    495,000               499,178     

Devix Topco (France)

     

First Lien Term Loan B, 4.25%, 05/03/21 (f)

    1,525,000               1,530,726     

Pelican Products, Inc.

     

First Lien Term Loan, 5.25%, 04/10/20

    1,536,150               1,551,512     
   

 

 

   
      3,581,416     
   

 

 

   

 

ENERGY: OIL & GAS - 8.4%

  

 

 

Atlas Energy, L.P.

     

Term Loan, 6.50%, 07/31/19 (e)

    1,250,550               1,270,090     

Azure Midstream Energy LLC

     

Term Loan, 6.50%, 11/15/18

    876,152               885,461     

BBTS Borrower L.P.

     

Term Loan, 7.75%, 06/04/19

    4,282,127               4,328,695     

Chief Exploration & Development LLC

     

Second Lien Term Loan, 05/16/21 (b) (e)

    2,380,000               2,439,500     

Drillships Financing Holding Inc.

     

Tranche B-1 Term Loan, 6.00%, 03/31/21

    3,258,037               3,317,105     

EMG Utica, LLC

     

Term Loan, 4.75%, 03/27/20 (e)

    1,553,000               1,558,824     

HGIM Corp.

     

Term Loan A, 5.00%, 06/18/18 (e)

    5,027,980               5,040,550     

McDermott Finance LLC

     

Term Loan, 5.25%, 04/16/19

    837,000               846,420     

Pacific Drilling S.A. (Luxembourg)

     

Term Loan, 4.50%, 06/03/18 (f)

    1,269,180               1,275,526     
 

 

 

8  |  See accompanying Notes to Financial Statements.


Apollo Senior Floating Rate Fund Inc.

Schedule of Investments  (continued)

June 30, 2014 (unaudited)

 

   

   Principal

 Amount ($) 

 

 

 Value ($) 

 

     

 

Senior Loans (a)  (continued)

  

     

 

ENERGY: OIL & GAS (continued)

   

 

Power Buyer, LLC

       

First Lien Delayed Draw Term Loan, 4.25%, 05/06/20 (e)

    48,565          47,593     

First Lien Initial Term Loan, 4.25%, 05/06/20 (e)

    914,108          895,826     

Sprint Industrial Holdings, Inc.

       

First Lien Term Loan, 7.00%, 05/14/19

    2,173,870          2,190,174     

W3 Co.

       

First Lien Term Loan, 5.75%, 03/13/20 (e)

    927,195          914,446     
     

 

 

   
              25,010,210     
     

 

 

   

 

ENVIRONMENTAL INDUSTRIES - 1.3%

   

 

Environmental Resources Management (United Kingdom)

       

Term Loan, 05/09/21 (b) (f)

    3,920,000          3,900,420     
     

 

 

   

 

FOREST PRODUCTS & PAPER - 0.8%

   

 

Caraustar Industries, Inc.

       

Term Loan, 7.50%, 05/01/19

    2,327,529          2,360,999     
     

 

 

   

HEALTHCARE & PHARMACEUTICALS - 13.7%

   

 

ABB/Con-Cise Optical Group LLC

       

Term Loan B-1, 4.50%, 02/06/19

    1,516,034          1,516,033     

Amneal Pharmaceuticals LLC

       

Term Loan B, 5.75%, 11/01/19

    2,243,050          2,258,942     

Ardent Medical Services, Inc.

       

First Lien Term Loan, 6.75%, 07/02/18

    2,915,784          2,936,428     

ATI Holdings, Inc.

       

Term Loan, 5.00%, 12/20/19

    1,085,470          1,099,038     

Dialysis Newco, Inc. (dba DSI Renal)

       

First Lien Term Loan B, 4.75%, 04/23/21

    2,330,000          2,337,771     

Healogics, Inc.

       

First Lien Term Loan B, 5.25%, 02/05/19

    1,023,050          1,027,684     

InVentiv Health, Inc.

       

Consolidated Term Loan, 7.50%, 08/04/16

    2,387,546          2,403,220     

Term Loan B-3, 7.75%, 05/15/18

    729,448          731,271     

Opal Acquisition, Inc.

       

First Lien Term Loan, 5.00%, 11/27/20

    7,541,968          7,571,419     

Premier Dental Services, Inc.

       

First Lien Term Loan, 6.00%, 11/01/18

    5,228,804          5,257,118     

Sheridan Holdings, Inc.

       

2013 First Lien Initial Term Loan, 4.50%, 06/29/18

    1,319,340          1,321,319     

Smile Brands Group Inc.

       

Term Loan, 08/16/19 (b)

    4,367,000          4,257,825     

Steward Health Care System LLC

       

Term Loan, 6.75%, 04/10/20 (e)

    3,274,272          3,241,529     
   

     Principal

   Amount ($) 

 

 

 Value ($) 

 

     

 

HEALTHCARE & PHARMACEUTICALS (continued)

  

 

 

U.S. Renal Care, Inc.

       

First Lien Tranche B-2 Term Loan, 4.25%, 07/03/19

    4,133,181          4,151,904     

Second Lien Term Loan, 10.25%, 01/03/20 (e)

    818,000          832,315     
     

 

 

   
              40,943,816     
     

 

 

   

 

HIGH TECH INDUSTRIES - 6.8%

   

 

The Active Network, Inc. (Lanyon, Inc.)

       

First Lien Term Loan, 5.50%, 11/13/20

    1,573,284          1,568,375     

Flexera Software LLC

       

First Lien Term Loan, 4.50%, 04/02/20

    1,290,000          1,292,148     

Freescale Semiconductor, Inc.

       

Tranche B5 Term Loan, 5.00%, 01/15/21

    1,935,375          1,947,316     

GTCR Valor Companies, Inc. (c)

       

First Lien Term Loan, 05/30/21 (b)

    1,149,846          1,146,253     

Kronos Inc.

       

First Lien Incremental Term Loan, 4.50%, 10/30/19

    4,715,506          4,759,714     

Landesk Group, Inc.

       

First Lien New Term Loan, 5.00%, 02/25/20

    3,426,013          3,438,843     

Second Lien Term Loan, 8.25%, 02/25/21

    563,000          566,285     

MSC Software Corp.

       

First Lien Initial Term Loan, 5.00%, 05/29/20

    1,790,000          1,805,662     

Vision Solutions, Inc.

       

First Lien Term Loan, 6.00%, 07/23/16 (e)

    3,803,384          3,803,384     
     

 

 

   
        20,327,980     
     

 

 

   

 

HOTEL, GAMING & LEISURE - 2.4%

   

 

Centaur Acquisition, LLC

       

Second Lien Term Loan, 8.75%, 02/20/20

    826,000          842,520     

Deluxe Entertainment Services Group Inc.

       

Initial Term Loan, 6.50%, 02/28/20

    1,033,299          1,033,299     

Diamond Resorts Corp.

       

Term Loan, 5.50%, 05/09/21 (e)

    909,000          916,954     

Mohegan Tribal Gaming Authority

       

Term Loan B, 5.50%, 11/19/19

    1,099,674          1,120,183     

Peppermill Casinos, Inc.

       

Term Loan B, 7.25%, 11/09/18 (e)

    1,969,965          2,021,676     

Planet Fitness Holdings, LLC

       

Term Loan, 4.75%, 03/31/21

    1,336,650          1,345,004     
     

 

 

   
        7,279,636     
     

 

 

   

 

MEDIA: ADVERTISING, PRINTING & PUBLISHING - 6.4%

 

F & W Media, Inc.

       

Term Loan, 7.75%, 06/30/19 (e)

    4,206,365          4,206,365     
 

 

See accompanying Notes to Financial Statements.  |  9


Apollo Senior Floating Rate Fund Inc.

Schedule of Investments  (continued)

June 30, 2014 (unaudited)

 

   

   Principal

 Amount ($) 

 

 

 Value ($) 

 

     

 

Senior Loans (a)  (continued)

  

 

 

MEDIA: ADVERTISING, PRINTING & PUBLISHING (continued)

  

 

 

Information Resources, Inc.

       

Term Loan, 4.75%, 09/30/20

    2,901,671          2,927,061     

Merrill Communications LLC

       

Term Loan, 5.75%, 03/08/18

    3,892,541          3,965,526     

The Reader’s Digest Association, Inc.

       

Term Loan, 12.50%, 09/30/15 (e)

    3,004,805          2,895,881     

Springer SBM Two GMBH (Germany)

       

Initial Term Loan B2, 5.00%, 08/14/20 (f)

    5,010,140          5,026,598     
     

 

 

   
              19,021,431     
     

 

 

   

 

MEDIA: BROADCASTING & SUBSCRIPTION - 8.7%

  

 

 

CCO Holdings, LLC

       

Term Loan E, 3.00%, 07/01/20

    511,918          504,774     

Emmis Communications Corp.

       

Term Loan B, 06/10/21 (b)

    2,000,000          2,015,000     

Granite Broadcasting Corp.

       

First Lien Tranche B Term Loan, 6.75%, 05/23/18 (e)

    1,085,478          1,086,157     

Hargray Communications Group, Inc. (HCP Acquisition LLC)

       

Term Loan B, 4.75%, 06/26/19

    2,276,010          2,289,530     

Hemisphere Media Holdings, LLC (Intermedia Espanol, Inc.)

       

Term Loan B, 6.25%, 07/30/20

    2,326,500          2,361,398     

Hubbard Radio, LLC

       

Tranche 1 Term Loan, 4.50%, 04/29/19

    638,341          640,470     

Learfield Communications, Inc.

       

2014 First Lien Replacement Term Loan, 4.50%, 10/09/20

    1,243,750          1,256,188     

Numericable U.S. LLC

       

Dollar Denominated Tranche B-1 Term Loan, 4.50%, 05/21/20

    1,597,738          1,609,849     

Dollar Denominated Tranche B-2 Term Loan, 4.50%, 05/21/20

    1,382,262          1,392,739     

SESAC Holdco II LLC

       

First Lien Term Loan, 5.00%, 02/07/19

    920,684          929,320     

Telecommunications Management, LLC

       

First Lien Initial Term Loan, 4.75%, 04/30/20

    1,018,869          1,027,784     

Second Lien Initial Term Loan, 9.00%, 10/30/20

    710,475          718,467     

WideOpenWest Finance, LLC

       

Term Loan B, 4.75%, 04/01/19

    5,170,757          5,193,379     

William Morris Endeavor Entertainment, LLC (IMG Worldwide Holdings, LLC)

       

First Lien Term Loan, 5.25%, 05/06/21     

    5,050,000          5,094,188     
     

 

 

   
        26,119,243     
     

 

 

   
    

   Principal

 Amount ($) 

 

 

 Value ($) 

 

     

 

MEDIA: DIVERSIFIED & PRODUCTION - 1.4%

  

 

 

Tech Finance & Co. S.C.A. (Luxembourg)

         

U.S. Term Loan, 5.50%, 07/11/20 (f)

     4,239,288           4,297,599     
       

 

 

   

 

METALS & MINING - 0.7%

  

 

 

Oxbow Carbon LLC (Oxbow Calcining LLC)

         

Term Loan B, 8.00%, 01/19/20

     2,000,000           2,052,500     
       

 

 

   

 

RETAIL - 6.1%

  

 

 

99¢ Only Stores

         

Tranche B-2 Term Loan, 4.50%, 01/11/19   

     1,807,778           1,820,432     

Charming Charlie, LLC

         

Initial Term Loan, 9.00%, 12/24/19   

     5,335,531           5,402,226     

Evergreen Acqco 1 L.P.

         

New Term Loan, 5.00%, 07/09/19   

     3,337,587           3,335,501     

HMK Intermediate Holdings LLC

         

Term Loan, 5.00%, 03/30/19 (e)

     1,127,000           1,127,000     

Sears Roebuck Acceptance Corp. (Kmart Corp.)

         

Term Loan, 5.50%, 06/30/18

     3,004,900           3,042,461     

Smart & Final, Inc.

         

First Lien Term Loan, 4.75%, 11/15/19

     2,681,435           2,692,160     

Vince, LLC (Vince Intermediate Holding, LLC)

         

Term Loan B, 6.00%, 11/27/19

     726,857           736,851     
       

 

 

   
                18,156,631     
       

 

 

   

 

SERVICES: BUSINESS - 15.8%

  

 

 

Applied Systems, Inc.

         

First Lien Initial Term Loan, 4.25%, 01/25/21

     2,019,850           2,029,475     

Aptean, Inc.

         

First Lien Term Loan, 5.25%, 02/26/20

     3,514,193           3,536,156     

ARC Document Solutions, Inc.

         

Term Loan B, 6.25%, 12/20/18

     2,334,375           2,373,768     

Brock Holdings III, Inc.

         

First Lien Term Loan, 6.00%, 03/16/17

     1,599,448           1,604,935     

Catalent Pharma Solutions, Inc.

         

Dollar Term Loan, 05/20/21 (b)

     2,400,000           2,416,932     

EIG Investors Corp.

         

Term Loan, 5.00%, 11/09/19

     3,306,088           3,317,114     

Evergreen Skills Lux S.a.r.l. (Luxembourg)

         

First Lien Initial Term Loan, 4.50%, 04/28/21 (f)

     2,540,000           2,543,975     

GCA Services Group, Inc.

         

First Lien Replacement Term Loan, 4.25%, 11/01/19

     923,407           924,368     

Second Lien Initial Term Loan, 9.25%, 11/01/20

     834,400           846,394     
 

 

10  |  See accompanying Notes to Financial Statements.


Apollo Senior Floating Rate Fund Inc.

Schedule of Investments  (continued)

June 30, 2014 (unaudited)

 

   

Principal

 Amount ($) 

 

   

 Value ($) 

 

     

 

Senior Loans (a)  (continued)

  

   

 

SERVICES: BUSINESS (continued)

  

   

 

Genex Holdings, Inc.

     

First Lien Term Loan, 05/28/21 (b)

    993,000            1,001,068     

Infogroup Inc.

     

Term Loan B, 7.50%, 05/26/18

    3,887,309            3,671,097     

Mirror Bidco Corp.

     

Term Loan B, 4.25%, 12/28/19

    1,013,626            1,015,314     

Nord Anglia Education Finance LLC

     

Initial Term Loan, 4.50%, 03/31/21

    2,080,000            2,084,555     

Onex Carestream Finance L.P.

     

First Lien 2013 Term Loan, 5.00%, 06/07/19

    4,110,650            4,123,496     

Second Lien Term Loan, 9.50%, 12/07/19

    1,000,000            1,023,750     

SGS Cayman, L.P. (Cayman Islands)

     

Term Loan, 7.25%, 03/06/19 (f)

    1,444,917            1,455,754     

SNL Financial LC

     

New Term Loan, 4.50%, 10/23/18

    946,246            950,684     

Stafford Logistics, Inc. (dba Custom Ecology, Inc.)

     

Term Loan, 6.75%, 06/26/19 (e)

    2,519,550            2,533,722     

Sutherland Global Services Inc.

     

U.S. Tranche Term Loan, 7.25%, 03/06/19

    3,199,458            3,223,454     

Transfirst Holdings, Inc.

     

Second Lien Term Loan B-1, 7.50%, 06/27/18

    2,500,000            2,521,088     

TriNet HR Corp.

     

Term Loan B2, 5.00%, 08/20/20

    3,979,925            3,979,925     
   

 

 

   
              47,177,024     
   

 

 

   

 

SERVICES: CONSUMER - 1.7%

  

   

 

Laureate Education, Inc.

     

2018 New Series Extended Term Loan, 5.00%, 06/15/18

    5,242,493            5,137,644     
   

 

 

   

 

TELECOMMUNICATIONS - 10.4%

  

   

 

Avaya Inc.

     

Term Loan B-3, 4.73%, 10/26/17

    2,256,579            2,214,268     

Global Tel*Link Corp.

     

First Lien Term Loan, 05/23/20 (b)

    7,394,836            7,376,349     

Grande Communications Networks LLC

     

Term Loan B, 4.50%, 05/29/20

    4,057,188            4,053,394     

Integra Telecom Holdings, Inc.

     

Replacement Term Loan, 5.25%, 02/22/19

    1,062,550            1,071,050     

LTS Buyer LLC (Sidera Networks, Inc.)

     

Second Lien Term Loan, 8.00%, 04/12/21

    456,665            463,137     

Ntelos Inc.

     

Term Loan B, 11/09/19 (b)

    4,049,609            4,059,733     
   

    Principal

     Amount ($) 

 

   

 Value ($) 

 

     

 

TELECOMMUNICATIONS (continued)

  

   

 

Securus Technologies Holdings, Inc.

     

First Lien Initial Term Loan, 4.75%, 04/30/20

    2,569,609               2,583,523     

Second Lien New Term Loan, 9.00%, 04/30/21

    2,800,000               2,846,088     

The TelX Group, Inc.

     

Second Lien Initial Term Loan, 7.50%, 04/09/21

    600,000               602,376     

Term Loan B, 4.50%, 04/09/20

    890,000               892,114     

U.S. TelePacific Corp.

     

Term Loan, 5.75%, 02/23/17

    4,854,253               4,905,853     
   

 

 

   
      31,067,885     
   

 

 

   

 

TRANSPORTATION: CARGO - 1.2%

  

   

 

Carrix, Inc.

     

Term Loan, 01/07/19 (b)

    2,500,000               2,359,375     

Commercial Barge Line Co.

     

First Lien Initial Term Loan, 7.50%, 09/22/19 (e)

    1,120,813               1,129,219     
   

 

 

   
      3,488,594     
   

 

 

   

 

TRANSPORTATION: CONSUMER - 2.6%

  

   

 

Landmark Aviation FBO Canada, Inc. (Canada)

     

Canadian Term Loan, 4.75%, 10/25/19 (f)

    187,616               188,132     

LM U.S. Member LLC (LM U.S. Corp. Acquisition Inc.)

     

Term Loan B, 10/25/19 (b)

    500,000               501,375     

First Lien Initial Term Loan, 4.75%, 10/25/19

    2,780,997               2,788,645     

Travel Leaders Group, LLC

     

Tranche B Term Loan, 7.00%, 12/05/18 (e)

    1,190,893               1,193,126     

Travelport LLC

     

New Term Loan B, 6.25%, 06/26/19

    3,186,810               3,265,285     
   

 

 

   
      7,936,563     
   

 

 

   

 

UTILITIES: ELECTRIC - 1.2%

  

   

 

Energy Future Intermediate Holding Co. LLC (EFIH Finance Inc.)

     

Term Loan, 4.25%, 06/19/16

    2,240,000               2,255,803     

Panda Sherman Power, LLC

     

Construction Term Loan Advances, 9.00%, 09/14/18 (e)

    1,200,000               1,232,250     
   

 

 

   
      3,488,053     
   

 

 

   

 

Total Senior Loans
(Cost $391,805,610)

              397,129,322     
   

 

 

   

Corporate Notes and Bonds - 9.5%

  

   

 

BANKING, FINANCE, INSURANCE & REAL ESTATE - 4.1%

  

 

 

First Data Corp.

     

12.63%, 01/15/21

    10,000,000               12,337,500     
   

 

 

   
 

 

See accompanying Notes to Financial Statements.  |  11


Apollo Senior Floating Rate Fund Inc.

Schedule of Investments  (continued)

June 30, 2014 (unaudited)

 

   

Principal
 Amount ($) 

 

   

 Value ($) 

 

     

 

Corporate Notes and Bonds  (continued)

  

 

 

ENVIRONMENTAL INDUSTRIES - 0.7%

  

 

 

Tervita Corp. (Canada)

     

9.75%, 11/01/19 (f) (h)

    2,142,000            2,088,450     
   

 

 

   

 

HEALTHCARE & PHARMACEUTICALS - 1.2%

  

 

 

Valeant Pharmaceuticals International, Inc. (Canada)

     

7.50%, 07/15/21 (f) (h)

    3,200,000            3,556,000     
   

 

 

   

 

MEDIA: BROADCASTING & SUBSCRIPTION - 1.3%

  

 

 

Columbus International Inc. (Barbados)

     

7.38%, 03/30/21 (f) (h)

    1,285,000            1,389,406     

Intelsat Jackson Holdings S.A. (Luxembourg)

     

5.50%, 08/01/23 (f)

    1,000,000            998,750     

Radio One Inc.

     

9.25%, 02/15/20 (h)

    1,484,000            1,613,850     
   

 

 

   
      4,002,006     
   

 

 

   

 

MEDIA: DIVERSIFIED & PRODUCTION - 0.9%

  

 

 

SiTV Inc.

     

10.38%, 07/01/19 (h)

    2,493,000            2,567,790     
   

 

 

   

 

METALS & MINING - 0.1%

     

 

Murray Energy Corp.

     

8.63%, 06/15/21 (h)

    300,000            326,250     
   

 

 

   

 

TELECOMMUNICATIONS - 1.2%

     

 

Avanti Communications Group PLC (United Kingdom)

     

10.00%, 10/01/19 (f) (h)

    3,333,000            3,549,645     
   

 

 

   

 

Total Corporate Notes and
Bonds
(Cost $25,837,520)

              28,427,641     
   

 

 

   
   

Share
    Amount    

 

   

 Value ($)     

 

 

Common Stock - 0.7%

   

 

MEDIA: ADVERTISING, PRINTING & PUBLISHING - 0.7%

  

 

The Reader’s Digest Association, Inc. (e) (i)

    50,210            2,146,478   
   

 

 

 

Total Common Stock
(Cost $5,212,858)

      2,146,478   
   

 

 

 

Preferred Stock - 1.3%

   

 

BANKING, FINANCE, INSURANCE & REAL ESTATE - 1.3%

  

 

Watford Holdings Ltd. (Bermuda)

   

8.50% (e) (f)

    160,000            3,920,000   
   

 

 

 

Total Preferred Stock
(Cost $3,920,000)

      3,920,000   
   

 

 

 

 

Warrants - 0.0%

   

 

BANKING, FINANCE, INSURANCE & REAL ESTATE - 0.0%

  

 

Medical Card System, Inc.

   

07/26/18 (e)

    54,913            10,983   
   

 

 

 

Total Warrants
(Cost $ — )

      10,983   
   

 

 

 

 

Total Investments-144.4%

      431,634,424   

(Cost of $426,775,988)

   

Other Assets & Liabilities, Net-5.5%

      16,532,708   

Loan Outstanding-(49.9)%

          (149,269,000
   

 

 

 

 

Net Assets (Applicable to Common Shares)-100.0%

      298,898,132   
   

 

 

 
 

 

(a) “Senior Loans” are senior, secured loans made to companies whose debt is rated below investment grade 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. Unless otherwise identified, all Senior Loans carry a variable rate of interest. 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. The rates shown represent the weighted average rate at June 30, 2014. 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.
(b) All or a portion of this position has not settled. Full contract rates do not take effect until settlement date.
(c) Senior Loan assets have additional unfunded loan commitments. As of June 30, 2014, the Fund had unfunded loan commitments, which could be extended at the option of the borrower, pursuant to the following loan agreements:

 

Borrower    Unfunded Loan
Commitments
    

 

  

GTCR Valor Companies, Inc.

         $867,435           

The SI Organization, Inc.

   88,001           
  

 

  

Total unfunded loan commitments

         $955,436           
  

 

  

 

(d) Fixed rate asset.
(e) Fair Value Level 3 security. All remaining securities are categorized as Level 2.
(f) Foreign issuer traded in U.S. dollars.
(g) Represents a payment-in-kind security which may pay interest in additional principal amount.
(h) Securities exempt from registration pursuant to Rule 144A under the 1933 Act. These securities may only be resold in transactions exempt from registration to qualified institutional buyers. At June 30, 2014, these securities amounted to $15,091,391, or 5.05% of net assets.
(i) Non income-producing asset.

 

12  |  See accompanying Notes to Financial Statements.


Apollo Tactical Income Fund Inc.

Schedule of Investments

June 30, 2014 (unaudited)

 

        Principal
 Amount ($) 
     Value ($)    
     

 

Senior Loans (a) - 86.9%

  

 

AEROSPACE & DEFENSE - 7.8%

  

 

Camp International Holding Co.
2013 Second Lien Replacement Term Loan, 8.25%, 11/29/19

    1,350,000      1,387,125   

Deltek, Inc.
First Lien Term Loan,
10/10/18 (b)

    1,212,423      1,222,274   

ILC Industries, LLC
Term Loan 2, 11.50%,
07/11/19 (c)

    4,000,000      3,940,000   

Photonis Technologies SAS
Term Loan, 8.50%, 09/18/19

    3,910,350      3,929,902   

The SI Organization, Inc. (d)
First Lien Term Loan, 11/23/19 (b)

       662,383      665,284   

Second Lien Term Loan,

05/23/20 (b)

       606,000      607,897   

SRA International, Inc.
Term Loan, 6.50%, 07/20/18

    2,925,783      2,940,427   

TASC, Inc.
First Lien Term Loan, 6.50%, 05/22/20

    1,570,000      1,542,525   

Second Lien Term Loan,

12.00%, 05/23/21 (e)

    2,339,943      2,316,544   

U.S. Joiner Holding Co.
Term Loan, 7.00%, 04/16/20 (c)

    2,493,750      2,487,516   

WP CPP Holdings, LLC
Second Lien Term Loan B-1, 8.75%, 04/30/21

    1,435,000      1,451,831   
     

 

 

 
                22,491,325   
     

 

 

 

 

BANKING, FINANCE, INSURANCE & REAL ESTATE - 8.6%

 

  

Asurion, LLC
Second Lien Term Loan, 8.50%, 03/03/21

    3,124,000      3,247,008   

Hyperion Finance S.a.r.l. (United Kingdom)
Term Loan, 5.75%, 10/17/19 (f)

    5,373,000      5,408,811   

Institutional Shareholder
Services Inc.
First Lien Term Loan, 4.75%, 04/30/21 (c)

    3,250,000      3,258,125   

Medical Card System, Inc.
Term Loan, 12.00%,
09/17/15 (c) (g)

    4,419,939      4,353,640   

MMM Holdings, Inc.
MMM Term Loan, 9.75%, 12/12/17

    1,293,209      1,304,524   

MSO of Puerto Rico, Inc.
MSO Term Loan, 9.75%, 12/12/17

       940,197      948,424   

National Financial Partners Corp.
Term Loan B, 5.25%, 07/01/20

    5,138,118      5,175,369   

Nuveen Investments, Inc.
Tranche B First Lien Term Loan, 4.16%, 05/13/17

       286,000      286,874   

VFH Parent, LLC
Term Loan, 5.75%, 11/08/19

       775,586      771,708   
     

 

 

 
        24,754,483   
     

 

 

 
        Principal
 Amount ($) 
     Value ($)    
     

 

BEVERAGE, FOOD & TOBACCO - 2.7%

 

  

ARG IH Corp.
Term Loan, 5.00%, 11/15/20

    1,910,400      1,924,718   

Arysta LifeScience SPC, LLC
Second Lien Term Loan, 8.25%, 11/30/20 (c)

    1,028,000      1,048,560   

Hearthside Group Holdings, LLC
Term Loan, 4.50%, 06/02/21

    1,642,000      1,655,005   

PFS Holding Corp.
Second Lien Term Loan, 8.25%, 01/31/22 (c)

       714,000      697,935   

Shearer’s Foods, LLC
First Lien Term Loan,
06/19/21 (b)

       791,666      794,389   

Winebow Holdings, Inc.
(The Vintner Group, Inc.)
First Lien Term Loan, 07/01/21 (b)

       699,029      701,650   

Second Lien Term Loan,

01/02/22 (b)

       989,795      992,269   
     

 

 

 
        7,814,526   
     

 

 

 

 

CHEMICALS, PLASTICS & RUBBER - 0.9%

  

 

Cyanco Intermediate Corp.
Term Loan, 5.50%, 05/01/20

    1,889,220      1,894,887   

Kronos Worldwide, Inc.
Initial Term Loan, 4.75%, 02/18/20

       628,425      635,891   
     

 

 

 
                2,530,778   
     

 

 

 

 

CONSUMER GOODS: DURABLE - 0.4%

  

 

Bluestem Brands, Inc.
Term Loan, 7.50%, 12/06/18

    1,024,371      1,032,054   
     

 

 

 

CONSUMER GOODS: NON-DURABLE - 7.4%

  

 

ABG Intermediate Holdings 2 LLC
First Lien Term Loan, 5.50%, 05/27/21

    3,541,125      3,563,257   

Allflex Holdings III, Inc.
Second Lien Initial Term Loan, 8.00%, 07/19/21

    2,400,000      2,427,000   

BRG Sports, Inc.
First Lien Term Loan, 6.50%, 04/15/21 (c)

    2,140,000      2,164,075   

Fender Musical Instruments Corp.
Initial Term Loan, 5.75%, 04/03/19

       445,000      449,450   

Herff Jones, Inc.
Term Loan B, 5.50%, 06/25/19

    3,660,577      3,693,742   

Insight Pharmaceuticals, LLC
First Lien Term Loan, 6.26%,

08/25/16 (c)

       485,361      486,271   

Nine West Holding Corp.
Unsecured Initial Term Loan, 6.25%, 01/08/20

    2,744,518      2,760,807   

Polyconcept Investments B.V.
Term Loan, 6.00%, 06/28/19

    3,334,977      3,326,640   

The Topps Company, Inc.
Term Loan, 7.25%, 10/02/18 (c)

    2,517,350      2,492,176   
     

 

 

 
        21,363,418   
     

 

 

 
 

 

See accompanying Notes to Financial Statements.  |  13


Apollo Tactical Income Fund Inc.

Schedule of Investments  (continued)

June 30, 2014 (unaudited)

 

        Principal
 Amount ($) 
     Value ($)    
     

 

Senior Loans (a) (continued)

  

 

CONTAINERS, PACKAGING & GLASS - 0.5%

  

 

Pelican Products, Inc.
First Lien Term Loan, 5.25%, 04/10/20

    1,536,150      1,551,512   
     

 

 

 

 

ENERGY: OIL & GAS - 4.9%

  

 

Atlas Energy, L.P.
Term Loan, 6.50%, 07/31/19 (c)

    1,250,550      1,270,090   

Azure Midstream Energy, LLC
Term Loan, 6.50%, 11/15/18

       876,152      885,461   

Chief Exploration & Development LLC
Second Lien Term Loan, 05/16/21 (b) (c)

    3,570,000      3,659,250   

Drillships Financing Holding, Inc.
Tranche B-1 Term Loan, 6.00%, 03/31/21

    3,258,037      3,317,105   

HGIM Corp.
Term Loan A, 5.00%, 06/18/18 (c)

       748,825      750,697   

McDermott Finance LLC
Term Loan, 5.25%, 04/16/19

       837,000      846,420   

Sprint Industrial Holdings, Inc.
First Lien Term Loan, 7.00%, 05/14/19

    2,173,870      2,190,174   

W3 Co.
First Lien Term Loan, 5.75%, 03/13/20 (c)

    1,112,487      1,097,191   
     

 

 

 
                  14,016,388   
     

 

 

 

 

ENVIRONMENTAL INDUSTRIES - 1.3%

  

 

Environmental Resources Management (United Kingdom) 05/09/21 (b) (f)

    3,920,000      3,900,420   
     

 

 

 

 

FOREST PRODUCTS & PAPER - 1.0%

  

 

Caraustar Industries, Inc.
Term Loan, 7.50%, 05/01/19

    2,792,541      2,832,698   
     

 

 

 

 

HEALTHCARE & PHARMACEUTICALS - 7.6%

  

 

Amneal Pharmaceuticals LLC
Term Loan B, 5.75%, 11/01/19

    2,243,050      2,258,942   

Ardent Medical Services, Inc.
First Lien Term Loan, 6.75%, 07/02/18

       815,018      820,788   

Dialysis Newco, Inc. (dba DSI Renal)
First Lien Term Loan B, 4.75%, 04/23/21

    2,330,000      2,337,771   

InVentiv Health, Inc.
Consolidated Term Loan, 7.50%, 08/04/16

       446,030      448,958   

Opal Acquisition, Inc.
First Lien Term Loan, 5.00%, 11/27/20

    5,417,387      5,438,542   

Premier Dental Services, Inc.
First Lien Term Loan, 6.00%, 11/01/18

    3,719,596      3,739,737   

Smile Brands Group, Inc.
Term Loan, 08/16/19 (b)

    4,367,000      4,257,825   
        Principal
 Amount ($) 
     Value ($)    
     

 

HEALTHCARE & PHARMACEUTICALS (continued)

  

 

Steward Health Care System, LLC
Term Loan, 6.75%, 04/10/20 (c)

    1,512,720      1,497,593   

U.S. Renal Care, Inc.
Incremental Tranche B-1 Second Lien Term Loan 2, 8.50%, 07/03/20

    1,212,000      1,230,180   
     

 

 

 
        22,030,336   
     

 

 

 

 

HIGH TECH INDUSTRIES - 4.3%

  

 

The Active Network, Inc. (Lanyon, Inc.)
First Lien Term Loan, 5.50%, 11/13/20

       628,799      626,837   

Second Lien Term Loan,

9.50%, 11/15/21

    2,584,195      2,593,885   

GTCR Valor Companies, Inc. (d)
First Lien Term Loan, 05/30/21 (b)

    1,149,846      1,146,253   

Landesk Group, Inc.
First Lien New Term Loan, 5.00%, 02/25/20

    3,426,013      3,438,843   

Second Lien Term Loan,

8.25%, 02/25/21

    1,682,000      1,691,814   

MSC Software Corp.
First Lien Initial Term Loan, 5.00%, 05/29/20

       901,000      908,884   

Second Lien Term Loan,

8.50%, 05/28/21 (c)

    2,050,000      2,070,500   
     

 

 

 
        12,477,016   
     

 

 

 

 

HOTEL, GAMING & LEISURE - 3.3%

  

 

Centaur Acquisition, LLC
Second Lien Term Loan, 8.75%, 02/20/20

    3,000,000      3,060,000   

Deluxe Entertainment Services Group, Inc.
Initial Term Loan, 6.50%, 02/28/20

    1,033,299      1,033,299   

Diamond Resorts Corp.
Term Loan, 5.50%, 05/09/21 (c)

       909,000      916,954   

Mohegan Tribal Gaming Authority
Term Loan B, 5.50%, 11/19/19

    1,099,674      1,120,183   

Peppermill Casinos, Inc.
Term Loan B, 7.25%, 11/09/18 (c)

    1,974,902      2,026,743   

Planet Fitness Holdings LLC
Term Loan, 4.75%, 03/31/21

    1,336,650      1,345,004   
     

 

 

 
        9,502,183   
     

 

 

 

 

MEDIA: ADVERTISING, PRINTING & PUBLISHING - 4.5%

  

 

F & W Media, Inc.
Term Loan, 7.75%, 06/30/19 (c)

    4,206,365      4,206,365   

Merrill Communications, LLC
Term Loan, 5.75%, 03/08/18

    4,547,481      4,632,746   

Springer SBM Two GMBH (Germany)
Initial Term Loan B2, 5.00%, 08/14/20 (f)

    4,017,640      4,030,839   
     

 

 

 
                 12,869,950   
     

 

 

 
 

 

14  |  See accompanying Notes to Financial Statements.


Apollo Tactical Income Fund Inc.

Schedule of Investments  (continued)

June 30, 2014 (unaudited)

 

       Principal
 Amount ($) 
    Value ($)    
   

 

Senior Loans (a) (continued)

  

 

MEDIA: BROADCASTING & SUBSCRIPTION - 5.0%

  

 

Emmis Communications Corp. Term Loan B, 06/10/21 (b)

   2,000,000     2,015,000   

Hargray Communications Group, Inc. (HCP Acquisition LLC)
Term Loan B, 4.75%, 06/26/19

   2,276,010     2,289,530   

Hemisphere Media Holdings, LLC (Intermedia Espanol, Inc.)
Term Loan B, 6.25%, 07/30/20

   2,326,500     2,361,398   

SESAC Holdco II LLC
First Lien Term Loan, 5.00%, 02/07/19

      403,976     407,765   

Telecommunications Management, LLC
First Lien Initial Term Loan, 4.75%, 04/30/20

   1,018,869     1,027,784   

Second Lien Initial Term Loan,

9.00%, 10/30/20

   1,065,712     1,077,701   

William Morris Endeavor Entertainment, LLC (IMG Worldwide Holdings, LLC)
First Lien Term Loan, 5.25%, 05/06/21

   5,050,000     5,094,188   
   

 

 

 
                14,273,366   
   

 

 

 

 

MEDIA: DIVERSIFIED & PRODUCTION - 1.5%

  

 

Tech Finance & Co. S.C.A. (Luxembourg)
U.S. Term Loan, 5.50%, 07/11/20 (f)

   4,239,288     4,297,599   
   

 

 

 

 

METALS & MINING - 1.1%

  

 

Oxbow Carbon, LLC (Oxbow Calcining, LLC)
Term Loan B, 8.00%, 01/19/20

   3,000,000     3,078,750   
   

 

 

 

 

RETAIL - 0.7%

   

 

Charming Charlie, LLC
Initial Term Loan, 9.00%, 12/24/19

   1,226,940     1,242,276   

Vince, LLC (Vince Intermediate Holding, LLC)
Term Loan B, 6.00%, 11/27/19

      726,857     736,851   
   

 

 

 
      1,979,127   
   

 

 

 

 

SERVICES: BUSINESS - 11.9%

  

 

Applied Systems, Inc.
Second Lien Initial Term Loan, 7.50%, 01/24/22

   1,090,600     1,114,866   

Aptean, Inc.
First Lien Term Loan, 5.25%, 02/26/20

   1,519,193     1,528,687   

ARC Document Solutions, Inc.
Term Loan B, 6.25%, 12/20/18

   2,334,375     2,373,768   

EIG Investors Corp.
Term Loan, 5.00%, 11/09/19

   2,112,219     2,119,264   

Genex Holdings, Inc.
First Lien Term Loan, 05/28/21 (b)

      993,000     1,001,068   
       Principal
 Amount ($) 
    Value ($)    
   

 

SERVICES: BUSINESS (continued)

  

 

Infogroup, Inc.
Term Loan B, 7.50%, 05/26/18

   3,751,564     3,542,902   

Nord Anglia Education Finance, LLC
Initial Term Loan, 4.50%, 03/31/21

   2,080,000     2,084,555   

Onex Carestream Finance L.P.
Second Lien Term Loan, 9.50%, 12/07/19

   5,639,588     5,773,528   

SGS Cayman, L.P. (Cayman Islands)
Term Loan, 7.25%, 03/06/19 (f)

   1,745,236     1,758,325   

Stadium Management (SMG)
Second Lien Term Loan, 9.25%, 02/27/21 (c)

   2,490,000     2,533,575   

Stafford Logistics, Inc. (dba Custom Ecology, Inc.)
Term Loan, 6.75%, 06/26/19 (c)

   2,519,550     2,533,722   

Sutherland Global Services, Inc.
U.S. Tranche Term Loan, 7.25%, 03/06/19

   3,864,451     3,893,434   

TriNet HR Corp.
Term Loan B2, 5.00%, 08/20/20

   3,979,925     3,979,925   
   

 

 

 
            34,237,619   
   

 

 

 

 

SERVICES: CONSUMER - 1.3%

  

 

Laureate Education, Inc.
New Series 2018 Extended Term Loan, 5.00%, 06/15/18

   3,877,442     3,799,893   
   

 

 

 

 

TELECOMMUNICATIONS - 5.7%

  

 

Global Tel*Link Corp.
First Lien Term Loan, 05/23/20 (b)

   3,005,649     2,998,134   

Ntelos Inc.
Term Loan B, 11/09/19 (b)

   4,049,609     4,059,733   

Securus Technologies Holdings, Inc.
First Lien Initial Term Loan, 4.75%, 04/30/20

      997,488     1,002,889   

Second Lien New Term Loan,

9.00%, 04/30/21

   5,000,000     5,082,300   

The TelX Group, Inc.
Second Lien Initial Term Loan B, 7.50%, 04/09/21

      600,000     602,376   

U.S. TelePacific Corp.
Term Loan, 5.75%, 02/23/17

   2,506,018     2,532,657   
   

 

 

 
      16,278,089   
   

 

 

 

 

TRANSPORTATION: CARGO - 1.4%

  

 

Carrix, Inc.
Term Loan, 01/07/19 (b)

   2,500,000     2,359,375   

Commercial Barge Line Co.
First Lien Initial Term Loan, 7.50%, 09/22/19 (c)

   1,680,725     1,693,330   
   

 

 

 
      4,052,705   
   

 

 

 

 

TRANSPORTATION: CONSUMER - 2.3%

  

 

LM U.S. Member LLC (LM U.S. Corp. Acquisition Inc.)
Term Loan B, 10/25/19 (b)

      651,515     653,307   
 

 

See accompanying Notes to Financial Statements.  |  15


Apollo Tactical Income Fund Inc.

Schedule of Investments  (continued)

June 30, 2014 (unaudited)

 

    

   Principal
 Amount ($) 

 

  

  Value ($)  

 

 

 

Senior Loans (a) (continued)

  

 

TRANSPORTATION: CONSUMER (continued)

  

 

Travel Leaders Group, LLC
Tranche B Term Loan, 7.00%,

12/05/18 (c)

    1,190,893      1,193,126   

Travelport, LLC
New Term Loan B, 6.25%, 06/26/19

    4,692,600      4,808,155   
     

 

 

 
        6,654,588   
     

 

 

 

 

UTILITIES: ELECTRIC - 0.8%

  

 

Energy Future Intermediate
Holding Co. LLC (EFIH Finance Inc.)
Term Loan, 4.25%, 06/19/16

    2,240,000      2,255,803   
     

 

 

 

Total Senior Loans
(Cost $245,823,777)

              250,074,626   
     

 

 

 

 

Corporate Notes and Bonds - 41.3%

  

 

BANKING, FINANCE, INSURANCE & REAL ESTATE - 8.5%

  

 

First Data Corp.

     

10.63%, 06/15/21

    5,000,000      5,850,000   

11.25%, 01/15/21

    1,800,000      2,106,000   

Jefferies Finance, LLC / JFIN
Co-Issuer Corp.
7.38%, 04/01/20 (h)

    5,500,000      5,802,500   

KCG Holdings, Inc. (Knight Capital)
8.25%, 06/15/18 (h)

    3,934,000      4,194,628   

Nationstar Mortgage, LLC
6.50%, 07/01/21

    3,860,000      3,888,950   

SquareTwo Financial Corp.
11.63%, 04/01/17

    2,684,000      2,603,480   
     

 

 

 
        24,445,558   
     

 

 

 

 

BEVERAGE, FOOD & TOBACCO - 4.4%

  

 

Chiquita Brands International Inc. /
Chiquita Brands LLC
7.88%, 02/01/21

    5,256,000      5,742,180   

Land O’Lakes Capital Trust I
7.45%, 03/15/28 (h)

    6,719,000      6,802,988   
     

 

 

 
        12,545,168   
     

 

 

 

 

CAPITAL EQUIPMENT - 0.4%

  

 

Waterjet Holdings, Inc.
7.63%, 02/01/20 (h)

    1,043,000      1,110,795   
     

 

 

 

 

CHEMICALS, PLASTICS & RUBBER - 5.1%

  

 

Magnetation, LLC / Mag
Finance Corp.
11.00%, 05/15/18 (h)

    2,600,000      2,853,500   

Rentech Nitrogen Partners, L.P./Rentech Nitrogen
Finance Corp.
6.50%, 04/15/21 (h)

    5,000,000      5,075,000   

TPC Group, Inc. 8.75%,
12/15/20 (h)

    6,000,000      6,675,000   
     

 

 

 
        14,603,500   
     

 

 

 

 

CONSUMER GOODS: NON-DURABLE - 1.9%

  

 

American Greetings Corp.
7.38%, 12/01/21

    5,000,000      5,331,250   
     

 

 

 
    

   Principal
 Amount ($) 

 

  

  Value ($)  

 

 

 

ENERGY: OIL & GAS - 4.0%

  

 

Sidewinder Drilling, Inc.
9.75%, 11/15/19 (c) (h)

    6,000,000      6,120,000   

Summit Midstream Holdings, LLC /
Summit Midstream Finance Corp.
7.50%, 07/01/21

    5,000,000      5,475,000   
     

 

 

 
        11,595,000   
     

 

 

 

 

HEALTHCARE & PHARMACEUTICALS - 3.2%

  

 

InVentiv Health, Inc.
11.00%, 08/15/18 (h)

    5,750,000      5,520,000   

Valeant Pharmaceuticals International, Inc. (Canada)
7.50%, 07/15/21 (f) (h)

    3,200,000      3,556,000   
     

 

 

 
        9,076,000   
     

 

 

 

HOTEL, GAMING & LEISURE - 0.7%

  

 

DreamWorks Animation SKG, Inc.
6.88%, 08/15/20 (h)

    2,000,000      2,165,000   
     

 

 

 

 

MEDIA: BROADCASTING & SUBSCRIPTION - 2.7%

  

 

Columbus International, Inc. (Barbados)
7.38%, 03/30/21 (f) (h)

    1,285,000      1,389,406   

Nara Cable Funding Ltd. (Ireland)
8.88%, 12/01/18 (f) (h)

    2,625,000      2,815,312   

Ono Finance II PLC (Ireland)
10.88%, 07/15/19 (f) (h)

    1,800,000      1,975,500   

Radio One, Inc.
9.25%, 02/15/20 (h)

    1,484,000      1,613,850   
     

 

 

 
        7,794,068   
     

 

 

 

 

MEDIA: DIVERSIFIED & PRODUCTION - 0.9%

  

 

SiTV Inc.
07/01/19 (b) (h)

    2,493,000      2,567,790   
     

 

 

 

 

METALS & MINING - 3.5%

  

 

Molycorp, Inc.
10.00%, 06/01/20

    8,000,000      7,400,000   

SunCoke Energy, Inc.

     

7.38%, 02/01/20 (h)

    2,000,000      2,145,000   

7.38%, 02/01/20 (h)

       606,000      649,935   
     

 

 

 
        10,194,935   
     

 

 

 

 

SERVICES: CONSUMER - 2.9%

  

 

StoneMor Partners, L.P./
Cornerstone Family Services of West Virginia
7.88%, 06/01/21 (h)

    7,921,000      8,356,655   
     

 

 

 

 

TELECOMMUNICATIONS - 3.1%

  

 

Avanti Communications Group PLC
(United Kingdom) 10.00%, 10/01/19 (f) (h)

    3,333,000      3,549,645   

Avaya, Inc.
9.00%, 04/01/19 (h)

    5,255,000      5,484,906   
     

 

 

 
        9,034,551   
     

 

 

 

 

Total Corporate Notes and
Bonds
(Cost $114,277,066)

              118,820,270   
     

 

 

 
 

 

16  |  See accompanying Notes to Financial Statements.


Apollo Tactical Income Fund Inc.

Schedule of Investments  (continued)

June 30, 2014 (unaudited)

 

     Principal
Amount ($)
   Value ($)  
     

 

Asset-Backed Securities (i) - 12.7%

  

Atlas Senior Loan Fund Ltd.
(Cayman Islands)

Series 2012-1A, Class B2L, 6.47%, 08/15/24 (f) (h) (j)

    2,000,000      1,996,250   

Series 2012-1A, Class B3L, 7.72%, 08/15/24 (c) (f) (h) (j)

    5,000,000      5,006,250   

Battalion CLO Ltd. (Cayman Islands)

Series 2012-3A, Class D, 5.53%, 01/18/25 (f) (h) (j)

    1,650,000      1,574,678   

Cent CLO 17 Ltd. (Cayman Islands)

Series 2013-17A, Class D, 6.22%, 01/30/25 (c) (f) (h) (j)

    4,000,000      3,956,000   

Cent CLO L.P. (Cayman Islands)

Series 2012-16X, Class D, 6.23%, 08/01/24 (f) (j)

    2,000,000      1,978,860   

CIFC Funding Ltd. (Cayman Islands)

     

Series 2012-1X, Class B2L, 7.23%, 08/14/24 (c) (f) (j)

    2,000,000      2,000,000   

Series 2012-2X, Class B2L, 6.23%, 12/05/24 (c) (f) (j)

    3,000,000      2,955,000   

Dryden XXIV Senior Loan Fund (Cayman Islands)

     

Series 2012-24A, Class E, Collateralized Loan Obligation, 6.12%, 11/15/23 (f) (h) (j)

    1,000,000      987,229   

JFIN CLO 2012 Ltd. (Cayman Islands)

     

Series 2012-1A, Class D, 5.73%, 07/20/23 (f) (h) (j)

    3,000,000      2,864,251   

Marea CLO Ltd. (Cayman Islands)

     

Series 2012-1A, Class E, 6.33%, 10/16/23 (c) (f) (h) (j)

    4,000,000      3,966,320   

NXT Capital CLO 2014-1, LLC
5.80%, 04/23/26 (c) (h) (j)

    5,000,000      4,652,350   
     Principal
Amount ($)
     Value ($)    
     

 

OCP CLO Ltd. (Cayman Islands)

Series 2014-5A, Class E, 5.49%, 04/26/26 (c) (f) (h) (j)

    3,000,000      2,548,200   

Octagon Investment Partners XIV Ltd. (Cayman Islands)

Series 2012-1A, Class E, 6.74%, 01/15/24 (c) (f) (h) (j)

    2,200,000      2,076,646   
     

 

 

 

Total Asset-Backed Securities
(Cost $36,648,005)

                36,562,034   
     

 

 

 
     
     Share
Amount
     Value ($)    
     

 

Preferred Stock - 1.4%

  

 

BANKING, FINANCE, INSURANCE & REAL ESTATE - 1.4%

  

 

Watford Holdings Ltd. (Bermuda) 8.50% (c) (f)

       160,000      3,920,000   
     

 

 

 

Total Preferred Stock
(Cost $3,920,000)

        3,920,000   
     

 

 

 

Warrants - 0.0%

     

 

BANKING, FINANCE, INSURANCE & REAL ESTATE - 0.0%

  

 

Medical Card System, Inc. 07/26/18 (c)

         50,689      10,138   
     

 

 

 

Total Warrants
(Cost $ — )

        10,138   
     

 

 

 

 

Total Investments-142.3%

        409,387,068   

(Cost of $400,668,848)

     

Other Assets & Liabilities,
Net-5.7%

        16,401,299   

Loan Outstanding-(48.0)%

             (138,000,000
     

 

 

 

Net Assets -100.0%

        287,788,367   
     

 

 

 
 

 

(a) “Senior Loans” are senior, secured loans made to companies whose debt is rated below investment grade 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. Unless otherwise identified, all Senior Loans carry a variable rate of interest. These base lending rates are primarily the 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. The rates shown represent the weighted average rate at June 30, 2014. 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.
(b) All or a portion of this position has not settled. Full contract rates do not take effect until settlement date.
(c) Fair Value Level 3 security. All remaining securities are categorized as Level 2.
(d) Senior Loan assets have additional unfunded loan commitments. As of June 30, 2014, the Fund had unfunded loan commitments, which could be extended at the option of the borrower, pursuant to the following loan agreements:

 

    Borrower    Unfunded Loan
Commitments
 
 

 

 
 

GTCR Valor Companies, Inc.

           $867,435         
 

The SI Organization, Inc.

     88,001         
    

 

 

 
 

Total unfunded loan commitments

           $955,436         
    

 

 

 

 

(e) Fixed rate asset.
(f) Foreign issuer traded in U.S. dollars.

 

See accompanying Notes to Financial Statements.  |  17


Apollo Tactical Income Fund Inc.

Schedule of Investments  (continued)

June 30, 2014 (unaudited)

 

(g) Represents a payment-in-kind security which may pay interest in additional principal amount.
(h) Securities exempt from registration pursuant to Rule 144A under the 1933 Act. These securities may only be resold in transactions exempt from registration to qualified institutional buyers. At June 30, 2014, these securities amounted to $110,051,584, or 38.2% of net assets.
(i) Asset-backed securities include collateralized loan obligations (“CLOs”). A CLO typically takes the form of a financing company (generally called a special purpose vehicle or “SPV”), created to reapportion the risk and return characteristics of a pool of assets. While the assets underlying CLOs are often Senior Loans or corporate notes and bonds, the assets may also include (i) subordinated loans; (ii) debt tranches of other CLOs; and (iii) equity securities incidental to investments in Senior Loans. The Fund may invest in lower tranches of CLOs, which typically experience a lower recovery, greater risk of loss or deferral or non-payment of interest than more senior tranches of the CLO. A key feature of the CLO structure is the prioritization of the cash flows from a pool of debt securities among the several classes of the CLO. The SPV is a company founded for the purpose of securitizing payment claims arising out of this asset pool. On this basis, marketable securities are issued by the SPV which, due to the diversification of the underlying risk, generally represent a lower level of risk than the original assets. The redemption of the securities issued by the SPV typically takes place at maturity out of the cash flow generated by the collected claims.
(j) Floating rate asset. The interest rate shown reflects the rate in effect at June 30, 2014.

 

18  |  See accompanying Notes to Financial Statements.


Apollo Senior Floating Rate Fund Inc.

Apollo Tactical Income Fund Inc.

Statements of Assets and Liabilities

June 30, 2014 (unaudited)

 

     

Apollo

Senior
Floating Rate
Fund Inc.

 

Apollo
Tactical
Income

Fund Inc.

 

Assets:

        

Investment securities at fair value (cost $426,775,988 and $400,668,848, respectively)

     $ 431,634,424       $ 409,387,068  

Cash and cash equivalents

       35,132,032         31,349,124  

Interest and dividends receivable

       2,607,586         3,741,237  

Receivable for investment securities sold

       9,277,838         11,053,062  

Unrealized appreciation on unfunded transactions (Note 9)

       7,242         7,242  

Other receivable

       876         876  

Deferred financing costs

       233,904         88,429  

Prepaid expenses

       273,943         275,873  
    

 

 

     

 

 

 

Total Assets

     $ 479,167,845       $ 455,902,911  
    

 

 

     

 

 

 

Liabilities:

        

Borrowings under credit facility (Note 8)

     $ 149,269,000       $ 138,000,000  

Payable for investment securities purchased

       29,676,787         29,074,829  

Interest payable

       278,676         215,209  

Distributions payable to common shareholders

       84,959         96,384  

Investment advisory fee payable

       368,000         349,519  

Other payables and accrued expenses due to affiliates

       125,050         155,108  

Other payables and accrued expenses

       467,241         223,495  
    

 

 

     

 

 

 

Total Liabilities

       180,269,713         168,114,544  
    

 

 

     

 

 

 

Net Assets (Applicable to Common Shareholders)

     $ 298,898,132       $ 287,788,367  
    

 

 

     

 

 

 

Net Assets Consist of:

        

Paid-in capital ($0.001 par value, 999,998,466 and 1,000,000,000 common shares authorized, respectively, and 15,573,061 and 14,464,026 issued and outstanding, respectively) (Note 6)

     $ 296,705,488       $ 275,652,326  

Undistributed net investment income

       1,294,981         1,873,986  

Accumulated net realized (loss)/gain from investments

       (3,968,015 )       1,536,593  

Net unrealized appreciation on investments and unfunded transactions

       4,865,678         8,725,462  
    

 

 

     

 

 

 

Net Assets (Applicable to Common Shareholders)

     $ 298,898,132       $ 287,788,367  
    

 

 

     

 

 

 

Number of Common Shares outstanding

       15,573,061         14,464,026  

Net Asset Value, per Common Share

     $ 19.19       $ 19.90  

 

See accompanying Notes to Financial Statements.  |  19


Apollo Senior Floating Rate Fund Inc.

Apollo Tactical Income Fund Inc.

Statements of Operations

For the Six Months Ended June 30, 2014 (unaudited)

 

      Apollo
Senior
Floating Rate
Fund Inc.
        Apollo
Tactical
Income
Fund Inc.
     

 

Investment Income:

              

Interest

     $ 13,733,137          $ 14,908,055     

Dividends

       85,000            85,000     
    

 

 

        

 

 

    

Total Investment Income

       13,818,137            14,993,055     
    

 

 

        

 

 

    

Expenses:

              

Investment advisory fee (Note 3)

       2,234,791            2,101,830     

Interest and commitment fee expense (Note 8)

       1,028,785            998,433     

Audit and legal fees

       226,946            208,710     

Administrative services of the Adviser (Note 3)

       280,000            280,000     

Insurance expense

       176,480            176,480     

Amortization of deferred financing costs (Note 8)

       449,653            53,531     

Board of Directors fees (Note 3)

       59,682            59,682     

Other operating expenses (Note 3)

       213,846            196,621     
    

 

 

        

 

 

    

Total Expenses

       4,670,183            4,075,287     
    

 

 

        

 

 

    

Net Investment Income

       9,147,954            10,917,768     
    

 

 

        

 

 

    

Net Realized and Unrealized Gain on Investments

              

Net realized gain on investments

       1,045,881            1,141,455     

Net change in unrealized appreciation/(depreciation) on investments and unfunded transactions (Note 9)

       378,139            3,705,961     
    

 

 

        

 

 

    

Net realized and unrealized gain on investments

       1,424,020            4,847,416     
    

 

 

        

 

 

    

Distributions to Preferred Shareholders:

              

From net investment income

       (244,641 )              
    

 

 

        

 

 

    

Net Increase in Net Assets, Applicable to Common Shareholders, Resulting From Operations

     $ 10,327,333          $ 15,765,184     
    

 

 

        

 

 

    

 

20  |  See accompanying Notes to Financial Statements.


Apollo Senior Floating Rate Fund Inc.

Statements of Changes in Net Assets

 

     

Six Months
Ended
June 30,

2014
(unaudited)

       

Year    

Ended    
December 31,    
2013    

Increase in Net Assets:

           

From Operations

           

Net investment income

     $ 9,147,954          $ 20,796,588  

Net realized gain/(loss) on investments

       1,045,881            (3,951,563 )

Net change in unrealized appreciation/(depreciation) on investments and unfunded transactions

       378,139            9,536,604  

Distributions to preferred shareholders

       (244,641 )          (677,510 )
    

 

 

        

 

 

 

Net increase in net assets from operations

       10,327,333            25,704,119  
    

 

 

        

 

 

 

Distributions to Common Shareholders

           

From net investment income

       (9,160,074 )          (19,606,326 )
    

 

 

        

 

 

 

Total distributions to common shareholders

       (9,160,074 )          (19,606,326 )
    

 

 

        

 

 

 

Capital Transactions from Common Shares

           

Reinvestment of dividends

                  811,136  
    

 

 

        

 

 

 

Net increase in net assets from share transactions

                  811,136  
    

 

 

        

 

 

 

Total increase in net assets

     $ 1,167,259          $ 6,908,929  

Net Assets Applicable to Common Shares

           

Beginning of period

       297,730,873            290,821,944  
    

 

 

        

 

 

 

End of period

     $ 298,898,132          $ 297,730,873  
    

 

 

        

 

 

 

Undistributed net investment income

     $ 1,294,981          $ 1,543,192  
    

 

 

        

 

 

 

 

See accompanying Notes to Financial Statements.  |  21


Apollo Tactical Income Fund Inc.

Statements of Changes in Net Assets

 

     

Six Months
Ended
June 30,

2014
(unaudited)

       

Period    

Ended    
December 31,    
2013*    

Increase in Net Assets:

           

From Operations

           

Net investment income

     $ 10,917,768          $ 14,875,457  

Net realized gain on investments

       1,141,455            569,675  

Net change in unrealized appreciation/(depreciation) on investments and unfunded transactions

       3,705,961            5,019,501  
    

 

 

        

 

 

 

Net increase in net assets from operations

       15,765,184            20,464,633  
    

 

 

        

 

 

 

Distributions to Common Shareholders

           

From net investment income

       (10,153,746 )          (13,797,712 )

From realized gains on investments

                  (174,537 )
    

 

 

        

 

 

 

Total distributions to common shareholders

       (10,153,746 )          (13,972,249 )
    

 

 

        

 

 

 

Capital Transactions from Common Shares

           

Proceeds from sale of common shares

                  276,162,889  

Offering costs (Note 6)

                  (578,352 )
    

 

 

        

 

 

 

Net increase in net assets from share transactions

                  275,584,537  
    

 

 

        

 

 

 

Total increase in net assets

     $ 5,611,438          $ 282,076,921  

Net Assets Applicable to Common Shares

           

Beginning of period

       282,176,929            100,008 **
    

 

 

        

 

 

 

End of period

     $ 287,788,367          $ 282,176,929  
    

 

 

        

 

 

 

Undistributed net investment income

     $ 1,873,986          $ 1,106,712  
    

 

 

        

 

 

 

 

 

 

* For the period from February 25, 2013 (commencement of operations) to December 31, 2013.

 

** Represents initial seed capital invested by Apollo Credit Management, LLC.

 

22  |  See accompanying Notes to Financial Statements.


Apollo Senior Floating Rate Fund Inc.

Statement of Cash Flows

For the Six Months Ended June 30, 2014 (unaudited)

 

Cash Flows From Operating Activities

  

Net increase in net assets from operations excluding distributions to preferred shareholders

   $ 10,571,974   

Adjustments to Reconcile Net Increase in Net Assets from Operations Excluding Distributions to Preferred Shareholders to Net Cash Flows Provided by Operating Activities

  

Net realized gain on investments

     (1,045,881

Net change in unrealized (appreciation)/depreciation on investments and unfunded transactions

     (378,139

Net amortization/(accretion) of premium/(discount)

     (406,551

Purchase of investment securities

     (163,709,203

Proceeds from disposition of investment securities

     182,147,530   

Amortization of deferred financing costs

     449,653   

Accrued deferred financing costs

     (211,154

Changes in Operating Assets and Liabilities

  

Decrease in interest receivable

     271,822   

Increase in other receivable

     (876

Increase in prepaid expenses

     (218,888

Decrease in interest payable

     (238,211

Decrease in investment advisory fee payable

     (15,179

Decrease in other payables and accrued expenses due to affiliates

     (148,135

Increase in other payables and accrued expenses

     121,639   
  

 

 

 

Net cash flows provided by operating activities

     27,190,401   
  

 

 

 

Cash Flows From Financing Activities

  

Proceeds from borrowing under the credit facility

     149,269,000   

Repayment of the credit facility

     (122,704,615

Deferred financing costs

     (38,846

Repurchase of Series A Preferred Shares

     (30,680,000

Distributions paid to common shareholders

     (9,189,357

Distributions paid to preferred shareholders

     (413,081
  

 

 

 

Net cash flows used in financing activities

     (13,756,899
  

 

 

 

Net Increase in Cash and Cash Equivalents

     13,433,502   

Cash and cash equivalents, beginning of period

     21,698,530   
  

 

 

 

Cash and cash equivalents, end of period

   $ 35,132,032   
  

 

 

 

Supplemental Disclosure of Cash Flow Information

  

Cash paid during the period for interest and commitment fees

   $ 1,266,996   
  

 

 

 

 

See accompanying Notes to Financial Statements.  |  23


Apollo Tactical Income Fund Inc.

Statement of Cash Flows

For the Six Months Ended June 30, 2014 (unaudited)

 

 

 

Cash Flows From Operating Activities

  

Net increase in net assets from operations

   $ 15,765,184   

Adjustments to Reconcile Net Increase in Net Assets from Operations to Net Cash Flows Provided by Operating Activities

  

Net realized gain on investments

     (1,141,455

Net change in unrealized (appreciation)/depreciation on investments and unfunded transactions

     (3,705,961

Net amortization/(accretion) of premium/(discount)

     (277,314

Purchase of investment securities

     (154,119,176

Proceeds from disposition of investment securities

     165,257,680   

Amortization of deferred financing costs

     53,531   

Changes in Operating Assets and Liabilities

  

Decrease in interest receivable

     970,594   

Increase in other receivable

     (876

Increase in prepaid expenses

     (220,818

Decrease in interest payable

     (5,632

Decrease in investment advisory fee payable

     (6,990

Decrease in other payables and accrued expenses due to affiliates

     (423,123

Decrease in other expenses and liabilities

     (83,082
  

 

 

 

Net cash flows provided by operating activities

     22,062,562   
  

 

 

 

Cash Flows From Financing Activities

  

Distributions paid to common shareholders

     (10,198,116
  

 

 

 

Net cash flows used in financing activities

     (10,198,116
  

 

 

 

Net Increase in Cash and Cash Equivalents

     11,864,446   

Cash and cash equivalents, beginning of period

     19,484,678   
  

 

 

 

Cash and cash equivalents, end of period

   $ 31,349,124   
  

 

 

 

Supplemental Disclosure of Cash Flow Information

  

Cash paid during the period for interest

   $ 1,004,065   
  

 

 

 

 

24  |  See accompanying Notes to Financial Statements.


Apollo Senior Floating Rate Fund Inc.

Financial Highlights

For a Common Share outstanding throughout the period

 

  Per Common Share Operating Performance:   

For the

Six Months
Ended

June 30,
2014
(unaudited)

 

For the

Year

Ended
December 31,
2013

 

For the

Year

Ended
December 31,
2012

 

For the

Period

Ended

December 31,

2011(a)

    

 

Net Asset Value, Beginning of Period

  

 

$    19.12

    

 

$   18.73

    

 

$    17.68

 

 

$    19.10(b)

 
  

 

    

 

    

 

 

 

 

Income from Investment Operations:

                

Net investment income

           0.59             1.34             1.39           1.00  

Net realized and unrealized gain/(loss) on investments

           0.09                  0.35                  1.10          (1.46)  

Distributions from net investment income to Series A Preferred Shareholders

          (0.02)            (0.04)            (0.05)          (0.02)  
  

 

    

 

    

 

 

 

 

Total from investment operations

           0.66              1.65             2.44          (0.48)  
  

 

    

 

    

 

 

 

 

Less Distributions Paid to Common Shareholders from:

                

Net investment income

          (0.59)            (1.26)            (1.38)          (0.88)  

Net realized gain on investments

              —                 —            (0.01)          (0.02)  
  

 

    

 

    

 

 

 

 

Total distributions paid to Common Shareholders

          (0.59)            (1.26)            (1.39)          (0.90)  
  

 

    

 

    

 

 

 

 

Common Share offering charges to paid-in capital

              —                   —                   —          (0.04)    

Net Asset Value, End of Period

   $    19.19      $    19.12      $    18.73   $    17.68  

Market Value, End of Period

   $    18.05      $    18.10      $    18.77   $    16.01  

Total return based on net asset value(c)

           3.66%(d)              9.19%            14.23%          (2.43)%(d)  

Total return based on market value(c)

           3.00%(d)                3.14%              26.41%        (15.62)%(d)    

Ratios to Average Net Assets Applicable to Common Shareholders:

                

Ratio of total expenses to average net assets

           3.16%(e)              3.00%              3.21%           2.99%(e)  

Ratio of net expenses to average net assets

           3.16%(e)              3.00%              3.18%           2.88%(e)  

Ratio of net investment income to average net assets(f)

           6.18%(e)              7.03%              7.51%           6.49%(e)  

Ratio of net investment income to average net assets net of distributions to Series A Preferred Shareholders

           6.02%(e)              6.80%              7.25%           6.33%(e)  

Supplemental Data:

                

Portfolio turnover rate

           41.2%(d)              72.0%              66.6%           41.5%(d)  

Net assets at end of period (000’s)

   $298,898        $297,731        $290,822   $273,650    

Senior Securities:

                

Total Series A Preferred Shares outstanding

              —            1,534            1,534         1,534  

Liquidation and market value per Series A Preferred Shares

   $         —      $  20,000      $  20,000   $  20,000  

Asset coverage per share(g)

   $         —      $294,078      $289,574   $278,380  

Loan outstanding (in 000’s)

   $149,269      $122,705      $122,705   $122,705  

Asset coverage per $1,000 of loan outstanding

   $    3,002(h)      $    3,676(i)      $    3,620(i)   $    3,480(i)  

 

 

(a) From February 23, 2011 (commencement of operations) to December 31, 2011.
(b) Net of sales load of $0.90 per share of initial offering.
(c) Total return based on net asset value and total return based on market value assuming all distributions reinvested at reinvestment rate.
(d) Not annualized.
(e) Annualized.
(f) Net investment income ratio does not reflect payment to preferred shareholders.
(g) Calculated by subtracting the Fund’s total liabilities (not including the Series A Preferred Shares and borrowings outstanding) from the Fund’s total assets, and dividing this by the number of Series A Preferred Shares outstanding.
(h) Calculated by subtracting the Fund’s total liabilities (not including the borrowings outstanding) from the Fund’s total assets, and dividing this by the amount of borrowings outstanding.
(i) Calculated by subtracting the Fund’s total liabilities (not including the Series A Preferred Shares and borrowings outstanding) from the Fund’s total assets, and dividing this by the amount of borrowings outstanding.

 

See accompanying Notes to Financial Statements.  |  25


Apollo Tactical Income Fund Inc.

Financial Highlights

For a Common Share outstanding throughout the period

 

  Per Common Share Operating Performance:    For the
Six Months
Ended
June 30,
2014
(Unaudited)
   

For the  

Period  

Ended  

December 31,  
2013(a)  

 

Net Asset Value, Beginning of Period

   $     19.51              $ 19.10(b)            
  

 

 

   

 

 

 

Income from Investment Operations:

    

Net investment income

     0.75                1.03               

Net realized and unrealized gain on investments

     0.34                0.39               
  

 

 

   

 

 

 

Total from investment operations

     1.09                1.42               
  

 

 

   

 

 

 

Less Distributions Paid to Common Shareholders from:

    

Net investment income

     (0.70)               (0.96)              

Net realized gain on investments

     —                (0.01)              
  

 

 

   

 

 

 

Total distributions paid to Common Shareholders

     (0.70)               (0.97)              
  

 

 

   

 

 

 

  Common share offering charges to paid-in capital

     —                (0.04)              

Net Asset Value, End of Period

   $ 19.90              $ 19.51               

Market Value, End of Period

   $ 18.35              $ 18.00               

Total return based on net asset value(c)

     6.04%(d)          7.94%(d)         

Total return based on market value(c)

     5.98%(d)          (4.90)%(d)        

Ratios to Average Net Assets Applicable to Common Shareholders:

    

Ratio of total expenses to average net assets

     2.87%(e)          2.58%(e)         

Ratio of net expenses to average net assets

     2.87%(e)          2.55%(e)         

Ratio of net investment income to average net assets

     7.70%(e)          6.38%(e)         

Supplemental Data:

    

Portfolio turnover rate

     40.9%(d)          72.4%(d)         

Net assets at end of period (000’s)

   $ 287,788              $ 282,177               

Senior Securities:

    

Loan outstanding (in 000’s)

   $ 138,000              $ 138,000               

Asset coverage per $1,000 of loan outstanding(f)

   $ 3,085              $ 3,045               

 

(a) From February 25, 2013 (commencement of operations) to December 31, 2013.
(b) Net of sales load of $0.90 per share of initial offering.
(c) Total return based on net asset value and total return based on market value assuming all distributions reinvested at reinvestment rate.
(d) Not annualized.
(e) Annualized.
(f) Calculated by subtracting the Fund’s total liabilities (not including the borrowings outstanding) from the Fund’s total assets, and dividing this by the amount of borrowings outstanding.

 

26  |  See accompanying Notes to Financial Statements.


Apollo Senior Floating Rate Fund Inc.

Apollo Tactical Income Fund Inc.

Notes to Financial Statements

June 30, 2014 (unaudited)

Note 1. Organization and Operations

Apollo Senior Floating Rate Fund Inc. (“AFT”) and Apollo Tactical Income Fund Inc. (“AIF”) (individually, a “Fund” or, collectively, 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 non-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, LLC (“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

AFT’s investment objective is to seek current income and preservation of capital. AFT will seek 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 United States 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 AFT’s 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 AFT’s investment objective is to seek preservation of capital. AFT’s 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.

AIF’s primary investment objective is to seek current income with a secondary objective of preservation of capital. AIF will seek 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 AIF’s assets may result in AIF’s 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 AIF’s 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, 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 AIF’s 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. AIF’s 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.

The Funds are classified as “non-diversified” under the Investment Company Act. As a result, each Fund can invest a greater portion of its assets in obligations of a single issuer than a “diversified” fund. Each Fund may therefore be more susceptible than a diversified fund to being adversely affected by any single corporate, economic, political or regulatory occurrence.

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 management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results may differ from those estimates and these differences could be material.

 

Semi-Annual Report  |  27


Apollo Senior Floating Rate Fund Inc.

Apollo Tactical Income Fund Inc.

Notes to Financial Statements  (continued)

June 30, 2014 (unaudited)

 

Fund Valuation

Each Fund’s 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 Fund’s common shares is the total assets of the Fund (including all securities, cash and other assets) minus the sum of the Fund’s 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, warrants and asset-backed securities are priced based on valuations provided by an approved independent third-party pricing service or broker, if available. If market or broker quotations are not available, or a price is not available from an independent third-party pricing service or broker, or if the price provided by the independent third-party pricing service or broker is believed to be unreliable, the security will be fair valued pursuant to procedures adopted by the Board. In general, fair value 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 can, but are not obligated to, 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 Fund’s 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 security’s 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 Fund’s 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 instruments in active markets to which the Funds have access at the date of measurement;

Level 2 — Quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments 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 or liability 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 third-party pricing services, and the existence of contemporaneous observable trades in the market.

 

28  |  Semi-Annual Report


Apollo Senior Floating Rate Fund Inc.

Apollo Tactical Income Fund Inc.

Notes to Financial Statements  (continued)

June 30, 2014 (unaudited)

 

The valuation techniques used by the Funds to measure fair value at June 30, 2014 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. Transfers in and out of the levels are recognized at the value at the end of the period. Summaries of the Funds’ investments categorized in the fair value hierarchy as of June 30, 2014 are as follows:

 

  Apollo Senior Floating Rate Fund Inc.                        
                     
  Assets in Fair Value Hierarchy:   

Fair Value at

June 30,

2014

  

Level 1

Quoted Price

  

Level 2

Significant

Observable

Inputs

  

Level 3

Significant

Unobservable

Inputs

   
                     

 

Cash and Cash Equivalents

     $ 35,132,032        $ 35,132,032        $        $    

Senior Loans

       397,129,322                   336,816,948          60,312,374    

Corporate Notes and Bonds

       28,427,641                   28,427,641             

Common Stock

       2,146,478                            2,146,478    

Preferred Stock

       3,920,000                            3,920,000    

Warrants

 

      

 

10,983

 

 

 

      

 

 

 

 

      

 

 

 

 

      

 

10,983

 

 

 

 
    

 

 

      

 

 

      

 

 

      

 

 

   

Total Assets

     $ 466,766,456        $ 35,132,032        $ 365,244,589        $ 66,389,835    
    

 

 

      

 

 

      

 

 

      

 

 

   

AFT did not have any liabilities that were measured at fair value at June 30, 2014. The following is a reconciliation of Level 3 holdings for which significant unobservable inputs were used in determining fair value as of June 30, 2014:

 

  Apollo Senior Floating Rate Fund Inc.                                            
                                   
     Fair Value   Senior Loans  

Corporate

Notes

and Bonds

      

Common

Stock

      

Preferred

Stock

       Warrants    
                                   

 

Fair Value, beginning of period

     $ 75,544,153       $ 71,714,454       $ 1,762,852          $ 2,058,610          $          $ 8,237    

Purchases

       22,192,105         18,272,105                               3,920,000               

Sales

       (22,807,955 )       (21,045,103 )       (1,762,852 )                                   

Accretion/(amortization) of discounts/(premiums)

       95,979         95,979                                             

Net realized gain/(loss)

       280,075         184,222         95,853                                     

Change in net unrealized appreciation/(depreciation)

       301,792         307,031         (95,853 )          87,868                       2,746    

Transfers into Level 3

       15,115,872         15,115,872                                             

Transfers out of Level 3

       (24,332,186 )       (24,332,186 )                                           
    

 

 

     

 

 

     

 

 

        

 

 

        

 

 

        

 

 

   

 

Total Fair Value, end of period

     $ 66,389,835       $ 60,312,374       $          $ 2,146,478          $ 3,920,000               $ 10,983         
    

 

 

     

 

 

     

 

 

        

 

 

        

 

 

        

 

 

   

Investments were transferred into and out of Level 3 and into and out of Level 2 during the six months ended June 30, 2014 due to changes in the quantity and quality of information obtained to support the fair value of each investment as assessed by the Adviser. The net change in unrealized appreciation/(depreciation) attributable to Level 3 investments still held at June 30, 2014 was $146,215 for AFT.

 

Semi-Annual Report  |  29


Apollo Senior Floating Rate Fund Inc.

Apollo Tactical Income Fund Inc.

Notes to Financial Statements  (continued)

June 30, 2014 (unaudited)

 

The following table provides quantitative measures used to determine the fair values of the Level 3 investments as of June 30, 2014:

 

  Apollo Senior Floating Rate Fund Inc.                                    
                   
  Assets   

Fair Value at

June 30, 2014

     Valuation Technique(s)    Unobservable Input(s)        Multiple        Weighted
Average or
Range
   
                   

 

Senior Loans

     

 

$

 

60,312,374

 

  

  

 

Third-party pricing service

and/or broker quotes

  

 

    Vendor and/or

      broker quotes

  

 

N/A

  

 

N/A

 

Common Stock

        2,146,478      

Third-party pricing service

and/or broker quotes

       Vendor and/or

      broker quotes

   N/A    N/A  

Preferred Stock

        3,920,000       Cost(1)        N/A    N/A    N/A  

Warrants

        10,983      

Third-party pricing service

and/or broker quotes

       Vendor and/or

      broker quotes

   N/A    N/A  
     

 

 

               

 

Total Fair Value

 

     

 

$

 

 

66,389,835

 

 

  

 

             
     

 

 

               
                   

 

(1)

 The Fund values its Level 3 investments in accordance with its fair valuation procedures. These investments are generally privately held securities. There may not be a secondary market for these securities, the issuer may be newly formed and/or there may be a limited number of investors seeking to purchase or sell these securities. The value of certain Level 3 securities may be estimated to approximate cost. The value of securities held at cost is reviewed frequently utilizing available market information to determine if the carrying value should be adjusted. Such market data may include, but is not limited to, observations of the trading multiples of public companies considered comparable to the private companies being valued, financial or operational information released by the company, and/or news or corporate events that may affect the investment. Valuations may be adjusted to account for company-specific issues, the lack of liquidity inherent in a nonpublic investment and/or the fact that comparable public companies are not identical to the investments being fair valued by the Fund.

 

  Apollo Tactical Income Fund Inc.                        
                     
  Assets in Fair Value Hierarchy:   

Fair Value at

June 30,

2014

  

Level 1

Quoted Price

  

Level 2

Significant

Observable

Inputs

  

Level 3

Significant

Unobservable

Inputs

   
                     

Cash and Cash Equivalents

     $ 31,349,124        $ 31,349,124        $        $    

Senior Loans

       250,074,626                   203,697,192          46,377,434    

Corporate Notes and Bonds

       118,820,270                   112,700,270          6,120,000    

Asset-Backed Securities

       36,562,034                   9,401,268          27,160,766    

Preferred Stock

       3,920,000                            3,920,000    

Warrants

       10,138                            10,138    
    

 

 

      

 

 

      

 

 

      

 

 

   

 

Total Assets

     $ 440,736,192        $ 31,349,124        $ 325,798,730        $ 83,588,338    
    

 

 

      

 

 

      

 

 

      

 

 

   

AIF did not have any liabilities that were measured at fair value at June 30, 2014. The following is a reconciliation of Level 3 holdings for which significant unobservable inputs were used in determining fair value as of June 30, 2014:

 

  Apollo Tactical Income Fund Inc.                                       
                                
     Fair Value   Senior Loans  

Corporate

Notes

and Bonds

 

Asset-Backed

Securities

      

Preferred

Stock

       Warrants    
                                

Fair Value, beginning of period

     $ 90,759,035       $ 41,939,669       $ 30,897,963       $ 17,913,800          $          $ 7,603    

Purchases

       32,169,441         18,822,676                 9,426,765            3,920,000               

Sales

       (15,124,429 )       (10,122,284 )       (5,002,145 )                                

Accretion/(amortization) of discounts/(premiums)

       92,604         65,192         2,570         24,842                          

Net realized gain/(loss)

       134,882         43,473         91,409                                       

Change in net unrealized appreciation/(depreciation)

       2,135,416         754,006         1,583,516         (204,641 )                          2,535    

Transfers into Level 3

       13,000,838         13,000,838                                          

Transfers out of Level 3

       (39,579,449 )       (18,126,136 )       (21,453,313 )                                
    

 

 

     

 

 

     

 

 

     

 

 

        

 

 

        

 

 

   

 

Total Fair Value, end of period

     $ 83,588,338       $ 46,377,434       $ 6,120,000       $ 27,160,766          $ 3,920,000          $ 10,138    
    

 

 

     

 

 

     

 

 

     

 

 

        

 

 

        

 

 

   

Investments were transferred into and out of Level 3 and into and out of Level 2 during the six months ended June 30, 2014 due to changes in the quantity and quality of information obtained to support the fair value of each investment as assessed by the Adviser. The net change in unrealized appreciation/(depreciation) attributable to Level 3 investments still held at June 30, 2014 was $1,247,856 for AIF.

 

30  |  Semi-Annual Report


Apollo Senior Floating Rate Fund Inc.

Apollo Tactical Income Fund Inc.

Notes to Financial Statements  (continued)

June 30, 2014 (unaudited)

 

The following table provides quantitative measures used to determine the fair values of the Level 3 investments as of June 30, 2014:

 

 

  Apollo Tactical Income Fund Inc.

 

                       
                   

  Assets

 

  

Fair Value at   
June 30, 2014   

 

 

Valuation Technique(s)

 

  

Unobservable Input(s)

 

 

  

Multiple

 

  

 

Weighted  
Average  
or  

Range  

 

                   

 

Senior Loans

    

 

$

 

46,377,434

 

 

 

 

Third-party pricing service and/or broker quotes

  

 

    Vendor and/or

      broker quotes

  

 

N/A

  

 

N/A

Corporate Notes and Bonds

       6,120,000    

Third-party pricing service and/or broker quotes

  

    Vendor and/or

      broker quotes

   N/A    N/A

Asset-Backed Securities

       27,160,766    

Third-party pricing service and/or broker quotes

  

    Vendor and/or

      broker quotes

   N/A    N/A

Preferred Stock

       3,920,000    

Cost(1)

  

    N/A

   N/A    N/A

Warrants

       10,138    

Third-party pricing service and/or broker quotes

  

    Vendor and/or

      broker quotes

   N/A    N/A
    

 

 

                

Total Fair Value

    

 

$

 

 

83,588,338

 

 

 

 

          
    

 

 

                
                   

 

(1)

The Fund values its Level 3 investments in accordance with its fair valuation procedures. These investments are generally privately held securities. There may not be a secondary market for these securities, the issuer may be newly formed and/or there may be a limited number of investors seeking to purchase or sell these securities. The value of certain Level 3 securities may be estimated to approximate cost. The value of securities held at cost is reviewed frequently utilizing available market information to determine if the carrying value should be adjusted. Such market data may include, but is not limited to, observations of the trading multiples of public companies considered comparable to the private companies being valued, financial or operational information released by the company, and/or news or corporate events that may affect the investment. Valuations may be adjusted to account for company-specific issues, the lack of liquidity inherent in a nonpublic investment and/or the fact that comparable public companies are not identical to the investments being fair valued by the Fund.

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. As of June 30, 2014, 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 management’s 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 Moody’s, 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 approximate 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.

U.S. Federal Income Tax Status

The Funds intend to qualify 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

 

Semi-Annual Report  |  31


Apollo Senior Floating Rate Fund Inc.

Apollo Tactical Income Fund Inc.

Notes to Financial Statements  (continued)

June 30, 2014 (unaudited)

 

circumstances. For the year ended December 31, 2013, AFT recorded a U.S. Federal excise tax provision of $31,013. In 2013, it was deemed prudent for cash management purposes for the Fund to pay a nominal excise tax which is equated to $0.002 per common share. For the year ended December 31, 2013, AIF recorded a U.S. Federal excise tax provision of $28,967. In 2013, it was deemed prudent for cash management purposes for the Fund to pay a nominal excise tax which equated to $0.002 per common share. An additional $8,550 and $3,252 was paid during 2014 relating to the 2013 tax year by AFT and AIF, respectively. No federal income tax or excise tax provision is required for the six months ended June 30, 2014.

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 AFT’s federal and state tax filings remains open for the years ended December 31, 2011, 2012 and 2013. The statute of limitations on AIF’s federal and state fillings remains open for the year ended December 31, 2013.

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 AFT’s or AIF’s distribution policy at any time.

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 (the “Investment Advisory Agreement”). For its services, each Fund pays the Adviser monthly at the annual rate of 1.0% of the average daily value of the Fund’s 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 Fund’s 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 Fund’s 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, 2014, the Adviser earned fees of $2,234,791 and $2,101,830 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 Adviser’s request, for certain costs and expenses incurred by the Adviser that are

 

32  |  Semi-Annual Report


Apollo Senior Floating Rate Fund Inc.

Apollo Tactical Income Fund Inc.

Notes to Financial Statements  (continued)

June 30, 2014 (unaudited)

 

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, 2014, the Adviser provided services under these agreements totaling $280,000 for each of AFT and AIF, respectively, which is shown in the Statements of Operations as administrative services of the Adviser. Included in this amount is $38,720 for each of AFT and AIF, respectively, of remuneration for officers of the Funds. The Adviser did not waive the right to expense reimbursements and investment advisory fees for either Fund during the six months ended June 30, 2014.

Each Fund has also entered into an Administration and Accounting Services Agreement (the “Administration Agreements”) with BNY Mellon Investment Servicing (US) Inc. (“BNYMIS”). Under the Administration Agreements, BNYMIS provides certain administrative services necessary for the operation of the Funds, including maintaining the Funds’ books and records, providing accounting services and preparing regulatory filings. The Funds pay BNYMIS for these services. The Bank of New York Mellon (“BNY Mellon”) serves as the Funds’ custodian. BNYMIS serves as the Funds’ transfer agent. BNY Mellon and BNYMIS provided services totaling $136,908 and $127,904 for AFT and AIF, respectively, for the six months ended June 30, 2014 which are included in the Statements of Operations in other operating expenses.

Board of Directors Fees

On an annual basis, AFT and AIF pay to each member of the Board who is not an “interested person” of the Funds (as defined in the Investment Company Act) an annual retainer of $12,000 per Fund, plus $2,000 for each in-person Board meeting of a single Fund ($3,000, or $1,500 per Fund, for a joint meeting of both Funds), plus $1,000 for attendance at telephonic board meetings of a single Fund or participation in special committee meetings of a single Fund not held in conjunction with regularly scheduled Board meetings ($1,500, or $750 per Fund, for a joint meeting of both Funds). In addition, the chairman of the audit committee receives $3,000 per year from each Fund. The Funds also reimbursed 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 for the six months ended June 30, 2014 is $59,682 and $59,682 of expenses related to the Board for AFT and AIF, respectively.

Note 4. Investment Transactions

For the six months ended June 30, 2014, the cost of purchases and proceeds from sales of securities, excluding short-term obligations, were as follows:

 

  Fund

 

  

Cost of
Investments
Purchased

 

    

 

Proceeds

from
Investments
Sold

 

 
     

 

Apollo Senior Floating Rate Fund Inc.

  

 

$

 

179,361,189

 

  

  

 

$

 

184,008,721

 

  

Apollo Tactical Income Fund Inc.

 

 

    

 

 

167,187,666

 

 

  

 

 

    

 

 

168,587,626

 

 

  

 

 

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 Loan’s 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 Borrower’s 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 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

 

Semi-Annual Report  |  33


Apollo Senior Floating Rate Fund Inc.

Apollo Tactical Income Fund Inc.

Notes to Financial Statements  (continued)

June 30, 2014 (unaudited)

 

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, or registered under the Securities Exchange Act of 1934. As a result, the Adviser will rely primarily on its own evaluation of a Borrower’s credit quality rather than on any available independent sources. Therefore, the Funds will be particularly dependent on the analytical abilities of the Adviser.

In general, the secondary trading market for Senior Loans is not well developed. No active trading market may exist for certain Senior Loans, which may make it difficult to value them. Illiquidity and adverse market conditions may mean that the Funds may not be able to sell Senior Loans quickly or at a fair price. To the extent that a secondary market does exist for certain Senior Loans, the market for them may be subject to irregular trading activity, wide bid/ask spreads and extended trade settlement periods.

Senior Loans are generally not registered under the Securities Act of 1933 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 Schedule 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 purchaser’s 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 (i.e., “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 issuer’s performance and perceptions of the issuer in the marketplace.

 

 

34  |  Semi-Annual Report


Apollo Senior Floating Rate Fund Inc.

Apollo Tactical Income Fund Inc.

Notes to Financial Statements  (continued)

June 30, 2014 (unaudited)

 

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 collateralized debt obligations, CLOs and asset-backed securities) are based upon the movement of one or more factors, including currency exchange rates, interest rates, reference bonds (or loans) or stock indices, depending on the factor used and the use of multipliers or deflators, changes in interest rates and movement of any factor may cause significant price fluctuations. Additionally, changes in the reference instrument or security may cause the interest rate on a structured product to be reduced to zero and any further changes in the reference instrument may then reduce the principal amount payable on maturity of the structured product. Structured products may be less liquid than other types of securities and more volatile than the reference instrument or security underlying the product.

The Funds may have the right to receive payments only from the structured product and generally do not have direct rights against the issuer or the entity that sold the assets to be securitized. While certain structured products enable the investor to acquire interests in a pool of securities without the brokerage and other expenses associated with directly holding the same securities, investors in structured products generally pay their share of the structured product’s 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 affect issuers of securities and capital markets generally. 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 Fund 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.

Market Risk

Global credit markets have performed well during the first half of 2014. Though much of the fear and uncertainty regarding the ongoing reduction and eventual elimination of the Fed’s quantitative easing program have subsided, economic growth remains tepid and the impact of rising interest rates poses potential risks to growth. Recent geopolitical conflicts and stresses observed in European banks highlight that unknown risks remain and they provide the potential to create market volatility that could have an adverse impact on the financial markets. Adverse consequences could extend to the issuers of the securities and other instruments held by the Funds and, as a result, could materially and adversely affect returns on the Funds’ investments, the ability of issuers to continue to pay their debt service or refinance and repay their loans or other liabilities as they become due and the Funds’ ability to continue to acquire targeted assets on attractive terms. While it is not possible to precisely predict such events and their longer-term impact on the financial markets and the participants therein, they could be material and adverse to the Funds.

 

Semi-Annual Report  |  35


Apollo Senior Floating Rate Fund Inc.

Apollo Tactical Income Fund Inc.

Notes to Financial Statements  (continued)

June 30, 2014 (unaudited)

 

Note 6. Common Shares

Common share transactions were as follows:

 

 

  Apollo Senior Floating Rate Fund Inc.

 

 
         
    

 

Six Months Ended June 30,
2014

 

   

Year Ended December 31,
2013

 

 
             
    

 

Shares

 

   

 

Amount

 

   

 

Shares

 

    

 

Amount

 

 
         

 

Common shares outstanding, beginning of period

     15,573,061      $ 296,714,038        15,530,498       $ 295,933,915   

Common shares issued as reinvestment of dividends

                   42,563         811,136   

Permanent differences reclassified (primarily non-deductible expenses)

            (8,550             (31,013
  

 

 

   

 

 

   

 

 

    

 

 

 

 

Common shares outstanding, end of period

     15,573,061      $ 296,705,488        15,573,061       $ 296,714,038   
  

 

 

   

 

 

   

 

 

    

 

 

 
         

 

  Apollo Tactical Income Fund Inc.

 

 
               
    

 

Six Months Ended June 30,
2014

 

   

Period Ended December 31,
2013*

 

 
             
    

 

Shares

 

   

 

Amount

 

   

 

Shares

 

    

 

Amount

 

 
         

 

Common shares outstanding, beginning of period

     14,464,026      $ 275,655,578        5,236       $ 100,008   

Common shares issued in connection with initial public offering

                   14,458,790         276,162,889 ** 

Offering costs

                           (578,352

Permanent differences reclassified (primarily non-deductible expenses)

            (3,252             (28,967
  

 

 

   

 

 

   

 

 

    

 

 

 

 

Common shares outstanding, end of period

     14,464,026      $ 275,652,326        14,464,026       $ 275,655,578   
  

 

 

   

 

 

   

 

 

    

 

 

 

 

* AIF commenced investment operations on February 25, 2013.

 

** Net of sales load totaling $13,012,911.

Offering costs were paid by AIF up to $0.04 per common share which totaled $578,352 and was recorded as a reduction of the proceeds from the sale of common shares. The Adviser paid all of AIF’s organizational expenses and offering expenses (other than the sales load) in excess of $0.04 per share. Additionally, in connection with the initial public offering, the underwriters received a front-end sales charge (sales load) of $0.90 per share or $13,012,911, which was paid by AIF out of the proceeds.

Dividends declared on common shares with a record date of January 1, 2014 or later through the date of this report were as follows:

 

 

  Apollo Senior Floating Rate Fund Inc.

 

                            

  Dividend

  Declaration

  Date

 

  

Ex-Dividend

Date

 

  

Record

Date

 

  

Payment

Date

 

  

Per

Share

Amount

 

  

Gross

Distribution

 

  

Cash

Distribution

 

  

 

Value of new  
Common  
Shares  
Issued  

 

                            

 

December 13, 2013

   January 16, 2014    January 21, 2014    January 31, 2014      $ 0.0997        $ 1,552,634        $ 1,552,634          —    

January 24, 2014

   February 13, 2014    February 18, 2014    February 28, 2014      $ 0.0997        $ 1,552,634        $ 1,552,634          —    

February 11, 2014

   March 17, 2014    March 19, 2014    March 31, 2014      $ 0.0987        $ 1,537,061        $ 1,537,061          —    

March 19, 2014

   April 15, 2014    April 17, 2014    April 30, 2014      $ 0.0977        $ 1,521,488        $ 1,521,488          —    

April 17, 2014

   May 15, 2014    May 19, 2014    May 30, 2014      $ 0.0967        $ 1,505,915        $ 1,505,915          —    

May 13, 2014

   June 16, 2014    June 18, 2014    June 30, 2014      $ 0.0957        $ 1,490,342        $ 1,490,342          —    

June 16, 2014

   July 17, 2014    July 21, 2014    July 31, 2014      $ 0.0957        $ 1,490,342        $ 1,490,342          —    

July 16, 2014

   August 15, 2014    August 19, 2014    August 29, 2014      $ 0.0957        $ 1,490,342            

August 13, 2014

   September 16, 2014    September 18, 2014    September 30, 2014      $ 0.0957                 
                            

 

36  |  Semi-Annual Report


Apollo Senior Floating Rate Fund Inc.

Apollo Tactical Income Fund Inc.

Notes to Financial Statements  (continued)

June 30, 2014 (unaudited)

 

 

Apollo Tactical Income Fund Inc.

 

                    

Dividend

Declaration

Date

 

  

Ex-Dividend

Date

 

  

Record

Date

 

  

Payment

Date

 

   Per

Share

 Amount 

 

   Gross

 Distribution 

 

   Cash

 Distribution 

 

  

 

  Value of new  

Common

Shares

Issued

 

                    

 

December 13, 2013

   January 16, 2014    January 21, 2014    January 31, 2014    $0.1170    $1,692,291    $1,692,291   

January 24, 2014

   February 13, 2014    February 18, 2014    February 28, 2014    $0.1170    $1,692,291    $1,692,291   

February 11, 2014

   March 17, 2014    March 19, 2014    March 31, 2014    $0.1170    $1,692,291    $1,692,291   

March 19, 2014

   April 15, 2014    April 17, 2014    April 30, 2014    $0.1170    $1,692,291    $1,692,291   

April 17, 2014

   May 15, 2014    May 19, 2014    May 30, 2014    $0.1170    $1,692,291    $1,692,291   

May 13, 2014

   June 16, 2014    June 18, 2014    June 30, 2014    $0.1170    $1,692,291    $1,692,291   

June 16, 2014

   July 17, 2014    July 21, 2014    July 31, 2014    $0.1170    $1,692,291    $1,692,291   

July 16, 2014

   August 15, 2014    August 19, 2014    August 29, 2014    $0.1170    $1,692,291      

August 13, 2014

 

   September 16, 2014    September 18, 2014    September 30, 2014    $0.1170         

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, 2013 was as follows:

 

 

Apollo Senior Floating Rate Fund Inc.

 

  

  

 

Distributions paid from Ordinary Income: *

 

    

 

2013

 

  

 

  

 

Common Shareholders

   $ 19,606,326   

Preferred Shareholders

     677,510   
  

 

 

 

Total Distributions

   $ 20,283,836   
  

 

 

 

 

* 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, 2013 was as follows:

 

 

Apollo Tactical Income Fund Inc.

 

  

  

 

Distributions paid from Ordinary Income: *

 

 

    

 

2013

 

  

 

  

 

Common Shareholders

   $ 13,972,249   
  

 

 

 

Total Distributions

   $ 13,972,249   
  

 

 

 

 

* For tax purposes, short-term capital gains distributions, if any, are considered ordinary income distributions.

As of December 31, 2013, the most recent tax year end, the components of distributable earnings 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.

   $1,543,192    $—      $4,445,910           $(4,971,886)   

Apollo Tactical Income Fund Inc.

 

     1,501,954      —      5,019,397           —    

 

* Any differences between book basis and tax basis net unrealized appreciation/(depreciation) are primarily due to deferral of losses from wash sales.

For federal income tax purposes, capital loss carryforwards are available to offset future capital gains. As of December 31, 2013, long-term capital loss carryforwards are $4,971,886 for AFT, which may be carried forward for an unlimited period.

 

Semi-Annual Report  |  37


Apollo Senior Floating Rate Fund Inc.

Apollo Tactical Income Fund Inc.

Notes to Financial Statements  (continued)

June 30, 2014 (unaudited)

 

Reclassifications are made to the Funds’ capital accounts for permanent tax differences to reflect income and gains available for distribution (or available capital loss carryforwards) under income tax regulations. For the six months ended June 30, 2014, permanent differences resulting primarily from non-deductible expenses were identified and reclassified among the components of the Funds’ net assets were as follows:

 

Fund

 

    Undistributed 

Net

Investment

Income

 

  

 

Accumulated      

Net Realized      

Gain/Loss      

from      

Investments      

 

    

 

 

Paid-In

Capital

 

  

  

 

        

 

Apollo Senior Floating Rate Fund Inc.

   $8,550    $—            $(8,550 )      

Apollo Tactical Income Fund Inc.

 

     3,252      —            (3,252

As of June, 30 2014, unrealized appreciation/(depreciation) and basis of investments for U.S. federal income tax purposes were as follows:

 

    

Apollo Senior

Floating Rate

Fund Inc.

 

   

 

Apollo

Tactical

Income

Fund Inc.

 

 
    

 

Federal tax basis, cost

   $ 426,775,988      $ 400,669,065   
  

 

 

   

 

 

 

Unrealized appreciation

   $ 8,461,947      $ 10,285,435   

Unrealized depreciation

     (3,603,511     (1,567,432
  

 

 

   

 

 

 

Net unrealized appreciation/(depreciation)*

   $ 4,858,436      $ 8,718,003   
  

 

 

   

 

 

 

 

* Any differences between book basis and tax basis net unrealized appreciation/(depreciation) are primarily due to deferral of losses from wash sales.

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 May 15, 2014, AFT entered into a $150,000,000 revolving credit facility with JPMorgan Chase Bank, N.A. (“JPM”) as lender and administrative agent. On May 20, 2014, AFT reduced the commitment to $149,269,000. AFT may borrow on a revolving basis until May 15, 2016. Any loans outstanding under the credit facility must be repaid in full on May 15, 2016. The loans bear interest at a rate of three-month LIBOR plus 1.20%. As of June 30, 2014, AFT has $149,269,000 outstanding, which is the maximum commitment amount under the credit facility.

Prior to May 15, 2014, AFT had a credit agreement with Wells Fargo Bank, National Association (“Wells Fargo”), as lender, and Wells Fargo Securities LLC, as administrative agent. Additionally, AFT had issued 1,534 shares of Series A Preferred Stock (the “Preferred Shares”) to Wells Fargo. The loan under the credit agreement was to be repaid in full and the outstanding Preferred Shares repurchased no later than March 24, 2015. On May 15, 2014, AFT repurchased the 1,534 preferred shares that were issued and outstanding having an aggregate liquidation preference of $30,680,000, repaid the outstanding loan balance of $122,704,615 and terminated the credit agreement with Wells Fargo.

During the six months ended June 30, 2014, the average daily loan balance outstanding on days where borrowings existed was $129,602,550, the weighted average annual interest rate was 1.58% and the interest expense, which is included on the Statements of Operations in interest and commitment fee expense, was $1,028,785.

 

38  |  Semi-Annual Report


Apollo Senior Floating Rate Fund Inc.

Apollo Tactical Income Fund Inc.

Notes to Financial Statements  (continued)

June 30, 2014 (unaudited)

 

The fair value of AFT’s borrowings under the credit facility approximates the carrying amount presented in the accompanying Statements of Assets and Liabilities based on a yield analysis and remaining maturities for which AFT has determined would be categorized as Level 2 in the fair-value hierarchy.

The credit facility contains certain customary affirmative and negative covenants, including limitations on debt, liens and restricted payments, as well as certain portfolio limitations and customary prepayment provisions, including a requirement to prepay loans or take certain other actions if certain asset value tests are not met. As of June 30, 2014, AFT was not aware of any instances of non-compliance related to the credit facility.

In connection with AFT’s entry into the credit facility, certain debt financing costs were incurred by AFT and have been recorded as deferred financing costs in the Statements of Assets and Liabilities. The debt 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. Also included in the Statements of Operations in interest and commitment fee expense is $38 related to fees incurred for the credit agreement with JPM for the period between May 15 and May 20, 2014, the commitment termination date.

Apollo Tactical Income Fund Inc.

On April 26, 2013, AIF entered into a $138,000,000 revolving credit facility with JPM as lender and administrative agent. AIF may borrow on a revolving basis until April 26, 2015. Any loans outstanding under the credit facility must be repaid in full on April 26, 2015. The loans generally bear interest at a rate of three-month LIBOR plus 1.20%. As of June 30, 2014, AIF has $138,000,000 outstanding, which is the maximum commitment amount under the credit facility. The average daily loan balance outstanding on days where borrowings existed was $138,000,000, the weighted average annual interest rate was 1.44% and the interest expense, which is included on the Statements of Operations in interest and commitment fee expense, was $998,433.

The fair value of AIF’s borrowings under the credit facility approximates the carrying amount presented in the accompanying Statements of Assets and Liabilities based on a yield analysis and remaining maturities for which AIF has determined would be categorized as Level 2 in the fair-value hierarchy.

The credit facility contains certain customary affirmative and negative covenants, including limitations on debt, liens and restricted payments, as well as certain portfolio limitations and customary prepayment provisions, including a requirement to prepay loans or take certain other actions if certain asset value tests are not met. As of June 30, 2014, AIF was not aware of any instances of non-compliance related to the credit facility.

In connection with AIF’s entry into the credit facility, certain debt financing costs were incurred by AIF and have been recorded as deferred financing costs 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.

Note 9. Unfunded Loan Commitments

As of June 30, 2014, each Fund had unfunded loan commitments outstanding, which could be extended at the option of the borrower, as detailed below:

 

Borrower    Unfunded Loan
Commitments
   

GTCR Valor Companies, Inc.

     $ 867,435    

The SI Organization, Inc.

       88,001                                                                                                   
    

 

 

   

Total unfunded loan commitments

     $ 955,436    
    

 

 

   

Unfunded loan commitments are marked to market on the relevant day of the valuation in accordance with the Funds’ valuation policies. Any related unrealized appreciation/(depreciation) on unfunded loan commitments is recorded on the Statements of Assets and Liabilities and the Statements of Operations. For the six months ended June 30, 2014, the Funds each recorded net unrealized appreciation on unfunded transactions totaling $7,242. In addition, AFT recorded the reversal of the unrealized depreciation on the unfunded transaction held at December 31, 2013 of $381.

 

Semi-Annual Report  |  39


Apollo Senior Floating Rate Fund Inc.

Apollo Tactical Income Fund Inc.

Notes to Financial Statements  (continued)

June 30, 2014 (unaudited)

 

Note 10. Indemnification

The Funds have a variety of indemnification obligations under contracts with its 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 Event

Management has evaluated the impact of all subsequent events on the Funds through the date the financial statements were issued and has determined that there were no subsequent events that would require disclosure in or adjustments to the financial statements.

 

40  |  Semi-Annual Report


Apollo Senior Floating Rate Fund Inc.

Apollo Tactical Income Fund Inc.

Additional Information

June 30, 2014 (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 BNYMIS, 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 Participant’s shares, together with the shares of other Participants, in non-certificated form in the plan administrator’s name or that of its nominee.

The shares are acquired by the plan administrator for a participant’s 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 Participant’s 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 administrator’s 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 Participant’s account and remit the proceeds to the Participant, the plan administrator is authorized to deduct a $15 transaction fee plus a 5¢ per share brokerage