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, 2015
Item 1. Reports to Stockholders.
The Report to Shareholders is attached herewith.
Apollo Senior Floating Rate Fund Inc. (NYSE: AFT)
Apollo Tactical Income Fund Inc. (NYSE: AIF)
Semi-Annual Report
June 30, 2015
(unaudited)
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| 48 |
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, 2015
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 2015 played out largely as we suspected it might in our December 2014 letter, with global markets exhibiting elevated volatility as investors dealt with uncertainty over rates, geopolitical and growth concerns, specifically with regards to Greece and China, and the ongoing impact of falling or low commodity prices. However, despite these challenges, high yield bonds and leveraged loans were able to generate positive performance of +2.76%1 and +2.83%2, respectively, over the first half of the year, outperforming equities and a variety of other fixed income asset classes.
Both high yield bonds and leveraged loans have been able to post these strong relative returns despite experiencing quite divergent technical pictures. High yield bond issuance is running only slightly behind 2014, a year that saw the third highest such annual volume on record, while loan issuance volumes are down 36%3 on a gross basis versus 2014. High yield investors continued to pour money into the sector, seemingly shrugging off concerns about Greece and rates and focused on reaching for yield in a low default rate environment. This allowed high yield issuers to issue more debt than they did the year before yet still experience solid performance, even more impressively in light of the high yield market’s heavier exposure to oil and gas credits. The loan markets on the other hand, benefitted from the negative impact that Leveraged Lending Guidelines, issued by the Federal Reserve and Office of the Comptroller of the Currency in 2013 and 2014, had on the willingness of banks to underwrite certain types of loans. Though retail flows continued to be negative, collateralized loan obligations issuance continued at a strong pace, and combined with the limited amount of supply, created an environment ripe for loan prices to rise and spreads to compress via a wave of repricing to start the second quarter.
The benign default environment seen during 2014 continued during the first half of 2015, as the default rate by principal amount for the 12-month period ended June 30, 2015 was 1.9%3 for high yield bonds and 1.7%3 for leveraged loans. This compares to long term averages of 3.7%3 for high yield bonds and 3.4%3 for leveraged loans since 1998. Despite the overall trend of increased leverage and subpar economic growth over the last two to three years, high yield and loan borrowers continue to display credit metrics supportive of a continuation of the low-default rate environment revenues and earnings before interest, taxes, depreciation and amortization for high yield companies increased 3.3%4 and 12.5%4, respectively, excluding energy-related issuers. Furthermore, combined with diminishing tail risks and expectations of a longer path to higher interest rates, it is reasonable to expect another 12 to 24 months of below average default rates, excluding energy.
However, the market will continue to face challenges, some familiar, some new. Familiar challenges include the ongoing uncertainties regarding Europe and China, the length and depth of the selloff in commodities and the uncertain reaction of financial markets when interest rates finally start to move. The “new” challenges, in our opinion, primarily relate to changing regulations and the future impact they will have on the markets. Will the banks choose to exit certain businesses entirely? Who will fill those gaps? How will this impact returns to investors? Though we have seen some of these issues start to emerge recently, they will surely play out over the long term, creating risks and opportunities for investors along the way.
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
1JPMorgan Domestic High Yield Index, June 30, 2015
2S&P/LSTA Leveraged Loan Total Return Index, June 30, 2015
3JPMorgan in the Credit Strategy Weekly Update, July 17, 2015
4JPMorgan in the Credit Strategy Weekly Update, July 10, 2015
Semi-Annual Report | 3
Apollo Senior Floating Rate Fund Inc.
Financial Data
As of June 30, 2015 (unaudited)
| (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, 2015. 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. |
4 | Semi-Annual Report
Apollo Tactical Income Fund Inc.
Financial Data
As of June 30, 2015 (unaudited)
| (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, 2015. 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. The Top 5 Industries table above excludes Structured Products which represent 9.8% of the portfolio as of June 30, 2015. |
| (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 Senior Floating Rate Fund Inc.
Schedule of Investments
June 30, 2015 (unaudited)
6 | See accompanying Notes to Financial Statements.
Apollo Senior Floating Rate Fund Inc.
Schedule of Investments (continued)
June 30, 2015 (unaudited)
See accompanying Notes to Financial Statements. | 7
Apollo Senior Floating Rate Fund Inc.
Schedule of Investments (continued)
June 30, 2015 (unaudited)
8 | See accompanying Notes to Financial Statements.
Apollo Senior Floating Rate Fund Inc.
Schedule of Investments (continued)
June 30, 2015 (unaudited)
See accompanying Notes to Financial Statements. | 9
Apollo Senior Floating Rate Fund Inc.
Schedule of Investments (continued)
June 30, 2015 (unaudited)
10 | See accompanying Notes to Financial Statements.
Apollo Senior Floating Rate Fund Inc.
Schedule of Investments (continued)
June 30, 2015 (unaudited)
See accompanying Notes to Financial Statements. | 11
Apollo Senior Floating Rate Fund Inc.
Schedule of Investments (continued)
June 30, 2015 (unaudited)
12 | See accompanying Notes to Financial Statements.
Apollo Senior Floating Rate Fund Inc.
Schedule of Investments (continued)
June 30, 2015 (unaudited)
See accompanying Notes to Financial Statements. | 13
Apollo Senior Floating Rate Fund Inc.
Schedule of Investments (continued)
June 30, 2015 (unaudited)
| (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, 2015. Senior Loans are generally not registered under the Securities Act of 1933 (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. |
Senior Loan assets may have additional unfunded loan commitments. As of June 30, 2015, the Fund had unfunded loan commitments, which could be extended at the option of the borrower, pursuant to the following loan agreements:
* The loan commitment for Charger OpCo B.V. (Oak Tea, Inc.) was subsequently funded on July 2, 2015.
| (b) | Fair Value Level 3 security. All remaining securities are categorized as Level 2. |
| (c) | The interest rate on this Senior Loan is subject to a base rate plus 1 month or 3 month LIBOR, which at June 30, 2015 was 0.19% and 0.28%, respectively. As the interest rate is subject to a minimum LIBOR floor which was greater than the 1 month or 3 month LIBOR rate at June 30, 2015, the prevailing rate in effect at June 30, 2015 was the base rate plus the LIBOR floor, except as indicated. |
| (d) | All or a portion of this Senior Loan position has not settled. Full contract rates do not take effect until settlement date, therefore, are subject to change. |
| (e) | Fixed rate asset. |
| (f) | Foreign issuer traded in U.S. dollars. |
| (g) | Represents a payment-in-kind (“PIK”) security which may pay interest in additional principal amount. |
| (h) | The issuer is in default of its payment obligation as of May 5, 2015, as such, income is no longer being accrued. |
| (i) | 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, 2015, these securities amounted to $10,914,520, or 3.8% of net assets. |
| (j) | Non income-producing asset. |
| (k) | The Fund has granted a security interest in substantially all of its assets in the event of default under the credit facility (Note 8). |
| (l) | The aggregate cost of securities for federal income tax purposes was $423,548,842. Cost for U.S. federal income tax purposes differs from book basis primarily due to the deferral of losses from wash sales. Unrealized appreciation and depreciation on investments are as follows: |
14 | See accompanying Notes to Financial Statements.
Apollo Tactical Income Fund Inc.
Schedule of Investments
June 30, 2015 (unaudited)
See accompanying Notes to Financial Statements. | 15
Apollo Tactical Income Fund Inc.
Schedule of Investments (continued)
June 30, 2015 (unaudited)
16 | See accompanying Notes to Financial Statements.
Apollo Tactical Income Fund Inc.
Schedule of Investments (continued)
June 30, 2015 (unaudited)
See accompanying Notes to Financial Statements. | 17
Apollo Tactical Income Fund Inc.
Schedule of Investments (continued)
June 30, 2015 (unaudited)
18 | See accompanying Notes to Financial Statements.
Apollo Tactical Income Fund Inc.
Schedule of Investments (continued)
June 30, 2015 (unaudited)
See accompanying Notes to Financial Statements. | 19
Apollo Tactical Income Fund Inc.
Schedule of Investments (continued)
June 30, 2015 (unaudited)
20 | See accompanying Notes to Financial Statements.
Apollo Tactical Income Fund Inc.
Schedule of Investments (continued)
June 30, 2015 (unaudited)
See accompanying Notes to Financial Statements. | 21
Apollo Tactical Income Fund Inc.
Schedule of Investments (continued)
June 30, 2015 (unaudited)
| (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, 2015. 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. |
Senior Loan assets may have additional unfunded loan commitments. As of June 30, 2015, the Fund had unfunded loan commitments, which could be extended at the option of the borrower, pursuant to the following loan agreements:
| Unfunded Loan | ||||||
| Borrower | Commitments | |||||
|
|
||||||
| Charger OpCo B.V. (Oak Tea, Inc.)* |
$ | 3,740,601 | ||||
| LTS Buyer, LLC (Sidera Networks, Inc.) |
1,912,192 | |||||
|
|
|
|||||
| Total Unfunded Loan Commitments |
$ | 5,652,793 | ||||
|
|
|
|||||
* The loan commitment for Charger OpCo B.V. (Oak Tea, Inc.) was subsequently funded on July 2, 2015.
| (b) | Fair Value Level 3 security. All remaining securities are categorized as Level 2. |
| (c) | The interest rate on this Senior Loan is subject to a base rate plus 1 month or 3 month LIBOR, which at June 30, 2015 was 0.19% and 0.28%, respectively. As the interest rate is subject to a minimum LIBOR floor which was greater than the 1 month or 3 month LIBOR rate at June 30, 2015, the prevailing rate in effect at June 30, 2015 was the base rate plus the LIBOR floor, except as indicated. |
| (d) | All or a portion of this Senior Loan position has not settled. Full contract rates do not take effect until settlement date, therefore, are subject to change. |
| (e) | Fixed rate asset. |
| (f) | Foreign issuer traded in U.S. dollars. |
| (g) | Represents a PIK 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, 2015, these securities amounted to $86,254,807, or 32.5% of net assets. |
| (i) | The issuer is in default of its payment obligation as of May 5, 2015, as such, income is no longer being accrued. |
| (j) | Structured Products include 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. |
| (k) | Floating rate asset. The interest rate shown reflects the rate in effect at June 30, 2015. |
| (l) | Non income-producing asset. |
| (m) | The Fund has granted a security interest in substantially all of its assets in the event of default under the credit facility (Note 8). |
| (n) | The aggregate cost of securities for federal income tax purposes was $396,460,161. Cost for U.S. federal income tax purposes differs from book basis primarily due to the deferral of losses from wash sales. Unrealized appreciation and depreciation on investments are as follows: |
| Gross unrealized appreciation |
$ | 5,287,819 | ||||
| Gross unrealized depreciation |
(15,453,274) | |||||
|
|
|
|||||
| Net unrealized depreciation |
$ | (10,165,455) | ||||
|
|
|
22 | See accompanying Notes to Financial Statements.
Apollo Senior Floating Rate Fund Inc.
Apollo Tactical Income Fund Inc.
Statements of Assets and Liabilities
June 30, 2015 (unaudited)
| Apollo | Apollo | |||||||||
| Senior | Tactical | |||||||||
| Floating Rate | Income | |||||||||
| Fund Inc. | Fund Inc. | |||||||||
| Assets: |
||||||||||
| Investment securities at fair value (cost $423,534,172 and $396,447,684, respectively) |
$ | 419,679,010 | $ | 386,294,706 | ||||||
| Cash and cash equivalents |
18,653,709 | 17,365,252 | ||||||||
| Interest and dividends receivable |
2,609,668 | 3,951,258 | ||||||||
| Receivable for investment securities sold |
26,008,970 | 18,967,315 | ||||||||
| Unrealized appreciation on unfunded transactions (Note 9) |
56,391 | 56,391 | ||||||||
| Prepaid expenses |
265,030 | 264,677 | ||||||||
|
|
|
|
|
|||||||
| Total Assets |
$ | 467,272,778 | $ | 426,899,599 | ||||||
|
|
|
|
|
|||||||
| Liabilities: |
||||||||||
| Borrowings under credit facility (principal $149,269,000 and $138,000,000, respectively, less unamortized deferred financing costs of $91,459 and $39,079, respectively) (Note 8) |
$ | 149,177,541 | $ | 137,960,921 | ||||||
| Payable for investment securities purchased |
30,123,135 | 22,796,902 | ||||||||
| Interest payable |
306,831 | 329,083 | ||||||||
| Distributions payable to common shareholders |
62,225 | 51,239 | ||||||||
| Investment advisory fee payable |
359,626 | 333,086 | ||||||||
| Other payables and accrued expenses due to affiliates |
108,551 | 101,725 | ||||||||
| Other payables and accrued expenses |
250,232 | 248,735 | ||||||||
|
|
|
|
|
|||||||
| Total Liabilities |
180,388,141 | 161,821,691 | ||||||||
|
|
|
|
|
|||||||
| Commitments and Contingencies (Note 9) |
||||||||||
| Net Assets (Applicable to Common Shareholders) |
$ | 286,884,637 | $ | 265,077,908 | ||||||
|
|
|
|
|
|||||||
| 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) |
$ | 296,704,310 | $ | 275,624,904 | ||||||
| Undistributed net investment income |
1,324,004 | 2,020,654 | ||||||||
| Accumulated net realized loss from investments |
(7,344,906 | ) | (2,471,063 | ) | ||||||
| Net unrealized depreciation on investments and unfunded transactions |
(3,798,771 | ) | (10,096,587 | ) | ||||||
|
|
|
|
|
|||||||
| Net Assets (Applicable to Common Shareholders) |
$ | 286,884,637 | $ | 265,077,908 | ||||||
|
|
|
|
|
|||||||
| Number of Common Shares outstanding |
15,573,061 | 14,464,026 | ||||||||
| Net Asset Value, per Common Share |
$ | 18.42 | $ | 18.33 | ||||||
See accompanying Notes to Financial Statements. | 23
Apollo Senior Floating Rate Fund Inc.
Apollo Tactical Income Fund Inc.
Statements of Operations
For the Six Months Ended June 30, 2015 (unaudited)
| Apollo | Apollo | |||||||||||
| Senior | Tactical | |||||||||||
| Floating Rate | Income | |||||||||||
| Fund Inc. | Fund Inc. | |||||||||||
| Investment Income: |
||||||||||||
| Interest |
$13,981,194 | $14,777,262 | ||||||||||
| Dividends |
170,000 | 170,000 | ||||||||||
|
|
|
|
|
|||||||||
| Total Investment Income |
14,151,194 | 14,947,262 | ||||||||||
|
|
|
|
|
|||||||||
| Expenses: |
||||||||||||
| Investment advisory fee (Note 3) |
2,164,638 | 2,003,380 | ||||||||||
| Interest and commitment fee expense (Note 8) |
1,096,380 | 964,422 | ||||||||||
| Professional fees |
237,562 | 207,806 | ||||||||||
| Administrative services of the Adviser (Note 3) |
323,889 | 299,693 | ||||||||||
| Insurance expense |
173,289 | 173,289 | ||||||||||
| Amortization of deferred financing costs (Note 8) |
51,895 | 42,929 | ||||||||||
| Board of Directors fees (Note 3) |
50,574 | 55,574 | ||||||||||
| Other operating expenses (Note 3) |
198,447 | 187,637 | ||||||||||
|
|
|
|
|
|||||||||
| Total Expenses |
4,296,674 | 3,934,730 | ||||||||||
| Expense reimbursement waived by Adviser (Note 3) |
— | — | ||||||||||
|
|
|
|
|
|||||||||
| Net Expenses |
4,296,674 | 3,934,730 | ||||||||||
|
|
|
|
|
|||||||||
| Net Investment Income |
9,854,520 | 11,012,532 | ||||||||||
|
|
|
|
|
|||||||||
| Net Realized and Unrealized Gain/(Loss) on Investments |
||||||||||||
| Net realized loss on investments |
(3,839,782 | ) | (2,671,250 | ) | ||||||||
| Net change in unrealized appreciation/(depreciation) on investments and unfunded transactions (Note 9) |
4,944,371 | 3,462,496 | ||||||||||
|
|
|
|
|
|||||||||
| Net realized and unrealized gain on investments |
1,104,589 | 791,246 | ||||||||||
|
|
|
|
|
|||||||||
| Net Increase in Net Assets, Applicable to Common Shareholders, Resulting From Operations |
$10,959,109 | $11,803,778 | ||||||||||
|
|
|
|
|
|||||||||
24 | See accompanying Notes to Financial Statements.
Apollo Senior Floating Rate Fund Inc.
Statements of Changes in Net Assets
| Six Months | Year | |||||||||||
| Ended | Ended | |||||||||||
| June 30, 2015 | December 31, | |||||||||||
| (unaudited) | 2014 | |||||||||||
| Increase/(Decrease) in Net Assets: |
||||||||||||
| From Operations |
||||||||||||
| Net investment income |
$ | 9,854,520 | $ | 18,404,508 | ||||||||
| Net realized (loss)/gain on investments |
(3,839,782 | ) | 1,508,772 | |||||||||
| Net change in unrealized appreciation/(depreciation) on investments and unfunded transactions |
4,944,371 | (13,230,681 | ) | |||||||||
| Distributions to preferred shareholders |
— | (244,641 | ) | |||||||||
|
|
|
|
|
|||||||||
| Net increase in net assets from operations |
10,959,109 | 6,437,958 | ||||||||||
|
|
|
|
|
|||||||||
| Distributions to Common Shareholders |
||||||||||||
| From net investment income |
(9,066,636 | ) | (19,176,667 | ) | ||||||||
|
|
|
|
|
|||||||||
| Total distributions to common shareholders |
(9,066,636 | ) | (19,176,667 | ) | ||||||||
|
|
|
|
|
|||||||||
| Total increase/(decrease) in net assets |
$ | 1,892,473 | $ | (12,738,709 | ) | |||||||
| Net Assets Applicable to Common Shares |
||||||||||||
| Beginning of period |
284,992,164 | 297,730,873 | ||||||||||
|
|
|
|
|
|||||||||
| End of period |
$ | 286,884,637 | $ | 284,992,164 | ||||||||
|
|
|
|
|
|||||||||
| Undistributed net investment income |
$ | 1,324,004 | $ | 534,942 | ||||||||
|
|
|
|
|
|||||||||
See accompanying Notes to Financial Statements. | 25
Apollo Tactical Income Fund Inc.
Statements of Changes in Net Assets
| Six Months | Year | |||||||||||
| Ended | Ended | |||||||||||
| June 30, 2015 | December 31, | |||||||||||
| (unaudited) | 2014 | |||||||||||
| Increase/(Decrease) in Net Assets: |
||||||||||||
| From Operations |
||||||||||||
| Net investment income |
$ | 11,012,532 | $ | 21,617,971 | ||||||||
| Net realized (loss)/gain on investments |
(2,671,250 | ) | 2,163,995 | |||||||||
| Net change in unrealized appreciation/(depreciation) on investments and unfunded transactions |
3,462,496 | (18,578,584 | ) | |||||||||
|
|
|
|
|
|||||||||
| Net increase in net assets from operations |
11,803,778 | 5,203,382 | ||||||||||
|
|
|
|
|
|||||||||
| Distributions to Common Shareholders |
||||||||||||
| From net investment income |
(10,153,746 | ) | (21,593,489 | ) | ||||||||
| From realized gains on investments |
— | (2,358,946 | ) | |||||||||
|
|
|
|
|
|||||||||
| Total distributions to common shareholders |
(10,153,746 | ) | (23,952,435 | ) | ||||||||
|
|
|
|
|
|||||||||
| Total increase/(decrease) in net assets |
$ | 1,650,032 | $ | (18,749,053 | ) | |||||||
| Net Assets Applicable to Common Shares |
||||||||||||
| Beginning of period |
263,427,876 | 282,176,929 | ||||||||||
|
|
|
|
|
|||||||||
| End of period |
$ | 265,077,908 | $ | 263,427,876 | ||||||||
|
|
|
|
|
|||||||||
| Undistributed net investment income |
$ | 2,020,654 | $ | 1,160,978 | ||||||||
|
|
|
|
|
|||||||||
26 | See accompanying Notes to Financial Statements.
Apollo Senior Floating Rate Fund Inc.
Statement of Cash Flows
For the Six Months Ended June 30, 2015 (unaudited)
|
|
||||
| Cash Flows From Operating Activities: |
||||
| Net increase in net assets from operations |
$ | 10,959,109 | ||
| Adjustments to Reconcile Net Decrease in Net Assets from Operations to Net Cash Flows Used by Operating Activities: |
||||
| Net realized loss on investments |
3,839,782 | |||
| Net change in unrealized (appreciation)/depreciation on investments and unfunded transactions |
(4,944,371 | ) | ||
| Net amortization/(accretion) of premium/(discount) |
(466,947 | ) | ||
| Purchase of investment securities |
(134,450,971 | ) | ||
| Proceeds from disposition of investment securities and principal paydowns |
121,935,749 | |||
| Payment-in-kind interest |
(76,858 | ) | ||
| Amortization of deferred financing costs |
51,895 | |||
| Changes in Operating Assets and Liabilities: |
||||
| Increase in interest and dividends receivable |
(225,628 | ) | ||
| Increase in prepaid expenses |
(183,092 | ) | ||
| Increase in interest payable |
20,235 | |||
| Decrease in investment advisory fee payable |
(11,058 | ) | ||
| Decrease in other payables and accrued expenses due to affiliates |
(89,721 | ) | ||
| Increase in other payables and accrued expenses |
25,866 | |||
|
|
|
|||
| Net cash flows used in operating activities |
(3,616,010 | ) | ||
|
|
|
|||
| Cash Flows From Financing Activities: |
||||
| Distributions paid to common shareholders (net of change in distributions payable to common shareholders) |
(9,137,529 | ) | ||
|
|
|
|||
| Net cash flows used in financing activities |
(9,137,529 | ) | ||
|
|
|
|||
| Net Decrease in Cash and Cash Equivalents |
(12,753,539 | ) | ||
| Cash and cash equivalents, beginning of period |
31,407,248 | |||
|
|
|
|||
| Cash and cash equivalents, end of period |
$ | 18,653,709 | ||
|
|
|
|||
| Supplemental Disclosure of Cash Flow Information |
||||
| Cash paid during the period for interest |
$ | 1,076,145 | ||
|
|
|
|||
See accompanying Notes to Financial Statements. | 27
Apollo Tactical Income Fund Inc.
Statement of Cash Flows
For the Six Months Ended June 30, 2015 (unaudited)
|
|
||||
| Cash Flows From Operating Activities: |
||||
| Net increase in net assets from operations |
$ | 11,803,778 | ||
| Adjustments to Reconcile Net Increase in Net Assets from Operations to Net Cash Flows Provided by Operating Activities: |
||||
| Net realized loss on investments |
2,671,250 | |||
| Net change in unrealized (appreciation)/depreciation on investments and unfunded transactions |
(3,462,496 | ) | ||
| Net amortization/(accretion) of premium/(discount) |
(355,360 | ) | ||
| Purchase of investment securities |
(132,748,376 | ) | ||
| Proceeds from disposition of investment securities and principal paydowns |
133,040,880 | |||
| Payment-in-kind interest |
(95,931 | ) | ||
| Amortization of deferred financing costs |
42,929 | |||
| Changes in Operating Assets and Liabilities: |
||||
| Increase in interest and dividends receivable |
(400,984 | ) | ||
| Increase in prepaid expenses |
(182,739 | ) | ||
| Increase in interest payable |
108,586 | |||
| Decrease in investment advisory fee payable |
(12,881 | ) | ||
| Decrease in other payables and accrued expenses due to affiliates |
(96,177 | ) | ||
| Increase in other payables and accrued expenses |
11,005 | |||
|
|
|
|||
| Net cash flows provided by operating activities |
10,323,484 | |||
|
|
|
|||
| Cash Flows From Financing Activities: |
||||
| Deferred financing costs |
(47,997 | ) | ||
| Distributions paid to common shareholders (net of change in distributions payable to common shareholders) |
(10,299,655 | ) | ||
|
|
|
|||
| Net cash flows used in financing activities |
(10,347,652 | ) | ||
|
|
|
|||
| Net Decrease in Cash and Cash Equivalents |
(24,168 | ) | ||
| Cash and cash equivalents, beginning of period |
17,389,420 | |||
|
|
|
|||
| Cash and cash equivalents, end of period |
$ | 17,365,252 | ||
|
|
|
|||
| Supplemental Disclosure of Cash Flow Information |
||||
| Cash paid during the period for interest |
$ | 855,836 | ||
|
|
|
|||
28 | See accompanying Notes to Financial Statements.
Apollo Senior Floating Rate Fund Inc.
Financial Highlights
For a Common Share outstanding throughout the period
| For the | ||||||||||||||||||||
| Six Months | For the | For the | For the | For the | ||||||||||||||||
| Ended | Year | Year | Year | Period | ||||||||||||||||
| June 30, | Ended | Ended | Ended | Ended | ||||||||||||||||
| 2015 | December 31, | December 31, | December 31, | December 31, | ||||||||||||||||
| Per Common Share Operating Performance: |
(unaudited) | 2014 | 2013 | 2012 | 2011(a) | |||||||||||||||
|
|
||||||||||||||||||||
| Net Asset Value, Beginning of Period |
$ | 18.30 | $ | 19.12 | $ | 18.73 | $ | 17.68 | $ | 19.10(b) | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Income from Investment Operations: |
||||||||||||||||||||
| Net investment income(c) |
0.63 | 1.18 | 1.34 | 1.39 | 1.00 | |||||||||||||||
| Net realized and unrealized gain/(loss) on investments |
0.07 | (0.75) | 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 |
0.70 | 0.41 | 1.65 | 2.44 | (0.48) | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Less Distributions Paid to Common Shareholders from: |
||||||||||||||||||||
| Net investment income |
(0.58) | (1.23) | (1.26) | (1.38) | (0.88) | |||||||||||||||
| Net realized gain on investments |
— | — | — | (0.01) | (0.02) | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total distributions paid to Common Shareholders |
(0.58) | (1.23) | (1.26) | (1.39) | (0.90) | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Common Share offering charges to paid-in capital |
— | — | — | — | (0.04) | |||||||||||||||
|
|
||||||||||||||||||||
| Net Asset Value, End of Period |
$ | 18.42 | $ | 18.30 | $ | 19.12 | $ | 18.73 | $ | 17.68 | ||||||||||
| Market Value, End of Period |
$ | 17.78 | $ | 16.63 | $ | 18.10 | $ | 18.77 | $ | 16.01 | ||||||||||
| Total return based on net asset value(d) |
4.01%(e) | 2.63% | 9.19% | 14.23% | (2.43)%(e) | |||||||||||||||
| Total return based on market value(d) |
10.48%(e) | (1.48)% | 3.14% | 26.41% | (15.62)%(e) | |||||||||||||||
|
|
||||||||||||||||||||
| Ratios to Average Net Assets Applicable to Common Shareholders: |
||||||||||||||||||||
| Ratio of total expenses to average net assets |
3.02%(f) | 3.07% | 3.00% | 3.21% | 2.99%(f) | |||||||||||||||
| Ratio of net expenses to average net assets |
3.02%(f) | 3.07% | 3.00% | 3.18% | 2.88%(f) | |||||||||||||||
| Ratio of net investment income to average net assets |
6.92%(f) | 6.22%(g) | 7.03%(g) | 7.51%(g) | 6.49%(f)(g) | |||||||||||||||
| Ratio of net investment income to average net assets net of distributions to Series A Preferred Shareholders |
— | 6.13% | 6.80% | 7.25% | 6.33%(f) | |||||||||||||||
| Supplemental Data: |
||||||||||||||||||||
| Portfolio turnover rate |
30.8%(e) | 80.0% | 72.0% | 66.6% | 41.5%(e) | |||||||||||||||
| Net assets at end of period (000’s) |
$ | 286,885 | $ | 284,992 | $ | 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(h) |
— | — | $ | 294,078 | $ | 289,574 | $ | 278,380 | ||||||||||||
| Principal loan outstanding (in 000’s) |
$ | 149,269 | $ | 149,269 | $ | 122,705 | $ | 122,705 | $ | 122,705 | ||||||||||
| Asset coverage per $1,000 of loan outstanding |
$ | 2,922(i) | $ | 2,909(i) | $ | 3,676(j) | $ | 3,620(j) | $ | 3,480(j) | ||||||||||
| (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) | Based on weighted average outstanding shares. |
| (d) | Total return based on net asset value and total return based on market value assuming all distributions reinvested at reinvestment rate. |
| (e) | Not annualized. |
| (f) | Annualized. |
| (g) | Net investment income ratio does not reflect payment to preferred shareholders. |
| (h) | 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. |
| (i) | 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. |
| (j) | 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. | 29
Apollo Tactical Income Fund Inc.
Financial Highlights
For a Common Share outstanding throughout the period
| For the | ||||||||||||
| Six Months | For the | For the | ||||||||||
| Ended | Year | Period | ||||||||||
| June 30, | Ended | Ended | ||||||||||
| 2015 | December 31, | December 31, | ||||||||||
| Per Common Share Operating Performance: |
(unaudited) | 2014 | 2013(a) | |||||||||
|
|
||||||||||||
| Net Asset Value, Beginning of Period |
$ | 18.21 | $ | 19.51 | $ | 19.10(b) | ||||||
|
|
|
|
|
|
|
|||||||
| Income from Investment Operations: |
||||||||||||
| Net investment income(c) |
0.76 | 1.50 | 1.03 | |||||||||
| Net realized and unrealized gain/(loss) on investments |
0.06 | (1.14) | 0.39 | |||||||||
|
|
|
|
|
|
|
|||||||
|
Total from investment operations |
0.82 | 0.36 | 1.42 | |||||||||
|
|
|
|
|
|
|
|||||||
| Less Distributions Paid to Common Shareholders from: |
||||||||||||
| Net investment income |
(0.70) | (1.50) | (0.96) | |||||||||
| Net realized gain on investments |
— | (0.16) | (0.01) | |||||||||
|
|
|
|
|
|
|
|||||||
| Total distributions paid to Common Shareholders |
(0.70) | (1.66) | (0.97) | |||||||||
|
|
|
|
|
|
|
|||||||
| Common share offering charges to paid-in capital |
— | — | (0.04) | |||||||||
|
|
|
|
|
|
|
|
||||||
| Net Asset Value, End of Period |
$ | 18.33 | $ | 18.21 | $ | 19.51 | ||||||
| Market Value, End of Period |
$ | 15.77 | $ | 15.96 | $ | 18.00 | ||||||
| Total return based on net asset value(d) |
5.07%(e) | 2.63% | 7.94%(e) | |||||||||
| Total return based on market value(d) |
3.14%(e) | (2.51)% | (4.90)%(e) | |||||||||
|
|
||||||||||||
| Ratios to Average Net Assets Applicable to Common Shareholders: |
||||||||||||
| Ratio of total expenses to average net assets |
2.98%(f) | 2.90% | 2.58%(f) | |||||||||
| Ratio of net expenses to average net assets |
2.98%(f) | 2.90% | 2.55%(f) | |||||||||
| Ratio of net investment income to average net assets |
8.35%(f) | 7.63% | 6.38%(f) | |||||||||
| Supplemental Data: |
||||||||||||
| Portfolio turnover rate |
34.0%(e) | 78.7% | 72.4%(e) | |||||||||
| Net assets at end of period (000’s) |
$ | 265,078 | $ | 263,428 | $ | 282,177 | ||||||
|
|
||||||||||||
| Senior Securities: |
||||||||||||
| Principal loan outstanding (in 000’s) |
$ | 138,000 | $ | 138,000 | $ | 138,000 | ||||||
| Asset coverage per $1,000 of loan outstanding(g) |
$ | 2,921 | $ | 2,909 | $ | 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) | Based on weighted average outstanding shares. |
| (d) | Total return based on net asset value and total return based on market value assuming all distributions reinvested at reinvestment rate. |
| (e) | Not annualized. |
| (f) | Annualized. |
| (g) | 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. |
30 | See accompanying Notes to Financial Statements.
Apollo Senior Floating Rate Fund Inc.
Apollo Tactical Income Fund Inc.
Notes to Financial Statements
June 30, 2015 (unaudited)
Note 1. Organization and Operations
Apollo Senior Floating Rate Fund Inc. (“AFT”) and Apollo Tactical Income Fund Inc. (“AIF”) (individually, a “Fund” or, together, the “Funds”) are corporations organized under the laws of the State of Maryland and registered with the U.S. Securities and Exchange Commission (the “SEC”) under the Investment Company Act of 1940 (the “Investment Company Act”) as 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 seeks to achieve its investment objective by investing primarily in senior, secured loans made to companies whose debt is rated below investment grade (“Senior Loans”) and investments with similar characteristics. Senior Loans typically hold a first lien priority and pay interest at rates that are determined periodically on the basis of a floating base lending rate plus a spread. These base lending rates are primarily the London Interbank Offered Rate (“LIBOR”), and secondarily the prime rate offered by one or more major 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 seeks to achieve its investment objectives primarily by allocating its assets among different types of credit instruments based on absolute and relative value considerations and its analysis of the credit markets. This ability to dynamically allocate 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 (“CDOs”), collateralized loan obligations (“CLOs”) and asset-backed securities), bank loans, corporate loans, convertible and preferred securities, government and municipal obligations, mortgage-backed securities, repurchase agreements, and other fixed-income instruments of a similar nature that may be represented by derivatives such as options, forwards, futures contracts or swap agreements. This policy and 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 | 31
Apollo Senior Floating Rate Fund Inc.
Apollo Tactical Income Fund Inc.
Notes to Financial Statements (continued)
June 30, 2015 (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, preferred stock, warrants and structured products are priced based on valuations provided by an approved independent pricing service or broker, if available. If market or broker quotations are not available, or a price is not available from an independent pricing service or broker, or if the price provided by the independent pricing service or broker is believed to be unreliable, the security will be fair valued pursuant to procedures adopted by the Board. In general, the fair value of a security is the amount that the Funds might reasonably expect to receive upon the sale of an asset or pay to transfer a liability in an orderly transaction between willing market participants at the reporting date. Fair value procedures generally take into account any factors deemed relevant, which may include, among others, (i) the nature and pricing history of the security, (ii) the liquidity or illiquidity of the market for the particular security, (iii) recent purchases or sales transactions for the particular security or similar securities and (iv) press releases and other information published about the issuer. In these cases, a 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 assets and liabilities in active markets to which the Funds have access at the date of measurement;
Level 2 — Quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, but are valued based on executed trades, broker quotations that constitute an executable price, and alternative pricing sources supported by observable inputs which, in each case, are either directly or indirectly observable for the asset in connection with market data at the measurement date; and
Level 3 — Model derived valuations in which one or more significant inputs or significant value drivers are unobservable. In certain cases, investments classified within Level 3 may include securities for which the Funds have obtained indicative quotes from broker-dealers that do not necessarily represent prices the broker may be willing to trade on, as such quotes can be subject to material management judgment. Unobservable inputs are those inputs that reflect the Funds’ own assumptions that market participants would use to price the asset or liability based on the best available information.
At the end of each reporting period, management evaluates the Level 2 and Level 3 assets, if any, for changes in liquidity, including but not limited to: whether a broker is willing to execute at the quoted price, the depth and consistency of prices from independent pricing services, and the existence of contemporaneous, observable trades in the market.
32 | Semi-Annual Report
Apollo Senior Floating Rate Fund Inc.
Apollo Tactical Income Fund Inc.
Notes to Financial Statements (continued)
June 30, 2015 (unaudited)
The valuation techniques used by the Funds to measure fair value at June 30, 2015 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 into 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, 2015 are as follows:
| Apollo Senior Floating Rate Fund Inc. | ||||||||||||||||||||
| Assets
|
Total Fair Value at 2015
|
Level 1
|
Level 2
|
Level
3
| ||||||||||||||||
| Cash and Cash Equivalents |
$ | 18,653,709 | $ | 18,653,709 | $ | — | $ | — | ||||||||||||
| Senior Loans |
392,292,830 | — | 318,455,310 | 73,837,520 | ||||||||||||||||
| Corporate Notes and Bonds |
23,482,020 | — | 23,218,154 | 263,866 | ||||||||||||||||
| Preferred Stock |
3,904,160 | — | — | 3,904,160 | ||||||||||||||||
| Warrants |
— | — | — | — | ||||||||||||||||
| Unrealized appreciation on Unfunded Loan Commitments |
56,391 | — | — | 56,391 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||
|
Total Assets |
$ |
438,389,110 |
|
$ | 18,653,709 | $ | 341,673,464 | $ | 78,061,937 | |||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||
The following is a reconciliation of Level 3 holdings for which significant unobservable inputs were used in determining fair value as of June 30, 2015:
| Apollo Senior Floating Rate Fund Inc. |
||||||||||||||||||||||||||||
| Total Fair
|
Senior Loans
|
Corporate
|
Common
|
Preferred
|
Warrants
|
Unfunded
|
||||||||||||||||||||||
| Fair Value, beginning of period |
$ | 87,829,716 | $ | 82,651,446 | $ | — | $ | 1,255,250 | $ | 3,920,000 | $ | 3,020 | $ — | |||||||||||||||
| Purchases, including capitalized PIK |
11,660,562 | 10,871,740 | 788,822 | — | — | — | — | |||||||||||||||||||||
| Sales |
(16,362,530 | ) | (15,220,253 | ) | — | (1,142,277) | — | — | — | |||||||||||||||||||
| Accretion/(amortization) of discounts/ |
||||||||||||||||||||||||||||
| (premiums) |
104,050 | 104,050 | — | — | — | — | — | |||||||||||||||||||||
| Net realized gain/(loss) |
(4,020,199 | ) | 50,382 | — | (4,070,581) | — | — | |||||||||||||||||||||
| Change in net unrealized appreciation/ |
||||||||||||||||||||||||||||
| (depreciation) |
3,420,956 | 7,164 | (524,956) | 3,957,608 | (15,840) | (3,020) | — | |||||||||||||||||||||
| Transfers into Level 3 |
18,273,570 | 18,217,179 | — | — | — | — | 56,391 | |||||||||||||||||||||
| Transfers out of Level 3 |
(22,844,188 | ) | (22,844,188 | ) | — | — | — | — | — | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
|
Total Fair Value, end of period |
$ |
78,061,937 |
|
$ | 73,837,520 | $ | 263,866 | $ | — | $ | 3,904,160 | $ | — | $56,391 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Investments were transferred into Level 3 during the six months ended June 30, 2015 due to a decrease in the availability of qualified observable inputs obtained to support the fair value of each investment as assessed by the Adviser. Transfers out of Level 3 during the six months ended June 30, 2015 were due to an increase in the availability of qualified observable inputs as assessed by the Adviser. There were no transfers between Level 1 and Level 2 during the period shown. The net change in unrealized appreciation/(depreciation) attributable to Level 3 investments still held at June 30, 2015 was $1,040,329 for AFT.
Semi-Annual Report | 33
Apollo Senior Floating Rate Fund Inc.
Apollo Tactical Income Fund Inc.
Notes to Financial Statements (continued)
June 30, 2015 (unaudited)
The following table provides quantitative measures used to determine the fair values of the Level 3 investments as of June 30, 2015:
| Apollo Senior Floating Rate Fund Inc. |
||||||||||||
| Assets
|
Fair Value at 2015
|
Valuation Technique(s)
|
Unobservable Input(s)
|
Range of
|
||||||||
| Senior Loans |
$70,277,831 | Independent pricing service and/or broker quotes |
Vendor and/or broker quotes |
N/A | ||||||||
| 3,440,124 | Market comparable approach(a) |
Total enterprise value/EBITDA(a) |
6.8x | |||||||||
| 119,565 | Discounted cash flow(b) |
Discount rate(b) | 13.40% | |||||||||
| Corporate Notes and Bonds |
263,866 | Independent pricing service and/or broker quotes |
Vendor and/or broker quotes |
N/A | ||||||||
| Preferred Stock |
3,904,160 | Discounted cash flow(b) |
Discount rate(b) | 8.71% | ||||||||
| Warrants |
— | Market comparable approach(a)
|
Total enterprise value/EBITDA(a)
|
6.8x
|
||||||||
| Unfunded Loan Commitments |
|
56,391
|
|
Independent pricing service and/or broker quotes |
Vendor and/or broker quotes |
N/A | ||||||
| Total Fair Value |
$78,061,937 | |||||||||||
| (a) | The Fund utilized a market comparable approach to fair value this security. The significant unobservable inputs used in the valuation model were total enterprise value and earnings before interest, taxes, depreciation and amortization (“EBITDA”) based on comparable multiples for a similar investment with similar risks. Significant increases or decreases in either of these inputs in isolation may result in a significantly higher or lower fair value measurement. |
| (b) | The Fund utilized a discounted cash flow model to fair value this security. The significant unobservable input used in the valuation model was the discount rate, which was determined based on the market rates an investor would expect for a similar investment with similar risks. The discount rate was applied to present value the projected cash flows in the valuation model. Significant increases in the discount rate may significantly lower the fair value of an investment; conversely, significant decreases in the discount rate may significantly increase the fair value of an investment. |
| Apollo Tactical Income Fund Inc. | ||||||||||||||||||||
| Assets
|
Total Fair Value June 30, 2015
|
Level 1
|
Level 2
|
Level 3
| ||||||||||||||||
| Cash and Cash Equivalents |
$ | 17,365,252 | $ | 17,365,252 | $ | — | $ | — | ||||||||||||
| Senior Loans |
260,965,852 | — | 200,301,866 | 60,663,986 | ||||||||||||||||
| Corporate Notes and Bonds |
83,606,897 | — | 75,250,343 | 8,356,554 | ||||||||||||||||
| Structured Products |
37,817,797 | — | — | 37,817,797 | ||||||||||||||||
| Preferred Stock |
3,904,160 | — | — | 3,904,160 | ||||||||||||||||
| Warrants |
— | — | — | — | ||||||||||||||||
| Unrealized appreciation on Unfunded Loan Commitments |
56,391 | — | — | 56,391 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||
| Total Assets |
$ | 403,716,349 | $ | 17,365,252 | $ | 275,552,209 | $ | 110,798,888 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||
34 | Semi-Annual Report
Apollo Senior Floating Rate Fund Inc.
Apollo Tactical Income Fund Inc.
Notes to Financial Statements (continued)
June 30, 2015 (unaudited)
The following is a reconciliation of Level 3 holdings for which significant unobservable inputs were used in determining fair value as of June 30, 2015:
| Apollo Tactical Income Fund Inc. |
||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||
| Total Fair Value
|
Senior Loans
|
Corporate
|
Structured
|
Preferred
|
Warrants
|
Unfunded Loan
|
||||||||||||||||||||||
| Fair Value, beginning of period |
$ | 129,149,862 | $ | 67,400,467 | $ | 27,031,563 | $ | 30,795,044 | $ | 3,920,000 | $ | 2,788 | $ — | |||||||||||||||
| Purchases, including capitalized PIK |
26,910,058 | 10,076,019 | 6,487,220 | 10,346,819 | — | — | — | |||||||||||||||||||||
| Sales |
(31,106,204 | ) | (11,518,966 | ) | (15,587,238 | ) | (4,000,000 | ) | — | — | — | |||||||||||||||||
| Accretion/(amortization) of discounts/(premiums) |
98,069 | 63,541 | (42,724 | ) | 77,252 | — | — | — | ||||||||||||||||||||
| Net realized gain/(loss) |
365,082 | 80,214 | 250,362 | 34,506 | — | — | — | |||||||||||||||||||||
| Change in net unrealized appreciation/(depreciation) |
(1,719,146 | ) | (244,694 | ) | (2,020,000 | ) | 564,176 | (15,840 | ) | (2,788 | ) | — | ||||||||||||||||
| Transfers into Level 3 |
10,306,579 | 10,250,188 | — | — | — | — | 56,391 | |||||||||||||||||||||
| Transfers out of Level 3 |
(23,205,412 | ) | (15,442,783 | ) | (7,762,629 | ) | — | — | — | — | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
|
Total Fair Value, end of period |
$ | 110,798,888 | $ | 60,663,986 | $ | 8,356,554 | $ | 37,817,797 | $ | 3,904,160 | $ | — | $56,391 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Investments were transferred into Level 3 during the six months ended June 30, 2015 due to a decrease in the availability of qualified observable inputs obtained to support the fair value of each investment as assessed by the Adviser. Transfers out of Level 3 during the six months ended June 30, 2015 were due to an increase in the availability of qualified observable inputs as assessed by the Adviser. There were no transfers between Level 1 and Level 2 during the period shown. The net change in unrealized appreciation/(depreciation) attributable to Level 3 investments still held at June 30, 2015 was $1,666,577 for AIF.
The following table provides quantitative measures used to determine the fair values of the Level 3 investments as of June 30, 2015:
| Apollo Tactical Income Fund Inc. | ||||||||||||||||
|
| ||||||||||||||||
| Assets |
Fair Value at June 30, 2015 |
|
Valuation Technique(s) | Unobservable Input(s) |
Range
of | |||||||||||
|
| ||||||||||||||||
| Senior Loans |
$56,938,930 | Independent pricing service and/or broker quotes |
Vendor and/or broker quotes |
N/A | ||||||||||||
| 3,175,499 | Market comparable approach(a) |
Total enterprise value/EBITDA(a) |
6.8x | |||||||||||||
| 549,557 | Discounted cash flow(b) |
Discount rate(b) | 13.40% | |||||||||||||
| Corporate Notes and Bonds |
8,356,554 | Independent pricing service and/or broker quotes |
Vendor and/or broker quotes |
N/A | ||||||||||||
| Structured Products |
35,488,853 | Independent pricing service and/or broker quotes |
Vendor and/or broker quotes |
N/A | ||||||||||||
| 2,328,944 | Cost/ Recent transaction(c) |
Transaction price(c) | N/A | |||||||||||||
| Preferred Stock
|
3,904,160 | Discounted cash flow(b)
|
Discount rate(b)
|
8.71%
| ||||||||||||
| Warrants |
— | < | ||||||||||||||