* Declared subsequent to December 31, 2023
AFT is authorized to issue 999,998,466 Common Shares. AIF is authorized to issue 1,000,000,000 Common Shares. Each Fund has filed a registration statement relating to an offering of Common Shares using the “shelf” registration process (the “Shelf Registration Statement”), each of which became effective on May 25, 2022.
42 | Annual Report
Apollo Senior Floating Rate Fund Inc.
Apollo Tactical Income Fund Inc.
Notes to Consolidated Financial Statements (continued)
The Shelf Registration Statement permits each Fund to offer and sell Common Shares having an aggregate offe
ring
value of up to $50,000,000. Under the Investment Company Act of 1940, as amended (the “Investment Company Act”), each Fund generally may not sell Common Shares at a price below the current net asset value of such Common Shares, exclusive of any distributing commission or discount. Accordingly, the offering of Common Shares may be suspended from time to time, particularly when Common Shares are trading at a discount to their NAV. Each Fund is not required to issue Common Shares pursuant to the Shelf Registration Statement, and either, or each, may choose not to do so. As of December 31, 2023, the Funds had not sold any Common Shares pursuant to the Shelf Registration Statement.
Each Fund has entered into an at-the-market sales agreement (the “Sales Agreement”) with Virtu Americas LLC (“Virtu”) under which Virtu acts as the Funds’ agent or principal for the offer and sale of the Common Shares. Virtu is entitled to compensation at a commission rate of up to 1.0% of the gross sales price per share sold under the Sales Agreement.
Costs incurred by each Fund in connection with the initial Shelf Registration Statement are recorded as a prepaid expense and included in “Prepaid Expenses” on the Consolidated Statement of Assets and Liabilities and are amortized for a period of three years after the effective date of the Shelf Registration Statement.
Note 7. Federal Tax Information
The timing and character of income and capital gain distributions are determined in accordance with income tax regulations, which may differ from U.S. GAAP. As a result, net investment income/(loss) and net realized gain/(loss) on investment transactions for a reporting period may differ significantly from distributions during such period.
Reclassifications are made to the Funds’ capital accounts at fiscal year end for permanent tax differences to reflect income and gains available for distribution (or available capital loss carryforwards) under income tax regulations.
For the fiscal period ended December 31, 2023 permanent differences resulting primarily from non-deductible expenses were identified and reclassified among the components of the Funds’ net assets as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Apollo Senior Floating Rate Fund Inc. |
|
|
$ |
90,464 |
|
|
|
$ |
(90,464 |
) |
Apollo Tactical Income Fund Inc. |
|
|
$ |
70,094 |
|
|
|
$ |
(70,094 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The tax character of distributions paid by AFT during the fiscal year ended December 31, 2023 and 2022 was as follows:
|
|
|
|
|
|
|
|
|
|
|
Apollo Senior Floating Rate Fund Inc. |
|
|
|
|
|
|
|
Distributions Paid to Common Shareholders from: |
|
|
|
|
|
|
|
Ordinary Income* |
|
|
$ |
22,908,728 |
|
|
|
$ |
17,037,490 |
|
Return of Capital |
|
|
|
— |
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
Total Distributions |
|
|
$ |
22,908,728 |
|
|
|
$ |
17,037,490 |
|
|
|
|
|
|
|
|
|
|
|
|
* 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, 2023 and 2022 was as follows:
|
|
|
|
|
|
|
|
|
|
|
Apollo Tactical Income Fund Inc. |
|
|
|
|
|
|
|
Distributions Paid to Common Shareholders from: |
|
|
|
|
|
|
|
Ordinary Income* |
|
|
$ |
21,421,221 |
|
|
|
$ |
17,009,694 |
|
Return of Capital |
|
|
|
— |
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
Total Distributions |
|
|
$ |
21,421,221 |
|
|
|
$ |
17,009,694 |
|
|
|
|
|
|
|
|
|
|
|
|
* For tax purposes, short-term capital gains distributions, if any, are considered ordinary income distributions.
Annual Report | 43
Apollo Senior Floating Rate Fund Inc.
Apollo Tactical Income Fund Inc.
Notes to Consolidated Financial Statements (continued)
As of December 31, 2023, the most recent tax year end, the components of accumulated losses on a tax basis were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Undistributed
Ordinary
Income |
|
Undistributed
Long-Term
Capital Gains |
|
Net Unrealized
Appreciation/
(Depreciation)* |
|
Accumulated
Capital and
Other Losses |
|
|
|
Apollo Senior Floating Rate Fund Inc. |
|
|
$ |
2,243,295 |
|
|
|
$ |
— |
|
|
|
$
|
(15,429,942
|
)
|
|
|
$
|
(48,158,408
|
)
|
Apollo Tactical Income Fund Inc. |
|
|
|
2,484,919 |
|
|
|
|
— |
|
|
|
|
(13,365,273 |
) |
|
|
|
(50,914,234 |
) |
* Any differences between book basis and tax basis net unrealized appreciation/(depreciation) are primarily due to the deferral of losses from wash sales, defaulted security interest adjustments, underlying investment partnership adjustments and tax adjustments on restructurings.
For federal income tax purposes, capital loss carryforwards are available to offset future capital gains. As of December 31, 2023, short-term and long-term capital loss carryforwards totaled $(1,640,465) and $(46,517,943), respectively, for AFT and $(4,322,311) and $(46,591,923), respectively, for AIF, which may be carried forward for an unlimited period.
Unrealized appreciation/(depreciation) and basis of investments for U.S. federal income tax purposes at December 31, 2023 were as follows:
|
|
|
|
|
|
|
|
|
|
|
| |
|
Apollo Senior
Floating Rate
Fund Inc. |
|
Apollo Tactical
Income
Fund Inc. |
|
|
|
Federal tax basis, cost |
|
|
$ |
351,702,345 |
|
|
|
$ |
330,100,246 |
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized appreciation |
|
|
$ |
3,304,230 |
|
|
|
$ |
3,111,934 |
|
Unrealized depreciation |
|
|
|
(18,778,894 |
) |
|
|
|
(16,537,819 |
) |
|
|
|
|
|
|
|
|
|
|
|
Net unrealized appreciation/(depreciation)* |
|
|
$ |
(15,474,664 |
) |
|
|
$ |
(13,425,885 |
) |
|
|
|
|
|
|
|
|
|
|
|
* Any differences between book basis and tax basis net unrealized appreciation/(depreciation) are primarily due to the deferral of losses from wash sales, defaulted security interest adjustments, underlying investment partnership adjustments and disallowed losses due to restructuring.
Note 8. Credit Agreements and Preferred Shares
The Funds utilize leverage and may utilize leverage to the maximum extent permitted by law for investment and other general corporate purposes. The Funds may obtain leverage by issuing preferred shares and/or notes and may also borrow funds from banks and other financial institutions. The Funds may also gain leverage synthetically through swaps and other derivatives. The use of leverage to purchase additional securities creates an opportunity for increased common share dividends, but also creates risks for common shareholders, including increased variability of the Funds’ net income, distributions and/or NAV in relation to market changes. Leverage is a speculative technique that exposes the Funds to greater risk and increased costs than if it were not implemented. Increases and decreases in the value of the Funds’ portfolios will be magnified due to the use of leverage. In particular, leverage may magnify interest rate risk, which is the risk that the prices of portfolio securities will fall (or rise) if market interest rates for those types of securities rise (or fall). As a result, leverage may cause greater changes in the Funds’ NAV, which will be borne entirely by the Funds’ common shareholders. If the Funds issue preferred shares and/or notes or engage in other borrowings, they will have to pay dividends on their shares or interest on their notes or borrowings, which will increase expenses and may reduce the Funds’ return. These dividend payments or interest expenses (which will be borne entirely by the common shareholders) may be greater than the Funds’ return on the underlying investments. The Funds’ leveraging strategy may not be successful.
Apollo Senior Floating Rate Fund Inc.
On September 1, 2022, AFT entered into a third amended and restated credit facility (the “AFT Third Amended Credit Facility”) with Sumitomo Mitsui Banking Corporation (“SMBC”) as lender, which matures on September 1, 2024. Under the terms of the AFT Third Amended Credit Facility, AFT may borrow a single term loan not to exceed $121,000,000 and may borrow up to an additional $12,000,000 on a revolving basis (the “AFT Revolving Loan”). Borrowings under this facility bear interest at a rate of SOFR plus 0.90%. Any unused portion of the AFT Revolving Loan is subject to a quarterly commitment fee equal to 0.125% per annum on the average daily amount of available commitments. Additionally, the AFT Third Amended Credit Facility also permits the Fund to establish certain wholly owned subsidiaries. AFT has granted a security interest in substantially all of its assets in the event of default under the AFT Third Amended Credit Facility. As of December 31, 2023, AFT has $130,000,000 of principal outstanding under the AFT Third Amended Credit Facility, which is comprised of a term loan of $121,000,000 and a revolving loan of $9,000,000.
44 | Annual Report
Apollo Senior Floating Rate Fund Inc.
Apollo Tactical Income Fund Inc.
Notes to Consolidated Financial Statements (continued)
For the year ended December 31, 2023 the average daily principal loan balance outstanding was $130,000,000, the weighted average annual interest rate was 6.11% and the interest expense, which is included on the Consolidated Statements of Operations in interest and commitment fee expense, was $7,939,919.
The fair value of AFT’s borrowings under the AFT Third Amended Credit Facility approximates the carrying amount presented in the accompanying Consolidated Statements of Assets and Liabilities based on a yield analysis and remaining maturities for which AFT has determined would be categorized as Level 2 in the fair-value hierarchy.
The AFT Third Amended Credit Facility contains certain customary affirmative and negative covenants, including limitations on debt, liens and restricted payments, as well as certain portfolio limitations and customary prepayment provisions, including a requirement to prepay loans or take certain other actions if certain asset value tests are not met. As of December 31, 2023 AFT was not aware of any instances of
non-compliance
related to the AFT Third Amended Credit Facility.
In connection with AFT’s entry into the AFT Third Amended Credit Facility, certain debt financing costs were incurred by AFT and are shown net of the principal amount in the Consolidated 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 Consolidated Statements of Operations.
Apollo Tactical Income Fund Inc.
On January 24, 2023, AIF entered into a third amendment to the second amended and restated credit facility (the “AIF Third Amended Credit Facility”) with SMBC as lender, maturing on April 4, 2024, which permitted the Fund to amend certain investment policies. Under the terms of the AIF Third Amended Facility, the facility will bear interest at a rate of SOFR plus 0.875% to 1.25%. Substantially all other terms remain unchanged. AIF has granted a security interest in substantially all of its assets in the event of defaults under the AIF Third Amended Credit Facility. As of December 31, 2023, AIF has $121,000,000 of principal outstanding under the AIF Third Amended Credit Facility, which is comprised of a term loan of $110,000,000 and a revolving loan of $11,000,000.
Prior to January 24, 2023, AIF entered into a second amendment to the second amended and restated credit facility (the “AIF Second Amended Credit Facility”) with SMBC as lender, maturing on April 4, 2024, which permitted the Fund to establish certain wholly owned subsidiaries. Under the terms of the AIF Second Amended Credit Facility, AIF was permitted to borrow a single term loan not to exceed $110,000,000 and could borrow up to an additional $33,000,000 on a revolving basis (the “AIF Revolving Loan”). Borrowings under this facility bear an interest of SOFR plus 0.875%. Any unused portion of the AIF Revolving Loan is subject to a quarterly commitment fee equal to 0.125% per annum daily amount of available commitments.
For the year ended December 31, 2023, the average daily principal loan balance outstanding was $121,000,000, the weighted average annual interest rate was 6.08% and the interest expense, which is included on the Consolidated Statements of Operations in interest and commitment fee expense, was $7,359,947.
The fair value of AIF’s borrowings under the AIF Third Amended Credit Facility approximates the carrying amount presented in the accompanying Consolidated Statements of Assets and Liabilities based on a yield analysis and remaining maturities for which AIF has determined would be categorized as Level 2 in the fair-value hierarchy.
The AIF Third Amended Credit Facility contains certain customary affirmative and negative covenants, including limitations on debt, liens and restricted payments, as well as certain portfolio limitations and customary prepayment provisions, including a requirement to prepay loans or take certain other actions if certain asset value tests are not met. As of December 31, 2023, AIF was not aware of any instances of non-compliance related to the AIF Third Amended Credit Facility.
In connection with AIF’s entry into the AIF Third Amended Credit Facility, certain debt financing costs were incurred by AIF and are shown net of the principal amount in the Consolidated Statements of Assets and Liabilities. The deferred financing costs are amortized over the life of the AIF Third Amended Credit Facility. The amortization of the deferred financing costs is included in the Consolidated Statements of Operations.
Annual Report | 45
Apollo Senior Floating Rate Fund Inc.
Apollo Tactical Income Fund Inc.
Notes to Consolidated Financial Statements (continued)
Note 9. General Commitments and Contingencies
As of December 31, 2023, the Funds had unfunded commitments outstanding, which could be extended at the option of the borrower, as detailed below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accelerate 360 Holdings, LLC Revolving Term Loan* ** |
|
|
$ |
— |
|
|
|
$ |
508,873 |
|
Advarra Holdings, Inc. Delayed Draw Term Loan |
|
|
|
580,151 |
|
|
|
|
580,151 |
|
Allied Benefits Systems Intermediate LLC Delayed Draw Term Loan |
|
|
|
618,557 |
|
|
|
|
463,918 |
|
Anaplan, Inc. Revolving Term Loan |
|
|
|
349,471 |
|
|
|
|
349,471 |
|
Anuvu Holdings 2, LLC Delayed Draw Term Loan ** |
|
|
|
35,074 |
|
|
|
|
33,195 |
|
Avalara, Inc. Revolving Term Loan |
|
|
|
454,545 |
|
|
|
|
454,545 |
|
Channelside AcquisitionCo, Inc. Delayed Draw Term Loan ** |
|
|
|
46,667 |
|
|
|
|
46,667 |
|
Channelside AcquisitionCo, Inc. Revolving Term Loan |
|
|
|
166,667 |
|
|
|
|
166,667 |
|
Coretrust Purchasing Group, LLC Delayed Draw Term Loan |
|
|
|
338,346 |
|
|
|
|
338,346 |
|
Coretrust Purchasing Group, LLC Revolving Term Loan |
|
|
|
338,346 |
|
|
|
|
338,346 |
|
Crewline Buyer, Inc. Revolving Term Loan |
|
|
|
188,679 |
|
|
|
|
188,679 |
|
Cube Industrials Buyer, Inc. Revolving Term Loan |
|
|
|
413,793 |
|
|
|
|
413,793 |
|
Evergreen IX Borrower 2023, LLC Revolving Term Loan |
|
|
|
397,516 |
|
|
|
|
397,516 |
|
Gateway US Holdings, Inc. Revolving Term Loan* |
|
|
|
— |
|
|
|
|
112,686 |
|
Higginbotham Insurance Agency, Inc. 3rd Amd. Delayed Draw Term Loan ** |
|
|
|
296,889 |
|
|
|
|
296,889 |
|
Inovalon Holdings, Inc. Delayed Draw Term Loan* ** |
|
|
|
— |
|
|
|
|
660,211 |
|
IQN Holding Corp. Delayed Draw Term Loan* |
|
|
|
— |
|
|
|
|
420,856 |
|
IQN Holding Corp. Revolving Term Loan* |
|
|
|
— |
|
|
|
|
320,856 |
|
NCL Corporation Ltd. Backstop Notes |
|
|
|
694,000 |
|
|
|
|
694,000 |
|
NCL Corporation Ltd. Class B Bridge Notes |
|
|
|
1,153,000 |
|
|
|
|
1,153,000 |
|
OMH-Healthedge Holdings, Inc. Revolving Term Loan |
|
|
|
586,466 |
|
|
|
|
488,722 |
|
Planet US Buyer LLC Revolving Term Loan*** |
|
|
|
222,222 |
|
|
|
|
222,222 |
|
Redfin Corp. Delayed Draw Term Loan |
|
|
|
1,750,000 |
|
|
|
|
1,750,000 |
|
Riverbed Technology, Inc. Revolving Term Loan |
|
|
|
84,607 |
|
|
|
|
75,542 |
|
Ultimate Baked Goods Midco, LLC Revolving Term Loan* |
|
|
|
— |
|
|
|
|
248,649 |
|
Zendesk, Inc. Delayed Draw Term Loan |
|
|
|
1,104,901 |
|
|
|
|
739,130 |
|
Zendesk, Inc. Revolving Term Loan |
|
|
|
454,959 |
|
|
|
|
304,348 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
10,274,856 |
|
|
|
$ |
11,767,278 |
|
|
|
|
|
|
|
|
|
|
|
|
* The unfunded commitment was held in AFT only or AIF only.
** Subsequent to December 31, 2023, all or a portion of the outstanding unfunded commitment was funded.
*** Subsequent to December 31, 2023, the outstanding commitment was terminated.
Unfunded 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 commitments is recorded in the Consolidated Statements of Assets and Liabilities and the Consolidated Statements of Operations. For the year ended December 31, 2023, AFT and AIF recorded a net change in unrealized appreciation on unfunded commitments totaling $101,223 and $121,395, respectively.
Additionally, from time to time, the Adviser and its affiliates may commit to an investment on behalf of the funds it manages, including the Funds. Certain terms of these investments are not finalized at the time of the commitment and each respective fund’s allocation may change prior to the date of the funding. In this regard, the Funds may have to fund additional commitments in the future that is currently not obligated to but may be at a future point in time.
The Funds each have a variety of indemnification obligations under contracts with their service providers. The Funds’ maximum exposure under these arrangements is unknown as this would be dependent on future claims that may be made against the Funds. Based upon historical experience, the risk of loss from such claims is currently considered remote; however, there can be no assurance that losses will not occur or if claims are made against the Funds the losses will not be material.
Note 11. Subsequent Events
Management has evaluated the impact of all subsequent events on the Funds through the date the financial statements were issued and has determined that there were no subsequent events that would require disclosure in or adjustments to the financial statements.
46 | Annual Report
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Boards of Directors of Apollo Senior Floating Rate Fund Inc. and Apollo Tactical Income Fund Inc.
Opinion on the Financial Statements and Financial Highlights
We have audited the accompanying consolidated statements of assets and liabilities of Apollo Senior Floating Rate Fund Inc. and Apollo Tactical Income Fund Inc. (collectively, the “Funds”), including the consolidated schedules of investments, as of December 31, 2023, the related consolidated statements of operations and cash flows for the year then ended, the consolidated statements of changes in net assets for each of the two years in the period then ended, the consolidated financial highlights for each of the ten years in the period then ended, and the related notes. In our opinion, the consolidated financial statements and consolidated financial highlights present fairly, in all material respects, the financial position of the Funds as of December 31, 2023, and the results of their operations and their cash flows for the year then ended, the changes in their net assets for each of the two years in the period then ended and the consolidated financial highlights for each of the ten years in the period then ended in conformity with accounting principles generally accepted in the United States of America.
These consolidated financial statements and consolidated financial highlights are the responsibility of the Funds’ management. Our responsibility is to express an opinion on the Funds’ consolidated financial statements and consolidated financial highlights based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Funds in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements and consolidated financial highlights are free of material misstatement, whether due to error or fraud. The Funds are not required to have, nor were we engaged to perform, an audit of their internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Funds’ internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements and consolidated financial highlights, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements and consolidated financial highlights. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements and consolidated financial highlights. Our procedures included confirmation of securities owned as of December 31, 2023, by correspondence with the custodian, brokers and selling or agent banks; when replies were not received from brokers and selling or agent banks, we performed other auditing procedures. We believe that our audits provide a reasonable basis for our opinion.
/s/ Deloitte & Touche LLP
New York, New York
February 21, 2024
We have served as the auditor of one or more Apollo Investment Companies since 2011.
| 47
Apollo Senior Floating Rate Fund Inc.
Apollo Tactical Income Fund Inc.
Fund Investment Objectives, Policies and Risks
December 31, 2023 (unaudited)
This section summarizes certain changes since December 31, 2023. This information may not reflect all of the changes that have occurred since you purchased shares of a Fund.
There have been no changes in investment policies since each Fund’s last annual report.
AFT — Investment Objective and Policies:
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 Secured Overnight Financing Rate (“SOFR”); however, the synthetic London Interbank Offered Rate (“LIBOR”) or the prime rate offered by one or more major U.S. banks and the certificate of deposit rate used by commercial lenders may also be used. Senior Loans are typically made to U.S. and, to a limited extent,
non-U.S.
corporations, partnerships and other business entities (“Borrower(s)”) that operate in various industries and geographical regions. AFT seeks to generate current income and preservation of capital through a disciplined approach to credit selection and under normal market conditions will invest at least 80% of its “managed assets” in floating rate Senior Loans and investments with similar economic characteristics. The Fund defines “managed assets” as the total assets of the Fund (including any assets attributable to any preferred shares that may be issued or to money borrowed or notes issued by the Fund) minus the sum of the Fund’s accrued liabilities, including accrued interest and accumulated dividends (other than liabilities for money borrowed or notes issued and the liquidation preference of preferred shares).
This 80% policy and 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.
The Fund seeks to achieve its investment objective by investing primarily in Senior Loans and investments with similar economic characteristics. Senior Loans hold a first lien priority and typically pay interest at rates that are determined periodically on the basis of a floating base lending rate, plus a premium. Borrowers may obtain Senior Loans to, among other reasons, refinance existing debt and for acquisitions, dividends, leveraged buyouts and general corporate purposes. The Fund generally targets investments in recently issued Senior Loans that have structural characteristics, including stronger lender protections, that are more favorable for investors. These Senior Loans provide a minimum coupon (called a “floor”) that helps protect the Fund’s income in falling or flat-rate environments. The Fund may also seek to gain exposure to Senior Loans by investing in swaps, including single name credit default swaps, single name loan credit default swaps, total return swaps, collateralized loan obligations (including synthetic collateralized loan obligations), reverse repurchase agreements and other similar transactions.
The Fund may invest in subordinated loans. The Fund may invest in distressed securities, including loans purchased in the secondary market, that are the subject of bankruptcy proceedings or otherwise in default or at risk of being in default as to the repayment of principal and/or interest at the time of acquisition by the Fund. The Fund may invest in U.S. dollar and
non-U.S.
dollar denominated securities of issuers located anywhere in the world, and of issuers that operate in any industry.
The Fund may invest in debt securities of any maturity, including perpetual securities, and does not manage its portfolio seeking to maintain a targeted dollar-weighted average maturity level. Under normal market conditions, the Adviser expects to maintain an average duration of less than one year (including the effect of anticipated leverage).
The Fund currently utilizes leverage from a credit facility in furtherance of this investment strategy.
In seeking to achieve the Fund’s investment objective, the Adviser actively constructs and manages a portfolio of Senior Loans and other investments. The Adviser’s investment process is rigorous, proactive and continuous. Close
48 | Annual Report
Apollo Senior Floating Rate Fund Inc.
Apollo Tactical Income Fund Inc.
Fund Investment Objectives, Policies and Risks (continued)
December 31, 2023 (unaudited)
monitoring of each investment in the portfolio provides foresight for making buy, sell and hold decisions. The Adviser utilizes what it believes to be a conservative approach that focuses on credit fundamentals, collateral coverage and structural seniority. The Adviser may also employ a sector analysis to assess industry trends and characteristics that may impact a Borrower’s potential future ability to generate cash, as well as profitability, asset values, financial needs and potential liabilities. The Adviser takes a disciplined approach to its credit investment selection process in which the credit ratings of a Borrower are evaluated but are not considered to be the sole or determinative factor of selection. The criteria used by the Adviser in credit selection may include an evaluation of whether a Senior Loan is adequately collateralized or over-collateralized and whether it is covered by sufficient earnings and cash flow to service the Borrower’s indebtedness on a timely basis. The Adviser expects to gain exposure to Borrowers across a broad range of industries and of varying characteristics and return profiles.
Similar to its investment in Senior Loans and other debt investments, the Adviser adheres to a disciplined approach with respect to the Fund’s investments in structured products, including collateralized loan obligations. The Adviser will seek to select structured products which are well-structured and collateralized by portfolios of primarily Senior Loans that the Adviser believes to be of sufficient quality, diversity and amount to support the structure and fully collateralize the tranche purchased by the Fund. Likewise, the Adviser will evaluate the creditworthiness of counterparties and the investment characteristics of reference assets when causing the Fund to enter into swaps or other derivative transactions.
AIF — Investment Objective and Policies:
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” include Senior Loans, subordinated loans, high yield corporate bonds, notes, bills, debentures, distressed securities, mezzanine securities, structured products (including, without limitation, collateralized debt obligations (“CDOs”), collateralized loan obligations (“CLOs”) and asset-backed securities), bank loans, corporate loans, convertible and preferred securities, government and municipal obligations, mortgage-backed securities, repurchase agreements, and other fixed-income instruments of a similar nature that may be represented by derivatives such as options, forwards, futures contracts or swap agreements. The Fund defines “managed assets” as the total assets of the Fund (including any assets attributable to any preferred shares that may be issued or to money borrowed or notes issued by the Fund) minus the sum of the Fund’s accrued liabilities, including accrued interest and accumulated dividends (other than liabilities for money borrowed or notes issued and the liquidation preference of preferred shares).
The 80% policy and AIF’s investment objectives are not fundamental and may be changed by the board of directors of AIF with at least 60 days’ prior written notice provided to shareholders. AIF will seek to preserve capital to the extent consistent with its primary investment objective. 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.
Securities Rated Below Caa or CCC
. AIF has adopted a policy to not invest more than 20% of its managed assets in credit instruments that are rated Caa or lower by Moody’s or CCC or lower by S&P or Fitch Ratings Inc. Unrated credit instruments are not subject to this policy.
Structured Products
. AIF has adopted a policy to not invest more than 20% of its managed assets in structured products.
The Adviser seeks to achieve the Fund’s investment objectives primarily by allocating the Fund’s assets among different types of credit instruments based on absolute and relative value considerations and its analysis of the credit markets. The Fund’s investments consist primarily of Senior Loans and Corporate Bonds. The Fund, however, has
Annual Report | 49
Apollo Senior Floating Rate Fund Inc.
Apollo Tactical Income Fund Inc.
Fund Investment Objectives, Policies and Risks (continued)
December 31, 2023 (unaudited)
provided the Adviser with the flexibility to invest in varying types of credit instruments based on its analysis of the credit markets. This ability to dynamically allocate the Fund’s assets may result in the Fund’s portfolio becoming concentrated in a particular type of credit instrument (such as Senior Loans or Corporate Bonds) and substantially less invested in other types of credit instruments.
The Fund may invest in subordinated loans. The Fund may invest in distressed securities, including loans purchased in the secondary market, that are the subject of bankruptcy proceedings or otherwise in default or at risk of being in default as to the repayment of principal and/or interest at the time of acquisition by the Fund. The Fund may make investments in
non-U.S.
entities, including issuers in emerging markets, but expects to make any investments in foreign issuers primarily in U.S. dollar denominated securities.
The Fund reserves the right to invest in credit instruments of any maturity. The Fund reserves the right to invest in credit instruments of any duration. It is anticipated that the duration of the Fund’s portfolio will be lower than that of the overall “junk bond” market. Duration is a measure of how sensitive a bond or the Fund’s portfolio may be to changes in interest rates.
The Fund currently utilizes leverage from a credit facility in furtherance of this investment strategy.
In seeking to achieve the Fund’s investment objectives, the Adviser will actively construct and manage a portfolio of credit instruments and other investments. The Adviser will periodically rebalance the Fund’s allocation of assets among different types of credit instruments based on absolute and relative value considerations and its analysis of the credit markets in order to seek to optimize the Fund’s allocation to credit instruments that the Adviser believes are positioned to contribute to the achievement of the Fund’s investment objectives under the market conditions existing at the time of investment.
The Adviser’s investment process is rigorous, proactive and continuous. Close monitoring of each investment in the portfolio provides the basis for making buy, sell and hold decisions. The Adviser utilizes what it believes to be a conservative approach that focuses on credit fundamentals, collateral coverage and structural seniority. The Adviser may also employ a sector analysis to assess industry trends and characteristics that may impact an issuer’s potential future ability to generate cash, as well as profitability, asset values, financial needs and potential liabilities. The Adviser takes a disciplined approach to its credit investment selection process in which the credit ratings of an issuer are evaluated but are not considered to be the sole or determinative factor for selection. The criteria used by the Adviser in credit selection may include an evaluation of whether an issuer’s debts are adequately collateralized or over-collateralized and whether it has sufficient earnings and cash flow to service its indebtedness on a timely basis. The Adviser expects to gain exposure to issuers across a broad range of industries and of varying characteristics and return profiles.
Similar to its investment in other credit instruments, the Adviser adheres to a disciplined approach with respect to the Fund’s investments in structured products. The Adviser will seek to select structured products which are well structured and collateralized by portfolios of credit instruments or other assets that the Adviser believes to be of sufficient quality, diversity and amount to support the structure and fully collateralize the instrument purchased by the Fund. Likewise, the Adviser will evaluate the creditworthiness of counterparties and the investment characteristics of reference assets when causing the Fund to enter into swaps or other derivative transactions.
. Investing in the common shares involves certain risks and the Fund may not be able to achieve its intended results for a variety of reasons, including, among others, the possibility that the Fund may not be able to structure its investments as anticipated. Because the value of your investment in the Fund will fluctuate, there is a risk that you will lose money. Your investment will decline in value if, among other things, the value of the Fund’s investments decreases. The value of your common shares also will be affected by the Fund’s ability to successfully implement its investment strategy, as well as by market, economic and other conditions. As with any security, complete loss of your investment is possible.
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