Exhibit (a)(5)(ii)
Exhibit (a)(5)(ii)
MERRILL LYNCH
SENIOR FLOATING
RATE FUND, INC.
FUND LOGO
Annual Report
August 31, 2000
Merrill Lynch Senior Floating Rate Fund, Inc. seeks as high a level
of current income and such preservation of capital as is consistent
with investment in senior collateralized corporate loans made by
banks and other financial institutions.
This report, including the financial information herein, is
transmitted for use only to shareholders of Merrill Lynch Senior
Floating Rate Fund, Inc. for their information. It is not a
prospectus. Past performance results shown in this report should not
be considered a representation of future performance. The Fund has
the ability to leverage its Common Stock to provide Common Stock
shareholders with a potentially higher rate of return. Leverage
creates risk for Common Stock shareholders, including the likelihood
of greater volatility of net asset value and market price of Common
Stock shares, and the risk that fluctuations in short-term interest
rates may reduce the Common Stock's yield. Statements and other
information herein are as dated and are subject to change.
Merrill Lynch
Senior Floating
Rate Fund, Inc.
Box 9011
Princeton, NJ
08543-9011
Printed on post-consumer recycled paper
Merrill Lynch Senior Floating Rate Fund, Inc.
DEAR SHAREHOLDER
The Fund's effective net yield for the fiscal year ended August 31,
2000 was 8.33%, compared to a yield of 6.66% for the same period a
year earlier. The Fund's net asset value declined from $9.73 per
share to $9.45 per share during the fiscal year. During the same
period, the Fund earned $0.789 per share income dividends,
representing a net annualized yield of 8.33%, based on a year-end
per share net asset value of $9.45. For the 12-month period ended
August 31, 2000, the Fund's total investment return was +5.44%,
based on the $0.28 per share decrease in net asset value and
assuming reinvestment of $0.781 per share income dividends. Since
inception (November 3, 1989) through August 31, 2000, the Fund's
total investment return was +101.20%, based on a change in per share
net asset value from $10.00 to $9.45, and assuming reinvestment of
$7.510 per share income dividends.
Investment Approach
Merrill Lynch Senior Floating Rate Fund, Inc. consists largely of
participations in leveraged bank loans. The high-yield bond and bank
loan markets are comprised of similar industry sectors and often
contain overlapping issuers. As a result, general economic events
and trends tend to move the two markets in the same direction,
although bonds typically experience greater volatility than bank
loans. This can be attributed to two factors. First, bank loans are
typically senior secured obligations, thus generally offering
investors greater principal protection than unsecured bonds. Second,
bank loans are floating rate instruments whose principal value
generally does not move inversely with interest rate movements, as
is the case with fixed rate income bonds. In the last two years,
both markets have been adversely affected by the increased premium
accorded to credit risk.
Market Review
Principal (or price) returns were negative in both the high-yield
and leveraged loan markets over the six months ended August 31,
2000. The high-yield market, as measured by the Donaldson, Lufkin,
Jenrette (DLJ) High Yield Bond Index, experienced principal
depreciation of 454 basis points (4.54%). The loan market
experienced almost half that decline, reporting a principal loss of
261 basis points, as measured by the DLJ Leveraged Loan Index.
Throughout the period, "flight-to-quality" remained the performance
theme in the high-yield market. Issues that were higher rated
(securities rated BB), larger ($300 million and greater), and in
sectors with stability or positive event risk (such as cable,
wireless telecommunications, gaming and energy) outperformed their
riskier counterparts. In contrast to the high-yield market, the bank
loan market had mixed results. Both the higher-rated issues
(securities rated BB) and distressed issues (securities rated CCC/CC
and C) performed well, while the B-rated issues underperformed. The
loan market favored the same sectors as the high-yield market.
For the last six months, the total return (principal return plus
interest income earned) of the high-yield bond market was barely in
positive territory as it posted a return of +0.27%, as measured by
the unmanaged DLJ High Yield Bond Index. The loan market fared
better and provided a total return of +2.27%, as measured by the
unmanaged DLJ Leveraged Loan Index. Although a reduction in Treasury
yields helped boost the performance of high-yield bonds, widening
credit spreads more than offset the reduction in underlying interest
rates. During the period, the ten-year Treasury yield fell from
6.41% to 5.73%, or 68 basis points, while high-yield credit spreads
widened 143 basis points. This maintained a continuing market theme
of the last few years whereby credit risk, as measured by the spread
at which issuers' securities trade over US Treasury securities, has
been a stronger force on the price of securities than the effect of
the underlying changes in interest rates. Bank term loan spreads
widened as well, although by only 63 basis points for B-rated
issuers.
Merrill Lynch Senior Floating Rate Fund, Inc.
August 31, 2000
During the period, the energy, chemicals, gaming, broadcasting and
wireless telecommunications sectors performed well. These industries
benefited from one or more of the following characteristics:
improving commodity prices, stable cash flows and robust growth
prospects. However, certain sectors such as wired
telecommunications, retail and metals/mining continued to experience
difficulties resulting in credit deterioration and principal losses
(realized and unrealized) for some of the Fund's holdings. The wired
telecommunications industry underperformed because of investor
nervousness about the completion of business plans of some of its
operators. Retailers suffered from a lack of pricing power and an
escalation of competition from e-commerce. The metals/mining
industry continued to suffer through cyclical troughs in a number of
commodities.
Investment Activities
At August 31, 2000, Merrill Lynch Senior Floating Rate Fund, Inc.
had approximately $2.4 billion out of $2.5 billion, or 96%, of its
total investment assets committed for investment in corporate loan
interests. Assets not invested in loan interests were invested in
high-quality, short-term securities. As of August 31, 2000, more
than 99% of the Fund's investments in performing loans were accruing
interest at a yield spread above the London Interbank Offered Rate
(LIBOR), the rate that major international banks charge each other
for US dollar-denominated deposits outside of the United States.
LIBOR tracks very closely with other short-term interest rates,
particularly the Federal Funds rate. Since the reset period on the
Fund's floating rate investments is between 30 days - 90 days, the
yield on the bank loan portion of the Fund is likely to move in the
same direction within a short period of time after any Federal Funds
rate change.
We continue to maintain significant diversification across the
Fund's investments. At August 31, 2000, the Fund was comprised of
172 borrowers across 47 industries. (See the "Portfolio Profile" on
page 23 of this report to shareholders, which provides listings of
the Fund's ten largest holdings and five largest industries as of
August 31, 2000.)
Investment Strategy
Throughout the six months ended August 31, 2000, the Fund's
investment philosophy remained unchanged: to invest in leveraged
transactions in which borrowers have strong market shares,
experienced managements, consistent cash flows and appropriate
risk/reward characteristics. In addition, we look for companies with
significant underlying asset and franchise value, strong capital
structures and equity sponsors that support their investments. An
example of a credit purchased in the last six months that
demonstrates these criteria is Adelphia Communications Corporation.
Adelphia Communications, through its subsidiary Century Cable LLC,
issued a $1 billion institutional term loan priced at 3% over LIBOR.
Adelphia Communications is one of the top five cable companies with
over 1.5 million paid subscribers. Century Cable, the operating
company borrower, is capitalized with $4.25 billion of equity from
its parent, producing a relatively conservative debt capitalization
ratio of 33%. With average industry transactions occurring at
approximately $4,000 per subscriber, the intrinsic equity value of
our borrower is significant with its debt per subscriber estimated
at $1,350. The loan also has several covenants in the credit
agreement to protect the integrity of the credit. We believe assets
such as Adelphia Communications will lessen the volatility in the
Fund and are likely to consistently generate solid income.
Merrill Lynch Senior Floating Rate Fund, Inc.
August 31, 2000
Market Outlook
Compared with the pace of a year ago, the current environment's
leveraged loan and high-yield bond issuance has been limited.
Investors have been very selective, and transactions that are
successfully issued are well structured and attractively priced.
This activity reflects the three large themes - liquidity risk,
default risk and monetary policy risk - that are affecting the
market.
As for the liquidity risk of leveraged finance, retail mutual funds
are playing a significantly reduced role in absorbing the supply of
leveraged loan and high-yield new issuance, as a result of continued
outflows in mutual funds of these asset classes. Over $7 billion in
assets have exited these retail mutual funds thus far in 2000.
However, some of the weakness in retail inflows was offset by more
than $17 billion of structured product issuance, which is targeted
at institutional investors. With new ramp-up institutional activity
being the marginal buyer in the markets, these vehicles take on much
of the new issuance, as well as purchase much of the good-quality
credits in secondary trading. Because of the small per-issue
appetite of a typical structured product and the diversification
requirements that it has, the leveraged finance market has some
breadth, but little depth.
At the same time, and as we mentioned in our last report to
shareholders, ever since the Russian default crisis in the late
summer of 1998, the volatility of the leveraged loan and high-yield
markets has continued to increase from historical norms. A
contributing influence on the elevated risk premium being levied on
the leveraged markets is that investors have tolerance for only a
limited number of credit rating downgrades and defaults. When a
borrower reports weaker-than-expected results, investors attempt to
sell immediately to avoid any potential impairment. If a borrower's
ability to repay its debts (as perceived by the marketplace) drops
precipitously, or if there is no liquidity during its slide
downward, investors are forced to sell at low recovery rates. This
heightened sensitivity creates opportunities because decisions
sometimes are based not on credit fundamentals but on a more
reactionary basis. Nevertheless, these circumstances result in
increased trading activity, and hence volatility, as everyone often
tries to reach the exit first when investors sense a potential
problem.
Related to this factor is the incidence of issuers in payment
default. Defaults increased in 1999 and some sectors continue to
struggle despite the resilient strength of the domestic economy. For
example, the automotive parts, healthcare, movie theater and textile
sectors have a number of transactions outstanding in our market that
have materially underperformed since origination. The transactions
were well capitalized when originally structured, but cash flow
dropped or did not grow to a sufficient level to support the
existing balance sheets. Affected by these downgrades, investors
scrutinize any news with a jaded view, creating trading activity
before news has been digested and exacerbating volatility.
As of August 31, 2000, the trailing 12-month high-yield market
default rate was 4.8% (dollar-weighted), as measured by Moody's
Investor Services, Inc. In recent months, these figures have shown
some encouraging signs as the default rate has sequentially
decreased from 7.0% to 6.7% for the May - June 2000 period, from
6.7% to 5.7% for the June - July 2000 period, and then again from
5.7% to 4.8% for the July - August 2000 period. If this trend were
to continue, much of the default risk fears that hang over the
leveraged finance market could ease.
At the same time, monetary policy risk seems lower. The economic
outlook is turning increasingly favorable as the Federal Reserve
Board seems to have engineered a somewhat less torrid pace for the
economy, while "new economy"-driven productivity gains have helped
keep inflation at acceptable levels. Investors seem to accept that
the economy could grow at a sustainable rate of 4% or more without
price pressures. Therefore, most market observers conclude that the
string of Federal Reserve Board tightenings has neared its
conclusion. With the economy likely having avoided a hard landing
and little inflation appearing because of the Federal Reserve
Board's actions to date, the prospects for leveraged credits should
be good.
Merrill Lynch Senior Floating Rate Fund, Inc.
August 31, 2000
Two factors on the horizon that could alter these views include the
price of oil and the US presidential election. Oil prices currently
reflect low inventories and some holdback on the part of producers
from increasing production to the higher levels that the market may
have desired. Investor fears are that any further increase in prices
could work their way into core inflation. Separately, the election,
and its resulting impact on taxes and spending issues, leaves many
investors with some uncertainty regarding future fiscal policy.
In Conclusion
The high-yield bond and loan markets continue to experience above-
average volatility as investors remain wary of higher defaults,
mutual fund redemptions, the general level of interest rates and a
lack of liquidity in the dealer community. We are confident in the
Federal Reserve Board's ability to avoid an economic "hard landing,"
which is a positive for the entire leveraged finance asset class.
Furthermore, we believe there will be a moderation in the market
default rate as aggressive transactions underwritten in the past few
years and sectors such as healthcare negatively affected by specific
factors are restructured and exit the system. If general
fundamentals improve, and with market yields at near all-time highs,
we would expect the leveraged finance markets to strengthen over the
next 12 months. Notwithstanding the expectation of better market
conditions ahead, we continue to be conservative in our purchasing
decisions, focusing on large issuers that are well capitalized in
selective industries.
We thank you for your investment in Merrill Lynch Senior Floating
Rate Fund, Inc., and we look forward to reviewing our outlook and
strategy with you again in our next report to shareholders.
Sincerely,
(Terry K. Glenn)
Terry K. Glenn
President and Director
(Richard C. Kilbride)
Richard C. Kilbride
Vice President and Co-Portfolio Manager
(Gilles Marchand)
Gilles Marchand
Vice President and Co-Portfolio Manager
September 29, 2000
Merrill Lynch Senior Floating Rate Fund, Inc.
August 31, 2000
THE BENEFITS AND RISKS OF LEVERAGING
Merrill Lynch Senior Floating Rate Fund, Inc. has the ability to
utilize leverage through borrowings or issuance of short-term debt
securities or shares of Preferred Stock. The concept of leveraging
is based on the premise that the cost of assets to be obtained from
leverage will be based on short-term interest rates, which normally
will be lower than the return earned by the Fund on its longer-term
portfolio investments. To the extent that the total assets of the
Fund (including the assets obtained from leverage) are invested in
higher-yielding portfolio investments, the Fund's Common Stock
shareholders will be the beneficiaries of the incremental yield.
Leverage creates risks for holders of Common Stock including the
likelihood of greater net asset value and market price volatility.
In addition, there is the risk that fluctuations in interest rates
on borrowings (or in the dividend rates on any Preferred Stock, if
the Fund were to issue the Preferred Stock) may reduce the Common
Stock's yield and negatively impact its market price. If the income
derived from securities purchased with assets received from leverage
exceeds the cost of leverage, the Fund's net income will be greater
than if leverage had not been used. Conversely, if the income from
the securities purchased is not sufficient to cover the cost of
leverage, the Fund's net income will be less than if leverage had
not been used, and therefore the amount available for distribution
to Common Stock shareholders will be reduced. In this case, the Fund
may nevertheless decide to maintain its leveraged position in order
to avoid capital losses on securities purchased with leverage.
However, the Fund will not generally utilize leverage if it
anticipates that its leveraged capital structure would result in a
lower rate of return for its Common Stock than would be obtained if
the Common Stock were unleveraged for any significant amount of
time.
As discussed in footnote 6 in the Notes to Financial Statements on
page 21, the Fund has not used this leverage capability.
PROXY RESULTS
During the six-month period ended August 31, 2000, Merrill Lynch
Senior Floating Rate Fund, Inc.'s shareholders voted on the
following proposals. The proposals were approved at a shareholders'
meeting on July 25, 2000. The description of each proposal and
number of shares voted are as follows:
Shares Voted Shares Voted
For Against/Abstain
1. To elect the Fund's Board of Directors: Terry K. Glenn 261,551,970 100
Ronald W. Forbes 261,465,070 100
Cynthia A. Montgomery 261,590,768 100
Charles C. Reilly 261,437,655 100
Kevin A. Ryan 261,493,857 100
Roscoe S. Suddarth 261,511,325 100
Richard R. West 261,541,118 100
Arthur Zeikel 261,442,460 100
Edward D. Zinbarg 261,504,057 100
Shares Voted Shares Voted Shares Voted
For Against Abstain
2. To ratify the selection of Deloitte & Touche LLP as the Fund's
independent auditors for the current fiscal year. 251,325,845 4,165,144 13,702,795
3. To approve a charter amendment permitting the Fund's Board of
Directors to convert the Fund to a "master/feeder" structure. 234,413,526 12,621,698 22,158,560
Merrill Lynch Senior Floating Rate Fund, Inc.
August 31, 2000
SCHEDULE OF INVESTMENTS
S&P Moody's Face Senior Secured
Industries Rating Rating Amount Floating Rate Loan Interests* Value
Aircraft & Evergreen International Aviation, Inc.:
Parts--0.3% B+ Ba3 $ 1,385,896 Term B, due 5/31/2002 $ 1,352,981
B+ Ba3 3,835,594 Term B, due 5/07/2003 3,744,499
B+ Ba3 590,993 Term B-1, due 5/19/2003 576,957
BB- Ba3 2,918,824 Fairchild Semiconductors Corp., Term, due 4/30/2006 2,753,423
--------------
8,427,860
Amusement & B+ Ba3 1,563,636 KSL Recreation Group, Inc., Revolving Credit,
Recreational due 4/30/2004 1,512,818
Services--1.1% NR++ NR++ 4,887,500 Kerastotes, Term B, due 12/31/2004 4,472,062
Metro-Goldwyn-Mayer Co.:
NR++ NR++ 4,000,000 Term A, due 12/31/2005 3,918,332
NR++ NR++ 17,500,000 Term B, due 12/31/2006 17,362,188
--------------
27,265,400
Apparel--1.4% Arena Brands, Inc.:
NR++ NR++ 2,013,889 Revolving Credit, due 6/01/2002 1,913,194
NR++ NR++ 2,544,166 Term A, due 6/01/2002 2,416,958
NR++ NR++ 6,915,168 Term B, due 6/01/2002 6,569,410
NR++ NR++ 1,083,333 CS Brooks Canada, Inc., Term, due 6/25/2006 1,075,208
NR++ NR++ 9,500,000 Humphreys Inc., Term B, due 1/15/2003 8,122,500
NR++ NR++ 4,912,500 Norcross Safety Products, Term, due 9/30/2005 4,820,391
Walls Industries:
NR++ NR++ 1,164,893 Term B, due 2/28/2005 1,161,981
NR++ NR++ 1,643,617 Term C, due 2/28/2006 1,639,508
BB Ba2 8,000,000 Warnaco Inc., due 11/16/2000 7,630,000
--------------
35,349,150
Automotive B+ Ba3 727,500 Accuride Corp., Term C, due 1/21/2007 713,405
Equipment--1.5% Breed Technologies, Inc.:
NR++ NR++ 4,947,407 Term A, due 4/27/2004+++ 1,822,293
NR++ NR++ 9,524,003 Term B, due 4/27/2006+++ 3,535,786
B+ Ba3 16,184,000 Collins & Aikman Corp., Term B, due 6/30/2005 15,986,766
Tenneco Automotive Inc.:
BB Ba3 7,500,000 Term B, due 11/02/2007 7,448,438
BB Ba2 7,500,000 Term C, due 5/02/2008 7,448,438
--------------
36,955,126
Broadcasting-- B B1 19,500,000 Benedek Broadcasting Corporation, Term B, due 11/20/2007 19,439,062
Radio & NR++ NR++ 7,500,000 Corus Entertainment Inc., Tranche II, due 8/31/2007 7,556,250
Television--3.4% Cumulus Media Inc.:
B+ B1 7,200,000 Term B, due 9/30/2007 7,110,000
B+ B1 4,800,000 Term C, due 2/28/2008 4,740,000
NR++ Ba3 7,000,000 Gray Communications Systems, Term B, due 12/31/2005 7,032,816
BB- Ba2 13,250,000 Sinclair Broadcasting Group, Term, due 12/31/2004 12,908,813
BB- B1 2,500,000 Susquehanna Medical Co., Term B, due 6/30/2008 2,506,250
NR++ NR++ 4,477,500 VHR Broadcasting, Term B, due 9/30/2007 4,485,895
BB Ba2 20,000,000 Young Broadcasting Inc., Term B, due 12/31/2006 20,129,160
--------------
85,908,246
Building Dal-Tile International Inc.:
Materials--0.9% NR++ NR++ 4,896,060 Term, due 12/31/2003 4,793,552
NR++ NR++ 11,734,365 Term B, due 12/31/2003 11,343,224
B1 B+ 2,842,080 Panolam Industries, Term B, due 12/31/2005 2,845,633
NR++ NR++ 3,706,634 Trussway Industries, Term B, due 12/31/2006 3,576,902
--------------
22,559,311
Merrill Lynch Senior Floating Rate Fund, Inc.
August 31, 2000
SCHEDULE OF INVESTMENTS (CONTINUED)
S&P Moody's Face Senior Secured
Industries Rating Rating Amount Floating Rate Loan Interests* Value
Business BB- B1 $ 8,471,917 Info USA Inc., Term B, due 6/30/2006 $ 8,048,321
Services--0.6% B+ B1 6,467,500 Muzak Audio, Term B, due 12/31/2006 6,413,606
--------------
14,461,927
Cable Television BB Ba3 10,900,000 CC VIII Operating Company LLC, Term B, due 2/02/2008 10,909,080
Services--9.4% NR++ NR++ 50,000,000 Century Cable LLC, Term, due 6/30/2009 50,087,500
Charter Communications Holdings:
BB+ Ba3 9,000,000 Term, due 9/18/2008 8,970,750
BB+ Ba3 81,443,750 Term B, due 3/18/2008 81,155,276
NR++ Ba2 23,826,563 Chelsea Communications, Term B, due 9/30/2004 23,752,104
NR++ Ba3 9,850,000 Falcon Cable Media, Term C, due 12/31/2007 9,794,594
Frontiervision Operating Partners L.P.:
BB B2 4,724,164 Term A, due 9/30/2005 4,706,448
BB Ba2 15,900,400 Term B, due 3/31/2006 15,850,711
BB+ Ba3 7,500,000 Insight Kentucky Partners, Term B, due 12/31/2007 7,460,940
B+ B1 11,500,000 Pegasus Media & Communications, Term, due 4/30/2005 11,538,330
NR++ NR++ 10,000,000 UCH/HHC Inc., Term B, due 12/31/2004 9,971,250
--------------
234,196,983
Chemicals--5.9% Avecia Limited:
NR++ NR++ 2,965,969 Term B, due 6/30/2007 2,958,554
NR++ NR++ 12,886,562 Term C, due 7/01/2007 12,854,346
NR++ NR++ 3,783,913 CII Carbon LLC, Term, due 6/30/2008 3,767,358
NR++ NR++ 11,056,957 Cedar Chemical Corp., Term B, due 10/31/2003 9,398,414
NR++ NR++ 4,870,107 Epsillon Products Company, Term B, due 12/31/2004 4,859,977
Huntsman Corp.:
BB- Ba2 11,063,925 Term C, due 12/31/2005 11,003,278
BB- Ba2 7,889,822 Term D, due 12/31/2002 7,732,026
Huntsman ICI Chemicals LLC:
BB Ba3 16,672,287 Term B, due 6/30/2007 16,803,415
BB Ba3 16,672,287 Term C, due 6/30/2008 16,803,415
NR++ Ba2 12,034,705 Koppers Industries Inc., Term B, due 11/30/2004 12,004,618
Lyondell Petrochemical Co.:
Ba3 NR++ 11,096,483 Term B, due 6/30/2005 11,237,786
Ba3 NR++ 24,687,500 Term E, due 5/17/2006 25,586,964
B B2 7,760,000 Pioneer Americas Acquisition Corp., Term, due 12/05/2006 5,082,800
NR++ B1 6,082,193 Texas Petrochemicals Corp., Term B, due 6/30/2004 6,066,987
--------------
146,159,938
Computer-Related Bridge Information Systems:
Products--1.0% NR++ NR++ 1,846,334 Term, due 5/29/2003 1,490,915
NR++ NR++ 23,741,054 Term B, due 5/29/2005 19,348,959
NR++ NR++ 3,691,406 Stratus Computer, Inc., Term B, due 2/26/2005 3,691,406
--------------
24,531,280
Consumer NR++ B1 8,175,562 Amscan Holdings, Inc., Axel, due 12/19/2004 7,521,517
Products--1.6% BB- Ba3 13,796,489 Burhmann NV, Term B, due 10/26/2007 13,840,831
B+ B1 4,207,500 Holmes Products Corp., Term B, due 2/05/2007 4,149,647
B BB 7,967,090 Revlon Consumer Products Corp., Term, due 5/30/2002 7,489,065
NR++ NR++ 7,191,598 Ritvik Holdings, Term B, due 2/07/2003 6,202,754
--------------
39,203,814
Diversified--0.5% B+ B1 12,685,218 Blount International Inc., Term B, due 6/30/2006 12,751,282
Drilling--0.6% B+ B1 14,276,276 Key Energy Group, Inc., Term B, due 9/14/2004 14,309,739
Merrill Lynch Senior Floating Rate Fund, Inc.
August 31, 2000
SCHEDULE OF INVESTMENTS (CONTINUED)
S&P Moody's Face Senior Secured
Industries Rating Rating Amount Floating Rate Loan Interests* Value
Drug/Proprietary B+ B1 $ 4,875,000 Duane Reade Co., Term B, due 2/15/2005 $ 4,868,906
Stores--0.6% SDM Corporation:
BB Ba3 5,000,000 Term C, due 2/04/2008 5,015,180
BB Ba3 5,000,000 Term E, due 2/04/2009 5,015,180
--------------
14,899,266
Electronics/ BB Ba2 4,987,500 Amkor Technology Inc., Term B, due 9/30/2005 5,022,233
Electrical B+ B1 7,433,438 Chippac International Co., Ltd., Term B, due 7/31/2006 7,433,437
Components-- NR++ NR++ 5,350,000 Communications & Power II Acquisition Corp., Term B, due
4.5% 8/11/2002 5,109,250
B+ B1 5,057,729 DD Inc., Term B, due 10/31/2003 4,994,640
B+ NR++ 9,960,784 Dynatech LLC, Term B, due 9/30/2007 9,962,029
NR++ NR++ 7,661,396 General Cable Corp., Term B, due 6/30/2007 7,624,287
B+ B1 5,000,000 Knowles Electronics Inc., Term B, due 6/29/2007 4,756,250
Semiconductor Components:
BB- Ba3 14,444,444 Term B, due 8/04/2005 14,557,299
BB- Ba3 15,555,556 Term C, due 8/04/2007 15,677,091
BB- Ba3 6,000,000 Term D, due 8/04/2007 6,012,498
Superior Telecom:
B+ Ba3 16,062,401 Term A, due 5/27/2004 15,861,620
B+ Ba3 7,728,676 Term B, due 11/27/2005 7,682,791
B Ba3 6,617,516 Telex Communications, Inc., Term B, due 11/30/2004 5,972,308
NR++ B1 2,161,250 Trend Technologies, Inc., Term, due 2/28/2007 2,139,638
--------------
112,805,371
Energy--0.4% Perf-O-Log Inc.:
NR++ NR++ 1,528,977 Term, due 8/11/2003 1,498,397
NR++ NR++ 4,066,808 Term B, due 8/11/2003 3,985,472
NR++ NR++ 1,221,875 Term C, due 8/11/2003 1,197,438
NR++ NR++ 1,754,464 Term D, due 12/31/2004 1,728,147
NR++ NR++ 701,786 Term E, due 12/31/2004 691,259
--------------
9,100,713
Environmental IT Group Inc.:
Services--0.8% BB B1 8,800,000 Term, due 6/08/2007 8,770,670
BB B1 3,761,356 Term B, due 6/11/2006 3,726,093
URS Corp.:
BB Ba3 3,967,462 Term B, due 6/09/2006 3,977,381
BB Ba3 3,967,462 Term C, due 6/09/2007 3,977,381
--------------
20,451,525
Financial B NR++ 5,989,485 Lodgian Financing Corp., Term B, due 7/15/2006 5,779,853
Services--1.1% NR++ B2 9,912,563 Outsourcing Solutions, Inc., Term B, due 6/01/2006 9,885,719
NR++ Ba3 10,575,000 Sovereign Bancorp, Inc., Term, due 12/16/2003 10,614,656
--------------
26,280,228
Food & Kindred Snapple Beverage Co.:
Products--0.4% NR++ NR++ 2,659,771 Term B, due 2/25/2006 2,670,889
NR++ NR++ 6,489,841 Term C, due 2/25/2007 6,516,968
--------------
9,187,857
Funeral Homes & NR++ Caa1 14,166,667 Prime Succession Inc., Axel, due 8/01/2003 11,687,500
Parlors--0.7% B- NR++ 6,535,539 Rose Hills Co., Axel A, due 12/01/2003 6,159,745
--------------
17,847,245
Merrill Lynch Senior Floating Rate Fund, Inc.
August 31, 2000
SCHEDULE OF INVESTMENTS (CONTINUED)
S&P Moody's Face Senior Secured
Industries Rating Rating Amount Floating Rate Loan Interests* Value
Furniture & B+ Ba3 $ 8,577,778 Sealy Mattress Co., Term A, due 12/15/2002 $ 8,524,166
Fixtures--0.6% Simmons Co.:
B+ Ba3 2,134,969 Term B, due 10/29/2005 2,140,840
B+ Ba3 5,343,750 Term C, due 10/29/2006 5,358,445
--------------
16,023,451
Gaming--1.1% Alliance Gaming Corp.:
B B2 10,108,134 Term B, due 1/31/2005 9,248,942
B B2 4,030,798 Term C, due 7/31/2005 3,688,180
Isle of Capri Casinos, Inc.:
BB- Ba2 8,246,000 Term B, due 3/01/2006 8,293,027
BB- Ba2 7,215,250 Term C, due 3/01/2007 7,256,399
--------------
28,486,548
Grocery--1.3% B+ NR++ 4,925,000 Big V Supermarkets Inc., Term B, due 8/10/2003 4,863,437
NR++ Ba3 1,287,809 Fred Meyer, Term, due 2/28/2003 1,273,666
CCC Caa1 30,852,888 Grand Union Co., Term, due 8/17/2003 14,629,421
The Pantry Inc.:
BB- B1 4,944,591 Term B, due 1/31/2006 4,953,862
BB- B1 1,714,956 Term B-2, due 1/31/2006 1,718,172
BB- B1 5,223,750 Term C, due 7/31/2006 5,240,074
--------------
32,678,632
Health Services-- BB- B1 1,466,410 Caremark Rx Inc., Term A, due 6/08/2001 1,394,006
2.3% Community Health Systems, Inc.:
NR++ NR++ 8,865,942 Term B, due 12/31/2003 8,780,058
NR++ NR++ 8,865,942 Term C, due 12/31/2004 8,785,599
NR++ NR++ 716,852 Term D, due 12/31/2005 710,505
B+ NR++ 14,602,039 Iasis Healthcare Corp., Term B, due 9/30/2006 14,571,010
Magellen Health Services:
B+ B2 1,972,639 Term B, due 2/12/2005 1,726,059
B+ B2 1,972,639 Term C, due 2/12/2006 1,726,059
NR++ B1 21,430,303 Total Renal Care, Term, due 3/31/2008 20,814,182
--------------
58,507,478
Hotels & Motels-- NR++ Ba1 21,000,000 Starwood Hotels & Resorts Trust, Term II, due 2/23/2003 21,052,500
5.9% NR++ NR++ 7,369,809 Strategic Holdings Inc., Term, due 11/16/2004 7,400,519
Wyndam International, Inc.:
NR++ NR++ 46,000,000 Term, due 6/30/2004 45,897,788
NR++ NR++ 74,000,000 Term, due 6/30/2006 72,908,500
--------------
147,259,307
Insurance--1.0% BRW Acquisition:
NR++ NR++ 2,450,000 Term B, due 7/09/2006 2,425,500
NR++ NR++ 2,450,000 Term C, due 7/09/2007 2,425,500
Willis Corroon Group PLC:
BB Ba2 12,000,000 Term B, due 11/19/2006 11,979,996
BB Ba2 4,080,000 Term C, due 11/19/2007 4,073,199
BB Ba2 4,080,000 Term D, due 5/19/2008 4,073,199
--------------
24,977,394
Leasing & Rental BB- B1 11,880,000 Anthony Crane Rental L.P., Term, due 7/30/2006 10,939,496
Services--2.2% D B1 6,877,028 MEDIQ PRN Life Support Services, Term, due 6/30/2006 3,008,700
Medical Specialties:
NR++ NR++ 12,845,455 Axel, due 6/30/2004 9,891,000
NR++ NR++ 4,418,182 Term, due 6/30/2001 3,402,000
Merrill Lynch Senior Floating Rate Fund, Inc.
August 31, 2000
SCHEDULE OF INVESTMENTS (CONTINUED)
S&P Moody's Face Senior Secured
Industries Rating Rating Amount Floating Rate Loan Interests* Value
Leasing & Rental BB- B1 $ 6,930,000 Nations Rent Inc., Term B, due 7/20/2006 $ 6,901,123
Services B+ B1 6,878,682 Panavision Inc., Term B, due 3/31/2005 6,322,658
(concluded) BB- NR++ 11,910,000 Rent Way Inc., Term B, due 9/30/2006 11,895,113
BB+ Ba2 2,500,000 United Rentals Inc., Term C, due 8/12/2006 2,468,490
--------------
54,828,580
Manufacturing-- NR++ NR++ 8,428,571 Channel Master, Term, due 10/10/2005 8,391,696
2.8% B+ NR++ 20,000,000 Citation Corporation, Term B, due 12/01/2007 19,725,000
NR++ NR++ 7,387,170 Environmental Systems Product, Inc., Term B, due 9/30/2005 3,721,287
NR++ NR++ 4,975,000 Metokote Corp., Term B, due 11/02/2005 4,987,437
Mueller Industries Inc.:
B+ B1 6,187,500 Term B, due 8/16/2006 6,196,685
B+ B1 6,187,500 Term C, due 8/16/2007 6,196,685
B+ B1 9,975,000 Term D, due 8/16/2008 10,068,516
Terex Corp.:
BB- Ba3 4,829,263 Term B, due 3/06/2005 4,830,393
BB- Ba3 4,916,763 Term C, due 3/06/2006 4,922,029
--------------
69,039,728
Medical Alaris Medical Systems, Inc.:
Equipment-- B+ B1 2,469,600 Term A, due 8/01/2002 2,444,904
0.5% B+ B1 4,091,798 Term B, due 11/01/2003 4,076,455
B+ B1 4,091,798 Term C, due 11/01/2004 4,076,455
B+ B1 1,956,540 Term D, due 5/01/2005 1,949,203
--------------
12,547,017
Metals & CCC- B3 19,200,000 AEI Resources Inc., Term B, due 12/31/2004 17,280,000
Mining--4.2% NR++ B3 10,010,320 Acme Metals, Inc., Term, due 12/01/2005 8,318,576
Ispat Inland LP:
BB Ba3 19,110,000 Term B, due 7/15/2005 18,601,731
BB Ba3 19,110,000 Term C, due 7/15/2006 18,601,731
BB- Ba2 12,063,333 LTV Corporation, Term, due 11/10/2004 11,912,542
BB- B1 31,000,000 Ormet Corportation, Term, due 8/15/2008 30,922,500
--------------
105,637,080
Other Telecom- Pacific Coin:
munications-- NR++ NR++ 3,877,201 Acquisition Term, due 12/31/2003+++ 2,035,530
0.2% NR++ NR++ 1,488,898 Term A, due 12/31/2002+++ 781,671
NR++ NR++ 2,644,951 Term B, due 12/31/2004+++ 1,388,599
--------------
4,205,800
Packaging--1.3% NR++ NR++ 18,941,664 Dr. Pepper, Term B, due 10/07/2007 18,944,295
B+ B1 14,775,000 Graham Packaging Co., Term D, due 1/31/2007 14,753,458
--------------
33,697,753
Paging--0.4% CC B2 10,699,116 PageNet Finance, Inc., Revolving Credit, due 12/31/2004 8,842,060
Paper--6.3% NR++ NR++ 6,418,750 Cellular Tissue, Term C, due 3/24/2005 6,162,000
NR++ CCC1 7,879,498 Crown Paper Co., Term B, due 8/22/2003 7,554,468
B+ Ba3 7,286,545 Jefferson Smurfit Company/Container Corp. of America,
Term B, due 3/24/2006 7,301,575
BB Ba2 15,097,500 Pacifica Papers Inc., Term B, due 3/12/2006 15,172,988
NR++ B2 6,500,000 Repap Brunswick, Term B, due 6/01/2004 6,386,250
Riverwood International Inc.:
B B1 9,381,313 Term A, due 2/28/2003 9,351,996
B B1 24,407,202 Term B, due 2/28/2004 24,493,652
B B1 8,743,225 Term C, due 8/28/2004 8,774,193
Merrill Lynch Senior Floating Rate Fund, Inc.
August 31, 2000
SCHEDULE OF INVESTMENTS (CONTINUED)
S&P Moody's Face Senior Secured
Industries Rating Rating Amount Floating Rate Loan Interests* Value
Paper Stone Container Corp.:
(concluded) B+ Ba3 $17,899,729 Term C, due 10/01/2003 $ 17,959,388
B+ Ba3 7,920,018 Term E, due 10/01/2003 7,946,289
B+ Ba3 11,241,043 Term F, due 12/31/2005 11,271,776
B+ Ba3 12,373,148 Term G, due 12/31/2006 12,379,780
B+ Ba3 13,723,333 Term H, due 12/31/2007 13,730,689
Stronghaven:
NR++ NR++ 9,050,956 Term B, due 5/15/2004 7,693,313
NR++ NR++ 1,652,249 Term C, due 5/15/2004 1,404,412
--------------
157,582,769
Petroleum NR++ Ba3 9,444,790 Clark Refining & Marketing, Inc., Term, due 11/15/2004 7,807,696
Refineries--0.3%
Pharmaceuticals-- Dade Behring Inc.:
0.6% B+ Ba3 4,937,563 Term B, due 6/30/2006 4,521,395
B+ Ba3 4,937,563 Term C, due 6/30/2007 4,521,395
NR++ NR++ 7,110,016 Endo Pharmaceuticals, Term B, due 6/30/2004 6,967,815
--------------
16,010,605
Printing & Advanstar Communications Inc.:
Publishing--4.1% B+ Ba3 14,722,321 Term B, due 4/30/2005 14,717,728
B+ Ba3 5,914,911 Term C, due 6/30/2007 5,920,459
NR++ NR++ 13,745,237 Enterprise News Media, Term B, due 6/30/2005 13,710,873
Trader.com:
NR++ NR++ 4,181,596 Term B, due 12/31/2006 4,150,234
NR++ NR++ 2,818,404 Term C, due 12/31/2007 2,797,266
NR++ Ba1 10,000,000 Hollinger International Publishing Inc.,
Term B, due 12/31/2004 10,018,750
NR++ B1 5,000,000 Liberty Group Operating, Term B, due 3/31/2007 5,000,000
Primedia:
NR++ NR++ 1,456,000 Revolving Credit, due 6/30/2004 1,426,880
BB- NR++ 7,200,000 Term, due 6/30/2004 7,038,000
BB- NR++ 4,975,000 Term B, due 7/31/2004 4,962,563
NR++ NR++ 3,983,791 Reiman Publications, Term B, due 12/01/2005 3,999,559
NR++ B1 21,963,333 Vertis, Term B, due 12/06/2008 21,963,333
B+ Ba3 5,818,040 Ziff-Davis Inc., Term B, due 3/31/2007 5,823,131
--------------
101,528,776
Property NR++ B1 4,950,000 Meditrust Co., Term D, due 7/17/2001 4,554,000
Management-- NR++ Ba3 35,000,000 NRT Inc., Term, due 7/31/2004 34,781,250
2.4% Prison Realty Trust Inc.:
B B3 1,150,471 Term B, due 12/31/2002 1,018,167
B B3 20,649,399 Term C, due 12/31/2002 18,274,718
--------------
58,628,135
Restaurants & Domino's & Bluefence:
Food Service-- B+ B1 6,430,522 Term B, due 12/21/2006 6,459,460
0.5% B+ B1 6,440,602 Term C, due 12/21/2007 6,470,118
--------------
12,929,578
Retail NR++ B1 5,704,000 Advanced Store Company, Term B, due 4/15/2006 5,675,480
Specialty--0.2%
Merrill Lynch Senior Floating Rate Fund, Inc.
August 31, 2000
SCHEDULE OF INVESTMENTS (CONTINUED)
S&P Moody's Face Senior Secured
Industries Rating Rating Amount Floating Rate Loan Interests* Value
Textile Mill Joan Fabrics Corp.:
Products--0.6% NR++ NR++ $ 2,369,846 Term B, due 6/30/2005 $ 2,337,260
NR++ NR++ 1,227,725 Term C, due 6/30/2006 1,210,844
NR++ NR++ 10,292,388 Tartan Textiles, Term B, due 5/01/2005 10,215,195
--------------
13,763,299
Tower BB- B1 25,000,000 American Towers, Inc., Term B, due 12/03/2007 25,139,200
Construction BB- Ba3 16,900,000 Crown Castle International Corporation, Term B,
& Leasing--2.3% due 3/31/2008 16,948,114
NR++ NR++ 15,000,000 Spectrasite Communications, Term B, due 6/30/2006 15,033,750
--------------
57,121,064
Transportation-- BB+ Ba1 5,000,000 Kansas City Southern Railroad, Term B, due 12/29/2006 5,025,780
Services--0.9% BB- Ba3 1,955,188 Motorcoach, Term B, due 6/15/2006 1,798,773
B+ B1 7,960,000 North American Van Lines Inc., Term B, due 11/18/2007 7,283,400
Travel Centers of America:
BB- Ba2 3,943,573 Term, due 3/27/2005 3,954,252
BB- Ba2 3,473,620 Term A, due 3/27/2005 3,483,027
--------------
21,545,232
Utilities--0.6% NR++ NR++ 7,500,000 AES Texas Funding II, Term, due 5/19/2001 7,494,142
BBB- Ba1 8,500,000 Western Resources Inc., Term B, due 3/17/2003 8,517,706
--------------
16,011,848
Waste Allied Waste North America Inc.:
Management-- BB Ba3 10,000,000 Term A, due 6/30/2005 9,457,690
3.1% BB Ba3 31,818,182 Term B, due 6/30/2006 30,551,309
BB Ba3 38,181,818 Term C, due 6/30/2007 36,661,571
--------------
76,670,570
Wired NR++ Ba1 30,000,000 Cincinnati Bell Inc., Term B, due 9/29/2004 29,831,250
Telecommun- NR++ NR++ 9,085,366 E. Spire Communication, Term C, due 1/31/2003 8,381,250
ications--3.5% B- B3 23,333,333 Teligent Inc., Term, due 7/01/2002 22,127,770
BB- Ba3 10,000,000 Valor Telecommunications, Term B, due 6/30/2008 10,000,000
NR++ B2 16,500,000 WCI Capital Corp., Term B, due 9/30/2007 16,118,438
--------------
86,458,708
Wireless American Cellular Corp.:
Telecommun- B+ Ba3 10,500,000 Term B, due 3/31/2008 10,497,081
ications--9.8% B+ Ba3 12,000,000 Term C, due 3/31/2009 11,996,664
Centennial Cellular Operating Co.:
B+ B1 2,743,056 Term A (PR), due 11/30/2006 2,729,768
B+ B1 2,256,944 Term A (US), due 11/30/2006 2,246,012
NR++ NR++ 4,931,000 Clearnet Communications, Term R, due 7/02/2007 4,918,672
Dobson/Sygnet Operating Co.:
NR++ B3 2,541,654 Term A due 9/23/2006 2,526,297
NR++ B3 11,720,092 Term B, due 3/23/2007 11,721,135
NR++ B3 10,158,868 Term C, due 12/23/2007 10,165,218
Nextel Communications, Inc.:
BB- Ba2 28,500,000 Term B, due 6/30/2008 28,654,385
BB- Ba2 28,500,000 Term C, due 12/31/2008 28,654,385
BB- Ba2 31,372,250 Term D, due 3/31/2009 31,243,906
PowerTel PCS, Inc.:
NR++ NR++ 14,413,935 Term, due 12/31/2004 14,386,909
NR++ NR++ 3,000,000 Term B, due 12/31/2006 2,998,125
Rural Cellular Corp.:
B+ B1 3,000,000 Term B, due 10/03/2008 2,999,064
B+ B1 3,000,000 Term C, due 4/03/2009 2,999,064
Merrill Lynch Senior Floating Rate Fund, Inc.
August 31, 2000
SCHEDULE OF INVESTMENTS (CONCLUDED)
S&P Moody's Face Senior Secured
Industries Rating Rating Amount Floating Rate Loan Interests* Value
Wireless NR++ B2 $ 15,000,000 TeleCorp PCS, Term B, due 1/15/2008 $ 14,984,370
Telecommun- NR++ B2 10,000,000 Tritel PCS Inc., Term B, due 12/31/2007 10,030,000
ications VoiceStream PCS Holdings Corp.:
(concluded) B+ B1 29,000,000 Tranche A Vendor Facility, due 6/30/2009 28,774,438
B+ B1 22,000,000 Term B, due 1/25/2009 21,926,674
--------------
244,452,168
Total Senior Secured Floating Rate Loan Interests
(Cost--$2,452,897,306)--95.7% 2,385,569,016
Shares
Held Warrants & Agreements
Cable Television Services--0.0% 707 Classic Cable, Inc. (a) 0
Drilling--0.0% 12,250 Rigco North America (a) 0
General Merchandise 2,178,603 Just For Feet, Inc. (b) 3,528
Stores--0.0%
Total Investments in Warrants & Agreements
(Cost--$2,178,603)--0.0% 3,528
Face
Amount Short-Term Securities
Commercial $67,756,000 General Motors Acceptance Corp., 6.69% due 9/01/2000 67,756,000
Paper**---2.7%
US Government Agency 20,000,000 Federal Home Loan Banks, 6.39% due 9/06/2000 19,982,250
Obligations**--0.8%
Total Investments in Short-Term Securities
(Cost--$87,738,250)--3.5% 87,738,250
Total Investments (Cost--$2,542,814,159)--99.2% 2,473,310,794
Other Assets Less Liabilities--0.8% 19,280,162
--------------
Net Assets--100.0% $2,492,590,956
==============
(a)Warrants entitle the Fund to purchase a predetermined number of
shares of common stock and are non-income producing. The purchase
price and number of shares are subject to adjustment under certain
conditions until the expiration date.
(b)Agreement represents an obligation by Just For Feet, Inc. to pay
an amount to the Fund on April 30, 2002, contingent upon the
earnings before income taxes and depreciation of Just For Feet, Inc.
as of January 31, 2002.
*The interest rates on senior secured floating rate loan interests
are subject to change periodically based on the change in the prime
rate of a US Bank, LIBOR (London Interbank Offered Rate), or, in
some cases, another base lending rate.
**Commercial Paper and certain US Government Agency Obligations are
traded on a discount basis; the interest rates shown reflect the
discount rates paid at the time of purchase by the Fund.
++Not Rated.
+++Non-income producing security.
Ratings of issues shown have not been audited by Deloitte &Touche
LLP.
See Notes to Financial Statements.
Merrill Lynch Senior Floating Rate Fund, Inc.
August 31, 2000
FINANCIAL INFORMATION
Statement of Assets and Liabilities as of August 31, 2000
Assets: Investments, at value (identified cost--$2,542,814,159) $ 2,473,310,794
Cash 4,522,614
Receivables:
Interest $ 24,035,330
Capital shares sold 1,743,729
Commitment fees 7,679 25,786,738
----------------
Prepaid registration fees and other assets 529,222
----------------
Total assets 2,504,149,368
----------------
Liabilities: Payables:
Dividends to shareholders 6,138,928
Investment adviser 1,609,743
Administrator 423,617
Securities purchased 34,722 8,207,010
----------------
Deferred income 1,424,951
Accrued expenses and other liabilities 1,926,451
----------------
Total liabilities 11,558,412
----------------
Net Assets: Net assets $ 2,492,590,956
================
Net Assets Common Stock, par value $.10 per share; 1,000,000,000 shares
Consist of: authorized $ 26,382,070
Paid-in capital in excess of par 2,641,759,228
Accumulated realized capital losses on investments--net (104,646,746)
Unrealized depreciation on investments--net (70,903,596)
----------------
Net Assets--Equivalent to $9.45 per share based on 263,820,699
shares of capital stock outstanding $ 2,492,590,956
================
See Notes to Financial Statements.
Merrill Lynch Senior Floating Rate Fund, Inc.
August 31, 2000
FINANCIAL INFORMATION (CONTINUED)
Statement of Operations
For the Year Ended
August 31, 2000
Investment Interest and discount earned $ 261,152,093
Income: Facility and other fees 4,380,479
----------------
Total income 265,532,572
----------------
Expenses: Investment advisory fees $ 26,532,242
Administrative fees 6,982,169
Transfer agent fees 1,371,723
Accounting services 509,467
Professional fees 427,621
Tender offer costs 422,035
Assignment fees 139,682
Registration fees 134,840
Borrowing costs 81,332
Custodian fees 46,608
Printing and shareholder reports 30,611
Directors' fees and expenses 29,219
Other 73,977
----------------
Total expenses 36,781,526
----------------
Investment income--net 228,751,046
----------------
Realized & Realized loss on investments--net (72,950,213)
Unrealized Loss on Change in unrealized depreciation on investments--net (9,089,484)
Investments-- ----------------
Net: Net Increase in Net Assets Resulting from Operations $ 146,711,349
================
See Notes to Financial Statements.
Merrill Lynch Senior Floating Rate Fund, Inc.
August 31, 2000
FINANCIAL INFORMATION (CONTINUED)
Statements of Changes in Net Assets
For the Year
Ended August 31,
Increase (Decrease) in Net Assets: 2000 1999
Operations: Investment income--net $ 228,751,046 $ 217,406,642
Realized loss on investments--net (72,950,213) (21,656,805)
Change in unrealized appreciation/depreciation on
investments--net (9,089,484) (59,345,622)
---------------- ----------------
Net increase in net assets resulting from operations 146,711,349 136,404,215
---------------- ----------------
Dividends to Investment income--net (228,751,698) (217,477,740)
Shareholders: ---------------- ----------------
Net decrease in net assets resulting
from dividends to shareholders (228,751,698) (217,477,740)
---------------- ----------------
Capital Share Net decrease in net assets resulting from capital
Transactions: share transactions (571,235,099) (138,092,263)
---------------- ----------------
Net Assets: Total decrease in net assets (653,275,448) (219,165,788)
Beginning of year 3,145,866,404 3,365,032,192
---------------- ----------------
End of year* $ 2,492,590,956 $ 3,145,866,404
================ ================
*Undistributed investment income--net $ -- $ 652
================ ================
See Notes to Financial Statements.
Merrill Lynch Senior Floating Rate Fund, Inc.
August 31, 2000
FINANCIAL INFORMATION (CONTINUED)
Statement of Cash Flows
For the Year Ended
August 31, 2000
Cash Provided by Net increase in net assets resulting from operations $ 146,711,349
Operating Adjustments to reconcile net increase in net assets resulting from operations
Activities: to net cash provided by operating activities:
Increase in receivables (951,798)
Increase in other assets (7,677)
Decrease in other liabilities (819,957)
Realized and unrealized loss on investments--net 82,039,697
Amortization of discount (14,519,949)
----------------
Net cash provided by operating activities 212,451,665
----------------
Cash Provided by Proceeds from principal payments and sales of loan interests 1,968,019,589
Investing Purchases of loan interests (1,537,640,293)
Activities: Purchases of short-term investments (21,869,752,226)
Proceeds from sales and maturities of short-term investments 22,025,656,004
----------------
Net cash provided by investing activities 586,283,074
----------------
Cash Used for Cash receipts on capital shares sold 208,075,985
Financing Cash payments on capital shares tendered (879,627,643)
Activities: Dividends paid to shareholders (124,979,545)
----------------
Net cash used for financing activities (796,531,203)
----------------
Cash: Net increase in cash 2,203,536
Cash at beginning of year 2,319,078
----------------
Cash at end of year $ 4,522,614
================
Non-Cash Capital shares issued in reinvestment of dividends paid to shareholders $ 102,473,392
Financing ================
Activities:
See Notes to Financial Statements.
Merrill Lynch Senior Floating Rate Fund, Inc.
August 31, 2000
FINANCIAL INFORMATION (CONCLUDED)
Financial Highlights
The following per share data and ratios have been derived
from information provided in the financial statements. For the Year Ended August 31,
Increase (Decrease) in Net Asset Value: 2000 1999 1998 1997 1996
Per Share Net asset value, beginning of year $ 9.73 $ 9.97 $ 10.02 $ 9.99 $ 10.02
Operating -------- -------- -------- -------- --------
Performance: Investment income--net .77 .65 .68 .68 .66
Realized and unrealized gain (loss) on
investments--net (.28) (.24) (.05) .03 (.03)
-------- -------- -------- -------- --------
Total from investment operations .49 .41 .63 .71 .63
-------- -------- -------- -------- --------
Less dividends from investment income--net (.77) (.65) (.68) (.68) (.66)
-------- -------- -------- -------- --------
Net asset value, end of year $ 9.45 $ 9.73 $ 9.97 $ 10.02 $ 9.99
======== ======== ======== ======== ========
Total Investment Based on net asset value per share 5.44% 4.23% 6.47% 7.23% 6.53%
Return:* ======== ======== ======== ======== ========
Ratios to Average Expenses, excluding interest expense 1.31% 1.33% 1.35% 1.32% 1.34%
Net Assets: ======== ======== ======== ======== ========
Expenses 1.31% 1.33% 1.40% 1.33% 1.34%
======== ======== ======== ======== ========
Investment income--net 8.17% 6.59% 6.79% 6.72% 6.54%
======== ======== ======== ======== ========
Leverage: Average amount of borrowings outstanding
during the year (in thousands) -- -- $ 24,299 $ 4,409 --
======== ======== ======== ======== ========
Average amount of borrowings outstanding
per share during the year -- -- $ .08 $ .02 --
======== ======== ======== ======== ========
Supplemental Net assets, end of year (in millions) $ 2,493 $ 3,146 $ 3,365 $ 2,992 $ 2,946
Data: ======== ======== ======== ======== ========
Portfolio turnover 59.59% 60.06% 69.59% 74.00% 80.20%
======== ======== ======== ======== ========
*Total investment returns exclude the early withdrawal charge, if
any. The Fund is a continuously offered closed-end fund, the shares
of which are offered at net asset value. Therefore, no separate
market exists.
See Notes to Financial Statements.
Merrill Lynch Senior Floating Rate Fund, Inc.
August 31, 2000
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies:
Merrill Lynch Senior Floating Rate Fund, Inc. (the "Fund") is
registered under the Investment Company Act of 1940 as a
continuously offered, non-diversified, closed-end management
investment company. The Fund's financial statements are prepared in
conformity with accounting principles generally accepted in the
United States of America, which may require the use of management
accruals and estimates.
(a) Loan participation interests--The Fund invests in senior secured
floating rate loan interests ("Loan Interests") with collateral
having a market value, at time of acquisition by the Fund, which
Fund management believes equals or exceeds the principal amount of
the corporate loan. The Fund may invest up to 20% of its total
assets in loans made on an unsecured basis. Depending on how the
loan was acquired, the Fund will regard the issuer as including the
corporate borrower along with an agent bank for the syndicate of
lenders and any intermediary of the Fund's investment. Because
agents and intermediaries are primarily commercial banks, the Fund's
investment in corporate loans at August 31, 2000 could be considered
to be concentrated in commercial banking.
(b) Valuation of investments--Loan Interests are valued in
accordance with guidelines established by the Board of Directors.
Loan Interests are valued at the mean between the last available bid
and asked prices from one or more brokers or dealers as obtained
from Loan Pricing Corporation. For Loan Interests for which an
active secondary market does not exist to a reliable degree in the
opinion of the Investment Adviser, such Loan Interests will be
valued by the Investment Adviser at fair value, which is intended to
approximate market value.
Other portfolio securities may be valued on the basis of prices
furnished by one or more pricing services, which determine prices
for normal, institutional-size trading units of such securities
using market information, transactions for comparable securities and
various relationships between securities that are generally
recognized by institutional traders. In certain circumstances,
portfolio securities are valued at the last sale price on the
exchange that is the primary market for such securities, or the last
quoted bid price for those securities for which the over-the-counter
market is the primary market or for listed securities in which there
were no sales during the day. Short-term securities with remaining
maturities of sixty days or less are valued at amortized cost, which
approximates market value. Securities and assets for which market
quotations are not readily available are valued at fair value as
determined in good faith by or under the direction of the Board of
Directors of the Fund.
(c) Derivative financial instruments--The Fund may engage in various
portfolio investment strategies to increase or decrease the level of
risk to which the Fund is exposed more quickly and efficiently than
transactions in other types of instruments. Losses may arise due to
changes in the value of the contract or if the counterparty does not
perform under the contract.
* Interest rate transactions--The Fund is authorized to enter into
interest rate swaps and purchase or sell interest rate caps and
floors. In an interest rate swap, the Fund exchanges with another
party their respective commitments to pay or receive interest on a
specified notional principal amount. The purchase of an interest
rate cap (or floor) entitles the purchaser, to the extent that a
specified index exceeds (or falls below) a predetermined interest
rate, to receive payments of interest equal to the difference
between the index and the predetermined rate on a notional principal
amount from the party selling such interest rate cap (or floor).
(d) Income taxes--It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated
investment companies and to distribute substantially all of its
taxable income to its shareholders. Therefore, no Federal income tax
provision is required.
(e) Security transactions and investment income--Security
transactions are recorded on the dates the transactions are entered
into (the trade dates). Interest income (including amortization of
discount) is recognized on the accrual basis. Realized gains and
losses on security transactions are determined on the identified
cost basis. Facility fees are accreted into income over the term of
the related loan.
Merrill Lynch Senior Floating Rate Fund, Inc.
August 31, 2000
NOTES TO FINANCIAL STATEMENTS (CONCLUDED)
(f) Prepaid registration fees--Prepaid registration fees are charged
to expense as the related shares are issued.
(g) Dividends and distributions--Dividends from net investment
income are declared daily and paid monthly. Distributions of capital
gains are recorded on the ex-dividend dates.
2. Investment Advisory and Administrative
Services Agreement and Transactions with
Affiliates:
The Fund has entered into an Investment Advisory Agreement with
Merrill Lynch Investment Management, L.P. ("MLIM"). The general
partner of MLIM is Princeton Services, Inc. ("PSI"), an indirect
wholly-owned subsidiary of Merrill Lynch & Co., Inc. ("ML & Co."),
which is the limited partner.
MLIM is responsible for the management of the Fund's portfolio and
provides the necessary personnel, facilities, equipment and certain
other services necessary to perform this investment advisory
function.
For such services, the Fund pays a monthly fee at an annual rate of
.95% of the Fund's average daily net assets. The Fund also has an
Administrative Services Agreement with MLIM whereby MLIM will
receive a fee equal to an annual rate of .25% of the Fund's average
daily net assets on a monthly basis, in return for the performance
of administrative services (other than investment advice and related
portfolio activities) necessary for the operation of the Fund.
For the year ended August 31, 2000, FAM Distributors, Inc. (FAMD), a
wholly-owned subsidiary of Merrill Lynch Group, Inc., earned early
withdrawal charges of $4,217,804 relating to the tender of the
Fund's shares.
Financial Data Services, Inc. ("FDS"), a wholly-owned subsidiary of
ML & Co., is the Fund's transfer agent.
Accounting services are provided to the Fund by MLIM at cost.
Certain officers and/or directors of the Fund are officers and/or
directors of MLIM, PSI, FAMD, FDS, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities,
for the year ended August 31, 2000 were $1,537,675,015 and
$1,968,019,589, respectively.
Net realized gains (losses) for the year ended August 31, 2000 and
net unrealized losses as of August 31, 2000 were as follows:
Realized
Gains Unrealized
(Losses) Losses
Loan interests $(72,952,316) $(69,503,365)
Short-term investments 2,103 --
Unfunded loan interests -- (1,400,231)
------------ ------------
Total $(72,950,213) $(70,903,596)
============ ============
As of August 31, 2000, net unrealized depreciation for financial
reporting and Federal income tax purposes aggregated $69,534,661, of
which $6,414,625 is related to appreciated securities and
$75,949,286 is related to depreciated securities. The aggregate cost
of investments at August 31, 2000 for Federal income tax purposes
was $2,542,845,455.
4. Capital Share Transactions:
Transactions in capital shares were as follows:
For the Year Ended Dollar
August 31, 2000 Shares Amount
Shares sold 21,461,971 $ 205,919,152
Shares issued to share-
holders in reinvestment
of dividends 10,690,439 102,473,392
-------------- -------------
Total issued 32,152,410 308,392,544
Shares tendered (91,586,847) (879,627,643)
-------------- -------------
Net decrease (59,434,437) $(571,235,099)
============== =============
For the Year Ended Dollar
August 31, 1999 Shares Amount
Shares sold 50,310,746 $ 495,433,815
Shares issued to share-
holders in reinvestment
of dividends 10,519,160 103,371,180
-------------- -------------
Total issued 60,829,906 598,804,995
Shares tendered (74,992,308) (736,897,258)
-------------- -------------
Net decrease (14,162,402) $(138,092,263)
-------------- -------------
Merrill Lynch Senior Floating Rate Fund, Inc.
August 31, 2000
5. Unfunded Loan Interests:
As of August 31, 2000, the Fund had unfunded loan commitments of
$30,072,914, which would be extended at the option of the borrower,
pursuant to the following loan agreements:
Unfunded
Commitment
Borrower (in thousands)
Arena Brands, Inc. $ 1,458
KSL Recreation Group, Inc. 8,437
Metro-Goldwyn-Mayer Co. 6,000
PageNet Finance, Inc. 3,634
Primedia 10,544
6. Short-Term Borrowings:
On July 1, 2000, the Fund became a party to a $1,000,000,000 credit
agreement dated as of December 3, 1999 among certain other funds
managed by MLIM and its affiliates, Bank of America, N.A., and
certain other lenders. The Fund may borrow under the credit
agreement to fund shareholder redemptions and other lawful purposes
other than for leverage. The Fund may borrow up to the maximum
amount allowable under the Fund's current prospectus and statement
of additional information, subject to various other legal,
regulatory or contractual limits. The Fund pays a commitment fee of
.09% per annum based on the Fund's pro rata share of the unused
portion of the facility. Amounts borrowed under the facility bear
interest at a rate equal to, at each fund's election, the Federal
Funds rate plus .50% or a base rate as determined by Bank of
America, N.A. The Fund did not borrow under this facility, or under
its former credit facility with The Bank of New York during the year
ended August 31, 2000.
For the year ended August 31, 2000, the facility and commitment fees
paid by the Fund aggregated approximately $81,000.
7. Capital Loss Carryforward:
At August 31, 2000, the Fund had a net capital loss carryforward of
approximately $40,874,000, of which $1,471,000 expires in 2004;
$3,279,000 expires in 2005, $4,468,000 expires in 2006; $3,366,000
expires in 2007; and $28,290,000 expires in 2008. This amount will
be available to offset like amounts of any future taxable gains.
8. Subsequent Event:
The Fund began a quarterly tender offer on October 17, 2000 which
concludes on November 14, 2000.
Merrill Lynch Senior Floating Rate Fund, Inc.
August 31, 2000
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders,
Merrill Lynch Senior Floating Rate Fund, Inc.:
We have audited the accompanying statement of assets and
liabilities, including the schedule of investments, of Merrill Lynch
Senior Floating Rate Fund, Inc. as of August 31, 2000, the related
statements of operations and cash flows for the year then ended, the
statements of changes in net assets for each of the years in the two-
year period then ended, and the financial highlights for each of the
years in the five-year period then ended. These financial statements
and the financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these
financial statements and the financial highlights based on our
audits.
We conducted our audits in accordance with auditing standards
generally accepted in the United States of America. Those standards
require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements and the financial
highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included
confirmation of securities owned at August 31, 2000 by
correspondence with the custodian, broker and financial
intermediaries; where replies were not received, we performed other
auditing procedures. An audit also includes assessing the accounting
principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights
present fairly, in all material respects, the financial position of
Merrill Lynch Senior Floating Rate Fund, Inc. as of August 31, 2000,
the results of its operations, its cash flows, the changes in its
net assets, and the financial highlights for the respective stated
periods in conformity with accounting principles generally accepted
in the United States of America.
Deloitte & Touche LLP
Princeton, New Jersey
October 17, 2000
Merrill Lynch Senior Floating Rate Fund, Inc.
August 31, 2000
PORTFOLIO PROFILE (UNAUDITED)
As of August 31, 2000
Percent of
Ten Largest Holdings Total Assets
Wyndam International, Inc. 4.7%
Charter Communications Holdings 3.6
Nextel Communications, Inc. 3.5
Allied Waste North America Inc. 3.1
Stone Container Corp. 2.5
VoiceStream PCS Holdings Corp. 2.0
Century Cable LLC 2.0
Riverwood International Corp. 1.7
Ispat Inland LP 1.5
Lyondell Petrochemical Co. 1.5
Percent of
Five Largest Industries Total Assets
Wireless Telecommunications 9.8%
Cable Television Services 9.4
Paper 6.3
Hotels & Motels 5.9
Chemicals 5.8
Percent of
Quality Rating Long-Term
S&P/Moody's Investments
BBB/Baa 0.4%
BB/Ba 49.2
B/B 25.3
CCC/Caa 1.4
NR (Not Rated) 23.7
OFFICERS AND DIRECTORS
Terry K. Glenn, President and Director
Ronald W. Forbes, Director
Cynthia A. Montgomery, Director
Charles C. Reilly, Director
Kevin A. Ryan, Director
Roscoe S. Suddarth, Director
Richard R. West, Director
Arthur Zeikel, Director
Edward D. Zinbarg, Director
Joseph T. Monagle Jr., Senior Vice President
Richard C. Kilbride, Vice President
Gilles Marchand, Vice President
Donald C. Burke, Vice President and Treasurer
Bradley J. Lucido, Secretary
Custodian
The Bank of New York
100 Church Street
New York, NY 10286
Transfer Agent
Financial Data Services, Inc.
4800 Deer Lake Drive East
Jacksonville, FL 32246-6484
(800) 637-3863