Exhibit (a)(5)(iii)
(BULL LOGO)
Merrill Lynch Investment Managers
Semi-Annual Report
February 28, 2001
Merrill Lynch
Senior Floating Rate
Fund, Inc.
www.mlim.ml.com
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 the shareholders of Merrill Lynch Senior
Floating Rate Fund, Inc. for their information. It is not a
prospectus, circular or representation intended for use in the
purchase of shares of the Fund or any securities mentioned in this
report. 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#11022-2/01
Merrill Lynch Senior Floating Rate Fund, Inc.
DEAR SHAREHOLDER
Investment Approach
Merrill Lynch Senior Floating Rate Fund, Inc. consists largely of
participations in leveraged bank loans. These loans are generally
senior secured floating rate investments. In response to general
economic events and trends, the leveraged bank loan market tends to
move in a similar direction, but with less volatility, as the high-
yield bond market. The linkage between the two markets can be
ascribed to the fact that the issuers of debt as well as the buyers
of that debt tend to participate in both markets (based on similar
credit rating and risk/reward profiles of the markets). The lower
price volatility of bank loan investments can be attributed to two
factors. First, bank loans are usually senior secured obligations
and, thus, generally offer investors greater principal protection
than unsecured bonds. Second, bank loans are floating rate
instruments whose principal value does not move inversely with
interest rate movements, as is the case with fixed-income bonds.
Fund Performance
The Fund's effective net annualized yield for the six-month period
ended February 28, 2001 was 9.39%, compared to a yield of 7.83% for
the same period a year earlier. The Fund's net asset value decreased
from $9.45 per share to $9.10 per share during the period. During
the same period, the Fund earned $0.423 per share income dividends,
representing a net annualized yield of 9.39%, based on a per share
net asset value of $9.10 at February month-end. The Fund's total
investment return during the six-month period ended February 28,
2001 was +0.68%, based on a $0.36 per share decrease in net asset
value and assuming reinvestment of $0.428 per share income
dividends. Since inception (November 3, 1989) through February 28,
2001, the Fund's total investment return was +102.58%, based on a
change in per share net asset value from $10.00 to $9.10, and
assuming reinvestment of $8.008 per share income dividends.
The Fund's return of +0.68%, for the six-month period ended February
28, 2001, underperformed the unmanaged CS First Boston Leveraged
Loan Index, which had a return of +2.79%. During this period, the
Fund was underweighted relative to the Index in energy and
healthcare issues, two sectors that outperformed. The energy sector
benefited from the dramatic rise in commodity prices, while the
healthcare sector rebounded from its earlier very depressed levels.
The Fund was only slightly underweighted in energy (0.35% of net
assets compared to 0.47% in the Index) but, reflecting our
unfavorable experience with that sector in recent years, was
significantly underweighted in healthcare (3.9% compared to 9.4% in
the Index).
Market Review
The six-month period ended February 28, 2001 was marked by two
distinct trends in the high-yield and leveraged loan markets. During
the second half of 2000, these markets operated in a very negative
credit environment, culminating in total withdrawals from high-yield
mutual funds in excess of $10 billion for the year 2000. In 2001,
the markets began to rally in response to the Federal Reserve
Board's early interest rate cuts. Flows into the high-yield market
reversed course after the interest rate cuts and, through February,
total year-to-date inflows amounted to $3.25 billion. Since many
investors in the high-yield market also participate in the leveraged
bank loan market, the increased demand for leveraged finance product
caused by this additional market liquidity resulted in an increase
in market prices. Additionally, during the first two months of 2001,
high-yield spreads rebounded from a near record of 959 basis points
(9.59%) at year-end 2000, as measured by the unmanaged CS First
Boston Global High Yield Index, to 830 basis points (considerably
higher than the historic average of 529 basis points and the year-
end 1999 figure of 549 basis points).
Merrill Lynch Senior Floating Rate Fund, Inc.
February 28, 2001
Despite the improved tone of the market, there continues to be
concern about the overall default rate. During 1999, Moody's
Investors Service's dollar-weighted default rate for high-yield
bonds peaked at 7.8%, its highest level since 1991, before falling
back down to 6.2% by December 31, 2000. We believe that in 2001
default rates will yet again increase in response to the weakening
of certain sectors, including wired telecommunications and autos.
This expected increase is in line with historical trends, which show
that of the high-yield issues that eventually default, the majority
does so within three years - four years of issuance. Counting back
three years - four years from 2001 brings us back to the 1997 - 1998
period, which was generally characterized by lower credit standards
than existed in the years hence. Therefore, we believe that should
the historical trend hold, defaults could be expected to rise in
2001 from year-end 2000 levels, before falling back to more typical
levels in 2002.
Investment Activities
Pricing pressure in the wired telecommunications, computer-related
products, metals & mining and automotive sectors had the greatest
negative effect on the Fund during the period. In each of the first
two sectors, the majority of the impact was derived primarily from
one credit, while the problems in metals & mining and automotive
stemmed from an industrywide decline in revenues in a rising expense
environment. In wired telecommunications, our position in Teligent
Inc. declined almost 65 points. Teligent, a national competitive
local exchange carrier, has had the dual problems of revenue
shortfalls (driven by a decline in telecommunications access fees)
and management upheaval. We decided to remain invested in this issue
because of its asset value (wireless spectrum) and its notable
sponsor group. In the computer-related sector, Bridge Information
Systems also endured a precipitous decline. Bridge, a provider of
proprietary financial information services to the equity markets,
has been plagued with billing and integration issues and, during the
quarter, filed for bankruptcy. In the metals & mining sector,
falling commodity prices negatively affected steelmakers LTV
Corporation and Ispat Inland. As for the automotive equipment
suppliers in our portfolio, their use of aggressive pricing coupled
with a business model using lower production volumes left them
unprepared for overtime and adequate maintenance. The problems were
further aggravated by demands for price cuts by their customers, the
original equipment manufacturers.
On the positive side, the Fund continues to be anchored by
substantial investment in wireless telecommunications (11.2% of
total assets), cable television services (10%), hotels & motels
(5.9%) and broadcasting (4%). These sectors are characterized by
significant asset values and strong cashflow. At February 28, 2001,
the Fund's largest holdings were comprised largely of
representatives from these sectors, including Nextel Communications,
Inc., Charter Communications Holdings, Century Cable LLC and Wyndham
International, Inc. (For complete details of the Fund's largest
holdings and industries, see the "Portfolio Profile" section of this
report to shareholders on page 21.)
Investment Strategy
Thus far in 2001, we have seen some relief from the technical
aspects of the pricing pressure that had impacted the market so
significantly in 2000. This occurrence has allowed us to set the
course toward a reversal of the downward trend in the net asset
value by creating the liquidity needed to participate in a market
rally. Specifically, during this period, we have exited certain
lower-coupon issues that have regained par or near-par pricing
levels after a prolonged period of sub-par market values. The assets
created have been or will be redeployed into the new-issue market,
which continues to offer attractive spreads and original-issue
discounts, as well as in certain secondary situations where we still
see value.
We believe the Fund continues to be well balanced with 154 issuers
spread across 42 industries. The Fund also has an attractive ratings
profile as compared to the Index. The Fund was weighted almost
equally relative to the Index in Ba-rated securities (46.0% of total
assets compared to 48.6%), overweighted in B-rated securities (30.1%
compared to 25.4%), underweighted in Caa-rated securities (2.4%
compared to 4.4%) and slightly overweighted in securities not rated
(21.4% compared to 19.3%).
Merrill Lynch Senior Floating Rate Fund, Inc.
February 28, 2001
In Conclusion
We believe that, with adequate diversification and a solid credit
profile as its base, we can better position the Fund to take greater
advantage of any sustained reversal of technical price pressures on
the leveraged finance market. Our ability to bring this to fruition
will be challenged, as always, by any significant changes in
fundamental credit aspects of its issuers as well as the need to
meet future shareholder redemptions.
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
(Kevin J. Booth)
Kevin J. Booth
Vice President and Portfolio Manager
(Joseph Matteo)
Joseph Matteo
Vice President and Portfolio Manager
April 5, 2001
We are pleased to announce that Kevin J. Booth and Joseph Matteo are
responsible for the day-to-day portfolio management of Merrill Lynch
Senior Floating Rate Fund, Inc. Mr. Booth has been employed by
Merrill Lynch Investment Managers, L.P. (MLIM) as Director since
1998 and Vice President from 1991to 1998. Mr. Matteo has been
employed by MLIM as Director since 2001 and as Vice President from
1997 to 2001. Prior to that, Mr. Matteo was Vice President at The
Bank of New York from 1994 to 1997.
Merrill Lynch Senior Floating Rate Fund, Inc.
February 28, 2001
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 20, the Fund has not used this leverage capability.
Merrill Lynch Senior Floating Rate Fund, Inc.
February 28, 2001
SCHEDULE OF INVESTMENTS
S&P Moody's Face Senior Secured
Industries Rating Rating Amount Floating Rate Loan Interests* Value
Aircraft & BB- Ba3 $ 2,918,824 Fairchild Semiconductors Corp.,
Parts--0.1% Term, due 4/30/2006 $ 2,725,452
Amusement & NR++ NR++ 4,862,500 Kerastotes, Term B, due 12/31/2004 4,449,187
Recreational Metro-Goldwyn-Mayer Co.:
Services--0.6% NR++ NR++ 4,000,000 Term A, due 3/31/2005 3,926,668
NR++ NR++ 4,500,000 Term B, due 3/31/2006 4,471,173
--------------
12,847,028
Apparel--1.4% Arena Brands, Inc.:
NR++ NR++ 1,596,389 Revolving Credit, due 6/01/2002 1,516,569
NR++ NR++ 2,240,869 Term A, due 6/01/2002 2,128,826
NR++ NR++ 6,839,344 Term B, due 6/01/2002 6,497,377
NR++ NR++ 9,493,903 Humphreys Inc., Term B, due 1/15/2003 8,117,287
NR++ NR++ 4,887,500 Norcross Safety Products, Term, due 9/30/2005 4,795,859
Walls Industries:
NR++ NR++ 1,148,936 Term B, due 2/28/2005 1,118,949
NR++ NR++ 1,627,659 Term C, due 2/28/2006 1,588,107
BB B1 7,360,000 Warnaco Inc., due 8/12/2002 3,440,800
--------------
29,203,774
Automotive Breed Technologies, Inc.:
Equipment--2.1% NR++ NR++ 4,947,407 Term A, due 4/27/2004+++ (c) 688,683
NR++ NR++ 9,524,003 Term B, due 4/27/2006+++ (c) 1,325,749
B+ B1 19,976,190 Citation Corporation, Term B, due 12/01/2007 16,580,238
BB- Ba3 15,912,000 Collins & Aikman Corp., Term B, due 6/30/2005 15,195,960
Tenneco Automotive Inc.:
BB- B2 6,764,286 Term B, due 11/02/2007 5,640,663
BB- B2 6,764,286 Term C, due 5/02/2008 5,640,663
--------------
45,071,956
Broadcasting-- B B1 19,500,000 Benedek Broadcasting Corporation,
Radio & Term B, due 11/20/2007 19,207,500
Television--4.0% NR++ NR++ 7,425,000 Corus Entertainment Inc., Tranche II,
due 8/31/2007 7,443,563
Cumulus Media Inc.:
B B1 7,200,000 Term B, due 9/30/2007 7,149,002
B B1 4,800,000 Term C, due 2/28/2008 4,766,002
B+ Ba3 7,000,000 Gray Communications Systems, Term B,
due 12/31/2005 7,032,816
BB- Ba2 12,500,000 Sinclair Broadcasting Group, Term,
due 12/31/2004 12,098,963
BB- Ba1 2,500,000 Susquehanna Medical Co., Term B,
due 6/30/2008 2,504,687
NR++ NR++ 4,455,000 VHR Broadcasting, Term B, due 9/30/2007 4,463,353
BB Ba2 20,000,000 Young Broadcasting Inc., Term B,
due 12/31/2006 20,171,260
--------------
84,837,146
Building NR++ NR++ 16,562,547 Dal-Tile International Inc.,
Materials--1.1% Term B, due 12/31/2003 16,180,489
B+ B1 2,827,792 Panolam Industries, Term B, due 12/31/2005 2,831,327
NR++ B1 3,484,811 Trussway Industries, Term B, due 12/31/2006 3,293,147
--------------
22,304,963
Business BB- B1 8,230,132 Info USA Inc., Term B, due 6/30/2006 7,900,926
Services--0.4%
Merrill Lynch Senior Floating Rate Fund, Inc.
February 28, 2001
SCHEDULE OF INVESTMENTS (CONTINUED)
S&P Moody's Face Senior Secured
Industries Rating Rating Amount Floating Rate Loan Interests* Value
Cable BB Ba3 $10,900,000 CC VIII Operating Co. LLC, Term B,
Television due 2/02/2008 $ 10,910,900
Services--10.0% BB Ba3 50,000,000 Century Cable LLC, Term, due 6/30/2009 49,995,200
Charter Communications Holdings:
BB+ Ba3 9,000,000 Term, due 9/18/2008 8,994,996
BB+ Ba3 65,443,750 Term B, due 3/18/2008 65,434,981
BB- Ba3 23,704,687 Chelsea Communications, Term B, due 9/30/2004 23,660,241
BB+ Ba3 9,800,000 Falcon Holdings, Term C, due 12/31/2007 9,711,800
Frontiervision Operating Partners L.P.:
BB Ba3 4,464,593 Term A, due 9/30/2005 4,447,851
BB Ba3 15,834,000 Term B, due 3/31/2006 15,715,245
BB+ Ba3 2,000,000 Insight Midwest, Term B, due 1/05/2010 2,010,500
B+ B1 11,500,000 Pegasus Media & Communications, Term, due 4/30/2005 11,504,795
NR++ NR++ 10,000,000 UCH/HHC Inc., Term B, due 12/31/2004 9,973,960
--------------
212,360,469
Chemicals--5.9% NR++ Ba2 7,500,000 Avecia Limited, Term C, due 6/30/2008 7,405,500
NR++ NR++ 3,770,899 CII Carbon LLC, Term, due 6/25/2008 3,756,758
NR++ NR++ 11,000,410 Cedar Chemical Corp., Term B, due 10/31/2003 6,600,246
Huntsman Corp.:
BB Ba3 11,063,925 Term C, due 12/31/2005 10,353,987
BB Ba3 7,889,822 Term D, due 12/31/2002 7,291,513
Huntsman ICI Chemicals LLC:
Ba3 BB 16,503,880 Term B, due 6/30/2007 16,598,777
Ba3 BB 16,503,881 Term C, due 6/30/2008 16,598,778
B+ Ba2 11,536,636 Koppers Industries Inc., Term B, due 11/30/2004 11,435,690
Lyondell Petrochemical Co.:
NR++ Ba3 6,213,448 Term B, due 6/30/2005 6,262,895
Ba3 NR++ 24,562,464 Term E, due 5/17/2006 25,345,393
NR++ NR++ 4,870,107 Pinnacle Polymers, Term B, due 12/31/2005 4,867,672
D Caa1 7,740,000 Pioneer Americas Acquisition Corp.,
Term, due 12/05/2006 2,902,500
BB- B1 5,377,281 Texas Petrochemicals Corp., Term B, due 6/30/2004 5,363,838
--------------
124,783,547
Computer-Related Bridge Information Systems:
Products--0.3% NR++ NR++ 1,846,334 Delayed Draw, due 7/07/2003 253,871
Ca D 20,088,584 Term B, due 5/24/2005 2,732,047
Ca D 3,652,470 Term B, due 5/29/2005 496,736
NR++ NR++ 3,667,969 Stratus Computer, Inc., Term B, due 2/26/2005 3,640,459
--------------
7,123,113
Consumer B B1 8,133,636 Amscan Holdings, Inc., Axel, due 12/19/2004 7,177,934
Products--1.8% BB- Ba3 12,077,558 Burhmann NV, Term B, due 10/26/2007 12,091,580
B+ B1 4,186,250 Holmes Products Corp., Term B, due 2/05/2007 3,840,884
B+ B2 7,967,091 Revlon Consumer Products Corp., Term, due 5/30/2002 7,635,127
Simmons Co.:
B+ Ba3 2,084,116 Term B, due 10/29/2005 2,089,586
B+ Ba3 4,709,067 Term C, due 10/29/2006 4,721,428
--------------
37,556,539
Merrill Lynch Senior Floating Rate Fund, Inc.
February 28, 2001
SCHEDULE OF INVESTMENTS (CONTINUED)
S&P Moody's Face Senior Secured
Industries Rating Rating Amount Floating Rate Loan Interests* Value
Electronics/ B+ NR++ $ 7,392,234 Acterna Corporation, Term B, due 9/30/2007 $ 7,358,969
Electrical BB Ba2 4,962,500 Amkor Technology Inc., Term B, due 9/30/2005 4,986,280
Components-- B+ B1 7,425,000 Chippac International Co., Ltd., Term B,
4.6% due 7/31/2006 7,360,031
B B2 5,000,000 Cook Inlet, Term A, due 12/31/2007 4,987,500
B+ B1 5,037,294 DD Inc., Term B, due 4/22/2005 5,015,255
B+ B1 4,975,000 Knowles Electronics Inc., Term B, due 6/29/2007 4,763,562
Semiconductor Components:
BB- Ba3 14,444,444 Term B, due 8/04/2006 14,426,389
BB- Ba3 15,555,556 Term C, due 8/04/2007 15,536,111
BB- Ba3 6,000,000 Term D, due 8/04/2007 5,995,002
Superior Telecom:
B B2 14,680,836 Term A, due 5/27/2004 13,276,981
B+ Ba3 7,686,510 Term B, due 11/27/2005 6,920,265
CCC+ Ba3 6,531,133 Telex Communications, Inc., Term B, due 11/30/2004 5,714,741
NR++ B1 2,152,229 Trend Technologies, Inc., Term, due 2/28/2007 2,141,467
--------------
98,482,553
Environmental IT Group Inc.:
Services--1.0% BB B1 8,712,000 Term, due 6/08/2007 8,624,880
BB B1 3,722,712 Term B, due 6/11/2006 3,666,871
URS Corp.:
BB Ba3 3,947,425 Term B, due 6/09/2006 3,977,030
BB Ba3 3,947,425 Term C, due 6/09/2007 3,977,030
--------------
20,245,811
Financial B+ B2 9,862,625 Outsourcing Solutions, Inc.,
Services--0.4% Term B, due 6/01/2006 9,287,309
Funeral Homes & NR++ Caa1 13,797,309 Prime Succession Inc., Axel, due 8/01/2003 10,347,981
Parlors--0.8% B- B2 6,396,478 Rose Hills Co., Axel A, due 12/01/2003 5,820,795
--------------
16,168,776
Gaming--1.6% Alliance Gaming Corp.:
B B2 2,510,595 Delayed Draw, due 1/31/2005 2,441,553
B B2 7,454,503 Term B, due 1/31/2005 7,249,505
B B2 3,973,707 Term C, due 7/31/2005 3,864,430
Ameristar:
B+ Ba3 1,594,675 Term B, due 12/31/2006 1,597,665
B+ Ba3 1,366,864 Term C, due 12/31/2007 1,369,427
B+ B1 2,500,000 Autotote Corporation, Term B, due 9/30/2007 2,406,250
Isle of Capri Casinos, Inc.:
BB- Ba2 8,204,667 Term B, due 3/01/2006 8,237,354
BB- Ba2 7,179,083 Term C, due 3/01/2007 7,207,685
--------------
34,373,869
Grocery--0.8% D Caa1 4,912,500 Big V Supermarkets Inc., Term B, due 8/10/2003 4,298,438
The Pantry Inc.:
BB- B1 4,909,547 Term B, due 1/31/2006 4,925,910
BB- B1 1,714,956 Term B-2, due 1/31/2006 1,720,672
BB- B1 5,197,500 Term C, due 7/31/2006 5,220,239
--------------
16,165,259
Merrill Lynch Senior Floating Rate Fund, Inc.
February 28, 2001
SCHEDULE OF INVESTMENTS (CONTINUED)
S&P Moody's Face Senior Secured
Industries Rating Rating Amount Floating Rate Loan Interests* Value
Health Services-- NR++ B1 $ 81,957 Caremark Rx Inc., Term A, due 6/08/2001 $ 81,829
2.9% Community Health Systems, Inc.:
NR++ NR++ 8,410,380 Term B, due 12/31/2003 8,348,808
NR++ NR++ 8,410,380 Term C, due 12/31/2004 8,350,305
NR++ NR++ 674,880 Term D, due 12/31/2005 672,771
Dade Behring Inc.:
B Caa1 4,912,626 Term B, due 6/30/2006 3,287,952
B Caa1 4,912,626 Term C, due 6/30/2007 3,287,952
NR++ Ba2 20,600,695 Davita Inc., Term, due 3/31/2008 20,560,235
NR++ NR++ 2,087,558 Endo Pharmaceuticals, Term B, due 6/30/2004 2,045,806
NR++ NR++ 14,516,250 Iasis Healthcare Corp., Term B, due 9/30/2006 14,603,348
--------------
61,239,006
Hotels & Motels-- B+ NR++ 4,578,603 Lodgian Financing Corp., Term B, due 7/31/2006 4,584,326
5.8% NR++ NR++ 6,936,655 Strategic Hotels Inc., Term, due 11/16/2004 6,980,009
Wyndam International, Inc.:
NR++ NR++ 43,664,615 Term, due 6/30/2004 43,543,315
NR++ NR++ 69,000,000 Term, due 6/30/2006 68,486,778
--------------
123,594,428
Industrial B+ B1 6,435,000 Muzak Audio, Term B, due 12/31/2006 6,330,431
Services--0.3%
Insurance--0.9% BRW Acquisition:
NR++ NR++ 2,400,000 Term B, due 7/09/2006 2,364,000
NR++ NR++ 2,400,000 Term C, due 7/09/2007 2,364,000
Willis Corroon Group PLC:
BB Ba2 6,781,250 Term B, due 11/19/2006 6,778,070
BB Ba2 3,952,500 Term C, due 11/19/2007 3,956,618
BB Ba2 3,952,500 Term D, due 5/19/2008 3,956,618
--------------
19,419,306
Leasing & Rental BB- B2 11,820,000 Anthony Crane Rental L.P., Term,
Services--2.2% due 7/20/2006 9,633,300
NR++ NR++ 6,871,245 MEDIQ PRN Life Support Services, Term,
due 6/30/2006 4,535,021
Medical Specialties:
NR++ NR++ 12,845,454 Axel, due 6/30/2004 6,294,273
NR++ NR++ 4,418,182 Term, due 6/30/2001 2,164,909
BB- B2 6,930,000 Nations Rent Inc., Term B, due 7/20/2006 4,885,650
B+ B2 6,855,561 Panavision Inc., Term B, due 3/31/2005 6,332,824
B- NR++ 11,850,210 Rent Way Inc., Term B, due 9/30/2006 10,961,444
BB+ Ba3 2,487,500 United Rentals Inc., Term C, due 8/12/2006 2,408,878
--------------
47,216,299
Manufacturing-- B B1 12,621,313 Blount International Inc., Term B, due 6/30/2006 12,384,663
2.2% NR++ NR++ 7,800,000 Channel Master, Term, due 10/10/2005 7,765,875
Environmental Systems Product, Inc.:
NR++ NR++ 3,739,547 Term 1, due 12/31/2004 2,757,916
NR++ NR++ 1,934,115 Term 2, due 12/31/2004 899,364
NR++ NR++ 4,950,000 Metokote Corp., Term B, due 11/02/2005 4,950,000
Mueller Industries Inc.:
B+ B1 6,156,250 Term B, due 8/16/2006 6,181,263
B+ B1 6,156,250 Term C, due 8/16/2007 6,182,223
Merrill Lynch Senior Floating Rate Fund, Inc.
February 28, 2001
SCHEDULE OF INVESTMENTS (CONTINUED)
S&P Moody's Face Senior Secured
Industries Rating Rating Amount Floating Rate Loan Interests* Value
Manufacturing Terex Corp.:
(concluded) BB- Ba3 $ 4,022,292 Term B, due 3/06/2005 $ 4,008,468
BB- Ba3 4,095,248 Term C, due 3/06/2006 4,096,956
--------------
49,226,728
Medical Alaris Medical Systems, Inc.:
Equipment-- B+ B1 1,814,997 Term A, due 8/01/2002 1,796,847
0.5% B+ B1 3,674,901 Term B, due 11/01/2003 3,661,121
B+ B1 3,674,902 Term C, due 11/01/2004 3,661,121
B+ B1 1,757,257 Term D, due 5/01/2005 1,750,667
--------------
10,869,756
Metals & CCC- Caa2 19,000,000 AEI Resources Inc., Term B, due 12/31/2004 10,450,000
Mining--4.2% NR++ NR++ 10,010,320 Acme Metals, Inc., Term, due 12/01/2005 7,517,750
Ispat Inland LP:
BB Ba3 19,012,500 Term B, due 7/15/2005 15,495,188
BB- Ba3 19,012,500 Term C, due 7/15/2006 15,495,188
D Caa3 12,063,333 LTV Corporation, Term, due 11/10/2004 9,469,717
BB- B1 31,000,000 Ormet Corporation, Term, due 8/15/2008 30,922,500
--------------
89,350,343
Other Pacific Coin:
Telecommun- NR++ NR++ 4,258,528 Term A, due 12/31/2002 1,916,338
ications--0.2% NR++ NR++ 2,706,034 Term B, due 12/31/2004 1,217,715
--------------
3,134,053
Packaging--1.4% NR++ NR++ 16,352,553 Dr. Pepper, Term B, due 10/07/2007 16,349,151
B+ B1 14,700,000 Graham Packaging Co., Term D, due 1/31/2007 13,741,869
--------------
30,091,020
Paging--0.3% B- B2 9,498,431 Arch Paging, Term B, due 6/30/2006 6,142,322
Paper--5.7% NR++ NR++ 6,398,437 Cellular Tissue, Term C, due 3/24/2005 6,078,516
NR++ B2 7,879,498 Crown Paper Co., Term B, due 8/22/2003 3,398,034
BB Ba2 11,853,268 Pacifica Papers Inc., Term B, due 3/12/2006 11,890,309
Riverwood International Inc.:
B B1 5,019,844 Term A, due 2/28/2003 5,009,649
B B1 19,100,634 Term B, due 2/28/2004 19,183,111
B B1 6,619,819 Term C, due 8/28/2004 6,648,404
Stone Container Corp.:
B+ Ba3 17,898,458 Term C, due 10/01/2003 17,981,346
B+ Ba3 7,913,713 Term E, due 10/01/2003 7,950,598
B+ Ba3 11,182,087 Term F, due 3/31/2006 11,231,009
B+ Ba3 12,373,148 Term G, due 3/31/2006 12,398,921
B+ Ba3 10,656,667 Term H, due 3/31/2006 10,678,864
Stronghaven:
NR++ NR++ 9,002,068 Term B, due 5/15/2004 7,651,758
NR++ NR++ 1,643,721 Term C, due 5/15/2004 1,397,163
--------------
121,497,682
Petroleum BB- Ba3 9,444,790 Clark Refining & Marketing, Inc.,
Refineries--0.3% Term, due 11/15/2004 6,918,309
Merrill Lynch Senior Floating Rate Fund, Inc.
February 28, 2001
SCHEDULE OF INVESTMENTS (CONTINUED)
S&P Moody's Face Senior Secured
Industries Rating Rating Amount Floating Rate Loan Interests* Value
Printing & Can West Media:
Publishing--3.4% BB- Ba3 $ 3,077,391 Term B, due 4/15/2007 $ 3,083,802
BB- Ba3 1,922,609 Term C, due 11/15/2008 1,926,613
NR++ NR++ 13,174,105 Enterprise News Media, Term B, due 6/30/2005 12,647,141
B B1 4,975,000 Liberty Group Operating, Term B, due 3/31/2007 4,978,109
Primedia:
NR++ BB- 3,768,000 Revolving Credit, due 6/30/2004 3,725,610
BB- Ba3 3,200,000 Term, due 6/30/2004 3,192,000
BB- Ba3 3,200,000 Term, due 7/31/2004 3,192,000
BB- Ba3 4,950,000 Term B, due 7/31/2004 4,942,268
NR++ NR++ 3,695,418 Reiman Publications, Term B, due 12/01/2005 3,717,746
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
BB- B1 19,823,661 Vertis, Inc., Term B, due 12/06/2008 19,253,731
NR++ NR++ 4,734,387 Ziff-Davis Inc., Term B, due 3/31/2007 4,708,495
--------------
72,315,015
Property Corrections Corporation of America:
Management-- B B3 1,144,631 Term B, due 12/31/2002 984,383
2.6% B B3 20,545,109 Term C, due 12/31/2002 17,600,317
B B1 3,883,403 Meditrust Co., Term D, due 7/17/2001 3,858,646
NR++ Ba3 34,825,000 NRT Inc., Term, due 7/31/2004 33,606,125
--------------
56,049,471
Restaurants & Domino's & Bluefence:
Food B+ B1 6,309,203 Term B, due 12/21/2006 6,342,503
Service--0.6% B+ B1 6,322,422 Term C, due 12/21/2007 6,355,792
--------------
12,698,295
Retail & Retail NR++ Ba3 5,681,000 Advanced Store Company, Term B, due 4/15/2006 5,652,595
Specialty--1.0% B+ B1 4,850,000 Duane Reade Co., Term B, due 2/15/2005 4,862,125
SDM Corporation:
BB Ba3 4,849,780 Term C, due 2/04/2008 4,870,779
BB Ba3 4,849,780 Term E, due 2/04/2009 4,870,779
--------------
20,256,278
Textile Mill Joan Fabrics Corp.:
Products--0.4% NR++ NR++ 2,141,253 Term B, due 6/30/2005 1,998,502
NR++ NR++ 1,108,398 Term C, due 6/30/2006 1,034,505
NR++ NR++ 10,198,059 Tartan Textiles, Term B, due 5/01/2005 5,608,932
--------------
8,641,939
Tower BB Ba3 25,000,000 American Towers, Inc., Term B, due 12/31/2007 25,159,600
Construction BB- Ba3 16,900,000 Crown Castle International Corporation,
& Leasing--2.9% Term B, due 3/31/2008 17,000,927
B+ B1 20,000,000 Spectracite Communications, Term B,
due 12/31/2007 20,128,120
--------------
62,288,647
Transportation Evergreen International Aviation, Inc.:
Services--0.9% B+ Ba2 859,628 Term B, due 5/31/2002 778,949
BB Ba2 3,835,594 Term B, due 5/07/2003 3,480,802
B+ Ba2 590,993 Term B-1, due 5/07/2003 536,326
Merrill Lynch Senior Floating Rate Fund, Inc.
February 28, 2001
SCHEDULE OF INVESTMENTS (CONTINUED)
S&P Moody's Face Senior Secured
Industries Rating Rating Amount Floating Rate Loan Interests* Value
Transportation BB+ Ba1 $ 5,000,000 Kansas City Southern Railroad,
Services-- Term B, due 12/29/2006 $ 5,038,540
(concluded) B+ B1 7,920,000 North American Van Lines Inc.,
Term B, due 11/18/2007 7,375,500
BB- Ba3 1,797,345 Transport Manufacturing, Term B, due 6/15/2006 1,258,141
--------------
18,468,258
Utilities--0.4% BB+ Ba1 8,457,500 Western Resources Inc., Term B, due 3/17/2003 8,535,030
Waste Allied Waste North America Inc.:
Management-- BB Ba3 8,296,320 Term A, due 6/30/2005 8,064,977
2.8% BB Ba3 23,639,445 Term B, due 6/30/2006 23,406,739
BB Ba3 28,367,334 Term C, due 6/30/2007 28,088,086
--------------
59,559,802
Wired BB+ Ba1 10,000,000 Cincinnati Bell Inc., Term, due 12/30/2006 9,938,390
Telecommun- NR++ NR++ 6,751,147 E. Spire Communication, Term C, due 1/31/2003 5,941,009
ications--2.5% BBB- Ba1 7,000,000 GlobalCross, Term B, due 6/30/2006 7,031,108
B- B3 23,333,333 Teligent Inc., Term, due 7/01/2002 6,930,000
BB- Ba3 9,975,000 Valor Telecommunications, Term B, due 6/30/2008 9,893,953
B+ B2 16,500,000 WCI Capital Corp., Term B, due 9/30/2007 13,513,500
--------------
53,247,960
Wireless American Cellular Corp.:
Telecommun- BB- Ba3 10,500,000 Term B, due 3/31/2008 10,482,496
ications--11.2% BB- Ba3 12,000,000 Term C, due 3/31/2009 11,979,996
Centennial Cellular Operating Co.:
B+ B1 2,743,056 Term A (PR), due 11/30/2006 2,721,992
B+ B1 2,256,944 Term A (US), due 11/30/2006 2,239,613
Dobson/Sygnet Operating Co.:
NR++ B3 2,387,713 Term A, due 9/23/2006 2,372,293
NR++ NR++ 11,374,697 Term B, due 3/23/2007 11,294,130
NR++ NR++ 10,099,690 Term C, due 12/23/2007 10,030,255
Nextel Communications, Inc.:
B+ Ba2 28,500,000 Term B, due 6/30/2008 28,583,334
B+ Ba2 28,500,000 Term C, due 12/31/2008 28,583,334
B+ Ba2 31,372,250 Term D, due 3/31/2009 31,177,962
PowerTel PCS, Inc.:
B B2 13,827,871 Term, due 12/31/2005 13,758,731
B B2 3,000,000 Term B, due 12/31/2006 2,985,000
Rural Cellular Corp.:
B+ B1 3,000,000 Term B, due 10/03/2008 2,994,375
B+ B1 3,000,000 Term C, due 4/03/2009 2,994,375
B+ B2 15,000,000 TeleCorp PCS, Term B, due 1/15/2008 14,959,380
NR++ B2 10,000,000 Tritel PCS Inc., Term B, due 12/31/2007 10,021,880
B+ B1 12,000,000 VoiceStream Wireless Corporation/
Voicestream Wireless Holding
Company, Term B, due 2/25/2009 11,938,344
B+ B1 39,000,000 VoiceStream Wireless PCS Holding Corp.,
Vendor A, due 6/30/2009 38,570,610
--------------
237,688,100
Total Senior Secured Floating Rate Loan Interests
(Cost--$2,115,476,980)--92.5% 1,966,216,968
Merrill Lynch Senior Floating Rate Fund, Inc.
February 28, 2001
SCHEDULE OF INVESTMENTS (CONCLUDED)
S&P Moody's Face Senior Secured
Industries Rating Rating Amount Floating Rate Loan Interests* Value
Cable Television Services--0.0% 707 Classic Cable, Inc. (a) $ 0
Drilling--0.0% 12,250 Rigco North America (a) 0
Manufacturing--0.0% 11,218 Environmental System Products (Common) 0
1,804 Environmental System Products (Preferred) 0
--------------
0
Other Telecommunications--0.0% 1,060 Pacific Coin (Common) 0
Retail & Retail Specialty--0.0% 2,178,603 Just For Feet, Inc. (b) 705
Total Investments in Common Stocks, Preferred Stocks,
Warrants & Agreements (Cost--$2,178,603)--0.0% 705
Face
Amount Short-Term Securities
Commercial $93,317,000 General Motors Acceptance Corp.,
Paper**--4.9% 5.56% due 3/01/2001 93,317,000
10,000,000 Transamerica Finance Corporation,
5.43% due 3/07/2001 9,990,950
--------------
103,307,950
US Government Agency 41,000,000 Fannie Mae, 5.25% due 3/19/2001 40,892,375
Obligations**--1.9%
Total Investments in Short-Term Securities
(Cost--$144,200,325)--6.8% 144,200,325
Total Investments (Cost--$2,261,855,908)--99.3% 2,110,417,998
Other Assets Less Liabilities--0.7% 15,646,570
--------------
Net Assets--100.0% $2,126,064,568
==============
(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.
(c)The Fund is entitled to receive their pro-rata share of two
Litigation Trust Certificates--the Allied Signal and Breed Creditor
Trusts pursuant to a Chapter 11 plan of reorganization.As of
February 28, 2001, information to record the specific amount of the
Fund's interest in the Litigation Trust Certificates was not
available.
*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.
See Notes to Financial Statements.
Merrill Lynch Senior Floating Rate Fund, Inc.
February 28, 2001
FINANCIAL INFORMATION
Statement of Assets and Liabilities as of February 28, 2001
Assets: Investments, at value (identified cost--$2,261,855,908) $ 2,110,417,998
Cash 50,851
Receivables:
Interest $ 20,317,554
Capital shares sold 1,842,373
Commitment fees 24,387 22,184,314
----------------
Prepaid registration fees 535,992
----------------
Total assets 2,133,189,155
----------------
Liabilities: Payables:
Dividends to shareholders 4,303,356
Investment adviser 1,325,643
Administrator 348,854 5,977,853
----------------
Deferred income 311,350
Accrued expenses and other liabilities 835,384
----------------
Total liabilities 7,124,587
----------------
Net Assets: Net assets $ 2,126,064,568
================
Net Assets Common Stock, par value $.10 per share; 1,000,000,000 shares
Consist of: authorized $ 23,376,186
Paid-in capital in excess of par 2,367,260,510
Accumulated investment loss--net (361)
Accumulated realized capital losses on investments--net (112,833,883)
Unrealized depreciation on investments--net (151,737,884)
----------------
Net Assets--Equivalent to $9.10 per share based on 233,761,861
shares of capital stock outstanding $ 2,126,064,568
================
See Notes to Financial Statements.
Merrill Lynch Senior Floating Rate Fund, Inc.
February 28, 2001
FINANCIAL INFORMATION (CONTINUED)
Statement of Operations
For the Six Months Ended
February 28, 2001
Investment Interest and discount earned $ 118,979,691
Income: Facility and other fees 1,650,262
----------------
Total income 120,629,953
----------------
Expenses: Investment advisory fees $ 10,892,066
Administrative fees 2,866,333
Transfer agent fees 489,803
Accounting services 227,643
Tender offer costs 146,641
Professional fees 94,270
Custodian fees 73,636
Registration fees 47,799
Printing and shareholder reports 40,223
Directors' fees and expenses 12,672
Assignment fees 11,687
Other 28,742
----------------
Total expenses 14,931,515
----------------
Investment income--net 105,698,438
----------------
Realized & Realized loss on investments--net (8,187,138)
Unrealized Change in unrealized depreciation on investments--net (80,834,288)
Loss on ----------------
Investments-- Net Increase in Net Assets Resulting from Operations $ 16,677,012
Net: ================
See Notes to Financial Statements.
Merrill Lynch Senior Floating Rate Fund, Inc.
February 28, 2001
FINANCIAL INFORMATION (CONTINUED)
Statements of Changes in Net Assets
For the Six For the
Months Ended Year Ended
February 28, August 31,
Increase (Decrease) in Net Assets: 2001 2000
Operations: Investment income--net $ 105,698,438 $ 228,751,046
Realized loss on investments--net (8,187,138) (72,950,213)
Change in unrealized appreciation/depreciation on
investments--net (80,834,288) (9,089,484)
---------------- ----------------
Net increase in net assets resulting from operations 16,677,012 146,711,349
---------------- ----------------
Dividends to Investment income--net (105,698,799) (228,751,698)
Shareholders: ---------------- ----------------
Net decrease in net assets resulting from dividends
to shareholders (105,698,799) (228,751,698)
---------------- ----------------
Capital Share Net decrease in net assets resulting from capital
Transactions: share transactions (277,504,601) (571,235,099)
---------------- ----------------
Net Assets: Total decrease in net assets (366,526,388) (653,275,448)
Beginning of period 2,492,590,956 3,145,866,404
---------------- ----------------
End of period* $ 2,126,064,568 $ 2,492,590,956
================ ================
*Accumulated investment loss--net $ (361) $ --
================ ================
See Notes to Financial Statements.
Merrill Lynch Senior Floating Rate Fund, Inc.
February 28, 2001
FINANCIAL INFORMATION (CONTINUED)
Statement of Cash Flows
For the Six Months Ended
February 28, 2001
Cash Provided by Net increase in net assets resulting from operations $ 16,677,012
Operating Adjustments to reconcile net increase in net assets resulting from operations
Activities: to net cash provided by operating activities:
Decrease in receivables 3,701,068
Increase in other assets (6,770)
Decrease in other liabilities (2,563,531)
Realized and unrealized loss on investments--net 89,021,426
Amortization of discount (4,673,564)
----------------
Net cash provided by operating activities 102,155,641
----------------
Cash Provided by Proceeds from principal payments and sales of loan interests 710,520,444
Investing Purchases of loan interests (379,762,111)
Activities: Purchases of short-term investments (9,348,244,020)
Proceeds from sales and maturities of short-term investments 9,295,995,899
----------------
Net cash provided by investing activities 278,510,212
----------------
Cash Used for Cash receipts on capital shares sold 71,940,871
Financing Cash payments on capital shares tendered (396,475,272)
Activities: Dividends paid to shareholders (60,603,215)
----------------
Net cash used for financing activities (385,137,616)
----------------
Cash: Net decrease in cash (4,471,763)
Cash at beginning of period 4,522,614
----------------
Cash at end of period $ 50,851
================
Non-Cash Capital shares issued in reinvestment of dividends paid to shareholders $ 46,931,156
Financing ================
Activities:
See Notes to Financial Statements.
Merrill Lynch Senior Floating Rate Fund, Inc.
February 28, 2001
FINANCIAL INFORMATION (CONCLUDED)
Financial Highlights
For the Six
The following per share data and ratios have been derived Months Ended
from information provided in the financial statements. February 28, For the Year Ended August 31,
Increase (Decrease) in Net Asset Value: 2001 2000 1999 1998 1997
Per Share Net asset value, beginning of period $ 9.45 $ 9.73 $ 9.97 $ 10.02 $ 9.99
Operating -------- -------- -------- -------- --------
Performance: Investment income--net .45 .77 .65 .68 .68
Realized and unrealized gain (loss) on
investments--net (.35) (.28) (.24) (.05) .03
-------- -------- -------- -------- --------
Total from investment operations .10 .49 .41 .63 .71
-------- -------- -------- -------- --------
Less dividends from investment income--net (.45) (.77) (.65) (.68) (.68)
-------- -------- -------- -------- --------
Net asset value, end of period $ 9.10 $ 9.45 $ 9.73 $ 9.97 $ 10.02
======== ======== ======== ======== ========
Total Investment Based on net asset value per share .68%++ 5.44% 4.23% 6.47% 7.23%
Return:** ======== ======== ======== ======== ========
Ratios to Average Expenses, excluding interest expense 1.30%* 1.31% 1.33% 1.35% 1.32%
Net Assets: ======== ======== ======== ======== ========
Expenses 1.30%* 1.31% 1.33% 1.40% 1.33%
======== ======== ======== ======== ========
Investment income--net 9.22%* 8.17% 6.59% 6.79% 6.72%
======== ======== ======== ======== ========
Leverage: Average amount of borrowings outstanding
during the period (in thousands) -- -- -- $ 24,299 $ 4,409
======== ======== ======== ======== ========
Average amount of borrowings outstanding
per share during the period -- -- -- $ .08 $ .02
======== ======== ======== ======== ========
Supplemental Net assets, end of period (in millions) $ 2,126 $ 2,493 $ 3,146 $ 3,365 $ 2,992
Data: ======== ======== ======== ======== ========
Portfolio turnover 17.50% 59.59% 60.06% 69.59% 74.00%
======== ======== ======== ======== ========
*Annualized.
**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.
++Aggregate total investment return.
See Notes to Financial Statements.
Merrill Lynch Senior Floating Rate Fund, Inc.
February 28, 2001
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. These unaudited financial statements reflect
all adjustments, which are, in the opinion of management, necessary
to a fair statement of the results for the interim period presented.
All such adjustments are of a normal, recurring nature.
(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 February 28, 2001 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 the limited number of Loan
Interests for which no reliable price quotes are available, such
Loan Interests will be valued by Loan Pricing Corporation through
the use of pricing matrices to determine valuations. 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.
Merrill Lynch Senior Floating Rate Fund, Inc.
February 28, 2001
(e) Security transactions and investment income--Security
transactions are recorded on the dates the transactions are entered
into (the trade dates). Realized gains and losses on security
transactions are determined on the identified cost basis. Interest
income is recognized on the accrual basis. The Fund will adopt the
provisions to amortize all premiums and discounts on debt securities
effective October 1, 2001, as now required under the new AICPA Audit
and Accounting Guide for Investment Companies. The cumulative effect
of this accounting change will have no impact on the total net
assets of the Fund. The impact of this accounting change has not
been determined, but will result in an adjustment to the cost of
securities and a corresponding adjustment to net unrealized
appreciation/depreciation, based on securities held as of August 31,
2001.
(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 six months ended February 28, 2001, FAM Distributors, Inc.
("FAMD"), a wholly-owned subsidiary of Merrill Lynch Group, Inc.,
earned early withdrawal charges of $1,624,826 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 were provided to the Fund by MLIM through
December 31, 2000. Up to this date, the Fund reimbursed MLIM
$164,926 for these services. As of January 1, 2001, accounting
services are provided for the Fund by State Street Bank and Trust
Company ("State Street") pursuant to an agreement between State
Street and the Fund. The Fund will pay the cost of these services.
In addition, the Fund will reimburse MLIM for the cost of certain
additional accounting services.
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 six months ended February 28, 2001
were $379,727,389 and $710,520,444, respectively.
Net realized gains (losses) for the six months ended February 28,
2001 and net unrealized losses as of February 28, 2001 were as
follows:
Realized
Gains Unrealized
(Losses) Losses
Loan interests $ (8,192,730) $(151,437,910)
Short-term investments 5,592 --
Unfunded loan interests -- (299,974)
------------ -------------
Total $ (8,187,138) $(151,737,884)
============ =============
As of February 28, 2001, net unrealized depreciation for financial
reporting and Federal income tax purposes aggregated $151,437,910,
of which $5,359,355 is related to appreciated securities and
$156,797,265 is related to depreciated securities. The aggregate
cost of investments at February 28, 2001 for Federal income tax
purposes was $2,261,855,908.
Merrill Lynch Senior Floating Rate Fund, Inc.
February 28, 2001
NOTES TO FINANCIAL STATEMENTS (CONCLUDED)
4. Capital Share Transactions:
Transactions in capital shares were as follows:
For the Six Months Ended Dollar
February 28, 2001 Shares Amount
Shares sold 7,768,510 $ 72,039,515
Shares issued to share-
holders in reinvestment
of dividends 5,072,937 46,931,156
------------- -------------
Total issued 12,841,447 118,970,671
Shares tendered (42,900,285) (396,475,272)
------------- -------------
Net decrease (30,058,838) $(277,504,601)
============= =============
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)
============= =============
5. Unfunded Loan Interests:
As of February 28, 2001, the Fund had unfunded loan commitments of
$12,327,833, which would be extended at the option of the borrower,
pursuant to the following loan agreements:
Unfunded
Commitment
Borrower (in thousands)
Arena Brands, Inc. $ 1,876
Metro-Goldwyn-Mayer Co. 3,500
Primedia 6,952
6. Short-Term Borrowings:
On December 1, 2000, the Fund, along with certain other funds
managed by MLIM and its affiliates, renewed and amended a
$1,000,000,000 credit agreement with Bank One, N.A. and certain
other lenders. The Fund may borrow under the credit agreement to
fund shareholder redemptions and for 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 One, N.A. The Fund did not
borrow under the facility during the six months ended February 28,
2001.
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 March 21, 2001, which
concludes on April 17, 2001.
Merrill Lynch Senior Floating Rate Fund, Inc.
February 28, 2001
PORTFOLIO PROFILE
AS OF FEBRUARY 28, 2001
Percent of
Ten Largest Holdings Total Assets
Wyndam International, Inc.++ 5.3%
Nextel Communications, Inc.++ 4.1
Charter Communications Holdings++ 3.5
Stone Container Corp.++ 2.8
Allied Waste North America Inc.++ 2.8
Century Cable LLC 2.3
VoiceStream Wireless PCS Holding Corp. 1.8
Semiconductor Components++ 1.7
NRT Inc. 1.6
Huntsman ICI Chemicals LLC++ 1.6
++Includes combined holdings.
Percent of
Five Largest Industries Total Assets
Wireless Telecommunications 11.2%
Cable Television Services 10.0
Chemicals 5.9
Hotels & Motels 5.8
Paper 5.7
Percent of
Quality Rating Long-Term
S&P/Moody's Investments
BBB/Baa 0.4%
BB/Ba 54.0
B/B 23.3
CCC/Caa 2.2
CC/Ca 0.2
NR (Not Rated) 19.9
Merrill Lynch Senior Floating Rate Fund, Inc.
February 28, 2001
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
Edward D. Zinbarg, Director
Kevin J. Booth, Vice President
Joseph Matteo, Vice President
Donald C. Burke, Vice President and Treasurer
Bradley J. Lucido, Secretary
Arthur Zeikel, Director and Joseph T. Monagle Jr., Senior Vice
President of Merrill Lynch Senior Floating Rate Fund, Inc., have
recently retired. The Fund's Board of Directors wishes Messrs.
Zeikel and Monagle well in their retirements.
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