SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT
COMPANIES
Investment Company Act file number 811-5850
Name of Fund: Merrill Lynch Senior Floating Rate Fund, Inc.
Master Senior Floating Rate Trust
Fund Address: P.O. Box 9011
Princeton, NJ 08543-9011
Name and address of agent for service: Terry K. Glenn, President,
Merrill Lynch Senior Floating Rate Fund, Inc., 800 Scudders Mill
Road, Plainsboro, NJ, 08536. Mailing address: P.O. Box 9011,
Princeton, NJ, 08543-9011
Registrant's telephone number, including area code: (609) 282-2800
Date of fiscal year end: 08/31/03
Date of reporting period: 09/01/02 - 2/28/03
Item 1 - Attach shareholder report
(BULL LOGO)
Merrill Lynch Investment Managers
Semi-Annual Report
February 28, 2003
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
Merrill Lynch Senior Floating Rate Fund, Inc.
DEAR SHAREHOLDER
Merrill Lynch Senior Floating Rate Fund, Inc. consists largely of
holdings in leveraged bank loans. These loans are generally senior
secured floating rate investments. In response to general economic
events and trends, the 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 is caused by two factors. First, bank loans
are usually senior secured obligations and, thus, they offer
investors greater principal protection than unsecured bonds. Second,
bank loans are floating rate instruments and, therefore, their
principal value generally does not move inversely to interest rate
movements, as is the case with fixed income bonds.
Market Review
The six-month period opened on the heels of a late August rebound in
the loan market. For the better part of September though, market
values remained bounded around a new, higher trading range reached
during the last two weeks of August, unable to further reverse the
effects of the technical price pressures applied by a quarter of
disconcerting news out of Corporate America. One August trend that
did continue to build during the month of September was the
expansion of more lender-friendly underwriting terms and syndication
processes.
During the month of September, the primary market also saw a more
normal syndication process, with more certainty of price and
allocations given to the institutional lenders than what had been
pervasive earlier in the year. The torrent of new transactions that
some had expected to be released post-Labor Day did not materialize.
Instead, some of that which had been on the immediate calendar slid
into October.
By October, all of the steam built up in August had fully dissipated
and the bank loan market endured another difficult month. Prices in
the secondary loan market were impacted both by credit concerns at
the borrower level as well as weak technicals within the market
itself. Conversely, the difficult times in the secondary loan market
continued to have a salutary effect on the primary market.
Importantly, the enticements for lenders to do new transactions were
not limited to spread and pricing but also were evident in relative
risk levels.
During November, the secondary loan market began a rebound that
would last throughout the remainder of the six-month period ended
February 28, 2003. The pipeline of new transaction flow also
continued its upward trend. In December, loans were off the highs of
November and closer to an equilibrium level. New-issue volume and
total inflows to the institutional market were about equal during
December, which helped to bring down pricing for more creditworthy
borrowers.
In January, the bank loan market managed to retain the advances in
market prices (off October 2002 lows) made in November and December.
While the overall tone of the market was positive, the relative
momentum did wane somewhat. The continuation of the market rally for
a third consecutive month (in terms of a rising Credit Suisse First
Boston (CSFB) Leveraged Loan Index) was heartening, considering the
fact that the market was unable to accomplish this feat at any time
during all of 2002.
In February, the bank loan market extended its recovery to a fourth
consecutive month. As in January, however, the relative momentum of
the recovery slowed. During the month, the new-issue pipeline
maintained a strong tone as many borrowers and underwriters
continued to access a very liquid market.
Merrill Lynch Senior Floating Rate Fund, Inc., February 28, 2003
Portfolio Performance
For the six months ended February 28, 2003, the Common Stock of
Merrill Lynch Senior Floating Rate Fund, Inc. had a net annualized
yield of 5.65%, based on a period-end per share net asset value of
$7.97 and $.221 per share income dividends. Over the same period,
the total investment return on the Fund's Common Stock was +1.81%,
based on a change in per share net asset value from $8.05 to $7.97,
and assuming reinvestment of $.221 per share ordinary income
dividends. These results compare to the +4.08% total return of the
CSFB Leveraged Loan Index for the same period.
It should be noted that the low point for the Fund's net asset value
during the period was $7.78, occurring the last week of October.
Since that time, the net asset value has seen a marked improvement,
recovering $.19 by the February 28, 2003, on the strength of four
consecutive months of positive gross total return.
Although the three-month London Interbank Offered Rate fell from
1.806% at August 31, 2002 to 1.34% at February 28, 2003, the six-
month average daily yield for the Fund increased to 5.07%, up from
4.52% for the prior six-month period (February 28, 2002 to August
31, 2002).
Wireless telecommunications, our second-largest industry
concentration, was the leading industry performer for price
appreciation during the period, followed by the tower construction
and leasing and paper sectors. Specifically, the lion's share of
price performance was attributed to our position in Nextel
Communications, Inc., where fourth quarter operating results and net
subscriber additions were extremely strong.
Sectors that had a negative impact on the Fund's market value
included hotels and motels, utilities, and health services sectors.
In particular, the greatest negative impact was our holdings in
Wyndham International Inc. Prices in the lodging sector remain weak
because of renewed softness in the economy, the military conflict
with Iraq and attendant fears of terrorism, weaker-than-expected
fourth quarter results and lowered 2003 guidance from most industry
participants. In response to the likelihood of prolonged weakness in
Wyndham, we decreased our exposure by approximately one-third in
December 2002.
Investment Activities
From a sector perspective, we continue to put the most emphasis on
those industries with strong asset values and stable cash-flow
characteristics. Cable television remains the sector with the
highest concentration, followed by wireless telecommunications and
tower construction. After a disastrous start to the semi-annual
period (the result of a marketwide sell-off after the Adelphia
Communications bankruptcy the period before), cable television was a
near break-even performer for the Fund.
At February 28, 2003, the Fund held the debt of 137 different
issuers in 40 different sectors. As compared to the CSFB Leveraged
Loan Index at February 28, 2003, the Fund was underweight in Ba and
above-rated names (32.7% of total assets compared to 51.6%),
overweight in B-rated issues (39.2% compared to 30.9%), overweight
in Caa or below-rated issues (11.8% compared to 8.1%) and overweight
in securities not rated (16.3% compared to 9.4%). (Ratings are
according to Moody's Investors Service.) During the six-month period
ended February 28, 2003, our purchases had an average credit rating
of slightly better than Ba3, while sales were focused on B-rated and
Caa and below-rated companies.
In Conclusion
In our last report to shareholders, we stated that we saw a
strengthening economy, a reversal of the Federal Reserve Board's
interest rate easing policy and lower default rates as the keys to a
total return rebound for the Fund. Six months later, we see that to
date, only the last of those elements have come to fruition, yet the
Fund has begun a recovery. With technical price pressure easing, the
Fund's diverse set of assets with strong senior secured positions
has led the way back up.
It is our belief that the recent deceleration of the total return
growth is attributable to investors' concern over the military
conflict in Iraq. We anticipate that the leveraged loan market will
resume a strengthening tone once the military action is concluded,
assuming the conflict is relatively short and ends favorably for the
United States and its allies.
Merrill Lynch Senior Floating Rate Fund, Inc., February 28, 2003
On February 10, 2003, the Fund converted from a stand-alone
investment company to a "feeder" fund that seeks to achieve its
investment objective by investing all of its assets in Master Senior
Floating Rate Trust (the Trust), which has the same investment
objective as the Fund. All investments will be made at the Trust
level. This structure is sometimes called a "master/feeder"
structure.
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/Trustee
(Kevin J. Booth)
Kevin J. Booth
Vice President and
Portfolio Manager
(Joseph Matteo)
Joseph Matteo
Vice President and
Portfolio Manager
April 4, 2003
Merrill Lynch Senior Floating Rate Fund, Inc., February 28, 2003
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.
Merrill Lynch Senior Floating Rate Fund, Inc., February 28, 2003
FINANCIAL INFORMATION
Statement of Assets and Liabilities Merrill Lynch Senior Floating Rate Fund, Inc.
As of February 28, 2003
Assets: Investment in Master Senior Floating Rate Trust, at value
(identified cost--$1,044,833,488) $ 844,398,158
Prepaid registration fees 343,806
----------------
Total assets 844,741,964
----------------
Liabilities: Payables:
Dividends to shareholders $ 562,891
Administrator 161,281
Investment adviser 153,077 877,249
----------------
Accrued expenses 149,369
----------------
Total liabilities 1,026,618
----------------
Net Assets: Net assets $ 843,715,346
================
Net Assets Common Stock, par value $.10 per share; 1,000,000,000 shares
Consist of: authorized $ 10,592,385
Paid-in capital in excess of par 1,299,492,631
Distributions in excess of investment income--net $ (542,104)
Accumulated realized capital losses on investments from the
Trust--net (265,392,236)
Unrealized depreciation on investments from the Trust--net (200,435,330)
----------------
Total accumulated losses--net (466,369,670)
----------------
Net Assets--Equivalent to $7.97 per share based on 105,923,854
shares of capital stock outstanding $ 843,715,346
================
See Notes to Financial Statements.
Merrill Lynch Senior Floating Rate Fund, Inc., February 28, 2003
FINANCIAL INFORMATION (continued)
Statement of Operations Merrill Lynch Senior Floating Rate Fund, Inc.
For the Six Months Ended February 28, 2003++
Investment Interest $ 27,907,517
Income: Facility and other fees 357,013
Net investment income allocated from the Trust:
Interest 2,727,024
Facility and other fees 40,372
Expenses (487,843)
----------------
Total income and net investment income from the Trust 30,544,083
----------------
Expenses: Investment advisory fees $ 3,916,392
Administration fees 1,151,627
Transfer agent fees 488,479
Tender offer fees 296,249
Professional fees 148,241
Loan interest expense 76,568
Accounting services 67,047
Printing and shareholder reports 30,648
Directors' fees and expenses 23,845
Registration fees 16,134
Custodian fees 9,824
Assignment fees 4,247
Pricing fees 1,114
Other 96,664
----------------
Total expenses 6,327,079
----------------
Investment income--net 24,217,004
----------------
Realized & Realized gain (loss):
Unrealized Investments--net (30,200,718)
Gain (Loss) on The Trust--net 652,721 (29,547,997)
Investments & ----------------
from The Change in unrealized appreciation/depreciation:
Trust--Net: Investments--net 17,672,335
The Trust--net 1,305,074 18,977,409
---------------- ----------------
Total realized and unrealized loss on investments and from
the Trust--net (10,570,588)
----------------
Net Increase in Net Assets Resulting from Operations $ 13,646,416
================
++On February 10, 2003, the Fund converted from a stand-alone
investment company to a "feeder" fund that seeks to achieve its
investment objective by investing all of its assets in the Trust,
which has the same investment objective as the Fund. All investments
will be made at the Trust level. This structure is sometimes called
a "master/feeder" structure.
See Notes to Financial Statements.
Merrill Lynch Senior Floating Rate Fund, Inc., February 28, 2003
FINANCIAL INFORMATION (continued)
Statements of Changes in Net Assets Merrill Lynch Senior Floating Rate Fund, Inc.
For the Six For the
Months Ended Year Ended
February 28, August 31,
Increase (Decrease) in Net Assets: 2003++ 2002
Operations: Investment income--net $ 24,217,004 $ 69,750,988
Realized loss on investments and from the Trust--net (29,547,997) (50,385,938)
Change in unrealized appreciation/depreciation on investments
and from the Trust--net 18,977,409 (78,494,316)
---------------- ----------------
Net increase (decrease) in net assets resulting from operations 13,646,416 (59,129,266)
---------------- ----------------
Dividends to Investment income--net (25,883,068) (69,418,864)
Shareholders: ---------------- ----------------
Net decrease in net assets resulting from dividends to shareholders (25,883,068) (69,418,864)
---------------- ----------------
Capital Share Net decrease in net assets derived from capital share
Transactions: transactions (208,031,369) (585,763,498)
---------------- ----------------
Net Assets: Total decrease in net assets (220,268,021) (714,311,628)
Beginning of period 1,063,983,367 1,778,294,995
---------------- ----------------
End of period* $ 843,715,346 $ 1,063,983,367
================ ================
*Undistributed (distributions in excess of) investment
income --net $ (542,104) $ 1,123,960
================ ================
++On February 10, 2003, the Fund converted from a stand-alone
investment company to a "feeder" fund that seeks to achieve its
investment objective by investing all of its assets in the Trust,
which has the same investment objective as the Fund. All investments
will be made at the Trust level. This structure is sometimes called
a "master/feeder" structure.
See Notes to Financial Statements.
Merrill Lynch Senior Floating Rate Fund, Inc., February 28, 2003
FINANCIAL INFORMATION (concluded)
Financial Highlights Merrill Lynch Senior Floating Rate Fund, Inc.
The following per share data and ratios
have been derived from information For the Six
provided in the financial statements. Months Ended
February 28, For the Year Ended August 31,
Increase (Decrease) in Net Asset Value: 2003+++++ 2002 2001 2000 1999
Per Share Net asset value, beginning of period $ 8.05 $ 8.82 $ 9.45 $ 9.73 $ 9.97
Operating ---------- ---------- ---------- ---------- ----------
Performance: Investment income--net .20 .43 .79 .77 .65
Realized and unrealized loss on
investments and from the Trust--net (.06) (.77) (.62) (.28) (.24)
---------- ---------- ---------- ---------- ----------
Total from investment operations .14 (.34) .17 .49 .41
---------- ---------- ---------- ---------- ----------
Less dividends from investment income--net (.22) (.43) (.80) (.77) (.65)
---------- ---------- ---------- ---------- ----------
Net asset value, end of period $ 7.97 $ 8.05 $ 8.82 $ 9.45 $ 9.73
========== ========== ========== ========== ==========
Total Based on net asset value per share 1.81%+++ (4.09%) 1.52% 5.44% 4.23%
Investment ========== ========== ========== ========== ==========
Return:**
Ratios to Expenses, excluding interest expense++ 1.46%* 1.41% 1.36% 1.31% 1.33%
Average ========== ========== ========== ========== ==========
Net Assets: Expenses++ 1.48%* 1.41% 1.36% 1.31% 1.33%
========== ========== ========== ========== ==========
Investment income--net 5.26%* 5.07% 8.39% 8.17% 6.59%
========== ========== ========== ========== ==========
Leverage: Average amount of borrowings outstanding
during the period (in thousands) $8,138++++ $ 3,374 -- -- --
========== ========== ========== ========== ==========
Average amount of borrowings outstanding
per share during the period (in thousands) $ .07++++ $ .02 -- -- --
========== ========== ========== ========== ==========
Supplemental Net assets, end of period (in thousands) $ 843,715 $1,063,983 $1,778,295 $2,492,591 $3,145,866
Data: ========== ========== ========== ========== ==========
Portfolio turnover -- 89.46% 50.82% 59.59% 60.06%
========== ========== ========== ========== ==========
*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. If applicable, the Fund's investment adviser waived
a portion of its management fee. Without such waiver, the Fund's
returns would have been lower.
++Includes the Fund's share of the Trust's allocated expenses.
++++Reflects the average amount of borrowings of the Fund prior to
the Fund's conversion from a stand-alone investment company to a
"feeder" fund on February 10, 2003.
+++Aggregate total investment return.
+++++On February 10, 2003, the Fund converted from a stand-alone
investment company to a "feeder" fund that seeks to achieve its
investment objective by investing all of its assets in the Trust,
which has the same investment objective as the Fund. All investments
will be made at the Trust level. This structure is sometimes called
a "master/feeder" structure.
See Notes to Financial Statements.
Merrill Lynch Senior Floating Rate Fund, Inc., February 28, 2003
NOTES TO FINANCIAL STATEMENTS
Merrill Lynch Senior Floating Rate Fund, Inc.
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. On February 10, 2003, the Fund converted from a
stand-alone investment company to a "feeder" fund that seeks to
achieve its investment objective by investing all of its assets in
the Master Senior Floating Rate Trust (the "Trust"), which has the
same investment objective as the Fund. All investments will be made
at the Trust level. This structure is sometimes called a "master/
feeder" structure. The value of the Fund's investment in the
Trust reflects the Fund's proportionate interest in the net assets
of the Trust. The performance of the Fund is directly affected by
the performance of the Trust. The financial statements of the Trust,
including the Schedule of Investments, are included elsewhere in
this report and should be read in conjunction with the Fund's
financial statements. 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. The
percentage of the Trust owned by the Fund at February 28, 2003 was
84.3%. The following is a summary of significant accounting policies
followed by the Fund.
(a) Valuation of investments--The Fund records its investment in the
Trust at fair value. Valuation of securities held by the Trust is
discussed in Note 1a of the Trust's Notes to Financial Statements,
which are included elsewhere in this report.
(b) Investment income and expenses--The Fund records daily its
proportionate share of the Trust's income, expenses and realized and
unrealized gains and losses. In addition, the Fund accrues its own
expenses. When the Fund was a stand-alone investment company,
dividend income was recorded on the ex-dividend dates. Interest
income was recognized on the accrual basis. Realized gains and
losses on security transactions were determined on the identified
cost basis.
(c) 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 shareholders. Therefore, no Federal income tax
provision is required.
(d) Prepaid registration fees--Prepaid registration fees are charged
to expense as the related shares are issued.
(e) 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.
(f) Investment transactions--Investment transactions in the Trust
are accounted for on a trade date basis.
2. Transactions with Affiliates:
The Fund has entered into an Administration Agreement with Fund
Asset Management, L.P. ("FAM"). The general partner of FAM is
Princeton Services, Inc. ("PSI"), a wholly-owned subsidiary of
Merrill Lynch & Co., Inc. ("ML & Co."), which is the limited
partner. The Fund pays a monthly fee at an annual rate of .25% of
the Fund's average daily net assets for the performance of
administrative services (other than investment advice and related
portfolio activities) necessary for the operation of the Fund.
Merrill Lynch Senior Floating Rate Fund, Inc., February 28, 2003
NOTES TO FINANCIAL STATEMENTS (concluded)
Merrill Lynch Senior Floating Rate Fund, Inc.
Financial Data Services, Inc. ("FDS"), an indirect, wholly-owned
subsidiary of ML & Co., is the Fund's transfer agent.
For the six months ended February 28, 2003, FAM Distributors, Inc.
("FAMD"), a wholly-owned subsidiary of Merrill Lynch Group, Inc.,
earned early withdrawal charges of $412,062 relating to the tender
of the Fund's shares.
Certain officers and/or directors of the Fund are officers and/or
directors of FAM, PSI, FAMD, FDS, and/or ML & Co.
3. Investments:
Increases and decreases in the Fund's investment in the Trust for
the six months ended February 28, 2003 were $843,878,997 and
$3,718,188, respectively.
4. Capital Share Transactions:
Transactions in capital shares were as follows:
For the Six Months Ended Dollar
February 28, 2003 Shares Amount
Shares sold 577,916 $ 4,579,405
Shares issued to shareholders
in reinvestment of dividends 1,465,567 11,593,027
-------------- --------------
Total issued 2,043,483 16,172,432
Shares redeemed (28,299,321) (224,203,801)
-------------- --------------
Net decrease (26,255,838) $(208,031,369)
============== ==============
For the Year Ended Dollar
August 31, 2002 Shares Amount
Shares sold 3,294,745 $ 27,972,326
Shares issued to shareholders
in reinvestment of dividends 3,652,840 30,901,278
-------------- --------------
Total issued 6,947,585 58,873,604
Shares tendered (76,275,932) (644,637,102)
-------------- --------------
Net decrease (69,328,347) $(585,763,498)
============== ==============
5. Short-Term Borrowings:
Prior to February 10, 2003, the Fund, along with certain other funds
managed by FAM and its affiliates, was a party to a $500,000,000
credit agreement with Bank One, N.A. and certain other lenders. The
Fund was able to borrow under the credit agreement to fund
shareholder redemptions and for other lawful purposes other than for
leverage. The Fund was able to 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 paid a commitment fee of .09% per
annum based on the Fund's pro rata share of the unused portion of
the credit agreement. Amounts borrowed under the credit agreement
bear interest at a rate equal to, at each fund's election, the
Federal Funds rate plus .50% or a basic rate as determined by Bank
One, N.A. On November 29, 2002, the credit agreement was renewed for
one year under the same terms, except that the commitment was
reduced from $1,000,000,000 to $500,000,000. For the period
September 1, 2002 to February 7, 2003, the average amount borrowed
was approximately $8,138,000 and the average daily weighted interest
rate was 2.15%.
6. Capital Loss Carryforward:
On August 31, 2002, the Fund had a net capital loss carryforward of
$193,524,864, of which $1,471,065 expires in 2004, $3,278,446
expires in 2005, $4,468,275 expires in 2006, $3,365,959 expires in
2007, $28,290,011 expires in 2008, $64,746,799 expires in 2009 and
$87,904,309 expires in 2010. This amount will be available to offset
like amounts of any future taxable gains.
Merrill Lynch Senior Floating Rate Fund, Inc., February 28, 2003
SCHEDULE OF INVESTMENTS Master Senior Floating Rate Trust
S&P Moody's Face Senior Secured
Industries++++ Rating Rating Amount Floating Rate Loan Interests* Value
Air Transportation Evergreen International Aviation, Inc.:
Services--0.3% B+ Ba2 $ 3,107,223 Term B Aircraft, due 5/07/2003 $ 2,656,676
B+ Ba2 526,057 Term B-1, due 5/07/2003 449,778
--------------
3,106,454
Amusement & BB- Ba3 5,000,000 Metro-Goldwyn-Mayer Co., Term B, due 6/30/2008 4,975,780
Recreational
Services--0.5%
Apparel--1.0% Arena Brands, Inc.:
NR++ NR++ 949,144 Revolving Credit, due 6/01/2003 941,824
NR++ NR++ 38,934 Term A, due 6/01/2003 38,666
NR++ NR++ 6,449,607 Term B, due 6/01/2003 6,411,716
BB B1 1,000,000 Levi Strauss, Term B, due 7/30/2006 1,002,708
Walls Industries:
NR++ NR++ 1,035,130 Term B, due 2/28/2005 866,724
NR++ NR++ 1,512,935 Term C, due 2/28/2006 1,203,972
--------------
10,465,610
Automotive B+ NR++ 7,057,976 Citation Corporation, Term B, due 12/01/2007 6,211,019
Equipment--2.5% BB Ba2 2,500,000 TRW Automotive, Term B, due 1/10/2011 2,504,375
Tenneco Automotive Inc.:
B B2 8,714,909 Term B, due 12/30/2007 8,055,068
B B2 8,714,909 Term C, due 6/30/2008 8,070,624
--------------
24,841,086
Broadcasting-- CC B2 19,318 Benedek Broadcasting Corporation, Term B, due 11/20/2007 19,278
Radio & Granite Broadcasting Corp.:
Television--1.3% NR++ NR++ 5,250,000 Term A, due 4/15/2004 5,118,750
NR++ NR++ 1,500,000 Term B, due 4/15/2004 1,511,250
BB- Ba2 2,000,000 Sinclair Broadcasting Group Inc., Term B, due 12/31/2009 2,004,554
NR++ NR++ 4,465,124 VHR Broadcasting/Quoram Broadcasting, Term B, due
12/31/2004 4,119,077
--------------
12,772,909
Building NR++ NR++ 2,854,960 Trussway Industries Inc., Term B, due 12/31/2006 2,212,594
Materials--0.2%
Business BB- Ba3 6,314,629 Transaction Network Services, Term B, due 3/30/2007 6,225,821
Services--0.6%
Cable Television BB Ba3 5,000,000 CC VI Operating Company LLC, Term B, due 11/12/2008 3,857,145
Services--19.1% BB+ Ba3 14,751,000 CC VIII Operating Company LLC, Term B, due 2/02/2008 12,451,423
D Caa 50,000,000 Century Cable Holdings LLC, Term, due 6/30/2009 36,041,650
BB- B1 73,386,684 Charter Communications Holdings, Term B, due 3/18/2008 61,772,861
BB- B1 7,446,237 Charter Communications Operating LLC, Incremental Term,
due 9/18/2008 6,237,259
B Ba3 9,600,000 Falcon Holdings Group, Term C, due 12/31/2007 8,076,000
Merrill Lynch Senior Floating Rate Fund, Inc., February 28, 2003
SCHEDULE OF INVESTMENTS (continued) Master Senior Floating Rate Trust
S&P Moody's Face Senior Secured
Industries++++ Rating Rating Amount Floating Rate Loan Interests* Value
Cable Television Frontiervision Operating Partners LP:
Services D B2 $ 3,582,057 Term A, due 9/30/2005 $ 3,152,210
(concluded) D B2 15,668,000 Term B, due 3/31/2006 13,787,840
BB+ Ba3 5,500,000 Insight Midwest, Term B, due 12/31/2009 5,312,313
D B2 23,500,000 Olympus Cable Holdings LLC, Term B, due 9/30/2010 19,061,696
B+ B1 16,170,000 Pegasus Media & Communications Inc., Term, due 4/30/2005 14,615,869
NR++ Caa1 9,975,000 UCC/HHC Inc., Term B, due 3/31/2008 6,778,013
--------------
191,144,279
Chemicals--5.1% NR++ NR++ 3,693,548 CII Carbon LLC, Term, due 6/25/2008 2,585,483
NR++ NR++ 8,200,854 Cedar Chemical Corp., Term B, due 10/31/2003 574,060
Huntsman International LLC:
B+ B2 19,967,066 Term B, due 6/30/2007 19,650,929
B+ B2 19,967,067 Term C, due 6/30/2008 19,650,927
BB Ba3 4,201,779 Lyondell Petrochemical Co., Term E, due 6/30/2006 4,214,254
NR++ NR++ 4,499,095 Pinnacle Polymers, Term B, due 12/31/2004 4,467,395
--------------
51,143,048
Computer-Related Bridge Information Systems (b):
Products--0.5% NR++ NR++ 1,401,457 Multi Draw Term, due 7/07/2003 189,197
NR++ NR++ 9,068,991 Term B, due 5/29/2005 1,224,314
NR++ NR++ 1,394,014 Tranche B, due 5/29/2005 188,192
NR++ NR++ 3,574,219 Stratus Technologies, Inc., Term B, due 2/26/2005 2,912,988
--------------
4,514,691
Consumer BB- Ba3 10,513,664 Burhmann NV, Term B, due 10/26/2007 9,984,038
Products--1.6% Simmons Co.:
BB- Ba3 2,792,977 Term B, due 10/29/2005 2,801,995
BB- Ba3 3,447,720 Term C, due 10/29/2006 3,461,080
--------------
16,247,113
Electronics/ B+ B1 3,484,426 ChipPAC International Co. Ltd., Term B, due 7/31/2006 3,462,648
Electrical NR++ Ba3 3,488,934 DD Inc., Term B, due 4/22/2005 2,529,477
Components--2.2% On Semiconductor Corporation:
B B3 6,282,731 Term B, due 8/04/2006 5,692,154
B B3 7,022,858 Term C, due 8/04/2007 6,362,709
B B3 3,996,685 Term D, due 8/04/2007 3,636,984
NR++ B1 1,546,398 Trend Technologies, Inc., Term, due 2/28/2007 (b) 425,260
--------------
22,109,232
Energy--1.1% BB- Ba3 1,046,012 Dresser Inc., Term B, due 4/10/2009 1,048,720
BB Ba3 897,196 EPN Holdings Co., Term, due 3/31/2005 854,579
BB+ Ba3 1,000,000 El Paso Energy, Term, due 9/01/2009 952,500
BBB- NR++ 5,458,750 Pride International, Term, due 6/14/2007 5,484,341
NR++ NR++ 2,701,875 W-H Energy Services, Term B, due 4/16/2007 2,661,347
--------------
11,001,487
Environmental IT Group Inc. (b):
Services--0.9% D NR++ 9,991,000 Term, due 6/08/2007 965,800
D NR++ 5,084,407 Term B, due 6/11/2006 491,494
BB- B1 7,481,250 URS Corp., Term B, due 7/01/2008 7,069,781
--------------
8,527,075
Financial NR++ B2 4,732,063 Outsourcing Solutions, Inc., Term B, due 6/01/2006 (b) 1,679,882
Services--0.2%
Merrill Lynch Senior Floating Rate Fund, Inc., February 28, 2003
SCHEDULE OF INVESTMENTS (continued) Master Senior Floating Rate Trust
S&P Moody's Face Senior Secured
Industries++++ Rating Rating Amount Floating Rate Loan Interests* Value
Food & Kindred BB- B2 $ 987,721 American Seafood, Term B, due 3/31/2009 $ 991,734
Products--1.4% NR++ Ba2 6,208,778 Dean Foods Company, Term B, due 7/15/2008 6,215,378
BB- Ba3 4,000,000 DelMonte, Term B, due 12/20/2010 4,034,000
BB+ Ba2 1,320,206 International Multi-Foods Corporation, Term B, due 2/28/2008 1,326,218
BB- Ba3 1,571,120 Merisant Company, Term B, due 3/31/2007 1,572,594
--------------
14,139,924
Funeral Homes & NR++ Caa1 13,351,906 Prime Succession Inc., Term, due 8/01/2003 6,008,358
Parlors--0.6%
Gaming--1.5% B+ Ba3 6,444,369 Ameristar Casinos Inc., Term B, due 12/20/2006 6,479,007
B+ B2 5,400,000 Marina District Finance Co., Term B, due 7/15/2007 5,325,750
B+ B2 2,985,000 Venetiancasi, Term B, due 6/04/2008 3,005,522
--------------
14,810,279
Grocery--1.1% The Pantry Inc.:
B+ B1 6,484,327 Term B, due 1/31/2006 6,399,220
B+ B1 5,092,500 Term C, due 7/31/2006 5,027,255
--------------
11,426,475
Health Services-- Medical Specialties (b):
1.5% NR++ NR++ 12,845,455 Axel, due 6/30/2004 3,211,364
NR++ NR++ 4,418,182 Term, due 10/21/2001 1,104,545
NR++ NR++ 5,723,889 Mediq/Prn Life Support, Tranche B, due 6/13/2003 5,294,597
B+ B1 6,219,769 MedPointe Inc., Term B, due 9/30/2008 5,675,540
--------------
15,286,046
Hotels & Motels-- Wyndham Hotel Corporation:
2.6% B- NR++ 16,734,314 Increasing Rate Term, due 6/30/2004 12,691,940
B- NR++ 18,851,973 Term, due 6/30/2006 13,698,315
--------------
26,390,255
Industrial B+ B2 9,216,016 Muzak LLC, Term B, due 12/31/2006 8,778,255
Services--0.9%
Insurance--0.2% BB+ Ba2 2,038,750 Willis North America Inc., Term B, due 11/19/2006 2,026,008
Leasing & Rental CCC+ C 8,522,920 Anthony Crane Rental LP, Term, due 7/20/2006 4,971,700
Services--1.2% CCC+ NR++ 7,186,541 Rent Way Inc., Term B, due 12/31/2003 6,683,483
--------------
11,655,183
Manufacturing-- B B1 3,792,746 Alliance, Term B, due 8/06/2007 3,762,719
3.0% Channel Master Holdings, Inc.:
NR++ NR++ 586,541 Revolving Credit, due 11/15/2004 528,684
NR++ NR++ 4,692,326 Term, due 11/15/2004 4,296,824
B+ B1 2,678,359 Metokote Corp., Term B, due 11/02/2005 2,641,531
B+ B1 13,183,750 Mueller Group, Term E, due 6/24/2008 13,167,270
SPX Corporation:
BB+ Ba2 854,687 Term B, due 9/30/2009 853,405
BB+ Ba2 1,424,479 Term C, due 3/31/2010 1,422,342
B B2 1,740,862 Transpor Manufacturing, Term B, due 6/15/2005 1,346,266
BB- B1 2,493,990 Trimas Corp., Term B, due 12/31/2009 2,502,283
--------------
30,521,324
Merrill Lynch Senior Floating Rate Fund, Inc., February 28, 2003
SCHEDULE OF INVESTMENTS (continued) Master Senior Floating Rate Trust
S&P Moody's Face Senior Secured
Industries++++ Rating Rating Amount Floating Rate Loan Interests* Value
Metals & NR++ NR++ $10,286,816 Acme Metals, Inc., Term, due 12/01/2005 (b) $ 1,543,022
Mining--5.1% NR++ NR++ 14,648,333 Copperweld Corp., Term A, due 5/23/2003 10,693,283
Ispat International:
B- Caa2 18,622,500 Term B, due 7/15/2005 12,104,625
B- Caa4 18,622,500 Term C, due 7/15/2006 12,104,625
CCC+ Ca 31,000,000 Ormet Corportation, Term, due 8/15/2008 14,880,000
--------------
51,325,555
Packaging--2.1% B+ B1 4,975,000 Berry Plastics Corp., Term B, due 6/30/2010 5,002,984
NR++ NR++ 15,805,162 Dr. Pepper, Term B, due 10/07/2007 15,600,185
--------------
20,603,169
Paper--0.8% Stone Container Corp.:
B+ Ba3 6,138,462 Term B, due 6/30/2009 6,072,762
B+ Ba3 2,261,538 Term C, due 6/30/2009 2,236,804
--------------
8,309,566
Petroleum BB+ Ba3 9,323,306 Tesoro Petroleum Corp., Term B, due 12/31/2007 8,866,464
Refineries--0.9%
Printing & NR++ NR++ 9,747,315 Enterprise Newsmedia, Inc./Publishing Co., Term B, due
Publishing--2.3% 6/30/2005 9,016,266
B B1 5,019,231 Liberty Group Operating, Term B, due 3/31/2007 5,012,957
BB Ba3 2,500,000 RH Donnelley, Term B, due 11/15/2009 2,517,813
B+ B1 6,520,642 Vertis, Inc., Term B, due 12/06/2008 6,333,175
--------------
22,880,211
Property B+ B1 7,940,000 Corrections Corporation of America, Term B, due 3/31/2008 7,941,985
Management--0.8%
Restaurants & BB- Ba3 6,467,500 Domino's Inc. & Bluefence Inc., Term B, due 6/30/2008 6,487,711
Food Service--0.6%
Retail & Retail BBB+ Ba1 5,514,706 Shoppers Drug Mart, Term F, due 2/04/2009 5,527,803
Specialty--0.6%
Tower BB- B2 25,019,796 American Tower Systems Corporation, Term B, due 12/31/2007 23,707,558
Construction & B- B3 20,796,000 Crown Castle Operating Company, Term B, due 3/31/2008 19,721,533
Leasing--6.5% CC B3 24,765,940 Spectracite Communications, Term B, due 12/31/2007 21,979,771
--------------
65,408,862
Transportation BB+ Ba1 6,462,088 Kansas City Southern Railway Company, Term B, due 6/12/2008 6,478,243
Services--1.5% B+ B1 9,099,649 North American Van Lines Inc., Term B, due 11/18/2007 8,875,006
--------------
15,353,249
Utilities--4.7% NR++ Ba3 3,000,000 AES New York Funding, LLC, Term, due 2/28/2005 2,825,001
BBB- Ba3 10,546,084 Calpine Corporation, Term B, due 3/05/2004 9,635,166
BBB- Baa3 9,500,000 Consumer Energy, due 7/31/2004 9,541,563
BB+ Baa2 1,990,000 Michigan Electric Transmission, Term B, due 5/01/2007 1,990,623
Mission Energy Holdings:
B- Ba2 19,233,767 Term A, due 7/02/2006 5,866,299
B- Ba2 12,266,233 Term B, due 7/02/2006 3,741,201
BB Ba2 8,500,000 Southern California Edison Company, Term B, due 2/28/2005 8,519,924
BB+ Ba2 2,228,125 TNP Enterprises, Inc., Term, due 3/30/2006 2,214,199
BBB- Ba1 2,495,726 Western Resources Inc., Term N, due 5/31/2005 2,470,769
--------------
46,804,745
Merrill Lynch Senior Floating Rate Fund, Inc., February 28, 2003
SCHEDULE OF INVESTMENTS (continued) Master Senior Floating Rate Trust
S&P Moody's Face Senior Secured
Industries++++ Rating Rating Amount Floating Rate Loan Interests* Value
Waste Allied Waste North America Inc.:
Management--3.4% BB Ba3 $ 5,137,493 Term A, due 7/21/2005 $ 5,121,438
BB Ba3 13,231,333 Term B, due 7/21/2006 13,207,702
BB Ba3 15,877,599 Term C, due 7/21/2007 15,849,242
--------------
34,178,382
Wired NR++ NR++ 6,751,147 E. Spire Communication, Term C, due 8/11/2006 (b) 1
Telecommuni- Integra (Pacoin):
cations--0.9% NR++ NR++ 2,821,844 Term A, due 12/31/2005 844,296
NR++ NR++ 883,250 Term B, due 12/31/2005 264,268
NR++ NR++ 1,545,688 Term C, due 12/31/2005 462,470
BB- Ba3 8,259,440 Valor Telecommunications, Term B, due 6/30/2008 7,288,956
NR++ Caa3 16,500,000 WCI Capital Corp., Term B, due 9/30/2007 (b) 283,602
--------------
9,143,593
Wireless American Cellular Corp.:
Telecommuni- CC B3 3,571,449 Term B, due 3/31/2008 2,691,980
cations--11.5% CC B3 13,397,240 Term C, due 3/31/2009 10,098,169
Centennial Cellular Operating Co.:
B+ B1 1,946,615 Term A (PR), due 11/30/2006 1,596,224
B+ B1 2,365,885 Term A (US), due 11/30/2006 1,940,026
B+ B1 4,308,750 Term C, due 11/30/2007 3,377,754
Dobson Sygnet Operating Co.:
NR++ B3 1,525,919 Term B, due 3/23/2007 1,358,068
NR++ B3 1,646,602 Term C, due 12/23/2007 1,465,475
Nextel Communications, Inc.:
BB- Ba3 18,952,500 Term B, due 6/30/2008 18,114,022
BB- Ba3 18,952,500 Term C, due 12/31/2008 18,114,022
BB- Ba3 30,310,250 Term D, due 3/31/2009 28,319,776
Rural Cellular Corp.:
B+ Ba3 4,518,240 Term B, due 10/03/2008 3,911,504
B+ Ba3 4,518,240 Term C, due 4/03/2009 3,911,504
Sygnet Wireless, Inc.:
B Ba3 1,925,890 Term A, due 9/23/2006 1,771,819
B Ba3 10,683,907 Term B, due 3/23/2007 9,508,677
B Ba3 9,862,976 Term C, due 12/23/2007 8,778,049
--------------
114,957,069
Total Senior Secured Floating Rate Loan Interests
(Cost--$1,146,174,120)--92.8% 929,797,532
Corporate Debt
Apparel--0.1% NR++ NR++ 1,094,606 Warnaco Inc., 9.50% due 2/15/2008 1,072,714
Chemicals--0.2% NR++ NR++ 1,662,678 PCI Chemicals, Canada, 10% due 12/31/2008 1,263,635
NR++ NR++ 554,226 Pioneer Companies, Inc., 4.90% due 12/31/2006 410,127
--------------
1,673,762
Total Corporate Debt (Cost--$8,405,491)--0.3% 2,746,476
Merrill Lynch Senior Floating Rate Fund, Inc., February 28, 2003
SCHEDULE OF INVESTMENTS (concluded) Master Senior Floating Rate Trust
Shares
Industries++++ Held Common Stocks Value
Apparel--0.3% 237,083 Warnaco Group, Inc. (b) $ 2,387,422
Chemicals--0.0% 107,520 Pioneer Companies, Inc. (b) 311,808
Other Telecommunications--0.0% 1,060 Pacific Coin (b) 0
Wired Telecommunications--0.0% 1,654,878 Integra (b) 17
Total Investments in Common Stocks
(Cost--$3,212,781)--0.3% 2,699,247
Preferred Stocks
Medical Equipment--0.0% 14,398 Mediq Inc. (Convertible) 0
Total Investments in Preferred Stocks
(Cost--$0)--0.0% 0
Warrants (a)
Cable Television Services--0.0% 707 Classic Cable, Inc. 0
Drilling--0.0% 12,250 Rigco North America 0
Paper--0.0% Cellu Tissue:
98 Series A 1
49 Series B 0
--------------
1
Total Investments in Warrants
(Cost--$1)--0.0% 1
Beneficial
Interest Short-Term Securities
$60,136,220 Merrill Lynch Liquidity Series, LLC Cash Sweep Series I** 60,136,220
Total Short-Term Securities
(Cost--$60,136,220)--6.0% 60,136,220
Total Investments (Cost--$1,217,928,613)--99.4% 995,379,476
Other Assets Less Liabilities--0.6% 6,248,549
--------------
Net Assets--100.0% $1,001,628,025
==============
(a)Warrants entitle the Trust 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)Non-income producing security.
++Not Rated.
++++Industries are shown as a percent of net assets.
*Senior secured floating rate loan interests in which the Trust
invests generally pay interest at rates that are periodically
redetermined by reference to a base lending rate plus a premium.
These base lending rates are generally (i) the lending rate offered
by one or more major European banks, such as LIBOR (London Inter-
Bank Offered Rate), (ii) the prime rate offered by one or more major
U.S. banks or (iii) the certificate of deposit rate.
**Investments in companies considered to be an affiliate of the
Trust (such companies are defined as "Affiliated Companies" in
Section 2(a)(3) of the Investment Company Act of 1940) are as
follows:
Net Interest
Affiliate Activity Income
Merrill Lynch Liquidity Series, LLC
Cash Sweep Series I $60,136,220 $67,318
See Notes to Financial Statements.
Merrill Lynch Senior Floating Rate Fund, Inc., February 28, 2003
FINANCIAL INFORMATION
Statement of Assets and Liabilities Master Senior Floating Rate Trust
As of February 28, 2003
Assets: Investments, at value (identified cost--$1,217,928,613) $ 995,379,476
Cash 174,785
Receivables:
Interest $ 6,904,922
Principal paydowns 102,865
Contributions 101,062
Commitment fees 28,727 7,137,576
----------------
Prepaid expenses and other assets 34,182
----------------
Total assets 1,002,726,019
----------------
Liabilities: Payables:
Investment adviser 575,375
Securities purchased 45,680 621,055
----------------
Accrued expenses and other liabilities 476,939
----------------
Total liabilities 1,097,994
----------------
Net Assets: Net assets $ 1,001,628,025
================
Net Assets Investors' capital $ 1,224,392,093
Consist of: Unrealized depreciation on investments--net (222,764,068)
----------------
Net assets $ 1,001,628,025
================
See Notes to Financial Statements.
Statement of Operations Master Senior Floating Rate Trust
For the Six Months Ended February 28, 2003
Investment Interest $ 7,956,688
Income: Facility and other fees 92,585
----------------
Total income 8,049,273
----------------
Expenses: Investment advisory fees $ 1,242,587
Accounting services 82,248
Professional fees 48,210
Loan interest expense 39,616
Trustees' fees and expenses 20,413
Custodian fees 19,696
Printing and shareholder reports 3,326
Assignment fees 2,785
Pricing fees 1,624
Other 56,554
----------------
Total expenses 1,517,059
----------------
Investment income--net 6,532,214
----------------
Realized & Realized loss on investments--net (7,236,367)
Unrealized Change in unrealized depreciation on investments--net 8,586,706
Gain (Loss) on ----------------
Investments-- Total realized and unrealized gain on investments--net 1,350,339
Net: ----------------
Net Increase in Net Assets Resulting from Operations $ 7,882,553
================
See Notes to Financial Statements.
Merrill Lynch Senior Floating Rate Fund, Inc., February 28, 2003
FINANCIAL INFORMATION (continued)
Statements of Changes in Net Assets Master Senior Floating Rate Trust
For the Six For the
Months Ended Year Ended
February 28, August 31,
Increase (Decrease) in Net Assets: 2003 2002
Operations: Investment income--net $ 6,532,214 $ 14,687,288
Realized loss on investments--net (7,236,367) (15,359,304)
Change in unrealized depreciation on investments--net 8,586,706 (14,069,682)
---------------- ----------------
Net increase (decrease) in net assets resulting from operations 7,882,553 (14,741,698)
---------------- ----------------
Capital Proceeds from contributions 35,006,422 22,661,968
Transactions: Fair value of net asset contributions 841,562,097 --
Fair value of withdrawals (65,028,346) (202,646,242)
---------------- ----------------
Net increase (decrease) in net assets derived from capital
transactions 811,540,173 (179,984,274)
---------------- ----------------
Net Assets: Total increase (decrease) in net assets 819,422,726 (194,725,972)
Beginning of period 182,205,299 376,931,271
---------------- ----------------
End of period $ 1,001,628,025 $ 182,205,299
================ ================
See Notes to Financial Statements.
Statement of Cash Flows Master Senior Floating Rate Trust
For the Six Months Ended
February 28, 2003
Cash Provided Net increase in net assets resulting from operations $ 7,882,553
by Operating Adjustments to reconcile net increase in net assets resulting from operations
Activities: to net cash provided by operating activities:
Increase in receivables (5,538,936)
Increase in other assets 23,165
Decrease in other liabilities 736,513
Realized and unrealized gain on investments--net (1,350,339)
Amortization of premium and discount (912,448)
----------------
Net cash provided by operating activities 840,508
----------------
Cash Used for Proceeds from principal payments and sales of loan interests 86,838,718
Investing Purchases of loan interests (831,977,927)
Activities: Purchases of short-term investments--net (54,288,105)
----------------
Net cash used for investing activities (799,427,314)
----------------
Cash Provided Cash receipts of borrowings 19,000,000
by Financing Cash payments on borrowings (32,000,000)
Activities: Cash receipts on capital contributions 35,110,786
Fair value of net asset contributions 841,562,097
Cash payments on capital withdrawals (65,028,346)
----------------
Net cash provided by financing activities 798,644,537
----------------
Cash: Net increase in cash 57,731
Cash at beginning of period 117,054
----------------
Cash at end of period $ 174,785
================
Cash Flow Cash paid for interest $ 49,728
Information: ================
See Notes to Financial Statements.
Merrill Lynch Senior Floating Rate Fund, Inc., February 28, 2003
FINANCIAL INFORMATION (concluded)
Financial Highlights Master Senior Floating Rate Trust
For the Six For the For the
Months Year Period
Ended Ended Oct. 6, 2000++
The following ratios have been derived from Feb. 28, Aug. 31, to Aug. 31,
information provided in the financial statements. 2003 2002 2001
Total Investment 3.16%+++ (4.66%) --
Return:** ========== ========== ==========
Ratios to Expenses, excluding interest expense 1.13%* 1.09% 1.06%*
Average ========== ========== ==========
Net Assets: Expenses 1.16%* 1.12% 1.06%*
========== ========== ==========
Investment income--net 4.99%* 5.31% 7.92%*
========== ========== ==========
Leverage: Amount of borrowings outstanding, end of period (in thousands) -- $ 13,000 --
========== ========== ==========
Average amount of borrowings outstanding during the period
(in thousands) $ 4,265 $ 3,959 --
========== ========== ==========
Supplemental Net assets, end of period (in thousands) $1,001,628 $ 182,205 $ 376,931
Data: ========== ========== ==========
Portfolio turnover 5.52% 36.77% 19.53%
========== ========== ==========
*Annualized.
**Total investment return is required to be disclosed for fiscal
years beginning after December 15, 2000.
++Commencement of operations.
+++Aggregate total investment return.
See Notes to Financial Statements.
Merrill Lynch Senior Floating Rate Fund, Inc., February 28, 2003
NOTES TO FINANCIAL STATEMENTS
Master Senior Floating Rate Trust
1. Significant Accounting Policies:
Master Senior Floating Rate Trust (the "Trust") is registered under
the Investment Company Act of 1940 and is organized as a Delaware
business trust. The Declaration of Trust permits the Trustees to
issue nontransferable interests in the Trust, subject to certain
limitations. On February 10, 2003, the Trust received all of the
assets of Merrill Lynch Senior Floating Rate Fund, Inc., a
registered investment company that converted to a master/feeder
structure. The Trust'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. The
following is a summary of significant accounting policies followed
by the Trust.
(a) Loan participation interests--The Trust invests in senior
secured floating rate loan interests ("Loan Interests") with
collateral having a market value, at time of acquisition by the
Trust, which Trust management believes equals or exceeds the
principal amount of the corporate loan. The Trust may invest up to
20% of its total assets in loans made on an unsecured basis.
Depending on how the loan was acquired, the Trust will regard the
issuer as including the corporate borrower along with an agent bank
for the syndicate of lenders and any intermediary of the Trust's
investment. Because agents and intermediaries are primarily
commercial banks, the Trust's investment in corporate loans at
February 28, 2003 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. If the pricing
service does not provide a value for a Loan Interest, the Investment
Adviser will value the Loan Interest 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
Trustees of the Trust. Occasionally, events affecting the values of
securities and other assets may occur between the times at which
valuations of such securities are determined (that is, close of the
market on which such security trades) and the close of business on
the NYSE. If events (for example, company announcement, natural
disasters, market volatility) occur during such periods that are
expected to materially affect the value for such securities, those
securities may be valued at their fair market value as determined in
good faith by the Trust's Board of Trustees or by the investment
adviser using a pricing service and/or prodedures approved by the
Board of Trustees of the Trust.
(c) Derivative financial instruments--The Trust may engage in
various portfolio investment strategies to increase or decrease the
level of risk to which the Trust 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.
Merrill Lynch Senior Floating Rate Fund, Inc., February 28, 2003
* Interest rate swaps--The Trust is authorized to enter into swap
agreements for the purpose of hedging the market risk on existing
securities. In a swap agreement, the Trust exchanges with the
counterparty their respective commitments to pay or receive interest
on a specified notional principal amount. If the counterparty
defaults on its obligation, the Trust's ability to receive interest
will be delayed or limited. Furthermore, if the Trust does not have
sufficient income to pay its obligation under the swap agreement,
the Trust would be in default and the counterparty would be able to
terminate the swap agreement. When the swap agreement is closed, the
Trust records a realized gain or loss equal to the difference
between the value of the swap agreement at the time it was entered
into and the value at the time it was closed.
(d) Income taxes--The Trust is classified as a partnership for
Federal income tax purposes. As such, each investor in the Trust is
treated as owner of its proportionate share of the net assets,
income, expenses and realized and unrealized gains and losses of the
Trust. Accordingly, as a "pass through" entity, the Trust pays no
income dividends or capital gains distributions. Therefore, no
Federal income tax provision is required. It is intended that the
Trust's assets will be managed so an investor in the Trust can
satisfy the requirements of subchapter M of the Internal Revenue
Code.
(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. Dividend
income is recorded on the ex-dividend dates. Interest income is
recognized on the accrual basis.
2. Investment Advisory Agreement and Transactions with Affiliates:
The Trust has entered into an Investment Advisory Agreement with
Fund Asset Management, L.P. ("FAM"). The general partner of FAM is
Princeton Services, Inc. ("PSI"), an indirect, wholly-owned
subsidiary of Merrill Lynch & Co., Inc. ("ML & Co."), which is the
limited partner.
FAM is responsible for the management of the Trust's portfolio and
provides the necessary personnel, facilities, equipment and certain
other services necessary to the operations of the Trust. For such
services, the Trust pays a monthly fee at an annual rate of .95% of
the average daily value of the Trust's net assets.
For the six months ended February 28, 2003, the Trust reimbursed FAM
$5,734 for certain accounting services.
Certain officers and/or trustees of the Trust are officers and/or
directors of FAM, PSI, FDS, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities,
for the six months ended February 28, 2003 were $15,131,798 and
$86,941,583, respectively.
Net realized losses for the six months ended February 28, 2003 and
net unrealized losses as of February 28, 2003 were as follows:
Realized Unrealized
Losses Losses
Loan interests $ (7,236,283) $(222,549,137)
Short-term investments (84) --
Unfunded loan interests -- (214,931)
-------------- --------------
Total $ (7,236,367) $(222,764,068)
============== ==============
As of February 28, 2003, net unrealized depreciation for Federal
income tax purposes aggregated $222,723,643, of which $4,963,537
related to appreciated securities and $227,687,180 related to
depreciated securities. At February 28, 2003, the aggregate cost of
investments for Federal income tax purposes was $1,218,103,119.
Merrill Lynch Senior Floating Rate Fund, Inc., February 28, 2003
NOTES TO FINANCIAL STATEMENTS (concluded)
Master Senior Floating Rate Trust
4. Unfunded Loan Interests:
As of February 28, 2003, the Fund had unfunded loan commitments of
approximately $5,867,000, which would be extended at the option of
the borrower, pursuant to the following loan agreements:
Unfunded
Commitment
Borrower (in thousands)
Arena Brands, Inc. $1,481
Channel Master Holdings, Inc. $ 636
Granite Broadcasting Corporation $3,750
5. Short-Term Borrowings:
The Trust, along with certain other funds managed by FAM and its
affiliates, is a party to a $500,000,000 credit agreement with Bank
One, N.A. and certain other lenders. The Trust may borrow under the
credit agreement to fund investor withdrawals and for other lawful
purposes other than for leverage. The Trust may borrow up to the
maximum amount allowable under the Trust's current prospectus and
statement of additional information, subject to various other legal,
regulatory or contractual limits. The Trust pays a commitment fee of
..09% per annum based on the Trust's pro rata share of the unused
portion of the credit agreement. Amounts borrowed under the credit
agreement 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. On November 29, 2002, the credit agreement was
renewed for one year under the same terms, except that the total
commitment was reduced from $1,000,000,000 to $500,000,000.
For the six months ended February 28, 2003, the average amount
borrowed was approximately $4,265,000 and the daily weighted average
interest rate was 1.87%.
PORTFOLIO PROFILE
As Of February 28, 2003
Percent of
Ten Largest Holdings Total Assets
Nextel Communications, Inc.++ 6.4%
Charter Communications Holdings++ 6.2
Huntsman International LLC++ 3.9
Century Cable Holdings LLC 3.6
Allied Waste North America Inc.++ 3.4
Wyndham Hotel Corporation++ 2.6
Ispat International++ 2.4
American Tower Systems Corporation 2.4
Spectracite Communications 2.2
Sygnet Wireless, Inc.++ 2.0
++Includes combined holdings.
Percent of
Five Largest Industries Total Assets
Cable Television Services 19.1%
Wireless Telecommunications 12.2
Tower Construction & Leasing 6.5
Chemicals 5.3
Metals & Mining 5.1
Percent of
Quality Ratings by Long-Term
S&P/Moody's Investments
BBB/Baa 2.5%
BB/Ba 11.6
B/B 50.9
CCC/Caa 10.7
CC/Ca 3.7
D 7.9
NR (Not Rated) 12.7
Merrill Lynch Senior Floating Rate Fund, Inc., February 28, 2003
OFFICERS AND DIRECTORS/TRUSTEES
Terry K. Glenn, President and Director/Trustee
Ronald W. Forbes, Director/Trustee
Cynthia A. Montgomery, Director/Trustee
Charles C. Reilly, Director/Trustee
Kevin A. Ryan, Director/Trustee
Roscoe S. Suddarth, Director/Trustee
Richard R. West, Director/Trustee
Edward D. Zinbarg, Director/Trustee
Kevin J. Booth, Vice President
Joseph P. Matteo, 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
Item 2 - Did registrant adopt a code of ethics, as of the end of the
period covered by this report, that applies to the registrant's
principal executive officer, principal financial officer, principal
accounting officer or controller, or persons performing similar
functions, regardless of whether these individuals are employed by
the registrant or a third party? If not, why not? Briefly describe
any amendments or waivers that occurred during the period. State
here if code of ethics/amendments/waivers are on website and give
website address-. State here if fund will send code of ethics to
shareholders without charge upon request--N/A (not answered until
July 15, 2003 and only annually for funds)
Item 3 - Did the registrant's board of directors determine that the
registrant either: (i) has at least one audit committee financial
expert serving on its audit committee; or (ii) does not have an
audit committee financial expert serving on its audit committee?
If yes, disclose name of financial expert and whether he/she is
"independent," (fund may, but is not required, to disclose name/
independence of more than one financial expert) If no, explain
why not. -N/A (not answered until July 15, 2003 and only annually
for funds)
Item 4 - Disclose annually only (not answered until December 15,
2003)
(a) Audit Fees - Disclose aggregate fees billed for each of the last
two fiscal years for professional services rendered by the principal
accountant for the audit of the registrant's annual financial
statements or services that are normally provided by the accountant
in connection with statutory and regulatory filings or engagements
for those fiscal years. N/A.
(b) Audit-Related Fees - Disclose aggregate fees billed in each of
the last two fiscal years for assurance and related services by the
principal accountant that are reasonably related to the performance
of the audit of the registrant's financial statements and are not
reported under paragraph (a) of this Item. Registrants shall
describe the nature of the services comprising the fees disclosed
under this category. N/A.
(c) Tax Fees - Disclose aggregate fees billed in each of the last
two fiscal years for professional services rendered by the principal
accountant for tax compliance, tax advice, and tax planning.
Registrants shall describe the nature of the services comprising the
fees disclosed under this category. N/A.
(d) All Other Fees - Disclose aggregate fees billed in each of the
last two fiscal years for products and services provided by the
principal accountant, other than the services reported in paragraphs
(a) through (c) of this Item. Registrants shall describe the nature
of the services comprising the fees disclosed under this category.
N/A.
(e)(1) Disclose the audit committee's pre-approval policies and
procedures described in paragraph (c)(7) of Rule 2-01 of Regulation
S-X. N/A.
(e)(2) Disclose the percentage of services described in each of
paragraphs (b) through (d) of this Item that were approved by the
audit committee pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of
Regulation S-X. N/A.
(f) If greater than 50%, disclose the percentage of hours expended
on the principal accountant's engagement to audit the registrant's
financial statements for the most recent fiscal year that were
attributed to work performed by persons other than the principal
accountant's full-time, permanent employees. N/A.
(g) Disclose the aggregate non-audit fees billed by the registrant's
accountant for services rendered to the registrant, and rendered to
the registrant's investment adviser (not including any sub-adviser
whose role is primarily portfolio management and is subcontracted
with or overseen by another investment adviser), and any entity
controlling, controlled by, or under common control with the adviser
that provides ongoing services to the registrant for each of the
last two fiscal years of the registrant. N/A.
(h) Disclose whether the registrant's audit committee has considered
whether the provision of non-audit services that were rendered to
the registrant's investment adviser (not including any subadviser
whose role is primarily portfolio management and is subcontracted
with or overseen by another investment adviser), and any entity
controlling, controlled by, or under common control with the
investment adviser that provides ongoing services to the registrant
that were not pre-approved pursuant to paragraph (c)(7)(ii) of Rule
2-01 of Regulation S-X is compatible with maintaining the principal
accountant's independence. N/A.
Items 5-6 - Reserved
Item 7 - For closed-end funds that contain voting securities in
their portfolio, describe the policies and procedures that it uses
to determine how to vote proxies relating to those portfolio
securities. N/A (not answered until July 1, 2003)
Item 8--Reserved
Item 9(a) - Disclose the conclusions of the registrant's principal
executive officer or officers and principal financial officer or
officers, or persons performing similar functions, about the
effectiveness of the registrant's disclosure controls and procedures
(as defined in Rule 30a-2(c) under the Act (17 CFR 270.30a-2(c)))
based on their evaluation of these controls and procedures as of a
date within 90 days of the filing date of the report that includes
the disclosure required by this paragraph. N/A (not answered until
July 15, 2003 and only annually for funds)
Item 9(b)--There were no significant changes in the registrant's
internal controls or in other factors that could significantly
affect these controls subsequent to the date of their evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
Item 10 - Exhibits
10(a) - Attach code of ethics or amendments/waivers, unless code of
ethics or amendments/waivers is on website or offered to
shareholders upon request without charge. N/A.
10(b) - Attach certifications (4 in total pursuant to Sections 302
and 906 for CEO/CFO). Attached hereto.
Pursuant to the requirements of the Securities Exchange Act of 1934
and the Investment Company Act of 1940, the registrant has duly
caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Merrill Lynch Senior Floating Rate Fund, Inc.
By: /s/ Terry K. Glenn
Terry K. Glenn,
President of
Merrill Lynch Senior Floating Rate Fund, Inc.
Date: April 21, 2003
Pursuant to the requirements of the Securities Exchange Act of 1934
and the Investment Company Act of 1940, this report has been signed
below by the following persons on behalf of the registrant and in
the capacities and on the dates indicated.
By: /s/ Terry K. Glenn
Terry K. Glenn,
President of
Merrill Lynch Senior Floating Rate Fund, Inc.
Date: April 21, 2003
By: /s/ Donald C. Burke
Donald C. Burke,
Chief Financial Officer of
Merrill Lynch Senior Floating Rate Fund, Inc.
Date: April 21, 2003