UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT
COMPANIES
Investment Company Act file number 811-5850
811-10171
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 - 08/31/03
Item 1 - Attach shareholder report
(BULL LOGO)
Merrill Lynch Investment Managers
www.mlim.ml.com
Merrill Lynch
Senior Floating Rate
Fund, Inc.
Annual Report
August 31, 2003
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.
A description of the policies and procedures that the Fund uses to
determine how to vote proxies relating to portfolio securities is
available (1) without charge, upon request, by calling toll-free
1-800-MER-FUND (1-800-637-3863); (2) on www.mutualfunds.ml.com;
and (3) on the Securities and Exchange Commission's website at
http://www.sec.gov.
Merrill Lynch Senior Floating Rate Fund, Inc.
Box 9011
Princeton, NJ
08543-9011
Merrill Lynch Senior Floating Rate Fund, Inc.
Electronic Delivery
The Fund is now offering electronic delivery of communications to
its shareholders. In order to receive this service, you must
register your account and provide us with e-mail information. To
sign up for this service, simply access this website
http://www.icsdelivery.com/live and follow the instructions. When
you visit this site, you will obtain a personal identification
number (PIN). You will need this PIN should you wish to update your
e-mail address, choose to discontinue this service and/or make any
other changes to the service. This service is not available for
certain retirement accounts at this time.
MERRILL LYNCH SENIOR FLOATING RATE FUND, INC., AUGUST 31, 2003
A Letter From the President
Dear Shareholder
Now more than half behind us, 2003 has been a meaningful year in
many respects. After one of the most significant equity market
downturns in many investors' memories, this year finally brought
hopeful signs for a sustainable economic recovery. With that bit of
good news, fixed income investments, which had become the asset
class of choice during the long equity market decline, were left to
perform on a new playing field.
The Federal Reserve Board continued its accommodative monetary
policy into June 2003, when it brought the Federal Funds rate down
to 1%, its lowest level since 1958. With this move, long-term
interest rates continued to be volatile, as investors began to
anticipate the impact of future Federal Reserve Board moves and
economic revitalization. As of August 31, 2003, the ten-year
Treasury bond was yielding 4.47%. This compared to a yield of 3.69%
six months earlier and 4.14% one year ago.
Against this backdrop, our portfolio managers continued to work
diligently to deliver on our commitment to provide superior
performance within reasonable expectations for risk and return. With
that said, remember also that the advice and guidance of a skilled
financial advisor often can mean the difference between fruitful and
fruitless investing. A financial professional can help you choose
those investments that will best serve you as you plan for your
financial future.
Finally, I am proud to premiere a new look to our shareholder
communications. Our portfolio manager commentaries have been trimmed
and organized in such a way that you can get the information you
need at a glance, in plain language. Today's markets are confusing
enough. We want to help you put it all in perspective. The report's
new size also allows us certain mailing efficiencies. Any cost
savings in production or postage are passed on to the Fund and,
ultimately, to Fund shareholders.
We thank you for trusting Merrill Lynch Investment Managers with
your investment assets, and we look forward to serving you in the
months and years ahead.
Sincerely,
(Terry K. Glenn)
Terry K. Glenn
President and Director/Trustee
MERRILL LYNCH SENIOR FLOATING RATE FUND, INC., AUGUST 31, 2003
A Discussion With Your Fund's Portfolio Managers
The fiscal year was marked by a meaningful positive turnaround in
the performance of the leveraged loan market and the Fund.
How did the Fund perform during the fiscal year?
For the year ended August 31, 2003, the Common Stock of Merrill
Lynch Senior Floating Rate Fund, Inc. had a net annualized yield of
4.75%, based on a year-end per share net asset value of $8.40 and
$.399 per share income dividends. Over the same period, the total
investment return on the Fund's Common Stock was +9.61%, based on a
change in per share net asset value from $8.05 to $8.40, and
assuming reinvestment of $.399 per share ordinary income dividends.
These results compare to the +9.80% total return of the Credit
Suisse First Boston (CSFB) Leveraged Loan Index for the same period.
For the six-month period ended August 31, 2003, the total investment
return on the Fund's Common Stock was +7.66%, based on a change in
per share net asset value from $7.97 to $8.40, and assuming
reinvestment of $.178 per share income dividends.
The low point for the Fund's net asset value was $7.78, which
occurred in the last week of October 2002. By the end of the period,
the net asset value recovered $.62 (8.0%) given strength from
positive total returns in nine out of ten months.
Although the three-month London InterBank Offered Rate (LIBOR) fell
from 1.81% at August 31, 2002 to 1.14% at August 31, 2003, the
12-month average daily yield for the Fund slipped only 15 basis
points (.15%) as compared to the prior fiscal year, from 4.96% to
4.81%.
What were the primary market and economic developments that affected
the Fund?
In our semi-annual report to shareholders dated February 28, 2003,
we observed that both the leveraged loan market and the Fund had
begun to rebound from one of the worst years in recent memory--
despite a slow start to economic recovery and no reversal in the
Federal Reserve Board's interest rate policy. Those recoveries
continued in the six months that followed, culminating in a year
where returns approached double-digit levels.
The Fund's fiscal year opened amid continued technical price
pressure--and, therefore, total return pressure--on leveraged loan
assets. Concerns about corporate accounting scandals, fear of
terrorism and uncertainty over the military activities in
Afghanistan weighed on investor sentiment in disproportionate
measure to underlying credit quality. The tone of the market began
to change in November 2002 as these fears were either proved
unwarranted or fell from the headlines.
The year 2003 began with a sizeable number of new loan issues, as
many borrowers and underwriters had postponed transactions from the
end of 2002. The demand for these loans remained strong throughout
the first quarter of 2003, resulting in quick oversubscriptions,
lowering of offered spreads and smaller allocations. Bids for
quality paper in the secondary market often exceeded par as new
collateralized debt obligations looked to put money to work quickly.
In March 2003, the pace of the new-issue market slowed considerably,
probably in response to the uncertainty surrounding the commencement
of military action in Iraq. The transactions that did come to market
during the month were of two contrasting types. Well-rated,
experienced borrowers in good sectors found the market very
receptive to their offerings. These were quickly oversubscribed and,
often, priced down. Conversely, many first-time or weaker issuers
attempted to access the market but found that tighter terms and
wider spreads were required to get their transactions done. Despite
the war, demand in the secondary market remained strong.
From April through August 2003, the bank loan market, as measured by
the CSFB Leveraged Loan Index, continued to add to the positive
returns posted in the first quarter. However, after a +1.41% monthly
return in April, the relative momentum slowed in each succeeding
month, finishing with a +.21% return for August. Newly issued loans
consistently broke syndication above par and remained there in
secondary trading. Much of the competitiveness in the market
emanated from an increased demand for quality paper, which vastly
outstripped the supply. Money flowing into the non-investment grade
sector, in the form of both new or expanded retail mutual funds and
institutionally driven structured vehicles, stoked this demand.
MERRILL LYNCH SENIOR FLOATING RATE FUND, INC., AUGUST 31, 2003
Spurring the total return rebound and, consequently, the increased
investment in the sector was a decrease in default rates. At year-
end 2002, the default rate for leveraged loans tracked by Standard &
Poor's stood at 6.0% by volume. By March this figure had fallen to
5.5%, and by the end of August it had declined to 2.67%, a level not
seen in nearly five years.
What changes were made to the portfolio during the fiscal year?
In February 2003, the Fund converted from a stand-alone investment
company to a "feeder" fund of Master Senior Floating Rate Trust (the
Trust), whereby the Fund invests all of its assets into the Trust.
In effect, the holdings of the Fund were combined with those of
another feeder fund of the Trust. This essentially created a larger
pool of similar assets that would provide for a greater market
presence than the Fund had individually.
From a sector perspective, we continued to emphasize those
industries with strong asset values and stable cash flow
characteristics. The Trust's highest concentration remained in cable
television, followed by wireless telecommunications, utilities,
tower construction and chemicals. Cable television powered a good
portion of the recoveries in 2003, despite a poor start to the
annual period brought on by a market-wide sell-off after the
Adelphia bankruptcy the period before. In fact, much of the positive
impact on the Fund in 2003 was attributable to many of the sectors
that hurt performance in 2002. These included those sectors we
traditionally have favored and benefited from, including cable
television, wireless communications and tower construction. Our
investment hypothesis has been that each of these industries has
strong cash flow with significant underlying asset valuations. We
believe their market prices suffered in 2002 either for technical
reasons (rather than intrinsic credit reasons), such as fallout from
corporate scandals in isolated pockets of the sector, or from too
much total leverage (rather than senior leverage), or from both. Our
investment theory followed that as the tide of technical price
pressures ebbed, our senior, secured positions in these names would
regain their price footing. Thus far in 2003, the performance of the
market and of these sectors, in particular, has validated our
strategy of weathering the storm and holding on to our positions in
these areas.
How would you characterize the Trust's position at the close of the
period?
At the end of August, the Trust was composed of 155 issuers spread
among 39 industries. The 155 issuers represented a further
diversification of the Fund as compared to the 122 issuers held one
year ago.
As compared to the CSFB Leveraged Loan Index, the Trust was
underweight Ba and above names (34.5% versus 49.9% for the Index),
overweight B (46.2% versus 28.6%), underweight Caa or below (3.3%
versus 8.5%) and overweight Not Rated names (13.7% versus 12.9%).
The ratings breakdown amounts to a slight year-over-year improvement
in the Ba and above names relative to the Index and a significant
improvement both in absolute and relative terms in the Caa or below
category, where the Fund cut its exposure by more than half.
In summary, the fiscal year marked a substantial and sustained
reversal of a negative tide that had swamped both the Fund and the
leveraged loan market in general during the previous two years. The
positive momentum, though, served to force down offered spreads and
original discounts in the primary market and drive up bids in the
secondary market. We attempted to take advantage of this situation
by selling those names that we believed had reached recent and near-
term highs, often either realizing a gain or diminishing a
previously unrealized loss. Concurrently, we sought to selectively
reinvest the proceeds of these sales (and other paydowns) in those
new loan issues that we viewed as offering a satisfactory risk-
return profile. We intend to remain relatively conservative in our
investment approach so as not to sacrifice long-term quality in the
pursuit of near-term yield.
Kevin J. Booth
Vice President and Portfolio Manager
Joseph P. Matteo
Vice President and Portfolio Manager
October 3, 2003
MERRILL LYNCH SENIOR FLOATING RATE FUND, INC., AUGUST 31, 2003
Statements of Assets and Liabilities Merrill Lynch Senior Floating Rate Fund, Inc.
As of August 31, 2003
Assets
Investment in Master Senior Floating Rate Trust, at value
(identified cost--$948,538,169) $ 799,483,647
Prepaid registration fees 385,528
---------------
Total assets 799,869,175
---------------
Liabilities
Payables:
Dividends to shareholders $ 1,178,797
Administrator 160,053
Other affiliates 122,978 1,461,828
---------------
Accrued expenses 87,666
---------------
Total liabilities 1,549,494
---------------
Net Assets
Net assets $ 798,319,681
===============
Net Assets Consist of
Common Stock, par value $.10 per share; 1,000,000,000 shares authorized $ 9,499,756
Paid-in capital in excess of par 1,210,855,985
Accumulated distributions in excess of investment income--net $ (214,416)
Accumulated realized capital losses on investments from the Trust--net (272,767,122)
Unrealized depreciation on investments from the Trust--net (149,054,522)
---------------
Total accumulated losses--net (422,036,060)
---------------
Net Assets--Equivalent to $8.40 per share based on 94,997,558 shares of
capital stock outstanding $ 798,319,681
===============
See Notes to Financial Statements.
MERRILL LYNCH SENIOR FLOATING RATE FUND, INC., AUGUST 31, 2003
Statement of Operations Merrill Lynch Senior Floating Rate Fund, Inc.
For the Year Ended August 31, 2003++
Investment Income
Interest $ 27,923,949
Facility and other fees 357,013
Net investment income allocated from the Trust:
Interest 25,513,568
Facility and other fees 847,746
Expenses (4,660,917)
---------------
Total income and net investment income from the Trust 49,981,359
---------------
Expenses
Investment advisory fees $ 3,916,392
Administration fees 2,166,453
Transfer agent fees 816,429
Tender offer fees 507,117
Professional fees 238,456
Accounting services 118,579
Loan interest expense 92,994
Printing and shareholder reports 69,438
Directors' fees and expenses 42,166
Registration fees 41,207
Custodian fees 25,154
Assignment fees 7,500
Pricing fees 1,969
Other 40,420
---------------
Total expenses 8,084,274
---------------
Investment income--net 41,897,085
---------------
Realized & Unrealized Gain (Loss) on Investments & from the Trust--Net
Realized loss:
Investments--net (30,200,718)
The Trust--net (6,600,236) (36,800,954)
---------------
Change in unrealized depreciation:
Investments--net 17,672,336
The Trust--net 52,685,881 70,358,217
--------------- ---------------
Total realized and unrealized gain on investments and from the Trust--net 33,557,263
---------------
Net Increase in Net Assets Resulting from Operations $ 75,454,348
===============
++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., AUGUST 31, 2003
Statements of Changes in Net Assets Merrill Lynch Senior Floating Rate Fund, Inc.
For the Year
Ended August 31,
Increase (Decrease) in Net Assets: 2003++ 2002
Operations
Investment income--net $ 41,897,085 $ 69,750,988
Realized loss on investments and from the Trust--net (36,800,954) (50,385,938)
Change in unrealized depreciation on investments and from the Trust--net 70,358,217 (78,494,316)
--------------- ---------------
Net increase (decrease) in net assets resulting from operations 75,454,348 (59,129,266)
--------------- ---------------
Dividends to Shareholders
Investment income--net (43,357,390) (69,418,864)
--------------- ---------------
Net decrease in net assets resulting from dividends to shareholders (43,357,390) (69,418,864)
--------------- ---------------
Capital Share Transactions
Net decrease in net assets derived from capital share transactions (297,760,644) (585,763,498)
--------------- ---------------
Net Assets
Total decrease in net assets (265,663,686) (714,311,628)
Beginning of year 1,063,983,367 1,778,294,995
--------------- ---------------
End of year* $ 798,319,681 $ 1,063,983,367
=============== ===============
*Undistributed (accumulated) investment income (loss)--net $ (214,416) $ 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., AUGUST 31, 2003
Financial Highlights Merrill Lynch Senior Floating Rate Fund, Inc.
The following per share data and ratios have been derived
from information provided in the financial statements.
For the Year Ended August 31,
Increase (Decrease) in Net Asset Value: 2003+++ 2002 2001 2000 1999
Per Share Operating Performance
Net asset value, beginning of year $ 8.05 $ 8.82 $ 9.45 $ 9.73 $ 9.97
---------- ---------- ---------- ---------- ----------
Investment income--net .38 .43 .79 .77 .65
Realized and unrealized gain (loss) on
investments and from the Trust--net .36 (.77) (.62) (.28) (.24)
---------- ---------- ---------- ---------- ----------
Total from investment operations .74 (.34) .17 .49 .41
---------- ---------- ---------- ---------- ----------
Less dividends from investment income--net (.39) (.43) (.80) (.77) (.65)
========== ========== ========== ========== ==========
Net asset value, end of year $ 8.40 $ 8.05 $ 8.82 $ 9.45 $ 9.73
========== ========== ========== ========== ==========
Total Investment Return*
Based on net asset value per share 9.61% (4.09%) 1.52% 5.44% 4.23%
========== ========== ========== ========== ==========
Ratios to Average Net Assets
Expenses, excluding interest expense++ 1.45% 1.41% 1.36% 1.31% 1.33%
========== ========== ========== ========== ==========
Expenses++ 1.46% 1.41% 1.36% 1.31% 1.33%
========== ========== ========== ========== ==========
Investment income--net 4.81% 5.07% 8.39% 8.17% 6.59%
========== ========== ========== ========== ==========
Leverage
Average amount of borrowings outstanding
during the year (in thousands) $8,138++++ $ 3,374 -- -- --
========== ========== ========== ========== ==========
Average amount of borrowings outstanding
per share during the year $ .07++++ $ .02 -- -- --
========== ========== ========== ========== ==========
Supplemental Data
Net assets, end of year (in thousands) $ 798,320 $1,063,983 $1,778,295 $2,492,591 $3,145,866
========== ========== ========== ========== ==========
Portfolio turnover from the Trust 56.56% 89.46% 50.82% 59.59% 60.06%
========== ========== ========== ========== ==========
*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. No secondary market for the
Fund's shares 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.
+++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., AUGUST 31, 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 amended, 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. The percentage of the Trust owned by the
Fund at August 31, 2003 was 84.8%. 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 1b 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.
(g) Reclassification--Accounting principles generally accepted in
the United States of America require that certain components of net
assets be adjusted to reflect permanent differences between
financial and tax reporting. Accordingly, the current year's
permanent book/tax difference of $121,929 has been reclassified
between accumulated realized capital losses and accumulated
distributions in excess of investment income. This reclassification
has no effect on net assets or net asset value per share.
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.
Financial Data Services, Inc. ("FDS"), an indirect, wholly-owned
subsidiary of ML & Co., is the Fund's transfer agent.
For the year ended August 31, 2003, FAM Distributors, Inc. ("FAMD"),
a wholly-owned subsidiary of Merrill Lynch Group, Inc., earned early
withdrawal charges of $24,952 relating to the tender of the Fund's
shares.
For the year ended August 31, 2003, the Fund reimbursed FAM $8,602
for certain accounting services.
Certain officers and/or directors of the Fund are officers and/or
directors of FAM, PSI, FAMD, FDS, and/or ML & Co.
MERRILL LYNCH SENIOR FLOATING RATE FUND, INC., AUGUST 31, 2003
Notes to Financial Statements (concluded)
Merrill Lynch Senior Floating Rate Fund, Inc.
3. Capital Share Transactions:
Transactions in capital shares were as follows:
For the Year Ended Dollar
August 31, 2003 Shares Amount
Shares sold 1,561,464 $ 12,799,507
Shares issued to shareholders
in reinvestment of dividends 2,395,510 19,319,880
--------------- ---------------
Total issued 3,956,974 32,119,387
Shares tendered (41,139,108) (329,880,031)
--------------- ---------------
Net decrease (37,182,134) $ (297,760,644)
=============== ===============
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 redeemed (76,275,932) (644,637,102)
--------------- ---------------
Net decrease (69,328,347) $ (585,763,498)
=============== ===============
4. Short term Borrowings:
The Fund, along with certain other funds managed by MLIM and its
affiliates, is a party to a $500,000,000 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 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
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
borrowing rate was 2.15%.
5. Distributions to Shareholders:
The tax character of distributions paid during the fiscal years
ended August 31, 2003 and August 31, 2002 was as follows:
8/31/2003 8/31/2002
Distributions paid from:
Ordinary income $ 43,357,390 $ 69,418,864
--------------- ---------------
Total taxable distributions $ 43,357,390 $ 69,418,864
=============== ===============
As of August 31, 2003, the components of accumulated losses on a tax
basis were as follows:
Undistributed ordinary income--net $ 3,499,495
Undistributed long-term capital gain--net --
---------------
Total undistributed earnings--net 3,499,495
Capital loss carryforward (246,934,067)*
Unrealized losses--net (178,601,488)**
---------------
Total accumulated losses--net $ (422,036,060)
===============
*On August 31, 2003, the Fund had a net capital loss carryforward of
$246,934,067, 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,
$87,904,309 expires in 2010 and $53,409,203 expires in 2011. This
amount will be available to offset like amounts of any future
taxable gains.
**The difference between book-basis and tax-basis net unrealized
losses is attributable primarily to book/tax differences in the
accrual of income on securities in default, the deferral of post-
October capital losses for tax purposes and the difference between
book and tax amortization methods for premiums and discounts on
fixed income securities.
MERRILL LYNCH SENIOR FLOATING RATE FUND, INC., AUGUST 31, 2003
Independent Auditors' Report
Merrill Lynch Senior Floating Rate Fund, Inc.
To the Shareholders and Board of Directors of
Merrill Lynch Senior Floating Rate Fund, Inc.:
We have audited the accompanying statement of assets and liabilities
of Merrill Lynch Senior Floating Rate Fund, Inc. as of August 31,
2003, and the related statement of operations for the year then
ended, the statements of changes in net assets for each of the two
years in the period then ended, and the financial highlights for
each of the five years in the period then ended. These financial
statements and financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an opinion on
these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with auditing standards
generally accepted in the United States of America. Those standards
require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights
referred to above present fairly, in all material respects, the
financial position of Merrill Lynch Senior Floating Rate Fund, Inc.
as of August 31, 2003, the results of its operations for the year
then ended, the changes in its net assets for each of the two years
in the period then ended, and its financial highlights for each of
the five years in the period then ended, in conformity with
accounting principles generally accepted in the United States of
America.
Deloitte & Touche LLP
Princeton, New Jersey
October 23, 2003
MERRILL LYNCH SENIOR FLOATING RATE FUND, INC., AUGUST 31, 2003
Schedule of Investments Master Senior Floating Rate Trust
S&P Moody's Face
Industries++++ Rating+++ Rating+++ Amount Senior Secured Floating Rate Loan Interests* Value
Aerospace--0.1% BB Ba2 $ 1,300,000 Panamsat Corp., Term B, due 12/31/2008 $ 1,306,733
Amusement BB- Ba3 5,000,000 Metro-Goldwyn-Mayer Co., Term B, due 6/15/2008 5,017,190
& Recreational
Services--0.5%
Apparel--0.5% BB B1 2,383,807 Levi Strauss, Term B, due 7/31/2006 2,366,674
Walls Industries:
NR++ NR++ 886,840 Term B, due 2/28/2005 800,205
NR++ NR++ 1,296,195 Term C, due 2/28/2006 1,105,320
--------------
4,272,199
Automotive B+ B1 7,040,295 Citation Corporation, Term B, due 12/01/2007 5,597,035
Equipment--2.5% BB Ba2 2,500,000 TRW Automotive, Term C, due 2/28/2011 2,510,418
Tenneco Automotive Inc.:
B B1 7,822,790 Term B, due 11/04/2007 7,843,043
B B1 7,822,790 Term C, due 5/04/2008 7,848,636
--------------
23,799,132
Broadcasting-- B+ Ba3 3,990,000 Cumulus Media, Term C, due 3/28/2010 4,026,161
Radio & Granite Broadcasting Corp.:
Television--1.8% 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 1,507,500
BB- Ba2 1,943,600 Sinclair Broadcasting Group Inc., Term B, due 12/31/2009 1,957,571
NR++ NR++ 4,090,541 VHR Broadcasting/Quoram Broadcasting, Term B, due
9/30/2007 3,998,504
--------------
16,608,486
Building NR++ NR++ 2,836,330 Trussway Industries Inc., Term B, due 12/31/2006 1,914,523
Materials--0.2%
Business BB- Ba3 6,164,397 Transaction Network Services, Term B, due 4/03/2007 6,173,410
Services--0.7%
Cable Television BB Ba3 4,975,000 CC VI Operating Company LLC, Term B, due 11/12/2008 4,482,475
Services--21.5% B- B2 14,676,500 CC VIII Operating Company LLC, Term B, due 2/02/2008 13,774,937
NR++ NR++ 50,000,000 Century Cable Holdings LLC, Term, due 6/30/2009 41,946,450
B B2 63,042,231 Charter Communications Holdings, Term B, due 3/18/2008 59,214,778
B B2 7,408,725 Charter Communications Operating LLC, Incremental Term,
due 9/18/2008 6,902,976
B Ba3 9,550,000 Falcon Holdings Group, Term C, due 12/31/2007 8,714,375
Frontiervision Operating Partners LP:
D B2 3,582,057 Term A, due 9/30/2005 3,408,926
D B2 15,668,000 Term B, due 3/31/2006 14,910,719
NR++ Caa1 9,975,000 Hilton Head/UCA Inc., Term B, due 3/31/2008 8,129,625
BB+ Ba3 5,500,000 Insight Midwest, Term B, due 12/31/2009 5,510,313
D B2 23,500,000 Olympus Cable Holdings LLC, Term B, due 9/30/2010 20,533,125
B- B3 15,971,577 Pegasus Communications, Term, due 4/30/2005 15,013,282
--------------
202,541,981
Chemicals--5.1% NR++ NR++ 3,674,210 CII Carbon LLC, Term, due 6/25/2008 3,270,046
NR++ NR++ 7,222,142 Cedar Chemical Corp., Term B, due 10/31/2003 (a) 397,218
B+ Ba3 1,487,123 Ethyl Corporation, Term, due 4/30/2009 1,500,135
Huntsman International LLC:
B+ B1 19,634,958 Term B, due 6/30/2007 19,708,589
B+ B1 19,634,958 Term C, due 6/30/2008 19,704,505
NR++ NR++ 3,996,667 Pinnacle Polymers, Term B, due 4/30/2011 3,972,963
--------------
48,553,456
Computer-Related Bridge Information Systems (a):
Products--0.4% NR++ NR++ 1,372,372 Multi-Draw, due 7/07/2003 150,961
NR++ NR++ 10,247,246 Term B, due 5/29/2005 1,127,198
NR++ NR++ 3,414,375 Stratus Technologies, Inc., Term B, due 2/26/2005 3,004,650
--------------
4,282,809
MERRILL LYNCH SENIOR FLOATING RATE FUND, INC., AUGUST 31, 2003
Schedule of Investments (continued) Master Senior Floating Rate Trust
S&P Moody's Face
Industries++++ Rating+++ Rating+++ Amount Senior Secured Floating Rate Loan Interests* Value
Consumer B+ B1 $ 10,401,849 Burhmann NV, Term B, due 9/28/2007 $ 10,291,329
Products--1.7% Simmons Co.:
BB- Ba2 2,299,791 Term B, due 10/28/2005 2,307,937
BB- Ba2 3,447,720 Term C, due 10/27/2006 3,462,373
--------------
16,061,639
Electronics/ NR++ B3 3,481,740 DD Inc., Tranche B, due 4/22/2005 1,914,957
Electrical On Semiconductor Corporations "Semiconductor
Components--1.5% Components":
B B3 4,583,742 Term B, due 8/04/2006 4,542,204
B B3 5,123,722 Term C, due 8/04/2007 5,077,291
B B3 2,915,893 Term D, due 8/04/2007 2,886,734
NR++ B1 1,531,357 Trend Technologies, Inc., Term, due 2/28/2007 (a) 15,314
--------------
14,436,500
Energy--1.5% BB- Ba2 1,500,000 Citgo Petroleum Corp., Term B, due 2/27/2006 1,550,625
BB- Ba3 1,046,012 Dresser Inc., Term B, due 4/10/2009 1,052,362
BB+ Ba1 984,375 Gulfterra Energy Partners, Term, due 09/01/2009 984,375
BBB- Ba1 5,431,250 Pride International Inc., Term, due 6/14/2007 5,451,617
NR++ NR++ 2,688,149 WH Energy Services, Term B, due 4/16/2007 2,671,349
BB B2 2,000,000 Williams Production RMT Company, Term, due 5/30/2007 2,017,500
--------------
13,727,828
Environmental IT Group Inc. (a):
Services--0.8% D Caa1 9,991,000 Term, due 6/08/2007 849,235
D Caa1 5,084,407 Term B, due 6/11/2006 432,175
BB- Ba3 6,305,848 URS Corporation, Term B, due 7/01/2008 6,318,983
--------------
7,600,393
Food & Kindred BB- Ba3 890,130 American Seafood, Term B, due 3/31/2009 891,799
Products--1.4% BB+ Ba1 6,177,578 Dean Foods Company, Term B, due 7/15/2008 6,197,180
BB- Ba3 3,705,735 DelMonte, Term B, due 12/20/2010 3,741,866
Weight Watchers:
BB Ba2 2,215,574 Term B, due 12/31/2009 2,230,806
BB B1 284,426 Term C, due 12/31/2009 286,382
--------------
13,348,033
Funeral Homes NR++ Caa1 13,351,906 Prime Succession Inc., Term, due 8/29/2003 (a) 6,008,358
& Parlors--0.6%
Gaming--2.0% BB- Ba3 6,411,386 Ameristar Casinos Inc., Term B, due 12/30/2006 6,441,039
B+ B2 5,400,000 Marina District Finance Co., Term B, due 5/31/2007 5,433,750
B B1 2,000,000 Pinnacle Entertainment, Term B, due 5/15/2008 2,015,000
BB- Ba2 1,500,000 Regal Cinema, Tranche B, due 6/30/2009 1,512,188
B+ B1 2,970,000 Venetian Casino Resort, LLC/Las Vegas Sands, Inc.,
Term B, due 6/04/2008 3,009,599
--------------
18,411,576
Grocery--0.6% B+ B1 5,445,652 The Pantry Inc., Term, due 3/31/2007 5,486,495
Health BB B1 1,836,735 Alaris Medical Systems, Inc., Term, due 6/30/2009 1,855,561
Services--3.8% BB- Ba3 2,000,000 Community Health, Term, due 1/16/2011 2,007,500
BB- Ba3 6,500,000 Davita, Term B, due 3/31/2009 6,528,437
BB- B1 3,000,000 Kinetic Conc, Term B, due 8/11/2010 3,022,500
BBB Ba1 5,000,000 MedCo Health, Term B, due 6/30/2010 5,031,250
Medical Specialties (a):
NR++ NR++ 12,845,455 Axel, due 6/30/2004 3,211,364
NR++ NR++ 4,418,182 Term, due 12/11/2001 1,104,545
NR++ NR++ 5,723,889 Mediq/Prn Life Support, Tranche B, due 6/13/2003 4,979,783
B+ B1 6,219,770 MedPointe Inc., Term B, due 9/30/2008 5,893,232
BB+ Ba2 2,493,750 Oxford Health, Term, due 4/30/2009 2,504,141
--------------
36,138,313
MERRILL LYNCH SENIOR FLOATING RATE FUND, INC., AUGUST 31, 2003
Schedule of Investments (continued) Master Senior Floating Rate Trust
S&P Moody's Face
Industries++++ Rating+++ Rating+++ Amount Senior Secured Floating Rate Loan Interests* Value
Hotels & Wyndham International, Inc.:
Motels--2.8% NR++ NR++ $ 14,088,320 Increasing Rate Term, due 6/30/2006 $ 12,032,313
B- NR++ 17,299,606 Term, due 6/30/2006 14,453,821
--------------
26,486,134
Household BB- Ba3 4,000,000 Corrections Corp of America, Term C, due 3/31/2008 4,025,000
Furniture & BB- Ba3 5,500,000 Josten's Inc., Term, due 7/29/2010 5,530,938
Appliances--1.0% --------------
9,555,938
Leasing & CCC+ C 8,303,942 Anthony Crane Rental LP, Term, due 7/22/2006 5,093,081
Rental
Services--0.5%
Manufacturing-- B B1 3,585,492 Alliance Laundry Systems LLC, Term B, due 6/01/2007 3,572,792
3.2% ChannelMaster Holdings, Inc.:
NR++ NR++ 253,559 Revolving Credit, due 11/15/2004 148,332
NR++ NR++ 4,692,326 Term, due 11/15/2004 2,745,011
B+ B1 2,602,715 Metokote, Term, due 11/02/2005 2,562,048
B B2 1,712,671 Motor Coach Industries, Term, due 6/15/2006 1,404,390
B+ B1 13,117,500 Mueller Group, Term E, due 5/31/2008 13,129,214
SPX Corporation:
BBB- Ba2 1,420,573 Term, due 9/30/2009 1,420,573
BBB- Ba2 852,344 Term B, due 9/30/2009 857,138
BB- B1 3,980,513 Trimas Corporation, Term B, due 12/31/2009 3,988,158
--------------
29,827,656
Media--0.2% BB+ Ba2 2,000,000 Vivendi, Term B, due 6/30/2008 2,011,876
Metals & NR++ NR++ 9,886,916 Acme Metals, Inc., Term, due 12/01/2005 (a) 790,953
Mining--3.4% NR++ NR++ 14,648,333 Copperweld Corp., Term A, due 10/31/2004 6,957,958
International Steel Group:
BB+ Ba2 1,223,596 Term A, due 4/24/2006 1,217,861
BB+ Ba2 2,161,391 Term B, due 4/24/2007 2,152,612
Ispat International:
B- Caa2 6,257,283 Term B, due 7/16/2005 4,380,098
B- Caa4 6,257,283 Term C, due 7/16/2006 4,380,098
BB+ Ba1 5,000,000 Massey Energy, Term, due 1/01/2007 5,009,375
CCC+ Ca 31,000,000 Ormet Corporation, Term, due 8/15/2008 (a) 7,595,000
--------------
32,483,955
Packaging--3.0% B+ B1 4,950,000 Berry Plastics Corp., Term B, due 6/01/2010 4,983,413
NR++ NR++ 15,856,566 Dr. Pepper Bottling, Term B, due 10/07/2007 15,873,913
B B2 3,500,000 Graham Packaging Holdings Co., Term D, due 2/14/2010 3,499,563
B+ B1 3,750,000 Graphic Packaging, Term B, due 8/08/2010 3,769,924
--------------
28,126,813
Packaging & Owens-Illinois Inc.:
Containers--0.3% BB B3 1,500,000 Term A, due 4/01/2007 1,496,954
BB B3 1,500,000 Term B, due 4/01/2008 1,505,313
--------------
3,002,267
Paper--0.8% Stone Container Corporation:
B+ Ba3 6,059,939 Term B, due 6/30/2009 6,087,966
B+ Ba3 1,026,755 Term C, due 6/30/2009 1,031,503
--------------
7,119,469
Petroleum BB Ba3 4,987,500 Tesoro Petroleum Corp., Term, due 4/15/2008 5,021,345
Refineries--0.5%
Printing & B B1 4,993,491 Liberty Group Operating, Term B, due 3/31/2007 4,987,249
Publishing--0.8% BB Ba3 2,487,500 RH Donnelley, Term B, due 4/30/2010 2,537,942
--------------
7,525,191
MERRILL LYNCH SENIOR FLOATING RATE FUND, INC., AUGUST 31, 2003
Schedule of Investments (continued) Master Senior Floating Rate Trust
S&P Moody's Face
Industries++++ Rating+++ Rating+++ Amount Senior Secured Floating Rate Loan Interests* Value
Restaurants & B+ B1 $ 3,676,721 Domino's Pizza, Term, due 6/25/2010 $ 3,711,191
Food Service--
0.4%
Retail & Retail BB- Ba3 1,070,541 Advanced Stores, Term C-1, due 11/30/2007 1,077,009
Specialty--0.7% BBB+ Ba1 5,073,529 Shoppers DrugMart, Term F, due 2/04/2009 5,086,741
--------------
6,163,750
Tower B- B2 19,907,278 American Tower Systems Corp., Term B, due 12/31/2007 20,012,468
Construction & B- B3 15,756,510 Crown Castle Operating Company, Term B, due 3/31/2008 15,797,304
Leasing--5.6% CC B3 16,813,710 Spectrasite Communications, Term B, due 12/31/2007 16,924,059
--------------
52,733,831
Transportation BB+ Ba2 6,429,615 Kansas City Southern Railway Company, Term B, due
Services--2.1% 6/12/2008 6,451,720
BB+ Ba3 1,980,000 Laidlaw International, Term B, due 6/30/2009 1,993,201
B+ B1 9,052,744 North American Van Lines Inc., Term B, due 11/18/2007 8,932,515
BB- B1 2,000,000 United Components, Term B, due 6/30/2010 2,016,666
--------------
19,394,102
Utilities--6.2% BB B2 7,000,000 The AES Corporation, Term, due 4/30/2008 6,966,750
Aquila Networks Canada Corp.:
NR++ NR++ 6,500,000 Term, due 7/31/2004 6,500,000
BB B3 2,730,645 Term A, due 5/15/2006 2,742,870
Calpine Corporation:
B+ B1 7,000,000 Term, due 7/15/2007 6,632,500
B+ B1 4,500,000 Term, due 7/16/2007 4,508,437
B Ba3 2,000,000 Term, due 8/26/2009 2,035,000
BB+ Baa2 1,980,000 Michigan Electric Transmission, Term B, due 4/30/2007 1,986,599
Mission Energy Holdings:
B- Ba2 8,181,818 Term A, due 7/02/2006 4,526,517
B- Ba2 23,318,182 Term B, due 7/02/2006 12,963,184
BB Ba2 8,500,000 Southern California Edison Company, Term B, due
3/01/2005 8,530,549
BB+ Ba1 1,683,137 Western Resources Inc., Term N, due 5/31/2005 1,691,552
--------------
59,083,958
Waste Allied Waste Industries, Inc.:
Management--1.5% BB Ba3 10,628,571 Term, due 1/15/2010 10,704,491
BB Ba3 3,571,429 Tranche A--Credit Linked Deposit, due 1/15/2010 3,596,725
--------------
14,301,216
Wired NR++ NR++ 6,751,147 E. Spire Communication, Term C, due 8/11/2006 (a) 1
Telecommuni- Intera:
cations--1.0% NR++ NR++ 2,651,421 Term A, due 12/31/2005 793,305
NR++ NR++ 883,250 Term B, due 12/31/2005 264,268
NR++ NR++ 1,691,255 Term C, due 12/31/2005 506,023
BB- Ba3 7,985,189 Valor Telecommunications, Term B, due 8/08/2008 7,970,216
NR++ Caa3 16,500,000 WCI Capital Corp., Term B, due 9/30/2007 (a) 20,625
--------------
9,554,438
Wireless Centennial Cellular Operating Co.:
Telecommuni- B+ B1 1,496,970 Term A (PR), due 11/30/2006 1,438,338
cations--9.8% B+ B1 1,231,684 Term A (US), due 11/30/2006 1,183,443
B+ B1 2,848,566 Term C, due 11/30/2007 2,755,987
Nextel Communications, Inc.:
BB Ba2 1,947,368 Term A, due 12/31/2007 1,883,836
BB Ba2 17,111,897 Term B, due 6/30/2008 17,108,834
BB Ba2 17,111,897 Term C, due 12/31/2008 17,108,834
BB Ba2 30,158,699 Term D, due 3/31/2009 30,026,754
MERRILL LYNCH SENIOR FLOATING RATE FUND, INC., AUGUST 31, 2003
Schedule of Investments (concluded) Master Senior Floating Rate Trust
S&P Moody's Face
Industries++++ Rating+++ Rating+++ Amount Senior Secured Floating Rate Loan Interests* Value
Wireless Sygnet Wireless, Inc.:
Telecommuni- B Ba3 $ 1,699,492 Term A, due 9/23/2006 $ 1,681,967
cations B Ba3 9,159,392 Term B, due 3/23/2007 9,062,073
(concluded) B Ba3 9,784,199 Term C, due 12/23/2007 9,668,011
--------------
91,918,077
Total Senior Secured Floating Rate Loan Interests
(Cost--$1,016,553,197)--91.0% 858,803,342
Corporate Debt
Chemicals--0.2% NR++ NR++ 1,662,678 PCI Chemicals, Canada, 10% due 12/31/2008 1,421,590
NR++ NR++ 526,515 Pioneer Companies, Inc., 4.60% due 12/31/2006 447,538
--------------
Total Corporate Debt (Cost--$7,227,732)--0.2% 1,869,128
Shares
Held Common Stocks
Chemicals--0.1% 107,520 Pioneer Companies, Inc. 392,448
Metals & Mining--0.1% 51,714 Acme Package Corp. Senior Holdings 1,241,136
Wired Telecommunications--0.0% 839 Intera (Pacific Coin) 0
Total Investments in Common Stocks
(Cost--$1,727,704)--0.2% 1,633,584
Preferred Stocks
Medical Equipment--0.0% 14,398 Mediq Inc. 0
Total Investments in Preferred Stocks (Cost--$0)--0.0% 0
Beneficial
Interest Short-Term Securities
$72,474,320 Merrill Lynch Liquidity Series, LLC Cash Sweep Series I** 72,474,320
Total Short-Term Securities (Cost--$72,474,320)--7.7% 72,474,320
Total Investments (Cost--$1,097,982,953)--99.1% 934,780,374
Other Assets Less Liabilities--0.9% 8,097,456
--------------
Net Assets--100.0% $ 942,877,830
==============
(a)Non-income producing security.
++Not Rated.
++++For Trust compliance purposes, "Industries" means any one or
more of the industry sub-classifications used by one or more widely
recognized market indexes or ratings group indexes, and/or as
defined by Trust management. This definition may not apply for
purposes of this report, which may combine industry sub-
classifications for reporting ease. Industries are shown as a
percent of net assets. These industry classifications are unaudited.
+++Ratings of issues shown are unaudited.
*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 InterBank
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 $72,474,320 $423,975
See Notes to Financial Statements.
MERRILL LYNCH SENIOR FLOATING RATE FUND, INC., AUGUST 31, 2003
Statement of Assets and Liabilities Master Senior Floating Rate Trust
As of August 31, 2003
Assets
Investments, at value (identified cost--$1,097,982,953) $ 934,780,374
Cash 3,196,151
Receivables:
Interest $ 5,040,465
Contributions 848,632
Commitment fees 6,972 5,896,069
--------------
Prepaid expenses and other assets 27,187
--------------
Total assets 943,899,781
--------------
Liabilities
Payables:
Investment adviser 633,806
Other affiliates 8,620 642,426
--------------
Accrued expenses and other liabilities 379,525
--------------
Total liabilities 1,021,951
--------------
Net Assets
Net assets $ 942,877,830
==============
Net Assets Consist of
Investors' capital $1,106,318,449
Unrealized depreciation on investments--net (163,440,619)
--------------
Net assets $ 942,877,830
==============
See Notes to Financial Statements.
MERRILL LYNCH SENIOR FLOATING RATE FUND, INC., AUGUST 31, 2003
Statement of Operations Master Senior Floating Rate Trust
For the Year Ended August 31, 2003
Investment Income
Interest $ 34,729,679
Facility and other fees 1,039,900
--------------
Total income 35,769,579
--------------
Expenses
Investment advisory fees $ 5,812,754
Accounting services 209,168
Professional fees 136,360
Loan interest expense 58,872
Trustees' fees and expenses 55,898
Custodian fees 50,162
Assignment fees 14,000
Pricing fees 12,397
Printing and shareholder reports 10,937
Other 58,945
--------------
Total expenses 6,419,493
--------------
Investment income--net 29,350,086
--------------
Realized & Unrealized Gain on Investments--Net
Realized loss on investments--net (14,781,467)
Change in unrealized depreciation on investments--net 67,910,155
--------------
Total realized and unrealized gain on investments--net 53,128,688
--------------
Net Increase in Net Assets Resulting from Operations $ 82,478,774
==============
See Notes to Financial Statements.
MERRILL LYNCH SENIOR FLOATING RATE FUND, INC., AUGUST 31, 2003
Statements of Changes in Net Assets Master Senior Floating Rate Trust
For the Year Ended
August 31,
Increase (Decrease) in Net Assets: 2003 2002
Operations
Investment income--net $ 29,350,086 $ 14,687,288
Realized loss on investments--net (14,781,467) (15,359,304)
Change in unrealized depreciation on investments--net 67,910,155 (14,069,682)
-------------- --------------
Net increase (decrease) in net assets resulting from operations 82,478,774 (14,741,698)
-------------- --------------
Capital Transactions
Proceeds from contributions 19,158,032 22,661,968
Fair value of net asset contributions 841,562,097 --
Fair value of withdrawals (182,526,372) (202,646,242)
-------------- --------------
Net increase (decrease) in net assets derived from capital transactions 678,193,757 (179,984,274)
-------------- --------------
Net Assets
Total increase (decrease) in net assets 760,672,531 (194,725,972)
Beginning of year 182,205,299 376,931,271
-------------- --------------
End of year $ 942,877,830 $ 182,205,299
============== ==============
See Notes to Financial Statements.
MERRILL LYNCH SENIOR FLOATING RATE FUND, INC., AUGUST 31, 2003
Statement of Cash Flows Master Senior Floating Rate Trust
For the Year Ended August 31, 2003
Cash Provided by Operating Activities
Net increase in net assets resulting from operations $ 82,478,774
Adjustments to reconcile net increase in net assets resulting from operations to net cash
provided by operating activities:
Increase in receivables 1,686,145
Increase in other assets 56,955
Decrease in other liabilities 415,688
Realized and unrealized loss on investments--net (53,128,688)
Amortization of premium and discount (1,310,277)
--------------
Net cash provided by operating activities 30,198,597
--------------
Cash Provided by Investing Activities
Proceeds from principal payments and sales of loan interests 512,915,701
Purchases of loan interests (315,337,985)
Purchases of short-term investments--net (783,251,702)
Proceeds from sales and maturities of short-term investments 732,593,322
--------------
Net cash provided by investing activities 146,919,336
--------------
Cash Used for Financing Activities
Cash receipts of borrowings 40,000,000
Cash payments on borrowings (53,000,000)
Cash receipts on capital contributions 18,515,321
Cash receipts from the acquisition of Merrill Lynch Senior Floating Rate Fund, Inc. 2,972,215
Cash payments on capital withdrawals (182,526,372)
--------------
Net cash used for financing activities (174,038,836)
--------------
Cash
Net increase in cash 3,079,097
Cash at beginning of year 117,054
--------------
Cash at end of year $ 3,196,151
==============
Cash Flow Information
Cash paid for interest $ 68,984
==============
See Notes to Financial Statements.
MERRILL LYNCH SENIOR FLOATING RATE FUND, INC., AUGUST 31, 2003
Financial Highlights Master Senior Floating Rate Trust
For the Period
October 6,
For the Year Ended 2000++ to
The following ratios have been derived from August 31, August 31,
information provided in the financial statements. 2003 2002 2001
Total Investment Return**
Total investment return 11.07% (4.66%) --
============== ============== ==============
Ratios to Average Net Assets
Expenses, excluding interest expense 1.04% 1.09% 1.06%*
============== ============== ==============
Expenses 1.05% 1.12% 1.06%*
============== ============== ==============
Investment income--net 4.80% 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) $ 3,187 $ 3,959 --
============== ============== ==============
Supplemental Data
Net assets, end of period (in thousands) $ 942,878 $ 182,205 $ 376,931
============== ============== ==============
Portfolio turnover 56.56% 36.77% 19.53%
============== ============== ==============
*Annualized.
**Total investment return is required to be disclosed for fiscal
years beginning after December 15, 2000.
++Commencement of operations.
See Notes to Financial Statements.
MERRILL LYNCH SENIOR FLOATING RATE FUND, INC., AUGUST 31, 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, as amended, and is organized as
a Delaware statutory 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 net 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. The following is a summary of significant
accounting policies followed by the Trust.
(a) Loan participation interests--The Trust invests primarily 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. Because
agents, banks and intermediate participants from whom the Trust
purchases the loan interest are primarily financial institutions,
the Trust's investment in corporate loans at August 31, 2003 could
be considered to be concentrated in the industry group consisting of
financial institutions.
(b) Valuation of investments--Loan Interests are valued in
accordance with guidelines established by the Board of Trustees.
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 the loan interests, the
Investment Adviser will value the Loan Interests at fair value,
which is intended to approximate market value.
Securities that are held by the Trust that are traded on stock
exchanges or the Nasdaq National Market are valued at the last sale
price or official close price on the exchange on which such
securities are traded, as of the close of business on the day the
securities are being valued or, lacking any sales, at the last
available bid price for long positions, and at the last available
ask price for short positions. In cases where securities are traded
on more than one exchange, the securities are valued on the exchange
designated as the primary market by or under the authority of the
Board of Trustees of the Trust. Long positions in securities traded
in the over-the-counter ("OTC") market, Nasdaq Small Cap or Bulletin
Board are valued at the last available bid price or yield equivalent
obtained from one or more dealers or pricing services approved by
the Board of Trustees of the Trust. Short positions in securities
traded in the OTC market are valued at the last available ask price.
Portfolio securities that are traded both in the OTC market and on a
stock exchange are valued according to the broadest and most
representative market. When the Trust writes an option, the amount
of the premium received is recorded on the books of the Trust as an
asset and an equivalent liability. The amount of the liability is
subsequently valued to reflect the current market value of the
option written, based on the last sale price in the case of exchange-
traded options or, in the case of options traded in the OTC market,
the last ask price. Options purchased by the Trust are valued at
their last sale price in the case of exchange-traded options or, in
the case of options traded in the OTC market, the last bid price.
The value of swaps, including interest rate swaps, caps and floors,
will be determined by obtaining dealer quotations. Other
investments, including futures contracts and related options, are
stated at market value. Obligations with remaining maturities of 60
days or less are valued at amortized cost unless the Investment
Adviser believes that this method no longer produces fair
valuations. Repurchase agreements will be valued at cost plus
accrued interest. The Trust employs certain pricing services to
provide securities prices for the Trust. 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
Trustees of the Trust, including valuations furnished by the pricing
services retained by the Trust, which may use a matrix system for
valuations. The procedures of a pricing service and its valuations
are reviewed by the officers of the Trust under the general
supervision of the Trustees. Such valuations and procedures will be
reviewed periodically by the Trustees.
MERRILL LYNCH SENIOR FLOATING RATE FUND, INC., AUGUST 31, 2003
Notes to Financial Statements (continued)
Master Senior Floating Rate Trust
Generally, trading in foreign securities, as well as U.S. government
securities and money market instruments, is substantially completed
each day at various times prior to the close of business on the New
York Stock Exchange ("NYSE"). The values of such securities used in
computing the net asset value of the Trust's shares are determined
as of such times. Foreign currency exchange rates also are generally
determined prior to the close of business on the NYSE. Occasionally,
events affecting the values of such securities and such exchange
rates may occur between the times at which they are determined and
the close of business on the NYSE that may not be reflected in the
computation of the Trust's net asset value. If events (for example,
a company announcement, market volatility or a natural disaster)
occur during such periods that are expected to materially affect the
value of such securities, those securities may be valued at their
fair value as determined in good faith by the Board of Trustees or
by the Investment Adviser using a pricing service and/or procedures
approved by the Board of Trustees.
(c) Derivative financial instruments--The Trust may engage in
various portfolio investment strategies both to increase the return
of the Trust and to hedge, or protect, its exposure to interest rate
movement and movements in the securities markets. Losses may arise
due to changes in the value of the contract or if the counterparty
does not perform under the contract.
* Swaps--The Trust may enter into swap agreements, which are over-
the-counter contracts in which the Trust and a counterparty agree to
make periodic net payments on a specified notional amount. The net
payments can be made for a set period of time or may be triggered by
a pre-determined credit event. The net periodic payments may be
based on a fixed or variable interest rate; the change in market
value of a specified security, basket of securities, or index; or
the return generated by a security.
(d) Income taxes--The Trust is considered 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. The Trust amortizes all premiums
and discounts on debt securities.
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 year ended August 31, 2003, the Trust reimbursed FAM $13,848
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 year ended August 31, 2003 were $315,337,985 and
$513,066,886, respectively.
Net realized losses for the year ended August 31, 2003 and net
unrealized losses as of August 31, 2003 were as follows:
Realized Unrealized
Losses Losses
Loan interests $ (14,781,384) $ (163,202,579)
Short-term investments (83) --
Unfunded loan interests -- (238,040)
---------------- ----------------
Total $ (14,781,467) $ (163,440,619)
================ ================
MERRILL LYNCH SENIOR FLOATING RATE FUND, INC., AUGUST 31, 2003
Notes to Financial Statements (concluded)
Master Senior Floating Rate Trust
As of August 31, 2003, net unrealized depreciation for Federal
income tax purposes aggregated $163,299,642, of which $6,836,065
related to appreciated securities and $170,135,707 related to
depreciated securities. At August 31, 2003, the aggregate cost of
investments for Federal income tax purposes was $1,098,080,016.
4. Unfunded loan interests:
As of August 31, 2003, the Fund had unfunded loan commitments of
approximately $4,061,000, which would be extended at the option of
the borrower, pursuant to the following loan agreement:
Unfunded
Commitment
Borrower (in thousands)
Channel Master Holdings, Inc. $ 311
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 investors' 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 year ended August 31, 2003, the average amount borrowed was
approximately $3,187,000 and the daily weighted average borrowing
rate was 1.85%.
6. Conversion of Merrill Lynch Senior Floating Rate Fund, Inc.:
In conjunction with the conversion of Merrill Lynch Senior Floating
Rate Fund, Inc. into a master-feeder fund on February 10, 2003, the
Trust received a contribution of substantially all of the Fund's net
assets in exchange for a beneficial interest in the Trust. The net
assets contributed by Merrill Lynch Senior Floating Rate Fund, Inc.
were $841,562,097, including $201,740,404 of unrealized
depreciation. The aggregate net assets of the Trust immediately
after the contribution were $998,039,294.
MERRILL LYNCH SENIOR FLOATING RATE FUND, INC., AUGUST 31, 2003
Independent Auditors' Report
Master Senior Floating Rate Trust
To the Investors and Board of Trustees of
Master Senior Floating Rate Trust:
We have audited the accompanying statement of assets and
liabilities, including the schedule of investments, of Master Senior
Floating Rate Trust as of August 31, 2003, and the related statement
of operations and cash flows for the year then ended, the statements
of changes in net assets for each of the two years in the period
then ended, and the financial highlights for the respective periods
then ended. These financial statements and financial highlights are
the responsibility of the Trust's management. Our responsibility is
to express an opinion on these financial statements and financial
highlights based on our audits.
We conducted our audits in accordance with auditing standards
generally accepted in the United States of America. Those standards
require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included
confirmation of securities owned as of August 31, 2003, by
correspondence with the custodian and financial intermediaries;
where replies were not received, we performed other auditing
procedures. An audit also includes assessing the accounting
principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights
referred to above present fairly, in all material respects, the
financial position of Master Senior Floating Rate Trust as of August
31, 2003, the results of its operations and its cash flows for the
year then ended, the changes in its net assets for each of the two
years in the period then ended, and its financial highlights for the
respective periods then ended, in conformity with accounting
principles generally accepted in the United States of America.
Deloitte & Touche LLP
Princeton, New Jersey
October 23, 2003
MERRILL LYNCH SENIOR FLOATING RATE FUND, INC., AUGUST 31, 2003
Portfolio Information (unaudited)
Master Senior Floating Rate Trust
As of August 31, 2003
Percent of
Ten Largest Holdings Total Assets
Nextel Communications, Inc.* 7.0%
Charter Communications Holdings 6.3
Century Cable Holdings LLC 4.4
Huntsman International LLC* 4.2
Wyndham International, Inc.* 2.8
Olympus Cable Holdings LLC 2.2
American Tower Corporation 2.1
Frontiervision Operating Partners LP* 1.9
Sygnet Wireless, Inc.* 1.9
Mission Energy Holdings* 1.9
*Includes combined holdings and/or affiliates.
Percent of
Five Largest Industries++ Total Assets
Cable Television Services 21.5%
Wireless Telecommunications 9.8
Utilities 6.2
Tower Construction & Leasing 5.6
Chemicals 5.1
++For Trust compliance purposes "Industries" means any one or more
of the industry sub-classifications used by one or more widely
recognized market indexes or ratings group indexes, and/or as
defined by Trust management. This definition may not apply for
purposes of this report, which may combine industry sub-
classifications for reporting ease. Industries are shown as a
percent of net assets. These industry classifications are unaudited.
Percent of
Quality Ratings by Long-Term
S&P/Moody's Investments
BBB/Baa 2.3%
BB/Ba 34.5
B/B 46.2
CCC/Caa 3.3
NR (Not Rated) 13.7
MERRILL LYNCH SENIOR FLOATING RATE FUND, INC., AUGUST 31, 2003
Officers and Directors/Trustees (unaudited)
Number of
Portfolios in Other Public
Fund Complex Directorships
Position(s) Length Overseen by Held by
Held Of Time Director/ Director/
Name, Address & Age with Fund Served Principal Occupation(s) During Past 5 Years Trustee Trustee
Interested Director/Trustee
Terry K. Glenn* President 1999 to President and Chairman of Merrill Lynch 122 Funds None
P.O. Box 9011 and present Investment Managers, L.P. ("MLIM")/Fund 163 Portfolios
Princeton, Director/ Asset Management, L.P. ("FAM")--Advised
NJ 08543-9011 Trustee Funds since 1999; Chairman (Americas Region)
Age: 62 of MLIM from 2000 to 2002; Executive Vice
President of MLIM and FAM (which terms as
used herein include their corporate
predecessors) from 1983 to 2002; President
of FAM Distributors, Inc. ("FAMD") from
1986 to 2002 and Director thereof from 1991
to 2002; Executive Vice President and
Director of Princeton Services, Inc.
("Princeton Services") from 1993 to 2002;
President of Princeton Administrators, L.P.
from 1989 to 2002; Director of Financial
Data Services, Inc. since 1985.
*Mr. Glenn is a director, trustee or member of an advisory board of
certain other investment companies for which MLIM or FAM acts as
investmentadviser. Mr. Glenn is an "interested person," as described
in the Investment Company Act, of the Fund based on his former
positions with MLIM, FAM, FAMD, Princeton Services and Princeton
Administrators, L.P. The Director's/Trustee's term is unlimited.
Directors/Trustees serve until their resignation, removal or death,
or until December 31 of the year in which they turn 72. As
Fund/Trust President, Mr. Glenn serves at the pleasure of the Board
of Directors/Trustees.
MERRILL LYNCH SENIOR FLOATING RATE FUND, INC., AUGUST 31, 2003
Officers and Directors/Trustees (unaudited)(continued)
Number of
Portfolios in Other Public
Fund Complex Directorships
Position(s) Length Overseen by Held by
Held Of Time Director/ Director/
Name, Address & Age with Fund Served Principal Occupation(s) During Past 5 Years Trustee Trustee
Independent Directors/Trustees*
Ronald W. Forbes Director/ 1989 to Professor Emeritus of Finance, School of 48 Funds None
P.O. Box 9095 Trustee present Business, State University of New York at 49 Portfolios
Princeton, Albany since 2000 and Professor thereof
NJ 08543-9095 from 1989 to 2000; International Consultant
Age: 62 at the Urban Institute from 1995 to 1999.
Cynthia A. Montgomery Director/ 1994 to Professor, Harvard Business School since 48 Funds Unum Provident
P.O. Box 9095 Trustee present 1989. 49 Portfolios Corporation;
Princeton, Newell Rubber-
NJ 08543-9095 maid, Inc.
Age: 51
Charles C. Reilly Director/ 1990 to Self-employed financial consultant since 48 Funds None
P.O. Box 9095 Trustee present 1990. 49 Portfolios
Princeton,
NJ 08543-9095
Age: 72
Kevin A. Ryan Director/ 1992 to Founder and Director Emeritus of the Boston 48 Funds None
P.O. Box 9095 Trustee present University Center for the Advancement of 49 Portfolios
Princeton, Ethics and Character; Professor of Education
NJ 08543-9095 at Boston University from 1982 to 1999 and
Age: 70 Professor Emeritus thereof since 1999.
Roscoe S. Suddarth Director/ 2000 to President, Middle East Institute from 1995 48 Funds None
P.O. Box 9095 Trustee present to 2001; Foreign Service Officer, United 49 Portfolios
Princeton, States Foreign Service from 1961 to 1995;
NJ 08543-9095 Career Minister from 1989 to 1995; Deputy
Age: 68 Inspector General, U.S. Department of State
from 1991 to 1994; U.S. Ambassador to the
Hashemite Kingdom of Jordan from 1987 to 1990.
Richard R. West Director/ 1989 to Dean Emeritus of New York University, 48 Funds Bowne & Co.,
P.O. Box 9095 Trustee present Leonard N. Stern School of Business 49 Portfolios Inc.; Vornado
Princeton, Administration since 1994. Realty Trust;
NJ 08543-9095 Vornado
Age: 65 Operating
Company;
Alexander's, Inc.
Edward D. Zinbarg Director/ 2000 to Executive Vice President of The Prudential 48 Funds None
P.O. Box 9095 Trustee present Insurance Company of America from 1988 49 Portfolios
Princeton, to 1994; Former Director of Prudential
NJ 08543-9095 Reinsurance Company and former Trustee of
Age: 68 The Prudential Foundation; Self-employed
financial consultant since 1994.
*The Director's/Trustee's term is unlimited. Directors/Trustees
serve until their resignation, removal or death, or until December
31 of the year in which they turn 72.
MERRILL LYNCH SENIOR FLOATING RATE FUND, INC., AUGUST 31, 2003
Officers and Directors/Trustees (unaudited)(concluded)
Position(s) Length
Held Of Time
Name, Address & Age with Fund Served* Principal Occupation(s) During Past 5 Years
Fund/Trust Officers
Donald C. Burke Vice 1993 to First Vice President of MLIM and FAM since 1997 and Treasurer thereof
P.O. Box 9011 President present since 1999; Senior Vice President and Treasurer of Princeton Services
Princeton, and and since 1999; Vice President of FAMD since 1999; Director of MLIM Taxation
NJ 08543-9011 Treasurer 1999 to since 1990.
Age: 43 present
Kevin J. Booth Vice 2000 to Director (Global Fixed Income) of MLIM since 2000; Vice President of MLIM
P.O. Box 9011 President present from 1994 to 2000.
Princeton,
NJ 08543-9011
Age: 49
Joseph P. Matteo Vice 2000 to Director (Global Fixed Income) of MLIM since 2001; Vice President of MLIM
P.O. Box 9011 President present from 1997 to 2001.
Princeton,
NJ 08543-9011
Age: 39
Bradley J. Lucido Secretary 1999 to Director (Legal Advisory) of MLIM since 2002; Vice President of MLIM from
P.O. Box 9011 present 1999 to 2002 and Attorney thereof since 1995.
Princeton,
NJ 08543-9011
Age: 37
*Officers of the Fund/Trust serve at the pleasure of the Board of
Directors/Trustees.
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
MERRILL LYNCH SENIOR FLOATING RATE FUND, INC., AUGUST 31, 2003
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--
The registrant has adopted 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 and
principal accounting officer, or persons performing similar
functions. A copy of the code of ethics is available without charge
upon request by calling toll-free 1-800-MER-FUND (1-800-637-3863).
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. -
The registrant's board of directors has determined that (i) the
registrant has the following audit committee financial experts
serving on its audit committee and (ii) each audit committee
financial expert is independent: (1) Ronald W. Forbes, (2) Richard
R. West, and (3) Edward D. Zinbarg.
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.
Item 5 - If the registrant is a listed issuer as defined in Rule 10A-
3 under the Exchange Act, state whether or not the registrant has a
separately-designated standing audit committee established in
accordance with Section 3(a)(58)(A) of the Exchange Act. If the
registrant has such a committee, however designated, identify each
committee member. If the entire board of directors is acting as the
registrant's audit committee in Section 3(a)(58)(B) of the Exchange
Act, so state.
If applicable, provide the disclosure required by Rule 10A-3(d)
under the Exchange Act regarding an exemption from the listing
standards for audit committees. N/A
(Listed issuers must be in compliance with the new listing rules by
the earlier of their first annual shareholders meeting after January
2004, or October 31, 2004 (annual requirement))
Item 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.
Proxy Voting Policies and Procedures
Each Fund's Board of Directors/Trustees has delegated to Merrill
Lynch Investment Managers, L.P. and/or Fund Asset Management, L.P.
(the "Investment Adviser") authority to vote all proxies relating to
the Fund's portfolio securities. The Investment Adviser has adopted
policies and procedures ("Proxy Voting Procedures") with respect to
the voting of proxies related to the portfolio securities held in
the account of one or more of its clients, including a Fund.
Pursuant to these Proxy Voting Procedures, the Investment Adviser's
primary objective when voting proxies is to make proxy voting
decisions solely in the best interests of each Fund and its
shareholders, and to act in a manner that the Investment Adviser
believes is most likely to enhance the economic value of the
securities held by the Fund. The Proxy Voting Procedures are
designed to ensure that that the Investment Adviser considers the
interests of its clients, including the Funds, and not the interests
of the Investment Adviser, when voting proxies and that real (or
perceived) material conflicts that may arise between the Investment
Adviser's interest and those of the Investment Adviser's clients are
properly addressed and resolved.
In order to implement the Proxy Voting Procedures, the Investment
Adviser has formed a Proxy Voting Committee (the "Committee"). The
Committee is comprised of the Investment Adviser's Chief Investment
Officer (the "CIO"), one or more other senior investment
professionals appointed by the CIO, portfolio managers and
investment analysts appointed by the CIO and any other personnel the
CIO deems appropriate. The Committee will also include two non-
voting representatives from the Investment Adviser's Legal
department appointed by the Investment Adviser's General Counsel.
The Committee's membership shall be limited to full-time employees
of the Investment Adviser. No person with any investment banking,
trading, retail brokerage or research responsibilities for the
Investment Adviser's affiliates may serve as a member of the
Committee or participate in its decision making (except to the
extent such person is asked by the Committee to present information
to the Committee, on the same basis as other interested
knowledgeable parties not affiliated with the Investment Adviser
might be asked to do so). The Committee determines how to vote the
proxies of all clients, including a Fund, that have delegated proxy
voting authority to the Investment Adviser and seeks to ensure that
all votes are consistent with the best interests of those clients
and are free from unwarranted and inappropriate influences. The
Committee establishes general proxy voting policies for the
Investment Adviser and is responsible for determining how those
policies are applied to specific proxy votes, in light of each
issuer's unique structure, management, strategic options and, in
certain circumstances, probable economic and other anticipated
consequences of alternate actions. In so doing, the Committee may
determine to vote a particular proxy in a manner contrary to its
generally stated policies. In addition, the Committee will be
responsible for ensuring that all reporting and recordkeeping
requirements related to proxy voting are fulfilled.
The Committee may determine that the subject matter of a recurring
proxy issue is not suitable for general voting policies and requires
a case-by-case determination. In such cases, the Committee may
elect not to adopt a specific voting policy applicable to that
issue. The Investment Adviser believes that certain proxy voting
issues require investment analysis - such as approval of mergers and
other significant corporate transactions - akin to investment
decisions, and are, therefore, not suitable for general guidelines.
The Committee may elect to adopt a common position for the
Investment Adviser on certain proxy votes that are akin to
investment decisions, or determine to permit the portfolio manager
to make individual decisions on how best to maximize economic value
for a Fund (similar to normal buy/sell investment decisions made by
such portfolio managers). While it is expected that the Investment
Adviser will generally seek to vote proxies over which the
Investment Adviser exercises voting authority in a uniform manner
for all the Investment Adviser's clients, the Committee, in
conjunction with a Fund's portfolio manager, may determine that the
Fund's specific circumstances require that its proxies be voted
differently.
To assist the Investment Adviser in voting proxies, the Committee
has retained Institutional Shareholder Services ("ISS"). ISS is an
independent adviser that specializes in providing a variety of
fiduciary-level proxy-related services to institutional investment
managers, plan sponsors, custodians, consultants, and other
institutional investors. The services provided to the Investment
Adviser by ISS include in-depth research, voting recommendations
(although the Investment Adviser is not obligated to follow such
recommendations), vote execution, and recordkeeping. ISS will also
assist the Fund in fulfilling its reporting and recordkeeping
obligations under the Investment Company Act.
The Investment Adviser's Proxy Voting Procedures also address
special circumstances that can arise in connection with proxy
voting. For instance, under the Proxy Voting Procedures, the
Investment Adviser generally will not seek to vote proxies related
to portfolio securities that are on loan, although it may do so
under certain circumstances. In addition, the Investment Adviser
will vote proxies related to securities of foreign issuers only on a
best efforts basis and may elect not to vote at all in certain
countries where the Committee determines that the costs associated
with voting generally outweigh the benefits. The Committee may at
any time override these general policies if it determines that such
action is in the best interests of a Fund.
From time to time, the Investment Adviser may be required to vote
proxies in respect of an issuer where an affiliate of the Investment
Adviser (each, an "Affiliate"), or a money management or other
client of the Investment Adviser (each, a "Client") is involved.
The Proxy Voting Procedures and the Investment Adviser's adherence
to those procedures are designed to address such conflicts of
interest. The Committee intends to strictly adhere to the Proxy
Voting Procedures in all proxy matters, including matters involving
Affiliates and Clients. If, however, an issue representing a non-
routine matter that is material to an Affiliate or a widely known
Client is involved such that the Committee does not reasonably
believe it is able to follow its guidelines (or if the particular
proxy matter is not addressed by the guidelines) and vote
impartially, the Committee may, in its discretion for the purposes
of ensuring that an independent determination is reached, retain an
independent fiduciary to advise the Committee on how to vote or to
cast votes on behalf of the Investment Adviser's clients.
In the event that the Committee determines not to retain an
independent fiduciary, or it does not follow the advice of such an
independent fiduciary, the powers of the Committee shall pass to a
subcommittee, appointed by the CIO (with advice from the Secretary
of the Committee), consisting solely of Committee members selected
by the CIO. The CIO shall appoint to the subcommittee, where
appropriate, only persons whose job responsibilities do not include
contact with the Client and whose job evaluations would not be
affected by the Investment Adviser's relationship with the Client
(or failure to retain such relationship). The subcommittee shall
determine whether and how to vote all proxies on behalf of the
Investment Adviser's clients or, if the proxy matter is, in their
judgment, akin to an investment decision, to defer to the applicable
portfolio managers, provided that, if the subcommittee determines to
alter the Investment Adviser's normal voting guidelines or, on
matters where the Investment Adviser's policy is case-by-case, does
not follow the voting recommendation of any proxy voting service or
other independent fiduciary that may be retained to provide research
or advice to the Investment Adviser on that matter, no proxies
relating to the Client may be voted unless the Secretary, or in the
Secretary's absence, the Assistant Secretary of the Committee
concurs that the subcommittee's determination is consistent with the
Investment Adviser's fiduciary duties
In addition to the general principles outlined above, the Investment
Adviser has adopted voting guidelines with respect to certain
recurring proxy issues that are not expected to involve unusual
circumstances. These policies are guidelines only, and the
Investment Adviser may elect to vote differently from the
recommendation set forth in a voting guideline if the Committee
determines that it is in a Fund's best interest to do so. In
addition, the guidelines may be reviewed at any time upon the
request of a Committee member and may be amended or deleted upon the
vote of a majority of Committee members present at a Committee
meeting at which there is a quorum.
The Investment Adviser has adopted specific voting guidelines with
respect to the following proxy issues:
* Proposals related to the composition of the Board of Directors of
issuers other than investment companies. As a general matter, the
Committee believes that a company's Board of Directors (rather than
shareholders) is most likely to have access to important, nonpublic
information regarding a company's business and prospects, and is
therefore best-positioned to set corporate policy and oversee
management. The Committee, therefore, believes that the foundation
of good corporate governance is the election of qualified,
independent corporate directors who are likely to diligently
represent the interests of shareholders and oversee management of
the corporation in a manner that will seek to maximize shareholder
value over time. In individual cases, the Committee may look at a
nominee's history of representing shareholder interests as a
director of other companies or other factors, to the extent the
Committee deems relevant.
* Proposals related to the selection of an issuer's independent
auditors. As a general matter, the Committee believes that
corporate auditors have a responsibility to represent the interests
of shareholders and provide an independent view on the propriety of
financial reporting decisions of corporate management. While the
Committee will generally defer to a corporation's choice of auditor,
in individual cases, the Committee may look at an auditors' history
of representing shareholder interests as auditor of other companies,
to the extent the Committee deems relevant.
* Proposals related to management compensation and employee
benefits. As a general matter, the Committee favors disclosure of
an issuer's compensation and benefit policies and opposes excessive
compensation, but believes that compensation matters are normally
best determined by an issuer's board of directors, rather than
shareholders. Proposals to "micro-manage" an issuer's compensation
practices or to set arbitrary restrictions on compensation or
benefits will, therefore, generally not be supported.
* Proposals related to requests, principally from management, for
approval of amendments that would alter an issuer's capital
structure. As a general matter, the Committee will support requests
that enhance the rights of common shareholders and oppose requests
that appear to be unreasonably dilutive.
* Proposals related to requests for approval of amendments to an
issuer's charter or by-laws. As a general matter, the Committee
opposes poison pill provisions.
* Routine proposals related to requests regarding the formalities of
corporate meetings.
* Proposals related to proxy issues associated solely with holdings
of investment company shares. As with other types of companies, the
Committee believes that a fund's Board of Directors (rather than its
shareholders) is best-positioned to set fund policy and oversee
management. However, the Committee opposes granting Boards of
Directors authority over certain matters, such as changes to a
fund's investment objective, that the Investment Company Act
envisions will be approved directly by shareholders.
* Proposals related to limiting corporate conduct in some manner
that relates to the shareholder's environmental or social concerns.
The Committee generally believes that annual shareholder meetings
are inappropriate forums for discussion of larger social issues, and
opposes shareholder resolutions "micromanaging" corporate conduct or
requesting release of information that would not help a shareholder
evaluate an investment in the corporation as an economic matter.
While the Committee is generally supportive of proposals to require
corporate disclosure of matters that seem relevant and material to
the economic interests of shareholders, the Committee is generally
not supportive of proposals to require disclosure of corporate
matters for other purposes.
Item 8--Reserved
Item 9(a) - The registrant's certifying officers have reasonably
designed such disclosure controls and procedures to ensure material
information relating to the registrant is made known to us by others
particularly during the period in which this report is being
prepared. The registrant's certifying officers have determined that
the registrant's disclosure controls and procedures are effective
based on our evaluation of these controls and procedures as of a
date within 90 days prior to the filing date of this report.
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 pursuant to Section 302 of the
Sarbanes-Oxley Act. 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: October 24, 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: October 24, 2003
By: _/s/ Donald C. Burke________
Donald C. Burke,
Chief Financial Officer of
Merrill Lynch Senior Floating Rate Fund, Inc.
Date: October 24, 2003
Attached hereto as a furnished exhibit are the certifications
pursuant to Section 906 of the Sarbanes-Oxley Act.