UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSRS
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: 08/31/04
Date of reporting period: 09/01/03 - 02/29/04
Item 1 - Report to Stockholders
(BULL LOGO)
Merrill Lynch Investment Managers
www.mlim.ml.com
Merrill Lynch
Senior Floating Rate
Fund, Inc.
Semi-Annual Report
February 29, 2004
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
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Merrill Lynch Senior Floating Rate Fund, Inc.
Officers and Directors/Trustees
Terry K. Glenn, President and Director/Trustee
Ronald W. Forbes, Director/Trustee
Cynthia A. Montgomery, Director/Trustee
Kevin A. Ryan, Director/Trustee
Roscoe S. Suddarth, Director/Trustee
Richard R. West, Director/Trustee
Edward D. Zinbarg, Director/Trustee
Kevin J. Booth, Vice President
Joseph P. Matteo, Vice President
Donald C. Burke, Vice President and Treasurer
Phillip S. Gillespie, Secretary
Charles R. Reilly, Director/Trustee of Merrill Lynch Senior Floating
Rate Fund, Inc., has recently retired. The Fund's Board of
Directors/Trustees wishes Mr. Reilly well in his retirement.
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., FEBRUARY 29, 2004
A Letter From the President
Dear Shareholder
As I write to you at February month-end, fixed income markets in the
United States continued to reward those investors willing to accept
greater risk. The high yield market, as measured by the Credit
Suisse First Boston High Yield Index, provided a return of +10.88%
over the past six months and +25.17% for the 12-month period ended
February 29, 2004. In other areas of fixed income, investment grade
corporate bonds, as measured by the Merrill Lynch Corporate Master
Index, returned +6.59% and +8.11% for the six-month and 12-month
periods ended February 29, 2004, respectively. Treasury issues, as
measured by the Merrill Lynch U.S. Treasuries 1-10 Years Index,
returned +3.16% and +2.73% for the six-month and 12-month periods
ended February 29, 2004, respectively.
At the same time, equity markets maintained their positive momentum
from year-end 2003. For the six-month and 12-month periods ended
February 29, 2004, Standard & Poor's (S&P) 500 Index returned
+14.59% and +38.52%, respectively. Much of the boost came from
improving economic conditions in the United States.
The major signposts as we enter 2004 indicate that we are seeing a
shift from economic growth fueled primarily by fiscal and monetary
stimulus to a broader-based, self-sustaining economic expansion.
Gross domestic product growth, which peaked at an annualized rate of
8.2% in the third quarter of 2003, was 4.1% in the fourth quarter. A
similar level of growth is expected in the first quarter of 2004.
For its part, the Federal Reserve Board has reiterated its
willingness to keep short-term interest rates at current low levels
to ensure the economy's strength.
Accompanying the increase in economic activity was an improvement
in corporate earnings. By February 10, 2004, 392 of the S&P 500
companies had reported their fourth-quarter 2003 results, and 67.6%
of those exceeded expectations. In the meantime, the American
consumer, who continued to spend despite the faltering economy, may
get further incentive from another round of Federal tax refunds this
year.
At Merrill Lynch Investment Managers, we believe the events and
efforts of 2003 left us with a much stronger economy and that recent
optimism suggests it is time for investors to consider what can go
right in 2004. We encourage you to revisit your portfolio and your
asset allocation startegy to ensure you are well positioned to take
advantage of the opportunities that lie ahead.
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., FEBRUARY 29, 2004
A Discussion With Your Fund's Portfolio Managers
The Fund participated in an aggressive rally in the leveraged loan
market, and ended the period with a total return exceeding that of
the benchmark CSFB Leveraged Loan Index
How did the Fund perform during the six-month period?
For the six-month period ended February 29, 2004, the Common
Stock of Merrill Lynch Senior Floating Rate Fund, Inc. had a net
annualized yield of 3.74%, based on a period-end per share net asset
value of $8.84 and $.165 per share income dividends. Over the same
period, the total investment return on the Fund's Common Stock was
+7.23%, based on a change in per share net asset value from $8.40 to
$8.84, and assuming reinvestment of $.165 per share ordinary income
dividends. These results compare to the +4.68% total return of the
Credit Suisse First Boston (CSFB) Leveraged Loan Index for the same
period. The increase in the mark-to-market valuation of the
portfolio, combined with the current income being distributed, led
to a total return that significantly outpaced that of the benchmark
CSFB Leveraged Loan Index.
What were the primary market and economic developments that affected
the Fund?
In our last report to shareholders, we noted that the leveraged loan
market's positive momentum had declined following a monthly return
peak of +1.41% in April 2003. That period ended on August 31, 2003
with an August monthly return of +.21%. In this six-month period
ended February 29, 2004, market returns rebounded from August's
relative low point, although the high April 2003 monthly return was
not surpassed.
In the past six months, inflows into the loan market via new
collateralized debt obligations, prime funds and hedge funds
exceeded the amount of new issues coming to market. This helped to
maintain a strong bid on loans in the secondary market as loan
managers competed to put their cash to work. In the primary market,
pricing was equally competitive with market participants routinely
receiving new-issue allocation amounts well below their commitment
levels.
Adding to the levels of cash held by loan managers was a steady
stream of refinancings. The refinancing activity was initiated by
issuers seeking to take advantage of the new lower market spreads,
which had steadily dropped throughout the period. According to
Standard & Poor's (S&P) Leveraged Commentary and Data, the new-issue
spread for BB/BB- institutional loans was 235 basis points (2.35%)
in February 2004, compared to 295 basis points in September 2003.
For B/B+ loans, the spread was 294 basis points in February 2004
versus 350 basis points in September 2003.
A steady decline in the default rate over the past year also
contributed to investor demand for the leveraged loan asset class.
For example, the lagging 12-month default rate for the S&P/LSTA
Leveraged Loan Index was 1.61% on February 29, 2004 versus 2.91% on
September 30, 2003 and 5.01% on February 28, 2003. The floating rate
nature of leveraged loans also has been a desired feature among
those investors seeking to add an interest-rate-defensive position
to their portfolio in anticipation of a Federal Reserve Board move
to increase interest rates.
What changes were made to the portfolio during the period?
From a sector perspective, we continued to emphasize those
industries with strong asset values and stable cash flow
characteristics. Our highest concentration remained in cable--U.S.,
followed by wireless communications, utilities, chemicals and
service. The continued rally in cable television, which bottomed out
in 2002, provided a significant amount of the price appreciation
performance in this period. In fact, much of the positive impact
during the period was still attributable to the sectors that hurt
performance in 2002. These included those sectors in which we
traditionally have favored and benefited from an overweighting, such
as cable television, utilities and wireless communications. Our
investment hypothesis has been that these are strong cash-flowing
industries with significant underlying asset values. We believe
their market prices suffered in 2002 either for technical reasons,
such as fallout from corporate scandals from isolated pockets of the
sector, or from too much total leverage (rather than senior
leverage), or from a combination. Our investment thesis followed
that as the tide of technical price pressures ebbed, our senior,
secured positions in these companies would regain their price
footing. The performance of these sectors, in particular, has
validated our strategy of weathering the storm and holding our
positions.
MERRILL LYNCH SENIOR FLOATING RATE FUND, INC., FEBRUARY 29, 2004
How would you characterize the portfolio's position at the close of
the period?
At period end, Master Senior Floating Rate Trust, of which the Fund
invests all of its assets, was comprised of 147 issuers spread among
32 industries. Compared to the CSFB Leveraged Loan Index as of the
same date, the Trust was underweight Ba and above issues (40.3%
versus 48.9% for the Index), overweight B (38.5% versus 30.23%),
overweight Caa or below (8.4% versus 6.3%) and underweight not rated
issues (13% versus 14.6%). It should be noted that approximately
half of our overweight in Caa or below issues is attributable to
positions in the Adelphia Communications family of names. Despite
the fact that Adelphia has been in bankruptcy for more than a year,
its strong assets and associated cash flow has allowed the company
to continue to fully service its bank loan interest obligations and
has kept the loans trading like paper of a much higher rating
quality. In addition, if we include the Trust's positions in high-
quality cash equivalents, the distribution is as follows: Ba and
above, 41.9%; B, 38.5%; Caa or below, 13.5%; and Not Rated, 6.1%.
Overall, the Fund took part in an aggressive rally in the leveraged
loan market during the six-month period. The rally, however, has led
to a refinancing boom that has resulted in lower spreads and more
cash being put into the hands of loan managers. Given the prepayable
nature of loans, it is unlikely that there will be a significant
amount of additional price appreciation based on their current
trading levels. This, combined with lower spreads on new-issue
loans, will likely lead to a moderation in the monthly total return
percentages over the next period. Given this challenging secondary
and new-issue market, we remain vigilant in our analysis of the
structure and terms of potential leveraged loan investments.
Kevin J. Booth
Vice President and Portfolio Manager
Joseph P. Matteo
Vice President and Portfolio Manager
March 26, 2004
MERRILL LYNCH SENIOR FLOATING RATE FUND, INC., FEBRUARY 29, 2004
Statements of Assets and Liabilities Merrill Lynch Senior Floating Rate Fund, Inc.
As of February 29, 2004
Assets
Investment in Master Senior Floating Rate Trust, at value
(identified cost--$862,694,054) $ 781,125,058
Prepaid registration fees 385,602
---------------
Total assets 781,510,660
---------------
Liabilities
Payables:
Dividends to shareholders $ 864,136
Other affiliates 169,500
Administrator 149,565 1,183,201
---------------
Accrued expenses 152,203
---------------
Total liabilities 1,335,404
---------------
Net Assets
Net assets $ 780,175,256
===============
Net Assets Consist of
Common Stock, par value $.10 per share; 1,000,000,000 shares authorized $ 8,824,433
Paid-in capital in excess of par 1,153,868,979
Accumulated distributions in excess of investment income--net $ (103,485)
Accumulated realized capital losses on investments allocated from the
Trust--net (300,845,675)
Unrealized depreciation on investments allocated from the Trust--net (81,568,996)
---------------
Total accumulated losses--net (382,518,156)
---------------
Net Assets--Equivalent to $8.84 per share based on 88,244,334 shares of
capital stock outstanding $ 780,175,256
===============
See Notes to Financial Statements.
MERRILL LYNCH SENIOR FLOATING RATE FUND, INC., FEBRUARY 29, 2004
Statement of Operations Merrill Lynch Senior Floating Rate Fund, Inc.
For the Six Months Ended February 29, 2004
Investment Income Allocated from the Trust--Net
Net investment income allocated from the Trust:
Interest (including $551,776 from affiliates) $ 20,080,726
Facility and other fees 362,180
Expenses (3,912,155)
---------------
Net investment income allocated from the Trust 16,530,751
---------------
Expenses
Administration fees $ 967,831
Transfer agent fees 363,888
Tender offer fees 250,191
Printing and shareholder reports 45,211
Registration fees 19,562
Professional fees 9,216
Other 5,789
---------------
Total expenses 1,661,688
---------------
Investment income--net 14,869,063
---------------
Realized & Unrealized Gain (Loss) on Investments Allocated from the Trust--Net
Realized loss on investments allocated from the Trust--net (28,078,553)
Change in unrealized depreciation on investments allocated from the
Trust--net 67,485,526
---------------
Total realized and unrealized gain on investments allocated from the
Trust--net 39,406,973
---------------
Net Increase in Net Assets Resulting from Operations $ 54,276,036
===============
See Notes to Financial Statements.
MERRILL LYNCH SENIOR FLOATING RATE FUND, INC., FEBRUARY 29, 2004
Statements of Changes in Net Assets Merrill Lynch Senior Floating Rate Fund, Inc.
For the Six For the
Months Ended Year Ended
February 29, August 31,
Increase (Decrease) in Net Assets: 2004 2003++
Operations
Investment income--net $ 14,869,063 $ 41,897,085
Realized loss on investments and allocated from the Trust--net (28,078,553) (36,800,954)
Change in unrealized depreciation on investments allocated from the
Trust--net 67,485,526 70,358,217
--------------- ---------------
Net increase in net assets resulting from operations 54,276,036 75,454,348
--------------- ---------------
Dividends to Shareholders
Investment income--net (14,758,132) (43,357,390)
--------------- ---------------
Net decrease in net assets resulting from dividends to shareholders (14,758,132) (43,357,390)
--------------- ---------------
Capital Share Transactions
Net decrease in net assets derived from capital share transactions (57,662,329) (297,760,644)
--------------- ---------------
Net Assets
Total decrease in net assets (18,144,425) (265,663,686)
Beginning of period 798,319,681 1,063,983,367
--------------- ---------------
End of period* $ 780,175,256 $ 798,319,681
=============== ===============
*Accumulated distributions in excess of investment income--net $ (103,485) $ (214,416)
=============== ===============
++On February 10, 2003, the Fund converted from a stand-alone
investment company to a "feeder" fund that seeks to achieve its
investment objective by investing all of its assets in the Trust,
which has the same investment objective as the Fund. All investments
are made at the Trust level. This structure is sometimes called a
"master/feeder" structure.
See Notes to Financial Statements.
MERRILL LYNCH SENIOR FLOATING RATE FUND, INC., FEBRUARY 29, 2004
Financial Highlights Merrill Lynch Senior Floating Rate Fund, Inc.
For the Six
The following per share data and ratios have been derived Months Ended
from information provided in the financial statements. February 29, For the Year Ended August 31,
Increase (Decrease) in Net Asset Value: 2004 2003+++++ 2002 2001 2000
Per Share Operating Performance
Net asset value, beginning of period $ 8.40 $ 8.05 $ 8.82 $ 9.45 $ 9.73
---------- ---------- ---------- ---------- ----------
Investment income--net .16*** .38 .43 .79 .77
Realized and unrealized gain (loss) on
investments and allocated from the Trust--net .44 .36 (.77) (.62) (.28)
---------- ---------- ---------- ---------- ----------
Total from investment operations .60 .74 (.34) .17 .49
---------- ---------- ---------- ---------- ----------
Less dividends from investment income--net (.16) (.39) (.43) (.80) (.77)
---------- ---------- ---------- ---------- ----------
Net asset value, end of period $ 8.84 $ 8.40 $ 8.05 $ 8.82 $ 9.45
========== ========== ========== ========== ==========
Total Investment Return**
Based on net asset value per share 7.23%+++ 9.61% (4.09%) 1.52% 5.44%
========== ========== ========== ========== ==========
Ratios to Average Net Assets
Expenses, excluding interest expense++ 1.44%* 1.45% 1.41% 1.36% 1.31%
========== ========== ========== ========== ==========
Expenses++ 1.44%* 1.46% 1.41% 1.36% 1.31%
========== ========== ========== ========== ==========
Investment income--net 3.84%* 4.81% 5.07% 8.39% 8.17%
========== ========== ========== ========== ==========
Leverage
Average amount of borrowings during the
period (in thousands) -- $8,138++++ $ 3,374 -- --
========== ========== ========== ========== ==========
Average amount of borrowings per share
during the period -- $ .07++++ $ .02 -- --
========== ========== ========== ========== ==========
Supplemental Data
Net assets, end of period (in thousands) $ 780,175 $ 798,320 $1,063,983 $1,778,295 $2,492,591
========== ========== ========== ========== ==========
Portfolio turnover from the Trust 31.37% 56.56% 89.46% 50.82% 59.59%
========== ========== ========== ========== ==========
*Annualized.
**Total investment returns exclude the early withdrawal charge, if
any. The Fund is a continuously offered closed-end fund, the shares
of which are offered at net asset value. 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.
***Based on average shares outstanding.
++Includes the Fund's share of the Trust's allocated expenses.
++++Reflects the average amount of borrowings of the Fund prior to
the Fund's conversion from a stand-alone investment company to a
"feeder" fund on February 10, 2003.
+++Aggregate total investment return.
+++++On February 10, 2003, the Fund converted from a stand-alone
investment company to a "feeder" fund that seeks to achieve its
investment objective by investing all of its assets in the Trust,
which has the same investment objective as the Fund. All investments
are made at the Trust level. This structure is sometimes called a
"master/feeder" structure.
See Notes to Financial Statements.
MERRILL LYNCH SENIOR FLOATING RATE FUND, INC., FEBRUARY 29, 2004
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. The Fund 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. The value of the Fund's investment in the
Trust reflects the Fund's proportionate interest in the net assets
of the Trust. The performance of the Fund is directly affected by
the performance of the Trust. The financial statements of the Trust,
including the Schedule of Investments, are included elsewhere in
this report and should be read in conjunction with the Fund's
financial statements. The Fund's financial statements are prepared
in conformity with accounting principles generally accepted in the
United States of America, which may require the use of management
accruals and estimates. These unaudited financial statements reflect
all adjustments, which are, in the opinion of management, necessary
to a fair statement of the results for the interim period presented.
All such adjustments are of a normal, recurring nature.
The percentage of the Trust owned by the Fund at February 29, 2004
was 80.8%. 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 1a of the Trust's Notes to Financial Statements,
which are included elsewhere in this report.
(b) Investment income and expenses--The Fund records daily its
proportionate share of the Trust's income, expenses and realized and
unrealized gains and losses. In addition, the Fund accrues its own
expenses.
(c) Income taxes--It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated
investment companies and to distribute substantially all of its
taxable income to shareholders. Therefore, no Federal income tax
provision is required.
(d) Prepaid registration fees--Prepaid registration fees are charged
to expense as the related shares are issued.
(e) Dividends and distributions--Dividends from net investment
income are declared daily and paid monthly. Distributions of capital
gains are recorded on the ex-dividend dates.
(f) Investment transactions--Investment transactions in the Trust
are accounted for on a trade date basis.
2. Transactions with Affiliates:
The Fund has entered into an Administration Agreement with Fund
Asset Management, L.P. ("FAM"). The general partner of FAM is
Princeton Services, Inc. ("PSI"), an indirect, 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"), a wholly-owned subsidiary of
ML & Co., is the Fund's transfer agent.
For the six months ended February 29, 2004, FAM Distributors, Inc.
("FAMD"), a wholly-owned subsidiary of Merrill Lynch Group, Inc.,
earned early withdrawal charges of $78,585 relating to the tender of
the Fund's shares.
Certain officers and/or directors of the Fund are officers and/or
directors of FAM, PSI, FAMD, FDS, and/or ML & Co.
MERRILL LYNCH SENIOR FLOATING RATE FUND, INC., FEBRUARY 29, 2004
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 Six Months Dollar
Ended February 29, 2004 Shares Amount
Shares sold 2,989,424 $ 25,890,123
Shares issued to shareholders
in reinvestment of dividends 806,389 7,003,135
--------------- ---------------
Total issued 3,795,813 32,893,258
Shares tendered (10,549,037) (90,555,587)
--------------- ---------------
Net decrease (6,753,224) $ (57,662,329)
=============== ===============
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)
=============== ===============
4. Capital Loss Carryforward:
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.
MERRILL LYNCH SENIOR FLOATING RATE FUND, INC., FEBRUARY 29, 2004
Schedule of Investments Master Senior Floating Rate Trust
S&P Moody's Face
Industry++ Rating Rating Amount Senior Secured Floating Rate Loan Interests** Value
Automotive BB Ba2 $ 1,756,522 TRW Automotive Inc., Term B, due 2/28/2011 $ 1,789,300
Equipment--0.6% Tenneco Automotive Inc.:
B B1 2,482,759 Term B, due 12/12/2010 2,528,275
B B1 1,117,241 Term B-1, due 12/12/2010 1,137,724
--------------
5,455,299
Broadcasting--0.6% B+ Ba3 3,970,000 Cumulus Media Inc., Term D, due 3/28/2010 4,029,550
BB Ba2 1,843,600 Sinclair Broadcasting Group Inc., Term B, due 12/31/2009 1,865,329
--------------
5,894,879
Cable--U.S.--22.7% BB Ba3 4,645,865 CC VI Operating Company LLC, Term B, due 11/12/2008 4,512,877
B B2 14,602,000 CC VIII Operating Company LLC, Term B, due 2/02/2008 14,401,223
NR* NR* 50,000,000 Century Cable Holdings LLC, Term, due 6/30/2009 47,947,900
Charter Communications Holdings:
NR* NR* 57,723,030 Term B, due 3/18/2008 56,287,977
NR* NR* 5,000,000 Term B, due 9/18/2008 4,875,695
B- B2 7,371,212 Charter Communications Operating LLC, Incremental Term,
due 9/18/2008 7,179,767
B Ba3 9,500,000 Falcon Holdings Group, Term C, due 12/31/2007 9,254,587
Frontiervision Operating Partners LP:
D B2 3,582,057 Term A, due 9/30/2005 3,562,653
D B2 15,668,000 Term B, due 3/31/2006 15,583,126
NR* Caa1 9,975,000 Hilton Head/UCA Inc., Term B, due 3/31/2008 9,625,875
Inmarsat Investments Limited:
BB- Ba3 4,625,000 Term B, due 1/23/2017 4,646,196
BB- Ba3 4,625,000 Term C, due 1/23/2017 4,646,196
Insight Midwest Holdings, LLC:
BB+ Ba3 4,000,000 Incremental Term, due 12/31/2009 4,032,500
BB+ Ba3 5,500,000 Term B, due 12/31/2009 5,537,433
D B2 23,500,000 Olympus Cable Holdings LLC, Term B, due 9/30/2010 22,391,105
BB Ba2 700,000 Panamsat Corp., Term, due 12/31/2008 711,375
B- B3 4,537,831 Pegasus Communications, Term, due 4/30/2005 4,462,199
--------------
219,658,684
Chemicals--6.0% NR* NR* 3,654,871 CII Carbon LLC, Term, due 6/25/2008 3,508,677
NR* NR* 7,182,700 Cedar Chemical Corp., Term B, due 10/31/2003 (d) 395,049
B+ Ba3 695,652 Ethyl Corporation, Term, due 4/30/2009 701,449
Huntsman International LLC:
B B1 19,634,958 Term B, due 6/30/2007 19,827,224
B B1 19,634,958 Term C, due 6/30/2008 19,843,580
BB- B1 1,000,000 KRATON Polymers LLC, Revolving Term, due 12/24/2010 1,017,917
BB- B1 6,200,000 Nalco Company, Term, due 11/04/2010 6,269,750
NR* NR* 3,000,000 Pinnacle Polymers, Term, due 12/15/2006 3,006,480
BB- B1 4,000,000 Wellman, Inc., First Lien Term, due 2/04/2009 3,928,332
--------------
58,498,458
Consumer BB- Ba3 5,212,766 Josten's Inc., Term, due 7/29/2010 5,269,455
Non-Durables--0.5% NR* NR* 845,805 Walls Industries, Term A, due 2/28/2006 30,861
--------------
5,300,316
MERRILL LYNCH SENIOR FLOATING RATE FUND, INC., FEBRUARY 29, 2004
Schedule of Investments (continued) Master Senior Floating Rate Trust
S&P Moody's Face
Industry++ Rating Rating Amount Senior Secured Floating Rate Loan Interests** Value
Diversified BB- B1 $ 3,774,074 Dex Media, Inc., Term, due 3/09/2010 $ 3,831,078
Media--2.2% B B1 4,967,751 Liberty Group Operating, Term B, due 3/31/2007 5,011,219
BB Ba3 3,000,000 MediaNews Group, Inc., Term B, due 12/30/2010 3,037,500
BB Ba3 2,475,216 RH Donnelley, Term B, due 11/15/2009 2,510,951
BB- Ba2 1,461,290 Regal Cinema, Tranche B, due 6/30/2009 1,481,535
B Ba2 3,500,000 Six Flags Entertainment Corp., Term B, due 6/30/2009 3,545,938
BB+ Ba2 2,000,000 Vivendi, Term B, due 6/30/2008 2,015,938
--------------
21,434,159
Energy--2.7% BB+ Ba2 1,500,000 Citgo Petroleum Corp., Term B, due 2/27/2006 1,560,000
BB+ Ba2 5,000,000 Cogentrix Delaware Holdings, Inc., Term B, due 2/27/2009 5,031,250
BB- Ba3 1,006,451 Dresser, Inc., Term B, due 4/10/2009 1,017,983
NR* NR* 3,500,000 GulfTerra Energy Partners, L.P., Term, due 12/10/2008 3,530,625
B+ B2 2,500,000 Parker Drilling Company, Term, due 10/01/2007 2,605,450
NR* NR* 5,000,000 Pride International, Inc., Term B, due 1/15/2009 5,062,500
BB Ba3 4,962,500 Tesoro Petroleum Corp., Term, due 4/15/2008 5,119,647
NR* NR* 2,674,424 WH Energy Services, Term B, due 4/16/2007 2,701,168
--------------
26,628,623
Food & Drug--0.5% B+ B1 4,638,419 The Pantry Inc., Term, due 7/31/2006 4,696,400
Food & BB Ba3 885,630 American Seafood, Term B, due 3/31/2009 889,965
Tobacco--2.0% BB+ Ba1 4,656,579 Dean Foods Company, Term B, due 7/30/2008 4,732,248
BB- Ba3 3,478,244 DelMonte, Term B, due 12/20/2010 3,535,854
Doane Pet Care Company:
B- B1 1,142,857 Revolving Credit, due 3/31/2005 1,123,798
B- B1 967,060 Term A, due 3/31/2005 969,477
B- B1 698,187 Term B, due 12/31/2005 700,950
B+ B1 3,486,404 Domino's Pizza, Term, due 6/25/2010 3,542,186
NR* NR* 4,339,726 Dr. Pepper Bottling, Term B, due 12/19/2010 4,407,534
--------------
19,902,012
Gaming--2.0% B+ Ba3 6,378,403 Ameristar Casinos Inc., Term B, due 12/31/2006 6,417,273
B+ B2 5,386,500 Marina District Finance Co., Term B, due 12/13/2007 5,466,624
B B2 3,920,000 Pinnacle Entertainment, Inc., Term, due 12/15/2009 3,952,928
B+ B1 2,955,000 Venetian Casino Resort, LLC/Las Vegas Sands, Inc.,
Term B, due 5/01/2008 3,001,787
--------------
18,838,612
Health Care--3.3% BB B1 1,418,572 Alaris Medical Systems, Inc., Term, due 6/30/2009 1,435,772
BB- Ba3 1,995,000 Community Health, Term, due 1/06/2011 2,030,910
BB- Ba3 6,464,983 Davita, Term B, due 3/31/2009 6,550,411
B+ B1 2,985,000 Kinetic Conc, Term B, due 8/11/2010 3,029,775
BBB Ba1 4,987,500 MedCo Health, Term B, due 6/30/2010 5,066,337
Medical Specialties (d):
NR* NR* 12,845,455 Axel, due 6/30/2004 3,211,364
NR* NR* 4,418,182 Term, due 6/30/2001 1,104,545
B+ B1 4,209,005 MedPointe Inc., Term B, due 9/30/2008 4,235,311
BB- Ba3 2,500,000 Orthofix International NV, Term B, due 12/15/2008 2,520,312
BB+ Ba2 2,481,250 Oxford Health, Term, due 4/30/2009 2,495,984
--------------
31,680,721
Housing--0.7% BB- B1 4,477,500 Amsted Industries Incorporated, Term, due 10/15/2010 4,507,584
NR* NR* 2,765,202 Trussway Industries Inc., Term B, due 12/31/2006 2,046,249
--------------
6,553,833
MERRILL LYNCH SENIOR FLOATING RATE FUND, INC., FEBRUARY 29, 2004
Schedule of Investments (continued) Master Senior Floating Rate Trust
S&P Moody's Face
Industry++ Rating Rating Amount Senior Secured Floating Rate Loan Interests** Value
Information NR* Ca $ 1,507,923 Trend Technologies, Inc., Term, due 2/28/2007 (d) $ 0
Technology--0.0%
Leisure--3.0% Wyndham International, Inc.:
NR* NR* 12,991,174 Increasing Rate Term, due 4/01/2006 12,680,308
NR* NR* 16,497,466 Term, due 6/30/2006 16,266,204
--------------
28,946,512
Manufacturing--1.3% ChannelMaster Holdings, Inc. (d):
NR* NR* 128,199 Revolving Credit, due 11/15/2004 53,202
NR* NR* 3,287,072 Term, due 11/15/2004 1,164,037
NR* Ba2 1,700,000 Goodman Manufacturing Company, LP, Term B, due 11/21/2009 1,722,313
BB+ Ba2 4,000,000 Roper Industries, Inc., 3.11% due 12/29/2008 4,052,500
BBB- Ba2 1,856,250 SPX Corporation, Term B, due 9/30/2009 1,871,042
BB- B1 3,486,457 Trimas Corporation, Term B, due 12/31/2009 3,510,427
--------------
12,373,521
Metals--Other--2.7% B+ B1 13,051,250 Mueller Group, Term E, due 5/31/2008 13,144,031
NR* NR* 31,000,000 Ormet Corporation, Term, due 8/15/2008 (d) 12,555,000
--------------
25,699,031
Packaging--0.7% B B2 3,487,719 Graham Packaging Holdings Co., Term D, due 2/14/2010 3,526,084
Owens-Illinois Inc.:
BB B1 1,500,000 Term A, due 4/01/2007 1,506,719
BB B1 1,500,000 Term B, due 4/01/2008 1,512,969
--------------
6,545,772
Paper--1.5% BB+ Ba3 3,500,000 Georgia-Pacific Corporation, Term, due 11/28/2005 3,507,658
B+ B1 3,731,250 Graphic Packaging, Term B, due 8/08/2010 3,791,107
Stone Container Corporation:
NR* NR* 6,003,063 Term B, due 6/30/2009 6,083,102
NR* NR* 1,017,118 Term C, due 6/30/2009 1,026,653
--------------
14,408,520
Retail--0.9% BB Ba3 1,004,470 Advance Stores Company, Incorporated, Term E, due
11/30/2007 1,016,712
B B3 3,500,000 American Reprographics Company, LLC, Term, due 12/18/2009 3,552,500
B+ B1 3,800,000 General Nutrition Center, Inc., Term B, due 12/05/2009 3,826,125
--------------
8,395,337
Service--4.5% B B1 3,253,886 Alliance Laundry Systems LLC, Term B, due 6/01/2007 3,268,799
Allied Waste Industries, Inc.:
BB Ba3 10,495,714 Term, due 1/15/2010 10,675,013
BB Ba3 3,571,429 Tranche A--Credit Linked Deposit, due 1/1/2010 3,629,782
NR* C 8,122,491 Anthony Crane Rental Holdings LP, Term, due 7/20/2006 5,766,969
NR* NR* 6,000,000 Buhrmann US Inc., Term B-1, due 12/23/2010 6,087,186
BB- Ba3 3,939,091 Corrections Corp. of America, Term C, due 3/31/2008 3,993,253
IT Group Inc. (d):
D NR* 9,991,000 Term, due 6/08/2001 799,280
D NR* 5,084,407 Term B, due 6/11/2006 406,753
NR* Caa1 8,453,718 Prime Succession Inc., Term, due 8/01/2003 (d) 338,149
BB- Ba3 5,493,931 URS Corporation, Term B, due 7/01/2008 5,512,819
United Rentals
BB Ba3 2,444,444 Term, due 2/14/2011 2,475,929
BB Ba3 666,667 Term B, due 2/14/2011 675,417
--------------
43,629,349
MERRILL LYNCH SENIOR FLOATING RATE FUND, INC., FEBRUARY 29, 2004
Schedule of Investments (continued) Master Senior Floating Rate Trust
S&P Moody's Face
Industry++ Rating Rating Amount Senior Secured Floating Rate Loan Interests** Value
Steel--1.2% NR* NR* $ 9,503,264 Acme Metals Incorporated, Term, due 12/01/2005 (d) $ 451,405
BB+ Ba2 2,260,313 International Steel Group, Term A, due 5/07/2007 2,270,202
Ispat International:
B- Caa1 4,774,024 Term B, due 7/15/2005 4,571,128
B- Caa1 4,774,024 Term C, due 7/15/2005 4,571,128
--------------
11,863,863
Telecommunications-- NR* NR* 6,751,147 E. Spire Communication, Term C, due 8/11/2006 (d) 1
1.6% Intera:
NR* NR* 2,586,301 Term A, due 12/31/2005 773,821
NR* NR* 933,400 Term B, due 12/31/2005 279,273
NR* NR* 1,803,542 Term C, due 12/31/2005 539,620
Transaction Network Services:
BB- Ba3 2,670,817 Term B, due 4/03/2007 2,693,135
BB- Ba3 3,145,309 Term B, due 3/31/2008 3,145,309
BB- Ba3 7,944,134 Valor Telecommunications, Term B, due 6/30/2008 8,003,715
--------------
15,434,874
Transportation BB+ Ba2 4,264,762 Kansas City Southern Railway Company, Term B, due
Services--1.3% 6/12/2008 4,289,130
BB+ Ba3 1,940,000 Laidlaw International, Term B, due 6/30/2009 1,975,566
B+ B1 4,150,000 North American Van Lines, Inc., Term, due 10/29/2010 4,187,611
BB- B1 1,980,000 United Components, Inc., Term C, due 6/30/2010 2,007,225
--------------
12,459,532
Utilities--6.6% BB B2 2,000,000 The AES Corporation, Term, due 4/30/2008 2,025,750
Aquila Networks Canada Corp.:
NR* NR* 6,500,000 Term, due 7/31/2004 6,508,125
BB B3 2,730,159 Term A, due 5/15/2006 2,821,163
NR* NR* 2,000,000 Term A, due 7/31/2004 2,002,500
Calpine Corporation:
B B1 6,965,000 Term, due 7/15/2007 6,647,222
B B1 4,477,500 Term, due 7/16/2007 4,544,663
Mission Energy Holding Company:
CCC Caa2 8,181,819 Term A, due 7/02/2006 7,936,363
CCC Caa2 21,837,662 Term B, due 7/02/2006 21,182,533
CCC Caa2 1,480,519 Term B, due 7/02/2007 1,436,104
NRG Energy, Inc.:
BB B1 458,333 Credit Link Deposit, due 6/23/2010 472,155
BB B1 818,583 Term, due 6/23/2010 843,269
NR* NR* 3,214,318 Reliant Resources, Inc., Term, due 3/15/2007 3,155,390
BB+ Ba2 2,388,000 TNP Enterprises, Inc., Term, due 12/31/2006 2,410,388
BB B1 1,990,000 Williams Production RMT Company, Term, due 5/31/2007 2,007,413
--------------
63,993,038
Wireless B B1 12,820,947 American Tower Systems Corp., Term B, due 12/31/2007 12,978,542
Communications-- B- B2 4,300,000 Centennial, Term A, due 2/09/2011 4,323,740
8.9% Crown Castle Operating Company:
BB Ba3 15,668,978 Term B, due 3/31/2008 15,978,001
B- B1 3,500,000 Term B, due 9/30/2010 3,569,027
B B1 4,488,750 Dobson Cellular Systems, Inc., Term, due 3/31/2010 4,532,035
Nextel Communications, Inc.:
BB Ba2 1,842,105 Term A, due 12/31/2007 1,831,552
BB- Ba2 32,000,000 Term E, due 12/15/2010 32,326,016
CCC+ B2 5,246,154 SBA Senior Finance, Inc., Term B, due 10/31/2008 5,256,114
B+ B1 5,657,288 Spectrasite Communications, Inc., Term, due 12/31/2007 5,730,527
--------------
86,525,554
Total Investments in Senior Secured Floating Rate Loan
Interests (Cost--$831,614,892)--78.0% 754,816,899
MERRILL LYNCH SENIOR FLOATING RATE FUND, INC., FEBRUARY 29, 2004
Schedule of Investments (continued) Master Senior Floating Rate Trust
S&P Moody's Face
Industry++ Rating Rating Amount Corporate Debt Value
Chemicals--0.2% NR* NR* $ 1,662,678 PCI Chemicals, Canada, 10% due 12/31/2008 $ 1,621,111
NR* NR* 526,515 Pioneer Companies, Inc., 4.663% due 12/31/2006 (a) 513,352
--------------
2,134,463
Telecommunications-- CCC+ B3 9,500,000 Qwest Communications International Inc., 4.63%
1.7% due 2/15/2009 (a)(b) 8,977,500
B B1 7,000,000 Time Warner Telecom Holdings, Inc., 5.12% due
2/15/2011 (a)(b) 6,947,500
--------------
15,925,000
Total Investments in Corporate Debt
(Cost--$23,727,732)--1.9% 18,059,463
Shares
Held Common Stocks
Chemicals--0.1% 107,520 Pioneer Companies, Inc. 698,880
Metals & Mining--0.0% 51,714 Acme Package Corp. Senior Holdings 258,570
Telecommunications--0.0% 839 Intera (Pacific Coin) 0
Total Investments in Common Stocks (Cost--$693,424)--0.1% 957,450
Warrants (c)
Service--0.0% 11,154 Anthony Crane Rental Holdings LP (Class A) 0
1,239 Anthony Crane Rental Holdings LP (Class L) 0
--------------
0
Total Investments in Warrants (Cost--$0)--0.0% 0
Beneficial
Interest Other Interests (e)
$17,263,637 Medical Specialties Acquisition LLC 173
17,263,637 Medical Specialties Mezzanine LLC 173
--------------
346
14,398 MEDIQ Incorporated (Preferred Stock Escrow due 4/01/2004) 0
14,398 MEDIQ Incorporated (Preferred Stock Escrow due 2/01/2006) 0
--------------
0
Total Investments in Other Interests (Cost--$0)--0.0% 346
MERRILL LYNCH SENIOR FLOATING RATE FUND, INC., FEBRUARY 29, 2004
Schedule of Investments (concluded) Master Senior Floating Rate Trust
Beneficial
Interest Short-Term Securities Value
$189,349,206 Merrill Lynch Liquidity Series, LLC Cash Sweep
Series I*** $ 189,349,206
Total Investments in Short-Term Securities
(Cost--$189,349,206)--19.6% 189,349,206
Total Investments (Cost--$1,045,385,254)--99.6% 963,183,364
Other Assets Less Liabilities--0.4% 4,102,244
--------------
Net Assets--100.0% $ 967,285,608
==============
(a)Floating rate note.
(b)The security may be offered and sold to "qualified institutional
buyers" under Rule 144A of the Securities Act of 1933.
(c)Warrants entitle the Trust to purchase a predetermined number of
shares of common stock and are non-income producing. The purchase
price and number of shares are subject to adjustment under certain
conditions until the expiration date.
(d)Non-income producing security.
(e)Other interests represent beneficial interest in liquidation
trusts and other reorganization entities and are non-income
producing.
*Not Rated.
**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
United States 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 $116,874,886 $669,008
++For Trust compliance purposes, "Industry" 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 such industry sub-
classifications for reporting ease. Industries are shown as a
percent of net assets.
See Notes to Financial Statements.
MERRILL LYNCH SENIOR FLOATING RATE FUND, INC., FEBRUARY 29, 2004
Statement of Assets and Liabilities Master Senior Floating Rate Trust
As of February 29, 2004
Assets
Investments, at value (identified cost--$1,045,385,254) $ 963,183,364
Cash 333,875
Receivables:
Interest (including $3,323 from affiliates) $ 4,014,552
Securities sold 2,932,078
Contributions 2,484,553
Commitment fees 18,724 9,449,907
---------------
Prepaid expenses and other assets 12,589
---------------
Total assets 972,979,735
---------------
Liabilities
Payables:
Securities purchased 5,025,000
Investment adviser 625,137
Other affiliates 9,990 5,660,127
---------------
Accrued expenses and other liabilities 34,000
---------------
Total liabilities 5,694,127
---------------
Net Assets
Net assets $ 967,285,608
===============
Net Assets Consist of
Investors' capital $ 1,049,487,498
Unrealized depreciation on investments--net (82,201,890)
---------------
Net Assets $ 967,285,608
===============
See Notes to Financial Statements.
MERRILL LYNCH SENIOR FLOATING RATE FUND, INC., FEBRUARY 29, 2004
Statement of Operations Master Senior Floating Rate Trust
For the Six Months Ended February 29, 2004
Investment Income
Interest (including $669,008 from affiliates) $ 24,168,062
Facility and other fees 436,715
---------------
Total income 24,604,777
---------------
Expenses
Investment advisory fees $ 4,423,680
Accounting services 149,980
Professional fees 65,804
Custodian fees 29,282
Trustees' fees and expenses 23,250
Pricing fees 6,156
Printing and shareholder reports 2,451
Other 10,406
---------------
Total expenses 4,711,009
---------------
Investment income--net 19,893,768
---------------
Realized & Unrealized Gain (Loss) on Investments--Net
Realized loss on investments--net (34,074,589)
Change in unrealized depreciation on investments--net 81,238,729
---------------
Total realized and unrealized gain on investments--net 47,164,140
---------------
Net Increase in Net Assets Resulting from Operations $ 67,057,908
===============
See Notes to Financial Statements.
MERRILL LYNCH SENIOR FLOATING RATE FUND, INC., FEBRUARY 29, 2004
Statements of Changes in Net Assets Master Senior Floating Rate Trust
For the Six For the
Months Ended Year Ended
February 29, August 31,
Increase (Decrease) in Net Assets: 2004 2003
Operations
Investment income--net $ 19,893,768 $ 29,350,086
Realized loss on investments--net (34,074,589) (14,781,467)
Change in unrealized depreciation on investments--net 81,238,729 67,910,155
--------------- ---------------
Net increase in net assets resulting from operations 67,057,908 82,478,774
--------------- ---------------
Capital Transactions
Proceeds from contributions 75,077,463 19,158,032
Fair value of net assets contributions -- 841,562,097
Fair value of withdrawals (117,727,593) (182,526,372)
--------------- ---------------
Net increase (decrease) in net assets derived from capital transactions (42,650,130) 678,193,757
--------------- ---------------
Net Assets
Total increase in net assets 24,407,778 760,672,531
Beginning of period 942,877,830 182,205,299
--------------- ---------------
End of period $ 967,285,608 $ 942,877,830
=============== ===============
See Notes to Financial Statements.
MERRILL LYNCH SENIOR FLOATING RATE FUND, INC., FEBRUARY 29, 2004
Financial Highlights Master Senior Floating Rate Trust
For the Period
For the Six October 6,
Months Ended For the Year Ended 2000++ to
The following ratios have been derived from February 29, August 31, August 31,
information provided in the financial statements. 2004 2003 2002 2001
Total Investment Return**
Total investment return 7.58%+++ 11.07% (4.66%) --
========== ========== ========== ==========
Ratios to Average Net Assets
Expenses, excluding interest expense 1.01%* 1.04% 1.09% 1.06%*
========== ========== ========== ==========
Expenses 1.01%* 1.05% 1.12% 1.06%*
========== ========== ========== ==========
Investment income--net 4.26%* 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) $ 967,286 $ 942,878 $ 182,205 $ 376,931
========== ========== ========== ==========
Portfolio turnover 31.37% 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.
+++Aggregate total investment return.
See Notes to Financial Statements.
MERRILL LYNCH SENIOR FLOATING RATE FUND, INC., FEBRUARY 29, 2004
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. The Trust's financial statements are prepared
in conformity with accounting principles generally accepted in the
United States of America, which may require the use of management
accruals and estimates. These unaudited financial statements reflect
all adjustments, which are, in the opinion of management, necessary
to a fair statement of the results for the interim period presented.
All such adjustments are of a normal, recurring nature. The
following is a summary of significant accounting policies followed
by the Trust.
(a) Loan participation interests--The Trust primarily invests in
senior secured floating rate loan interests ("Loan Interests") with
collateral having a market value, at the 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 February 29, 2004 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
Board of 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 Board of Trustees. Such valuations and
procedures will be reviewed periodically by the Trustees.
MERRILL LYNCH SENIOR FLOATING RATE FUND, INC., FEBRUARY 29, 2004
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 assets of the Trust 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 assets. 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
movements 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 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 classified as a partnership for
Federal income tax purposes. As such, each investor in the Trust is
treated as owner of its proportionate share of the net assets,
income, expenses and realized and unrealized gains and losses of the
Trust. 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 six months ended February 29, 2004, the Trust reimbursed FAM
$10,360 for certain accounting services.
Certain officers and/or trustees of the Trust are officers and/or
directors of FAM, PSI, FDS, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities,
for the six months ended February 29, 2004 were $253,221,131 and
$386,247,234, respectively.
MERRILL LYNCH SENIOR FLOATING RATE FUND, INC., FEBRUARY 29, 2004
Notes to Financial Statements (concluded)
Master Senior Floating Rate Trust
Net realized losses for the six months ended February 29, 2004 and
net unrealized losses as of February 29, 2004 were as follows:
Realized Unrealized
Losses Losses
Loan interests $ (34,074,589) $ (81,560,572)
Unfunded loan interests -- (641,318)
--------------- ---------------
Total $ (34,074,589) $ (82,201,890)
=============== ===============
As of February 29, 2004, net unrealized depreciation for Federal
income tax purposes aggregated $82,298,953, of which $10,741,698
related to appreciated securities and $93,040,651 related to
depreciated securities. At February 29, 2004, the aggregate cost of
investments for Federal income tax purposes was $1,045,482,317.
4. Unfunded Corporate Loans:
As of February 29, 2004, the Fund had unfunded loan commitments of
approximately $10,124,000, which would be extended at the option of
the borrower, pursuant to the following loan agreement:
Unfunded
Commitment
Borrower (in thousands)
ChannelMaster Holdings, Inc. $ 483,000
Doane Pet Care Company $3,143,000
Parker Drilling Company $2,500,000
Pinnacle Entertainment, Inc. $1,040,000
SBA Senior Finance, Inc. $ 954,000
United Rentals, Inc. $ 889,000
Walls Industries $1,115,000
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 28, 2003, the credit agreement was
renewed for one year under the same terms. The Fund did not
borrow under the credit agreement during the six months ended
February 29, 2004.
MERRILL LYNCH SENIOR FLOATING RATE FUND, INC., FEBRUARY 29, 2004
Portfolio Information
Master Senior Floating Rate Trust
As of February 29, 2004
Percent of
Ten Largest Holdings Total Assets
Charter Communications Holdings* 6.3%
Century Cable Holdings LLC 4.9
Huntsman International LLC* 4.1
Nextel Communications, Inc.* 3.5
Mission Energy Holding Company* 3.1
Wyndham International, Inc.* 3.0
Olympus Cable Holdings LLC 2.3
Crown Castle Operating Company* 2.0
Frontiervision Operating Partners LP* 2.0
CC VIII Operating Company LLC* 1.5
*Includes combined holdings and/or affiliates, where applicable.
Percent of
Five Largest Industries++ Total Assets
Cable--U.S. 22.6%
Wireless Communications 8.9
Utilities 6.6
Chemicals 6.3
Service 4.5
++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 such industry sub-
classifications for reporting ease.
Percent of
Quality Ratings by Long-Term
S&P/Moody's Investments
BBB/Baa 2.6%
BB/Ba 37.5
B/B 38.5
CCC/Caa 7.5
CC/Ca and Lower 0.9
NR (Not Rated) 13.0
MERRILL LYNCH SENIOR FLOATING RATE FUND, INC., FEBRUARY 29, 2004
Electronic Delivery
The Fund offers 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., FEBRUARY 29, 2004
Item 2 - Code of Ethics - Not Applicable to this semi-annual report
Item 3 - Audit Committee Financial Expert - Not Applicable to this
semi-annual report
Item 4 - Principal Accountant Fees and Services - Not Applicable to
this semi-annual report
Item 5 - Audit Committee of Listed Registrants - Not Applicable to
this semi-annual report
Item 6 - Schedule of Investments - Not Applicable
Item 7 - Disclosure of Proxy Voting Policies and Procedures for
Closed-End Management Investment Companies - Not Applicable to this
semi-annual report
Item 8 - Purchases of Equity Securities by Closed-End Management
Investment Company and Affiliated Purchasers - Not Applicable
Item 9 - Submission of Matters to a Vote of Security Holders - Not
Applicable
Item 10 - Controls and Procedures
10(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.
10(b) - There were no changes in the registrant's internal control
over financial reporting (as defined in Rule 30a-3(d) under the Act
(17 CFR 270.30a-3(d)) that occurred during the last fiscal half-year
of the period covered by this report that has materially affected,
or is reasonably likely to materially affect, the registrant's
internal control over financial reporting.
Item 11 - Exhibits attached hereto
11(a)(1) - Code of Ethics - Not Applicable to this semi-annual
report
11(a)(2) - Certifications - Attached hereto
11(a)(3) - Not Applicable
11(b) - Certifications - Attached hereto
Pursuant to the requirements of the Securities Exchange Act of 1934
and the Investment Company Act of 1940, the registrant has duly
caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Merrill Lynch Senior Floating Rate Fund, Inc.
By: _/s/ Terry K. Glenn_______
Terry K. Glenn,
President of
Merrill Lynch Senior Floating Rate Fund, Inc.
Date: April 16, 2004
Pursuant to the requirements of the Securities Exchange Act of 1934
and the Investment Company Act of 1940, this report has been signed
below by the following persons on behalf of the registrant and in
the capacities and on the dates indicated.
By: _/s/ Terry K. Glenn________
Terry K. Glenn,
President of
Merrill Lynch Senior Floating Rate Fund, Inc.
Date: April 16, 2004
By: _/s/ Donald C. Burke________
Donald C. Burke,
Chief Financial Officer of
Merrill Lynch Senior Floating Rate Fund, Inc.
Date: April 16, 2004