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 811-5870
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. and Master
Senior Floating Rate Trust, 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 - 08/31/04
Item 1 - Report to Stockholders
(BULL LOGO)
Merrill Lynch Investment Managers
www.mlim.ml.com
Merrill Lynch
Senior Floating Rate
Fund, Inc.
Annual Report
August 31, 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) at www.mutualfunds.ml.com;
and (3) on the Securities and Exchange Commission's Web site at
http://www.sec.gov. Information about how the Fund voted proxies
relating to securities held in the Fund's portfolio during the
most recent 12-month period ended June 30 is available (1) at
www.mutualfunds.ml.com and (2) on the Securities and Exchange
Commission's Web site at http://www.sec.gov.
Merrill Lynch Senior Floating Rate Fund, Inc.
Box 9011
Princeton, NJ
08543-9011
(GO PAPERLESS LOGO)
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Merrill Lynch Senior Floating Rate Fund, Inc.
Availability of Quarterly Schedule of Investments
The Fund files its complete schedule of portfolio holdings with the
Securities and Exchange Commission ("SEC") for the first and third
quarters of each fiscal year on Form N-Q. The Fund's Forms N-Q are
available on the SEC's Web site at http://www.sec.gov. The Fund's
Forms N-Q may also be reviewed and copied at the SEC's Public
Reference Room in Washington, DC. Information on the operation of
the Public Reference Room may be obtained by calling 1-800-SEC-0330.
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 Web site
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, 2004
A Letter From the President
Dear Shareholder
In recent months, the Federal Reserve Board (the Fed) has taken
center stage as it shifts away from its long-accommodative monetary
stance. The Fed raised the Federal Funds rate 75 basis points (.75%)
in three separate moves since June, bringing the target short-term
interest rate to 1.75% - still low by historical standards. The Fed
has been deliberate in telegraphing its intention to take a
"measured" approach to interest rate increases in order to avoid
upsetting the economy or the financial markets, while still leaving
room to move more aggressively if inflation and economic growth
accelerate more than anticipated. The forward curve currently
projects further increases in short-term interest rates before year-
end. In addition to the Fed policy change, the financial markets
recently have had to grapple with a tense geopolitical environment,
higher oil prices and the worry and anticipation that accompanies a
presidential election.
The transition to higher rates can cause concern among equity and
fixed income investors alike. For bond investors, rising interest
rates means the value of older issues declines because they
bear the former lower interest rates. In addition, increasing
inflation erodes the purchasing power of fixed income securities.
Nevertheless, for the six-month and 12-month periods ended
August 31, 2004, fixed income markets provided positive results. For
example, the Lehman Brothers Aggregate Bond Index returned +1.15%
and +6.13%; the Credit Suisse First Boston High Yield Index returned
+3.42% and +14.68%; and the Citigroup Mortgage Index returned +1.79%
and +6.07% for the six-month and 12-month periods, respectively.
As always, our investment professionals are closely monitoring the
markets, the economy and the overall environment in an effort to
make well-informed decisions for the portfolios they manage. Our
goal is to provide shareholders with competitive returns, while
always keeping one eye on managing the unavoidable risk inherent in
investing.
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, 2004
A Discussion With Your Fund's Portfolio Manager
The Fund's total return for the year surpassed that of its benchmark
in a market environment largely conducive to higher net asset values
and decreased yields.
Describe market conditions during the past year.
The leveraged loan market, as measured by the Credit Suisse First
Boston (CSFB) Leveraged Loan Index, returned +7.05% for the one-year
period ended August 31, 2004. Over the past 12 months, the market's
largest monthly return was 1.04% in January 2004. Only two months of
the past 12 posted returns exceeding 1%, whereas the 12 months ended
August 2003 included six months with returns surpassing 1%.
Since the beginning of 2004, flows into the leveraged loan market
have outpaced new-issue volume by $1.5 billion, exacerbating an
existing supply/demand imbalance. This trend has gained steam, with
inflows during July at year high levels. Further crowding the
leveraged loan space is participation by hedge funds and
collateralized debt obligations.
Through August 31, 2004, $100 billion of new issuance has come to
the institutional market year to date, representing an annual record
and an increase of 69% versus the same period a year ago. However,
the available pool of loans has grown by only $19 billion; thus, 81%
of the activity has been refinancings. The supply/demand imbalance
has prompted decreased spreads, transaction upsizing, smaller
allocations and the near elimination of up-front fees in the primary
markets. The new-issue spread for institutional loans rated BB/BB-
was 213 basis points (2.13%) in August 2004, compared to 295 basis
points in September 2003. For loans rated B/B+, the spread was 291
basis points in August 2004 versus 350 basis points in September
2003. The torrid demand also has bid up prices in the secondary
market. The net effect of these trends has been higher net asset
values but decreased yields, although increases in LIBOR (London
InterBank Offer Rate) have helped mitigate some of the decline in
margin.
Adding to investor demand for the leveraged loan asset class has
been a steady decline in the default rate. Through the first eight
months of 2004, there were just four loan defaults totaling $911
million. This compared to 11 defaults totaling $2.7 billion during
the same period in 2003. The floating rate nature of leveraged loans
has been a desirable characteristic for investors seeking to add a
defensive position to their portfolios in anticipation of rising
interest rates.
How did the Fund perform during the fiscal year in light of the
existing market conditions?
For the 12-month period ended August 31, 2004, the Common Stock of
Merrill Lynch Senior Floating Rate Fund, Inc. had a net annualized
yield of 3.30%, based on a year-end per share net asset value of
$8.91 and $0.294 per share income dividends. Over the same period,
the total investment return on the Fund's Common Stock was +9.73%,
based on a change in per share net asset value from $8.40 to $8.91,
and assuming reinvestment of $0.300 per share ordinary income
dividends.
The low point for the Fund's net asset value during the period was
$8.40, which occurred at the start of the fiscal year. The net asset
value increased by $0.50, or 5.95% (excluding the effects of
income), given positive total returns in all 12 months of the
period. This ultimately allowed the Fund to provide a total return
exceeding the +7.05% return of the CSFB Leveraged Loan Index for the
year.
Although the three-month LIBOR rose by 66 basis points during
the year - from 1.14% at August 31, 2003, to 1.80% at August 31,
2004 - the Fund's 12-month average daily yield (based on daily net
asset value) declined 132 basis points, from 4.81% last year to
3.49% at August 31, 2004. This trend illustrates the massive spread
adjustment underway in the leveraged loan market over the past year.
For the six-month period ended August 31, 2004, the total investment
return on the Fund's Common Stock was +2.33%, based on a change in
per share net asset value from $8.84 to $8.91, and assuming
reinvestment of $0.135 per share income dividends.
MERRILL LYNCH SENIOR FLOATING RATE FUND, INC., AUGUST 31, 2004
Drivers of the Fund's return for the year were the U.S. cable
sector, led by Century Cable Holdings LLC, and the utilities sector,
led by Mission Energy Holding Company. A notable story in the U.S.
cable sector centered on Adelphia Cable, of which Century Cable is a
subsidiary. The company declared bankruptcy in June 2002 and is
preparing to auction assets in October 2004. The bank loans have
been current throughout the process and rallied significantly over
the past year. We expect par payment on our investment within six
months. Mission Energy ran into credit difficulties during the
summer of 2002. This year, after announcing an asset sale program to
repay its debt, Mission rallied to above par. In August, the company
repaid its Term Loan A and, subsequently, its Term Loan B rallied to
par plus pricing. During the year, we liquidated a position in
bankrupt aluminum company Ormet. Our position started the year
marked in the mid 20s and rallied to the low 40s in line with an
improving aluminum market. At that point, we negotiated a block
trade of our position.
What changes were made to the portfolio during the fiscal year?
From a sector perspective, we continued to put greatest emphasis on
those industries with strong asset values and stable cash-flow
characteristics. Cable television remains the sector with the
highest concentration, followed by utilities, chemicals, wireless,
services, manufacturing, leisure, diversified media and
telecommunications.
Merrill Lynch Senior Floating Rate Fund, Inc. is a feeder of the
Master Senior Floating Rate Trust. Since August 2003, the Trust
reduced exposure to names rated Baa and Ba, increased exposure to
single B names, reduced exposure to Caa1 or below names, and
increased exposure to "not rated" names (allocations exclude the
Trust's cash position). All of the changes were in line with trends
experienced by the market, as represented by the CSFB Leveraged Loan
Index.
How would you characterize the Trust's position at the close of the
period?
As of August 31, 2004, Master Senior Floating Rate Trust was
composed of 137 issuers in 28 industries. This compares to 155
issuers spread among 39 industries a year ago. Compared to the CSFB
Leveraged Loan Index as of the same date, the Trust was overweight
in names rated above Baa1 (23.5% versus 0% for the Index). This was
solely due to the Trust's cash position. The Trust was underweight
names rated Baa and Ba (28.9% versus 48.8% for the Index),
overweight single B (35.7% versus 33.4%), overweight Caa or below
(5.6% versus 3.1%) and underweight not rated names (6.1% versus
14.8%). Excluding its cash position, the Trust's composition at
period-end was 0% above Baa1, 30.1% Baa and Ba, 50% single B, 2.7%
Caa1 or below, and 16.3% not rated.
Looking ahead, the trend of small allocations and tighter spreads
appears likely to continue. The movement in interest rates is one of
the larger variables affecting the leveraged loan market. The more
protracted the timetable of increases, the larger the flows to the
leveraged loan market, which could negatively affect market
technicals. Nevertheless, we expect continued growth in the U.S.
economy to bode well for default rates over the remainder of this
year and into the next. We will aim to put the Fund's excess cash to
work, while remaining focused on achieving an appropriate balance of
risk and return. To that end, we will continue to rigorously review
potential investments for solid credit fundamentals.
Joseph P. Matteo
Vice President and Portfolio Manager
September 23, 2004
MERRILL LYNCH SENIOR FLOATING RATE FUND, INC., AUGUST 31, 2004
Disclosure of Expenses
Shareholders of this Fund may incur the following charges:
(a) expenses related to transactions, including sales charges,
redemption fees and exchange fees; and (b) operating expenses,
including advisory fees, distribution fees including 12(b)-1 fees,
and other Fund expenses. The following example (which is based on a
hypothetical investment of $1,000 invested on March 1, 2004 and held
through August 31, 2004) is intended to assist shareholders both in
calculating expenses based on an investment in the Fund and in
comparing these expenses with similar costs of investing in other
mutual funds.
The first table below provides information about actual account
values and actual expenses. In order to estimate the expenses a
shareholder paid during the period covered by this report,
shareholders can divide their account value by $1,000 and then
multiply the result by the number in the first line under the
heading entitled "Expenses Paid During the Period."
The second table below provides information about hypothetical
account values and hypothetical expenses based on the Fund's actual
expense ratio and an assumed rate of return of 5% per year before
expenses. In order to assist shareholders in comparing the ongoing
expenses of investing in this Fund and other funds, compare the 5%
hypothetical example with the 5% hypothetical examples that appear
in other funds' shareholder reports.
The expenses shown in the table are intended to highlight
shareholders ongoing costs only and do not reflect any transactional
expenses, such as sales charges, redemption fees, or exchange fees.
Therefore, the second table is useful in comparing ongoing expenses
only, and will not help shareholders determine the relative total
expenses of owning different funds. If these transactional expenses
were included, shareholder expenses would have been higher.
Expenses Paid
Beginning Ending During the Period*
Account Value Account Value March 1, 2004
March 1, 2004 August 31, 2004 to August 31, 2004
Actual
Merrill Lynch Senior Floating Rate Fund, Inc. $1,000 $1,023.30 $7.39
Hypothetical (5% annual return before expenses)**
Merrill Lynch Senior Floating Rate Fund, Inc. $1,000 $1,017.70 $7.37
* Expenses are equal to the annualized expense ratio of 1.45%, multiplied by the average account
value over the period, multiplied by 184/365 (to reflect the one-half year period shown). Because
the Fund is a feeder fund, the expense table example reflects the expenses of both the feeder fund
and the master fund in which it invests.
** Hypothetical 5% annual return before expenses is calculated by pro-rating the number of days in
the most recent fiscal half year divided by 365.
MERRILL LYNCH SENIOR FLOATING RATE FUND, INC., AUGUST 31, 2004
Statement of Assets and Liabilities Merrill Lynch Senior Floating Rate Fund, Inc.
As of August 31, 2004
Assets
Investment in Master Senior Floating Rate Trust, at value
(identified cost--$797,025,838) $ 757,331,568
Prepaid expenses 283,837
---------------
Total assets 757,615,405
---------------
Liabilities
Payables:
Dividends to shareholders $ 625,102
Other affiliates 103,934
Administrator 10,325 739,361
---------------
Accrued expenses and other liabilities 81,299
---------------
Total liabilities 820,660
---------------
Net Assets
Net assets $ 756,794,745
===============
Net Assets Consist of
Common Stock, par value $.10 per share; 1,000,000,000 shares authorized $ 8,497,584
Paid-in capital in excess of par 1,123,441,243
Undistributed investment income--net $ 236,869
Accumulated realized capital losses allocated from the Trust--net (335,686,681)
Unrealized depreciation allocated from the Trust--net (39,694,270)
---------------
Total accumulated losses--net (375,144,082)
---------------
Net Assets--Equivalent to $8.91 per share based on 84,975,835 shares of
capital stock outstanding $ 756,794,745
===============
See Notes to Financial Statements.
MERRILL LYNCH SENIOR FLOATING RATE FUND, INC., AUGUST 31, 2004
Statement of Operations Merrill Lynch Senior Floating Rate Fund, Inc.
For the Year Ended August 31, 2004
Investment Income Allocated from the Trust--Net
Net investment income allocated from the Trust:
Interest (including $1,412,859 from affiliates) $ 36,669,277
Facility and other fees 598,119
Expenses (7,822,092)
---------------
Net investment income allocated from the Trust 29,445,304
---------------
Expenses
Administration fees $ 1,912,962
Transfer agent fees 680,015
Tender offer fees 463,999
Printing and shareholder reports 68,773
Professional fees 63,816
Registration fees 54,422
Other 15,321
---------------
Total expenses 3,259,308
---------------
Investment income--net 26,185,996
---------------
Realized & Unrealized Gain (Loss) Allocated from the Trust--Net
Realized loss on investments allocated from the Trust--net (64,296,777)
Change in unrealized depreciation on investments allocated from the Trust--net 109,360,252
---------------
Total realized and unrealized gain allocated from the Trust--net 45,063,475
---------------
Net Increase in Net Assets Resulting from Operations $ 71,249,471
===============
See Notes to Financial Statements.
MERRILL LYNCH SENIOR FLOATING RATE FUND, INC., AUGUST 31, 2004
Statements of Changes in Net Assets Merrill Lynch Senior Floating Rate Fund, Inc.
For the Year Ended
August 31,
Increase (Decrease) in Net Assets: 2004 2003++
Operations
Investment income--net $ 26,185,996 $ 41,897,085
Realized loss on investments and allocated from the Trust--net (64,296,777) (36,800,954)
Change in unrealized depreciation allocated from the Trust--net 109,360,252 70,358,217
--------------- ---------------
Net increase in net assets resulting from operations 71,249,471 75,454,348
--------------- ---------------
Dividends to Shareholders
Investment income--net (26,185,993) (43,357,390)
--------------- ---------------
Net decrease in net assets resulting from dividends to shareholders (26,185,993) (43,357,390)
--------------- ---------------
Capital Share Transactions
Net decrease in net assets derived from capital share transactions (86,588,414) (297,760,644)
--------------- ---------------
Net Assets
Total decrease in net assets (41,524,936) (265,663,686)
Beginning of year 798,319,681 1,063,983,367
--------------- ---------------
End of year* $ 756,794,745 $ 798,319,681
=============== ===============
* Undistributed investment income/accumulated distributions in
excess of investment income--net $ 236,869 $ (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., AUGUST 31, 2004
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: 2004 2003+++ 2002 2001 2000
Per Share Operating Performance
Net asset value, beginning of year $ 8.40 $ 8.05 $ 8.82 $ 9.45 $ 9.73
---------- ---------- ---------- ---------- ----------
Investment income--net .30** .38 .43 .79 .77
Realized and unrealized gain (loss) on
investments and allocated from the Trust--net .51 .36 (.77) (.62) (.28)
---------- ---------- ---------- ---------- ----------
Total from investment operations .81 .74 (.34) .17 .49
---------- ---------- ---------- ---------- ----------
Less dividends from investment income--net (.30) (.39) (.43) (.80) (.77)
---------- ---------- ---------- ---------- ----------
Net asset value, end of year $ 8.91 $ 8.40 $ 8.05 $ 8.82 $ 9.45
========== ========== ========== ========== ==========
Total Investment Return*
Based on net asset value per share 9.73% 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 3.41% 4.81% 5.07% 8.39% 8.17%
========== ========== ========== ========== ==========
Leverage
Average amount of borrowings during the year
(in thousands) -- $8,138++++ $ 3,374 -- --
========== ========== ========== ========== ==========
Average amount of borrowings per share during
the year -- $ .07++++ $ .02 -- --
========== ========== ========== ========== ==========
Supplemental Data
Net assets, end of year (in thousands) $ 756,795 $ 798,320 $1,063,983 $1,778,295 $2,492,591
========== ========== ========== ========== ==========
Portfolio turnover 76.45%+++++ 56.56%+++++ 89.46% 50.82% 59.59%
========== ========== ========== ========== ==========
* 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.
+++ 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.
+++++ Portfolio turnover for the Trust.
See Notes to Financial Statements.
MERRILL LYNCH SENIOR FLOATING RATE FUND, INC., AUGUST 31, 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 U.S. generally accepted accounting principles,
which may require the use of management accruals and estimates.
Actual results may differ from these estimates. The percentage of
the Trust owned by the Fund at August 31, 2004 was 71.9%. 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.
(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) Reclassifications--U.S. generally accepted accounting principles
require that certain components of net assets be adjusted to
reflect permanent differences between financial and tax reporting.
Accordingly, during the current year, $1,471,065 has been
reclassified between paid-in capital in excess of par and
accumulated realized capital losses on investments, $357,435
has been reclassified between paid-in capital in excess of
par and undistributed net investment income and $93,847 has
been reclassified between accumulated realized capital losses
and undistributed net investment income as a result of permanent
differences attributable to the expiration of capital loss
carryforwards and the allocation of differences in the accrual
of income on securities in default. These reclassifications
have no effect on net asset 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"), 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 year ended August 31, 2004, FAM Distributors, Inc. ("FAMD"),
a wholly-owned subsidiary of Merrill Lynch Group, Inc., earned early
withdrawal charges of $124,263 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., AUGUST 31, 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 Year Ended Dollar
August 31, 2004 Shares Amount
Shares sold 7,763,845 $ 68,254,923
Shares issued to shareholders
in reinvestment of dividends 1,421,989 12,467,518
-------------- ---------------
Total issued 9,185,834 80,722,441
Shares tendered (19,207,557) (167,310,855)
-------------- ---------------
Net decrease (10,021,723) $ (86,588,414)
============== ===============
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. Distributions to Shareholders:
The tax character of distributions paid during the fiscal years
ended August 31, 2004 and August 31, 2003 was as follows:
8/31/2004 8/31/2003
Distributions paid from:
Ordinary income $ 26,185,993 $ 43,357,390
-------------- ---------------
Total taxable distributions $ 26,185,993 $ 43,357,390
============== ===============
As of August 31, 2004, the components of accumulated losses on a tax
basis were as follows:
Undistributed ordinary income--net $ 340,848
Undistributed long-term capital gains--net --
---------------
Total undistributed earnings--net 340,848
Capital loss carryforward (279,684,820)*
Unrealized losses--net (95,800,110)**
---------------
Total accumulated losses--net $ (375,144,082)
===============
*On August 31, 2004, the Fund had a net capital loss carryforward
of $279,684,820, of which $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; $53,409,203 expires in 2011 and $34,221,818 expires in 2012.
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 the deferral of post-October
capital losses for tax purposes and book/tax differences in
the accrual of income on securities in default.
MERRILL LYNCH SENIOR FLOATING RATE FUND, INC., AUGUST 31, 2004
Report of Independent Registered Public Accounting Firm
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. (the "Fund"), as of
August 31, 2004, 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 the standards of the
Public Company Accounting Oversight Board (United States). 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, 2004, 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 U.S.
generally accepted accounting principles.
Deloitte & Touche LLP
Princeton, New Jersey
October 22, 2004
MERRILL LYNCH SENIOR FLOATING RATE FUND, INC., AUGUST 31, 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
Aerospace & B+ B2 $ 2,500,000 Standard Aero Holdings, Term, due 8/24/2012 $ 2,529,688
Defense--0.2%
Automotive--1.5% B+ B2 4,000,000 Grand Vehicle Works, First Lien Term, due 7/23/2010 3,987,500
B+ B1 1,000,000 NFIL Holdings Corp., Term B, due 2/27/2010 1,013,438
BB+ Ba2 1,752,130 TRW Automotive Inc., Term D-1, due 2/28/2011 1,783,888
Tenneco Automotive Inc.:
B+ B1 2,470,345 Term B, due 12/12/2010 2,516,664
B+ B1 1,117,241 Term B-1, Credit Linked, due 12/12/2010 1,140,284
B+ B1 3,500,000 RJ Tower Corporation, First Lien Term, due 5/24/2009 3,506,563
BB- B1 1,713,333 United Components, Inc., Term C, due 6/30/2010 1,737,963
---------------
15,686,300
Broadcasting--1.4% Cumulus Media Inc.:
B+ Ba3 1,842,857 Term A-1, due 3/28/2009 1,855,527
B+ Ba3 2,657,143 Term E, due 3/28/2010 2,679,564
BB+ Ba2 5,000,000 Emmis Operating Company, Term B, due 11/10/2011 5,040,625
Sinclair Television Group Inc.:
BB Ba2 700,000 Term A, due 6/30/2009 704,375
BB Ba2 1,050,000 Term C, due 12/31/2009 1,062,031
NR* Ba2 4,000,000 Susquehanna Media Co., Term B, due 3/31/2012 4,056,252
---------------
15,398,374
Cable U.S.--16.5% NR* Caa1 50,000,000 Century Cable Holdings LLC, Term, due 6/30/2009 48,852,700
B B2 42,000,000 Charter Communications Operating LLC, Term B,
due 4/27/2011 41,505,618
Frontiervision Operating Partners LP:
D B2 3,582,057 Term A, due 9/30/2005 3,592,506
D B2 15,668,000 Term B, due 3/31/2006 15,713,704
NR* NR* 9,975,000 Hilton Head Communications UCA, Term B, due 3/31/2008 9,643,331
Inmarsat:
BB- Ba3 4,625,000 Term B, due 1/23/2017 4,647,690
NR* NR* 4,625,000 Term C, due 1/23/2012 4,665,034
Insight Midwest Holdings, LLC:
BB+ Ba3 3,980,000 Additional Term, due 12/31/2009 4,042,187
BB+ Ba3 5,472,500 Term B, due 12/31/2009 5,558,435
BB Ba3 6,250,000 Mediacom Broadband Group LLC, Term, due 3/31/2010 6,239,256
NR* B2 23,500,000 Olympus Cable Holdings LLC, Term B, due 9/30/2010 22,971,250
NR* NR* 4,537,831 Pegasus Media & Communications, Term, due 4/30/2005 4,544,211
NR* B2 2,000,000 Persona Cable, Term B, due 7/30/2011 2,019,376
---------------
173,995,298
Chemicals--6.7% NR* NR* 6,806,130 CII Carbon LLC, Term, due 6/25/2008 6,738,069
NR* NR* 7,182,700 Cedar Chemical, Term B, due 10/31/2003 (d) 395,048
BB- B1 10,000,000 Cognis Deutschland GMBH & Co., Term B, due 11/15/2013 10,056,250
B B1 20,000,000 Huntsman International LLC, Term, due 12/31/2010 20,300,000
BB- B1 980,834 Kraton Polymers, Term, due 12/24/2010 982,060
BB Ba3 5,000,000 KoSa BV (INVISTA), Term B-2, due 4/29/2011 5,031,250
BB Ba3 1,500,000 Lyondell-Citgo Refining, Term, due 5/21/2007 1,525,312
BB- B 5,375,448 Nalco Company, Term, due 11/04/2010 5,464,239
NR* NR* 2,506,633 Pinnacle Polymers (Epsilon Products), Term, due
12/15/2006 2,538,088
B+ B2 2,000,000 Polymer Group, Inc., First Lien Term, due 4/27/2010 2,014,584
B+ B1 4,000,000 Rockwood Specialties Group, Inc., Term B, due 7/30/2012 4,033,216
Wellman, Inc.:
BB- B1 4,000,000 First Lien Term, due 2/04/2009 4,070,000
B- B1 7,000,000 Second Lien Term, due 2/10/2010 6,918,331
---------------
70,066,447
Consumer B+ B1 2,985,000 American Achievement Corporation, Term B, due 3/22/2011 3,011,119
Non-Durables--0.9% B B1 2,000,000 Holmes Group, Inc., First Lien Term, due 11/08/2010 1,990,000
B+ Ba3 4,741,703 Josten's Inc., Term, due 7/29/2010 4,812,829
---------------
9,813,948
MERRILL LYNCH SENIOR FLOATING RATE FUND, INC., AUGUST 31, 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- Ba2 $ 3,496,296 Dex Media West Inc., Term B, due 3/09/2010 $ 3,550,198
Media--3.0% BB Ba3 4,000,000 Freedom Communications, Inc., Term B, due 5/18/2012 4,061,876
B B1 4,353,550 Liberty Group Operating, Inc., Term B, due 3/31/2007 4,391,644
NR* NR* 9,500,000 Metro-Goldwyn-Mayer Studios Inc., Term B, due 4/30/2011 9,546,312
B NR* 1,898,970 Primedia Inc., Term B, due 6/30/2009 1,826,334
BB Ba3 2,463,148 RH Donnelley, Term B-2, due 6/30/2010 2,484,701
NR* NR* 3,169,049 Six Flags Theme Parks, Inc., Term B, due 6/30/2009 3,185,887
NR* NR* 942,857 Yankee Holdings L.P., Term, due 5/01/2007 954,643
NR* NR* 2,057,143 Yankee-Nets LLC, Term, due 5/01/2007 2,082,857
---------------
32,084,452
Energy--2.6% BB- Ba3 589,547 Dresser, Inc., Term C, due 4/10/2009 598,482
GulfTerra Energy Partners, LP:
BB+ Ba2 3,482,500 Series B-1 Additional Term, due 12/10/2008 3,526,031
NR* NR* 4,000,000 Series B-2 Additional Term, due 10/11/2007 4,050,000
B+ B1 2,127,273 Juno Lighting, Inc., First Lien Term, due 11/21/2010 2,159,182
B+ B2 3,500,000 Parker Drilling Company, Term, due 10/10/2007 3,515,313
BB+ Ba1 7,875,000 Pride Offshore Inc., Term, due 7/07/2011 7,975,076
BB Ba2 4,937,500 Tesoro Petroleum Corporation, Initial Term, due
4/15/2008 5,090,256
---------------
26,914,340
Energy--Exploration BB B1 1,980,050 Williams Production RMT Company, Term C, due 5/31/2007 2,010,576
& Production--0.2%
Food & Drug--0.6% B B1 2,000,000 Duane Reade Inc., Term, due 7/30/2010 2,033,500
B+ B1 3,953,623 Pantry, Inc., Term B, due 3/12/2011 4,012,928
---------------
6,046,428
Food & BB Ba3 881,129 American Seafoods Group LLC, Term B, due 3/31/2009 884,984
Tobacco--1.6% BB- Ba3 2,550,280 Del Monte Corporation, Term B, due 12/20/2010 2,591,324
Doane Pet Care Enterprises, Inc.:
B- B1 1,142,857 Revolving Credit, due 3/31/2005 1,112,143
B- B1 1,916,463 Term A, due 3/31/2005 1,918,858
B- B1 698,187 Term B, due 12/31/2005 703,132
B+ Ba3 3,387,920 Domino's Inc., Term, due 6/25/2010 3,445,620
NR* NR* 5,951,483 Dr Pepper/Seven Up Bottling Group, Inc., Term B,
due 12/19/2010 6,019,365
---------------
16,675,426
Gaming--1.9% B+ Ba3 5,775,035 Ameristar Casinos, Term B-1, due 12/20/2005 5,852,640
BB Ba2 4,000,000 Boyd Gaming Corporation, Term, due 6/30/2011 4,044,376
B+ B2 2,221,875 Global Cash Access LLC, Term B, due 3/10/2010 2,255,203
B+ B2 4,896,137 Marina District Finance Co. (Borgata), Term B, due
7/15/2007 4,923,678
Pinnacle Entertainment, Inc.:
B+ B1 1,500,000 Term, due 8/05/2010 1,496,250
B+ B1 1,500,000 Term, due 8/20/2010 1,522,500
---------------
20,094,647
Health Care--2.5% BB- B1 900,000 Advanced Medical Optics, Inc., Term, due 6/25/2009 913,500
B+ B1 3,000,000 Ardent Health Services, Inc., Term, due 8/12/2011 3,007,500
BB- Ba3 2,000,000 Community Health Systems, Inc., Term, due 8/19/2011 2,002,858
BB- Ba2 6,429,966 DaVita Inc., Term B, due 3/31/2009 6,494,838
B1 BB- 2,485,000 Kinetic Concepts, Inc., Term B-1, due 8/11/2010 2,519,169
Medical Specialties (d):
NR* NR* 12,845,455 Axel, due 6/30/2004 3,211,710
NR* NR* 4,418,182 Term, due 9/03/2003 1,104,545
B B1 4,187,475 MedPointe Capital Partners LLC, Term B, due 9/30/2008 4,204,489
BB- Ba3 2,375,000 Orthofix International NV, Term B, due 12/15/2008 2,400,978
BB Ba2 430,112 Rotech Healthcare, Inc., Term B, due 3/31/2008 435,489
---------------
26,295,076
MERRILL LYNCH SENIOR FLOATING RATE FUND, INC., AUGUST 31, 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
Housing--0.6% BB- B1 $ 4,455,000 Amsted Industries Incorporated, Term, due 10/15/2010 $ 4,552,453
NR* NR* 2,755,949 Trussway, Term B, due 12/31/2006 2,239,209
---------------
6,791,662
Information NR* NR* 1,507,923 Trend Technologies, Inc., Term, due 2/28/2007 (d) 0
Technology--0.5% B+ B1 5,250,000 VUTEK Inc., Term, due 6/25/2010 5,236,875
---------------
5,236,875
Leisure--2.5% Wyndham International, Inc.:
B- NR* 15,227,127 Term 1, due 6/30/2006 14,919,417
B- NR* 11,990,826 Term 2, due 4/01/2006 11,894,899
---------------
26,814,316
Manufacturing--3.0% B- NR* 2,000,000 Bucyrus International, Inc., Term, due 7/01/2010 2,018,750
ChannelMaster Holdings, Inc. (d):
NR* NR* 128,199 Revolving Credit, due 11/15/2004 35,896
NR* NR* 2,553,896 Term, due 11/15/2004 715,091
NR* Ba2 3,363,941 Goodman Global Holdings, Inc., Term B, due 11/21/2009 3,402,838
NR* NR* 7,000,000 High Voltage Engineering Corporation, Term A, due
7/31/2006 6,965,000
Invensys International Holdings Ltd.:
B+ B1 2,000,000 Second Lien Term, due 10/25/2009 2,066,250
B+ Ba3 3,991,691 Term, due 8/26/2009 4,046,577
BB- Ba3 3,000,000 Itron, Inc., Term B, due 12/17/2010 3,030,000
BB+ Ba2 3,900,000 Roper Industries, Inc., Term, due 12/29/2008 3,958,500
BBB- Ba2 1,846,969 SPX Corporation, Term B-1, due 9/30/2009 1,874,961
BB- B1 3,469,204 TriMas Corporation, Term B, due 12/31/2009 3,507,692
---------------
31,621,555
Manufacturing-- B+ B2 11,150,459 Mueller Group, Initial Term, due 4/23/2011 11,206,211
Other--1.1%
Packaging--1.5% B+ B1 2,000,000 BWAY Corporation, Term B, due 6/30/2011 2,030,000
B B2 3,475,439 Graham Packaging Co., Refinance Tranche 1 Term, due
4/07/2012 3,501,504
Owens-Illinois Group Inc.:
BB B1 1,500,000 Term A-1, due 4/01/2007 1,517,657
BB B1 1,500,000 Term B-1, due 4/01/2008 1,523,282
B B2 6,857,143 Term C-1, due 4/01/2008 6,947,143
---------------
15,519,586
Paper--1.0% B+ B1 3,712,500 Graphic Packaging International, Inc., Term B, due
8/08/2010 3,768,188
Stone Container Corporation:
NR* NR* 5,888,744 Term B, due 6/30/2009 5,943,951
B+ Ba3 774,111 Term C, due 6/30/2009 782,820
---------------
10,494,959
Retail--0.8% BB Ba2 764,767 Advance Stores Company, Incorporated, Term E, due
11/30/2007 775,282
B B3 3,318,996 American Reprographics Company, LLC, Second Lien
Term, due 12/18/2009 3,476,648
B+ B1 4,029,750 General Nutrition Centers, Inc., Term B, due
12/05/2009 4,076,092
---------------
8,328,022
Services--4.7% B B1 2,963,730 Alliance Laundry Systems LLC, Term, due 6/01/2007 2,974,845
Allied Waste North America, Inc.:
BB Ba2 10,495,714 Term B, due 1/15/2010 10,669,292
BB Ba2 3,571,429 Tranche A, due 1/15/2010 3,625,893
B B2 8,100,411 Anthony Crane Rental LP, Term, due 7/20/2006 6,480,329
BB- Ba3 5,970,000 Buhrmann U.S., Inc., Term C-1, due 12/23/2010 6,050,846
BB- Ba3 3,939,091 Corrections Corporation of America, Term D, due
3/31/2008 4,008,025
MERRILL LYNCH SENIOR FLOATING RATE FUND, INC., AUGUST 31, 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
Services B+ B2 $ 6,106,136 Great Lakes Dredge & Dock Corporation, Term B,
(concluded) due 12/23/2010 $ 6,106,136
NR* Caa1 7,858,406 Prime Succession, Term, due 8/01/2003 (d) 0
BB- Ba2 5,254,236 URS Corporation, Term B, due 7/01/2008 5,282,152
United Rentals, Inc.:
BB Ba3 3,325,000 Initial Term, due 2/14/2011 3,363,653
BB Ba3 666,667 Term B Credit Linked Deposit, due 2/14/2011 676,945
---------------
49,238,116
Steel--0.0% NR* NR* 9,691,933 Acme Metals Incorporated, Term, due 12/01/2005 (d) 0
Telecommunications-- B+ B1 8,100,000 Consolidated Communications, Inc., Term B, due
1.5% 10/14/2011 8,211,375
BB- Ba3 7,903,079 Valor Telecommunications, Term B, due 6/30/2008 7,952,473
---------------
16,163,848
Transportation BB+ Ba3 6,900,000 Laidlaw International Inc., Term B, due 6/30/2009 7,016,437
Services--1.1% B+ Ba3 4,150,000 SIRVA Worldwide, Inc., Term, due 10/29/2010 4,190,205
---------------
11,206,642
Utilities--8.8% NR* Ba3 2,000,000 AES Corporation, Term, due 4/30/2008 2,019,286
B B3 2,730,159 Aquila Inc., Term, due 4/02/2006 2,828,275
Calpine Corporation:
Caa1 B 6,930,000 Second Lien Term, due 7/15/2007 5,890,500
B+ B 4,455,000 Term, due 7/16/2007 4,472,633
Calpine Generating Company LLC:
B+ B1 4,875,000 First Priority Term, due 4/01/2009 4,891,151
B+ B2 8,125,000 Second Priority Term, due 4/01/2010 7,733,984
BB+ Ba2 11,970,000 Cogentrix Delaware Holdings, Inc., Term, due 2/25/2009 12,160,778
BB- B2 5,800,000 Dynegy Holdings Inc., Term, due 5/27/2010 5,910,565
NR* NR* 10,000,000 KGen, Term A, due 6/17/2011 10,125,000
B- B3 23,318,181 Mission Energy Holdings, Term B, due 7/02/2006 24,542,387
NRG Energy:
BB B1 458,333 Credit Link Deposit, due 6/23/2010 473,802
BB B1 812,199 Term, due 6/23/2010 839,814
NR* NR* 3,132,790 Reliant Resources, Inc., Term, due 3/15/2007 3,136,706
BB- B1 2,376,000 TNP Enterprises, Term, due 12/31/2006 2,420,550
B+ Ba3 1,180,000 Teton Power, Term, due 3/12/2011 1,191,800
BB Ba2 3,500,000 Tucson Electric Power, Term, due 6/30/2009 3,530,625
---------------
92,167,856
Wireless B- B2 4,278,500 Centennial Cellular Operating Co., Term, due 2/09/2011 4,293,543
Communications-- B- B1 4,466,250 Dobson Cellular Systems, Inc., Term, due 3/31/2010 4,464,575
5.8% BB+ Ba1 31,840,000 Nextel Communications, Inc., Term E, due 12/15/2010 32,043,903
B+ Ba1 4,500,000 Nextel Partners Operating Corp., Term C, due 5/31/2011 4,563,562
CCC+ B2 9,547,692 SBA Communications Corp., Term B, due 10/31/2008 9,632,724
B+ B1 5,652,140 SpectraSite Communications, Inc., Incremental Facility
2004, due 12/31/2007 5,736,922
---------------
60,735,229
Total Investments in Senior Secured Floating Rate
Loan Interests (Cost--$799,602,224)--72.5% 763,135,877
MERRILL LYNCH SENIOR FLOATING RATE FUND, INC., AUGUST 31, 2004
Schedule of Investments (continued) Master Senior Floating Rate Trust
S&P Moody's Face
Industry+++ Rating++ Rating++ Amount Corporate Debt Value
Broadcasting--0.0% CCC+ Caa1 $ 250,000 XM Satellite Radio Inc., 7.194% due 5/01/2009 (a) $ 254,375
Chemicals--0.3% B B1 1,100,000 Crompton Corporation, 7.67% due 8/01/2010 (a)(b) 1,124,750
NR* NR* 1,662,678 PCI Chemicals, Canada, 10% due 12/31/2008 1,621,111
NR* NR* 526,515 Pioneer Companies, Inc., 5.086% due 12/31/2006 (a) 497,557
---------------
3,243,418
Housing--0.9% B- B1 9,200,000 FelCor Lodging LP, 5.84% due 6/01/2011 (a)(b) 9,246,000
Telecommunications-- B B3 9,500,000 Qwest Communications International Inc., 5.211% due
1.5% 2/15/2009 (a)(b) 8,835,000
B B1 7,000,000 Time Warner Telecom Holdings, Inc., 5.711% due
2/15/2011 (a) 6,825,000
---------------
15,660,000
Total Investments in Corporate Debt
(Cost--$34,277,732)--2.7% 28,403,793
Shares
Held Common Stocks
Chemicals--0.1% 107,520 Pioneer Companies, Inc. (g) 999,936
Consumer Non-Durables--0.0% 6,306 Holmes Products Corporation (g) 0
Metals & Mining--0.0% 51,714 Acme Package Corp. Senior Holdings (g) 258,570
Services--0.0% 44,744 The Shaw Group Inc. (g) 460,416
Total Investments in Common Stocks
(Cost--$1,078,342)--0.1% 1,718,922
Warrants (c)
Paper--0.0% 57 Cellu Tissue Holdings, Inc., Series A 0
Services--0.0% 11,155 Anthony Crane Rental Holdings LP (Class A) 0
1,239 Anthony Crane Rental Holdings LP (Class L) 0
---------------
0
Total Investments in Warrants (Cost--$1)--0.0% 0
Beneficial
Interest Other Interests (e)
Health Care--0.0% $17,263,637 Medical Specialties Acquisition LLC 0
17,263,637 Medical Specialties Mezzanine LLC 0
---------------
0
Medical Equipment--0.0% 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% 0
MERRILL LYNCH SENIOR FLOATING RATE FUND, INC., AUGUST 31, 2004
Schedule of Investments (concluded) Master Senior Floating Rate Trust
Beneficial Interest/
Face Amount Short-Term Securities Value
$ 194,334,515 Merrill Lynch Liquidity Series, LLC Cash
Sweep Series I (f) $ 194,334,515
50,000,000 Sheffield Receivables Corporation, 1.53%
due 9/15/2004*** 49,970,250
Total Investments in Short-Term Securities
(Cost--$244,304,765)--23.2% 244,304,765
Total Investments (Cost--$1,079,263,064+++++)--98.5% 1,037,563,357
Other Assets Less Liabilities--1.5% 15,317,751
---------------
Net Assets--100.0% $ 1,052,881,108
===============
(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; issuer filed for bankruptcy or is in default
of interest payments.
(e) Other interests represent beneficial interest in liquidation trusts and
other reorganization entities and are non-income producing.
(f) 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) were as follows:
Net Interest
Affiliate Activity Income
Merrill Lynch Liquidity Series, LLC
Cash Sweep Series I $121,860,195 $1,770,202
(g) Non-income producing security.
* 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.
*** Commercial Paper is traded on a discount basis; the interest rate shown
reflects the discount rate paid at the time of purchase by the Trust.
++ Ratings of issues shown are unaudited.
+++ 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. These industry classifications are unaudited.
+++++ The cost and unrealized appreciation/depreciation of investments as of
August 31, 2004, as computed for federal income tax purposes,
were as follows:
Aggregate cost $ 1,079,392,056
===============
Gross unrealized appreciation $ 8,659,772
Gross unrealized depreciation (50,488,471)
---------------
Net unrealized depreciation $ (41,828,699)
===============
See Notes to Financial Statements.
MERRILL LYNCH SENIOR FLOATING RATE FUND, INC., AUGUST 31, 2004
Statement of Assets and Liabilities Master Senior Floating Rate Trust
As of August 31, 2004
Assets
Investments in unaffiliated securities, at value (identified cost--$884,928,549) $ 843,228,842
Investments in affiliated securities, at value (identified cost--$194,334,515) 194,334,515
Cash 17,982,376
Receivables:
Contributions $ 5,043,228
Interest (including $7,735 from affiliates) 4,277,113
Investment adviser 20,716
Principal paydowns 13,636 9,354,693
---------------
Prepaid expenses and other assets 173,356
---------------
Total assets 1,065,073,782
---------------
Liabilities
Unrealized depreciation on unfunded corporate loans 210,733
Payables:
Securities purchased 11,847,777
Other affiliates 8,518 11,856,295
---------------
Accrued expenses and other liabilities 125,646
---------------
Total liabilities 12,192,674
---------------
Net Assets
Net assets $ 1,052,881,108
===============
Net Assets Consist of
Investors' capital $ 1,094,791,548
Unrealized depreciation--net (41,910,440)
---------------
Net Assets $ 1,052,881,108
===============
See Notes to Financial Statements.
MERRILL LYNCH SENIOR FLOATING RATE FUND, INC., AUGUST 31, 2004
Statement of Operations Master Senior Floating Rate Trust
For the Year Ended August 31, 2004
Investment Income
Interest (including $1,770,202 from affiliates) $ 45,943,771
Facility and other fees 744,922
---------------
Total income 46,688,693
---------------
Expenses
Investment advisory fees $ 9,160,589
Accounting services 301,623
Professional fees 221,802
Custodian fees 62,558
Trustees' fees and expenses 46,002
Pricing fees 12,808
Printing and shareholder reports 2,411
Other 34,464
---------------
Total expenses 9,842,257
---------------
Investment income--net 36,846,436
---------------
Realized & Unrealized Gain (Loss)--Net
Realized loss on investments--net (66,942,419)
Change in unrealized depreciation on:
Investments--net 121,502,872
Unfunded corporate loans 27,307 121,530,179
--------------- ---------------
Total realized and unrealized gain--net 54,587,760
---------------
Net Increase in Net Assets Resulting from Operations $ 91,434,196
===============
See Notes to Financial Statements.
MERRILL LYNCH SENIOR FLOATING RATE FUND, INC., AUGUST 31, 2004
Statements of Changes in Net Assets Master Senior Floating Rate Trust
For the Year Ended
August 31,
Increase in Net Assets: 2004 2003
Operations
Investment income--net $ 36,846,436 $ 29,350,086
Realized loss--net (66,942,419) (14,781,467)
Change in unrealized depreciation--net 121,530,179 67,910,155
--------------- ---------------
Net increase in net assets resulting from operations 91,434,196 82,478,774
--------------- ---------------
Capital Transactions
Proceeds from contributions 250,140,432 19,158,032
Fair value of net assets contributions -- 841,562,097
Fair value of withdrawals (231,571,350) (182,526,372)
--------------- ---------------
Net increase in net assets derived from capital transactions 18,569,082 678,193,757
--------------- ---------------
Net Assets
Total increase in net assets 110,003,278 760,672,531
Beginning of year 942,877,830 182,205,299
--------------- ---------------
End of year $ 1,052,881,108 $ 942,877,830
=============== ===============
See Notes to Financial Statements.
MERRILL LYNCH SENIOR FLOATING RATE FUND, INC., AUGUST 31, 2004
Statement of Cash Flows Master Senior Floating Rate Trust
For the
Year Ended
August 31,
2004
Cash Provided by Operating Activities
Net increase in net assets resulting from operations $ 91,434,196
Adjustments to reconcile net increase in net assets resulting from operations to net
cash provided by operating activities:
Decrease in receivables 749,608
Increase in prepaid expenses and other assets (146,169)
Decrease in accrued expenses and other liabilities (677,054)
Realized and unrealized gain on investments--net (54,560,453)
Unrealized gain on unfunded corporate loans (27,307)
Amortization of premium and discount 1,525,822
Proceeds from principal payments and sales of investments 721,177,264
Purchases of loan interests (587,404,834)
Purchases of short-term investments--net (171,659,334)
---------------
Net cash provided by operating activities 411,739
---------------
Cash Provided by Financing Activities
Cash receipts on capital contributions 245,945,836
Cash payments on capital withdrawals (231,571,350)
---------------
Net cash provided by financing activities 14,374,486
---------------
Cash
Net increase in cash 14,786,225
Cash at beginning of year 3,196,151
---------------
Cash at end of year $ 17,982,376
===============
See Notes to Financial Statements.
MERRILL LYNCH SENIOR FLOATING RATE FUND, INC., AUGUST 31, 2004
Financial Highlights Master Senior Floating Rate Trust
For the Period
October 6,
2000++ to
The following ratios have been derived from For the Year Ended August 31, August 31,
information provided in the financial statements. 2004 2003 2002 2001
Total Investment Return**
Total investment return 10.15% 11.07% (4.66%) --
========== ========== ========== ==========
Ratios to Average Net Assets
Expenses, excluding interest expense 1.02% 1.04% 1.09% 1.06%*
========== ========== ========== ==========
Expenses 1.02% 1.05% 1.12% 1.06%*
========== ========== ========== ==========
Investment income--net 3.81% 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) $1,052,881 $ 942,878 $ 182,205 $ 376,931
========== ========== ========== ==========
Portfolio turnover 76.45% 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, 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 U.S. generally accepted accounting principles,
which may require the use of management accruals and estimates.
Actual results may differ from these estimates. 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
agent 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, 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., AUGUST 31, 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 trans-actions 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.
(f) Securities lending--The Trust may lend securities to financial
institutions that provide cash or securities issued or guaranteed by
the U.S. government as collateral, which will be maintained at all
times in an amount equal to at least 100% of the current market
value of the loaned securities. The market value of the loaned
securities is determined at the close of business of the Trust and
any additional required collateral is delivered to the Trust on the
next business day. Where the Trust receives securities as collateral
for the loaned securities, it collects a fee from the borrower. The
Trust typically receives the income on the loaned securities but
does not receive the income on the collateral. Where the Trust
receives cash collateral, it may invest such collateral and retain
the amount earned on such investment, net of any amount rebated to
the borrower. Loans of securities are terminable at any time and the
borrower, after notice, is required to return borrowed securities
within five business days. The Trust may pay reasonable finder's,
lending agent, administrative and custodial fees in connection with
its loans. In the event that the borrower defaults on its obligation
to return borrowed securities because of insolvency or for any other
reason, the Trust could experience delays and costs in gaining
access to the collateral. The Trust also could suffer a loss where
the value of the collateral falls below the market value of the
borrowed securities, in the event of borrower default or in the
event of losses on investments made with cash collateral.
MERRILL LYNCH SENIOR FLOATING RATE FUND, INC., AUGUST 31, 2004
Notes to Financial Statements (concluded)
Master Senior Floating Rate Trust
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.
The Trust has received an exemptive order from the Securities and
Exchange Commission permitting it to lend portfolio securities to
Merrill Lynch, Pierce, Fenner & Smith Incorporated ("MLPF&S"), or
its affiliates. Pursuant to that order, the Trust also has retained
Merrill Lynch Investment Managers, LLC, ("MLIM, LLC"), an affiliate
of FAM, as the securities lending agent for a fee based on a share
of the returns on investment of cash collateral. MLIM, LLC may, on
behalf of the Trust, invest cash collateral received by the Trust
for such loans, among other things, in a private investment company
managed by MLIM, LLC or in registered money market funds advised by
FAM or its affiliates.
For the year ended August 31, 2004, the Trust reimbursed FAM $19,670
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, 2004 were $599,252,611 and
$721,190,900, respectively.
4. Unfunded Corporate Loans:
As of August 31, 2004, the Trust had unfunded loan commitments of
approximately $21,078,000, which would be extended at the option of
the borrower, pursuant to the following loan agreements:
Unfunded
Commitment
Borrower (in thousands)
Anthony Crane Rental Holdings LP $4,500
Doane Pet Care Company $3,058
NFIL Holdings Inc. $4,925
SBA Senior Finance, Inc. $1,163
Saguaro Utility Group LP $7,432
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 Trust did not borrow
under the agreement during the year ended August 31, 2004.
6. Capital Transactions:
Fair value of net assets contributions for the year ended August 31,
2003 reflect the conversion of Merrill Lynch Senior Floating Rate
Fund, Inc. into a feeder fund of the Trust on February 10, 2003.
MERRILL LYNCH SENIOR FLOATING RATE FUND, INC., AUGUST 31, 2004
Report of Independent Registered Public Accounting Firm
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 (the "Trust") as of August 31, 2004, and the
related statements of operations and of 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 the standards of
the Public Company Accounting Oversight Board (United States).
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, 2004,
by correspondence with the custodian and financial intermediaries;
where replies were not received from financial intermediaries,
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, 2004, 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 U.S. generally
accepted accounting principles.
Deloitte & Touche LLP
Princeton, New Jersey
October 22, 2004
MERRILL LYNCH SENIOR FLOATING RATE FUND, INC., AUGUST 31, 2004
Portfolio Information (unaudited)
Master Senior Floating Rate Trust
As of August 31, 2004
Percent of
Ten Largest Holdings Net Assets
Century Cable Holdings LLC 4.6%
Charter Communications 3.9
Nextel Communications* 3.5
Wyndham International, Inc.* 2.5
Mission Energy Holding Company* 2.3
Olympus Cable Holdings LLC 2.2
Huntsman International LLC 1.9
Frontiervision Operating Partners LP* 1.8
Allied Waste Industries, Inc.* 1.4
Calpine Generating Company LLC* 1.2
* Includes combined holdings and/or affiliates, where applicable.
Percent of
Five Largest Industries++ Net Assets
Cable U.S. 16.5%
Utilities 8.8
Chemicals 7.1
Wireless Communications 5.8
Services 4.7
++ 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. These industry
classifications are unaudited.
Percent of
Quality Ratings by Total
S&P/Moody's Investments
BBB/Baa 0.6%
BB/Ba 28.3
B/B 35.7
CCC/Caa 5.6
NR (Not Rated) 6.1
Other* 23.7
* Includes portfolio holdings in common stocks, warrants, other
interests and short-term investments.
MERRILL LYNCH SENIOR FLOATING RATE FUND, INC., AUGUST 31, 2004
Officers and Directors/Trustees (unaudited)
Number of
Portfolios in Other Public
Fund Complex Directorships
Position(s) Length of Overseen by Held by
Held with Time Director/ Director/
Name, Address & Age Fund/Trust Served Principal Occupation(s) During Past 5 Years Trustee Trustee
Interested Director/Trustee
Terry K. Glenn* President 1999 to President of the Merrill Lynch Investment 124 Funds None
P.O. Box 9011 and present Managers, L.P. ("MLIM")/Fund Asset 157 Portfolios
Princeton, Director/ Management, L.P. ("FAM")--Advised
NJ 08543-9011 Trustee Funds since 1999; Chairman (Americas Region)
Age: 63 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
investment adviser. Mr. Glenn is an "interested person," as
described in the Investment Company Act, of the Fund based on his
present and 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.
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 48 Portfolios
Princeton, Albany since 2000 and Professor thereof
NJ 08543-9095 from 1989 to 2000; International Consultant,
Age: 63 Urban Institute, Washington, D.C. from 1995
to 1999.
Cynthia A. Montgomery Director/ 1994 to Professor, Harvard Business School since 48 Funds Newell
P.O. Box 9095 Trustee present 1989; Associate Professor, J.L. Kellogg 48 Portfolios Rubbermaid,
Princeton, Graduate School of Management, Northwestern Inc.
NJ 08543-9095 University from 1985 to 1989; Associate
Age: 52 Professor, Graduate School of Business
Administration, University of Michigan from
1979 to 1985.
Jean Margo Reid Director/ 2004 to Self-employed consultant since 2001; 48 Funds None
P.O. Box 9095 Trustee present Counsel of Alliance Capital Management 48 Portfolios
Princeton, (investment adviser) in 2000; General
NJ 08543-9095 Counsel, Director and Secretary of
Age: 59 Sanford C. Bernstein & Co., Inc.
(investment adviser/broker-dealer)
from 1997 to 2000; Secretary, Sanford C.
Bernstein Fund, Inc. from 1994 to 2000;
Director and Secretary of SCB, Inc. since
1998; Director and Secretary of SCB Partners,
Inc. since 2000; Director of Covenant House
from 2001 to 2004.
Kevin A. Ryan Director/ 1992 to Founder and currently Director Emeritus of 48 Funds None
P.O. Box 9095 Trustee present Boston University Center for the Advancement 48 Portfolios
Princeton, of Ethics and Character and Director thereof
NJ 08543-9095 from 1989 to 1999; Professor from 1982 to
Age: 71 1999 and currently Professor Emeritus of
Education at Boston University, formerly
taught on the faculties of The University of
Chicago, Stanford University and Ohio State
University.
MERRILL LYNCH SENIOR FLOATING RATE FUND, INC., AUGUST 31, 2004
Officers and Directors/Trustees (unaudited)(concluded)
Number of
Portfolios in Other Public
Fund Complex Directorships
Position(s) Length of Overseen by Held by
Held with Time Director/ Director/
Name, Address & Age Fund/Trust Served Principal Occupation(s) During Past 5 Years Trustee Trustee
Independent Directors/Trustees* (concluded)
Roscoe S. Suddarth Director/ 2000 to President, Middle East Institute from 48 Funds None
P.O. Box 9095 Trustee present 1995 to 2001; Foreign Service Officer, 48 Portfolios
Princeton, United States Foreign Service from 1961
NJ 08543-9095 to 1995; Career Minister from 1989 to 1995;
Age: 69 Deputy 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 Professor Emeritus since 1984, Dean from 48 Funds Bowne & Co.,
P.O. Box 9095 Trustee present 1984 to 1993 and currently Dean Emeritus 48 Portfolios Inc.; Vornado
Princeton, of New York University Leonard N. Stern Realty Trust;
NJ 08543-9095 School of Business Administration, New York Vornado
Age: 66 University from 1994 to present; Professor Operating
of Finance thereof from 1982 to 1994. Company;
Alexander's, Inc.
Edward D. Zinbarg Director/ 2000 to Self-employed financial consultant since 48 Funds None
P.O. Box 9095 Trustee present 1994; Executive Vice President of The 48 Portfolios
Princeton, Prudential Insurance Company of America
NJ 08543-9095 from 1988 to 1994; former Director of
Age: 69 Prudential Reinsurance Company and former
Trustee of the Prudential Foundation.
* 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.
Position(s) Length of
Held with Time
Name, Address & Age Fund/Trust 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 since
P.O. Box 9011 President present 1999; Senior Vice President, Director 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: 44 present
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: 40
Jeffrey Hiller Chief 2004 to Chief Compliance Officer of the MLIM/FAM-advised funds and First Vice
P.O. Box 9011 Compliance present President and Chief Compliance Officer of MLIM since 2004; Global Director
Princeton, Officer of Compliance at Morgan Stanley Investment Management from 2002 to 2004;
NJ 08543-9011 Managing Director and Global Director of Compliance at Citigroup Asset
Age: 53 Management from 2000 to 2002; Chief Compliance Officer at Soros Fund
Management in 2000; Chief Compliance Officer at Prudential Financial from
1995 to 2000.
Alice A. Pellegrino Secretary 2004 to Director (Legal Advisory) of MLIM since 2002; Vice President of MLIM from
P.O. Box 9011 present 1999 to 2002; Attorney associated with MLIM since 1997.
Princeton,
NJ 08543-9011
Age: 44
* 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, 2004
Item 2 - Code of Ethics - 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 - Audit Committee Financial Expert - 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 - Principal Accountant Fees and Services
Merrill Lynch Senior Floating Rate Fund, Inc.
(a) Audit Fees -
Fiscal Year Ending August 31, 2004 - $6,200
Fiscal Year Ending August 31, 2003 - $6,000
Master Senior Floating Rate Trust
(a) Audit Fees -
Fiscal Year Ending August 31, 2004 - $65,000
Fiscal Year Ending August 31, 2003 - $65,000
Merrill Lynch Senior Floating Rate Fund, Inc.
(b) Audit-Related Fees -
Fiscal Year Ending August 31, 2004 - $0
Fiscal Year Ending August 31, 2003 - $0
Master Senior Floating Rate Trust
(b) Audit-Related Fees -
Fiscal Year Ending August 31, 2004 - $0
Fiscal Year Ending August 31, 2003 - $0
Merrill Lynch Senior Floating Rate Fund, Inc.
(c) Tax Fees -
Fiscal Year Ending August 31, 2004 - $5,200
Fiscal Year Ending August 31, 2003 - $4,800
The nature of the services include tax compliance, tax advice and
tax planning.
Master Senior Floating Rate Trust
(c) Tax Fees -
Fiscal Year Ending August 31, 2004 - $8,000
Fiscal Year Ending August 31, 2003 - $5,000
The nature of the services include tax compliance, tax advice and
tax planning.
Merrill Lynch Senior Floating Rate Fund, Inc.
(d) All Other Fees -
Fiscal Year Ending August 31, 2004 - $0
Fiscal Year Ending August 31, 2003 - $0
Master Senior Floating Rate Trust
(d) All Other Fees -
Fiscal Year Ending August 31, 2004 - $0
Fiscal Year Ending August 31, 2003 - $0
(e)(1) The registrant's audit committee (the "Committee") has
adopted policies and procedures with regard to the pre-approval of
services. Audit, audit-related and tax compliance services provided
to the registrant on an annual basis require specific pre-approval
by the Committee. The Committee also must approve other non-audit
services provided to the registrant and those non-audit services
provided to the registrant's affiliated service providers that
relate directly to the operations and the financial reporting of the
registrant. Certain of these non-audit services that the Committee
believes are a) consistent with the SEC's auditor independence rules
and b) routine and recurring services that will not impair the
independence of the independent accountants may be approved by the
Committee without consideration on a specific case-by-case basis
("general pre-approval"). However, such services will only be
deemed pre-approved provided that any individual project does not
exceed $5,000 attributable to the registrant or $50,000 for all of
the registrants the Committee oversees. Any proposed services
exceeding the pre-approved cost levels will require specific pre-
approval by the Committee, as will any other services not subject to
general pre-approval (e.g., unanticipated but permissible services).
The Committee is informed of each service approved subject to
general pre-approval at the next regularly scheduled in-person board
meeting.
(e)(2) 0%
(f) Not Applicable
(g) Fiscal Year Ending August 31, 2004 - $14,913,836
Fiscal Year Ending August 31, 2003 - $18,318,444
(h) The registrant's audit committee has considered and determined
that the provision of non-audit services that were rendered to the
registrant's 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.
Regulation S-X Rule 2-01(c)(7)(ii) - $945,000, 0%
Item 5 - Audit Committee of Listed Registrants - The following
individuals are members of the registrant's separately-designated
standing audit committee established in accordance with Section
3(a)(58)(A) of the Exchange Act (15 U.S.C. 78c(a)(58)(A)):
Ronald W. Forbes
Cynthia A. Montgomery
Charles C. Reilly (retired as of December 31, 2003)
Kevin A. Ryan
Roscoe S. Suddarth
Richard R. West
Edward D. Zinbarg
Item 6 - Schedule of Investments - Not Applicable
Item 7 - Disclosure of Proxy Voting Policies and Procedures for
Closed-End Management Investment Companies -
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 - 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 second 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 - See Item 2
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. and Master Senior
Floating Rate Trust
By: _/s/ Terry K. Glenn_______
Terry K. Glenn,
President of
Merrill Lynch Senior Floating Rate Fund, Inc. and
Master Senior Floating Rate Trust
Date: October 18, 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. and
Master Senior Floating Rate Trust
Date: October 18, 2004
By: _/s/ Donald C. Burke________
Donald C. Burke,
Chief Financial Officer of
Merrill Lynch Senior Floating Rate Fund, Inc. and
Master Senior Floating Rate Trust
Date: October 18, 2004