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 811-05870
811-10171
Name of Fund: BlackRock 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: Robert C. Doll, Jr., Chief Executive
Officer, BlackRock 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: 08/31/06
Date of reporting period: 09/01/05 - 08/31/06
Item 1 - Report to Stockholders
ALTERNATIVES BLACKROCK SOLUTIONS EQUITIES FIXED INCOME LIQUIDITY
REAL ESTATE
BlackRock
Senior Floating Rate Fund, Inc.
ANNUAL REPORT AUGUST 31, 2006
(BLACKROCK logo)
NOT FDIC INSURED
MAY LOSE VALUE
NO BANK GUARANTEE
BlackRock 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 BlackRock 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 1-800-441-7762; (2) at
www.blackrock.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.blackrock.com and (2)
on the Securities and Exchange Commission's Web site at http://www.sec.gov.
BlackRock Senior Floating Rate Fund, Inc.
Box 9011
Princeton, NJ 08543-9011
(GO PAPERLESS...logo)
It's Fast, Convenient, & Timely!
To sign up today, go to www.blackrock.com/edelivery.
BlackRock Senior Floating Rate Fund, Inc.
Proxy Results
During the six-month period ended August 31, 2006, BlackRock Senior Floating
Rate Fund, Inc.'s shareholders voted on the following proposals. Proposals 1
and 3 were approved at a shareholders' meeting on August 15, 2006. A
description of the proposals and number of shares voted were as follows:
Shares Voted Shares Voted Shares Voted
For Against Abstain
1. To approve a new investment advisory agreement. 36,193,576 1,147,724 1,241,035
3. To approve a contingent subadvisory agreement. 36,177,741 1,214,415 1,190,179
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.
BLACKROCK SENIOR FLOATING RATE FUND, INC. AUGUST 31, 2006
A Letter to Shareholders
Dear Shareholder
It is my pleasure to welcome you to BlackRock.
On September 29, 2006, BlackRock, Inc. ("BlackRock") and Merrill Lynch
Investment Managers, L.P. ("MLIM") united to form one of the largest asset
management firms in the world. Now with more than $1 trillion in assets under
management, over 4,000 employees in 18 countries and representation in key
markets worldwide, BlackRock's global presence means greater depth and scale
to serve you.
The new BlackRock unites some of the finest money managers in the industry.
Our ranks include more than 500 investment professionals globally - portfolio
managers, research analysts, risk management professionals and traders. With
offices strategically located around the world, our investment professionals
have in-depth local knowledge and the ability to leverage our global presence
and robust infrastructure to deliver focused investment solutions. BlackRock's
professional investors are supported by disciplined investment processes and
best-in-class technology, ensuring that our portfolio managers are well
equipped to research, uncover and capitalize on the opportunities the world's
markets have to offer.
The BlackRock culture emphasizes excellence, teamwork and integrity in the
management of a variety of equity, fixed income, cash management, alternative
investment and real estate products. Our firm's core philosophy is grounded in
the belief that experienced investment and risk professionals using disciplined
investment processes and sophisticated analytical tools can consistently add
value to client portfolios.
As you probably are aware, former MLIM investment products now carry the
"BlackRock" name. This is reflected in newspapers and online fund reporting
resources. Your account statements will reflect the BlackRock name beginning
with the October month-end reporting period. Unless otherwise communicated to
you, your funds maintain the same investment objectives that they did prior to
the combination of MLIM and BlackRock. Importantly, this union does not affect
your brokerage account or your relationship with your financial advisor.
Clients of Merrill Lynch remain clients of Merrill Lynch.
We view this combination of asset management leaders as a complementary union
that reinforces our commitment to shareholders. Individually, each firm made
investment performance its single most important mission. Together, we are
even better prepared to capitalize on market opportunities on behalf of our
shareholders. Our focus on investment excellence is accompanied by an
unwavering commitment to service, enabling us to assist clients, in
cooperation with their financial professionals, in working toward their
investment goals. We thank you for allowing us the opportunity, and we look
forward to serving your investment needs in the months and years ahead as the
new BlackRock.
Sincerely,
(Robert C. Doll, Jr.)
Robert C. Doll, Jr.
Vice Chairman
BlackRock, Inc.
Data, including assets under management, are as of June 30, 2006.
BLACKROCK SENIOR FLOATING RATE FUND, INC. AUGUST 31, 2006
A Discussion With Your Fund's Portfolio Manager
Throughout the fiscal year, we followed our credit-driven investment process
in seeking out opportunities in the leveraged loan market that could offer
attractive yields and total return potential for shareholders.
Describe market conditions during the past 12 months.
During the year ended August 31, 2006, the performance of the bank loan market
benefited from the rising London Interbank Offered Rate (LIBOR), decreasing
spreads and increasing demand for bank loans on the part of collateralized
loan obligations (CLOs), which kept prices close to par value. Investors
earned total returns consisting mainly of interest payments, as there were
only marginal price changes. The three-month LIBOR rose approximately 154
basis points (1.54%) to 5.40% during the 12 months. Leveraged loans returned
+6.36% for the 12-month period, as measured by the Credit Suisse Leveraged
Loan Index.
Standard and Poor's Leveraged Commentary & Data (LCD) reported a default rate
of 1.36% as a percent of issuers at the end of August 2006, remaining below
the historical average of 3.56%.
How did the Fund perform during the fiscal year in light of the existing
market conditions?
For the 12-month period ended August 31, 2006, the Common Stock of Merrill
Lynch Senior Floating Rate Fund, Inc. had a net annualized yield of 6.04%,
based on a year-end per share net asset value of $8.92 and $.539per share
income dividends. For the same period, the total investment return on the
Fund's Common Stock was +4.97%, based on a change in per share net asset value
from $9.01 to $8.92, and assuming reinvestment of all distributions. The
Fund's benchmark, the Credit Suisse Leveraged Loan Index, returned +6.36% for
the period.
For the six-month period ended August 31, 2006, the total investment return on
the Fund's Common Stock was +2.33%, based on a change in per share net asset
value from $9.00 to $8.92, and assuming reinvestment of all distributions. The
Fund's benchmark index returned +3.25% for the six-month period.
What factors most influenced Fund performance?
Individual security selection had a negative effect on Fund results for the
year. Detractors included our investment in the common stock of GEO Specialty
Chemicals, Inc., a manufacturer of specialty chemicals for niche markets such
as water treatment, wire and cable manufacturing, construction, electronics,
and oil and gas production. Following the company's emergence from bankruptcy
at the beginning of 2005, GEO had difficulty passing the rising cost of raw
materials on to its customers. The company also underwent senior management
changes and experienced operational issues. However, we believe the problems
are in the past and the performance of the company's common stock should
improve.
Our position in Ainsworth Lumber Co. Ltd., a producer of lumber and wood
products such as plywood, lumber and flooring, also hindered Fund performance.
The company's floating rate notes due in 2013 declined amid a slowdown in
residential construction and rising capacity in the oriented strand board (a
type of exterior wood paneling used in housing construction) industry. This
resulted in price weakness that has had an adverse impact on Ainsworth's
financial results.
Finally, the price of our holding in a term loan of Century Cable Holdings,
LLC declined as litigation surrounding the sale of assets became protracted.
Individual securities that contributed positively to Fund returns included a
restructured term loan of Medical Specialties, Inc., a company engaged in the
design and production of orthopedic and sports medicine products. Fund
performance also benefited from our position in a loan of Channel Master
Holdings, Inc., a satellite antenna manufacturer, and our holding in the
common stock of Shaw Group, Inc., an engineering and consulting firm.
BLACKROCK SENIOR FLOATING RATE FUND, INC. AUGUST 31, 2006
Channel Master Holdings filed for bankruptcy in October 2003. The case was
ultimately converted to a Chapter 7 liquidation and the Fund's $2 million
exposure recovered sharply. We had received shares of Shaw Group as part of
the restructuring of IT Group, Inc., which Shaw acquired in 2002. The company
experienced better-than-expected earnings, and we liquidated our position
following the stock's strong performance.
What changes were made to the portfolio during the period?
We did not make significant changes to the Fund's sector allocations during
the period, nor did we employ leveraging strategies in the portfolio. Our
primary focus was on maintaining a fully invested, diversified portfolio while
meeting the $220 million in quarterly redemption obligations of the Master
Senior Floating Rate Trust, the master portfolio into which the Fund is a
feeder.
During the period, the Trust purchased assets of approximately $444.9 million
in par amount (face value) and experienced $385.1 million in repayments from
issuers. In addition, we sold roughly $155.2 million in assets during the
period. At the end of the period, the Trust was composed of 159 issuers spread
among 30 industries.
How would you characterize the Fund's position at the close of the period?
At period-end, the Fund was underweight versus its composite benchmark in
securities rated Ba or better, Caa or below and non-rated credits; the Fund
was overweight in B-rated securities.
The Federal Reserve Board (Fed) left the federal funds rate unchanged at 5.25%
at its August meeting, following 17 consecutive quarter-point rate hikes since
June 2004. It is uncertain if this pause in the Fed's rate tightening campaign
will continue. Whether the federal funds rate is increased or even reduced
will rely to a great extent on inflation data. A question facing investors is
whether the slightly inverted yield curve (in which short-term securities
carry higher yields than longer-term issues) will resume its normal slope and,
if so, whether it will occur because of rising long-term interest rates,
declining short-term rates, or a combination of the two. As most of the
portfolio's assets are invested in floating rate securities, declining short-
term interest rates would result in a lower yield. Conversely, rising long-
term rates would have a minimal effect on Fund performance, whereas funds
investing only in high yield bonds would see their principal erode.
We continue to see solid inflows to the leveraged loan market in the form of
CLOs, which now hold nearly two-thirds of all leveraged loans. The robust
demand for these securities has spilled over to the high yield bond market.
Historically, there have been discrete boundaries between the two markets. The
lines have become blurred as we have seen high yield bond deals migrate to the
leveraged loan market as optimistically titled "second lien loans," keeping
high yield bond spreads tighter than they otherwise would be. Overall,
however, liquidity is key when it comes to the ability of companies to
refinance. Therefore, given the consensus outlook for continued economic
growth in the 2%-3% range and the fact that we have experienced moderate
setbacks in the high yield market that have helped maintain credit discipline,
we expect to see a benign default rate environment going forward.
Kevin Booth
Portfolio Manager
September 18, 2006
Effective October 2, 2006, we are pleased to announce that Mark J. Williams
has joined Kevin Booth as Portfolio Manager and together they are primarily
responsible for the day-to-day management of the Fund. Mr. Williams is a
Managing Director and portfolio manager/loan originator with BlackRock. Prior
to joining BlackRock in 1998, Mr. Williams spent eight years with PNC Bank's
New York office and was a founding member of the bank's Leveraged Finance
Group.
BLACKROCK SENIOR FLOATING RATE FUND, INC. AUGUST 31, 2006
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 12b-1 fees, and other Fund expenses. The following example (which is
based on a hypothetical investment of $1,000 invested on March 1, 2006 and
held through August 31, 2006) 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, 2006
March 1, August 31, to August 31,
2006 2006 2006
Actual
BlackRock Senior Floating Rate Fund, Inc. $1,000 $1,023.30 $7.45
Hypothetical (5% annual return before expenses)**
BlackRock Senior Floating Rate Fund, Inc. $1,000 $1,017.84 $7.43
* Expenses are equal to the annualized expense ratio of 1.46%, 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 reflects the expenses of both the feeder fund and the master trust
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.
BLACKROCK SENIOR FLOATING RATE FUND, INC. AUGUST 31, 2006
Statement of Assets and Liabilities BlackRock Senior Floating Rate Fund, Inc.
As of August 31, 2006
Assets
Investment in Master Senior Floating Rate Trust (the "Trust"), at value
(identified cost--$636,965,416) $ 603,018,937
Prepaid expenses 224,430
---------------
Total assets 603,243,367
---------------
Liabilities
Payables:
Dividends to shareholders $ 1,167,208
Administrator 102,595
Other affiliates 40,344 1,310,147
---------------
Accrued expenses 126,464
---------------
Total liabilities 1,436,611
---------------
Net Assets
Net assets $ 601,806,756
===============
Net Assets Consist of
Common Stock, par value $.10 per share; 1,000,000,000 shares authorized $ 6,746,834
Paid-in capital in excess of par 960,241,191
Undistributed investment income--net $ 237,092
Accumulated realized capital losses allocated from the Trust--net (331,471,882)
Unrealized depreciation allocated from the Trust--net (33,946,479)
---------------
Total accumulated losses--net (365,181,269)
---------------
Net Assets--Equivalent to $8.92 per share based on 67,468,343 shares of capital stock
outstanding $ 601,806,756
===============
See Notes to Financial Statements.
BLACKROCK SENIOR FLOATING RATE FUND, INC. AUGUST 31, 2006
Statement of Operations BlackRock Senior Floating Rate Fund, Inc.
For the Year Ended August 31, 2006
Investment Income
Net investment income allocated from the Trust:
Interest $ 44,887,175
Facility and other fees 564,475
Dividends 27,426
Expenses (6,497,473)
---------------
Total income 38,981,603
---------------
Expenses
Administration fees $ 1,563,094
Transfer agent fees 514,069
Tender offer fees 207,063
Printing and shareholder reports 56,737
Professional fees 47,377
Registration fees 45,565
Other 13,951
---------------
Total expenses 2,447,856
---------------
Investment income--net 36,533,747
---------------
Realized & Unrealized Loss Allocated from the Trust--Net
Realized loss on investments--net (2,414,857)
Change in unrealized depreciation on investments and unfunded corporate loans--net (3,662,991)
---------------
Total realized and unrealized loss--net (6,077,848)
---------------
Net Increase in Net Assets Resulting from Operations $ 30,455,899
===============
See Notes to Financial Statements.
Statements of Changes in Net Assets BlackRock Senior Floating Rate Fund, Inc.
For the Year Ended
August 31,
Increase (Decrease) in Net Assets: 2006 2005
Operations
Investment income--net $ 36,533,747 $ 29,121,052
Realized loss--net (2,414,857) (1,116,837)
Change in unrealized depreciation--net (3,662,991) 9,410,782
--------------- ---------------
Net increase in net assets resulting from operations 30,455,899 37,414,997
--------------- ---------------
Dividends to Shareholders
Investment income--net (36,533,735) (29,121,069)
--------------- ---------------
Net decrease in net assets resulting from dividends to shareholders (36,533,735) (29,121,069)
--------------- ---------------
Capital Share Transactions
Net decrease in net assets derived from capital share transactions (68,818,345) (88,385,736)
--------------- ---------------
Net Assets
Total decrease in net assets (74,896,181) (80,091,808)
Beginning of year 676,702,937 756,794,745
--------------- ---------------
End of year* $ 601,806,756 $ 676,702,937
=============== ===============
* Undistributed investment income--net $ 237,092 $ 237,080
=============== ===============
See Notes to Financial Statements.
BLACKROCK SENIOR FLOATING RATE FUND, INC. AUGUST 31, 2006
Financial Highlights BlackRock Senior Floating Rate Fund, Inc.
The following per share data and ratios have been derived For the Year Ended August 31,
from information provided in the financial statements. 2006 2005 2004 2003+++ 2002
Per Share Operating Performance
Net asset value, beginning of year $ 9.01 $ 8.91 $ 8.40 $ 8.05 $ 8.82
----------- ----------- ----------- ----------- -----------
Investment income--net .52** .37** .30** .38 .43
Realized and unrealized gain (loss)--net (.08) .10 .51 .36 (.77)
----------- ----------- ----------- ----------- -----------
Total from investment operations .44 .47 .81 .74 (.34)
----------- ----------- ----------- ----------- -----------
Less dividends from investment income--net (.53) (.37) (.30) (.39) (.43)
----------- ----------- ----------- ----------- -----------
Net asset value, end of year $ 8.92 $ 9.01 $ 8.91 $ 8.40 $ 8.05
=========== =========== =========== =========== ===========
Total Investment Return*
Based on net asset value per share 4.97% 5.38% 9.73% 9.61% (4.09%)
=========== =========== =========== =========== ===========
Ratios to Average Net Assets++
Expenses, excluding interest expense 1.43% 1.41% 1.44% 1.45% 1.41%
=========== =========== =========== =========== ===========
Expenses 1.43% 1.41% 1.44% 1.46% 1.41%
=========== =========== =========== =========== ===========
Investment income--net 5.84% 4.11% 3.41% 4.81% 5.07%
=========== =========== =========== =========== ===========
Leverage
Average amount of borrowings during the year
(in thousands) -- -- -- $ 8,138++++ $ 3,374
=========== =========== =========== =========== ===========
Average amount of borrowings outstanding per
share during the year -- -- -- $ .07++++ $ .02
=========== =========== =========== =========== ===========
Supplemental Data
Net assets, end of year (in thousands) $ 601,807 $ 676,703 $ 756,795 $ 798,320 $1,063,983
=========== =========== =========== =========== ===========
Portfolio turnover 54.38%+++++ 52.92%+++++ 76.45%+++++ 56.56%+++++ 89.46%
=========== =========== =========== =========== ===========
* 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.
** Based on average shares outstanding.
++ Includes the Fund's share of the Trust's allocated expenses, and/or investment income--net.
++++ 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.
BLACKROCK SENIOR FLOATING RATE FUND, INC. AUGUST 31, 2006
Notes to Financial Statements
BlackRock Senior Floating Rate Fund, Inc.
1. Significant Accounting Policies:
On September 29, 2006, Merrill Lynch Senior Floating Rate Fund, Inc. was
renamed BlackRock Senior Floating Rate Fund, Inc. (the "Fund"). 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 and strategies 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, 2006 was 65.1%. 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
1(b) 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 its shareholders.
Therefore, no federal income tax provision is required.
(d) Recent accounting pronouncement--In July 2006, the Financial Accounting
Standards Board ("FASB") issued Interpretation No. 48 ("FIN 48") entitled
"Accounting for Uncertainty in Income Taxes - an interpretation of FASB
Statement No. 109." FIN 48 prescribes the minimum recognition threshold a tax
position must meet in connection with accounting for uncertainties in income
tax positions taken or expected to be taken by an entity including mutual
funds before being measured and recognized in the financial statements.
Adoption of FIN 48 is required for fiscal years beginning after December 15,
2006. The impact on the Fund's financial statements, if any, is currently
being assessed.
(e) Prepaid registration fees--Prepaid registration fees are charged to
expense as the related shares are issued.
(f) 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.
(g) Investment transactions--Investment transactions in the Trust are
accounted for on a trade date basis.
(h) Reclassification--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, $4,468,275 has been reclasssified between paid in capital in
excess of par and accumulated realized capital losses on investments as a
result of permanent differences attributable to the expiration of capital loss
carryforwards. This reclassification has no effect on net assets or net asset
values 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, 2006, FAM Distributors, Inc. ("FAMD"), a wholly-
owned subsidiary of Merrill Lynch Group, Inc., earned early withdrawal charges
of $235,102 relating to the tender of the Fund's shares.
BLACKROCK SENIOR FLOATING RATE FUND, INC. AUGUST 31, 2006
Notes to Financial Statements (concluded)
BlackRock Senior Floating Rate Fund, Inc.
In February 2006, ML & Co. and BlackRock, Inc. entered into an agreement to
contribute ML & Co.'s investment management business, including FAM, to the
investment management business of BlackRock, Inc. The transaction will close
on September 29, 2006.
On August 15, 2006, shareholders of the Fund approved a new Investment
Advisory Agreement for the Trust with BlackRock Advisors, Inc. (the
"Manager"), a wholly-owned subsidiary of BlackRock, Inc. BlackRock Advisors,
Inc. was reorganized into BlackRock Advisors, LLC. The new advisory agreement
will become effective on September 29, 2006 and the investment advisory fee is
unchanged. In addition, the Manager will provide administrative services and
the administrative fee is unchanged.
In connection with the closing, the Fund's transfer agent will become PFPC,
Inc., an affiliate of the Fund. In addition, BlackRock Distributors, Inc., an
affiliate of BlackRock, Inc., will become an additional distributor.
During the year ended August 31, 2006, certain officers and/or directors of
the Fund are officers and/or directors of FAM, PSI, FAMD, FDS, and/or ML & Co.
3. Capital Share Transactions:
Transactions in capital shares were as follows:
For the Year Ended Dollar
August 31, 2006 Shares Amount
Shares sold 3,288,136 $ 29,489,218
Shares issued to shareholders in
reinvestment of dividends 1,965,892 17,640,346
--------------- ---------------
Total issued 5,254,028 47,129,564
Shares tendered (12,906,388) (115,947,909)
--------------- ---------------
Net decrease (7,652,360) $ (68,818,345)
=============== ===============
For the Year Ended Dollar
August 31, 2005 Shares Amount
Shares sold 4,122,202 $ 37,010,206
Shares issued to shareholders in
reinvestment of dividends 1,535,576 13,791,434
--------------- ---------------
Total issued 5,657,778 50,801,640
Shares tendered (15,512,910) (139,187,376)
--------------- ---------------
Net decrease (9,855,132) $ (88,385,736)
=============== ===============
4. Distributions to Shareholders:
The tax character of distributions paid during the fiscal years ended August
31, 2006 and August 31, 2005 was as follows:
8/31/2006 8/31/2005
Distributions paid from:
Ordinary income $ 36,533,735 $ 29,121,069
--------------- ---------------
Total taxable distributions $ 36,533,735 $ 29,121,069
=============== ===============
As of August 31, 2006, the components of accumulated losses on a tax basis
were as follows:
Undistributed ordinary income--net $ 356,753
Undistributed long-term capital gains--net --
---------------
Total undistributed earnings--net 356,753
Capital loss carryforward (329,049,740)*
Unrealized losses--net (36,488,282)**
---------------
Total accumulated losses--net $ (365,181,269)
===============
* On August 31, 2006, the Fund had a capital loss carryforward
of $329,049,740 of which $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, $34,221,818 expires in 2012,
$56,166,095 expires in 2013 and $945,546 expires in 2014.
** The difference between book-basis and tax-basis net unrealized
losses is attributable primarily to the book/tax difference in the
accrual of income on securities in default and the deferral of
post-October capital losses for tax purposes.
BLACKROCK SENIOR FLOATING RATE FUND, INC. AUGUST 31, 2006
Report of Independent Registered Public Accounting Firm
BlackRock Senior Floating Rate Fund, Inc.
To the Shareholders and Board of Directors of
BlackRock Senior Floating Rate Fund, Inc.:
We have audited the accompanying statement of assets and liabilities of
BlackRock Senior Floating Rate Fund, Inc. (the "Fund"), (formerly Merrill
Lynch Senior Floating Rate Fund, Inc.), as of August 31, 2006, 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. The Fund is not required to have, nor were we engaged to
perform, an audit of its internal control over financial reporting. Our audits
included consideration of internal control over financial reporting as a basis
for designing audit procedures that are appropriate in the circumstances, but
not for the purpose of expressing an opinion on the effectiveness of the
Fund's internal control over financial reporting. Accordingly, we express no
such opinion. An audit also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, 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
BlackRock Senior Floating Rate Fund, Inc. as of August 31, 2006, 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 23, 2006
Important Tax Information (unaudited)
The following information is provided with respect to the ordinary income
distributions paid monthly by BlackRock Senior Floating Rate Fund, Inc. for
the fiscal year ended August 31, 2006:
Interest-Related Dividends for Non-U.S. Residents
Month Paid: September 2005 47.51%*
October 2005 - December 2005 88.40%*
January 2006 - August 2006 80.11%*
* Represents the portion of the taxable ordinary income dividends
eligible for exemption from U.S. withholding tax for non-resident
aliens and foreign corporations.
BLACKROCK SENIOR FLOATING RATE FUND, INC. AUGUST 31, 2006
Portfolio Information Master Senior Floating Rate Trust
As of August 31, 2006
Percent of
Ten Largest Holdings Net Assets
Adelphia Communications Corp. 3.2%
Wellman, Inc.* 2.0
Intelsat Corp.* 1.9
Metro-Goldwyn-Mayer Studios, Inc. 1.8
Huntsman ICI Holdings 1.8
Cebridge Connections* 1.7
Charter Communications, Inc. 1.6
Simmons Co. 1.6
Olympus Cable Holdings LLC 1.6
Venetian Casino Resort, LLC* 1.3
* Includes combined holdings and/or affiliates, where applicable.
Percent of
Five Largest Industries Net Assets
Cable--U.S. 13.8%
Chemicals 10.4
Gaming 5.0
Paper 5.0
Information Technology 4.7
For Trust compliance purposes, the Trust's industry classifications
refer to any one or more of the industry sub-classifications used
by one or more widely recognized market indexes or ratings group
indexes, and/or as defined by Trust management. This definition may
not apply for purposes of this report, which may combine industry
sub-classifications for reporting ease.
Percent of
Quality Ratings by Total
S&P/Moody's Investments
BB/Ba 30.6%
B/B 48.6
CCC/Caa 4.8
NR (Not Rated) 6.7
Other* 9.3
* Includes portfolio holdings in common stocks, warrants and
short-term investments.
BLACKROCK SENIOR FLOATING RATE FUND, INC. AUGUST 31, 2006
Schedule of Investments Master Senior Floating Rate Trust
Face Senior Secured
Amount Floating Rate Loan Interests* Value
Aerospace & Defense--1.8%
$ 5,256,561 K&F Industries, Inc. Term Loan, 7.33%
due 11/18/2012 $ 5,269,703
4,250,509 Standard Aero Holdings Term Loan,
7.58% - 7.68% due 8/24/2012 4,253,165
Vought Aircraft Industries, Inc.:
6,211,059 Term Loan, 8% due 12/22/2011 6,247,940
1,200,000 Tranche B Line of Credit Deposit, 7.83%
due 12/22/2010 1,211,250
--------------
16,982,058
Airlines--0.6%
1,250,000 Delta Air Lines Term Loan B, 10.023%
due 3/16/2008 1,266,517
United Air Lines:
466,406 Delay Draw Term Loan, 9.08%
due 2/01/2012 473,402
3,264,844 Term Loan B, 9.25% due 2/01/2012 3,313,816
--------------
5,053,735
Automotive--1.8%
4,666,474 Metaldyne Corp. Term Loan D, 10%
due 12/31/2009 4,715,472
669,155 Metaldyne Term Loan D, 10% due 12/31/2009 679,820
TRW Automotive, Inc.:
4,186,250 Tranche B Term Loan, 7.188%
due 6/30/2012 4,186,539
3,447,500 Tranche E Term Loan, 6.75%
due 10/31/2010 3,445,345
Tenneco Automotive, Inc.:
2,714,990 Term Loan B, 7.40% - 7.402%
due 12/12/2010 2,740,246
1,192,647 Tranche B-1 Credit Linked Deposit, 7.402%
due 12/12/2010 1,194,745
--------------
16,962,167
Broadcasting--2.4%
2,001,114 Emmis Operating Co. Term Loan B,
7.08% - 7.15% due 11/10/2011 2,006,257
NextMedia Group, Inc.:
1,526,923 Delay Draw Term Loan, 7.406%
due 11/15/2012 1,522,151
3,435,577 First Lien Term Loan, 7.33% due 11/15/2012 3,424,841
3,250,000 Second Lien Term Loan,10.01%
due 11/15/2013 3,267,605
11,750,000 Paxson Communications Corp. First Lien Term
Loan, 8.757% due 1/15/2012 11,940,938
--------------
22,161,792
Cable--U.S.--13.7%
30,000,000 Adelphia Communications Corp. Term Loan B,
10.25% due 6/30/2009 29,212,500
Cebridge Connections:
7,000,000 Second Lien Term Loan, 9.989%
due 5/05/2014 6,790,000
9,310,344 Term Loan B, 7.739% due 11/05/2013 9,256,307
15,000,000 Charter Communications, Inc. Term Loan B,
8.125% due 4/28/2013 15,055,215
6,317,380 DIRECTV Holdings, Inc. Tranche B Term Loan,
6.824% due 4/13/2013 6,325,277
9,975,000 Hilton Head Communications UCA Term Loan B,
9.50% due 3/31/2008 9,615,481
11,237,184 Insight Midwest Holdings LLC Term Loan C,
7.375% due 12/31/2009 11,308,000
Face Senior Secured
Amount Floating Rate Loan Interests* Value
Cable--U.S. (concluded)
$16,745,000 Intelsat Corp. Term Loan B, 8.008%
due 1/03/2014 $ 16,875,829
5,109,375 Mediacom Broadband Group Tranche A Term
Loan, 6.02% - 6.62% due 3/31/2010 5,021,560
15,000,000 Olympus Cable Holdings LLC Term Loan B,
10.25% due 9/30/2010 14,547,660
1,960,000 Persona Cable Term Loan B, 8.499%
due 7/27/2011 1,962,450
666,346 Persona Communications Term Loan C, 8.499%
due 10/21/2010 667,179
--------------
126,637,458
Chemicals--8.9%
9,603,000 CII Carbon Term Loan B, 7.375% - 7.50%
due 8/23/2012 9,615,004
7,182,700 Cedar Chemical Corp. Term Loan B, 8.90%
due 10/31/2003 (d)(e) 395,048
3,753,845 Celanese Holdings LLC Term Loan B, 7.499%
due 4/06/2011 3,770,268
10,000,000 Cognis Deutschland Second Lien Term Loan B,
10.029% due 11/15/2013 10,204,170
2,000,000 Columbian Chemicals Co. Term Loan B, 7.25%
due 3/16/2013 1,998,750
16,441,184 Huntsman ICI Holdings Term Loan B, 7.076%
due 8/16/2012 16,420,633
Invista:
2,471,532 Term Loan, 7% due 4/29/2011 2,476,167
5,550,556 Term Loan B-1, 7% due 4/29/2011 5,555,179
1,975,000 Mosaic Co. Tranche B Term Loan,
6.813% - 7.063% due 2/21/2012 1,974,384
5,065,127 Nalco Co. Tranche B Term Loan, 7.12% - 7.30%
due 11/04/2010 5,072,608
1,990,000 Polymer Group, Inc. Term Loan B, 7.74%
due 11/22/2012 1,996,219
3,940,000 Rockwood Specialties Group, Inc. Tranche D
Term Loan, 7.485% due 12/13/2013 3,963,396
Wellman, Inc.:
9,000,000 First Lien Term Loan, 9.489% due 2/10/2009 9,030,942
10,000,000 Second Lien Term Loan,12.239%
due 2/10/2010 9,775,000
--------------
82,247,768
Consumer--Durables--1.6%
14,503,664 Simmons Co. Tranche B Term Loan,
7.125% - 9.50% due 12/19/2011 14,605,639
Consumer--Non-Durables--1.1%
2,056,220 American Achievement Corp. Term Loan B,
7.896% - 9.50% due 3/25/2011 2,071,642
2,268,000 Camelbak Products LLC First Lien Term Loan,
9.16% - 9.21% due 8/04/2011 2,222,640
1,995,000 Easton-Bell Sports, Inc. Term Loan B,
6.81% - 7.08% due 3/16/2012 1,997,909
4,117,816 Josten's, Inc. Term Loan B, 7.068%
due 12/21/2011 4,127,468
--------------
10,419,659
Diversified Media--3.7%
2,716,162 Dex Media West, Inc. Term Loan B,
6.83% - 7% due 3/09/2010 2,707,829
2,559,934 Dex Media West LLC Term Loan B,
6.91% - 7% due 3/09/2010 2,552,254
2,985,000 Merrill Corp. Term Loan, 7.58% - 7.749%
due 5/15/2011 3,000,859
BLACKROCK SENIOR FLOATING RATE FUND, INC. AUGUST 31, 2006
Schedule of Investments (continued) Master Senior Floating Rate Trust
Face Senior Secured
Amount Floating Rate Loan Interests* Value
Diversified Media (concluded)
$16,940,000 Metro-Goldwyn-Mayer Studios, Inc. Term Loan B,
8.749% due 4/08/2012 $ 16,899,276
7,000,000 Nielsen Finance Term Loan B, 8.19%
due 8/09/2013 6,978,398
2,152,176 RH Donnelley, Inc. Term Loan D-2,
6.74% - 7.01% due 6/30/2011 2,139,826
--------------
34,278,442
Energy--Exploration & Production--1.0%
1,485,000 Carrizo Oil & Gas, Inc. Second Lien Term Loan,
11.499% due 7/21/2010 1,520,269
6,500,000 Helix Energy Solutions Term Loan B,
7.39% - 7.64% due 7/01/2013 6,507,540
1,246,875 MEG Energy Corp. Term Loan B, 7.50%
due 4/03/2013 1,249,658
--------------
9,277,467
Energy--Other--1.7%
458,536 Dresser, Inc. Term Loan C, 7.83% due 4/10/2009 463,122
5,000,000 EPCO, Inc. Term Loan C, 7.221% - 7.49%
due 8/18/2010 5,034,765
2,985,000 Key Energy Services, Inc. Term Loan B,
8.90% - 9.23% due 6/30/2012 3,001,791
314,983 MarkWest Energy Operating Co. LLC Term
Loan B, 7.656% due 12/29/2010 315,770
7,000,000 Scorpion Drilling Ltd. Second Lien Term Loan,
13.576% due 5/08/2014 7,280,000
--------------
16,095,448
Financial--1.7%
9,000,000 JG Wentworth Manufacturing Term Loan,
9.008% due 4/12/2011 9,101,250
6,965,000 LPL Financial Services, Inc. Term Loan B,
7.88% - 8.49% due 6/28/2013 7,050,976
--------------
16,152,226
Food & Drug--0.3%
2,288,500 The Pantry, Inc. Term Loan B, 7.08%
due 1/02/2012 2,295,652
Food & Tobacco--3.8%
2,917,485 American Seafood Group LLC Delay Draw Term
Loan, 7.25% due 9/30/2012 2,917,485
2,811,750 Commonwealth Brands Term Loan, 7.75%
due 12/22/2012 2,832,135
4,366,620 Del Monte Term Loan B, 7% - 7.072%
due 2/08/2012 4,374,807
Dole Food Co., Inc.:
977,395 Letter of Credit, 5.37% due 4/12/2013 964,431
1,984,859 Term Loan B, 7.375% - 9.25% due 4/12/2013 1,958,532
6,616,194 Term Loan C, 7.563% - 9.25% due 4/12/2013 6,528,437
2,724,220 Domino's, Inc. Term Loan, 6.875% - 7%
due 6/25/2010 2,726,489
2,134,590 Merisant Co. Term Loan B, 8.735% due 1/11/2010 2,120,358
Quizno's LLC:
2,000,000 First Lien Term Loan, 7.31% due 5/05/2013 1,997,708
8,500,000 Second Lien Term Loan, 11.249%
due 11/05/2013 8,490,259
--------------
34,910,641
Gaming--4.0%
1,419,584 Global Cash Access LLC Term Loan B, 7.08%
due 3/10/2010 1,419,584
4,967,406 MotorCity Casino Term Loan B,
7.236% - 7.49% due 7/13/2012 4,958,092
Face Senior Secured
Amount Floating Rate Loan Interests* Value
Gaming (concluded)
$ 3,451,250 Penn National Gaming, Inc. Term Loan B,
7.02% - 7.25% due 10/03/2012 $ 3,468,938
5,000,000 Pinnacle Entertainment Term Loan, 7.33%
due 12/15/2011 5,009,375
2,475,000 Trump Entertainment Resorts Holdings LP Term
Loan B-1, 7.92% - 8.03% due 5/20/2012 2,494,337
Venetian Casino Resort LLC:
3,982,906 Delay Draw Term Loan, 7.25%
due 6/15/2011 3,983,217
8,442,094 Term Loan B, 6.73% due 6/15/2011 8,442,752
7,500,000 Venetian Macau U.S. Finance Co. LLC Term
Loan B, 8.20% due 5/25/2013 7,537,500
--------------
37,313,795
Health Care--4.0%
1,965,000 Community Health Systems, Inc. Term Loan,
7.08% - 7.15% due 8/19/2011 1,966,535
6,604,587 DaVita, Inc. Tranche B Term Loan,
7.11% - 7.69% due 10/05/2012 6,632,597
1,364,399 Duloxetine Royalty Term Loan, 10.007%
due 10/15/2013 1,371,221
999,415 Kinetic Concepts, Inc. Term Loan B, 7.25%
due 8/11/2010 1,002,955
13,562,732 LifePoint Hospitals, Inc. Term Loan B, 6.905%
due 4/15/2012 13,514,693
Matria Healthcare, Inc.:
589,744 Bridge Loan, 7.649% due 1/19/2007 585,321
1,352,179 Term Loan B, 7.649% - 7.749%
due 1/19/2012 1,353,870
Medical Specialties Group (d)(e):
2,971,767 Term Loan, 8.125% due 9/03/2003 44,577
8,640,135 Term Loan Axel, 8% due 6/30/2004 129,602
421,312 Rotech Healthcare, Inc. Term Loan B, 8.50%
due 3/31/2008 422,365
9,860,674 Vanguard Health Systems Term Loan B,
7.749% - 7.868% due 9/23/2011 9,879,162
--------------
36,902,898
Housing--3.4%
9,767,860 Capital Automotive Term Loan B, 7.16%
due 12/16/2010 9,795,669
2,875,089 Goodman Global Holdings Term Loan, 7.25%
due 12/23/2011 2,868,801
4,380,317 Headwaters, Inc. Term Loan B-1,
7.33% - 7.50% due 4/30/2011 4,404,956
428,421 LIONS Gables Realty Term Loan B, 7.12%
due 9/30/2006 428,912
4,750,310 Lake at Las Vegas Joint Venture First Lien Term
Loan, 8.17% - 8.249% due 2/01/2010 4,758,367
2,992,500 Mattamy Group Term Loan B, 7.688%
due 4/11/2013 2,999,981
994,805 NCI Building System Term Loan B, 6.71%
due 6/18/2010 995,427
4,900,000 Nortek, Inc. Term Loan, 7.36% due 8/27/2011 4,888,514
--------------
31,140,627
Information Technology--4.3%
12,887,700 Activant Solutions Term Loan B, 7.438% - 7.50%
due 5/02/2013 12,726,604
7,352,500 Fidelity National Information Solutions, Inc. Term
Loan B, 7.08% due 3/09/2013 7,380,344
3,000,000 Stratus Technologies, Inc. First Lien Term Loan,
8.50% due 3/29/2011 3,007,500
BLACKROCK SENIOR FLOATING RATE FUND, INC. AUGUST 31, 2006
Schedule of Investments (continued) Master Senior Floating Rate Trust
Face Senior Secured
Amount Floating Rate Loan Interests* Value
Information Technology (concluded)
$ 3,960,000 SunGard Data Systems, Inc., Term Loan B,
7.999% due 2/11/2013 $ 3,993,589
12,833,365 Telcordia Technologies, Inc. Term Loan,
7.86% - 7.90% due 9/15/2012 12,239,822
--------------
39,347,859
Leisure--0.5%
4,196,496 True Temper Sports, Inc. Term Loan B,
8.03% - 10.25% due 3/15/2011 4,217,479
Manufacturing--2.4%
1,485,006 Brand Services, Inc. Tranche 3 Term Loan B,
7.65% - 7.735% due 1/15/2012 1,489,955
Channel Master Holdings, Inc. (d)(e):
128,199 Revolving Credit, 8.313% due 12/31/2004 0
1,013,568 Term Loan, 9% due 12/31/2004 0
3,279,096 GenTek, Inc. First Lien Term Loan,
7.58% - 7.76% due 2/28/2011 3,297,541
Johnson Diversey, Inc. Delayed Draw Term Loan:
508,666 7.93% due 12/16/2010 512,005
675,670 7.97% due 12/15/2011 681,582
9,094,235 Mueller Group LLC Term Loan B, 7.33% - 7.868%
due 10/03/2012 9,163,252
2,359,555 Propex Fabrics, Inc. Term Loan B, 7.76%
due 7/31/2012 2,362,505
Trimas Corp.:
937,500 Letter of Credit, 8.08% due 8/02/2013 937,500
4,062,500 Term Loan B, 8.25% due 8/02/2013 4,062,500
--------------
22,506,840
Packaging--2.1%
3,201,970 Anchor Glass Container Corp. Term Loan B,
7.65% - 7.749% due 5/03/2013 3,209,975
3,790,527 Berry Plastics Corp. Tranche 2 Term Loan B,
7.08% due 12/02/2011 3,791,315
10,835,000 Graham Packaging Co. LP Term Loan B,
7.563% - 7.875% due 10/07/2011 10,875,631
1,428,571 Graham Packaging Second Lien Term Loan B,
9.75% due 4/07/2012 1,448,214
--------------
19,325,135
Paper--3.1%
3,757,448 Boise Cascade Holdings LLC Tranche D Term
Loan, 7.094% - 7.25% due 10/28/2011 3,775,592
Georgia Pacific Corp.:
2,985,000 First Lien Term Loan B, 7.30% - 7.499%
due 12/20/2012 2,991,012
8,000,000 Second Lien Term Loan C, 8.30%
due 12/23/2013 8,081,664
3,277,343 Graphic Packaging International, Inc. Term
Loan B, 7.62% - 8.14% due 8/08/2010 3,311,578
SP Newsprint Co. Tranche B-1:
3,182,818 Credit Linked Deposit, 5.33% due 1/09/2010 3,206,689
547,390 Term Loan, 7.58% due 1/09/2010 551,495
Smurfit-Stone Container Corp.:
2,241,039 Deposit Account, 5.23% - 7.079%
due 11/01/2010 2,255,816
2,225,142 Term Loan B, 7.50% - 7.688%
due 11/01/2011 2,239,815
2,334,900 Term Loan C, 7.50% - 7.688%
due 11/01/2011 2,350,296
--------------
28,763,957
Face Senior Secured
Amount Floating Rate Loan Interests* Value
Retail--1.5%
$ 1,661,650 Advance Stores Co., Inc. Delay Draw Term Loan,
6.906% - 7% due 9/30/2010 $ 1,663,727
1,655,516 American Reprographics Co. Term Loan,
7.15% - 9% due 6/18/2009 1,658,103
3,675,789 General Nutrition Centers, Inc. Tranche B Term
Loan, 8.08% - 8.15% due 12/05/2009 3,702,210
6,882,911 Neiman Marcus Group, Inc. Term Loan,
7.77% due 4/06/2013 6,946,289
--------------
13,970,329
Service--4.1%
2,100,000 Alliance Laundry Systems LLC Term Loan, 7.62%
due 1/27/2012 2,111,157
Allied Waste North America, Inc.:
7,517,157 Term Loan, 7.20% - 7.27% due 1/15/2012 7,511,286
2,922,237 Tranche A Credit Linked Deposit, 7.084%
due 1/15/2012 2,920,259
5,850,600 Buhrmann USA, Inc. Term Loan C,
7.146% - 7.218% due 12/23/2010 5,861,570
4,914,773 Clarke American Term Loan B, 8.75% - 8.87%
due 12/15/2011 4,983,889
5,419,460 Great Lakes Dredge & Dock Corp. Tranche B Term
Loan, 7.99% - 8.62% due 12/23/2010 5,439,783
7,682,418 Prime Succession, Inc. Term Loan, 5.75%
due 12/31/2003 (d)(e) 1
2,985,243 RGIS Inventory Specialists First Lien Term Loan,
7.999% due 12/31/2012 2,984,311
U.S. Investigations Service:
1,112,705 Term Loan C, 7.92% due 10/14/2012 1,115,487
2,959,795 Tranche B Term Loan, 7.92% due 10/14/2012 2,963,495
United Rentals, Inc.:
1,612,017 Term Loan, 7.33% due 2/14/2011 1,616,912
329,825 Tranche B Credit Linked Deposit, 7.33%
due 2/14/2011 330,826
--------------
37,838,976
Steel--0.0%
10,162,693 Acme Metals, Inc. Term Loan, 0% - 11.75%
due 12/01/2005 (d)(e) 1
Telecommunications--2.8%
Alaska Communications Systems Holdings, Inc.:
3,000,000 Incremental Term Loan, 7.249%
due 2/01/2012 2,995,125
2,000,000 Term Loan, 7.249% due 2/01/2012 1,996,750
7,998,750 Consolidated Communications, Inc. Term Loan D,
7.41% - 7.45% due 10/14/2011 8,003,749
10,000,000 SBA Senior Finance Term Loan B, 7.33%
due 1/27/2007 10,028,130
2,985,000 Time Warner Telecom Term Loan B,
7.82% - 8% due 11/30/2010 3,015,471
--------------
26,039,225
Transportation--0.4%
3,744,171 Sirva Worldwide Tranche B Term Loan,
11.33% - 11.49% due 12/01/2010 3,588,162
Utility--4.5%
2,000,000 AES Corp. Term Loan, 6.75% - 7.50%
due 4/30/2008 2,007,500
Calpine Corp.:
3,117,021 Second Lien Debtor in Possession, 9.499%
due 12/20/2007 3,162,477
4,596,822 Term Loan B, 7.75% due 12/20/2007 4,624,403
BLACKROCK SENIOR FLOATING RATE FUND, INC. AUGUST 31, 2006
Schedule of Investments (continued) Master Senior Floating Rate Trust
Face Senior Secured
Amount Floating Rate Loan Interests* Value
Utility (concluded)
$ 3,291,136 Cogentrix Delaware Holdings, Inc. Term Loan,
7% due 4/15/2012 $ 3,298,680
Covanta Energy Corp.:
759,259 Delay Draw Term Loan, 7.749%
due 6/30/2012 759,259
3,746,341 First Lien Letter of Credit, 5.46%
due 5/26/2013 3,775,218
2,684,634 First Lien Term Loan, 7.576% - 7.71%
due 6/24/2012 2,705,327
2,665,000 Second Lien Term Loan,10.96%
due 6/24/2013 2,724,962
9,875,000 KGen LLC Tranche A Term Loan, 8.124%
due 8/05/2011 9,912,031
975,532 LSP Kendall Energy Term Loan B, 7.499%
due 10/07/2013 968,825
La Paloma:
122,706 Delay Draw Term Loan, 7.249%
due 8/16/2012 122,553
262,295 Letter of Credit, 7.08% due 8/16/2012 261,967
2,000,000 Second Lien Term Loan, 8.999%
due 8/16/2013 2,005,834
1,540,703 Term Loan, 7.249% due 8/16/2012 1,502,186
2,750,000 Metcalf Energy Center LLC Tranche 1 Term Loan,
8.461% due 5/20/2010 2,805,000
1,209,485 Reliant Energy, Inc. Term Loan, 7.705%
due 4/30/2010 1,211,186
--------------
41,847,408
Wireless Communications--0.4%
3,941,667 Centennial Cellular Operating Co. Term Loan,
7.318% - 7.749% due 2/09/2011 3,972,987
Total Senior Secured Floating Rate Loan
Interests (Cost--$790,048,635)--81.6% 754,855,830
Corporate Bonds
Automotive--0.5%
4,500,000 Ford Motor Credit Co., 9.957% due 4/15/2012 (a) 4,757,220
Cable--U.S.--0.1%
500,000 Intelsat Subsidiary Holding Co. Ltd., 10.484%
due 1/15/2012 (a) 507,500
Chemicals--1.5%
5,992,000 GEO Specialty Chemicals, Inc., 13.981%
due 12/31/2009 (a)(j) 4,943,400
8,000,000 Nova Chemicals Corp., 8.405%
due 11/15/2013 (a) 8,170,000
1,102,853 PCI Chemicals Canada, Inc., 10%
due 12/31/2008 1,144,210
--------------
14,257,610
Diversified Media--0.0%
250,000 Universal City Florida Holding Co. I, 10.239%
due 5/01/2010 (a) 255,625
Face
Amount Corporate Bonds Value
Gaming--1.0%
$ 9,000,000 Galaxy Entertainment Finance Co. Ltd., 10.42%
due 12/15/2010 (a)(j) $ 9,427,500
Information Technology--0.4%
3,850,000 SunGard Data Systems, Inc., 9.973%
due 8/15/2013 (a) 4,023,250
Leisure--0.2%
1,875,000 FelCor Lodging LP, 9.57% due 6/01/2011 (a) 1,921,875
Paper--1.9%
6,000,000 Ainsworth Lumber Co. Ltd., 9.499%
due 4/01/2013 (a) 4,680,000
250,000 Boise Cascade LLC, 8.382% due 10/15/2012 (a) 251,250
650,000 NewPage Corp., 11.739% due 5/01/2012 (a) 702,000
11,400,000 Verso Paper Holdings LLC, 9.235%
due 8/01/2014 (a)(j) 11,485,500
--------------
17,118,750
Telecommunications--1.9%
9,500,000 Qwest Communications International, Inc.,
8.905% due 2/15/2009 (a) 9,642,500
275,000 Qwest Corp., 8.579% due 6/15/2013 (a) 295,969
7,000,000 Time Warner Telecom Holdings, Inc., 9.405%
due 2/15/2011 (a) 7,140,000
--------------
17,078,469
Wireless Communications--0.0%
250,000 Rogers Wireless Communications, Inc., 8.454%
due 12/15/2010 (a) 256,562
Total Corporate Bonds
(Cost--$73,670,820)--7.5% 69,604,361
Shares
Held Common Stocks
Chemicals--0.0%
39,151 GEO Specialty Chemicals, Inc. (d)(j) 78,302
Steel--0.0%
51,714 Acme Package Corp. Senior Holdings (d)(h) 1
Total Common Stocks
(Cost--$0)--0.0% 78,303
Warrants (f)
Paper--0.0%
57 Cellu Tissue Holdings, Inc. (expires 5/08/2007) 0
Utility--0.0%
9,115 Reliant Resources (expires 10/25/2008) 59,248
Total Warrants
(Cost--$0)--0.0% 59,248
BLACKROCK SENIOR FLOATING RATE FUND, INC. AUGUST 31, 2006
Schedule of Investments (concluded) Master Senior Floating Rate Trust
Beneficial
Interest Other Interests (b) Value
Health Care--0.0%
$ 14,398 MEDIQ Inc. (Preferred Stock Escrow) $ 0
Total Other Interests
(Cost--$0)--0.0% 0
Beneficial
Interest Short-Term Securities Value
$ 84,367,424 Merrill Lynch Liquidity Series, LLC
Cash Sweep Series I, 5.11% (c)(g) $ 84,367,424
Total Short-Term Securities
(Cost--$84,367,424)--9.1% 84,367,424
Total Investments (Cost--$948,086,879**)--98.2% 908,965,166
Liabilities in Excess of Other Assets--1.8% 16,944,874
--------------
Net Assets--100.0% $ 925,910,040
==============
* Senior Secured Floating Rate Loan Interests in which the Trust invests
generally pay interest at rates that are periodically redetermined by
reference to a base lending rate plus a premium. These base lending
rates are generally (i) the lending rate offered by one or more major
European banks, such as LIBOR (London InterBank Offered Rate), (ii) the
prime rate offered by one or more major U.S. banks or (iii) the
certificate of deposit rate.
** The cost and unrealized appreciation (depreciation) of investments,
as of August 31, 2006, as computed for federal income tax purposes,
were as follows:
Aggregate cost $ 948,239,924
================
Gross unrealized appreciation $ 3,650,210
Gross unrealized depreciation (42,924,968)
----------------
Net unrealized depreciation $ (39,274,758)
================
(a) Floating rate note.
(b) Other interests represent beneficial interest in liquidation trusts
and other reorganization entities and are non-income producing.
(c) Investments in companies considered to be an affiliate of the Trust,
for purposes of Section 2(a)(3) of the Investment Company Act of 1940,
were as follows:
Net Interest
Issue Activity Income
Merrill Lynch Liquidity Series, LLC
Cash Sweep Series I $(45,336,332) $3,651,693
(d) Non-income producing security.
(e) As a result of bankruptcy proceedings, the issuer did not repay the
principal amount of the security upon maturity.
(f) 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.
(g) Represents the current yield as of August 31, 2006.
(h) Restricted security as to resale, representing 0.0% of net assets,
was as follows:
Acquisition
Issue Date Cost Value
Acme Package Corp. Senior Holdings 11/25/2002 $ -- $ 1
(i) Convertible security.
(j) The security may be offered and sold to "qualified institutional buyers"
under Rule 144A of the Securities Act of 1933.
o For Trust compliance purposes, the Trust's industry classifications
refer to any one or more of the industry sub-classifications used by one
or more widely recognized market indexes or ratings group indexes, and/or
as defined by Trust management. This definition may not apply for purposes
of this report, which may combine industry sub-classifications for
reporting ease. Industries shown are as a percent of net assets. These
industry classifications are unaudited.
See Notes to Financial Statements.
BLACKROCK SENIOR FLOATING RATE FUND, INC. AUGUST 31, 2006
Statement of Assets and Liabilities Master Senior Floating Rate Trust
As of August 31, 2006
Assets
Investments in unaffiliated securities, at value (identified cost--$863,719,455) $ 824,597,742
Investments in affiliated securities, at value (identified cost--$84,367,424) 84,367,424
Cash 446,156
Receivables:
Securities sold $ 8,641,340
Interest 8,380,763
Contributions 626,586
Commitment fees 29,753 17,678,442
---------------
Prepaid expenses 3,998
---------------
Total assets 927,093,762
---------------
Liabilities
Unfunded loan commitment 393,556
Payables:
Investment adviser 600,338
Other affiliates 7,655 607,993
---------------
Accrued expenses 182,173
---------------
Total liabilities 1,183,722
---------------
Net Assets
Net assets $ 925,910,040
===============
Net Assets Consist of
Investors' capital $ 965,365,100
Unrealized depreciation--net (39,455,060)
---------------
Net Assets $ 925,910,040
===============
See Notes to Financial Statements.
BLACKROCK SENIOR FLOATING RATE FUND, INC. AUGUST 31, 2006
Statement of Operations Master Senior Floating Rate Trust
For the Year Ended August 31, 2006
Investment Income
Interest (including $3,651,693 from affiliates) $ 68,803,769
Facility and other fees 865,125
Dividends 41,372
---------------
Total income 69,710,266
---------------
Expenses
Investment advisory fees $ 9,119,369
Accounting services 297,851
Professional fees 274,011
Loan interest expense 109,843
Custodian fees 53,776
Trustees' fees and expenses 44,905
Pricing fees 14,515
Printing and shareholder reports 2,341
Other 41,238
---------------
Total expenses 9,957,849
---------------
Investment income--net 59,752,417
---------------
Realized & Unrealized Gain (Loss)--Net
Realized loss on investments--net (1,597,921)
Change in unrealized depreciation on:
Investments--net (7,748,689)
Unfunded corporate loans--net 26,977 (7,721,712)
--------------- ---------------
Total realized and unrealized loss--net (9,319,633)
---------------
Net Increase in Net Assets Resulting from Operations $ 50,432,784
===============
See Notes to Financial Statements.
BLACKROCK SENIOR FLOATING RATE FUND, INC. AUGUST 31, 2006
Statements of Changes in Net Assets Master Senior Floating Rate Trust
For the Year Ended
August 31,
Increase (Decrease) in Net Assets: 2006 2005
Operations
Investment income--net $ 59,752,417 $ 46,965,092
Realized gain (loss)--net (1,597,921) 1,613,248
Change in unrealized depreciation--net (7,721,712) 10,177,092
--------------- ---------------
Net increase in net assets resulting from operations 50,432,784 58,755,432
--------------- ---------------
Capital Transactions
Proceeds from contributions 66,317,763 132,214,555
Fair value of withdrawals (223,659,634) (211,031,968)
--------------- ---------------
Net decrease in net assets derived from capital transactions (157,341,871) (78,817,413)
--------------- ---------------
Net Assets
Total decrease in net assets (106,909,087) (20,061,981)
Beginning of year 1,032,819,127 1,052,881,108
--------------- ---------------
End of year $ 925,910,040 $ 1,032,819,127
=============== ===============
See Notes to Financial Statements.
Financial Highlights Master Senior Floating Rate Trust
The following per share data and ratios have been derived For the Year Ended August 31,
from information provided in the financial statements. 2006 2005 2004 2003 2002
Total Investment Return
Total investment return 5.37% 5.78% 10.15% 11.07% (4.66%)
=========== =========== =========== =========== ===========
Ratios to Average Net Assets
Expenses, excluding interest expense 1.03% 1.01% 1.02% 1.04% 1.09%
=========== =========== =========== =========== ===========
Expenses 1.04% 1.01% 1.02% 1.05% 1.12%
=========== =========== =========== =========== ===========
Investment income--net 6.22% 4.52% 3.81% 4.80% 5.31%
=========== =========== =========== =========== ===========
Leverage
Amount of borrowings outstanding, end of year
(in thousands) -- -- -- -- $ 13,000
=========== =========== =========== =========== ===========
Average amount of borrowings outstanding
during the year (in thousands) $ 1,932 -- -- $ 3,187 $ 3,959
=========== =========== =========== =========== ===========
Supplemental Data
Net assets, end of year (in thousands) $ 925,910 $ 1,032,819 $ 1,052,881 $ 942,878 $ 182,205
=========== =========== =========== =========== ===========
Portfolio turnover 54.38% 52.92% 76.45% 56.56% 36.77%
=========== =========== =========== =========== ===========
See Notes to Financial Statements.
BLACKROCK SENIOR FLOATING RATE FUND, INC. AUGUST 31, 2006
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 Loan Interests. The
Trust may invest up to 20% of its total assets in loans made on an unsecured
basis. Because agents, banks and intermediate participants from whom the Trust
purchases the loan interest are primarily financial institutions, the Trust's
investment in Loan Interests at August 31, 2006 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. As of October 2,
2006, Loan Interests will be valued at the mean between the last available bid
prices. 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 matrixes to determine valuations. If
the pricing service does not provide a value for the Loan Interests, Fund
Asset Management L.P. ("FAM") will value the Loan Interests at fair value,
which is intended to approximate market value.
Debt securities are traded primarily in the over-the-counter ("OTC") markets
and are valued at the last available bid price in the OTC market or on the
basis of values obtained by a pricing service. Pricing services use valuation
matrixes that incorporate both dealer-supplied valuations and valuation
models. The procedures of the pricing service and its valuations are reviewed
by the officers of the Trust under the general direction of the Board of
Trustees. Such valuations and procedures will be reviewed periodically by the
Board of Trustees of the Trust.
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
asked 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 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 asked 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 asked
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. Swap agreements are valued based upon quoted
fair valuations received daily by the Trust from a pricing service or
counterparty. 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 FAM believes that this
method no longer produces fair valuations. Valuation of other short-term
investment vehicles is generally based upon the net asset value of the
underlying investment vehicle or amortized cost. Repurchase agreements will be
valued at cost plus accrued interest.
BLACKROCK SENIOR FLOATING RATE FUND, INC. AUGUST 31, 2006
Notes to Financial Statements (continued) Master Senior Floating Rate Trust
Generally, trading in foreign securities, as well as U.S. government
securities, money market instruments and certain fixed income securities, 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. As of October 2, 2006, foreign currency exchange
rates will be determined at 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 FAM 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 OTC 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 predetermined 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. These periodic payments received or made by
the Trust are recorded in the accompanying Statement of Operations as realized
gains and losses, respectively. Gains or losses are also realized upon
termination of the swap agreements. Swaps are marked-to-market daily and
changes in value are recorded as unrealized appreciation (depreciation). Risks
include changes in the returns of the underlying instruments, failure of the
counterparties to perform under the contracts' terms and the possible lack of
liquidity with respect to the swap agreements.
(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) Recent accounting pronouncement--In July 2006, the Financial Accounting
Standards Board ("FASB") issued Interpretation No. 48 ("FIN 48") entitled
"Accounting for Uncertainty in Income Taxes - an interpretation of FASB
Statement No. 109." FIN 48 prescribes the minimum recognition threshold a tax
position must meet in connection with accounting for uncertainties in income
tax positions taken or expected to be taken by an entity including mutual
funds before being measured and recognized in the financial statements.
Adoption of FIN 48 is required for fiscal years beginning after December 15,
2006. The impact on the Trust's financial statements, if any, is currently
being assessed.
(f) Security transactions and investment income--Security transactions are
recorded on the dates the transactions are entered into (the trade dates).
Realized gains and losses on security transactions are determined on the
identified cost basis. Dividend income is recorded on the ex-dividend dates.
Interest income is recognized on the accrual basis. The Trust amortizes all
premiums and discounts on debt securities.
(g) 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 receives 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.
BLACKROCK SENIOR FLOATING RATE FUND, INC. AUGUST 31, 2006
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 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, an affiliate of FAM, 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 Merrill Lynch Investment Managers, L.P., an affiliate of FAM.
For the year ended August 31, 2006, the Trust reimbursed FAM $21,870 for
certain accounting services.
In February 2006, ML & Co. and BlackRock, Inc. entered into an agreement to
contribute ML & Co.'s investment management business, including FAM, to the
investment management business of BlackRock, Inc. The transaction will close
on September 29, 2006.
On August 15, 2006, the shareholders of each of the investors approved a new
Investment Advisory Agreement with BlackRock Advisors, Inc. (the "Manager"), a
wholly owned subsidiary of BlackRock, Inc. BlackRock Advisors, Inc. was
reorganized into BlackRock Advisors, LLC. The new advisory agreement will
become effective on September 29, 2006 and the investment advisory fee is
unchanged. In addition, the Manager has entered into a sub-advisory agreement
with BlackRock Financial Management, Inc., an affiliate, under which the
Manager pays the Sub-Adviser for services it provides a fee equal to 59% of
the management fee paid to the Manager.
In connection with the closing, MLIM, LLC, the security lending agent, will
become BlackRock Investment Management, LLC.
During the year ended August 31, 2006, certain officers and/or trustees of the
Trust are officers and/or directors of FAM, PSI, ML & Co., and/or MLIM, LLC.
3. Investments:
Purchases and sales (including paydowns) of investments, excluding short-term
securities, for the year ended August 31, 2006 were $469,279,355 and
$529,402,977, respectively.
4. Unfunded Loan Interests:
As of August 31, 2006, the Trust had unfunded loan commitments of
approximately $26,741,000, which would be extended at the option of the
borrower, pursuant to the following loan agreements:
(in Thousands)
Unfunded
Borrower Commitment Value
Calpine Corp. $3,266 $3,233
MEG Energy Corp. $1,250 $1,247
Maguire Properties, LP $5,000 $5,016
Trump Entertainment Resorts Holdings LP
Revolving Line of Credit $5,000 $4,850
Trump Entertainment Resorts Holdings LP
Term Loan B-1 $2,475 $2,494
Venetian Macau U.S. Finance Co. LLC
Term Loan B $3,750 $3,747
Vought Aircraft Industries, Inc. $6,000 $5,760
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 a group of lenders, which
expires November 2006. The Trust may borrow under the credit agreement to fund
shareholder redemptions 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 .07% 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 Trust's election, the federal funds rate plus .50%
or a base rate as defined in the credit agreement.
The weighted average annual interest rate was 5.69%, and the average borrowing
was approximately $1,932,000 for the year ended August 31, 2006.
BLACKROCK SENIOR FLOATING RATE FUND, INC. AUGUST 31, 2006
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, 2006, 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 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. The Trust is not required to have, nor were we engaged to
perform, an audit of its internal control over financial reporting. Our audits
included consideration of internal control over financial reporting as a basis
for designing audit procedures that are appropriate in the circumstances, but
not for the purpose of expressing an opinion on the effectiveness of the
Trust's internal control over financial reporting. Accordingly, we express no
such opinion. An audit also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
as well as evaluating the overall financial statement presentation. Our
procedures included confirmation of securities owned as of August 31, 2006, by
correspondence with the custodian and financial intermediaries; where replies
were not received from financial intermediaries, we performed other auditing
procedures. 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, 2006, 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 23, 2006
BLACKROCK SENIOR FLOATING RATE FUND, INC. AUGUST 31, 2006
Disclosure of New Investment Advisory Agreement
New BlackRock Investment Advisory Agreement--Matters Considered by the Boards
In connection with the combination of Merrill Lynch's investment advisory
business, including Fund Asset Management, L.P. (the "Previous Investment
Adviser"), with that of BlackRock, Inc. ("BlackRock") to create a new
independent company ("New BlackRock") (the "Transaction"), the Board of
Trustees of Master Senior Floating Rate Trust (the "Trust") considered and
approved a new investment advisory agreement (the "BlackRock Investment
Advisory Agreement") between the Trust and BlackRock Advisors, LLC ("BlackRock
Advisors"). Because BlackRock Senior Floating Rate Fund, Inc. (the "Fund") is
a feeder fund that invests all of its assets in the Trust, the Board of
Directors of the Fund also considered the BlackRock Investment Advisory
Agreement. Shareholders subsequently approved the BlackRock Investment
Advisory Agreement, and it became effective on September 29, 2006, replacing
the investment advisory agreement with the Previous Investment Adviser (the
"Previous Investment Advisory Agreement").
Each Board discussed the BlackRock Investment Advisory Agreement at telephonic
and in-person meetings held during April and May 2006. Each Board, including
the independent directors/trustees, approved the BlackRock Investment Advisory
Agreement at an in-person meeting held on May 12, 2006.
To assist each Board in its consideration of the BlackRock Investment Advisory
Agreement, BlackRock provided materials and information about BlackRock,
including its financial condition and asset management capabilities and
organization, and Merrill Lynch provided materials and information about the
Transaction. The independent directors/trustees, through their independent
legal counsel, also requested and received additional information from Merrill
Lynch and BlackRock in connection with their consideration of the BlackRock
Investment Advisory Agreement. The additional information was provided in
advance of the May 12, 2006 meetings. In addition, the independent directors/
trustees consulted with their counsel and counsel for the Fund and Trust on
numerous occasions, discussing, among other things, the legal standards and
certain other considerations relevant to each Board's deliberations.
At each Board meeting, the directors/trustees discussed with Merrill Lynch
management and certain BlackRock representatives the Transaction, its
strategic rationale and BlackRock's general plans and intentions regarding the
Fund and the Trust. At these Board meetings, representatives of Merrill Lynch
and BlackRock made presentations to and responded to questions from each
Board. Each Board also inquired about the plans for and anticipated roles and
responsibilities of certain employees and officers of the Previous Investment
Adviser, and of its affiliates, to be transferred to BlackRock in connection
with the Transaction. The independent directors/trustees also conferred
separately and with their counsel about the Transaction and other matters
related to the Transaction on a number of occasions, including in connection
with the April and May 2006 meetings. After the presentations and after
reviewing the written materials provided, the independent directors/trustees
met in executive sessions with their counsel to consider the BlackRock
Investment Advisory Agreement.
In connection with each Board's review of the BlackRock Investment Advisory
Agreement, Merrill Lynch and/or BlackRock advised the Board about a variety of
matters. The advice included the following, among other matters:
* that there was not expected to be any diminution in the nature, quality
and extent of services provided to the Fund and the Trust and their
shareholders by BlackRock Advisors, including compliance services;
* that operation of New BlackRock as an independent investment management
firm will enhance its ability to attract and retain talented
professionals;
* that the Fund and Trust were expected to benefit from access to BlackRock's
state of the art technology and risk management analytic tools, including
investment tools, provided under the BlackRock Solutions (R) brand name;
* that BlackRock had no present intention to alter any applicable expense
waivers, expense caps or reimbursements that were currently in effect and,
while it reserved the right to do so in the future, it would seek the
approval of each Board before making any changes;
* that BlackRock and Merrill Lynch would enter into an agreement, for an
initial three-year period and automatically renewable from year to year
thereafter, in connection with the Transaction under which Merrill Lynch-
affiliated broker-dealers would continue to offer the Fund as an
investment product;
BLACKROCK SENIOR FLOATING RATE FUND, INC. AUGUST 31, 2006
* that BlackRock Advisors would have substantially the same access to the
Merrill Lynch sales force when distributing shares of the Fund as was
currently being provided to the Previous Investment Adviser and that other
arrangements between the Previous Investment Adviser and Merrill Lynch
sales channels would be preserved;
* that the Fund will have access to BlackRock's network of third party
brokers, retirement plan platforms and registered investment advisers;
* that in connection with the Transaction, Merrill Lynch and BlackRock had
agreed to conduct, and use reasonable best efforts to cause their
respective affiliates to conduct, their respective businesses in
compliance with the conditions of Section 15(f) of the Investment Company
Act of 1940 (the "1940 Act") in relation to any public funds advised by
BlackRock or the Previous Investment Adviser (or affiliates),
respectively; and
* that Merrill Lynch and BlackRock would derive benefits from the
Transaction and that, as a result, they had a financial interest in the
matters being considered that was different from that of Fund or Trust
shareholders.
Each Board considered the information provided by Merrill Lynch and BlackRock
above, and, among other factors, the following:
* the potential benefits to Fund and Trust shareholders from being part of a
combined fund family with BlackRock-sponsored funds, including possible
economies of scale and access to investment opportunities;
* the potential for expanding distribution of Fund shares through improved
access to third party distribution;
* the reputation, financial strength and resources of BlackRock and its
investment advisory subsidiaries and the anticipated financial strength
and resources of New BlackRock;
* the compliance policies and procedures of BlackRock Advisors;
* the terms and conditions of the BlackRock Investment Advisory Agreement,
including the fact that the schedule of the Fund's/Trust's total advisory
and administrative fees would not increase under the BlackRock Investment
Advisory Agreement, but would remain the same;
* that in November 2005, each Board had performed a full annual review of
the Previous Investment Advisory Agreement, as required by the 1940 Act,
and had determined that the Previous Investment Adviser had the
capabilities, resources and personnel necessary to provide the advisory
and administrative services that were then being provided to the Fund/
Trust; and that the advisory and/or management fees paid by the Trust,
taking into account any applicable agreed-upon fee waivers and breakpoints,
had represented reasonable compensation to the Previous Investment Adviser
in light of the services provided, the costs to the Previous Investment
Adviser of providing those services, economies of scale, the fees and other
expenses paid by similar funds (including information provided by Lipper
Inc. ["Lipper"]), and such other matters as the directors/trustees had
considered relevant in the exercise of their reasonable judgment; and
* that Merrill Lynch had agreed to pay all expenses of the Fund and Trust in
connection with each Board's consideration of the BlackRock Investment
Advisory Agreement and related agreements and all costs of shareholder
approval of the BlackRock Investment Advisory Agreement and as a result
neither the Fund nor Trust would bear costs in obtaining shareholder
approval of the BlackRock Investment Advisory Agreement.
Certain of these considerations are discussed in more detail below.
In its review of the BlackRock Investment Advisory Agreement, each Board
assessed the nature, quality and scope of the services to be provided to the
Fund and the Trust by the personnel of BlackRock Advisors and its affiliates,
including administrative services, shareholder services, oversight of fund
accounting, marketing services and assistance in meeting legal and regulatory
requirements. In its review of the BlackRock Investment Advisory Agreement,
each Board also considered a range of information in connection with its
oversight of the services to be provided by BlackRock Advisors and its
affiliates. Among the matters considered were: (a) fees (in addition to
management fees) to be paid to BlackRock Advisors and its affiliates by the
Fund and Trust; (b) Fund and Trust operating expenses paid to third parties;
(c) the resources devoted to and compliance reports relating to the Fund's and
Trust's investment objectives, policies and restrictions, and their compliance
with their Code of Ethics and BlackRock Advisors' compliance policies and
procedures; and (d) the nature, cost and character of non-investment
management services to be provided by BlackRock Advisors and its affiliates.
BLACKROCK SENIOR FLOATING RATE FUND, INC. AUGUST 31, 2006
Disclosure of New Investment Advisory Agreement (continued)
In the period prior to the Board meetings to consider renewal of the Previous
Investment Advisory Agreement, each Board had requested and received materials
specifically relating to the Previous Investment Advisory Agreement. These
materials included (a) information compiled by Lipper on the fees and expenses
and the investment performance of the Fund as compared to a comparable group
of funds as classified by Lipper; (b) a discussion by the Trust's portfolio
management team on investment strategies used by the Trust during its most
recent fiscal year; (c) information on the profitability to the Previous
Investment Adviser of the Previous Investment Advisory Agreement and other
payments received by the Previous Investment Adviser and its affiliates from
the Fund and the Trust; and (d) information provided by the Previous Investment
Adviser concerning services related to the valuation and pricing of Trust
portfolio holdings and direct and indirect benefits to the Previous Investment
Adviser and its affiliates from their relationship with the Fund and the Trust.
In its deliberations, each Board considered information received in connection
with its most recent approval of the continuance of the Previous Investment
Advisory Agreement, in addition to information provided by BlackRock and
BlackRock Advisors in connection with its evaluation of the terms and
conditions of the BlackRock Investment Advisory Agreement. The directors/
trustees did not identify any particular information that was all-important or
controlling, and each director/trustee attributed different weights to the
various factors. Each Board, including a majority of the Board's independent
directors/trustees, concluded that the terms of the BlackRock Investment
Advisory Agreement are appropriate, that the fees to be paid are reasonable in
light of the services to be provided to the Fund/Trust, and that the BlackRock
Investment Advisory Agreement should be approved and recommended to Fund/Trust
shareholders.
Nature, Quality and Extent of Services Provided--Each Board reviewed the
nature, quality and extent of services provided by the Previous Investment
Adviser, including the investment advisory services and the resulting
performance of the Fund and Trust, as well as the nature, quality and extent
of services expected to be provided by BlackRock Advisors. Each Board focused
primarily on the Previous Investment Adviser's investment advisory services
and the investment performance of the Fund and Trust, but also considered
certain areas in which both the Previous Investment Adviser and the Fund/Trust
received services as part of the Merrill Lynch complex. Each Board compared
the performance of the Fund - both including and excluding the effects of fees
and expenses - to the performance of a comparable group of funds, and the
performance of a relevant index or combination of indexes. While each Board
reviews performance data at least quarterly, consistent with the Previous
Investment Adviser's investment goals, the Board attaches more importance to
performance over relatively long periods of time, typically three to five
years.
In evaluating the nature, quality and extent of the services to be provided by
BlackRock Advisors under the BlackRock Investment Advisory Agreement, each
Board considered, among other things, the expected impact of the Transaction
on the operations, facilities, organization and personnel of New BlackRock and
how it would affect the Fund and the Trust; the ability of BlackRock Advisors
to perform its duties after the Transaction; and any anticipated changes to
the investment and other practices of the Fund or Trust.
Each Board was given information with respect to the potential benefits to the
Fund and Trust and their shareholders from having access to BlackRock's state
of the art technology and risk management analytic tools, including the
investment tools provided under the BlackRock Solutions brand name.
Each Board was advised that, as a result of Merrill Lynch's equity interest in
BlackRock after the Transaction, the Fund and Trust would continue to be
subject to restrictions concerning certain transactions involving Merrill
Lynch affiliates (for example, transactions with a Merrill Lynch broker-dealer
acting as principal) absent revised or new regulatory relief. Each Board was
advised that a revision of existing regulatory relief with respect to these
restrictions was being sought from the Securities and Exchange Commission and
were advised of the possibility of receipt of such revised regulatory relief.
Based on their review of the materials provided and the assurances they had
received from the management of Merrill Lynch and of BlackRock, the directors/
trustees determined that the nature and quality of services to be provided to
the Fund/Trust under the BlackRock Investment Advisory Agreement were expected
to be as good as or better than that provided under the Previous Investment
Advisory Agreement. Each Board was advised that BlackRock Advisors did not
plan to change the Trust's portfolio management team upon the closing of the
transaction. It was noted, however, that other changes in personnel were
expected to follow the Transaction and the combination of the operations of
the Previous Investment Adviser and its affiliates with those of BlackRock.
Each Board noted that if portfolio managers or other personnel were to cease
to be available prior to the closing of the Transaction, the Board would
consider all available options, including seeking the investment advisory or
other services of BlackRock affiliates. Accordingly, each Board concluded
that, overall, the Board was satisfied at the present time with assurances
from BlackRock and BlackRock Advisors as to the expected nature, quality and
extent of the services to be provided to the Fund/Trust under the BlackRock
Investment Advisory Agreement.
BLACKROCK SENIOR FLOATING RATE FUND, INC. AUGUST 31, 2006
Costs of Services Provided and Profitability--It was noted that, in
conjunction with the recent review of the Previous Investment Advisory
Agreement, each Board had received, among other things, a report from Lipper
comparing the Fund's fees and expenses to those of a peer group selected by
Lipper, and information as to the fees charged by the Previous Investment
Adviser or its affiliates to other registered investment company clients for
investment management services. Each Board reviewed the Fund's/Trust's
contractual management fee rate and actual management fee rate as a percentage
of total assets at common asset levels - the actual rate includes advisory and
administrative service fees and the effects of any fee waivers - compared to
the other funds in the Fund's Lipper category. They also compared the Fund's
total expenses to those of other comparable funds. The information showed that
the Fund had fees and expenses within the range of fees and expenses of
comparable funds. Each Board considered the services to be provided by and the
fees to be charged by BlackRock Advisors to other funds with similar investment
mandates and noted that the fees charged by BlackRock Advisors in those cases,
including fee waivers and expense reimbursements, were generally comparable to
those being charged to the Fund/Trust. Each Board also noted that, as a general
matter, according to the information provided by BlackRock, fees charged to
institutional clients were lower than the fees charged to the Fund, but
BlackRock Advisors provided less extensive services to such clients. Each Board
concluded that the Fund's/Trust's management fee and fee rate and overall
expense ratio are reasonable compared to those of other comparable funds.
In evaluating the costs of the services to be provided by BlackRock Advisors
under the BlackRock Investment Advisory Agreement, each Board considered,
among other things, whether advisory and administrative fees or other expenses
would change as a result of the Transaction.
The Fund's Board noted that in addition to the BlackRock Investment Advisory
Agreement, they were considering a new administrative agreement with BlackRock
Advisors as administrator to replace the Fund's administrative agreement under
which the Previous Investment Adviser was serving as administrator. Based on
its review of the materials provided and the fact that the BlackRock Investment
Advisory Agreement and the new administrative agreement are each substantially
similar to the corresponding previous agreement in all material respects,
including the rate of compensation, each Board determined that the Transaction
should not increase the total fees payable, including any fee waivers and
expense reimbursements, for advisory and administrative services. Each Board
noted that it was not possible to predict how the Transaction would affect
BlackRock Advisors' profitability from its relationship with the Fund and
Trust.
Each Board discussed with BlackRock Advisors its general methodology to be
used in determining its profitability with respect to its relationship with
the Fund and Trust. The directors/trustees noted that they expect to receive
profitability information from BlackRock Advisors on at least an annual basis
and thus be in a position to evaluate whether any adjustments in fees and/or
fee breakpoints would be appropriate.
Fees and Economies of Scale--Each Board considered the extent to which
economies of scale might be realized as the assets of the Fund and Trust
increase and whether there should be changes in the management fee rate or
structure in order to enable the Fund and Trust to participate in these
economies of scale. Each Board determined that changes were not currently
necessary.
In reviewing the Transaction, each Board considered, among other things,
whether advisory and administrative fees or other expenses would change as a
result of the Transaction. Based on the fact that the BlackRock Investment
Advisory Agreement was substantially similar to the Previous Investment
Advisory Agreement in all material respects, including the rate of
compensation, and the fact that the proposed new administrative agreement with
BlackRock Advisors was also substantially similar to the administrative
agreement then in effect, each Board determined that as a result of the
Transaction, the Fund's/Trust's total advisory and administrative fees would
be no higher than the fees under the corresponding Previous Investment
Advisory Agreement and administrative agreement. The directors/trustees noted
that in conjunction with the most recent deliberations concerning the Previous
Investment Advisory Agreement, they had determined that the total fees for
advisory and administrative services for the Fund were reasonable in light of
the services provided. It was noted that in conjunction with the recent review
of the Previous Investment Advisory Agreement, the directors/trustees had
received, among other things, a report from Lipper comparing the fees,
expenses and performance of the Fund/Trust to those of a peer group selected
by Lipper, and information as to the fees charged by the Previous Investment
Adviser or its affiliates to other registered investment company clients for
investment management services. Each Board concluded that because the rates
for advisory and administrative fees for the Fund/Trust would be no higher
than the fee rates in effect at the time, the proposed management fee
structure, including any fee waivers, was reasonable and that no additional
changes were currently necessary.
BLACKROCK SENIOR FLOATING RATE FUND, INC. AUGUST 31, 2006
Disclosure of New Investment Advisory Agreement (concluded)
Fall-Out Benefits--The directors/trustees considered whether the Fund would
generate any fall-out benefits to BlackRock Advisors. Fall-out benefits are
indirect profits from other activities that accrue to the adviser or its
affiliates solely because of the existence of the Fund. In evaluating the fall-
out benefits to be received by BlackRock Advisors under the BlackRock
Investment Advisory Agreement, each Board considered whether BlackRock
Advisors would experience such benefits to the same extent that the Previous
Investment Adviser was experiencing such benefits under the Previous
Investment Advisory Agreement. Based on their review of the materials
provided, including materials received in connection with their most recent
approval of the continuance of the Previous Investment Advisory Agreement, and
their discussions with management of the Previous Investment Adviser and
BlackRock, the directors/ trustees determined that BlackRock Advisors' fall
out benefits could include increased ability for BlackRock to distribute
shares of its funds and other investment products. Each Board noted that any
such benefits were difficult to quantify with certainty at this time, and
indicated that the Board would continue to evaluate them going forward.
Investment Performance--Each Board considered investment performance for
the Fund and Trust. Each Board compared the performance of the Fund and
Trust - both including and excluding the effects of fees and expenses - to the
performance of a comparable group of funds, and the performance of a relevant
index or combination of indexes. The comparative information received from
Lipper showed Fund performance at various levels within the range of
performance of comparable funds over different time periods. While each Board
reviews performance data at least quarterly, consistent with the Previous
Investment Adviser's investment goals, the Board attaches more importance over
relatively long periods of time, typically three to five years. Each Board
believed the Fund's performance was satisfactory. Also, each Board took into
account the investment performance of funds advised by BlackRock Advisors.
Each Board considered comparative information from Lipper which showed that
the performance of the funds advised by BlackRock Advisors was within the
range of performance of comparable funds over different time periods. Each
Board noted BlackRock's considerable investment management experience and
capabilities, but was unable to predict what effect, if any, consummation of
the Transaction would have on the future performance of the Fund.
Conclusion--After the independent directors of the Fund and independent
trustees of the Trust deliberated in executive session, each entire Board,
including the independent directors/trustees, approved the BlackRock
Investment Advisory Agreement, concluding that the advisory fee rate was
reasonable in relation to the services provided and that the BlackRock
Investment Advisory Agreement was in the best interests of the shareholders.
In approving the BlackRock Investment Advisory Agreement, each Board noted
that it anticipated reviewing the continuance of the agreement in advance of
the expiration of the initial two-year period.
New BlackRock Sub-Advisory Agreement--Matters Considered by the Boards
At an in-person meeting held on August 14-16, 2006, each Board, including the
independent directors/trustees, discussed and approved the sub-advisory
agreement with respect to the Trust (the "BlackRock Sub-Advisory Agreement")
between BlackRock Advisors and its affiliate, BlackRock Financial Management,
Inc. (the "Sub-Adviser"). The BlackRock Sub-Advisory Agreement became
effective on September 29, 2006, at the same time the BlackRock Investment
Advisory Agreement became effective.
Pursuant to the BlackRock Sub-Advisory Agreement, the Sub-Adviser receives a
monthly fee from BlackRock Advisors equal to 59% of the advisory fee received
by BlackRock Advisors from the Fund. BlackRock Advisors pays the Sub-Adviser
out of its own resources, and there is no increase in Fund or Trust expenses
as a result of the BlackRock Sub-Advisory Agreement.
BLACKROCK SENIOR FLOATING RATE FUND, INC. AUGUST 31, 2006
In approving the BlackRock Sub-Advisory Agreement at the August in-person
meeting, each Board reviewed its considerations in connection with its
approval of BlackRock Investment Advisory Agreement in May 2006. Each Board
relied on the same information and considered the same factors as those
discussed above in connection with the approval of the BlackRock Investment
Advisory Agreement, and came to the same conclusions. In reviewing the sub-
advisory fee rate provided in the BlackRock Sub-Advisory Agreement, each Board
noted the fact that both BlackRock Advisors and the Sub-Adviser have
significant responsibilities under their respective advisory agreements.
BlackRock Advisors remains responsible for oversight of the Trust's operations
and administration, and the Sub-Adviser provides advisory services to the
Trust and is responsible for the day-to-day management of the Trust's
portfolio under the BlackRock Sub-Advisory Agreement. Each Board also took
into account the fact that there is no increase in total advisory fees paid by
the Fund/Trust as a result of the BlackRock Sub-Advisory Agreement. Under all
of the circumstances, each Board concluded that it was a reasonable allocation
of fees for the Sub-Adviser to receive 59% of the advisory fee paid by the
Trust to BlackRock Advisors.
After the independent directors/trustees deliberated in executive session,
each entire Board, including the independent directors/trustees, approved the
BlackRock Sub-Advisory Agreement, concluding that the sub-advisory fee was
reasonable in relation to the services provided and that the Sub-Advisory
Agreement was in the best interests of shareholders.
BLACKROCK SENIOR FLOATING RATE FUND, INC. AUGUST 31, 2006
Officers and Directors/Trustees
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
Robert C. Doll, Jr.* President 2005 to Vice Chairman and Director of BlackRock, and 129 Funds None
P.O. Box 9011 and present Global Chief Investment Officer for Equities, 174 Portfolios
Princeton, Director/ Chairman of the BlackRock Private Client
NJ 08543-9011 Trustee Operating Committee, and member of the
Age: 52 BlackRock Executive Committee since 2006;
President of the Funds advised by Merrill Lynch
Investment Managers ("MLIM") and its affiliates
("MLIM/FAM-advised funds") from 2005 to 2006
and Chief Investment Officer thereof from 2001 to
2006; President of MLIM and Fund Asset Manage-
ment, L.P. ("FAM") from 2001 to 2006; Co-Head
(Americas Region) thereof from 2000 to 2001 and
Senior Vice President from 1999 to 2001; President
and Director of Princeton Services, Inc. ("Princeton
Services") since 2001; President of Princeton
Administrators, L.P. ("Princeton Administrators")
from 2001 to 2006; Chief Investment Officer of
OppenheimerFunds, Inc. in 1999 and Executive
Vice President thereof from 1991 to 1999.
* Mr. Doll is a director, trustee or member of an advisory board of certain other
investment companies for which BlackRock acts as investment adviser. Mr. Doll is
an "interested person," as defined in the Investment Company Act, of the Fund/Trust
based on his current and former positions with BlackRock, Inc. and its affiliates.
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. Doll
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 49 Funds None
P.O. Box 9095 Trustee present Business, State University of New York at 51 Portfolios
Princeton, Albany since 2000 and Professor thereof
NJ 08543-9095 from 1989 to 2000; International Consultant,
Age: 65 Urban Institute, Washington, D.C. from 1995
to 1999.
Cynthia A. Montgomery Director/ 1994 to Professor, Harvard Business School since 49 Funds Newell
P.O. Box 9095 Trustee present 1989; Associate Professor, J.L. Kellogg 51 Portfolios Rubbermaid, Inc.
Princeton, Graduate School of Management, Northwestern (manufacturing)
NJ 08543-9095 University from 1985 to 1989; Associate
Age: 54 Professor, Graduate School of Business
Administration, University of Michigan from
1979 to 1985; Director, Harvard Business
School Publishing since 2005; Director,
McLean Hospital since 2005.
Jean Margo Reid Director/ 2004 to Self-employed consultant since 2001; Counsel 49 Funds None
P.O. Box 9095 Trustee present of Alliance Capital Management (investment 51 Portfolios
Princeton, adviser) in 2000; General Counsel, Director and
NJ 08543-9095 Secretary of Sanford C. Bernstein & Co., Inc.
Age: 61 (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; and Director of Covenant
House from 2001 to 2004.
Roscoe S. Suddarth Director/ 2003 to President, Middle East Institute, from 1995 49 Funds None
P.O. Box 9095 Trustee present to 2001; Foreign Service Officer, United 51 Portfolios
Princeton, States Foreign Service, from 1961 to 1995
NJ 08543-9095 and Career Minister from 1989 to 1995; Deputy
Age: 71 Inspector General, U.S. Department of State,
from 1991 to 1994; U.S. Ambassador to the
Hashemite Kingdom of Jordan from 1987 to 1990.
BLACKROCK SENIOR FLOATING RATE FUND, INC. AUGUST 31, 2006
Officers and Directors/Trustees (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)
Richard R. West Director/ 1989 to Professor of Finance from 1984 to 1995, Dean 49 Funds Bowne & Co.,
P.O. Box 9095 Trustee present from 1984 to 1993 and since 1995 Dean 51 Portfolios Inc. (financial
Princeton, Emeritus of New York University's Leonard N. printers);
NJ 08543-9095 Stern School of Business Administration. Vornado Realty
Age: 68 Trust (real estate
company);
Alexander's, Inc.
(real estate
company)
Edward D. Zinbarg Director/ 2000 to Self-employed financial consultant since 49 Funds None
P.O. Box 9095 Trustee present 1994; Executive Vice President of the 51 Portfolios
Princeton, Prudential Insurance Company of America from
NJ 08543-9095 1988 to 1994; Former Director of Prudential
Age: 71 Reinsurance Company and former Trustee of the
Prudential Foundation.
* Directors/Trustees serve until their resignation, removal or death, or until December 31
of the year in which they turn 72.
** Chairman of the Board of Directors/Trustees and the Audit Committee.
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 Managing Director of BlackRock since 2006; Managing Director of MLIM and FAM from
P.O. Box 9011 President present 2005 to 2006 and Treasurer thereof from 1999 to 2006; First Vice President of
Princeton, and and MLIM and FAM from 1997 to 2005; Senior Vice President and Treasurer of Princeton
NJ 08543-9011 Treasurer 1999 to Services from 1999 to 2006 and Director from 2004 to 2006; Vice President of FAM
Age: 46 present Distributors, Inc. ("FAMD") from 1999 to 2006 and Director from 2004 to 2006; Vice
President of MLIM and FAM from 1990 to 1997; Director of Taxation of MLIM from
1990 to 2001; Vice President, Treasurer and Secretary of the IQ Funds from 2004
to 2006.
Jeffrey Hiller Fund Chief 2004 to Managing Director of BlackRock and Fund Chief Compliance Officer since 2006;
P.O. Box 9011 Compliance present Chief Compliance Officer of the MLIM/FAM-advised funds and First Vice President
Princeton, Officer and Chief Compliance Officer of MLIM (Americas Region) from 2004 to 2006; Chief
NJ 08543-9011 Compliance Officer of the IQ Funds since 2004; Global Director of Compliance at
Age: 55 Morgan Stanley Investment Management from 2002 to 2004; Managing Director and
Global Director of Compliance at Citigroup Asset Management from 2000 to 2002;
Chief Compliance Officer at Soros Fund Management in 2000; Chief Compliance
Officer at Prudential Financial from 1995 to 2000; Senior Counsel in the
Securities and Exchange Commission's Division of Enforcement in Washington, D.C.
from 1990 to 1995.
Alice A. Pellegrino Secretary 2004 to Director of BlackRock since 2006; Director (Legal Advisory) of MLIM from 2002 to
P.O. Box 9011 present 2006; Vice President of MLIM from 1999 to 2002; Attorney associated with MLIM
Princeton, from 1997 to 2006; Secretary of MLIM, FAM, FAMD and Princeton Services from
NJ 08543-9011 2004 to 2006.
Age: 46
* Officers of the Fund 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
Pre Transaction
(Until September 29, 2006)
Financial Data Services, Inc.
4800 Deer Lake Drive East
Jacksonville FL 32246-6484
Post Transaction
(After September 29, 2006)
PFPC Inc.
Wilmington, DE 19809
BLACKROCK SENIOR FLOATING RATE FUND, INC. AUGUST 31, 2006
Electronic Delivery
Electronic copies of most financial reports and prospectuses are available on
the Fund's Web site. Shareholders can sign up for e-mail notifications of
quarterly statements, annual and semi-annual reports and prospectuses by
enrolling in the Fund's electronic delivery program.
To enroll:
Shareholders Who Hold Accounts with Investment Advisers, Banks or Brokerages:
Please contact your financial adviser. Please note that not all investment
advisers, banks or brokerages may offer this service.
Shareholders Who Hold Accounts Directly with BlackRock:
1) Access the BlackRock Web site at http://www.blackrock.com/edelivery:
2) Log into your account
BLACKROCK SENIOR FLOATING RATE FUND, INC. AUGUST 31, 2006
BlackRock Privacy Principles
BlackRock is committed to maintaining the privacy of its current and former
fund investors and individual clients (collectively, "Clients") and to
safeguarding their nonpublic personal information. The following information
is provided to help you understand what personal information BlackRock
collects, how we protect that information and why in certain cases we share
such information with select parties.
If you are located in a jurisdiction where specific laws, rules or regulations
require BlackRock to provide you with additional or different privacy-related
rights beyond what is set forth below, then BlackRock will comply with those
specific laws, rules or regulations.
BlackRock obtains or verifies personal nonpublic information from and about
you from different sources, including the following: (i) information we
receive from you or, if applicable, your financial intermediary, on
applications, forms or other documents; (ii) information about your
transactions with us, our affiliates, or others; (iii) information we receive
from a consumer reporting agency; and (iv) from visits to our Web sites.
BlackRock does not sell or disclose to nonaffiliated third parties any
nonpublic personal information about its Clients, except as permitted by law
or as is necessary to service Client accounts. These nonaffiliated third
parties are required to protect the confidentiality and security of this
information and to use it only for its intended purpose.
We may share information with our affiliates to service your account or to
provide you with information about other BlackRock products or services that
may be of interest to you. In addition, BlackRock restricts access to
nonpublic personal information about its Clients to those BlackRock employees
with a legitimate business need for the information. BlackRock maintains
physical, electronic and procedural safeguards that are designed to protect
the nonpublic personal information of its Clients, including procedures
relating to the proper storage and disposal of such information.
BLACKROCK SENIOR FLOATING RATE FUND, INC. AUGUST 31, 2006
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 at www.blackrock.com.
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
BlackRock Senior Floating Rate Fund, Inc.
(a) Audit Fees - Fiscal Year Ending August 31, 2006 - $6,600
Fiscal Year Ending August 31, 2005 - $6,500
(b) Audit-Related Fees -
Fiscal Year Ending August 31, 2006 - $0
Fiscal Year Ending August 31, 2005 - $0
(c) Tax Fees - Fiscal Year Ending August 31, 2006 - $6,000
Fiscal Year Ending August 31, 2005 - $6,350
The nature of the services include tax compliance, tax advice and
tax planning.
(d) All Other Fees - Fiscal Year Ending August 31, 2006 - $0
Fiscal Year Ending August 31, 2005 - $0
Master Senior Floating Rate Trust
(a) Audit Fees - Fiscal Year Ending August 31, 2006 - $73,500
Fiscal Year Ending August 31, 2005 - $70,000
(b) Audit-Related Fees -
Fiscal Year Ending August 31, 2006 - $0
Fiscal Year Ending August 31, 2005 - $0
(c) Tax Fees - Fiscal Year Ending August 31, 2006 - $9,200
Fiscal Year Ending August 31, 2005 - $10,900
The nature of the services include tax compliance, tax advice and
tax planning.
(d) All Other Fees - Fiscal Year Ending August 31, 2006 - $0
Fiscal Year Ending August 31, 2005 - $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, 2006 - $3,098,500
Fiscal Year Ending August 31, 2005 - $7,377,027
(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) - $1,739,500, 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
Jean Margo Reid
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 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 - Portfolio Managers of Closed-End Management Investment Companies -
as of October 2, 2006.
(a)(1) The Fund is managed by a team of investment professionals
that is responsible for the day-to-day management of the Fund's
portfolio. The lead members of this team are Mark J. Williams,
Managing Director at BlackRock, and Kevin J. Booth, Managing
Director at BlackRock. Mr. Williams and Mr. Booth each has been a
portfolio manager of the Fund since 2006. Mr. Williams is
responsible for setting the Fund's overall investment strategy and
overseeing the management of the Fund. Mr. Booth is responsible
for the day-to-day management of the Fund's portfolio and the
selection of its investments.
Mr. Williams is the head of BlackRock's bank loan group and a
member of the Investment Strategy Group. His primary responsibility
is originating and evaluating bank loan investments for the firm's
collateralized bond obligations. He is also involved in the
evaluation and sourcing of mezzanine investments. Prior to joining
BlackRock in 1998, Mr. Williams spent eight years with PNC Bank's
New York office and was a founding member of the bank's Leveraged
Finance Group. In that capacity he was responsible for structuring
proprietary middle market leveraged deals and sourcing and
evaluating broadly syndicated leveraged loans in the primary and
secondary markets for PNC Bank's investment portfolio. From 1984
until 1990, Mr. Williams worked in PNC Bank's Philadelphia office
in a variety of marketing and corporate finance positions.
Mr. Booth is a member of BlackRock's bank loan group. He joined
BlackRock in 2006. Prior to joining BlackRock, Mr. Booth was a
Managing Director (Global Fixed Income) of Merrill Lynch Investment
Managers, L.P. ("MLIM") since 2006 and a member of MLIM's bank loan
group from 2000 to 2006. He was a Director of MLIM from 2000 to
2006 and was a Vice President of MLIM from 1994 to 2000. He has
been portfolio manager with BlackRock or MLIM since 2000.
(a)(2) As of October 2, 2006:
(iii) Number of Other Accounts and
(ii) Number of Other Accounts Managed Assets for Which Advisory Fee is
and Assets by Account Type Performance-Based
Other Other
(i) Name of Registered Other Pooled Registered Other Pooled
Portfolio Investment Investment Other Investment Investment Other
Manager Companies Vehicles Accounts Companies Vehicles Accounts
Kevin J. Booth 7 5 1 0 2 0
$ 2,837,711,541 $ 2,357,557,822 $ 25,390,431 $ 0 $ 587,029,626 $ 0
Mark Williams 9 17 7 0 10 4
$ 3,981,433,569 $ 6,368,469,951 $1,222,718,181 $ 0 $ 2,908,136,350 $1,030,000,000
(iv) Potential Material Conflicts of Interest
BlackRock has built a professional working environment, firm-wide
compliance culture and compliance procedures and systems designed
to protect against potential incentives that may favor one account
over another. BlackRock has adopted policies and procedures that
address the allocation of investment opportunities, execution of
portfolio transactions, personal trading by employees and other
potential conflicts of interest that are designed to ensure that
all client accounts are treated equitably over time. Nevertheless,
BlackRock furnishes investment management and advisory services to
numerous clients in addition to the Fund, and BlackRock may,
consistent with applicable law, make investment recommendations to
other clients or accounts (including accounts which are hedge funds
or have performance or higher fees paid to BlackRock, or in which
portfolio managers have a personal interest in the receipt of such
fees), which may be the same as or different from those made to the
Fund. In addition, BlackRock, its affiliates and any officer,
director, stockholder or employee may or may not have an interest
in the securities whose purchase and sale BlackRock recommends to
the Fund. BlackRock, or any of its affiliates, or any officer,
director, stockholder, employee or any member of their families may
take different actions than those recommended to the Fund by
BlackRock with respect to the same securities. Moreover, BlackRock
may refrain from rendering any advice or services concerning
securities of companies of which any of BlackRock's (or its
affiliates') officers, directors or employees are directors or
officers, or companies as to which BlackRock or any of its
affiliates or the officers, directors and employees of any of them
has any substantial economic interest or possesses material non-
public information. Each portfolio manager also may manage accounts
whose investment strategies may at times be opposed to the strategy
utilized for the Fund. In this connection, it should be noted that
certain portfolio managers currently manage certain accounts that
are subject to performance fees. In addition, certain portfolio
managers assist in managing certain hedge funds and may be entitled
to receive a portion of any incentive fees earned on such funds and
a portion of such incentive fees may be voluntarily or
involuntarily deferred. Additional portfolio managers may in the
future manage other such accounts or funds and may be entitled to
receive incentive fees.
As a fiduciary, BlackRock owes a duty of loyalty to its clients and
must treat each client fairly. When BlackRock purchases or sells
securities for more than one account, the trades must be allocated
in a manner consistent with its fiduciary duties. BlackRock
attempts to allocate investments in a fair and equitable manner
among client accounts, with no account receiving preferential
treatment. To this end, BlackRock has adopted a policy that is
intended to ensure that investment opportunities are allocated
fairly and equitably among client accounts over time. This policy
also seeks to achieve reasonable efficiency in client transactions
and provide BlackRock with sufficient flexibility to allocate
investments in a manner that is consistent with the particular
investment discipline and client base.
(a)(3) As of October 2, 2006:
BlackRock has adopted the compensation program utilized by MLIM for
the remainder of 2006 with respect to Mr. Booth.
Portfolio Manager Compensation
The Portfolio Manager Compensation Program of BlackRock and its
affiliates, including the Investment Adviser, is critical to BlackRock's
ability to attract and retain the most talented asset management
professionals. This program ensures that compensation is aligned with
maximizing investment returns and it provides a competitive pay opportunity
for competitive performance.
Compensation Program
The elements of total compensation for certain BlackRock and its
affiliates portfolio managers are a fixed base salary, annual performance-
based cash and stock compensation (cash and stock bonus) and other benefits.
BlackRock has balanced these components of pay to provide portfolio managers
with a powerful incentive to achieve consistently superior investment
performance. By design, portfolio manager compensation levels fluctuate--both
up and down--with the relative investment performance of the portfolios that
they manage.
Base Salary
Under the BlackRock approach, like that of many asset management
firms, base salaries represent a relatively small portion of a portfolio
manager's total compensation. This approach serves to enhance the motivational
value of the performance-based (and therefore variable) compensation elements
of the compensation program.
Performance-Based Compensation
BlackRock believes that the best interests of investors are served
by recruiting and retaining exceptional asset management talent and managing
their compensation within a consistent and disciplined framework that
emphasizes pay for performance in the context of an intensely competitive
market for talent. To that end, certain BlackRock and its affiliates portfolio
manager incentive compensation is based on a formulaic compensation program.
BlackRock's formulaic portfolio manager compensation program includes:
investment performance relative to the CSFB Leveraged Loan Index over 1-, 3-
and 5-year performance periods and a measure of operational efficiency.
Portfolio managers are compensated based on the pre-tax performance of the
products they manage. If a portfolio manager's tenure is less than 5 years,
performance periods will reflect time in position. Portfolio managers are
compensated based on products they manage. A discretionary element of
portfolio manager compensation may include consideration of: financial
results, expense control, profit margins, strategic planning and
implementation, quality of client service, market share, corporate reputation,
capital allocation, compliance and risk control, leadership, workforce
diversity, supervision, technology and innovation. All factors are considered
collectively by BlackRock management.
Cash Bonus
Performance-based compensation is distributed to portfolio managers
in a combination of cash and stock. Typically, the cash bonus, when combined
with base salary, represents more than 60% of total compensation for portfolio
managers.
Stock Bonus
A portion of the dollar value of the total annual performance-based
bonus is paid in restricted shares of BlackRock stock. Paying a portion of
annual bonuses in stock puts compensation earned by a portfolio manager for a
given year "at risk" based on the company's ability to sustain and improve its
performance over future periods. The ultimate value of stock bonuses is
dependent on future BlackRock stock price performance. As such, the stock
bonus aligns each portfolio manager's financial interests with those of the
BlackRock shareholders and encourages a balance between short-term goals and
long-term strategic objectives. Management strongly believes that providing a
significant portion of competitive performance-based compensation in stock is
in the best interests of investors and shareholders. This approach ensures
that portfolio managers participate as shareholders in both the "downside
risk" and "upside opportunity" of the company's performance. Portfolio
managers therefore have a direct incentive to protect BlackRock's reputation
for integrity.
Other Compensation Programs
Portfolio managers who meet relative investment performance and
financial management objectives during a performance year are eligible to
participate in a deferred cash program. Awards under this program are in the
form of deferred cash that may be benchmarked to a menu of certain BlackRock
mutual funds (including their own fund) during a five-year vesting period. The
deferred cash program aligns the interests of participating portfolio managers
with the investment results of BlackRock products and promotes continuity of
successful portfolio management teams.
Other Benefits
Portfolio managers are also eligible to participate in broad-based
plans offered generally to employees of BlackRock and its affiliates,
including broad-based retirement, 401(k), health, and other employee benefit
plans.
With respect to Mr. Williams, the following compensation structure applies:
BlackRock Portfolio Manager Compensation
BlackRock's financial arrangements with its portfolio managers, its
competitive compensation and its career path emphasis at all levels
reflect the value senior management places on key resources.
Compensation may include a variety of components and may vary from
year to year based on a number of factors. The principal components
of compensation include a base salary, a discretionary bonus,
participation in various benefits programs and one or more of the
incentive compensation programs established by BlackRock such as
its Long-Term Retention and Incentive Plan and Restricted Stock
Program.
Base compensation. Generally, portfolio managers receive base
compensation based on their seniority and/or their position with
the firm.
Discretionary compensation. In addition to base compensation,
portfolio managers may receive discretionary compensation, which
can be a substantial portion of total compensation. Discretionary
compensation can include a discretionary cash bonus as well as one
or more of the following:
Long-Term Retention and Incentive Plan ("LTIP")--The LTIP is a long-
term incentive plan that seeks to reward certain key employees. The
plan provides for the grant of awards that are expressed as an
amount of cash that, if properly vested and subject to the
attainment of certain performance goals, will be settled in cash
and/or in BlackRock, Inc. common stock.
Deferred Compensation Program--A portion of the compensation paid
to each portfolio manager may be voluntarily deferred by the
portfolio manager into an account that tracks the performance of
certain of the firm's investment products. Each portfolio manager
is permitted to allocate his deferred amounts among various
options, including to certain of the firm's hedge funds and other
unregistered products. In addition, prior to 2005, a portion of the
annual compensation of certain senior managers was mandatorily
deferred in a similar manner for a number of years. Beginning in
2005, a portion of the annual compensation of certain senior
managers is paid in the form of BlackRock, Inc. restricted stock
units which vest ratably over a number of years.
Options and Restricted Stock Awards--While incentive stock options
are not currently being awarded to BlackRock employees, BlackRock,
Inc. previously granted stock options to key employees, including
certain portfolio managers who may still hold unexercised or
unvested options. BlackRock, Inc. also has a restricted stock award
program designed to reward certain key employees as an incentive to
contribute to the long-term success of BlackRock. These awards vest
over a period of years.
Incentive Savings Plans--The PNC Financial Services Group, Inc. has
created a variety of incentive savings plans in which BlackRock
employees are eligible to participate, including an Employee Stock
Purchase Plan ("ESPP") and a 401(k) plan. The 401(k) plan may
involve a company match of the employee's contribution of up to 6%
of the employee's salary. The company match is made using
BlackRock, Inc. common stock. The firm's 401(k) plan offers a range
of investment options, including registered investment companies
managed by the firm. Each portfolio manager is eligible to
participate in these plans.
Annual incentive compensation for each portfolio manager is a
function of several components: the performance of BlackRock, Inc.,
the performance of the portfolio manager's group within BlackRock,
the investment performance, including risk-adjusted returns, of the
firm's assets under management or supervision by that portfolio
manager relative to predetermined benchmarks, and the individual's
teamwork and contribution to the overall performance of these
portfolios and BlackRock. Unlike many other firms, portfolio
managers at BlackRock compete against benchmarks rather than each
other. In most cases, including for the portfolio managers of the
Fund, these benchmarks are the same as the benchmark or benchmarks
against which the performance of the Fund or other accounts are
measured. A group of BlackRock, Inc.'s officers determines the
benchmarks against which to compare the performance of funds and
other accounts managed by each portfolio manager. With respect to
Mr. Williams, such benchmarks will include the CSFB Leveraged Loan
Index.
The group of BlackRock, Inc.'s officers then makes a subjective
determination with respect to the portfolio manager's compensation
based on the performance of the funds and other accounts managed by
each portfolio manager relative to the various benchmarks. Senior
portfolio managers who perform additional management functions
within BlackRock may receive additional compensation for serving in
these other capacities.
(a)(4) Beneficial Ownership of Securities. As of October 2, 2006,
Mr. Booth nor Mr. Williams beneficially owns any stock
issued by the Fund.
Item 9 - Purchases of Equity Securities by Closed-End Management Investment
Company and Affiliated Purchasers - Not Applicable
Item 10 - Submission of Matters to a Vote of Security Holders - The
registrant's Nominating Committee will consider nominees to the
Board recommended by shareholders when a vacancy becomes available.
Shareholders who wish to recommend a nominee should send
nominations which include biographical information and sets forth
the qualifications of the proposed nominee to the registrant's
Secretary. There have been no material changes to these
procedures.
Item 11 - Controls and Procedures
11(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.
11(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 12 - Exhibits attached hereto
12(a)(1) - Code of Ethics - See Item 2
12(a)(2) - Certifications - Attached hereto
12(a)(3) - Not Applicable
12(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.
BlackRock Senior Floating Rate Fund, Inc. and Master Senior Floating Rate
Trust
By: /s/ Robert C. Doll, Jr.
-----------------------
Robert C. Doll, Jr.,
Chief Executive Officer of
BlackRock Senior Floating Rate Fund, Inc. and
Master Senior Floating Rate Trust
Date: October 19, 2006
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/ Robert C. Doll, Jr.
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Robert C. Doll, Jr.,
Chief Executive Officer of
BlackRock Senior Floating Rate Fund, Inc. and
Master Senior Floating Rate Trust
Date: October 19, 2006
By: /s/ Donald C. Burke
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Donald C. Burke,
Chief Financial Officer of
BlackRock Senior Floating Rate Fund, Inc. and
Master Senior Floating Rate Trust
Date: October 19, 2006