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 811-08727
SunAmerica Senior Floating Rate Fund, Inc.
(Exact name of registrant as specified in charter)
Harborside Financial Center, 3200 Plaza 5, Jersey City, NJ 07311
(Address of principal executive offices) (Zip code)
Vincent M. Marra
Senior Vice President
AIG SunAmerica Asset Management Corp.
Harborside Financial Center 3200 Plaza 5
Jersey City, NJ 07311
(Name and address of agent for service)
Registrant's telephone number, including area code: (201) 324-6464
Date of fiscal year end: December 31
Date of reporting period: December 31, 2006
Item 1. Reports to Stockholders
2006
Annual
SunAmerica Report
- ---------------------
[PHOTO]
[GRAPHIC]
Senior Floating Rate Fund
Table of Contents
SHAREHOLDERS' LETTER................................... 1
STATEMENT OF ASSETS AND LIABILITIES.................... 4
STATEMENT OF OPERATIONS................................ 6
STATEMENT OF CHANGES IN NET ASSETS..................... 7
STATEMENT OF CASH FLOWS................................ 8
FINANCIAL HIGHLIGHTS................................... 9
PORTFOLIO OF INVESTMENTS............................... 15
NOTES TO FINANCIAL STATEMENTS.......................... 22
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM 30
APPROVAL OF ADVISORY AGREEMENTS........................ 31
DIRECTORS AND OFFICERS INFORMATION..................... 34
SHAREHOLDER TAX INFORMATION............................ 37
COMPARISON: FUND VS. INDEX............................. 38
SPECIAL MEETING OF SHAREHOLDERS........................ 41
December 31, 2006 ANNUAL REPORT
Shareholders' Letter
Dear Shareholder,
We are pleased to present you with the annual report for the SunAmerica
Senior Floating Rate Fund for the period ending December 31, 2006.
During the period, the Fund benefited from strong economic and credit
fundamentals and continued strong demand for bank loans. In addition, the Fund
benefited from the continuation of the Federal Reserve's interest-rate
tightening policy. During the period, the 3-month London Interbank Offer Rate
(LIBOR), the reference rate used for most loans, increased from 4.54% to 5.36%
by the end of the year.
The Fund continues to emphasize strong credit analysis, which plays an
important role in identifying loans that offer solid return/risk
characteristics.
On the following pages, you will find the financial statements and portfolio
information for the Fund for the period ended December 31, 2006. You will also
find a detailed commentary offering specific insight into the challenges and
opportunities the Fund faced in 2006.
We thank you for your continued investment in the SunAmerica Senior Floating
Rate Fund. If you have any questions or require additional information on this
Fund or other AIG SunAmerica mutual funds, we invite you to visit
www.sunamericafunds.com or call our Shareholder Services Department at
1-800-858-8850 x6010.
Sincerely,
/s/ Peter A. Harbeck
Peter A. Harbeck
President and CEO
AIG SunAmerica Asset Management Corp.
- --------
Past performance is no guarantee of future results.
The Fund is not a money market fund and its net asset value may fluctuate.
Investments in loans involve certain risks including nonpayment of principal
and interest; collateral impairment; non-diversification and borrower industry
concentration; and lack of full liquidity, which may impair the Fund's ability
to obtain full value for loans sold. The Fund may invest all or substantially
all of its assets in loans or other securities that are rated below investment
grade or in comparable unrated securities. Credit risks include the possibility
of a default on the loan or bankruptcy of the borrower. The value of these
loans is subject to a greater degree of volatility in response to interest-rate
fluctuations.
1
SunAmerica Senior Floating Rate Fund, Inc.
EXPENSE EXAMPLE -- December 31, 2006 -- (unaudited)
Disclosure of Portfolio Expenses in Shareholder Reports
As a shareholder of the SunAmerica Senior Floating Rate Fund, Inc. (the
"Fund"), you may incur two types of costs: (1) transaction costs, including
sales charges on purchase payments and contingent deferred sales charges and
(2) ongoing costs, including management fees, distribution and service fees,
and other Fund expenses. This Example set forth below is intended to help you
understand your ongoing costs (in dollars) of investing in the Fund and to
compare these costs with the ongoing costs of investing in other mutual funds.
The Example is based on an investment of $1,000 invested at July 1, 2006 and
held until December 31, 2006.
Actual Expenses
The "Actual" section of the table provides information about actual account
values and actual expenses. You may use the information in these columns,
together with the amount you invested, to estimate the expenses that you paid
over the period. Simply divide your account value by $1,000 (for example, an
$8,600 account value divided by $1,000 = 8.6), then multiply the result by the
number in the column under the heading entitled "Expenses Paid During the Six
Months Ended December 31, 2006" to estimate the expenses you paid on your
account during this period. The "Expenses Paid During the Six Months Ended
December 31, 2006" column does not include administrative fees that may apply
to qualified retirement plan accounts. See the Fund's prospectus and/or your
retirement plan documents for a full description of these fees. Had these fees
been included, the "Expenses Paid During the Six Months Ended December 31,
2006" column would have been higher and the "Ending Account Value" would have
been lower.
Hypothetical Example for Comparison Purposes
The "Hypothetical" section of the table 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, which is
not the Fund's actual return. The hypothetical account values and expenses may
not be used to estimate the actual ending account balance or expenses you paid
for the period. You may use this information to compare the ongoing costs of
investing in the Fund and other funds. To do so, compare this 5% hypothetical
example with the 5% hypothetical examples that appear in the shareholder
reports of other funds. The "Expenses Paid During the Six Months Ended December
31, 2006" column does not include administrative fees that may apply to
qualified retirement plan accounts. See the Fund's prospectus and/or your
retirement plan document for full description of these fees. Had these fees
been included, the "Expenses Paid During the Six Months Ended December 31,
2006" column would have been higher and the "Ending Account Value" would have
been lower.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transaction costs, including sales
charges on purchase payments, contingent deferred sales charges and
administrative fees, if applicable to your account. Please refer to the Fund's
prospectus and/or qualified retirement plan document for more information.
Therefore, the "Hypothetical" example is useful in comparing ongoing costs
only, and will not help you determine the relative total costs of owning
different funds. In addition, if these transaction costs and other fees were
included, your costs would have been higher.
2
SunAmerica Senior Floating Rate Fund
EXPENSE EXAMPLE -- December 31, 2006 -- (unaudited) (continued)
Actual Hypothetical
---------------------------------------------------- ---------------------------------
Ending Ending Account
Account Value Expenses Paid Value using
Beginning Using Actual During the Beginning a Hypothetical 5%
Account Value Returns at Six Months Ended Account Value Assumed Return at
at July 1, 2006 December 31, 2006 December 31, 2006* at July 1, 2006 December 31, 2006
--------------- ----------------- ------------------ --------------- -----------------
Senior Floating Rate Fund
Class A#+............. $1,000.00 $1,017.49 $3.53 $1,000.00 $1,017.90
Class B#.............. $1,000.00 $1,034.52 $8.97 $1,000.00 $1,016.38
Class C#.............. $1,000.00 $1,034.52 $8.97 $1,000.00 $1,016.38
Class D#.............. $1,000.00 $1,037.12 $6.42 $1,000.00 $1,018.90
Class Q#+............. $1,000.00 $1,036.08 $7.44 $1,000.00 $1,017.90
-------------------
Expense
Expenses Paid Ratio
During the as of
Six Months Ended December 31,
December 31, 2006* 2006*
------------------ ------------
Senior Floating Rate Fund
Class A#+............. $7.38 1.45%
Class B#.............. $8.89 1.75%
Class C#.............. $8.89 1.75%
Class D#.............. $6.36 1.25%
Class Q#+............. $7.38 1.45%
- --------
* Expenses are equal to the Fund's annualized expense ratio multiplied by the
average account value over the period, multiplied by 184 days divided by 365
days except for Class A shares "Actual Return" information which was
multiplied by 88 days divided by 365 days. These ratios do not reflect
transaction costs, including sales charges on purchase payments, contingent
deferred sales charges and administrative fees, if applicable to your
account. Please refer to your Prospectus and/or your qualified retirement
plan document for more information.
# During the stated period, the investment adviser and distributor either
waived a portion of or all of the fees and assumed a portion of or all
expenses for the Funds. As a result, if these fees and expenses had not been
waived, the "Actual/Hypothetical Ending Account Value" would have been lower
and the "Actual/Hypothetical Expenses Paid During the Six Months Ended
December 31, 2006" and the "Expense Ratios" would have been higher.
+ Effective October 4, 2006, Class A shares were redesignated to Class Q
shares and a new class of shares designated as Class A commenced offering.
3
SunAmerica Senior Floating Rate Fund, Inc.
STATEMENT OF ASSETS AND LIABILITIES -- December 31, 2006
ASSETS:
Long-term investment securities, at value (unaffiliated)*......... $222,025,421
Short-term investment securities, at value (unaffiliated)*........ 13,083,087
------------
Total investments............................................... 235,108,508
Receivable for:
Fund shares sold................................................ 2,310,432
Dividends and interest.......................................... 2,855,767
Investments sold................................................ 4,127,482
Prepaid expenses and other assets................................. 45,526
Due from investment adviser for expense reimbursements/fee waivers 121,712
Due from distributor for fee waivers.............................. 44,079
------------
Total assets.................................................... 244,613,506
------------
LIABILITIES:
Payable for:
Fund shares redeemed............................................ 923,655
Investments purchased........................................... 9,009,375
Investment advisory and management fees......................... 163,997
Distribution and service maintenance fees....................... 130,548
Administration fees............................................. 77,175
Transfer agent fees and expenses................................ 63,497
Directors' fees and expenses.................................... 21,716
Other accrued expenses.......................................... 188,395
Dividends payable................................................. 434,206
Commitments ( Note 11)............................................ --
------------
Total liabilities............................................... 11,012,564
------------
Net assets..................................................... $233,600,942
============
NET ASSETS REPRESENTED BY:
Common stock, $.01 par value...................................... $ 248,494
Additional paid-in capital........................................ 261,487,350
------------
261,735,844
Accumulated undistributed net investment income (loss)............ (39,569)
Accumulated undistributed net realized gain (loss) on investments. (27,392,370)
Unrealized appreciation (depreciation) on investments............. (702,963)
------------
Net assets...................................................... $233,600,942
============
*COST
Long-term investment securities (unaffiliated).. $222,728,384
============
Short-term investment securities (unaffiliated). $ 13,083,087
============
See Notes to Financial Statements
4
SunAmerica Senior Floating Rate Fund, Inc.
STATEMENT OF ASSETS AND LIABILITIES -- December 31, 2006 -- (continued)
Class A+:
Net assets................................................... $ 14,165,352
Shares outstanding........................................... 1,506,712
Net asset value and redemption price per share............... $ 9.40
Maximum sales charge (3.75% of offering price)............... 0.37
------------
Maximum offering price to public............................. $ 9.77
============
Class B:
Net assets................................................... $ 25,885,345
Shares outstanding........................................... 2,753,507
Net asset value, offering and redemption price per share
(excluding any applicable contingent deferred sales charges) $ 9.40
============
Class C:
Net assets................................................... $176,742,888
Shares outstanding........................................... 18,801,044
Net asset value, offering and redemption price per share
(excluding any applicable contingent deferred sales charges) $ 9.40
============
Class D:
Net assets................................................... $ 16,033,887
Shares outstanding........................................... 1,705,851
Net asset value, offering and redemption price per share..... $ 9.40
============
Class Q+:
Net assets................................................... $ 773,470
Shares outstanding........................................... 82,264
Net asset value, offering and redemption price per share..... $ 9.40
============
- --------
+ Effective October 4, 2006, Class A shares were redesignated to Class Q
shares and a new class of shares designated as Class A commenced offering.
See Notes to Financial Statements
5
SunAmerica Senior Floating Rate Fund, Inc.
STATEMENT OF OPERATIONS -- For the year ended December 31, 2006
INVESTMENT INCOME:
Interest (unaffiliated)........................................................... $16,066,776
Dividends (unaffiliated).......................................................... 270,649
Facility and other fee income (Note 2)............................................ 534,967
-----------
Total investment income........................................................ 16,872,392
-----------
EXPENSES:
Investment advisory and management fees........................................... 1,792,003
Administration fees............................................................... 843,296
Distribution and service maintenance fees:
Class A+........................................................................ 4,707
Class B......................................................................... 192,695
Class C......................................................................... 1,220,153
Class Q+........................................................................ 1,090
Transfer agent fees and expenses:
Class A+........................................................................ 7,377
Class B......................................................................... 31,527
Class C......................................................................... 152,854
Class D......................................................................... 16,745
Class Q+........................................................................ 2,680
Registration fees:
Class A+........................................................................ 11,143
Class B......................................................................... 10,666
Class C......................................................................... 24,831
Class D......................................................................... 20,143
Class Q+........................................................................ 7,231
Accounting service fees........................................................... 63,218
Custodian and accounting fees..................................................... 90,855
Reports to shareholders........................................................... 176,753
Audit and tax fees................................................................ 97,171
Legal fees........................................................................ 43,072
Directors' fees and expenses...................................................... 49,873
Interest expense.................................................................. 4,107
Other expenses.................................................................... 72,287
-----------
Total expenses before fee waivers, expense reimbursements and custody credits.. 4,936,477
Fees waived and expenses reimbursed by investment adviser and distributor...... (1,355,223)
Custody credits earned on cash balances........................................ (496)
-----------
Net expenses................................................................... 3,580,758
-----------
Net investment income (loss)...................................................... 13,291,634
-----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain (loss) on investments (unaffiliated)............................ 305,142
Change in unrealized appreciation (depreciation) on investments (unaffiliated).... (23,250)
-----------
Net realized and unrealized gain (loss) on investments............................ 281,892
-----------
INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS....................... $13,573,526
===========
- --------
+ Effective October 4, 2006, Class A shares were redesignated to Class Q
shares and a new class of shares designated as Class A commenced offering.
See Notes to Financial Statements
6
SunAmerica Senior Floating Rate Fund, Inc.
STATEMENT OF CHANGES IN NET ASSETS
For the For the
year ended year ended
December 31, December 31,
2006 2005
------------ ------------
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income (loss).......................................................... $ 13,291,634 $ 9,753,762
Net realized gain (loss) on investments (unaffiliated)................................ 305,142 14,295
Net unrealized gain (loss) on investments (unaffiliated).............................. (23,250) (618,514)
------------ ------------
Increase (decrease) in net assets resulting from operations............................. 13,573,526 9,149,543
------------ ------------
Distributions To Shareholders From:
Net investment income (Class A)#...................................................... (91,162) --
Net investment income (Class B)....................................................... (1,606,103) (1,163,563)
Net investment income (Class C)....................................................... (10,179,734) (7,353,487)
Net investment income (Class D)....................................................... (1,385,857) (1,212,647)
Net investment income (Class Q)#...................................................... (28,646) (16,613)
------------ ------------
Total distributions to shareholders..................................................... (13,291,502) (9,746,310)
------------ ------------
Net increase (decrease) in net assets resulting from capital share transactions (Note 3) 30,005,042 (26,056,887)
------------ ------------
Total increase (decrease) in net assets................................................. 30,287,066 (26,653,654)
============ ============
NET ASSETS:
Beginning of period..................................................................... 203,313,876 229,967,530
------------ ------------
End of period+.......................................................................... 233,600,942 203,313,876
============ ============
- --------
+ Includes accumulated undistributed net investment income (loss)....................... $ (39,569) $ (39,701)
============ ============
# Effective October 4, 2006, Class A shares were redesignated to Class Q shares
and a new class of shares designated as Class A commenced offering.
See Notes to Financial Statements
7
SunAmerica Senior Floating Rate Fund, Inc.
STATEMENT OF CASH FLOWS -- For the year ended December 31, 2006
INCREASE (DECREASE) IN CASH
Cash flows from operating activities:
Net increase in net assets from operations................................................................... $ 13,573,526
Adjustments to reconcile net increase in net assets from operations to net cash used in operating activities:
Purchase of loans.......................................................................................... (145,632,830)
Proceed from loans sold.................................................................................... 52,003,807
Loan principal paydowns.................................................................................... 74,952,895
Net purchases of short-term securities..................................................................... (3,268,282)
Accretion of facility fee income........................................................................... (54,390)
Increase in receivable for dividends and interest.......................................................... (958,163)
Increase in receivable for investments sold................................................................ (3,369,184)
Increase in amount due from investment adviser for expense reimbursements/fee waivers...................... (37,195)
Increase in amount due from distributor for fee waivers.................................................... (5,393)
Increase in prepaid expenses and other assets.............................................................. (20,210)
Increase in payable for investments purchased.............................................................. 2,291,736
Increase in payable for investment advisory and management fees............................................ 14,840
Increase in payable for distribution and maintenance fees.................................................. 14,382
Increase in payable for administration fees................................................................ 6,984
Increase in other accrued expenses......................................................................... 139,021
Unrealized depreciation on investments..................................................................... 23,250
Net realized gain from investments......................................................................... (305,142)
-------------
Net cash used in operating activities........................................................................ $ (10,630,348)
-------------
Cash flows from financing activities:
Proceeds from shares sold.................................................................................... 88,565,848
Payment on shares redeemed................................................................................... (73,303,354)
Cash dividends paid.......................................................................................... (4,621,965)
Decrease in due to custodian................................................................................. (10,181)
-------------
Net cash provided by financing activities.................................................................... $ 10,630,348
-------------
Net increase in cash......................................................................................... --
Cash balance at beginning of period.......................................................................... --
-------------
Cash balance at end of period................................................................................ $ --
=============
Supplemental disclosure of cash flow information:
Noncash financing activities not included herein consist of reinvestment of
dividends and distributions of $8,560,999.
See Notes to Financial Statements
8
SunAmerica Senior Floating Rate Fund, Inc.
FINANCIAL HIGHLIGHTS
Class A+
-----------
For the
period from
10/04/06*
through
12/31/06
-----------
Net Asset Value, Beginning of Period........................................... $ 9.39
Investment Operations:
Net investment income (loss)@.................................................. 0.38
Net realized and unrealized gain (loss) on investments......................... (0.22)
-------
Total from investment operations............................................. 0.16
-------
Distributions:
Dividends from net investment income........................................... (0.15)
-------
Net Asset Value, End of Period................................................. $ 9.40
-------
Total Return(1)................................................................ 1.75%
Ratios/Supplemental Data
Net assets, end of period ($000's)............................................. $14,165
Ratio of net expenses to average net assets.................................... 1.45%#
Ratio of net investment income to average net assets........................... 6.78%#
Portfolio turnover rate........................................................ 61%
Expense ratio before waiver of fees and reimbursement of expenses.............. 3.26%#
Net investment income ratio before waiver of fees and reimbursement of expenses 4.97%#
- --------
+ Effective October 4, 2006, Class A shares were redesignated to Class Q
shares and a new class of shares designated as Class A commenced offering.
* Inception date of class
@ Calculated based upon average shares outstanding.
# Annualized
(1)Total return is not annualized and does not reflect sales load but does
include expense reimbursements.
See Notes to Financial Statements
9
SunAmerica Senior Floating Rate Fund, Inc.
FINANCIAL HIGHLIGHTS -- (continued)
Class B
-------------------------------------------
Year Year Year Year Year
ended ended ended ended ended
12/31/06 12/31/05 12/31/04 12/31/03 12/31/02
-------- -------- -------- -------- --------
Net Asset Value, Beginning of Period.... $ 9.39 $ 9.41 $ 9.33 $ 8.78 $ 9.03
Investment Operations:
Net investment income (loss)@........... 0.59 0.41 0.29 0.40 0.40
Net realized and unrealized gain (loss)
on investments......................... 0.01 (0.02) 0.08 0.54 (0.26)
------- ------- ------- ------- -------
Total from investment operations....... 0.60 0.39 0.37 0.94 0.14
------- ------- ------- ------- -------
Distributions:
Dividends from net investment income.... (0.59) (0.41) (0.29) (0.39) (0.39)
------- ------- ------- ------- -------
Net Asset Value, End of Period.......... $ 9.40 $ 9.39 $ 9.41 $ 9.33 $ 8.78
------- ------- ------- ------- -------
Total Return(1)......................... 6.55% 4.24% 3.97% 10.95% 1.54%
Ratios/Supplemental Data
Net assets, end of period ($000's)...... $25,885 $25,181 $27,530 $26,565 $31,906
Ratio of net expenses to average net
assets................................. 1.75% 1.75% 1.75% 1.54% 1.45%
Ratio of net investment income to
average net assets..................... 6.25% 4.36% 3.04% 4.35% 4.42%
Portfolio turnover rate................. 61% 57% 24% 75% 112%
Expense ratio before waiver of fees and
reimbursement of expenses.............. 2.45% 2.38% 2.38% 2.57% 2.51%
Net investment income ratio before
waiver of fees and reimbursement of
expenses............................... 5.55% 3.73% 2.41% 3.33% 3.36%
- --------
@ Calculated based upon average shares outstanding.
(1)Total return is not annualized and does not reflect sales load but does
include expense reimbursements.
See Notes to Financial Statements
10
SunAmerica Senior Floating Rate Fund, Inc.
FINANCIAL HIGHLIGHTS -- (continued)
Class C
-----------------------------------------------
Year Year Year Year Year
ended ended ended ended ended
12/31/06 12/31/05 12/31/04 12/31/03 12/31/02
-------- -------- -------- -------- --------
Net Asset Value, Beginning of Period.... $ 9.39 $ 9.41 $ 9.33 $ 8.78 $ 9.03
Investment Operations:
Net investment income (loss)@........... 0.59 0.42 0.28 0.38 0.40
Net realized and unrealized gain (loss)
on investments......................... 0.01 (0.03) 0.09 0.56 (0.27)
-------- -------- -------- -------- -------
Total from investment operations....... 0.60 0.39 0.37 0.94 0.13
-------- -------- -------- -------- -------
Distributions:
Dividends from net investment income.... (0.59) (0.41) (0.29) (0.39) (0.38)
-------- -------- -------- -------- -------
Net Asset Value, End of Period.......... $ 9.40 $ 9.39 $ 9.41 $ 9.33 $ 8.78
-------- -------- -------- -------- -------
Total Return(1)......................... 6.54% 4.24% 3.97% 10.92% 1.47%
Ratios/Supplemental Data
Net assets, end of period ($000's)...... $176,743 $154,584 $174,583 $103,726 $86,101
Ratio of net expenses to average net
assets................................. 1.75% 1.75% 1.75% 1.59% 1.50%
Ratio of net investment income to
average net assets..................... 6.26% 4.36% 3.06% 4.22% 4.33%
Portfolio turnover rate................. 61% 57% 24% 75% 112%
Expense ratio before waiver of fees and
reimbursement of expenses.............. 2.39% 2.32% 2.35% 2.51% 2.48%
Net investment income ratio before
waiver of fees and reimbursement of
expenses............................... 5.62% 3.79% 2.46% 3.31% 3.36%
- --------
@ Calculated based upon average shares outstanding.
(1)Total return is not annualized and does not reflect sales load but does
include expense reimbursements.
See Notes to Financial Statements
11
SunAmerica Senior Floating Rate Fund, Inc.
FINANCIAL HIGHLIGHTS -- (continued)
Class D
-------------------------------------------
Year Year Year Year Year
ended ended ended ended ended
12/31/06 12/31/05 12/31/04 12/31/03 12/31/02
-------- -------- -------- -------- --------
Net Asset Value, Beginning of Period.... $ 9.39 $ 9.41 $ 9.33 $ 8.78 $ 9.03
Investment Operations:
Net investment income (loss)@........... 0.66 0.47 0.33 0.43 0.43
Net realized and unrealized gain (loss)
on investments......................... (0.01) (0.03) 0.08 0.54 (0.27)
------- ------- ------- ------- -------
Total from investment operations....... 0.65 0.44 0.41 0.97 0.16
------- ------- ------- ------- -------
Distributions:
Dividends from net investment income.... (0.64) (0.46) (0.33) (0.42) (0.41)
------- ------- ------- ------- -------
Net Asset Value, End of Period.......... $ 9.40 $ 9.39 $ 9.41 $ 9.33 $ 8.78
------- ------- ------- ------- -------
Total Return(1)......................... 7.08% 4.76% 4.49% 11.28% 1.72%
Ratios/Supplemental Data
Net assets, end of period ($000's)...... $16,034 $23,148 $27,630 $13,369 $15,037
Ratio of net expenses to average net
assets................................. 1.25% 1.25% 1.25% 1.25% 1.25%
Ratio of net investment income to
average net assets..................... 6.71% 4.86% 3.60% 4.63% 4.58%
Portfolio turnover rate................. 61% 57% 24% 75% 112%
Expense ratio before waiver of fees and
reimbursement of expenses.............. 1.72% 1.60% 1.62% 1.86% 1.77%
Net investment income ratio before
waiver of fees and reimbursement of
expenses............................... 6.24% 4.51% 3.23% 4.02% 4.06%
- --------
@ Calculated based upon average shares outstanding.
(1)Total return is not annualized and does not reflect sales load but does
include expense reimbursements.
See Notes to Financial Statements
12
SunAmerica Senior Floating Rate Fund, Inc.
FINANCIAL HIGHLIGHTS -- (continued)
Class Q(2)
--------------------------
For the
period from
Year Year 4/28/04*
ended ended through
12/31/06 12/31/05 12/31/04
-------- -------- -----------
Net Asset Value, Beginning of Period........................................... $ 9.39 $ 9.41 $ 9.42
Investment Operations:
Net investment income (loss)@.................................................. 0.59 0.43 0.22
Net realized and unrealized gain (loss) on investments......................... 0.04 (0.01) (0.01)
------ ------ ------
Total from investment operations............................................. 0.63 0.42 0.21
------ ------ ------
Distributions:
Dividends from net investment income........................................... (0.62) (0.44) (0.22)
------ ------ ------
Net Asset Value, End of Period................................................. 9.40 $ 9.39 $ 9.41
------ ------ ------
Total Return(1)................................................................ 6.86% 4.55% 2.22%
Ratios/Supplemental Data
Net assets, end of period ($000's)............................................. $ 773 $ 401 $ 224
Ratio of net expenses to average net assets.................................... 1.45% 1.45% 1.45%#
Ratio of net investment income to average net assets........................... 6.57% 4.74% 3.44%#
Portfolio turnover rate........................................................ 61% 57% 24%
Expense ratio before waiver of fees and reimbursement of expenses.............. 4.06% 4.32% 9.31%#
Net investment income ratio before waiver of fees and reimbursement of expenses 3.97% 1.87% (4.42)%#
- --------
* Inception date of class
@ Calculated based upon average shares outstanding.
# Annualized
(1)Total return is not annualized and does not reflect sales load but does
include expense reimbursements.
(2)Effective October 4, 2006, Class A shares were redesignated to Class Q
shares and a new class of shares designated as Class A commenced offering.
See Notes to Financial Statements
13
SunAmerica Senior Floating Rate Fund, Inc.
PORTFOLIO PROFILE -- December 31, 2006 -- (unaudited)
Industry Allocation*
Broadcasting & Entertainment . . . . . . . . . . . . . . . . . .................. 16.8%
Healthcare, Education and Childcare . . . . . . . . . . . . . ................... 7.3
Electronics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..... 6.4
Leisure, Amusement, Entertainment . . . . . . . . . . . . . ..................... 6.1
Chemicals, Plastics and Rubber . . . . . . . . . . . . . . . . .................. 5.9
Registered Investment Companies . . . . . . . . . . . . . . ..................... 5.6
Telecommunications . . . . . . . . . . . . . . . . . . . . . . . . . ............ 5.3
Retail Stores . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..... 4.8
Printing and Publishing . . . . . . . . . . . . . . . . . . . . . . . ........... 4.3
Oil and Gas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..... 3.6
Buildings & Real Estate . . . . . . . . . . . . . . . . . . . . . . . ........... 3.4
Utilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.3
Containers, Packaging and Glass . . . . . . . . . . . . . . . ................... 3.2
Diversified/Conglomerate Manufacturing . . . . . . . . . ........................ 3.2
Automobile . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ...... 2.8
Hotels, Motels, Inns and Gaming . . . . . . . . . . . . . . . ................... 2.5
Finance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ... 2.2
Personal Transportation . . . . . . . . . . . . . . . . . . . . . . ............. 2.2
Diversified/Conglomerate Service . . . . . . . . . . . . . . . .................. 2.0
Beverage, Food & Tobacco . . . . . . . . . . . . . . . . . . . . ................ 1.7
Home and Office Furnishings, Housewares and Durables............................. 1.4
Ecological . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .... 1.3
Personal, Goods and Misc. Services . . . . . . . . . . . . . .................... 1.3
Personal and Nondurable Consumer Products . . . . . ............................. 1.1
Aerospace/Defense . . . . . . . . . . . . . . . . . . . . . . . . . . ........... 0.7
Machinery........................................................................ 0.7
Mining, Steel, Iron and Nonprecious Metals . . . . . . . ........................ 0.7
Textiles and Leather . . . . . . . . . . . . . . . . . . . . . . . . . .......... 0.5
Cargo Transport . . . . . . . . . . . . . . . . . . . . . . . . . . . . ......... 0.2
Farming and Agriculture . . . . . . . . . . . . . . . . . . . . . . ............. 0.1
-----
100.6%
=====
Credit Quality+#
BBB-............ 0.9
BB+............. 2.7
BB.............. 9.4
BB-............. 18.8
B+.............. 25.2
B............... 21.8
B-.............. 8.0
CCC+............ 3.4
CCC............. 1.1
CCC-............ 0.5
Not Rated@...... 8.2
-----
100.0%
=====
- --------
* Calculated as a percentage of Net Assets.
@ Represents debt issues that either have no rating, or the rating is
unavailable from the data source.
+ Source: Standard and Poors
# Calculated as a percentage of total debt issues, excluding short-term
securities.
14
SunAmerica Senior Floating Rate Fund, Inc.
PORTFOLIO OF INVESTMENTS -- December 31, 2006
Ratings/(1)/
------------
Interest Maturity Principal Value
Industry Description Type Moody's S&P Rate Date/(2)/ Amount (Note 2)
- -----------------------------------------------------------------------------------------------------------------------
LOANS(3)(4) -- 93.6%
Aerospace/Defense -- 0.7%
Axle Tech International.................. 1st Lien B2 B+ 7.62% 10/21/12 $ 239,286 $ 240,481
SI International, Inc.................... BTL B1 B+ 7.35-7.46 02/09/11 720,161 721,060
Wesco International...................... 2nd Lien B2 B- 11.13 03/28/14 500,000 512,083
-----------
1,473,624
-----------
Automobile -- 2.8%
FleetPride Corp.......................... BTL-B B3 B+ 8.59 06/06/13 248,438 249,523
Goodyear Tire & Rubber Co................ 2nd Lien B1 B+ 8.14 04/30/10 2,000,000 2,027,083
Key Plastics LLC......................... BTL-B B1 B+ 8.85-8.87 06/29/10 1,207,459 1,218,024
Navistar International Corp.............. BTL B1 BB- 10.35-10.37 02/22/09 1,733,333 1,759,603
Ozburn-Hessey Holding Co. LLC............ BTL B3 B 8.62-8.79 08/10/12 519,120 519,768
United Components, Inc................... BTL-C B3 BB- 8.38 06/30/10 580,859 583,763
-----------
6,357,764
-----------
Beverage, Food & Tobacco -- 1.7%
Best Brands Corp......................... BTL-C Caa1 CCC+ 11.82 06/12/13 1,500,000 1,500,000
Dole Food Co., Inc....................... BTL B1 B+ 7.44-9.25 04/12/13 207,733 206,477
Dole Food Co., Inc....................... Tranche C B1 B+ 7.44-9.25 04/12/13 692,442 688,258
Dole Food Co., Inc....................... LOC B1 B+ 5.24 04/12/13 93,023 92,461
Fresh Start Bakeries, Inc................ 2nd Lien Caa1 CCC+ 11.13 03/29/14 250,000 251,406
Leiner Health Products Group, Inc........ BTL-B B2 B- 8.88 05/27/11 493,671 496,550
Pierre Foods, Inc........................ BTL-B B1 B+ 7.61 06/30/10 715,121 718,474
-----------
3,953,626
-----------
Broadcasting & Entertainment -- 16.4%
Century -- TCI California LP(5).......... Revolver NR NR 8.25 12/31/07 10,000 9,894
Century Cable Holdings LLC(5)............ Discretionary BTL NR NR 10.25 12/31/09 2,500,000 2,438,020
Cequel Communications LLC................ 1st Lien B2 B+ 7.62 11/05/13 3,000,000 3,006,093
Cequel Communications LLC................ 2nd Lien B2 B- 9.87 05/05/14 1,000,000 1,003,542
Charter Communications Operating LLC..... BTL Caa1 B 8.01 04/28/13 4,000,000 4,030,748
CSC Holdings, Inc........................ BTL B1 BB 7.11-7.13 03/29/13 2,490,000 2,493,581
Haights Cross Operating Co............... BTL B1 B- 9.88 08/20/08 1,448,825 1,456,069
Hilton Head Communications LP(5)(10)..... BTL NR NR 9.50 09/30/08 1,000,000 974,792
HIT Entertainment, Ltd................... 2nd Lien B1 CCC+ 10.86 02/26/13 1,000,000 1,012,813
HIT Entertainment, Ltd................... BTL B1 B 7.60 03/20/12 495,000 498,867
Insight Midwest Holdings LLC............. BTL-B Ba3 BB- 7.61 04/06/14 3,000,000 3,022,500
Intelstat Zeus, Ltd...................... BTL Ba2 BB+ 7.62 07/13/13 985,000 993,373
Liberty Cablevision of Puerto Rico, Ltd.. BTL NR NR 7.62 03/01/13 1,488,750 1,496,660
Mission Broadcasting, Inc................ BTL-B B2 B+ 7.11 08/14/12 1,200,995 1,197,992
Nexstar Broadcasting, Inc................ BTL-B B2 B 7.11 08/14/12 1,138,046 1,135,201
NextMedia Operating...................... 2nd Lien B2 CCC+ 9.85 11/15/13 500,000 503,542
PANAMSAT Corp............................ BTL-A B2 BB 7.50 07/03/12 136,166 136,883
PANAMSAT Corp............................ BTL-B2 B2 BB 7.87 08/20/11 4,296,334 4,344,965
Panavision, Inc.......................... 2nd Lien B2 CCC 12.38 03/30/12 500,000 508,438
Persona Communication, Inc.(11).......... 1st Lien Ba3 B+ 8.12 10/12/13 154,250 155,214
Persona Communication, Inc.(11).......... 2nd Lien Caa1 CCC 11.37 10/12/13 1,000,000 1,006,250
Radio Systems Corp....................... BTL-B B1 B 8.10-9.50 10/05/13 500,000 502,500
Spanish Broadcasting Systems, Inc........ 1st Lien B1 B+ 7.12 06/10/12 982,500 982,090
UPC Financing Partnership................ BTL-J2 B1 B 7.64 04/01/13 1,000,000 1,002,125
UPC Financing Partnership................ BTL-K2 B1 B 7.64 12/31/13 1,000,000 1,002,125
WideOpenWest Finance LLC................. 2nd Lien B2 B 10.37 05/01/14 500,000 505,563
WideOpenWest Finance LLC................. BTL-B B2 B 7.62 05/01/13 1,000,000 1,003,304
Yell Group, Ltd.......................... BTL-B Ba3 BB- 7.35 08/10/13 1,000,000 1,007,444
Young Broadcasting, Inc.................. BTL B3 B- 7.88-7.94 11/03/12 985,000 984,231
-----------
38,414,819
-----------
15
SunAmerica Senior Floating Rate Fund, Inc.
PORTFOLIO OF INVESTMENTS -- December 31, 2006 -- (continued)
Ratings/(1)/
------------
Interest Maturity Principal Value
Industry Description Type Moody's S&P Rate Date/(2)/ Amount (Note 2)
- -------------------------------------------------------------------------------------------------------------------
Buildings & Real Estate -- 3.4%
Atrium Cos., Inc............................ BTL B1 B 8.12%-10.00% 05/31/12 $ 444,176 $ 438,624
Masonite International Corp................. BTL B2 BB- 7.36-7.38 04/05/13 1,476,236 1,449,537
Masonite International Corp................. CND TL B2 BB- 7.36-7.38 04/05/13 1,473,726 1,447,072
North Las Vegas............................. 1st Lien B2 BB 8.11 05/09/11 290,911 290,911
North Las Vegas............................. 2nd Lien B2 B 12.36 05/09/12 250,000 247,500
Palmdale Hills Property LLC................. 1st Lien B2 B+ 8.38 05/19/10 985,000 970,225
Palmdale Hills Property LLC................. 2nd Lien B2 CCC+ 12.88 05/19/11 1,000,000 960,000
PGT Industries, Inc......................... 1st Lien B2 B+ 8.38 02/14/12 605,442 605,442
Rhodes Homes................................ 1st Lien B1 BB- 8.61 11/21/10 218,750 214,922
TCO Funding Corp............................ BTL B2 B- 8.13 10/31/12 990,009 994,959
Yellowstone Mountain Club................... 2nd Lien B1 B+ 7.73 09/30/10 233,467 232,105
-----------
7,851,297
-----------
Cargo Transport -- 0.2%
Hertz Corp.................................. BTL Ba3 BB 7.35-7.37 12/21/12 496,259 500,195
-----------
Chemicals, Plastics & Rubber -- 5.9%
Basell Finance Co........................... BTL-B2 Ba3 B+ 7.60 09/07/13 104,167 105,469
Basell Finance Co........................... BTL-B4 Ba3 B+ 7.60 09/07/13 20,833 21,094
Basell Finance Co........................... BTL-C2 Ba3 B+ 8.35 09/07/14 104,167 105,469
Basell Finance Co........................... BTL-C4 Ba3 B+ 8.35 09/07/14 20,833 21,094
Brenntag Holdings........................... BTL-B2 B2 B 8.08 01/20/14 200,909 203,044
Brenntag Holdings........................... BTL B2 B 8.08 01/20/14 49,091 49,428
Celanese AG................................. BTL B1 BB- 7.11 04/06/11 2,413,650 2,423,141
Hexion Specialty Chemicals, Inc............. BTL-C1 B2 B 7.88 05/05/13 819,485 819,428
Hexion Specialty Chemicals, Inc............. BTL-C2 B2 B 7.88 05/05/13 177,569 177,557
Huntsman International LLC.................. BTL-B B1 BB- 7.10 08/16/12 2,754,672 2,759,647
Ineos US Finance LLC........................ BTL-B2 Ba3 B+ 7.61 12/16/13 742,500 750,776
Ineos US Finance LLC........................ BTL-C2 Ba3 B+ 8.11 12/16/14 742,500 750,776
Kraton Polymers LLC......................... BTL B1 BB- 7.38 05/12/13 437,666 439,033
Momentive Performance....................... BTL-B B3 B+ 7.63 12/04/13 1,000,000 1,002,708
PQ Corp..................................... BTL B1 B+ 7.37 02/11/12 736,875 740,252
Rockwood Specialties Group, Inc............. Tranche D B1 B+ 7.38 12/13/13 1,970,000 1,981,574
Wellman, Inc................................ 2nd Lien B2 B- 12.12 02/10/10 1,700,000 1,394,000
-----------
13,744,490
-----------
Containers, Packaging & Glass -- 3.2%
Appleton Papers, Inc........................ BTL B1 BB- 7.62-7.63 06/11/10 879,899 883,748
Boise Cascade Corp.......................... BTL-B Ba3 BB 7.13 10/29/11 711,789 715,615
Captive Plastics............................ BTL B2 B- 8.11 08/18/11 463,836 466,735
Captive Plastics............................ 2nd Lien B2 CCC 12.63 02/18/12 1,000,000 1,000,000
Georgia-Pacific Corp........................ 1st Lien Ba3 BB- 7.35-7.38 12/20/12 1,980,000 1,991,549
Graham Packaging Co. LP..................... Tranche B B2 B 7.63-7.88 10/07/12 2,450,000 2,467,500
-----------
7,525,147
-----------
Diversified/Conglomerate Manufacturing -- 3.2%
Accuride Corp............................... BTL-B B1 B+ 7.38 01/31/12 1,325,909 1,328,810
Aearo Technologies, Inc..................... 2nd Lien B2 CCC+ 11.86 09/24/13 500,000 507,500
Aearo Technologies, Inc..................... BTL B2 B 7.86 03/24/13 992,500 1,001,598
Bombardier Capital, Inc..................... BTL B1 B+ 7.88 06/26/13 1,000,000 1,000,938
Enersys, Inc................................ BTL Ba3 BB 7.37-7.59 03/17/11 585,000 588,656
Maxim Crane Works LP........................ BTL B1 BB- 7.35-9.25 01/25/10 316,458 317,645
National Distributing@...................... BTL B2 B- 11.85 06/22/10 880,000 882,200
Oshkosh Truck Corp.......................... BTL-B Ba2 BB 7.35 12/06/13 1,000,000 1,002,031
Polypore, Inc............................... BTL B3 B 8.35 11/12/11 946,122 953,217
-----------
7,582,595
-----------
16
SunAmerica Senior Floating Rate Fund, Inc.
PORTFOLIO OF INVESTMENTS -- December 31, 2006 -- (continued)
Ratings/(1)/
------------
Interest Maturity Principal Value
Industry Description Type Moody's S&P Rate Date/(2)/ Amount (Note 2)
- -------------------------------------------------------------------------------------------------------------------
Diversified/Conglomerate Service -- 2.0%
Billing Services Group.................... 1st Lien B1 B+ 8.13% 05/11/12 $ 481,250 $ 480,047
Bridge Information Systems, Inc.+#@(5)(6). BTL-B Caa1 NR 11.25 05/29/05 417,016 --
Coinstar, Inc............................. BTL Ba3 BB- 7.37 07/07/11 794,548 799,514
NES Rentals Holdings...................... 2nd Lien B3 B- 12.13 07/20/13 2,500,000 2,522,918
Nielsen Finance LLC....................... BTL-B B1 B+ 8.13 07/01/13 500,000 504,097
Protection One, Inc....................... BTL B2 B+ 7.85-7.87 04/18/11 462,968 464,704
-----------
4,771,280
-----------
Ecological -- 1.3%
Allied Waste North America, Inc........... Tranche A B2 BB 7.07 01/15/12 757,403 759,967
Allied Waste North America, Inc........... BTL B2 BB 7.12-7.21 01/15/12 1,708,366 1,712,714
Wastequip, Inc............................ 2nd Lien B2 CCC+ 10.85 07/15/12 500,000 505,000
-----------
2,977,681
-----------
Electronics -- 5.5%
Advanced Micro Devices, Inc............... BTL-B Ba3 BB- 7.62 12/31/13 886,494 891,924
Affiliated Computer....................... FSRI Ba2 B+ 7.35-7.37 03/20/13 995,000 998,980
Aspect Software........................... 1st Lien B2 B+ 8.38 07/11/11 498,750 499,581
Dealer Computer Services.................. 2nd Lien B1 BB- 10.85 10/25/13 250,000 253,594
Dealer Computer Services.................. BTL B1 BB- 7.85 10/25/12 997,500 1,003,823
Eastman Kodak Co.......................... BTL-B1 B1 B+ 7.60 10/18/12 541,954 544,221
Epicor Software Corp...................... BTL B1 B+ 7.78-9.15 03/30/12 496,250 498,421
Infor Global Solutions.................... Delayed Draw B3 B 9.12 07/28/12 342,000 345,634
Infor Global Solutions.................... BTL B3 B 9.12 07/28/12 655,500 662,465
Sanmina-SCI Corp.......................... BTL Ba3 BB- 7.94 10/27/13 1,000,000 1,004,000
Sungard Data Systems, Inc................. BTL-B B2 B+ 7.88 02/11/13 3,940,000 3,982,631
UGS Corp.................................. BTL B2 B+ 7.13 03/31/12 1,870,720 1,871,109
Vertafore, Inc............................ 2nd Lien B2 CCC+ 11.37-11.46 01/31/13 250,000 253,958
-----------
12,810,341
-----------
Farming & Agriculture -- 0.1%
AGCO Corp................................. BTL Ba2 BB+ 7.12 03/31/08 244,333 245,250
-----------
Finance -- 2.2%
Bankruptcy Management Solutions........... 2nd Lien B2 CCC+ 11.60 07/31/13 249,375 253,427
Check$mart Financial Co................... BTL-B B3 B 8.12-8.14 05/01/12 496,250 496,560
iPayment, Inc............................. BTL B2 B 7.35-7.36 05/10/13 992,500 990,639
Nasdaq Stock Market, Inc.................. BTL-B Ba3 BB+ 7.10-7.11 04/18/12 486,872 487,115
Nasdaq Stock Market, Inc.................. BTL-C Ba3 BB+ 7.10-7.11 04/18/12 282,228 282,369
NPC International, Inc.................... 1st Lien B3 B 8.35 09/29/13 1,000,000 1,004,375
NPC International, Inc.................... 2nd Lien B3 CCC+ 11.85 09/29/14 500,000 502,500
Rental Service Corp....................... BTL-B B2 B- 8.82-8.87 11/30/13 1,000,000 1,010,469
-----------
5,027,454
-----------
17
SunAmerica Senior Floating Rate Fund, Inc.
PORTFOLIO OF INVESTMENTS -- December 31, 2006 -- (continued)
Ratings/(1)/
------------
Interest Maturity Principal Value
Industry Description Type Moody's S&P Rate Date/(2)/ Amount (Note 2)
- ------------------------------------------------------------------------------------------------------------------------------
Healthcare, Education & Childcare -- 7.3%
Accellent Corp........................................ BTL B2 BB- 7.37% 11/22/12 $ 495,000 $ 495,000
AMR/EmCare Holdings................................... BTL B1 B+ 7.38-7.39 02/10/12 647,063 648,681
Community Health Systems, Inc......................... BTL Ba3 BB- 7.12 08/19/11 1,298,853 1,301,592
Community Health Systems, Inc......................... BTL-B Ba3 BB- 7.06 02/28/12 997,500 999,604
ComPsych Investment Corp.............................. BTL-B B2 NR 8.10-8.12 04/20/12 977,500 982,387
DaVita, Inc........................................... BTL-B B1 BB- 7.35-7.69 10/05/12 2,477,500 2,494,533
Encore Medical Finance LLC............................ BTL B2 B 7.87 11/03/13 997,500 1,000,773
Gambro A B............................................ BTL-B2 NR NR 7.85 12/06/14 500,000 502,813
Gambro A B............................................ BTL-C2 NR NR 8.35 12/06/15 500,000 504,688
HCA, Inc.............................................. BTL-B B2 BB 8.11 11/18/13 3,000,000 3,036,708
HealthSouth Corp...................................... BTL-B B3 B+ 8.62 03/10/13 995,000 1,002,946
Magellan Health Services, Inc......................... BTL B1 B+ 7.11 08/15/08 208,333 208,854
Magellan Health Services, Inc......................... CLC B1 B+ 5.23 08/15/08 277,778 278,472
Spectrum Labs......................................... BTL-B NR NR 8.61 12/23/11 990,000 985,050
Team Health, Inc...................................... BTL-B B2 B+ 7.87 11/23/12 247,500 248,583
Vanguard Health Holding Co. II........................ BTL B2 B 7.61 09/23/11 980,156 983,219
Warner Chilcott Corp.................................. BTL B2 B 7.61 01/18/12 207,792 208,779
Warner Chilcott Corp.................................. BTL-B B2 B 7.61-7.62 01/18/12 945,651 951,224
Warner Chilcott Corp.................................. BTL-C B2 B 7.61 01/18/12 259,628 261,158
-----------
17,095,064
-----------
Home & Office Furnishings, Housewares & Durables -- 1.4%
Jarden Corp........................................... BTL B1 B+ 7.36 01/24/12 1,250,937 1,254,260
Jarden Corp........................................... BTL-B2 B1 B+ 7.11 01/24/12 666,278 666,361
Maax Corp............................................. BTL-B B2 CCC+ 8.88 06/04/11 558,477 555,685
Simmons Co............................................ BTL-C B2 BB- 6.88-7.56 12/19/11 843,120 849,180
-----------
3,325,486
-----------
Hotels, Motels, Inns, & Gaming -- 2.5%
CCM Merger, Inc....................................... BTL-B B1 B 7.35-7.37 07/13/12 492,502 492,933
Fairmont Hotels and Resorts........................... BTL-B NR NR 8.60 06/15/11 750,327 756,892
Isle of Capri Casinos, Inc............................ BTL Ba3 BB- 7.13-7.32 02/04/11 294,000 295,139
Kulima Resort Co...................................... 2nd Lien B2 CCC+ 11.85 09/30/11 250,000 239,688
Penn National Gaming, Inc............................. BTL-B Ba2 BB 7.11-7.15 10/03/12 1,975,000 1,987,344
Trump Entertainment Resorts Holdings LP(11)........... BTL-B1 B3 BB- 7.87 05/20/12 492,500 496,502
Venetian Casino Resorts LLC........................... Delayed Draw Ba3 BB- 7.12 06/15/11 170,940 171,787
Venetian Casino Resorts LLC........................... BTL-B Ba3 BB- 7.12 06/15/11 829,060 833,165
Venetian Macau, Ltd................................... BTL B1 BB- 8.12 05/26/13 166,667 167,979
Wembley, Inc.......................................... 1st Lien B1 B+ 7.85-7.95 08/23/11 247,500 250,594
Wembley, Inc.......................................... 2nd Lien B1 B 9.70 08/04/11 250,000 253,750
-----------
5,945,773
-----------
Leisure, Amusement, Entertainment -- 6.1%
24 Hour Fitness Worldwide, Inc........................ BTL-B B2 B 7.87 06/08/12 1,985,000 2,002,369
Cedar Fair LP......................................... BTL-B Ba3 BB- 7.85 08/30/12 995,000 1,006,069
Fender Musical Instruments Corp....................... 1st Lien B2 B+ 8.13 03/30/12 341,890 344,027
Hicks Sports Group.................................... BTL-B NR NR 7.88 12/22/10 3,000,000 3,000,313
Metro-Goldwyn-Mayer Studios, Inc...................... BTL-B Ba2 B+ 8.61 04/08/12 2,977,500 2,953,308
Six Flags Theme Parks, Inc............................ BTL-B1 B3 B- 8.62-8.87 06/30/09 982,368 994,877
True Temper Sports, Inc............................... BTL B2 B 7.85-9.75 03/15/11 461,066 461,642
WMG Acquisition Corp.(11)............................. BTL Ba2 B+ 7.37-7.41 02/28/11 3,393,817 3,410,152
-----------
14,172,757
-----------
Machinery -- 0.7%
Generac Power Systems, Inc............................ 1st Lien B2 B 7.82 11/06/13 1,000,000 1,004,375
Gleason............................................... BTL B2 B+ 7.88 06/23/13 704,545 709,610
-----------
1,713,985
-----------
18
SunAmerica Senior Floating Rate Fund, Inc.
PORTFOLIO OF INVESTMENTS -- December 31, 2006 -- (continued)
Ratings/(1)/
------------
Interest Maturity Principal Value
Industry Description Type Moody's S&P Rate Date/(2)/ Amount (Note 2)
- ------------------------------------------------------------------------------------------------------------------------
Mining, Steel, Iron & Nonprecious Metals -- 0.7%
Aleris International, Inc..................... BTL-B NR NR 8.13% 12/19/13 $ 1,000,000 $ 1,015,625
Novelis, Inc.................................. BTL-B B1 BB- 7.62 01/07/12 345,621 346,863
Novelis, Inc.................................. CND TL B1 BB- 7.62 01/07/12 198,994 199,709
Walter Industries, Inc........................ BTL-B Ba3 B+ 7.12 10/03/12 122,641 122,993
-----------
1,685,190
-----------
Oil & Gas -- 3.6%
Alon USA, Inc................................. BTL B2 BB- 7.62-7.88 06/15/13 27,639 27,760
Alon USA, Inc................................. BTL B1 BB- 7.62-7.88 06/15/13 221,111 222,078
Calumet Lubricants Co. LP..................... BTL B2 BB- 8.85 11/09/12 110,000 110,275
Calumet Lubricants Co. LP..................... CLD B2 BB- 5.20 11/09/12 111,111 111,389
CDX Funding LLC............................... 2nd Lien NR NR 10.61 03/31/13 1,000,000 1,008,333
Coffeyville Resources LLC..................... LOC B2 B+ 8.36 12/01/11 162,162 163,277
Coffeyville Resources LLC..................... Tranche D B2 B+ 8.36 12/01/13 837,838 837,838
Dresser, Inc.................................. BTL-B B1 B 8.13 10/31/13 961,783 970,399
Epco Holdings, Inc............................ BTL-C Ba1 B+ 7.35-7.37 08/18/10 490,077 493,447
Exco Operating LP............................. 2nd Lien B2 NR 11.38-11.44 10/18/11 2,000,000 2,022,500
Helix Energy Solutions Group, Inc............. BTL-B B2 BB 7.35-7.64 05/05/13 997,485 1,001,137
Key Energy Services, Inc...................... BTL-C B3 NR 7.85-7.86 06/30/12 990,000 994,331
Targa Resources, Inc.......................... LOC B1 B+ 7.61 10/31/12 96,774 97,319
Targa Resources, Inc.......................... BTL-B B1 B+ 7.61-7.63 10/31/12 398,185 400,425
-----------
8,460,508
-----------
Personal & Nondurable Consumer Products -- 1.1%
American Achievement Corp..................... BTL-B B1 BB- 7.60-9.50 03/25/11 677,827 683,051
Bushnell Performance Optics................... BTL B2 B+ 8.36 08/19/11 493,902 497,401
Hillman Group, Inc............................ BTL-B B2 B 8.50 03/30/11 810,510 817,602
Spectrum Brands, Inc.......................... BTL-B B3 B- 8.60-8.63 02/06/12 461,700 463,803
-----------
2,461,857
-----------
Personal, Goods & Misc. Services -- 1.3%
Garden Fresh Restaurants Corp................. BTL B2 B 8.62 06/22/11 245,313 246,232
Reynolds American, Inc........................ BTL Ba2 BBB- 7.10-7.19 05/31/12 1,990,000 2,005,858
Stewart Enterprises, Inc...................... BTL-B Ba3 BB 7.12-7.33 11/19/11 400,237 400,738
Travelport, Inc............................... BTL B2 B+ 8.36 08/08/13 454,251 455,919
Travelport, Inc............................... LOC B2 B+ 8.36 08/08/13 44,611 44,775
-----------
3,153,522
-----------
Personal Transportation -- 2.2%
Continental Airlines, Inc..................... BTL-A1 B3 B 8.74 06/01/11 285,714 289,286
Continental Airlines, Inc..................... BTL-A2 B3 B 8.74 06/01/11 714,286 723,214
Delta Air Lines, Inc.(5)...................... BTL-C B3 B 12.87 03/27/08 1,500,000 1,544,732
United Airlines, Inc.......................... BTL B2 B+ 9.13 02/01/12 248,750 251,060
United Airlines, Inc.......................... BTL-B B2 B+ 9.12 02/01/12 1,741,250 1,757,419
US Airways Group, Inc......................... BTL B3 B 8.86 03/31/11 500,000 503,973
-----------
5,069,684
-----------
Printing & Publishing -- 4.3%
Affinity Group, Inc........................... BTL NR B+ 7.85 06/24/09 1,162,232 1,166,591
FSC Acquisition LLC........................... Delayed Draw B2 B 7.61 08/01/12 51,391 51,444
FSC Acquisition LLC........................... BTL B2 B 7.61-7.62 08/01/12 430,257 430,705
GateHouse Media Operating, Inc................ 1st Lien B1 B+ 7.60 12/06/13 1,957,895 1,963,606
Idearc, Inc................................... BTL-B Ba3 BB+ 7.35 10/30/13 2,000,000 2,012,438
New Publications, Inc......................... 2nd Lien B2 CCC+ 12.62 02/05/13 250,000 252,500
Primedia, Inc................................. BTL-B B2 B 7.60 09/30/13 1,087,114 1,085,302
R.H. Donnelly, Inc............................ BTL-D2 Baa1 BB 6.85-6.87 06/30/11 1,498,895 1,495,668
Riverdeep Interactive Learning USA, Inc....... BTL-B Ba3 B 8.10 12/20/13 1,000,000 1,007,292
Thomas Nelson Publishers...................... BTL-B B1 B 7.60-7.62 06/12/12 497,500 498,744
-----------
9,964,290
-----------
19
SunAmerica Senior Floating Rate Fund, Inc.
PORTFOLIO OF INVESTMENTS -- December 31, 2006 -- (continued)
Ratings/(1)/
------------
Interest Maturity Principal Value
Industry Description Type Moody's S&P Rate Date/(2)/ Amount (Note 2)
- ----------------------------------------------------------------------------------------------------------------------
Retail Stores -- 4.8%
Burlington Coat Factory......................... BTL-B B2 B 7.62% 05/28/13 $ 491,250 $ 485,485
CSK Automotive, Inc............................. BTL B1 B+ 8.38-8.44 06/30/12 1,000,000 1,013,125
Jean Coutu Group, Inc........................... BTL-B B3 BB- 7.94 07/30/11 1,345,340 1,349,604
Michaels Stores, Inc............................ BTL B2 B- 8.38 10/31/13 2,937,500 2,958,768
Neiman-Marcus Group, Inc........................ BTL B1 B+ 7.60 04/06/13 949,367 957,137
Petco Animal Supplies, Inc...................... BTL B2 B 8.10 10/25/13 500,000 503,063
Quality Stores, Inc. (Central Tractor)+#@(5)(6). BTL-B Caa2 NR 10.75 04/30/07 833,705 --
Sally Beauty.................................... BTL B2 B+ 7.87 11/01/13 997,500 1,003,022
Supervalu, Inc.................................. BTL-B Ba3 BB- 7.10 06/02/13 992,500 995,775
Toys R Us, Inc.................................. BTL-B B2 B 9.63 07/01/13 2,000,000 2,060,500
------------
11,326,479
------------
Telecommunications -- 5.2%
Centennial Communications Corp.................. BTL B2 B- 7.61-7.62 02/09/11 1,375,000 1,386,745
Cricket Communications, Inc..................... BTL-B B3 B 8.11 06/16/13 2,985,000 3,020,447
FairPoint Communications, Inc................... BTL B1 BB- 7.13 02/08/12 1,000,000 1,000,469
Hawaiian Telecom Communications, Inc............ BTL-B B1 B 7.62 10/31/12 993,333 992,092
Madison River Capital LLC....................... BTL-B1 B1 B+ 7.62 07/29/12 742,857 745,063
MetroPCS Wireless, Inc.......................... BTL-B B3 B 7.88 11/02/13 997,500 1,002,176
Ntelos, Inc..................................... 1st Lien B2 B 7.57 08/24/11 1,470,052 1,476,116
Paetec Communications, Inc...................... 2nd Lien B2 CCC+ 12.88 06/12/12 250,000 254,688
Paetec Communications, Inc...................... BTL-B B2 B 8.88 06/12/12 497,500 500,817
Sorenson Communications, Inc.................... 1st Lien B2 B 8.35-8.36 08/11/13 496,421 500,041
Syniverse Holding LLC........................... BTL-B Ba3 BB- 7.12 02/15/12 1,193,370 1,198,591
------------
12,077,245
------------
Textiles & Leather -- 0.5%
Globe Manufacturing Corp.+#@(5)(7).............. BTL-B Caa2 NR 11.00 07/16/06 837,014 --
Hanesbrands, Inc................................ BTL-B Ba3 BB- 7.60-7.69 08/23/13 926,071 935,969
William Carter Co............................... BTL-B Ba3 BB 6.85-6.88 07/14/12 345,032 344,816
------------
1,280,785
------------
Utilities -- 3.3%
Boston Generating LLC........................... 1st Lien B1 B+ 7.60 12/20/13 1,000,000 1,008,594
Calpine Corp.................................... 2nd Lien B2 B 9.36 12/22/08 500,000 507,500
Connacher....................................... BTL-B B1 BB- 8.61 10/20/13 1,000,000 1,003,750
La Paloma Generating Co......................... BTL B1 BB- 7.11 08/16/12 14,945 14,839
La Paloma Generating Co......................... LOC B1 BB- 7.10 08/16/12 32,787 32,555
La Paloma Generating Co......................... BTL-C B3 B 8.86 08/16/13 250,000 251,458
La Paloma Generating Co......................... BTL-B B1 BB- 7.11 08/16/12 187,651 186,322
NE Energy, Inc.................................. 2nd Lien B3 B- 9.88 04/01/14 250,000 254,063
NRG Energy, Inc................................. CLD Ba3 BB- 7.36 02/02/13 1,000,000 1,005,962
NRG Energy, Inc................................. BTL Ba3 BB- 7.36 02/02/13 871,762 877,336
Reliant Energy, Inc............................. LOC B2 B 5.22 12/01/13 428,571 432,214
Reliant Energy, Inc............................. BTL B2 B 7.73 12/01/13 571,429 576,286
TPF Generation Holdings LLC..................... 2nd Lien NR NR 9.62 02/15/13 1,500,000 1,524,375
------------
7,675,254
------------
Total Loans (cost $219,568,485)................................................ 218,643,442
------------
20
SunAmerica Senior Floating Rate Fund, Inc.
PORTFOLIO OF INVESTMENTS -- December 31, 2006 -- (continued)
Principal
Amount/ Value
Industry Description Shares (Note 2)
----------------------------------------------------------------------------------------
CORPORATE BONDS -- 1.3%
Broadcasting & Entertainment -- 0.4%
Paxson Communications Corp.
11.62% due 01/15/13*(8)................................ $ 1,000,000 $ 1,012,500
------------
Electronics -- 0.9%
NXP BV
8.12% due 10/15/13*(8)................................. 2,000,000 2,030,000
------------
Total Corporate Bonds (cost $2,982,745)................. 3,042,500
------------
COMMON STOCK -- 0.1%
Oil & Gas -- 0.0%
Shaw Group, Inc.+....................................... 3,276 109,746
------------
Telecommunications -- 0.1%
Global Crossing, Ltd.+.................................. 175 4,296
SAVVIS Communications Corp.+............................ 6,313 225,437
------------
229,733
------------
Total Common Stock (cost $177,154)...................... 339,479
------------
Total Long-Term Investment Securities (cost $222,728,384) 222,025,421
------------
SHORT-TERM INVESTMENT SECURITIES -- 5.6%
Registered Investment Companies -- 5.6%
SSgA Money Market Fund (cost $13,083,087)............... 13,083,087 13,083,087
------------
TOTAL INVESTMENTS -- 100.6%
(cost $235,811,471)(9).................................. 235,108,508
Liabilities in excess of other assets -- (0.6)%............. (1,507,566)
------------
NET ASSETS -- 100.0%........................................ $233,600,942
============
- --------
BTL Bank Term Loan
CND TLCanadian Term Loan
LOC Letter of Credit
FSRI First Securities Repurchase Increase
CLD Credit Linked Deposit
CLC Credit Linked Commitment
NR Security is not rated.
+ Non-income producing security
@ Illiquid security. At December 31, 2006, the aggregate value of these
securities was $882,200, representing 0.4% of net assets.
# Fair valued security; see Note 2
* Securities exempt from registration under Rule 144A of the Securities Act
of 1933. These securities may be sold in transactions exempt from
registration, normally to qualified institutional buyers. The Fund has no
rights to demand registration of these securities. At December 31, 2006,
the aggregate value of these securities was $3,042,500 representing 1.3%
of net assets. Unless otherwise indicated, these securities are not
considered to be illiquid.
(1) Bank loans rated below Baa by Moody's Investor Service, Inc. or BBB by
Standard & Poor's Group are considered below investment grade. Ratings are
unaudited. Ratings provided are as of December 31, 2006.
(2) Based on the stated maturity, the weighted average to maturity of the
Loans held in the portfolio will be approximately 66 months. Loans in the
Fund's portfolio are generally subject to mandatory and/or optional
prepayment. Because of these mandatory prepayment conditions and because
there may be significant economic incentives for a Borrower to prepay,
prepayments may occur. As a result, the actual remaining maturity may be
substantially less than the stated maturities shown.
(3) The Fund invests in Senior Loans which generally pay interest at rates
which are periodically re-determined by reference to a base lending rate
plus a premium. These base lending rates are generally either the lending
rate offered by one or more major European banks, such as the London
Inter-Bank Offer Rate ("LIBOR") or the prime rate offered by one or more
major United States banks, or the certificate of deposit rate. Senior
Loans are generally considered to be restrictive in that the Fund is
ordinarily contractually obligated to receive approval from the Agent Bank
and/or borrower prior to the disposition of a Senior Loan.
(4) All loans in the portfolio were purchased through assignment agreements
unless otherwise indicated.
(5) Company has filed Chapter 11 bankruptcy protection.
(6) Loan is in default and did not pay principal at maturity. Final outcome of
Chapter 11 bankruptcy still to be determined.
(7) Loan is in default of interest payments.
(8) Floating rate security where the rate fluctuates. The rate moves up or
down at each reset date. The rate reflected is as of December 31, 2006.
(9) See Note 6 for cost of investments on a tax basis.
(10) Loan was purchased through a participation agreement.
(11) Loan is subject to an unfunded loan commitment. See Note 11 for details.
See Notes to Financial Statements
21
SunAmerica Senior Floating Rate Fund, Inc.
NOTES TO FINANCIAL STATEMENTS -- December 31, 2006
Note 1. Organization of the Fund
The SunAmerica Senior Floating Rate Fund, Inc. (the "Fund"), is a
non-diversified open-end management investment company. The Fund was
organized as a Maryland corporation on March 6, 1998, and is registered
under the Investment Company Act of 1940, as amended. The Fund is managed by
AIG SunAmerica Asset Management Corp. (the "Adviser" or "AIG SunAmerica"),
an indirect wholly-owned subsidiary of American International Group, Inc.
("AIG"). The Fund's investment goal and principal investment techniques are
to provide as high a level of current income as is consistent with the
preservation of capital by investing, under normal market conditions, at
least 80% of its net assets plus any borrowings for investment purposes in
senior secured floating rate loans and other institutionally traded senior
secured floating rate debt obligations. The Fund may also purchase
investment grade fixed income debt securities and money market instruments.
Prior to October 4, 2006, the Fund operated as a closed-end investment
management company. On October 4, 2006, the Fund converted from a closed-end
investment management company to an open-end investment management company.
Coincident with the conversion, the Class A shares were redesignated as
Class Q shares and a new class of shares designated as Class A commenced
offering.
The Fund offers four classes of shares. Class A shares are offered at net
asset value per share plus an initial sales charge. Additionally, purchases
of Class A shares in excess of $1,000,000 will be purchased at net asset
value but will be subject to a contingent deferred sales charge ("CDSC") on
redemptions made within two years of purchase. Class B shares are offered
for sale at net asset value without a front-end sales charge, although a
declining CDSC charge may be imposed on redemptions made within four years
of purchase. Class C shares are offered for sale at net asset value without
a front-end sales charge, although a CDSC may be imposed on redemptions made
within 12 months of purchase. Class D shares are offered for sale at net
asset value without a front-end sales charge and no CDSC. Class Q shares are
not currently offered for sale and are available only through a conversion
of Class B shares eight years after purchase and Class C shares purchased
before 1999, after ten years from purchase. The share classes differ in
their respective distribution and service fees. All classes have equal
rights to assets and voting privileges except as may otherwise be provided
in the Fund's registration statement.
Indemnifications: Under the Fund's organizational documents, its officers
and directors are indemnified against certain liability arising out of the
performance of their duties to the Fund. In addition, in the normal course
of business the Fund enters into contracts that may contain the obligation
to indemnify others. The Fund's maximum exposure under these arrangements is
unknown. Currently, however, the Fund expects the risk of loss to be remote.
Note 2. Significant Accounting Policies
The preparation of financial statements in accordance with U.S. generally
accepted accounting principles (GAAP) requires management to make estimates
and assumptions that affect the reported amounts and disclosures in the
financial statements. Actual results could differ from these estimates. The
following is a summary of the significant accounting policies followed by
the Fund in the preparation of its financial statements:
Security Valuation: The Fund's investments in loan interests ("Loans") are
valued in accordance with guidelines established by the Board of Directors.
Under the Fund's current guidelines, Loans for which an active secondary
market exists to a reliable degree will be valued at the mean of the last
available bid and asked prices in the market for such Loans, as provided by
a Board-approved loan pricing service. Loans for which an active secondary
market does not exist to a reliable degree will be valued at fair value,
which is intended to approximate market value. In valuing a Loan at fair
value, the following factors will be considered, (a) the creditworthiness of
the borrower and any intermediate participants, (b) the terms of the Loan,
(c) recent prices in the market for similar Loans, if any, and (d) recent
prices in the market for instruments of similar quality, rate, and period
until the next interest rate reset and maturity. Stocks are generally valued
based upon closing sales prices reported on recognized securities exchanges.
Stocks listed on the NASDAQ are valued using the NASDAQ Official Closing
Price ("NOCP"). Generally, the NOCP will be the last sale price unless the
reported trade for the stock is outside the range of the bid/ask price. In
such
22
SunAmerica Senior Floating Rate Fund, Inc.
NOTES TO FINANCIAL STATEMENTS -- December 31 2006 -- (continued)
cases, the NOCP will be normalized to the nearer of the bid or ask price.
For listed securities having no sales reported and for unlisted securities,
such securities will be valued based upon the last reported bid price.
Non-convertible bonds and debentures, other long-term debt securities, and
short-term debt securities with maturities in excess of 60 days, are valued
at bid prices obtained for the day of valuation from a bond pricing service,
when such prices are available. If a vendor quote is unavailable the
securities may be priced at the mean of two independent quotes obtained from
brokers. Securities for which market quotations are not readily available
are valued as determined pursuant to procedures adopted in good faith by the
Board of Directors. Short-term securities with 60 days or less to maturity
are amortized to maturity based on their cost to the Fund if acquired within
60 days of maturity or, if already held by the Fund on the 60/th/ day, are
amortized to maturity based on the value determined on the 61/st/ day.
Securities for which market quotations are not readily available or if a
development/significant event occurs that may significantly impact the value
of the security, then these securities are valued, as determined pursuant to
procedures adopted in good faith by the Board of Directors.
The Senior Loans in which the Fund primarily invests are generally not
listed on any exchange and the secondary market for those senior Loans is
comparatively illiquid relative to markets for other fixed income
securities. Consequently, obtaining valuations for those Loans may be more
difficult than obtaining valuations for actively traded securities. Thus,
the value upon disposition on any given Loan may differ from its current
valuation.
Repurchase Agreements: The Fund may enter into repurchase agreements. The
Fund's custodian takes possession of the collateral pledged for investments
in repurchase agreements. The underlying collateral is valued daily on a
mark to market basis to ensure that the value, including accrued interest,
is at least 102% of the repurchase price. In the event of default of the
obligation to repurchase, the Fund has the right to liquidate the collateral
and apply the proceeds in satisfaction of the obligation. If the seller
defaults and the value of the collateral declines or if bankruptcy
proceedings are commenced with respect to the seller of the security,
realization of the collateral by the Fund may be delayed or limited. At
December 31, 2006, the Fund did not enter into any repurchase agreements.
Securities Transactions, Investment Income, Expenses, Dividends and
Distributions to Shareholders: Security transactions are recorded on a trade
date basis. Realized gains and losses on sales of investments are calculated
on the identified cost basis. Interest income is accrued daily except when
collection is not expected. Dividend income is recorded on the ex-dividend
date. For financial statement purposes, the Fund amortizes all premiums and
accretes all discounts. Facility fees received, which were $54,390 for the
period ended December 31, 2006, are accreted to income over the life of the
Loans. Other income, including amendment fees, commitment fees, letter of
credit fees, etc., which were $480,577 for the period ended December 31,
2006, are recorded as income when received or contractually due to the Fund.
Net investment income, other than class specific expenses, and realized and
unrealized gains and losses, are allocated daily to each class of shares
based upon the relative net asset value of outstanding shares of each class
of shares at the beginning of the day (after adjusting for the current
capital share activity of the respective class). Interest earned on cash
balances held at the custodian are shown as custody credits on the Statement
of Operations.
Dividends from net investment income are normally declared daily and paid
monthly. Capital gain distributions, if any, are paid annually. The Fund
records dividends and distributions to the shareholders on the ex-dividend
date. The amount of dividends and distributions from net investment income
and net realized capital gains are determined in accordance with federal
income tax regulations, which may differ from U.S. generally accepted
accounting principles. These "book/tax" differences are either considered
temporary or permanent in nature. To the extent these differences are
permanent in nature, such amounts are reclassified within the capital
accounts at fiscal year end based on their federal tax-basis treatment;
temporary differences do not require reclassification. Net investment
income/loss, net realized gain/loss, and net assets are not affected. The
Fund intends to comply with the requirements of the Internal Revenue Code,
as amended, applicable to regulated investment companies and distribute all
of its taxable income, including any net realized gain on investments, to
its shareholders. Therefore, no federal tax provision is required.
23
SunAmerica Senior Floating Rate Fund, Inc.
NOTES TO FINANCIAL STATEMENTS -- December 31, 2006 -- (continued)
On July 13, 2006, the Financial Accounting Standards Board (FASB) released
FASB Interpretation No. 48 "Accounting for Uncertainty in Income Taxes" (FIN
48). FIN 48 provides guidance for how uncertain tax positions should be
recognized, measured, presented and disclosed in the financial statements.
FIN 48 requires the evaluation of tax positions taken or expected to be
taken in the course of preparing the Fund's tax returns to determine whether
the tax positions are "more-likely-than-not" of being sustained by the
applicable tax authority. Adoption of FIN 48 is required for fiscal years
beginning after December 15, 2006 and is to be applied to all open tax years
as of the effective date. However, Registered Investment Companies are not
required to implement FIN 48 until their last net asset value calculation in
the first required financial statement reporting period for fiscal years
beginning after December 15, 2006. At this time, management is evaluating
the implications of FIN 48 and its impact in the financial statements, if
any, has not yet been determined.
In September 2006, the FASB issued Statement on Financial Accounting
Standards No. 157, "Fair Value Measurements" (FAS 157). This standard
clarifies the definition of fair value for financial reporting, establishes
a framework for measuring fair value and requires additional disclosures
about the use of fair value measurements. FAS 157 is effective for financial
statements issued for fiscal years beginning after November 15, 2007 and
interim periods within those fiscal years. As of December 31, 2006, the Fund
does not believe the adoption of FAS 157 will impact the amounts reported in
the financial statements, however, additional disclosures will be required
about the inputs used to develop the measurements of fair value.
Statement of Cash Flows: Information on financial transactions which have
been settled through the receipt or disbursement of cash is presented in the
Statement of Cash Flows. The cash amount shown in the Statement of Cash
Flows is the amount included in the Fund's Statement of Assets and
Liabilities and represents cash on hand at its custodian bank account, and
does not include any short-term investments at December 31, 2006.
Note 3. Capital Share Transactions
The Fund has 1,000,000,000 of $.01 par value shares authorized that may be
issued in five different classes. Transactions in shares of each class were
as follows:
For the period
October 4, 2006**-
December 31, 2006
------------------------- -
Shares Amount
Class A# ---------- ------------
Shares sold................. 1,759,134 $ 16,531,338
Reinvested distributions.... 5,048 47,437
Shares redeemed............. (257,470) (2,418,681)
---------- ------------
Net increase (decrease).. 1,506,712 $ 14,160,094
========== ============
For the For the
year ended year ended
December 31, 2006 December 31, 2005
------------------------- -------------------------
Shares Amount Shares Amount
Class B ---------- ------------ ---------- ------------
Shares sold................. 453,924 $ 4,269,518 254,487 $ 2,391,460
Reinvested distributions.... 118,659 1,116,260 84,193 791,345
Shares redeemed............. (501,412)* (4,716,044)* (581,114)@ (5,462,413)@
---------- ------------ ---------- ------------
Net increase (decrease).. 71,171 $ 669,734 (242,434) $ (2,279,608)
========== ============ ========== ============
For the For the
year ended year ended
December 31, 2006 December 31, 2005
------------------------- -------------------------
Shares Amount Shares Amount
Class C ---------- ------------ ---------- ------------
Shares sold................. 6,565,881 $ 61,753,971 3,815,180 $ 35,893,397
Reinvested distributions.... 673,809 6,338,411 480,086 4,512,412
Shares redeemed............. (4,906,086) (46,157,931) (6,375,191) (59,926,283)
---------- ------------ ---------- ------------
Net increase (decrease).. 2,333,604 $ 21,934,451 (2,079,925) $(19,520,474)
========== ============ ========== ============
24
SunAmerica Senior Floating Rate Fund, Inc.
NOTES TO FINANCIAL STATEMENTS -- December 31, 2006 -- (continued)
For the For the
year ended year ended
December 31, 2006 December 31, 2005
------------------------ ------------------------
Shares Amount Shares Amount
Class D ---------- ------------ ---------- ------------
Shares sold................. 819,357 $ 7,710,168 923,576 $ 8,679,305
Reinvested distributions.... 110,443 1,039,375 101,255 951,642
Shares redeemed............. (1,689,707) (15,879,854) (1,494,315) (14,065,813)
---------- ------------ ---------- ------------
Net increase (decrease).. (759,907) $ (7,130,311) (469,484) $ (4,434,866)
========== ============ ========== ============
For the For the
year ended year ended
December 31, 2006 December 31, 2005
------------------------ ------------------------
Shares Amount Shares Amount
Class Q# ---------- ------------ ---------- ------------
Shares sold................. 49,174* $ 462,208* 20,621@ $ 194,088@
Reinvested distributions.... 2,075 19,516 1,003 9,426
Shares redeemed............. (11,733) (110,650) (2,715) (25,453)
---------- ------------ ---------- ------------
Net increase (decrease).. 39,516 $ 371,074 18,909 $ 178,061
========== ============ ========== ============
* Includes automatic conversion of 45,900 shares of Class B shares in the
amount of $431,458 to 45,900 shares of Class Q shares in the amount of
$431,458.
@ Includes automatic conversion of 20,621 shares of Class B shares in the
amount of $194,088 to 20,621 shares of Class Q shares in the amount of
$194,088.
** Inception date of class.
# Effective October 4, 2006, Class A shares were redesignated to Class Q
shares and a new class of shares designated as Class A commenced offering.
Prior to converting to an open-end investment company, in order to provide
shareholders with liquidity and the ability to receive net asset value on a
disposition of shares, the Fund made monthly offers to repurchase a
percentage (generally up to 10%) of outstanding shares at net asset value
subject to any applicable Early Withdrawal Charge. Shareholders were sent a
Notification of Repurchase Offer seven to fourteen days before each monthly
repurchase offer. During the period from January 1, 2006 through October 3,
2006, the Fund made nine Repurchase Offers and redeemed the amounts shown in
the table below.
Amount Tendered Amount Tendered
--------------------- ------------------
Shares Amount Shares Amount
--------- ----------- ------- ----------
January. 544,880 $ 5,127,272 July..... 430,282 $4,036,044
February 482,301 4,548,038 August... 564,148 5,297,352
March... 590,069 5,576,080 September 530,020 4,976,890
April... 457,271 4,321,214
May..... 530,129 4,988,532
June.... 1,305,272 12,256,658
Note 4. Purchases and Sales of Securities
During the period ended December 31, 2006, the Fund's cost of purchases of
Loans and proceeds from Loan sales were $145,632,830 and $126,956,702,
respectively.
Note 5. Investment Advisory Agreement and Other Transactions with Affiliates
The Fund has entered into an Investment Advisory and Management Agreement
(the "Advisory Agreement") with AIG SunAmerica. Pursuant to the Advisory
Agreement, AIG SunAmerica provides continuous supervision of the Fund and
administers its corporate affairs, subject to the general review and
oversight of the Board. In connection therewith, AIG SunAmerica furnishes
the Fund with office facilities, maintains certain of the Fund's books and
records and pays the salaries and expenses of all personnel, including
officers of the Fund who are employees of AIG SunAmerica and its affiliates.
AIG SunAmerica also selects, contracts with and compensates the subadviser
to manage the Fund's assets. The Fund will pay AIG SunAmerica a monthly
advisory fee at the following annual rates, based on the average daily net
assets of the Fund: 0.85% on the first $1 billion; 0.80% on the next $1
billion; and 0.75% thereafter.
AIG Global Investment Corp. ("AIGGIC") acts as subadviser to the Fund
pursuant to a Subadvisory Agreement with AIG SunAmerica. AIGGIC is an
indirect wholly-owned subsidiary of AIG and is an affiliate of AIG
SunAmerica. Under the Subadvisory Agreement, AIGGIC manages the investment
and reinvestment of the Fund's assets. As compensation for its services as
subadviser, AIGGIC is entitled to receive from AIG SunAmerica a monthly fee
payable at the following annual rates: 0.25% for the first $1 billion of
average daily net assets; and 0.20% for average daily net assets of more
than $1 billion. The fee paid to the subadviser is paid by AIG SunAmerica
and not the Fund.
25
SunAmerica Senior Floating Rate Fund, Inc.
NOTES TO FINANCIAL STATEMENTS -- December 31, 2006 -- (continued)
Pursuant to the Administrative Services Agreement (the "Administrative
Agreement") AIG SunAmerica acts as the Fund's administrator and is
responsible for providing and supervising the performance by others, of
administrative services in connection with the operations of the Fund,
subject to supervision by the Fund's Board of Directors. For its services,
AIG SunAmerica receives an annual fee equal to 0.40% of average daily net
assets of the Fund. For the period ended December 31, 2006, AIG SunAmerica
accrued administration fees in the amount of $843,296.
The Fund has entered into a Distribution Agreement with AIG SunAmerica
Capital Services, Inc. ("AIG SACS" or the "Distributor"), an affiliate of
AIG SunAmerica. The Fund, on behalf of each Class, except Class D, has
adopted a plan of distribution pursuant to Rule 12b-1 under the 1940 Act
(each a "Plan" and collectively, the "Plans"). Hereinafter referred to as
the "Class A Plan," "Class B Plan," "Class C Plan," and "Class Q Plan." In
adopting the Plans, the Board determined that there was a reasonable
likelihood that each such Plan would benefit the Fund and the shareholders
of the respective class. The sales charge and distribution fees of a
particular class will not be used to subsidize the sale of shares of any
other class.
The Class A, Class B and Class C Plans provide that the Fund, on behalf of
the respective classes, shall pay the Distributor a distribution fee at an
annual rate of 0.10% of average daily net assets of Class A shares and 0.50%
of average daily net assets of Class B and C shares, to compensate the
Distributor and certain securities firms for providing sales and promotional
activities for distributing that class of shares. The distribution costs for
which the Distributor may be compensated for include fees paid to
broker-dealers that have sold Fund shares, commissions and other expenses
such as those incurred for sales literature, prospectus printing and
distribution and compensation to wholesalers. It is possible that in any
given year the amount paid to the distributor under the Class A, Class B and
Class C Plans may exceed the Distributor's distribution costs as described
above. The Plans also provide that Class A, Class B, Class C and Class Q
shares of the Fund shall pay the Distributor an account maintenance fee of
0.25% of the average daily net assets of such class of shares to compensate
the Distributor and securities firms for account maintenance activities. For
the period ended December 31, 2006 AIG SACS received sales charges on Class
A shares of $15,510, of which $3,850 was reallowed to affiliated
broker-dealers and $5,695 to non-affiliated broker-dealers. In addition, AIG
SACS receives the proceeds of early withdrawal charges paid by investors in
connection with certain redemptions of Class B and Class C shares. For the
period ended December 31, 2006, AIG SACS received early withdrawal charges
of $73,722. For the period ended December 31, 2006 AIG SACS voluntarily
waived fees for the following classes: Class A $2,114, Class B $64,341,
Class C $407,466, and Class Q $225. The fee waiver and expense reimbursement
will continue indefinitely but may be terminated at any time.
The Fund has entered into a Service Agreement with AIG SunAmerica Fund
Services, Inc. ("AIG SAFS"), an indirect wholly-owned subsidiary of AIG
SunAmerica. Under the Service Agreement, SAFS performs certain shareholder
account functions by assisting the Fund's transfer agent in connection with
the services that it offers to the shareholders of the Fund. The Service
Agreement, which permits the Fund to compensate AIG SAFS for services
rendered based upon an annual rate of 0.22% of average daily net assets, is
approved annually by the Board of Directors. For the period ended December
31, 2006, the Fund incurred the following expenses, which are included in
the transfer agent fees and expenses payable on the Statement of Assets and
Liabilities and in transfer agent fees and expenses in the Statement of
Operations to compensate AIG SAFS pursuant to the terms of the Service
Agreement.
Payable at
Expense December 31, 2006
------- -----------------
Class A+...................... $ 2,958 $ 1,965
Class B....................... 13,677 4,812
Class C....................... 90,594 32,545
Class D....................... 8,849 3,000
Class Q+...................... 322 136
- --------
+ Effective October 4, 2006, Class A shares were redesignated to Class Q
shares and a new class of shares designated as Class A commenced offering.
AIG SunAmerica contractually agreed to waive fees and/or reimburse expenses
to the extent necessary to cap the Fund's annual operating expenses at 1.45%
for Class A, and 1.75% for Class B and Class C of average daily net assets.
The expense reimbursements and fee waivers will continue indefinitely,
subject to termination by the
Directors, including a majority of the Independent Directors. AIG SunAmerica
voluntarily agreed to waive fees or
26
SunAmerica Senior Floating Rate Fund, Inc.
NOTES TO FINANCIAL STATEMENTS -- December 31, 2006 -- (continued)
reimburse expenses, if necessary, at or below 1.45% for Class Q and 1.25%
for Class D of average daily net assets. The expense waiver and fee
reimbursement will continue indefinitely but may be terminated at any time.
For the period ended December 31, 2006, AIG SunAmerica waived fees and
reimbursed expenses as follows: Class A $22,177, Class B $114,858, Class C
$636,728, Class D $96,176, and Class Q $11,138.
Note 6. Federal Income Taxes
The following details the tax basis distributions as well as the components
of distributable earnings. The tax basis components of distributable
earnings differ from the amounts reflected in the Statement of Assets and
Liabilities by temporary book/tax differences primarily arising from wash
sales, retirement pension expense, dividends payable and treatment of
defaulted securities.
Distributable Earnings Tax Distributions
- ---------------------------------------- -------------------------------------------------------------------------
For the year ended December 31, 2006 For the year ended December 31, 2006 For the year ended December 31, 2005
- ---------------------------------------- ------------------------------------ ------------------------------------
Long-term Gains/ Unrealized Long-term Long-term
Ordinary Capital Loss Appreciation Ordinary Capital Ordinary Capital
Income Carryover (Depreciation) Income Gains Income Gains
- -------- ---------------- -------------- ----------- --------- ---------- ---------
$2,886 $(27,384,177) $(703,790) $13,291,502 $ -- $9,746,310 $ --
Capital Loss Carryforwards. At December 31, 2006 capital loss carryforwards
available to offset future recognized gains were $27,384,177, with $16,694
expiring in 2007, $1,179,134 expiring in 2008, $9,997,029 expiring in 2009,
$7,736,363 expiring in 2010, $4,956,144 expiring in 2011, and $3,498,813
expiring in 2012.
During the year ending December 31, 2006, the Senior Floating Rate Fund
utilized $312,979 of capital loss carry forwards to offset current year
capital gains.
Under the current tax law, capital losses related to securities and foreign
currency realized after October 31 and prior to the Fund's fiscal year end
may be deferred as occurring on the first day of the following year. For the
fiscal year ended December 31, 2006, the Fund elected to defer $7,366 of
Post-October Capital Losses.
Unrealized appreciation and depreciation in the value of investments at
December 31, 2006 for federal income tax purposes were as follows:
Cost (tax basis)............................................ $235,812,298
============
Gross unrealized appreciation............................... $ 1,565,401
Gross unrealized depreciation............................... (2,269,191)
------------
Net unrealized depreciation................................. $ (703,790)
============
Note 7. Director Retirement Plan
The Directors of the Corporation have adopted the AIG SunAmerica
Disinterested Trustees' and Directors' Retirement Plan (the "Retirement
Plan") effective January 1, 1993 for the unaffiliated Directors. The
Retirement Plan provides generally that an unaffiliated Director may become
a participant ("Participant") in the Retirement Plan if he or she has at
least 10 years of consecutive service as a Disinterested Director of any of
the adopting AIG SunAmerica mutual funds (the "Adopting Funds") or has
attained the age of 60 while a Director and completed five (5) consecutive
years of service as a Director of any Adopting Fund (an "Eligible
Director"). Pursuant to the Retirement Plan, an Eligible Director may
receive benefits upon (i) his or her death or disability while a Director or
(ii) the termination of his or her tenure as a Director, other than removal
for cause from each of the Adopting Funds with respect to which he or she is
an Eligible Director.
As of each of the first 10 birthdays after becoming a Participant and on
which he or she is both a Director and Participant, each Eligible Director
will be credited with an amount equal to 50% of his or her regular fees
(excluding committee fees) for services as a Disinterested Director of each
Adopting Fund for the calendar year in which such birthday occurs. In
addition, an amount equal to 8.50% of any amounts credited under the
preceding statement during prior years is added to each Eligible Director's
account. The rights of any Participant to benefits under the Retirement Plan
shall be an unsecured claim against the assets of the Adopting Funds.
An Eligible Director may receive any benefits payable under the Retirement
Plan, at his or her election, either in one lump sum or in up to 15 annual
installments. Any undistributed amounts shall continue to accrue interest at
8.50%.
As of December 31, 2006, the Fund had accrued $16,343 for the Retirement
Plan, which is included in Directors' fees and expenses line on the
Statement of Assets and Liabilities and for the period ended December 31,
2006, expensed $4,599 for the Retirement Plan, which is included in
Directors' fees and expenses line on the Statement of Operations.
27
SunAmerica Senior Floating Rate Fund, Inc.
NOTES TO FINANCIAL STATEMENTS -- December 31, 2006 -- (continued)
Note 8. Line of Credit
The AIG SunAmerica Family of Mutual Funds has established $75 million
committed and $50 million uncommitted lines of credit with State Street Bank
& Trust Company, the Fund's custodian. Interest is currently payable at the
Federal Funds rate plus 50 basis points on the committed line and State
Street's discretionary bid rate on the uncommitted line of credit. There is
also a commitment fee of 10 basis points per annum on the daily unused
portion of the $75 million committed line of credit, which is included in
other expenses on the Statement of Operations. Borrowings under the line of
credit will commence when the Fund's cash shortfall exceeds $100,000. The
committed and uncommitted lines of credit were not used during the period
from October 4, 2006, through December 31, 2006.
From January 1, 2006 through October 3, 2006, the Fund had an agreement with
State Street Bank & Trust Company that provided a $20,000,000 committed
unsecured Line of Credit to the Fund to be used for overdraft protection.
Interest was payable at the Federal Funds rate plus 50 basis points. There
was also a commitment fee of 10 basis points per annum on the daily unused
portion of the line of credit. For the period January 1, 2006, through
October 3, 2006, the Fund had borrowings outstanding for 13 days under the
line of credit and incurred $4,107 in interest charges related to these
borrowings. The Fund's average amount of debt under the line of credit for
the days utilized was $1,965,321 at a weighted average interest rate of
5.66%. At December 31, 2006, there were no borrowings outstanding.
Note 9. Interfund Lending Agreement
Pursuant to the exemptive relief granted by the Securities and Exchange
Commission (the "SEC"), the Fund is permitted to participate in an interfund
lending program among investment companies advised by AIG SunAmerica or an
affiliate. The interfund lending program allows the participating funds to
borrow money from and lend money to each other for temporary or emergency
purposes. An interfund loan will be made under this facility only if the
participating funds receive a more favorable interest rate than would
otherwise be available from a typical bank for a comparable transaction. For
the period ended December 31, 2006, the Fund did not participate in this
program.
Note 10. Investment Concentration
The Fund invests primarily in participations and assignments, or acts as a
party to the primary lending syndicate of a Variable Rate Senior Loan
interest to United States corporations, partnerships, and other entities. If
the lead lender in a typical lending syndicate becomes insolvent, enters
receivership or, if not FDIC insured, enters into bankruptcy, the Fund may
incur certain costs and delays in receiving payment, or may suffer a loss of
principal and/or interest. When the Fund purchases a participation of a
Senior Loan interest, the Fund typically enters into a contractual agreement
with the lender or other third party selling the participation but not with
the borrower directly. As such, the Fund assumes the credit risk of the
Borrower, Selling Participant or other persons positioned between the Fund
and the Borrower.
Note 11. Unfunded Loan Commitments
On December 31, 2006, the Fund had the following unfunded loan commitments
which could be extended at the option of the Borrower:
Maturity
Name Type Date Amount
- ---- ---------------------- -------- --------
Persona Communication, Inc.............. Delayed Draw Term Loan 10/12/13 $ 95,750
Trump Entertainment Resorts Holdings LP. Delayed Draw Term Loan 05/20/12 493,747
WMG Acquisition Corp.................... Revolver 02/28/10 492,000
28
SunAmerica Senior Floating Rate Fund, Inc.
NOTES TO FINANCIAL STATEMENTS -- December 31, 2006 -- (continued)
Note 12. Other Information
On February 9, 2006, AIG, the parent company and an affiliated person of AIG
SunAmerica, AIG SACS, and AIGGIC, announced that it had consented to the
settlement of an injunctive action instituted by the SEC. In its complaint,
the SEC alleged that AIG violated Section 17(a) of the Securities Act of
1933, as amended, Sections 10(b), 13(a), 13(b)(2) and 13(b)(5) of the
Securities Exchange Act of 1934, as amended, and Rules 10b-5, 12b-20, 13a-1
and 13b2-1 promulgated thereunder, in connection with AIG's accounting and
public reporting practices. The conduct described in the complaint did not
involve any conduct of AIG or its subsidiaries related to their investment
advisory or distribution activities with respect to the assets of the Fund.
AIG, without admitting or denying the allegations in the complaint (except
as to jurisdiction), consented to the entry of an injunction against further
violations of the statutes referred to above. Absent exemptive relief
granted by the SEC, the entry of such an injunction would prohibit AIG and
its affiliated persons from, among other things, serving as an investment
adviser of any registered investment management company or principal
underwriter for any registered open-end investment company pursuant to
Section 9(a) of the 1940 Act. Certain affiliated persons of AIG, including
the Adviser, received a temporary order from the SEC pursuant to Section
9(c) of the 1940 Act with respect to the entry of the injunction, granting
exemptive relief from the provisions of Section 9(a) of the 1940 Act. The
temporary order permits AIG and its affiliated persons, including AIG's
investment management subsidiaries, to serve as investment adviser,
sub-adviser, principal underwriter or sponsor of the Fund. The Adviser
expects that a permanent exemptive order will be granted, although there is
no assurance the SEC will issue the order.
Additionally, AIG and its subsidiaries reached a resolution of claims and
matters under investigation with the United States Department of Justice
("DOJ"), the Attorney General of the State of New York ("NYAG") and the New
York State Department of Insurance ("DOI"), regarding accounting, financial
reporting and insurance brokerage practices of AIG and its subsidiaries, as
well as claims relating to the underpayment of certain workers compensation
premium taxes and other assessments.
As a result of the settlements with the SEC, the DOJ, the NYAG and the DOI,
AIG will make payments totaling approximately $1.64 billion. In addition, as
part of its settlements, AIG has agreed to retain for a period of three
years an Independent Consultant who will conduct a review that will include
the adequacy of AIG's internal controls over financial reporting and the
remediation plan that AIG has implemented as a result of its own internal
review.
Subject to receipt of permanent relief, the Adviser, Distributor and AIGGIC
believe that the settlements are not likely to have a material adverse
effect on their ability to perform their respective investment advisory or
distribution services relating to the Fund.
29
SunAmerica Senior Floating Rate Fund, Inc.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of SunAmerica Senior Floating Rate
Fund, Inc.:
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations, of
changes in net assets and of cash flows and the financial highlights present
fairly, in all material respects, the financial position of SunAmerica Senior
Floating Rate Fund, Inc. (the "Fund") at December 31, 2006, the results of its
operations and its cash flows for the year then ended, the changes in its net
assets for each of the two years in the period then ended and the financial
highlights for the periods indicated, in conformity with accounting principles
generally accepted in the United States of America. These financial statements
and financial highlights (hereafter referred to as "financial statements") are
the responsibility of the Fund's management; our responsibility is to express
an opinion on these financial statements based on our audits. We conducted our
audits of these financial statements 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 are free of material misstatement. An audit
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, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at December 31, 2006 by correspondence with the
custodian, brokers and selling or agent banks, provide a reasonable basis for
our opinion.
PricewaterhouseCoopers LLP
Houston, TX
February 20, 2007
30
SunAmerica Senior Floating Rate Fund, Inc.
APPROVAL OF THE INVESTMENT ADVISORY AND MANAGEMENT AGREEMENT AND
SUBADVISORY AGREEMENT -- December 31, 2006 -- (unaudited)
The Board, including the Directors that are not interested persons of the Fund
AIG SunAmerica or AIGGIC, within the meaning of the 1940 Act, (the
"Disinterested Trustees"), approved the continuation of the Advisory Agreement
for a one-year period ending August 31, 2007, at a meeting held on August 29,
2006. At this same meeting, the Board also approved the continuation of the
Subadvisory Agreement between AIG SunAmerica and AIGGIC with respect to the
Fund for a one-year period ending August 31, 2007.
In accordance with Section 15(c) of the 1940 Act, the Board requested and the
Adviser provided materials relating to the Board's consideration of whether to
approve the continuation of the Advisory Agreement and Subadvisory Agreement.
In determining whether to approve the continuation of the Advisory Agreement
and Subadvisory Agreement, the Board, including the Disinterested Directors,
considered the following information:
Nature, Extent and Quality of Services Provided by the Adviser and Subadviser
The Board, including the Disinterested Directors, considered the nature,
quality and extent of services to be provided by AIG SunAmerica and AIGGIC. The
Board noted that the services include acting as investment manager and adviser
to the Fund, managing the daily business affairs of the Fund, and obtaining and
evaluating economic, statistical and financial information to formulate and
implement investment policies. Additionally, the Board observed that AIG
SunAmerica provides office space, accounting, legal, compliance, clerical and
administrative services (exclusive of, and in addition to, overseeing any such
service provided by any others retained by the Fund, including the Subadviser),
and has authorized any of its officers and employees, if elected, to serve as
officers or directors of the Fund without compensation. Finally, the Board
noted that AIG SunAmerica is responsible for monitoring and reviewing the
activities of affiliated and unaffiliated third-party service providers,
including the Subadviser.
In connection with the services provided by AIG SunAmerica, the Board analyzed
the structure and duties of AIG SunAmerica's fund administration, accounting,
legal and compliance departments and concluded that they were adequate to meet
the needs of the Fund. The Board further noted that AIG SunAmerica provides and
compensates a Chief Compliance Officer for the Fund and reviewed information
concerning AIG SunAmerica's compliance staff. The Board also reviewed the
personnel responsible for providing advisory services to the Fund, and the
level and process of monitoring the portfolio managers, and concluded, based on
their experience and interaction with the Adviser, that (i) the Adviser was
able to retain quality portfolio managers and other personnel; (ii) the Adviser
exhibited a high level of diligence and attention to detail in carrying out its
advisory responsibilities under the Advisory Agreement; (iii) the Adviser was
responsive to requests of the Board; and (iv) the Adviser had kept the Board
apprised of developments relating to the Fund and the industry in general. The
Board concluded that the nature and extent of services provided under the
Advisory Agreement were reasonable and appropriate in relation to the
management fee and that the quality of services continues to be high.
The Board also considered AIG SunAmerica's reputation and long-standing
relationship with the Fund and considered the benefit to shareholders of
investing in a fund that is part of a family of funds offering a variety of
types of mutual fund and shareholder services. The Board considered AIG
SunAmerica's experience in providing management and investment advisory and
administrative services to advisory clients, including approximately 154
registered mutual funds and the fact that as of June 30, 2006 AIG SunAmerica
managed, advised an/or administered approximately $48.6 billion of assets.
With respect to the subadvisory services provided by AIGGIC, the Board also
considered the nature, quality and extent of services provided by AIGGIC. The
Board observed that AIGGIC is responsible for providing investment management
services, including investment research, advice and supervision, and
determining which securities will be purchased or sold by the Fund. The Board
reviewed AIGGIC's history, structure, size, visibility and resources, which are
needed to attract and retain highly qualified investment professionals. The
Board reviewed the personnel responsible for providing subadvisory services to
the Fund and concluded, based on their experience with AIGGIC, that (i) AIGGIC
was able to retain high quality portfolio managers and other investment
personnel; (ii) AIGGIC exhibited a high level of diligence and attention to
detail in carrying out its responsibilities under the Subadvisory Agreement;
and (iii) AIGGIC was responsive to requests of the Board and of AIG SunAmerica.
With respect to the administrative services provided by AIGGIC, the Board
considered that AIGGIC provides general marketing assistance and has developed
internal policies and procedures for monitoring compliance with the investment
objectives, policies and restrictions of the Fund as set forth in the Fund's
prospectus. The Board concluded that the nature and extent of services provided
by AIGGIC under the Subadvisory Agreement were reasonable and appropriate in
relation to the subadvisory fee and that the quality of services continues to
be high.
31
SunAmerica Senior Floating Rate Fund, Inc.
APPROVAL OF THE INVESTMENT ADVISORY AND MANAGEMENT AGREEMENT AND
SUBADVISORY AGREEMENT -- December 31, 2006 -- (unaudited) (continued)
The Board also considered AIG SunAmerica's and AIGGIC's compliance and
regulatory history, and noted that neither AIG SunAmerica nor AIGGIC had been
the target of any regulatory actions or investigations that could potentially
affect its ability to provide investment management and advisory services to
the Fund.
Investment Performance of the Fund and the Adviser and Subadviser
The Board also reviewed and considered the performance of the Fund. In
preparation for the August 29, 2006 meeting, the Board was provided with
reports independently prepared by Lipper, Inc. ("Lipper"). In connection with
its review, the Board received and reviewed information regarding the
investment performance of the Fund as compared to the Fund's peer group ("Peer
Group") and peer universe ("Peer Universe"), as determined by Lipper, and to an
appropriate index or combination of indices. The Board reviewed the Fund's
performance as a whole, in light of certain economic, market and other factors,
and also reviewed the Fund's performance compared to its Peer Group and Peer
Universe. The Board also noted that it regularly reviews the performance of the
Fund periodically throughout the year.
Based on the Lipper reports, the Board reviewed the Fund's annualized total
return, as applicable, for the prior one-, two-, three-, four- and five- year
periods ended June 30, 2006, as well as since the Fund's inception. In
considering the performance of AIGGIC, the Board noted that while the Fund's
performance ranked in the fourth quintile of its Peer Universe for the one-year
period and the fifth quintile for the three- and five-year periods ending June
30, 2006, the Fund had provided good long-term performance and ranked in the
third-quintile of its Peer Universe since its inception.
In considering AIG SunAmerica's performance as investment adviser, the Board
was provided with a presentation that compared the present and historical
staffing levels and annual budget of the Investments Department. In considering
the performance of AIG SunAmerica and AIGGIC, the Board did not rely upon
comparisons of AIG SunAmerica's or AIGGIC's performance with respect to its
other advisory clients.
Consideration of the Management Fee and Subadvisory Fee and the Cost of the
Services and Profits Realized by the Investment Adviser, Subadviser and their
Affiliates from the Relationship with the Fund
The Board, including the Disinterested Directors, received and reviewed
information regarding the fees paid by the Fund to AIG SunAmerica for
investment advisory and management services and the fees paid by AIG SunAmerica
to AIGGIC pursuant to the Subadvisory Agreements. The Board examined this
information in order to determine the reasonableness of the fees in light of
the nature and quality of services provided and any potential additional
benefits received by AIG SunAmerica, the Subadviser or their affiliates in
connection with providing such services to the Fund.
To assist in analyzing the reasonableness of the fees, the Board received
reports prepared independently by Lipper. The reports showed comparative fee
information of the Fund's Peer Group and Peer Universe, including rankings
within the categories. In considering the reasonableness of the management fee
and subadviser fee, the Board reviewed a number of expense comparisons,
including: (i) contractual advisory and subadvisory fees; and (ii) actual total
operating expenses. The Board also received information on fees charged by the
Subadviser for management of funds similar to the Fund. This information
assisted the Board in considering what other clients pay AIGGIC for similar
services. The Board did not rely upon comparisons of the fees earned by AIG
SunAmerica with respect to other investment advisory contracts. The Board also
considered the contractual expense cap proposed by the Adviser in connection
with the new Class A shares that would commence offering in connection with the
Fund's conversion to an open-end fund as well as comparative information
presented by AIG SunAmerica regarding the net expense ratios of Class A shares
other funds that have a similar investment technique. In considering the Fund's
total operating expenses, the Board analyzed the level of fee waivers and
expense reimbursements and the net expense caps contractually agreed upon by
AIG SunAmerica with respect to certain classes of the Fund. The Board compared
the Fund's net expense ratios to those of other funds within the Fund's Peer
Group and Peer Universe as a guide to help assess the reasonableness of the
Fund's management fee. The Board acknowledged that it was difficult to make
precise comparisons with other funds in the Peer Group since the exact nature
of services provided under the Peer Group's fund agreements is often not
apparent. The Board noted that the Peer Group fee information as a whole was
useful in assessing whether the Adviser was providing services at a cost that
was competitive with other, similar funds. The Board also took into account
that the management fee arrangement for the Fund included breakpoints that will
adjust the fee downward as the size of Fund increases, thereby allowing the
shareholders to participate in economies of scale.
In considering the subadvisory fee, the Board, including the Disinterested
Directors, considered that the Fund pays a fee to AIG SunAmerica pursuant to
the Advisory Agreement, and that, in turn, AIG SunAmerica and not the Fund,
pays a fee to AIGGIC. Therefore, the Board considered the amount of the
advisory fee retained by AIG SunAmerica and the fee paid
32
SunAmerica Senior Floating Rate Fund, Inc.
APPROVAL OF THE INVESTMENT ADVISORY AND MANAGEMENT AGREEMENT AND
SUBADVISORY AGREEMENT -- December 31, 2006 -- (unaudited) (continued)
to AIGGIC in connection with the services provided. The Board also considered
that the Subadvisory Agreement contained breakpoints in the fee schedule that
would adjust the subadvisory fee downward if the Fund increased its assets to
certain levels. The Board noted that such breakpoints would not directly
benefit the shareholders, but would result in AIG SunAmerica retaining a larger
portion of the advisory fee.
The Board also considered AIG SunAmerica's profitability and the benefits AIG
SunAmerica and its affiliates received from its relationship with the Fund. The
Board reviewed financial statements relating to AIG SunAmerica's profitability
and financial condition with respect to the services it provided the Fund and
considered how profit margins could affect AIG SunAmerica's ability to attract
and retain high quality investment professionals. The Board was also provided
with a profitability analysis that detailed the revenues earned and the
expenses incurred on a fund by fund basis by AIG SunAmerica and its affiliates
in providing services to the Fund. Based on this information, the Board
considered the revenues received by AIG SunAmerica under the Advisory Agreement
and the Administrative Agreement. The Board also considered revenues received
by AIG SunAmerica's affiliates under the Distribution Plans, Service
Agreements, and Administrative and Shareholder Service Agreements.
Additionally, the Board reviewed AIGGIC's financial statements and considered
whether AIGGIC had the financial resources necessary to attract and retain high
quality investment management personnel, continue to perform its obligations
under the Subadvisory Agreement and to continue to provide the high quality of
services that it had provided the Fund to date.
With respect to indirect costs and benefits, the Board considered that (1) any
indirect costs incurred by AIG SunAmerica in connection with rendering
investment advisory services to the Fund are inconsequential based on
management's judgment on the analysis of the adequacy of the advisory fees, and
(2) any collateral benefits derived as a result of providing advisory services
to the Fund are de minimis according to management and do not impact upon the
reasonableness of the advisory fee. The Board did, however, consider the
reputational value to AIG SunAmerica from serving as investment adviser.
The Board concluded that AIG SunAmerica had the financial resources necessary
to perform its obligations under the Advisory Agreement and to continue to
provide the high quality of services that it had provided the Fund to date and
that the profitability of the Adviser and its affiliates as a result of their
relationships with the Fund was reasonable. The Board also concluded that the
level of the management fee and subadvisory fee was reasonable in light of the
factors discussed above.
Economies of Scale
The Board, including the Disinterested Directors, considered whether the Fund
has benefited from economies of scale and whether there is potential for future
realization of economies with respect to the Fund. The Board considered that
the funds in the AIG SunAmerica complex share common resources and as a result,
an increase in the overall size of the complex could permit each fund to incur
lower expenses than they otherwise would achieve as stand-alone entities. The
Board also considered the anticipated efficiencies in the processes of AIG
SunAmerica as it adds labor and capital to expand the scale of operations. The
Board also discussed with AIG SunAmerica whether economies of scale would be
realized by it in its management of the Fund at higher asset levels. The Board
determined that they were unable to assess at this time whether economies of
scale would be realized if the Fund were to experience significant asset
growth, however, the Board noted that the management fee included breakpoints
and that none of the breakpoint levels had yet to be reached.
The Board concluded that the management fee structure was reasonable and that
no changes were currently necessary to further reflect economies of scale. The
Board noted that it will continue to review fees, including current breakpoint
levels and whether changes in the contractual expense caps or breakpoint levels
would be appropriate in the future due to an increase in asset size or
otherwise.
Conclusion
After a full and complete discussion, the Board approved the continuation of
the Advisory Agreement for the Fund, and the Subadvisory Agreement with respect
to the Fund, for a one-year period ending August 31, 2007. Based upon their
evaluation of all these factors in their totality, the Board, including the
Disinterested Directors, was satisfied that the terms of the Advisory Agreement
and Subadvisory Agreement were fair and reasonable and in the best interests of
the Fund and the Fund's shareholders. In arriving at a decision to approve the
continuation of the Advisory Agreement and Subadvisory Agreement, the Board did
not identify any single factor or group of factors as all-important or
controlling, but considered all factors together. The Disinterested Directors
were also assisted by the advice of independent counsel in making this
determination.
33
SunAmerica Senior Floating Rate Fund, Inc.
DIRECTORS AND OFFICERS INFORMATION -- December 31, 2006 -- (unaudited)
The following table contains basic information regarding the Directors and
Officers that oversee operations of the Fund and other investment companies
within the Fund complex.
Number of
Position Term of Funds in
Name, Held With Office and Fund Complex
Address and SunAmerica Length of Principal Occupations Overseen by Other Directorships
Date of Birth* Complex Time Served(4) During Past 5 Years Director(1) Held by Director(2)
- ----------------------- ---------- -------------- ----------------------------- ------------ -------------------------------
Disinterested Directors
Dr. Judith L. Craven Director 2000- Retired. 90 Director, Belo Corporation
DOB: October 6, 1945 present (1992 to present); Director,
Sysco Corporation (1996 to
present); Director, Luby's Inc.
(1998 to present); Director,
University of Texas Board of
Regents (2001-Present).
William F. Devin Director 1998- Retired. 90 Director, Boston Options
DOB: December 30, 1938 present Exchange (1985-Present).
Samuel M. Eisenstat Chairman 2001- Attorney, solo practitioner. 52 Director of North European
DOB: March 7, 1940 of the present Oil Royalty Trust.
Board
Stephen J. Gutman Director 2001- Senior Associate, Corcoran 52 None
DOB: May 10, 1943 present Group (Real Estate) (October
2003 to present); President
and Member of Managing
Directors, Beau Brummell --
Soho, LLC (Licensing of
menswear specialty retailing
and other activities) (June
1988 to present).
William J. Shea Director 2004- President and CEO, 52 Director, Boston Private
DOB: February 9, 1948 present Conseco, Inc. (Financial Financial Holdings (October
Services) (2001 to 2004); 2004 to present).
Chairman of the Board of
Centennial Technologies, Inc.
(1998 to 2001).
Interested Director
Peter A. Harbeck(3) Director 2001- President, CEO and Director, 99 None
DOB: January 23, 1954 present AIG SunAmerica (August
1995 to present); Director,
AIG SACS (August 1993 to
present); President and CEO,
AIG AdvisorGroup, Inc. (June
2004 to present).
34
SunAmerica Senior Floating Rate Fund, Inc.
DIRECTORS AND OFFICERS INFORMATION -- December 31, 2006 -- (unaudited)
(continued)
Number of
Position Held Term of Funds in
Name, With Office and Fund Complex
Address and SunAmerica Length of Principal Occupations Overseen by Other Directorships
Date of Birth* Complex Time Served(4) During Past 5 Years Director(1) Held by Director(2)
- ---------------------- ------------- -------------- ----------------------------- ------------ -------------------
Officers
Vincent M. Marra President 2004- Senior Vice President, AIG N/A N/A
DOB: May 28, 1950 present SunAmerica (February 2003
to Present); Chief
Administrative Officer, Chief
Operating Officer and Chief
Financial Officer, Carret &
Co., LLC (June 2002 to
February 2003); President
and Chief Operating Officer,
Bowne Digital Solutions (1999
to May 2002).
Donna M. Handel Treasurer 2002- Senior Vice President, AIG N/A N/A
DOB: June 25, 1966 present SunAmerica (December
2004-Present); Assistant
Treasurer (2001 to 2002);
Vice President, AIG
SunAmerica (August 1997 to
December 2004).
Gregory N. Bressler Secretary September Senior Vice President and N/A N/A
DOB: November 17, 1966 and Chief 2005 to General Counsel, AIG
Legal Present SunAmerica (June 2005 to
Officer Present); Vice President and
Director of U.S. Asset
Management Compliance,
Goldman Sachs Asset
Management, L.P. (June
2004 to June 2005); Deputy
General Counsel, Credit
Suisse Asset Management,
LLC. (June 2002-June 2004);
and Counsel, Credit Suisse
Asset Management, LLC
(January 2000-June 2002).
James Nichols Vice 2006 to Director, President and CEO, N/A N/A
DOB: April 7, 1966 President Present AIG SACS (July 2006 to
Present); Senior Vice
President, AIG SACS (March
2002 to July 2006); Vice
President, AIG SunAmerica
(1995 to March 2002)
Cynthia Gibbons Vice 2002- Vice President, AIG N/A N/A
DOB: December 6, 1967 President present SunAmerica (August 2002-
and Chief Present); Securities
Compliance Compliance Manager,
Officer ) American General Investment
Management (June 2000 -
August 2002).
35
SunAmerica Senior Floating Rate Fund, Inc.
DIRECTORS AND OFFICERS INFORMATION -- December 31, 2006 -- (unaudited)
(continued)
Number of
Position Held Term of Funds in
Name, With Office and Fund Complex
Address and SunAmerica Length of Principal Occupations Overseen by Other Directorships
Date of Birth* Complex Time Served(4) During Past 5 Years Director(1) Held by Director(2)
- ---------------------- ------------- -------------- ------------------------------- ------------ -------------------
Gregory R. Kingston Vice 2002- Vice President, SAAMCo N/A N/A
DOB: January 18, 1966 President present (2001-Present); Formerly,
and Vice President, American
Assistant General Investment
Treasurer Management, L.P. (1999-
2001)
Nori L. Gabert Vice 2002- Vice President and Deputy N/A N/A
DOB: August 15, 1953 President present General Counsel, AIG
and SunAmerica (2001-Present);
Assistant Vice President and Secretary,
Secretary VALIC Company I and VALIC
Company II (2000-Present)
Formerly, Associate General
Counsel, American General
Corporation, (1997 to 2001).
Matthew J. Hackethal Anti-Money 2006- Senior Compliance Manager, N/A N/A
DOB: December 31, 1971 Laundering present AIG SunAmerica (November
Compliance 2006 to Present); Vice
Officer President, Credit Suisse
Asset Management (May,
2001 to October 2006); CCO,
Credit Suisse Alternative
Funds (November 2005 to
October 2006); CCO, Credit
Suisse Asset Management
Securities, Inc. (April 2004 to
August 2005)
- --------
* The business address for each Director and Officer is the Harborside
Financial Center, 3200 Plaza 5, Jersey City, NJ 07311-4992.
(1) The "Fund Complex" consists of all registered investment company portfolios
for which AIG SunAmerica serves as investment adviser or administrator. The
"Fund Complex" includes the SunAmerica Money Market Funds (2 funds),
SunAmerica Equity Funds (10 funds), SunAmerica Income Funds (5 funds),
SunAmerica Focused Series, Inc. (17 portfolios), SunAmerica Focused Alpha
Growth Fund, Inc. (1 fund), SunAmerica Focused Alpha Large-Cap Fund, Inc.
(1 fund), Anchor Series Trust (9 portfolios), the Fund, (1 fund),
SunAmerica Series Trust (35 portfolios), AIG Series Trust (6 funds), VALIC
Company I (32 portfolios), VALIC Company II (15 funds) and Seasons Series
Trust (24 portfolios).
(2) Directorships of companies required to report to the SEC under the
Securities Exchange Act of 1934 (i.e. "public companies") or other
investment companies registered under the 1940 Act.
(3) Interested Director, as defined in the Investment Company Act of 1940,
because he is an officer and director of the adviser and a director of the
principal underwriter of the Fund.
(4) Directors serve until their successors are duly elected and qualified. Each
officer will hold office for an indefinite term until the date he or she
resigns or retires or until his/her successor is duly elected and qualifies.
Additional information concerning the Directors and Officers is contained in
the Statement of Additional Information and is available without charge by
calling (800) 858-8850.
36
SunAmerica Series Trust Senior Floating Fund
SHAREHOLDER TAX INFORMATION -- (unaudited)
Certain tax information regarding the Fund is required to be provided to
shareholders based upon the Fund's income and distributions for the taxable
year ended December 31, 2006. The information necessary to complete your income
tax returns is included with your Form 1099-DIV mailed to you in January 2007.
During the year ended December 31, 2006 the Fund paid the following dividends:
Net
Ordinary Net Net Qualifying % for Qualifying
Total Investment Short-Term Long-Term the 70% Dividends Dividend
Dividends Income Capital Gains* Capital Gains Received Deduction Income %
--------- ---------- -------------- ------------- ------------------ ----------
Class A....................... $0.15 $0.15 $-- $-- --% --%
Class B....................... 0.59 0.59 -- -- -- --
Class C....................... 0.59 0.59 -- -- -- --
Class D....................... 0.64 0.64 -- -- -- --
Class Q....................... 0.62 0.62 -- -- -- --
- --------
* Short-term capital gains are treated as ordinary income for tax purposes.
37
SunAmerica Senior Floating Rate Fund, Inc.
COMPARISON: FUND vs. INDEX -- (unaudited)
The following graphs show how the value of a $10,000 investment in the Fund
would have changed over the period shown in the graph, and also shows how the
index shown performed over the same period of time. The graph and table shown
do not reflect the deduction of taxes that a shareholder would pay on fund
distributions or the redemption of fund shares. Please note that the term
"inception" as used herein reflects the date on which a specific class of
shares commenced operations. It is important to note that the Fund is a
professionally managed mutual fund while the index is not available for
investment and is unmanaged. The comparison is shown for illustrative purposes
only. The graph presents the performance of Class B shares of the Fund. The
performance of the other classes will vary based upon the difference in sales
charges and fees assessed to shareholders of that class. Past performance does
not predict future results.
38
SunAmerica Senior Floating Rate Fund, Inc.
COMPARISON: FUND vs. INDEX -- (unaudited) (continued)
Thomas G. Brandt, John G. Lapham and Steven S. Oh, Portfolio Managers
AIG Global Investment Corp.
The Fund's Class B shares returned 6.55% for the year ended December 31,
2006 versus a return of 6.77% for the S&P LSTA Leveraged Loan Index (LLI)./1/
The Fund ranked in the top quartile for the one-year period among its peers in
the Lipper Loan Participation Funds category./2/
The bank loan market benefited from many of the same factors that
contributed to a solid year in 2005. The economy was sound, default rates were
low, companies generally posted solid earnings growth, and the demand for bank
loans remained high. During the first half of the year, the London Interbank
Offer Rate (LIBOR), the reference rate used for most loans, steadily increased.
These macroeconomic factors listed above, the detailed credit analysis
performed by our research staff and the steady increase in LIBOR rates all led
to a strong year for the Fund.
The year 2006 was a record year for new issues of leveraged loans. Merger
and acquisition activity and private equity buy-outs have been the driving
force behind the high level of new issuance. In fact, the two largest loans in
the history of this asset class, the $16 billion financing for the purchase of
HCA, Inc., an operator of hospitals, and the $18.5 billion refinancing of Ford
Motor Company debt, occurred in the fourth quarter. Despite the record new
issuance, the market easily absorbed the supply as more investors invested in
this asset class.
Most industry sectors performed well in 2006, although the automotive and
housing/building products sectors did not fare as well. The Fund maintained an
underweight position in the automotive sector and selectively invested in
credits, such as Goodyear Tire, that were less impacted by the troubles of U.S.
automobile manufacturers.
The housing/building products sector was negatively impacted by rising
interest rates and the softened housing market, and many companies in this
sector posted weak results. This sector was a poor performer for the Fund,
which maintained a neutral weighting relative to the benchmark, the S&P LSTA
Leveraged Loan Index.
In the fourth quarter of 2006, our position in Cequel Communications, a
cable television company, provided a positive impact on the Fund's performance.
- --------
Past performance is no guarantee of future results.
/1/The S&P/LSTA Leveraged Loan Index (LLI) reflects the market-weighted
performance of U.S. dollar-denominated institutional leveraged loan portfolios.
The LLI is the only domestic leveraged loan index that utilizes real-time
market weightings, spreads and interest payments. Indices are not managed and
an investor cannot invest directly into an index.
/2/Lipper ranking for the period ended December 31, 2006, based on total
returns at net asset value.
The Fund is not a money market fund and its net asset value may fluctuate.
Investments in loans involve certain risks including nonpayment of principal
and interest; collateral impairment; non-diversification and borrower industry
concentration; and lack of full liquidity, which may impair the Fund's ability
to obtain full value for loans sold. The Fund may invest all or substantially
all of its assets in loans or other securities that are rated below investment
grade or in comparable unrated securities. Credit risks include the possibility
of a default on the loan or bankruptcy of the borrower. The value of these
loans is subject to a greater degree of volatility in response to interest-rate
fluctuations.
39
SunAmerica Senior Floating Rate Fund, Inc.
COMPARISON: FUND vs. INDEX -- (unaudited) (continued)
Over the past nine years, $10,000 invested in Senior Floating Rate Fund Class B
shares would have increased to $14,788. The same amount invested in securities
mirroring the performance of the S&P/LSTA Leveraged Loan Index would be valued
at $15,204.
[CHART]
Senior Floating Rate Class B S&P/LSTA Leveraged Loan Index
---------------------------- -----------------------------
31-Aug-98 $10,000.00 $10,000.00
30-Sep-98 10,045.00 9,925.60
31-Oct-98 10,084.00 9,994.38
30-Nov-98 10,112.00 10,092.13
31-Dec-98 10,185.00 10,142.49
31-Jan-99 10,259.00 10,177.58
28-Feb-99 10,311.00 10,162.01
31-Mar-99 10,380.00 10,095.55
30-Apr-99 10,446.00 10,158.14
31-May-99 10,506.00 10,284.82
30-Jun-99 10,574.00 10,366.07
31-Jul-99 10,625.00 10,429.92
31-Aug-99 10,669.00 10,432.84
30-Sep-99 10,719.00 10,351.15
31-Oct-99 10,772.00 10,366.47
30-Nov-99 10,844.00 10,432.51
31-Dec-99 10,911.00 10,512.84
31-Jan-00 10,976.00 10,603.98
29-Feb-00 11,027.00 10,652.34
31-Mar-00 10,984.00 10,595.35
30-Apr-00 11,020.00 10,629.36
31-May-00 11,092.00 10,715.67
30-Jun-00 11,153.00 10,793.89
31-Jul-00 11,207.00 10,881.32
31-Aug-00 11,274.00 10,913.86
30-Sep-00 11,325.00 10,943.87
31-Oct-00 11,324.00 10,941.14
30-Nov-00 11,355.00 10,980.85
31-Dec-00 11,414.00 11,037.07
31-Jan-01 11,458.00 11,156.83
28-Feb-01 11,510.00 11,267.39
31-Mar-01 11,497.00 11,270.43
30-Apr-01 11,468.00 11,254.43
31-May-01 11,559.00 11,382.05
30-Jun-01 11,525.00 11,394.00
31-Jul-01 11,531.00 11,481.40
31-Aug-01 11,585.00 11,566.70
30-Sep-01 11,453.00 11,375.16
31-Oct-01 11,313.00 11,263.57
30-Nov-01 11,336.00 11,401.21
31-Dec-01 11,380.00 11,497.89
31-Jan-02 11,420.00 11,556.53
28-Feb-02 11,410.00 11,522.21
31-Mar-02 11,491.00 11,659.90
30-Apr-02 11,561.00 11,795.27
31-May-02 11,636.00 11,806.83
30-Jun-02 11,624.00 11,690.65
31-Jul-02 11,511.00 11,586.14
31-Aug-02 11,455.00 11,547.67
30-Sep-02 11,461.00 11,555.41
31-Oct-02 11,290.00 11,418.59
30-Nov-02 11,416.00 11,579.48
31-Dec-02 11,542.00 11,717.85
31-Jan-03 11,593.00 11,860.46
28-Feb-03 11,611.00 11,912.17
31-Mar-03 11,769.00 11,958.75
30-Apr-03 11,982.00 12,100.46
31-May-03 12,148.00 12,231.75
30-Jun-03 12,313.00 12,380.61
31-Jul-03 12,391.00 12,463.06
31-Aug-03 12,422.00 12,491.36
30-Sep-03 12,547.00 12,609.40
31-Oct-03 12,639.00 12,724.52
30-Nov-03 12,717.00 12,806.85
31-Dec-03 12,792.00 12,886.25
31-Jan-04 12,937.00 12,997.33
29-Feb-04 12,954.00 13,038.14
31-Mar-04 12,982.00 13,085.21
30-Apr-04 13,067.00 13,149.33
31-May-04 13,072.00 13,164.19
30-Jun-04 13,117.00 13,245.94
31-Jul-04 13,147.00 13,289.25
31-Aug-04 13,137.00 13,312.64
30-Sep-04 13,170.00 13,367.89
31-Oct-04 13,221.00 13,435.40
30-Nov-04 13,273.00 13,495.59
31-Dec-04 13,315.00 13,551.73
31-Jan-05 13,370.00 13,606.48
28-Feb-05 13,436.00 13,679.54
31-Mar-05 13,481.00 13,736.45
30-Apr-05 13,455.00 13,726.70
31-May-05 13,443.00 13,734.66
30-Jun-05 13,520.00 13,823.66
31-Jul-05 13,612.00 13,928.58
31-Aug-05 13,693.00 14,011.87
30-Sep-05 13,730.00 14,068.90
31-Oct-05 13,759.00 14,111.95
30-Nov-05 13,817.00 14,165.01
31-Dec-05 13,879.00 14,239.81
31-Jan-06 13,974.00 14,338.35
28-Feb-06 14,062.00 14,429.11
31-Mar-06 14,164.00 14,516.40
30-Apr-06 14,236.00 14,587.24
31-May-06 14,250.00 14,623.86
30-Jun-06 14,294.00 14,664.95
31-Jul-06 14,361.00 14,748.10
31-Aug-06 14,457.00 14,838.95
30-Sep-06 14,534.00 14,918.63
31-Oct-06 14,644.00 15,017.54
30-Nov-06 14,691.00 15,097.14
31-Dec-06 14,788.00 15,204.33
Class A++ Class B Class C Class D Class Q++
Senior ------------------ ------------------ ------------------ ------------------ ------------------
Floating Average Average Average Average Average
Rate Annual Cumulative Annual Cumulative Annual Cumulative Annual Cumulative Annual Cumulative
Fund Return Return+ Return Return+ Return Return+ Return Return+ Return Return+
- ---------------- ------- ---------- ------- ---------- ------- ---------- ------- ---------- ------- ----------
1 Year Return NA NA 3.55% 6.55% 5.54% 6.54% 7.08% 7.08% 6.86% 6.86%
- ---------------------------------------------------------------------------------------------------------------
5 Year Return NA NA 5.38% 29.95% 5.36% 29.82% 5.79% 32.53% NA NA
- ---------------------------------------------------------------------------------------------------------------
Since Inception* NA 1.75% 4.81% 47.88% 4.79% 47.64% 4.97% 31.63% 5.09% 14.21%
- ---------------------------------------------------------------------------------------------------------------
+ Cumulative returns do not include sales load. If sales load had been
included, the return would have been lower.
* Inception date: Class A: 10/04/2006; Class B: 08/31/1998; Class C:
08/31/1998; Class D: 05/02/2001; Class Q: 04/28/2004.
++ Effective October 4, 2006, Class A shares were redesignated to Class Q
shares and a new class of shares designated as Class A commenced offering.
For the 12 month period ended December 31, 2006, the SunAmerica Senior Floating
Rate Class B returned 3.55% compared to 6.77% for the S&P/LSTA Leveraged Loan
Index. (The performance data and graph do not reflect the deduction of taxes
that a shareholder would pay on fund distributions or the redemption of fund
shares.)
- --------
Performance data quoted represents past performance and is no guarantee of
future results. Maximum Sales Charge: Class A: 3.75% Contingent Deferred Sales
Charge (CDSC), Class B: 3.00%, Class C 1.00% CDSC. The fund's daily net asset
values are not guaranteed and shares are not insured by the FDIC, the Federal
Reserve Board or any other agency. The investment return and principal value of
an investment will fluctuate so that an investor's shares, when redeemed, may
be higher or lower than the original cost. Current performance may be higher or
lower than that shown. Performance as of the most recent month end is available
at www.sunamericafunds.com
40
SunAmerica Senior Floating Rate Fund, Inc.
SPECIAL MEETING OF SHAREHOLDERS -- Proxy Voting Results -- December 31,
2006 (unaudited)
A Special Meeting of the Shareholders of the Fund was held on June 23, 2006. At
this meeting the Class Q and Class B shareholders of the Fund approved
Distribution Plans pursuant to Rule 12b-1 Plans for their respective class of
shares. The meeting was adjourned to allow for the continued solicitation of
votes with respect to the proposal to convert the Fund from a closed-end
investment company to that of an open-end investment company and with respect
to the proposal to amend the Fund's charter to discontinue the monthly
repurchase offers made by the Fund. Additionally, the meeting was adjourned
with respect to the approval of Rule 12b-1 Plan for Class C shares.
The voting results of the shareholder meeting to approve the Class Q and Class
B shares' Rule 12b-1 Plans are listed below.
Approval of the Rule 12b-1 Plan for Class Q Shares
For Against Abstain Total
------ ------- ------- ------
Shares Voted 21,880 5,262 4,632 31,774
Approval of the Rule 12b-1 Plan for Class B Shares
For Against Abstain Total
--------- ------- ------- ---------
Shares Voted 1,271,070 40,712 147,877 1,459,659
A Special Meeting of the Shareholders of the Fund was held on July 21, 2006. At
this meeting the Class C shareholders of the Fund approved a Rule 12b-1 Plan.
The meeting was adjourned to allow for the continued solicitation of votes with
respect to the proposal to convert the Fund from a closed-end investment
company to an open-end investment company and with respect to the proposal to
amend the Fund's charter to discontinue the monthly repurchase offers made by
the Fund.
The voting results of the shareholder meeting to approve the Class C share's
Rule 12b-1 Plan are listed below.
Approval of the Rule 12b-1 Plan for Class C Shares
For Against Abstain Total
--------- ------- ------- ---------
Shares Voted 7,829,790 453,617 598,831 8,882,238
A Special Meeting of the Shareholders of the Fund was held on August 4, 2006.
At this meeting the shareholders approved the proposal to convert the Fund from
a closed-end investment company to an open-end investment company.
Additionally, the Fund approved the proposal to rescind a fundamental policy of
the Fund to conduct monthly share repurchases offers.
The voting results to approve the proposal to convert the Fund from a
closed-end investment company to an open-end investment company are listed
below.
Approval to Redesignate the Fund as an Open-End Investment Company
For Against Abstain Total
---------- ------- ------- ----------
Shares Voted 11,174,289 710,368 591,506 12,476,163
The voting results to approve the proposal to rescind a fundamental policy of
the Fund to conduct monthly share repurchase offers are listed below.
Approval to Rescind a Policy to Conduct Monthly Share Repurchases as a
Closed-End Interval Fund.
For Against Abstain Total
---------- ------- ------- ----------
Shares Voted 11,174,289 710,368 591,506 12,476,163
41
[LOGO] AIG Sun America
Mutual Funds
AIG SunAmerica Asset Management Corp.
Harborside Financial Center
3200 Plaza 5
Jersey City, NJ 07311-4992
Directors Investment Adviser DISCLOSURE OF QUARTERLY
Dr. Judith L. Craven PORTFOLIO HOLDINGS
William F. Devin AIG SunAmerica Asset Management Corp. The Fund is required to
Samuel M. Eisenstat Harborside Financial file its com-plete
Stephen J. Gutman Center schedule of portfolio
Peter A. Harbeck 3200 Plaza 5 holdings with the U.S.
William J. Shea Jersey City, NJ Securities and Exchange
07311-4992 Commission for its first
Officers and third fiscal quarters
Vincent M. Marra, Distributor on Form N-Q. The Fund's
President AIG SunAmerica Capital Forms N-Q are available
Donna M. Handel, Services, Inc. on the U.S. Securities
Treasurer Harborside Financial and Exchange Commission's
James Nichols, Vice Center website at www.sec.gov.
President 3200 Plaza 5 You can also obtain
Cynthia A. Gibbons, Vice Jersey City, NJ copies of the Forms N-Q
President and Chief 07311-4992 at the U.S. Securities
Compliance Officer and Exchange
Gregory N. Bressler, Shareholder Servicing Commis-sion's Public
Chief Legal Agent Reference Room in
Officer and Secretary AIG SunAmerica Fund Washington, DC
Gregory R. Kingston, Services, Inc. (information on the
Vice President and Harborside Financial operation of the Public
Assistant Treasurer Center Reference Room may be
Nori L. Gabert, Vice 3200 Plaza 5 obtained by calling
President and Jersey City, NJ 1-800-SEC-0330).
Assistant Secretary 07311-4992
Corey A. Issing, PROXY VOTING RECORD ON
Assistant Secretary Transfer Agent FUND PORTFOLIO SECURITIES
Kathleen Fuentes, State Street Bank and Information regarding how
Assistant Secretary Trust Company the Fund voted proxies
Kathryn A. Pearce, P.O. Box 219373 relating to securities
Assistant Treasurer Kansas City, MO 64141 held in the Fund's
Matthew J. Hackethal, portfolio during the most
Anti-Money Laundering Custodian recent twelve month
Compliance Officer State Street Bank and period ended June 30 is
Trust Company available, once filed
P.O. Box 5607 with the U.S. Securities
Boston, MA 02110 and Exchange Commission,
without charge, upon
VOTING PROXIES ON FUND request, by call-ing
PORTFOLIO SECURITIES (800) 858-8850 or on the
A description of the U.S. Securities and
policies and proce-dures Exchange Commission's
that the Fund uses to website at
determine how to vote http://www.sec.gov.
proxies related to
securities held in the This report is submitted
Fund's portfolio, which solely for the general
is available in the information of
Fund's Statement of shareholders of the Fund.
Additional Information, Distribution of this
may be ob-tained without report to persons other
charge upon request, by than shareholders of the
calling (800) 858-8850. Fund is authorized only
This in-formation is also in connection with a
available from the EDGAR currently effective
database on the U.S. prospectus, setting forth
Secu-rities and Exchange details of the Fund,
Commission's website at which must precede or
http://www.sec.gov. accompany this report.
42
[LOGO]
Distributed by:
AIG SunAmerica Capital Services, Inc.
Harborside Financial Center
3200 Plaza 5
Jersey City, NJ 07311-4992
Investors should carefully consider the investment objectives, risks, charges
and expenses of any mutual fund before investing. This and other important
information is contained in the prospectus, which can be obtained from your
financial adviser or from the AIG SunAmerica Sales Desk at 800-858-8850, ext.
6003. Read the prospectus carefully before you invest. Funds distributed by AIG
SunAmerica Capital Services, Inc.
www.sunamericafunds.com
SFANN-12/06
Item 2. Code of Ethics.
SunAmerica Senior Floating Rate Fund, Inc. ("registrant") has adopted a Code of
Ethics applicable to its Principal Executive and Principal Accounting Officers
pursuant to Section 406 of the Sarbanes-Oxley Act of 2002.
Item 3. Audit Committee Financial Expert.
The registrant's Board of Directors has determined that William J. Shea, the
Charirman of the registrant's Audit Committe, qualifies as an audit committee
financial expert, as defined in the instructions to Item 3(a) of Form N-CSR. Mr.
Shea is considered to be "independent" for purposes of Item 3(a)(2) of Form
N-CSR.
Item 4. Principal Accountant Fees and Services.
(a)--(d) Aggregate fees billed to the registrant for the last two fiscal years
for professional services rendered by the registrant's principal
accountant were as follows:
2005 2006
---- ----
(a) Audit Fees ....................... $67,006 $76,848
(b) Audit-Related Fees ............... $22,334 $ 0
(c) Tax Fees ......................... $ 8,871 $ 9,356
(d) All Other Fees ................... $ 0 $ 0
Audit Fees include amounts related to the audit of the registrant's
annual financial statements and services normally provided by the
principal accountant in connection with statutory and regulatory
filings. Audit-Related Fees principally include a SAS No. 100 review of
the registrant's Semiannual Shareholder Report. Tax Fees principally
include tax compliance, tax advice, tax planning and preparation of tax
returns.
Aggregate fees billed to the investment adviser and Adviser Affiliates
(as defined below in Item 4(e)) that are required to be pre-approved
pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X for the
last two fiscal years for services rendered by the registrant's
principal accountant were as follows:
2005 2006
---- ----
(b) Audit-Related Fees ............ $ 0 $ 0
(c) Tax Fees ...................... $ 0 $ 0
(d) All Other Fees ................ $ 0 $ 0
(e)
(1) The registrant's audit committee pre-approves all audit services
provided by the registrant's principal accountant for the registrant
and all non-audit services provided by the registrant's principal
accountant for the registrant, its investment adviser and any entity
controlling, controlled by, or under common control with the
investment adviser ("Adviser Affiliate") that provides ongoing
services to the registrant, if the engagement by the investment
adviser or Adviser Affiliate relates directly to the operations and
financial reporting of the registrant. The audit committee has not
presently established any pre-approval policies and procedures that
permit the pre-approval of the above services other than by the full
audit committee. Certain de minimis exceptions are allowed for non-
audit services in accordance with Rule 2-01 (c)(7)(i)(C) of Regulation
S-X as set forth in the registrant's audit committee charter.
(2) No services included in (b) - (d) above in connection with fees billed
to the registrant or the investment adviser or Advisor Affiliate
were approved pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of
Regulation S-X.
(f) Not Applicable.
(g) The aggregate fees billed for the most recent fiscal year and the preceding
fiscal year by the registrant's principal accountant for non-audit services
rendered to the registrant, its investment adviser, and Adviser Affiliate
that provides ongoing services to the registrant for 2006 and 2005 were
$ 973,056 and $298,518 respectively.
(h) Non-audit services rendered to the registrant's investment adviser and any
Adviser Affiliate that were not pre-approved pursuant to paragraph
(c)(7)(ii) of Rule 2-01 of Regulation S-X were considered by the
registrant's audit committee as to whether they were compatible with
maintaining the principal accountant's independence.
Item 5. Audit Committee of Listed Registrants.
Not applicable.
Item 6. Schedule of Investments.
Included in Item 1 to the Form.
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies.
Not applicable.
Item 8. Portfolio Managers of Closed-End Management Investment Companies.
Not applicable.
Item 9. Purchases of Equity Securities by Closed-End Management Investment
Company and Affiliated Purchasers.
Not applicable. In addition, there were no such purchases from January 1,
2006 through October 3, 2006, the period covered by this report during
which the registrant operated as a closed-end management investment
company.
Item 10. Submission of Matters to a Vote of Security Holders.
There were no material changes to the procedures by which shareholders may
recommend nominees to the registrant's board of directors that were
implemented after the registrant last provided disclosure in response to
the requirements of Item 407(c)(2)(iv) of Regulation S-K (17 CFR 229.
407) (as required by 22(b)(15)) of Schedule 14A (17 CFR 240. 14a-101), or
this Item 10.
Item 11. Controls and Procedures.
(a) An evaluation was performed within 90 days of the filing of this
report, under the supervision and with the participation of the
registrant's management, including the President and Treasurer, of the
effectiveness of the design and operation of the registrant's
disclosure controls and procedures, as defined under Rule 30a-3(c)
under the Investment Company Act of 1940 (17 CFR 270.30a-3(c)). Based
on that evaluation, the registrant's management, including the
President and Treasurer, concluded that the registrant's disclosure
controls and procedures are effective.
(b) There was no change in the registrant's internal control over financial
reporting (as defined in Rule 30a-3(d) under the Investment Company Act
of 1940 (17 CFR 270.30a-3(d))) that occurred during the second fiscal
quarter 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.
(a) (1) Code of Ethics applicable to its Principal Executive and
Principal Accounting Officers pursuant to Section 406 of the
Sarbanes-Oxley Act of 2002 attached hereto as Exhibit 99.406.Code
of Ethics.
(2) Certifications pursuant to Rule 30a-2(a) under the Investment
Company Act of 1940 (17 CFR 270.30a-2(a)) attached hereto as
Exhibit 99.CERT.
(3) Not applicable.
(b) Certification pursuant to Rule 30a-2(b) under the Investment Company
Act of 1940 (17 CFR 270.30a-2(a)) and Section 906 of the
Sarbanes-Oxley Act of 2002 attached hereto as Exhibit 99.906.CERT.
SIGNATURES
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.
SunAmerica Senior Floating Rate Fund, Inc.
By: /s/ Vincent M. Marra
--------------------
Vincent M. Marra
President
Date: March 8, 2007
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/ Vincent M. Marra
--------------------
Vincent M. Marra
President
Date: March 8, 2007
By: /s/ Donna M. Handel
-------------------
Donna M. Handel
Treasurer
Date: March 8, 2007