Exhibit (a)(5)(ii)
Merrill Lynch Senior Floating Rate Fund II, Inc. (unaudited)
February 29, 2000
<TABLE>
SCHEDULE OF INVESTMENTS
<CAPTION>
S&P Moody's Face Senior Secured
Industries Rating Rating Amount Floating Rate Loan Interests* Value
<S> <S> <S> <C> <S> <C>
Aircraft & BB- Ba3 $ 860,676 Fairchild Semiconductors Corp., Term, due 4/30/2006 $ 860,676
Parts--0.2%
Amusement & B+ Ba3 6,000,000 Premier Park Inc., Term B, due 9/30/2005 6,043,146
Recreational B1 Ba3 5,000,000 SFX Entertainment Inc., Term B, due 7/29/2006 5,004,375
Services--3.1% --------------
11,047,521
Automotive Collins & Aikman Corp.:
Equipment--2.8% BB- Ba3 2,420,000 Term B, due 6/30/2005 2,401,245
BB- Ba3 1,485,000 Term C, due 12/31/2005 1,477,112
Safelite Glass Corp.:
B+ B1 1,243,750 Term B, due 12/23/2004 679,087
B+ B1 1,243,750 Term C, due 12/23/2005 679,087
Tenneco Automotive Inc.:
BB Ba3 2,500,000 Term B, due 11/02/2007 2,517,970
BB Ba3 2,500,000 Term C, due 5/02/2008 2,517,970
--------------
10,272,471
Broadcasting B B1 4,000,000 Benedek Broadcasting, Term, due 11/20/2007 3,993,752
Radio & NR++ NR++ 6,000,000 Corus Entertainment Inc., Term, due 8/31/2007 6,018,750
Television Cumulus Media Inc.:
--5.9% B+ B1 1,800,000 Term B, due 9/30/2007 1,809,563
NR++ Ba3 1,200,000 Term C, due 2/28/2008 1,206,376
NR++ Ba3 7,000,000 Gray Communications Systems, Term B, due 12/31/2005 7,037,191
NR++ NR++ 1,000,000 VHR Broadcasting, Term B, due 9/30/2007 1,001,875
--------------
21,067,507
Building B+ NR++ 2,992,105 Better Minerals, Term B, due 9/30/2007 3,003,326
Materials BB- B1 2,000,000 Trussway Industries, Term B, due 12/31/2006 1,990,000
--1.4% --------------
4,993,326
Business B+ B1 3,000,000 Muzak Audio, Term B, due 12/31/2006 3,009,999
Services--0.8%
Cable NR++ NR++ 5,000,000 CCVI Operations, Term B, due 11/12/2008 5,009,820
Television BB+ Ba3 10,000,000 Charter Communications, Term B, due 3/18/2008 10,029,330
Services--7.0% BB- B1 5,210,526 Classic Cable Inc., Term B, due 1/31/2008 5,215,086
B+ B1 5,000,000 Pegasus Media Communications Inc., Term, due 4/30/2005 5,014,585
--------------
25,268,821
Chemicals Huntsman ICI Chemicals LLC.:
--4.2% BB Ba3 5,000,000 Term B, due 6/30/2007 5,039,284
BB Ba3 5,000,000 Term C, due 6/30/2008 5,039,284
NR++ Ba3 4,962,500 Lyondell Petrochemical Co., Term E, due 5/17/2006 5,094,954
--------------
15,173,522
Computer Bridge Information:
Related NR++ NR++ 2,123,610 Term, due 5/29/2003 2,022,738
Products--1.7% NR++ NR++ 4,225,984 Term B, due 5/29/2005 4,072,204
--------------
6,094,942
Diversified B+ Ba1 2,992,500 Blount International Inc., Term B, due 6/30/2006 3,011,203
--0.8%
Drilling--0.6% B+ B1 1,995,000 Key Energy Services Inc., Term B, due 9/14/2004 1,998,741
Drug/ B+ B1 2,450,000 Duane Reade Co., Term B, due 2/13/2005 2,450,767
Proprietary
Stores--0.7%
</TABLE>
Merrill Lynch Senior Floating Rate Fund II, Inc.
February 29, 2000
<TABLE>
SCHEDULE OF INVESTMENTS (continued)
<CAPTION>
S&P Moody's Face Senior Secured
Industries Rating Rating Amount Floating Rate Loan Interests* Value
<C> <C> <C> <C> <S> <C>
Electronics/ B+ B1 $1,988,000 Dynamic Details, Term B, due 4/22/2005 $ 1,963,150
Electrical BB- Ba3 3,000,000 Intersil Corp., Term, due 8/04/2005 3,008,439
Components-- Semiconductor:
4.3% BB- Ba3 1,444,444 Term B, due 8/04/2005 1,459,972
BB- Ba3 1,555,555 Term C, due 8/04/2007 1,572,278
B+ Ba3 4,560,089 Superior Telecom, Term A, due 5/27/2004 4,560,659
B+ B1 2,997,423 ViaSystems Inc., Term C, due 6/30/2005 2,942,471
--------------
15,506,969
Energy--0.1% NR++ Ba3 326,224 Plains Scurlock, Term B, due 5/12/2004 322,554
Environmental URS Corp.:
Services--0.6% BB Ba3 995,000 Term B, due 6/09/2006 1,003,084
BB Ba3 995,000 Term C, due 6/09/2007 1,003,084
--------------
2,006,168
Financial BB+ Ba3 5,000,000 Sovereign Bancorp. Inc., Term, due 11/17/2003 5,021,875
Services--1.4%
Food & Kindred Specialty Foods, Inc.:
Products--0.6% NR++ B3 734,114 Revolving Credit, due 1/31/2001 730,444
NR++ B3 1,252,844 Term, due 1/31/2001 1,255,976
--------------
1,986,420
Furniture & Simmons Co.:
Fixtures--1.7% B+ Ba3 2,488,609 Term B, due 10/29/2005 2,492,499
B+ Ba3 3,656,587 Term C, due 10/29/2006 3,662,303
--------------
6,154,802
Grocery--1.1% B B2 4,000,000 Grand Union Co., Term, due 8/17/2003 3,980,000
Hotels & NR++ NR++ 6,288,240 Strategic Holdings Inc., Term, due 11/16/2004 6,311,821
Motels--3.4% Wyndam International, Inc.:
B+ B3 2,000,000 Term, due 6/30/2004 1,974,062
B+ B3 4,000,000 Term, due 6/30/2006 3,895,556
--------------
12,181,439
Leasing & BB- B1 1,990,000 Anthony Crane Rental L.P., Term, due 7/20/2006 1,941,908
Rental Avis Rent A Car Inc.:
Services--3.6% BB+ Ba3 2,500,000 Term B, due 6/30/2006 2,516,537
BB+ Ba3 2,500,000 Term C, due 6/30/2007 2,518,125
BB- Ba3 3,000,000 Nations Rent Inc., Term B, due 7/20/2006 2,998,749
BB- NR++ 2,992,500 Rent Way Inc., Term B, due 9/30/2006 2,998,111
--------------
12,973,430
Manufacturing NR++ NR++ 5,000,000 Citation Corporation, Term B, due 12/01/2007 4,951,565
--4.2% Mueller Industries Inc.:
NR++ NR++ 2,487,500 Term B, due 8/16/2006 2,504,214
NR++ NR++ 2,487,500 Term C, due 8/16/2007 2,504,214
BB- Ba3 5,000,000 Terex Corp., Term C, due 2/05/2006 5,013,020
--------------
14,973,013
</TABLE>
Merrill Lynch Senior Floating Rate Fund II, Inc.
February 29, 2000
<TABLE>
SCHEDULE OF INVESTMENTS (continued)
<CAPTION>
S&P Moody's Face Senior Secured
Industries Rating Rating Amount Floating Rate Loan Interests* Value
<C> <C> <C> <C> <S> <C>
Medical B+ B1 $2,000,000 Hanger Orthopedic Group Inc., Term B, due 12/30/2006 $ 1,926,250
Equipment--1.2% Dade Behring Inc.:
B+ Ba3 1,243,750 Term B, due 6/30/2006 1,247,082
B+ Ba3 1,243,750 Term C, due 6/30/2007 1,247,082
--------------
4,420,414
Metals & CCC- NR++ 980,000 AEI Resources Inc., Term B, due 12/31/2004 869,750
Mining BB NR++ 1,988,984 Asarco Inc., Term 2, due 5/15/2001 1,985,255
--1.6% BB- Ba2 2,992,500 LTV Corporation, Term, due 11/10/2004 3,011,203
--------------
5,866,208
Packaging--2.1% Packaging Co.:
BB Ba3 3,795,726 Term B, due 4/12/2007 3,817,077
BB Ba3 3,795,726 Term C, due 4/12/2008 3,817,077
--------------
7,634,154
Paper--1.8% B+ Ba3 319,444 Jefferson Smurfit Company/Container Corp. of America,
Term B, due 3/24/2006 320,223
B+ B1 3,614,938 Riverwood International Corp., Term B, due 2/28/2004 3,629,813
B+ Ba3 2,396,930 Stone Container Corp., Term E, due 10/01/2003 2,406,604
--------------
6,356,640
Printing & B+ Ba3 1,971,637 Advanstar Communications Inc., Term C, due 6/30/2007 1,977,798
Publishing BB Ba3 3,000,000 Big Flower Holdings Inc., Term B, due 12/06/2008 3,012,189
--3.9% BB+ Ba1 6,000,000 Hollinger International Publishing Inc., Term B, due
12/31/2004 6,048,750
BB- B1 1,995,000 Merrill Communications LLC, Term B, due 11/23/2007 2,009,340
B+ B1 1,000,000 Reiman Publications, Term B, due 12/01/2005 1,003,750
--------------
14,051,827
Property NR++ Ba3 5,000,000 NRT Inc., Term, due 7/31/2004 4,979,690
Management NR++ Ba3 2,985,000 Prison Realty Trust Inc., Term C, due 12/31/2002 2,984,069
--2.2% --------------
7,963,759
Restaurants Domino & Bluefence:
& Food B+ B1 994,963 Term B, due 12/21/2006 1,000,249
Service--0.6% B+ B1 996,000 Term C, due 12/21/2007 1,001,514
--------------
2,001,763
Tower BB- B1 5,000,000 American Tower L.P., Term B, due 12/30/2007 5,038,540
Construction NR++ NR++ 5,000,000 Specrasite Communications, Term B, due 6/30/2006 5,017,500
& Leasing--2.8% --------------
10,056,040
Transportation NR++ Ba1 5,000,000 Kansas City Southern Railroad, Term B, due 12/29/2006 5,038,280
Services--2.8% B+ B1 2,000,000 North American Van Lines Inc., Term B, due 11/18/2007 1,996,876
NR++ Ba2 2,976,341 Travel Centers of America Inc., Term B, due 3/27/2005 2,993,083
--------------
10,028,239
Utilities--2.1% NR++ Baa3 7,500,000 AES Texas Funding II, Term, due 5/19/2001 7,509,375
</TABLE>
Merrill Lynch Senior Floating Rate Fund II, Inc.
February 29, 2000
<TABLE>
SCHEDULE OF INVESTMENTS (concluded)
<CAPTION>
S&P Moody's Face Senior Secured
Industries Rating Rating Amount Floating Rate Loan Interests* Value
<C> <C> <C> <C> <S> <C>
Waste Allied Waste:
Management-- BB Ba3 $ 2,272,727 Term B, due 6/30/2006 $ 2,194,095
2.2% BB Ba3 2,727,273 Term C, due 6/30/2007 2,634,496
BB- B1 3,000,000 Stericycle Inc., Term B, due 11/10/2006 3,016,407
--------------
7,844,998
Wireless Dobson Sygnet Operating Co.:
Telecommun- NR++ B3 1,950,968 Term B, due 3/23/2007 1,958,633
ications--5.6% NR++ B3 1,980,000 Term C, due 12/23/2007 1,990,520
Nextel Communications Inc.:
NR++ Ba2 2,500,000 Term B, due 6/30/2008 2,527,232
NR++ Ba2 2,500,000 Term C, due 12/31/2008 2,527,233
BB- NR++ 5,000,000 PowerTel PCS, Inc., Term B, due 12/31/2006 4,984,375
NR++ B2 1,000,000 Tritel Holdings, Term B, due 12/31/2007 1,003,250
B+ B1 5,000,000 VoiceStream Wireless Corporation, Term B, due 2/25/2009 5,029,295
--------------
20,020,538
Total Senior Secured Floating Rate Loan Interests
(Cost--$284,417,296)--79.1% 284,110,121
Short-Term Securities
Commercial 12,000,000 CSW Credit Inc., 5.76% due 3/13/2000 11,976,960
Paper**--15.2% 16,906,000 General Motors Acceptance Corp., 5.94% due 3/01/2000 16,906,000
8,000,000 Hertz Corporation, 5.75% due 3/08/2000 7,991,056
10,000,000 Morgan (J.P. & Co.), Inc., 5.78% due 3/10/2000 9,985,550
8,000,000 Transamerica Finance Corporation, 5.76% due 3/16/2000 7,980,800
--------------
54,840,366
US Government Agency Federal Home Loan Mortgage Corporation:
Obligations**--2.8% 8,000,000 5.64% due 3/02/2000 7,998,747
2,050,000 5.71% due 3/09/2000 2,047,399
--------------
10,046,146
Total Short-Term Securities
(Cost--$64,886,512)--18.0% 64,886,512
Total Investments (Cost--$349,303,808)--97.1% 348,996,633
Other Assets Less Liabilities--2.9% 10,243,765
--------------
Net Assets--100.0% $ 359,240,398
==============
* The interest rates on senior secured floating rate loan interests
are subject to change periodically based on the change in the prime
rate of a US Bank, LIBOR (London Interbank Offered Rate), or, in
some cases, another base lending rate.
** Commercial Paper and certain US Government Agency Obligations are
traded on a discount basis; the interest rates shown reflect the
discount rates paid at the time of purchase by the Fund.
++ Not Rated.
See Notes to Financial Statements.
</TABLE>
Merrill Lynch Senior Floating Rate Fund II, Inc.
February 29, 2000
FINANCIAL INFORMATION
<TABLE>
Statement of Assets and Liabilities as of February 29, 2000
<C> <S> <C> <C>
Assets: Investments, at value (identified cost--$349,303,808) $ 348,996,633
Cash 4,655,763
Receivables:
Capital shares sold $ 3,475,908
Interest 2,749,023 6,224,931
---------------
Prepaid registration fees and other assets 215,896
---------------
Total assets 360,093,223
---------------
Liabilities: Payables:
Dividends to shareholders 549,439
Investment adviser 210,141
Administrator 88,481
Committment fees 2,971 851,032
---------------
Deferred income 1,793
---------------
Total liabilities 852,825
---------------
Net Assets: Net assets $ 359,240,398
===============
Net Assets Common Stock, par value $.10 per share; 1,000,000,000 shares
Consist of: authorized $ 3,596,121
Paid-in capital in excess of par 356,062,183
Accumulated realized capital losses on investments--net (112,536)
Unrealized depreciation on investments--net (305,370)
---------------
Net Assets--Equivalent to $9.99 per share based on shares of
35,961,211 capital stock outstanding $ 359,240,398
===============
See Notes to Financial Statements.
</TABLE>
Merrill Lynch Senior Floating Rate Fund II, Inc.
February 29, 2000
FINANCIAL INFORMATION (continued)
<TABLE>
Statement of Operations
<CAPTION>
For the Six Months Ended
February 29, 2000
<C> <S> <C> <C>
Investment Interest and discount earned $ 12,960,640
Income: Facility and other fees 216,105
---------------
Total income 13,176,745
---------------
Expenses: Investment advisory fees $ 1,398,443
Administrative fees 588,818
Registration fees 97,853
Professional fees 84,291
Transfer agent fees 63,032
Tender offer costs 52,318
Printing and shareholder reports 49,063
Accounting services 41,730
Assignment fees 34,371
Borrowing costs 15,853
Directors' fees and expenses 12,050
Custodian fees 11,611
Other 12,404
---------------
Total expenses before reimbursement 2,461,837
Reimbursement of expenses (364,531)
---------------
Total expenses after reimbursement 2,097,306
---------------
Investment income--net 11,079,439
---------------
Realized & Realized loss on investments--net (107,497)
Unrealized Loss on Change in unrealized appreciation/depreciation on
Investments--Net: investments--net (355,138)
---------------
Net Increase in Net Assets Resulting from Operations $ 10,616,804
===============
See Notes to Financial Statements.
</TABLE>
Merrill Lynch Senior Floating Rate Fund II, Inc.
February 29, 2000
FINANCIAL INFORMATION (continued)
<TABLE>
Statements of Changes in Net Assets
<CAPTION>
For the Six For the Period
Months Ended March 26, 1999++
Increase (Decrease) in Net Assets: February 29, 2000 to August 31, 1999
<C> <S> <C> <C>
Operations: Investment income--net $ 11,079,439 $ 4,460,004
Realized loss on investments--net (107,497) (5,039)
Change in unrealized appreciation/depreciation on
investments--net (355,138) 49,768
--------------- ---------------
Net increase in net assets resulting from operations 10,616,804 4,504,733
--------------- ---------------
Dividends to Investment income--net (11,079,439) (4,460,004)
Shareholders: --------------- ---------------
Net decrease in net assets resulting from dividends to
shareholders (11,079,439) (4,460,004)
--------------- ---------------
Capital Share Net increase in net assets resulting from capital shares
Transactions: transactions 130,277,328 229,280,976
--------------- ---------------
Net Assets: Total increase in net assets 129,814,693 229,325,705
Beginning of period 229,425,705 100,000
--------------- ---------------
End of period $ 359,240,398 $ 229,425,705
=============== ===============
++ Commencement of operations.
See Notes to Financial Statements.
</TABLE>
Merrill Lynch Senior Floating Rate Fund II, Inc.
February 29, 2000
FINANCIAL INFORMATION (continued)
<TABLE>
Statement of Cash Flows
<CAPTION>
For the Six Months Ended
February 29, 2000
<C> <S> <C>
Cash Provided by Net increase in net assets resulting from operations $ 10,616,804
Operating Adjustments to reconcile net increase in net assets resulting from operations
Activities: to net cash provided by operating activities:
Increase in receivables (1,353,957)
Increase in other assets (28,444)
Decrease in other liabilities (94,446)
Realized and unrealized loss on investments--net 462,635
Amortization of discount (1,159,353)
---------------
Net cash provided by operating activities 8,443,239
---------------
Cash Used for Proceeds from principal payments and sales of loan interests 74,438,864
Investing Purchases of loan interests (160,116,425)
Activities: Purchases of short-term investments (1,556,602,412)
Proceeds from sales and maturities of short-term investments 1,518,307,110
---------------
Net cash used for investing activities (123,972,863)
---------------
Cash Provided by Cash receipts on capital shares sold 141,097,548
Financing Cash payments on capital shares tendered (16,141,051)
Activities: Dividends paid to shareholders (4,811,318)
---------------
Net cash provided by financing activities 120,145,179
---------------
Cash: Net increase in cash 4,615,555
Cash at beginning of period 40,208
---------------
Cash at end of period $ 4,655,763
===============
Non-Cash Capital shares issued in reinvestment of dividends paid to shareholders $ 6,082,624
Financing ===============
Activities:
See Notes to Financial Statements.
</TABLE>
Merrill Lynch Senior Floating Rate Fund II, Inc.
February 29, 2000
FINANCIAL INFORMATION (concluded)
<TABLE>
Financial Highlights
<CAPTION>
The following per share data and ratios have been derived
from information provided in the financial statements For the Six For the Period
Months Ended March 26, 1999++
Increase (Decrease) in Net Asset Value: February 29, 2000 to August 31, 1999
<C> <S> <C> <C>
Per Share Net asset value, beginning of period $ 10.01 $ 10.00
Operating --------------- ---------------
Performance: Investment income--net .37 .27
Realized and unrealized gain (loss) on investments--net (.02) .01
--------------- ---------------
Total from investment operations .35 .28
--------------- ---------------
Less dividends from investment income--net (.37) (.27)
--------------- ---------------
Net asset value, end of period $ 9.99 $ 10.01
=============== ===============
Total Investment Based on net asset value per share 3.58%+++ 3.02%+++
Return:** =============== ===============
Ratio to Average Expenses, net of reimbursement 1.42%* .55%*
Net Assets: =============== ===============
Expenses 1.67%* 1.77%*
=============== ===============
Investment income--net 7.51%* 6.77%*
=============== ===============
Supplemental Net assets, end of period (in millions) $ 359 $ 229
Data: =============== ===============
Portfolio turnover 29.84% 28.49%
=============== ===============
</TABLE>
* Annualized.
** Total investment returns exclude the early withdrawal charge, if
any. The Fund is a continuously offered closed-end fund, the shares
of which are offered at net asset value. Therefore, no separate
market exists.
++ Commencement of operations.
+++ Aggregrate total investment return.
See Notes to Financial Statements.
Merrill Lynch Senior Floating Rate Fund II, Inc.
February 29, 2000
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies:
Merrill Lynch Senior Floating Rate Fund II, Inc. (the "Fund") is
registered under the Investment Company Act of 1940 as a
continuously offered, non-diversified, closed-end management
investment company. The Fund's financial statements are prepared in
accordance with generally accepted accounting principles, which may
require the use of management accruals and estimates. These
unaudited financial statements reflect all adjustments, which are,
in the opinion of management, necessary to a fair statement of the
results for the interim period presented. All such adjustments are
of a normal recurring nature.
(a) Loan participation interests--The Fund invests in senior secured
floating rate loan interests ("Loan Interests") with collateral
having a market value, at time of acquisition by the Fund, which
Fund management believes equals or exceeds the principal amount of
the corporate loan. The Fund may invest up to 20% of its total
assets in loans made on an unsecured basis. Depending on how the
loan was acquired, the Fund will regard the issuer as including the
corporate borrower along with an agent bank for the syndicate of
lenders and any intermediary of the Fund's investment. Because
agents and intermediaries are primarily commercial banks, the Fund's
investment in corporate loans at February 29, 2000 could be
considered to be concentrated in commercial banking.
(b) Valuation of investments--Loan Interests are valued in
accordance with guidelines established by the Board of Directors.
Until July 9, 1999, Loan Interests for which an active secondary
market exists and for which the Investment Adviser can obtain at
least two quotations from banks or dealers in Loan Interests were
valued by calculating the mean of the last available bid and asked
prices in the markets for such Loan Interests, and then using the
mean of those two means. If only one quote for a particular Loan
Interest was available, such Loan Interest was valued on the basis
of the mean of the last available bid and asked prices in the
market. As of July 12, 1999, pursuant to the approval of the Board
of Directors, the Loan Interests are valued at the mean between the
last available bid and asked prices from one or more brokers or
dealers as obtained from Loan Pricing Corporation. For Loan
Interests for which an active secondary market does not exist to a
reliable degree in the opinion of the Investment Adviser, such Loan
Interests will be valued by the Investment Adviser at fair value,
which is intended to approximate market value.
Other portfolio securities may be valued on the basis of prices
furnished by one or more pricing services which determine prices for
normal, institutional-size trading units of such securities using
market information, transactions for comparable securities and
various relationships between securities which are generally
recognized by institutional traders. In certain circumstances,
portfolio securities are valued at the last sale price on the
exchange that is the primary market for such securities, or the last
quoted bid price for those securities for which the over-the-counter
market is the primary market or for listed securities in which there
were no sales during the day. Short-term securities with remaining
maturities of sixty days or less are valued at amortized cost, which
approximates market value. Securities and assets for which market
quotations are not readily available are valued at fair value as
determined in good faith by or under the direction of the Board of
Directors of the Fund.
(c) Derivative financial instruments--The Fund may engage in various
portfolio strategies to seek to increase its return by hedging its
portfolio against adverse movements in the debt markets. Losses
may arise due to changes in the value of the contract or if the
counterparty does not perform under the contract.
* Interest rate transactions--The Fund is authorized to enter into
interest rate swaps and purchase or sell interest rate caps and
floors. In an interest rate swap, the Fund exchanges with another
party their respective commitments to pay or receive interest on a
specified notional principal amount. The purchase of an interest
rate cap (or floor) entitles the purchaser, to the extent that a
specified index exceeds (or falls below) a predetermined interest
rate, to receive payments of interest equal to the difference
between the index and the predetermined rate on a notional principal
amount from the party selling such interest rate cap (or floor).
Merrill Lynch Senior Floating Rate Fund II, Inc.
February 29, 2000
NOTES TO FINANCIAL STATMENTS (concluded)
(d) Income taxes--It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated
investment companies and to distribute substantially all of its
taxable income to its shareholders. Therefore, no Federal income tax
provision is required.
(e) Security transactions and investment income--Security
transactions are recorded on the dates the transactions are entered
into (the trade dates). Interest is recognized on the accrual basis.
Realized gains and losses on security transactions are determined on
the identified cost basis. Facility fees are accreted into income
over the term of the related loan.
(f) Prepaid registration fees--Prepaid registration fees are charged
to expense as the related shares are issued.
(g) Dividends and distributions--Dividends from net investment
income are declared daily and paid monthly. Distributions of capital
gains are recorded on the ex-dividend dates.
2. Investment Advisory and Administrative
Services Agreement and Transactions with
Affiliates:
The Fund has entered into an Investment Advisory Agreement with
MLAM. The general partner of MLAM is Princeton Services, Inc.
("PSI"), an indirect wholly-owned subsidiary of Merrill Lynch & Co.,
Inc. ("ML & Co."), which is the limited partner.
MLAM is responsible for the management of the Fund's portfolio and
provides the necessary personnel, facilities, equipment and certain
other services necessary to perform this investment advisory
function. For such services, the Fund pays a monthly fee at an
annual rate of .95% of the Fund's average daily net assets. For the
six months ended February 29, 2000, MLAM earned fees of $1,398,443,
of which $364,531 was voluntarily waived.
The Fund also has an Administrative Services Agreement with MLAM
whereby MLAM will receive a fee equal to an annual rate of .40% of
the Fund's average daily net assets on a monthly basis, in return
for the performance of administrative services (other than
investment advice and related portfolio activities) necessary for
the operation of the Fund.
For the six months ended February 29, 2000, Merrill Lynch Funds
Distributor, Inc. ("MLFD"), a division of Princeton Funds
Distributor, Inc. ("PFD"), a wholly-owned subsidiary of Merrill
Lynch Group, Inc., earned early withdrawal charges of $127,030
relating to the tender of the Fund's shares.
Financial Data Services, Inc. ("FDS"), a wholly-owned subsidiary of
ML & Co., is the Fund's transfer agent.
Accounting services are provided to the Fund by MLAM at cost.
Certain officers and/or directors of the Fund are officers and/or
directors of MLAM, PSI, FDS, PFD, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities,
for the six months ended February 29, 2000 were $160,116,425 and
$74,433,839, respectively.
Net realized losses for the six months ended February 29, 2000 and
net unrealized gains (losses) as of February 29, 2000 were as
follows:
Realized Unrealized
Losses Gains (Losses)
Long-term investments $ (107,497) $ (307,175)
Unfunded loan interests -- 1,805
----------- ------------
Total $ (107,497) $ (305,370)
=========== ============
As of February 29, 2000, net unrealized depreciation for financial
reporting and Federal income tax purposes aggregated $307,175, of
which $1,690,931 is related to appreciated securities and $1,998,106
is related to depreciated securities. The aggregate cost of
investments at February 29, 2000 for Federal income tax purposes was
$349,303,808.
Merrill Lynch Senior Floating Rate Fund II, Inc.
February 29, 2000
4. Capital Share Transactions:
Transactions in capital shares were as follows:
For the Six Months Ended Dollar
February 29, 2000 Shares Amount
Shares sold 14,042,762 $140,335,755
Shares issued to share-
holders in reinvestment
of dividends 608,823 6,082,624
----------- ------------
Total issued 14,651,585 146,418,379
Shares tendered (1,615,133) (16,141,051)
----------- ------------
Net increase 13,036,452 $130,277,328
=========== ============
For the Period March 26, 1999++ Dollar
to August 31, 1999 Shares Amount
Shares sold 23,185,920 $231,994,651
Shares issued to share-
holders in reinvestment
of dividends 204,831 2,051,012
----------- ------------
Total issued 23,390,751 234,045,663
Shares tendered (475,992) (4,764,687)
----------- ------------
Net increase 22,914,759 $229,280,976
=========== ============
++Prior to March 26, 1999 (commencement of operations), the Fund
issued 10,000 shares to MLAM for $100,000.
5. Short-Term Borrowings:
On June 21, 1999, the Fund entered into a one-year credit agreement
with The Bank of New York. The agreement is a $25,000,000 credit
facility bearing interest at the Prime rate, Federal Funds rate plus
.50% and/or Eurodollar rate plus .50%. The Fund had no borrowings
under this commitment during the six months ended February 29, 2000.
For the six months ended February 29, 2000, facility and commitment
fees were approximately $16,000.
6. Capital Loss Carryforward:
At August 31, 1999, the Fund had a net capital loss carryforward of
approximately $5,000, all of which expires in 2007. This amount will
be available to offset like amounts of any future taxable gains.
7. Subsequent Event:
The Fund began a quarterly tender offer on April 19, 2000 which
concludes on May 19, 2000.
Merrill Lynch Senior Floating Rate Fund II, Inc.
February 29, 2000
PORTFOLIO PROFILE (unaudited)
AS OF FEBRUARY 29, 2000
Percent of
Ten Largest Holdings Total Assets
Huntsman ICI Chemicals LLC 2.8%
Charter Communications 2.8
Packaging Co. 2.1
AES Texas Funding II 2.1
Gray Communications Systems 2.0
Strategic Holdings Inc. 1.8
Simmons Co. 1.7
Bridge Information 1.7
Hollinger International Publishing Inc. 1.7
Premier Park Inc. 1.7
Percent of
Five Largest Industries Total Assets
Cable Television Services 7.0%
Broadcasting Radio & Television 5.9
Wireless Telecommunications 5.6
Electronics/Electrical Components 4.3
Chemicals 4.2
Percent of
Quality Rating Long-Term
S&P/Moody's Investments
BBB/Baa 2.6%
BB/Ba 62.1
B/B 21.1
CCC/Caa 0.3
NR (Not Rated) 13.9
