SENIOR STRATEGIC
INCOME FUND, INC.
FUND LOGO
Semi-Annual Report
August 31, 1995
Officers and Directors
Arthur Zeikel, President and Director
Ronald W. Forbes, Director
Cynthia A. Montgomery, Director
Charles C. Reilly, Director
Kevin A. Ryan, Director
Richard R. West, Director
Terry K. Glenn, Executive Vice President
N. John Hewitt, Senior Vice President
Donald C. Burke, Vice President
John W. Fraser, Vice President
R. Douglas Henderson, Vice President
Gerald M. Richard, Treasurer
Patrick D. Sweeney, Secretary
<PAGE>
Custodian
The Bank of New York
90 Washington Street
New York, NY 10286
Transfer Agent
The Bank of New York
101 Barclay Street
New York, NY 10286
NYSE Symbol
SSN
This report, including the financial information herein, is
transmitted to the shareholders of Senior Strategic Income Fund,
Inc. for their information. It is not a prospectus, circular or
representation intended for use in the purchase of shares of the
Fund or any securities mentioned in the report. Past performance
results shown in this report should not be considered a
representation of future performance. The Fund has leveraged its
Common Stock to provide Common Stock shareholders with a potentially
higher rate of return. Leverage creates risk for Common Stock
shareholders, including the likelihood of greater volatility of net
asset value and market price of Common Stock shares, and the risk
that fluctuations in short-term interest rates may reduce the Common
Stock's yield.
Senior Strategic Income
Fund, Inc.
Box 9011
Princeton, NJ
08543-9011
<PAGE>
SENIOR STRATEGIC INCOME FUND, INC.
The Benefits and
Risks of
Leveraging
Senior Strategic Income Fund, Inc. has the ability to utilize
leverage through borrowings or issuance of short-term debt
securities or shares of Preferred Stock. The concept of leveraging
is based on the premise that the cost of assets to be obtained from
leverage will be based on short-term interest rates, which normally
will be lower than the return earned by the Fund on its longer-term
portfolio investments. Since the total assets of the Fund (including
the assets obtained from leverage) are invested in higher-yielding
portfolio investments, the Fund's Common Stock shareholders are the
beneficiaries of the incremental yield. Should the differential
between the underlying interest rates narrow, the incremental yield
"pick up" will be reduced. Furthermore, if long-term interest rates
rise, the Common Stock's net asset value will reflect the full
decline in the entire portfolio holdings resulting therefrom since
the assets obtained from leverage do not fluctuate.
Leverage creates risks for holders of Common Stock including the
likelihood of greater net asset value and market price volatility.
In addition, there is the risk that fluctuations in interest rates
on borrowings (or in the dividend rates on any Preferred Stock, if
the Fund were to issue the Preferred Stock) may reduce the Common
Stock's yield and negatively impact its market price. If the income
derived from securities purchased with assets received from leverage
exceeds the cost of leverage, the Fund's net income will be greater
than if leverage had not been used. Conversely, if the income from
the securities purchased is not sufficient to cover the cost of
leverage, the Fund's net income will be less than if leverage had
not been used, and therefore the amount available for distribution
to Common Stock shareholders will be reduced. In this case, the Fund
may nevertheless decide to maintain its leveraged position in order
to avoid capital losses on securities purchased with leverage.
However, the Fund will not generally utilize leverage if it
anticipates that its leveraged capital structure would result in a
lower rate of return for its Common Stock than would be obtained if
the Common Stock were unleveraged for any significant amount of
time.
<PAGE>
DEAR SHAREHOLDER
Senior Strategic Income Fund, Inc. seeks to provide shareholders
with high current income by investing primarily in senior debt
obligations of companies, including portions of corporate loans made
by banks and other financial institutions and both privately placed
and publicly offered corporate bonds and notes. These securities by
and large are rated in the lower rating categories of the
established agencies or are unrated, as is commonly the case with
bank loans.
For the six-month period ended August 31, 1995, Senior Strategic
Income Fund, Inc.'s total investment return was +5.22%, based on a
change in per share net asset value from $9.27 to $9.26, and
assuming reinvestment of $0.466 per share income dividends. During
the same period, the net annualized yield of the Fund's common stock
was 10.15%. Since inception (April 8, 1994) through August 31, 1995,
the total investment return on the Portfolio's Common Stock was
+11.25%, based on a change in per share net asset value from $9.50
to $9.25, and assuming reinvestment of $1.193 per share income
dividends. At the end of the August period the Fund was 25.1%
leveraged, having borrowed $24 million of its $35 million line of
credit available at an average borrowing cost of 6.87%. (For a
complete explanation of the benefits and risks of leveraging, see
page 1 of this report to shareholders.)
As of August 31, 1995, the Fund paid out a regular monthly dividend
at an annualized rate of 9.40% so that the Fund could maintain a
more stable level of distributions. Monthly dividends are limited to
the lesser of the targeted monthly dividend rate in effect and the
amount of previously undistributed net investment income held by the
Portfolio. For Federal income tax purposes, the Fund is required to
distribute substantially all of its net investment income for each
calendar year. All net realized long-term and short-term capital
gains, if any, will be distributed to the Fund's shareholders
annually. The targeted monthly dividend rate has increased from an
annualized rate of 9.0% since the Fund's inception.
The Environment
The six months ended August 31, 1995 was characterized by an
interest rate environment that proved a mixed blessing for the
Fund's investments. The steady rise in interest rates that ended
with the Federal Reserve Board's monetary policy tightening in
February, had a positive effect on the floating rate portion of the
Fund while further eroding the fixed-rate high-yield market in line
with intermediate-term and long-term US Treasury securities.
However, economic data released during the second quarter of 1995
showed evidence of a slowing economy. Gross domestic product growth
for the first three months of 1995 was 2.7%, the weakest showing in
18 months. Other signs of a sluggish economy included slowing growth
in the manufacturing sector in May and June as well as three
consecutive months of declines in the Index of Leading Economic
Indicators, an occurrence that has often, but not always, forecast
recessions. Therefore, by the end of the June quarter concerns had
arisen that the economic soft landing could turn into an actual
recession. With the financial markets trading for most of the second
quarter on the assumption that interest rates were heading down, the
Federal Reserve Board finally reduced the target Federal Funds rate
by 25 basis points (0.25%) to 5.75% on July 6. This caused short-
term interest rates, such as London Interbank Offered Rate (LIBOR),
to fall.
<PAGE>
Portfolio Strategy
In light of the current market environment, the Fund's portfolio
is weighted slightly toward high-yield bonds versus senior secured
floating rate bank loans. Currently, all of the Fund's investments
in corporate loans are currently accruing interest at a yield spread
above LIBOR. LIBOR has historically tracked very closely with other
short-term interest rates in the United States, particularly the
Federal Funds rate. Since the average reset on the Fund's floating
rate investment is currently 38 days, the potential impact of any
sustained increase or decrease on the yield of the Fund's floating
rate investments will not be fully realized for at least a
comparable time period following any rate change. At August 31,
1995, floating rate securities made up 44.6% of the market value of
the Fund's investments, with an additional 54.6% invested in fixed-
rate high-yield bonds.
Liquidity in the loan market continued to be extremely strong
throughout the reporting period. Demand for bank loans was strong,
as banks competed for the fees and high spreads and agenting and
investing in leveraged credits. Loan funds continued to see
substantial inflows, enhancing already solid demand for funded term
loans. In the loan market, both new and secondary issues continued to
be well bid, providing strong liquidity at attractive prices. With
the continued strength in stock prices and the amount of equity
sponsor money presently being raised or sitting on the sidelines it
is likely that more buyout activity will be seen in the remainder of
1995 and into 1996.
The August period, and July in particular, were good for the capital
markets, including high-yield bonds. During July the Federal
Reserve Board eased monetary policy, recession fears disappeared
because of stronger economic data releases, yield spreads tightened,
and the Standard & Poor's 500 stock index gained over 3.2%, boosted
by another quarter of solid corporate earnings results. Most sectors
reported earnings strength, with technology and banking particularly
strong.
High-yield bonds rallied along with Treasury securities to close out
the August period well above first-quarter levels. The Merrill Lynch
Master High Yield Index has posted consecutive positive weekly
returns thus far in 1995. With 14 consecutive weeks of inflows of
at least $100 million per week into high-yield mutual funds and the
absence of any real forward calendar until late in the August
period, secondary market prices were bid up during the six months
ended August 31, 1995. As more new issues were registered in May,
secondary activity stalled and the rallying Treasury market left the
high-yield bond market behind. The spread between the Merrill Lynch
High Yield Master Index and ten-year Treasury securities widened to
as much as 362 basis points by the end of June. Intramarket risk
premiums also widened, with the BB/B spread, because of crossover
buyer's interest in higher-quality issues and uncertainty about the
direction of the economy. This tiering occurred as high-yield
investors increasingly focused on credit quality. Defensive or
solidly capitalized BB-rated credits are often several times over-
subscribed at new issue and trade well in the secondary market.
Cyclical and less well capitalized B-rated credits often offered
premium coupons, equity "kickers" and tighter covenants to attract
some of the more aggressive buyers to new issues.
<PAGE>
There has been some flight to less-cyclical industries that are
perceived to have healthier and more stable cashflows in a downturn.
As a result, the cable, supermarket and healthcare sectors have all
experienced tightening of spreads. Carrying over a common theme from
1994, investors treated issuers reporting disappointing performance
harshly. This was particularly true of the retail segment where
disappointing numbers for companies such as Color Tile, Inc. sent
their bonds down sharply.
We continue to focus on buying higher-yielding, improving quality
cyclical credits. Fundamental support for these bonds should
continue to be as strong as long as there are signs of moderate
growth and little inflation. Our investments in the building
products companies such as USG Corp. and NVR, Inc. reflect this
philosophy as well as our emphasis on the retail, shipping, steel,
chemicals and paper industries. These strategies benefited the total
return of the Fund for the August period. We continue to focus on
those issues with a maturity of ten-years or less that generally
have five-year call protection.
At August 31, 1995, cash equivalents totaled 0.9% of total assets.
The Fund's average stated maturity was 7 years but was expected to
have a much shorter real average life because of the typically
shorter average life of bank loans which are freely prepayable
without call protection. The Fund is diversified in the floating
rate portion in 15 investments across 11 industries and, in the
fixed-rate portion with 42 investments across 24 industries. The
largest industry concentrations are in paper (17.9% of total
assets), diversified manufacturing (9.9%), metals (5.9%), health
services (5.9%), and energy (5.0%).
Stronger companies are taking advantage of attractive public debt
and equity markets to improve their balance sheets. These trends
have translated into continued low default rates in both the bank
loan and bond markets, although default rates have been higher than
in 1994. Therefore, our primary strategy for the Fund was and will
continue to be focusing on those companies that we believe are
undervalued by the market or are generating improved earnings
trends. The industry focus is on companies that have leading market
shares, strong management and good cashflows. This strategy is
reflected in our holdings of such cyclicals as Jefferson
Smurfit/Container Corp. of America, Stone Container Corp., Algoma
Steel Inc., Brunos, Inc., and Host Marriot Corp. Instead of looking
for yield in the bank loan market, we will consider lower-coupon
issues that could become investment grade in a relatively short time
frame and provide liquidity in the interim. When neither attractive
bank loan or high-yield bond investment opportunities are available,
the excess cash was and will continue to be used to reduce the
Fund's leverage facility.
<PAGE>
Sincerely,
(Arthur Zeikel)
Arthur Zeikel
President
(R. Douglas Henderson)
R. Douglas Henderson
Vice President and Portfolio Manager
October 17, 1995
<TABLE>
SCHEDULE OF INVESTMENTS
<CAPTION>
S&P Moody's Face Value
INDUSTRIES Rating Rating Amount Corporate Debt Obligations Cost (Note 1b)
<S> <S> <S> <C> <S> <C> <C>
Aerospace--2.8% BB- Ba3 $2,000,000 BE Aerospace Inc., Senior Notes, 9.75%
due 3/01/2003 $ 1,937,065 $ 2,000,000
Automotive B B2 1,500,000 Harvard Industries, Inc., Senior Notes,
Products--5.0% 12% due 7/15/2004 1,500,000 1,578,750
B B2 1,000,000 JPS Automotive Products Corp., Senior
Notes, 11.125% due 6/15/2001 1,000,000 995,000
NR+++ NR+++ 1,000,000 ++Walbro Corp., Senior Notes, 9.875% due
7/15/2005 996,520 995,000
----------- -----------
3,496,520 3,568,750
Broadcast/ B- B3 1,000,000 ++Granite Broadcasting Corp., Senior Sub
Media--4.3% Notes, 10.375% due 5/15/2005 1,000,000 1,013,750
B Caa 1,000,000 Marcus Cable Co., Term Loan B, due
4/30/2004, 10.25% to 9/30/1995* 1,000,000 1,000,000
NR+++ B2 1,000,000 ++Young Broadcasting Corp., Senior Notes,
10.125% due 2/15/2005 1,000,000 1,040,000
----------- -----------
3,000,000 3,053,750
<PAGE>
Building & B B2 1,000,000 NVR, Inc., Senior Notes, 11% due 4/15/2003 990,975 972,500
Construction-- B- B2 2,000,000 Presley Companies, Senior Notes, 12.50%
5.0% due 7/01/2001 2,000,000 1,660,000
B+ Ba3 1,000,000 US Homes Corp., Senior Notes, 9.75% due
6/15/2003 954,505 985,000
----------- -----------
3,945,480 3,617,500
Building BB- Ba3 1,000,000 Schuller International Group, Senior Notes,
Products--1.5% 10.875% due 12/15/2004 1,000,000 1,097,500
Casinos--2.8% Harrah's Jazz Company, Term Loan B, due
9/30/1999:*
NR+++ NR+++ 333,333 9.125% to 10/23/1995 333,333 333,333
NR+++ NR+++ 666,667 9.1875% to 12/21/1995 666,667 666,667
BB Ba3 1,000,000 ++Players International Inc., Senior Notes,
10.875% due 4/15/2005 1,000,000 985,000
----------- -----------
2,000,000 1,985,000
Chemicals--5.8% BB+ Ba2 500,000 Borden Chemicals and Plastic, L.P., Senior
Notes, 9.50% due 5/01/2005 500,000 502,500
NR+++ NR+++ 1,500,000 Freedom Chemical Co., Term Loan B, due
6/30/2002, 9.1875% to 10/27/1995* 1,500,000 1,500,000
BB- B1 2,000,000 Huntsman Chemical Corp., Senior Notes,
11% due 4/15/2004 2,000,000 2,165,000
----------- -----------
4,000,000 4,167,500
Computers--2.3% BB- Ba3 1,500,000 Dell Computer Corp., Senior Notes, 11%
due 8/15/2000 1,528,125 1,646,250
Consumer B+ Ba3 1,000,000 Coty Inc., Senior Sub Notes, 10.25% due
Products--2.1% 5/01/2005 1,000,000 1,030,000
B+ B2 1,000,000 Drypers Corp., Senior Notes, 12.50%
due 11/01/2002 1,055,000 450,000
----------- -----------
2,055,000 1,480,000
<PAGE>
Diversified InterMetro Industries, Term Loan B, due
Manufacturing-- 7/02/2001:*
13.3% NR+++ NR+++ 612,072 8.875% to 1/03/1995 612,072 612,072
NR+++ NR+++ 173,904 8.875% to 9/05/1995 173,904 173,904
InterMetro Industries, Term Loan C, due
12/31/2002:*
NR+++ NR+++ 253,026 9.375% to 9/05/1995 253,026 253,026
NR+++ NR+++ 890,552 9.375% to 1/03/1996 890,552 890,552
B+ B2 1,000,000 JB Poindexter & Co., Inc., Senior Notes,
12.50% due 5/15/2004 995,324 940,000
NR+++ NR+++ 6,649,750 Thermadyne Company, Term Loan B, due
2/01/2001, 8.875% to 9/07/1995* 6,649,750 6,649,750
----------- -----------
9,574,628 9,519,304
Drug NR+++ Ba3 2,115,698 Thrifty Payless, Inc., Term Loan B,
Stores--2.9% due 9/30/2001,* 9.0625% to 9/22/1995 2,115,698 2,115,698
Electrical Berg Electronics Inc., Term Loan B,
Instruments due 3/31/2001:*
- --4.1% NR+++ NR+++ 12,500 8.94% to 9/25/1995 12,500 12,500
NR+++ NR+++ 2,950,000 8.94% to 11/27/1995 2,950,000 2,950,000
----------- -----------
2,962,500 2,962,500
Energy--6.7% BB- B1 2,500,000 Ferrellgas Partners, L.P., Senior Notes,
Series B, 9% due 8/01/2001*** 2,489,039 2,493,750
B B3 2,500,000 Gerrity Oil Corp., Senior Sub Notes,
11.75% due 7/15/2004 2,500,000 2,300,000
----------- -----------
4,989,039 4,793,750
Forest BB Ba3 1,000,000 Rainy River Forest Products, Senior
Products--2.9% Notes, 10.75% due 10/15/2001 997,787 1,070,000
BB B1 1,000,000 Tembec Finance Corp., Senior Notes,
9.875% due 9/30/2005 1,000,000 1,000,000
----------- -----------
1,997,787 2,070,000
Grocery--5.4% B- B3 2,000,000 Brunos, Inc., Senior Sub Notes, 10.50%
due 8/01/2005 2,000,000 1,945,000
B+ NR+++ 1,979,000 Homeland Stores, Inc., Floating Rate
Notes, 9.0625% due 2/28/1997*** 1,979,000 1,959,210
----------- -----------
3,979,000 3,904,210
<PAGE>
Health B B2 2,000,000 Charter Medical Corp., Senior Sub Notes,
Services--7.9% 11.25% due 4/15/2004 2,000,000 2,145,000
B B1 1,000,000 Integrated Health Services, Inc., 10.75%
due 7/15/2004 1,000,000 1,065,000
B B1 2,650,000 MEDIQ/PRN Life Support Services Inc.,
Senior Secured Notes, 11.125% due
7/01/1999 2,659,125 2,464,500
----------- -----------
5,659,125 5,674,500
Leisure & Enter- B B3 1,000,000 Plitt Theatres, Inc., Senior Sub Notes,
tainment--1.4% 10.875% due 6/15/2004 1,000,000 980,000
Manufacturing B- B3 1,000,000 ++Crain Industries, Inc., Senior Sub Notes,
- --1.4% 13.50% due 8/15/2005 1,000,000 1,005,000
Marking B+ B2 1,000,000 ++Monarch Acquisitions Corp., Senior Notes,
Devices--1.4% 12.50% due 7/01/2003 1,000,000 1,015,000
Metals--8.0% B B1 1,000,000 Algoma Steel Inc., Senior Notes, 12.375%
due 7/15/2005 902,167 920,000
B B1 1,000,000 ++Gulf States Steel Corp., Senior Notes,
13.50% due 4/15/2003 989,286 970,000
B+ B3 1,000,000 Renco Metals Inc., Senior Notes, 12% due
7/15/2000 985,999 1,050,000
B- B3 2,000,000 Russel Metals Inc., Senior Notes, 10.25%
due 6/15/2000 1,968,817 1,855,000
B B2 1,000,000 ++Weirton Steel Corp., Senior Notes,
10.75% due 6/01/2005 985,186 920,000
----------- -----------
5,831,455 5,715,000
Musical NR+++ B1 1,000,000 ++Selmer Co., Inc., Senior Notes, 11%
Instruments--1.3% due 5/15/2005 1,000,000 960,000
</TABLE>
<PAGE>
<TABLE>
SCHEDULE OF INVESTMENTS (concluded)
<CAPTION>
S&P Moody's Face Value
INDUSTRIES Rating Rating Amount Corporate Debt Obligations Cost (Note 1b)
<S> <S> <S> <C> <S> <C> <C>
Paper--24.0% Fort Howard Corp., Term Loan B, due
12/31/2002:*
NR+++ NR+++ $ 1,500,000 9% to 9/19/1995 $ 1,500,000 $ 1,500,000
NR+++ NR+++ 1,500,000 8.88% to 12/19/1995 1,500,000 1,500,000
B B3 1,000,000 Gaylord Container Corp., Senior Notes,
11.50% due 5/15/2001 1,022,500 1,052,500
Jefferson Smurfit/Container Corp. of
America, Term Loan B, due 4/30/2002:
NR+++ NR+++ 187,500 9.4375% to 9/25/1995 187,500 187,500
NR+++ NR+++ 816,667 8.9375% to 10/20/1995 816,667 816,667
NR+++ NR+++ 3,416,667 9.375% to 10/24/1995 3,416,667 3,416,667
BB- Ba3 1,000,000 Repap New Brunswick, Senior Secured
Notes, 9.875% due 7/15/2000 1,000,000 1,000,000
NR+++ NR+++ 3,000,000 S.D. Warren Co., Term Loan B, due
12/19/2002, 8.94% to 9/25/1995* 3,000,000 3,000,000
Stone Container Corp., Term Loan B,
due 4/01/2000:*
NR+++ NR+++ 2,300,000 9% to 9/18/1995 2,300,000 2,300,000
NR+++ NR+++ 2,475,000 9% to 10/16/1995 2,475,000 2,475,000
----------- -----------
17,218,334 17,248,334
Printing & NR+++ NR+++ 1,498,037 Ziff Davis Acquisition Corp., Term Loan B,
Publishing--4.0% due 12/31/2001, 9.4375% to 9/28/1995* 1,498,037 1,498,037
NR+++ NR+++ 1,411,035 Ziff Davis Acquisition Corp., Term Loan C,
due 12/31/2002, 9.9375% to 9/28/1995* 1,411,035 1,411,035
----------- -----------
2,909,072 2,909,072
Restaurants BB- B1 1,000,000 ++Host Marriott Corp., Senior Secured
- --1.3% Notes, 9.50% due 5/15/2005 963,953 957,500
Retail-- CCC+ B2 2,000,000 Color Tile, Inc., Senior Notes, 10.75%
Specialty--4.6% due 12/15/2001 1,973,760 800,000
NR+++ NR+++ 2,487,778 Saks & Co., Term Loan B, due 6/30/2000,
9.25% to 11/09/1995* 2,487,778 2,487,778
----------- -----------
4,461,538 3,287,778
<PAGE>
Security NR+++ NR+++ 838,948 Alert Centre Inc., Term Loan, due 8/01/2001,
Systems--1.2% 8.875% to 9/05/1995* 838,948 838,948
Shipping--1.3% BB- Ba2 1,000,000 Eletson Holdings, Senior Notes, 9.25% due
11/15/2003 920,686 960,000
Utilities--2.1% BB Ba2 1,000,000 Cleveland Electric Illuminating Company,
First Mortgage Notes, 9.50% due 5/15/2005*** 998,114 1,001,400
BB- B1 460,000 First PV Funding Corp., Senior Notes,
10.30% due 1/15/2014 452,137 473,685
----------- -----------
1,450,251 1,475,085
Warehousing & NR+++ NR+++ 3,000,000 Pierce Leahy Corp., Term Loan B, due
Storage--4.2% 6/30/2001, 9.125% to 9/29/1995* 3,000,000 3,000,000
Total Investments in Corporate Debt
Obligations--131.0% 95,834,204 94,007,929
<CAPTION>
Shares
Held Warrants
Metals--0.0% NR+++ NR+++ 1,000 Gulf States Steel Corp. (a) 11,000 1,500
Total Investments in Warrants--0.0% 11,000 1,500
Face
Amount Short-Term Securities
Commercial $ 907,000 General Electric Capital Corp., 5.82%
Paper**--1.2% due 9/01/1995 907,000 907,000
Total Investments in Short-Term Securities
--1.2% 907,000 907,000
Total Investments--132.2% $96,752,204 94,916,429
===========
Liabilities in Excess of Other Assets--
(32.2%) (23,135,519)
-----------
Net Assets--100.0% $71,780,910
===========
<PAGE>
<FN>
(a)Warrants entitle the Fund to purchase a predetermined number of
shares of common stock/face amount of bonds. The purchase price and
the number of shares/face amount are subject to adjustment under
certain conditions until the expiration date.
*Floating or Variable Rate Corporate Loans--The interest rates on
floating or variable rate corporate loans 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. The interest rates shown are those in effect at
August 31, 1995.
**Commercial Paper is traded on a discount basis; the interest rate
shown is the discount rate paid at the time of purchase by the Fund.
***Floating or Variable Rate Corporate Bonds--The interest rates on
floating or variable rate corporate bonds 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. The interest rates shown are those in effect at
August 31, 1995.
+++Not Rated.
++Restricted securities as to resale. The value of the Fund's
investment in restricted securities was approximately $8,866,000,
representing 12.4% of net assets.
<CAPTION>
Acquisition Value
Issue Date Cost (Note 1b)
<S> <C> <C> <C>
Crain Industries, Inc.,
Senior Sub Notes, 13.50% due 8/15/2005 8/22/1995 $1,000,000 $1,005,000
Granite Broadcasting Corp.,
Senior Sub Notes, 10.375% due 5/15/2005 5/12/1995 1,000,000 1,013,750
Gulf States Steel Corp.,
Senior Notes, 13.50% due 4/15/2003 4/12/1995 989,286 970,000
Host Marriott Corp.,
Senior Secured Notes, 9.50% due 5/15/2005 5/18/1995 963,953 957,500
Monarch Acquisitions Corp.,
Senior Notes, 12.50% due 7/01/2003 6/23/1995 1,000,000 1,015,000
Players International Inc.,
Senior Notes, 10.875%, due 4/15/2005 4/10/1995 1,000,000 985,000
Selmer Co., Inc., Senior Notes, 11% due 5/15/2005 5/18/1995 1,000,000 960,000
Weirton Steel Corp., Senior Notes, 10.75% due 6/01/2005 6/05/1995 985,186 920,000
Walbro Corp., Senior Notes, 9.875% due 7/15/2005 7/21/1995 996,520 995,000
Young Broadcasting Corp.,
Senior Notes, 10.125% due 2/15/2005 6/07/1995 1,000,000 1,040,000
Total $9,934,945 $9,861,250
========== ==========
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
STATEMENT OF ASSETS, LIABILITIES AND CAPITAL
<CAPTION>
As of August 31, 1995
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$96,752,204)
(Note 1b) $ 94,916,429
Cash 1,907
Interest receivable 1,614,136
Deferred facility expense (Note 6) 6,247
Deferred organization expense (Note 1f) 83,551
Prepaid expenses and other assets 1,016
------------
Total assets 96,623,286
------------
Liabilities: Payables:
Loans (Note 6) $ 24,000,000
Dividends to shareholders (Note 1g) 198,885
Interest on loans (Note 6) 110,597
Investment adviser (Note 2) 39,023
Commitment fees 4,222 24,352,727
------------
Deferred income (Note 1e) 483,431
Accrued expenses and other liabilities 6,218
------------
Total liabilities 24,842,376
------------
Net Assets: Net assets $ 71,780,910
============
Capital: Common Stock, par value $.10 per share; 200,000,000 shares
authorized (7,750,527 shares issued and outstanding) $ 775,053
Paid-in capital in excess of par 72,670,947
Undistributed investment income--net 935,300
Accumulated realized capital losses on investments--net (764,615)
Unrealized depreciation on investments--net (1,835,775)
------------
Total capital--Equivalent to $9.26 net asset value per share of
Common Stock (market price--$9.125) $ 71,780,910
============
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
STATEMENT OF OPERATIONS
<CAPTION>
For the Six Months Ended August 31, 1995
<S> <S> <C>
Investment Income Interest and discount earned $ 4,977,913
(Note 1e): ------------
Expenses: Loan interest expense (Note 6) 775,868
Investment advisory fees (Note 2) 237,873
Professional fees 54,283
Accounting services (Note 2) 27,547
Printing and shareholder reports 26,645
Facility fee amortization (Note 6) 13,594
Directors' fees and expenses 12,317
Borrowing costs (Note 6) 12,292
Amortization of organization expenses (Note 1f) 9,718
Custodian fees 6,021
Transfer agent fees (Note 2) 5,901
Pricing services 1,509
Listing fees 119
Other 9,978
------------
Total expenses 1,193,665
------------
Investment income--net 3,784,248
------------
Realized & Realized gain on investments--net 79,005
Unrealized Change in unrealized depreciation on investments--net (321,109)
Gain (Loss) on ------------
Investments--Net Net Increase in Net Assets Resulting from Operations $ 3,542,144
(Notes 1c, ============
1e & 3):
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
<CAPTION>
For the Six For the Period
Months Ended April 8, 1994++
August 31, to February 28,
Increase (Decrease) in Net Assets: 1995 1995
<S> <S> <C> <C>
Operations: Investment income--net $ 3,784,248 $ 6,262,806
Realized gain (loss) on investments--net 79,005 (706,692)
Change in unrealized depreciation on investments--net (321,109) (1,514,666)
------------ ------------
Net increase in net assets resulting from operations 3,542,144 4,041,448
------------ ------------
Dividends & Investment income--net (3,612,800) (5,498,954)
Distributions to Realized gain on investments--net -- (136,928)
Shareholders ------------ ------------
(Note 1g):
Net decrease in net assets resulting from dividends and
distributions to shareholders (3,612,800) (5,635,882)
------------ ------------
Capital Share Net proceeds from issuance of Common Stock -- 73,530,000
Transactions Offering costs resulting from the issuance of Common Stock -- (184,007)
(Note 4): ------------ ------------
Net increase in net assets resulting from capital share
transactions -- 73,345,993
------------ ------------
Net Assets: Total increase (decrease) in net assets (70,656) 71,751,559
Beginning of period 71,851,566 100,007
------------ ------------
End of period* $ 71,780,910 $ 71,851,566
============ ============
<FN>
*Undistributed investment income--net $ 935,300 $ 763,852
============ ============
++Commencement of Operations.
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
STATEMENT OF CASH FLOWS
For the Six Months Ended August 31, 1995
<S> <S> <C>
Cash Provided Net increase in net assets resulting from operations $ 3,542,144
by Operating Adjustments to reconcile net increase in net assets resulting from
Activities: operations to net cash provided
by operating activities:
Increase in receivables 115,654
Increase in other liabilities (150,559)
Realized and unrealized loss on investments--net 242,104
Amortization of premium and discount (9,275)
------------
Net cash provided by operating activities 3,740,068
------------
Cash Used for Proceeds from sales of long-term investments 30,403,554
Investing Purchases of long-term investments (32,826,136)
Activities: Purchases of short-term investments (77,542,428)
Proceeds from sales and maturities of short-term investments 76,818,000
------------
Net cash used for investing activities (3,147,010)
------------
Cash Used for Dividends paid to shareholders (3,638,215)
Financing Short-term borrowings 3,000,000
Activities: ------------
Net cash used for financing activities (638,215)
------------
Cash: Net decrease in cash (45,157)
Cash at beginning of period 47,064
------------
Cash at end of period $ 1,907
============
Cash Flow Cash paid for interest $ 779,171
Information: ============
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
FINANCIAL HIGHLIGHTS
<CAPTION>
The following per share data and ratios have been derived For the Six For the Period
from information provided in the financial statements. Months Ended April 8, 1994++
Aug. 31, to Feb. 28,
Increase (Decrease) in Net Asset Value: 1995 1995
<S> <S> <C> <C>
Per Share Net asset value, beginning of period $ 9.27 $ 9.50
Operating ------------ ------------
Performance: Investment income--net .49 .81
Realized and unrealized loss on investments--net (.03) (.29)
------------ ------------
Total from investment operations .46 .52
------------ ------------
Less dividends and distributions from:
Investment income--net (.47) (.71)
Realized gain on investments--net -- (.02)
------------ ------------
Total dividends and distributions (.47) (.73)
------------ ------------
Capital charge resulting from the issuance of Common Stock -- (.02)
------------ ------------
Net asset value, end of period $ 9.26 $ 9.27
============ ============
Market price per share, end of period $ 9.125 $ 9.125
============ ============
Total Investment Based on net asset value per share 5.22%+++ 5.73%+++
Return:** ============ ============
Based on market price per share 5.34%+++ (1.13%)+++
============ ============
Ratios to Average Expenses, net of reimbursement and excluding interest expense 1.04%* .65%*
Net Assets: ============ ============
Expenses, net of reimbursement 2.97%* 2.15%*
============ ============
Expenses 2.97%* 2.44%*
============ ============
Investment income--net 9.40%* 8.42%*
============ ============
Supplemental Net assets, end of period (in thousands) $ 71,781 $ 71,852
Data: ============ ============
Portfolio turnover 32.79% 33.38%
============ ============
<PAGE>
<FN>
++Commencement of Operations.
+++Aggregate total investment return.
*Annualized.
**Total investment returns based on market value, which can be
significantly greater or lesser than the net asset value, may result
in substantially different returns. Total investment returns exclude
the effects of sales loads.
See Notes to Financial Statements.
</TABLE>
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies:
Senior Strategic Income Fund, Inc. (the "Fund") is registered under
the Investment Company Act of 1940 as a non-diversified, closed-end
management investment company. These unaudited financial statements
reflect all adjustments which are, in the opinion of management,
necessary to a fair statement of the results for the interim period
presented. All such adjustments are of a normal recurring nature.
The Fund determines and makes available for publication the net
asset value of its Common Stock on a weekly basis. The Fund's Common
Stock is listed on the New York Stock Exchange under the symbol SSN.
(a) Corporate debt obligations--The Fund invests principally in
senior debt obligations ("Senior Debt") of companies, including
corporate loans made by banks and other financial institutions and
both privately and publicly offered corporate bonds and notes.
(b) Valuation of investments--Portfolio securities are valued on the
basis of prices furnished by one or more pricing services, which
determine prices for normal, institutional-size trading units. 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. The
value of interest rate swaps, caps, and floors is determined in
accordance with a formula and then confirmed periodically by
obtaining a bank quotation. Positions in options are valued at the
last sale price on the market where any such option is principally
traded. Securities for which there exist no price quotations or
valuations and all other assets are valued at fair value as
determined in good faith by or on behalf of the Board of Directors
of the Fund. Since corporate loans are purchased and sold primarily
at par value, the Fund values the loans at par, unless Fund Asset
Management, L.P. ("FAM") determines par does not represent fair
value. In the event such a determination is made, fair value will be
determined in accordance with guidelines approved by the Fund's
Board of Directors. Obligations with remaining maturities of sixty
days or less are valued at amortized cost, which approximates market
value, unless this method no longer produces fair valuations.
<PAGE>
(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.
* Financial futures contracts--The Fund may purchase or sell stock
index futures contracts and options on such futures contracts for
the purpose of hedging the market risk on existing securities or the
intended purchase of securities. Futures contracts are contracts for
delayed delivery of securities at a specific future date and at a
specific price or yield. Upon entering into a contract, the Fund
deposits and maintains as collateral such initial margin as required
by the exchange on which the transaction is effected. Pursuant to
the contract, the Fund agrees to receive from or pay to the broker
an amount of cash equal to the daily fluctuation in value of the
contract. Such receipts or payments are known as variation margin
and are recorded by the Fund as unrealized gains or losses. When the
contract is closed, the Fund records a realized gain or loss equal
to the difference between the value of the contract at the time it
was opened and the value at the time it was closed.
* Options--The Fund is authorized to write and purchase call and put
options. When the Fund writes an option, an amount equal to the
premium received by the Fund is reflected as an asset and an
equivalent liability. The amount of the liability is subsequently
marked to market to reflect the current value of the option written.
When a security is sold through an exercise of an option, the
related premium paid (or received) is added to (or deducted from)
the basis of the security acquired or deducted from (or added to)
the proceeds of the security sold. When an option expires (or the
Fund enters into a closing transaction), the Fund realizes a gain or
loss on the option to the extent of the premiums received or paid
(or gain or loss to the extent the cost of the closing transaction
exceeds the premium paid or received).
Written and purchased options are non-income producing investments.
NOTES TO FINANCIAL STATEMENTS (concluded)
* 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).
<PAGE>
(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 income is recognized on the accrual
basis. Realized gains and losses on security transactions are
determined on the identified cost basis. Facility fees are accreted
to income over the term of the related loan.
(f) Deferred organization expenses--Deferred organization expenses
are amortized on a straight-line basis over a five-year period.
(g) Dividends and distributions--Dividends from net investment
income are declared and paid monthly. Distributions of capital gains
are recorded on the ex-dividend dates. The Fund may at times pay out
less than the entire amount of net investment income earned in any
particular period and may at times pay out such accumulated
undistributed income in other periods to permit the Fund to maintain
a more stable level of distributions.
2. Investment Advisory Agreement with Affiliates:
The Fund has entered into an Investment Advisory Agreement with FAM.
The general partner of FAM is Princeton Services, Inc. ("PSI"), an
indirect wholly-owned subsidiary of Merrill Lynch & Co., Inc. ("ML &
Co."), which is the limited partner.
FAM is responsible for the management of the Fund's portfolio and
provides the necessary personnel, facilities, equipment and certain
other services necessary to the operations of the Fund. For such
services, the Fund pays a monthly fee at an annual rate of 0.50% of
the Fund's average weekly net assets plus the proceeds of any
outstanding borrowings used for leverage.
Accounting services are provided to the Fund by FAM at cost.
During the six months ended August 31, 1995, the Fund paid Merrill
Lynch Security Pricing Service, an affiliate of Merrill Lynch,
Pierce, Fenner & Smith Inc. ("MLPF&S"), $181 for security price
quotations to compute the net asset value of the Fund.
Certain officers and/or directors of the Fund are officers and/or
directors of FAM, PSI, MLPF&S, and/or ML & Co.
<PAGE>
3. Investments:
Purchases and sales of investments, excluding short-term securities,
for six months ended August 31, 1995 were $32,826,136 and
$30,403,554, respectively.
Net realized and unrealized gains (losses) as of August 31, 1995
were as follows:
Realized Unrealized
Gains Losses
Long-term investments $ 79,005 $(1,835,775)
----------- -----------
Total $ 79,005 $(1,835,775)
=========== ===========
As of August 31, 1995, net unrealized depreciation for financial
reporting and Federal income tax purposes aggregated $1,835,775, of
which $1,121,960 related to appreciated securities and $2,957,735
related to depreciated securities. The aggregate cost of investments
at August 31, 1995 for Federal income tax purposes was $96,752,204.
4. Capital Share Transactions:
The Fund is authorized to issue 200,000,000 shares of capital stock
par value $.10, all of which are initially classified as Common
Stock. The Board of Directors is authorized, however, to classify
and reclassify any unissued shares of capital stock without approval
of the holders of Common Stock.
For the six months ended August 31, 1995, shares issued remained
constant at 7,750,527. At August 31, 1995, total paid-in capital
amounted to $73,446,000.
5. Unfunded Loan Interests:
As of August 31, 1995, the Fund had unfunded loan commitments of
$1,000,000 which would be extended at the option of the borrower,
pursuant to the following loan agreements:
Unfunded
Committment
Borrower (in thousands)
Marcus Cable Co. $1,000
<PAGE>
6. Short-Term Borrowings:
On May 25, 1994, the Fund entered into a one-year revolving credit
facility in the amount of $35,000,000 with a syndicate of banks
led by the Bank of New York bearing interest on the outstanding
balance at the Federal Funds rate plus 1.125% and/or at an alternate
base rate plus 0.125% and/or at LIBOR plus 1.125%. On May 24, 1995
this facility was extended for one additional year and amended to
reduce applicable interest rates on outstanding balances to Federal
Funds rate plus 0.75%, alternate base rate plus 0%, and/or LIBOR
plus 0.75%. For the six months ended August 31, 1995, the maximum
amount borrowed was $25,000,000, the average amount borrowed was
approximately $23,000,000, and the daily weighted average interest
rate was 6.87%. For the six months ended August 31, 1995, facility
and commitment fees aggregated approximately $13,000.
7. Subsequent Event:
On September 11, 1995, the Board of Directors of the Fund declared
an ordinary income dividend in the amount of $0.079836 per share,
payable on September 29, 1995 to shareholders of record as of
September 22, 1995.
PER SHARE INFORMATION
<TABLE>
Per Share
Selected Quarterly
Financial Data*
<CAPTION>
Net Realized Unrealized Dividends/Distributions
Investment Gains Gains Net Investment Income Capital
For the Period Income (Losses) (Losses) Common Gains
<S> <C> <C> <C> <C> <C>
April 8, 1994++ to May 31, 1994 $.09 --+++ --+++ $.09 --
June 1, 1994 to August 31, 1994 .24 $ .01 $(.05) .23 --
September 1, 1994 to November 30, 1994 .24 .01 (.25) .23 --
December 1, 1994 to February 28, 1995 .24 (.11) .10 .16 $.02
March 1, 1995 to May 31, 1995 .24 --+++ .14 .23 --
June 1, 1995 to August 31, 1995 .25 .01 (.18) .24 --
<CAPTION>
Net Asset Value Market Price**
For the Period High Low High Low Volume***
<S> <C> <C> <C> <C> <C>
April 8, 1994++ to May 31, 1994 $9.57 $9.47 $9.875 $9.50 819
June 1, 1994 to August 31, 1994 9.65 9.44 9.50 8.75 210
September 1, 1994 to November 30, 1994 9.55 9.30 9.00 8.00 1,142
December 1, 1994 to February 28, 1995 9.28 9.14 9.25 8.375 905
March 1, 1995 to May 31, 1995 9.46 9.25 9.125 8.375 984
June 1, 1995 to August 31, 1995 9.44 9.25 9.125 8.675 1,219
<PAGE>
<FN>
*Calculations are based upon shares of Common Stock outstanding at
the end of each period.
**As reported in the consolidated transaction reporting system.
***In thousands.
++Commencement of Operations.
+++The amount is less than $0.01 per share.
</TABLE>
