Merrill Lynch
Senior Floating
Rate Fund
Semi-Annual Report (unaudited)
February 28, 1994
Officers and Directors
Arthur Zeikel--President and Director
Ronald W. Forbes--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
R. Douglas Henderson--Vice President
Gerald M. Richard--Treasurer
Patrick D. Sweeney--Secretary
Custodian
The Bank of New York
110 Washington Street
New York, New York 10286
Transfer Agent
Financial Data Services, Inc.
4800 Deer Lake Drive East
Jacksonville, Florida 32246-6484
(800) 637-3863
This report, including the financial information
herein, is transmitted to the shareholders of
Merrill Lynch Senior Floating Rate Fund for their
information. It is not a prospectus, circular or
representation intended for use in the purchase of
shares of the Fund or any securities mentioned
in this report. Past performance results shown in
this report should not be considered a represen-
tation of future performance.
Merrill Lynch
Senior Floating Rate Fund
Box 9011
Princeton, NJ 08543-9011
<PAGE>
Dear Shareholder:
The three-month period ended February 28, 1994
was characterized by continued economic expansion
and financial markets that became more
bearish as the quarter came to a close. This
change in sentiment began when the Federal
Reserve Board attempted to preempt any signs
of inflation by raising short-term interest rates on
February 4, 1994, the first time in five years. This
prompted a nervous sell-off in financial markets
throughout the world. In Congressional testimony,
Federal Reserve Board Chairman Alan Greenspan
offered reassurances, pointing out that recent
economic indicators such as the Consumer Price
Index and Producer Price Index were showing
that inflationary pressures had not yet increased
significantly. However, it is our opinion that the
United States is clearly enjoying a healthy economic
recovery which over time will generate additional
upward pressure on interest rates.
An environment of steadily rising interest rates
would benefit the Fund's yield. Over 95% of the
Fund's floating rate investments are currently
accruing interest at a spread over the London
Interbank Offered Rate (LIBOR), the rate that
major international banks charge each other for
US dollar-denominated deposits outside the
United States. Historically, LIBOR has tracked
other US short-term interest rates very closely,
particularly the Federal Funds rate. Since the
Federal Reserve Board tightened monetary policy
by raising the Federal Funds rate from 3.00%
to 3.25%, the three-month LIBOR has risen from
3.25% to 3.75%. Since the average LIBOR reset
on the Fund's investments is 54 days, the Fund's
yield is likely to benefit from an increase in short-
term interest rates increase within one to two
months, assuming this LIBOR level is sustained.
Portfolio Performance
The Fund finished the February quarter with
approximately 90.43%, or $658.1 million, of its
$718.1 million in net assets invested in loan
interests. Assets not invested in loan interests
were invested in high-quality, short-term securities.
<PAGE>
The Fund's effective yield for the three-month
period ended February 28, 1994 was 5.35%,
compared to 5.50% during the November quarter.
The upward trend in short-term interest rates
during the period was offset by the larger-than-
expected cash position carried by the Fund as
closings for a number of transactions had been
pushed into the first quarter. The Fund's net asset
value continued to remain relatively stable
throughout the period. During the quarter, the
Fund earned $0.132 per share income dividends,
representing a net annualized yield of 5.35%
based on a February month-end net asset value
of $10.02. The Fund's total investment return was
+1.30%, based on an unchanged net asset
value and assuming reinvestment of $0.140 per
share income dividends.
Since inception (November 3, 1989) through
February 28, 1994, the Fund's total investment
return was +35.60%, based on a change in
per share net asset value from $10.00 to $10.02,
and assuming reinvestment of $3.025 per share
income dividends.
Investment Activities
The Fund purchased over $160.4 million in loan
interests during the quarter ended February 28,
1994. These purchases included Allison Engine
Co., Inspec Technologies, Heileman Acquisition
Company, Aviall Inc. and Thermadyne Company.
These issuers all represent companies in cyclical
businesses that are on the upswing with the
economic recovery and have strong asset coverage.
In addition, the Fund made investments in existing
portfolio names such as Berg Electronics Inc.,
Gulfstream Corp., Lexmark Holdings and Saks &
Company. These purchases were offset by the sale
of portions of the Fund's larger portfolio
positions. These included Fort Howard Corp.,
Jefferson Smurfit/Container Corp. of America
and Northwest Airlines, Inc.
At period-end, the Fund was comprised of 40
different borrowers representing 22 different
industries. The average loan size was $16.0
million, or 2.23% of net assets. The largest
industry concentrations were in paper products
(12.9% of net assets), grocery (7.8%), corporate
aircraft manufacturing (8.8%), diversified
manufacturing (7.0%), and retail drug stores (7.1%).
<PAGE>
Our investment strategy continues to emphasize
conservatively structured loan facilities to borrowers
with strong cash flows, superior market share
and franchise value, and experienced management.
The advantages of this strategy are reflected in
both the stability of the Fund's net asset
value over the last year and the liquidity and
income realization provided by our investments
as borrowers have capitalized on their access
to public markets.
The Fund completed another quarterly tender
offer on January 13, 1994, with approximately 3.8
million shares tendered and accepted for repurchase.
A tender began on March 21, 1994 and will
conclude on April 15, 1994. The Fund remains
open for new shareholder purchases.
Investment Outlook
As the economy continues to improve, we expect
the portfolio's overall credit quality to continue
to improve for the remainder of 1994. Banks have
agressively come back into the leveraged loan
market, including some major Japanese investors,
in an effort to put the runoff from refinancings
back to work. Default rates over the last year
have been at historical lows and are expected to
remain low in the coming year. Strong investor
demand for senior secured loan products should
keep the secondary market tight, with the majority
of the focus on the primary syndications. This
should result in continued strong liquidity and
compressed spreads. We expect this trend to
continue as long as the public debt and equity
markets remain attractive and investors agressively
bid the market.
In light of the current volatility in the fixed-income
markets, the Fund is well-positioned to participate
in an improving credit environment as the economy
expands. If short-term interest rates continue
to rise, the Fund offers upside yield potential
from investing in variable rate senior collateralized
loans.
We thank you for your continued investment in Merrill
Lynch Senior Floating Rate Fund, and we look forward
to reviewing our outlook and strategy with you again
in our next report to shareholders.
<PAGE>
Sincerely,
(Arthur Zeikel)
Arthur Zeikel
President
(R. Douglas Henderson)
R. Douglas Henderson
Vice President and Portfolio Manager
April 7, 1994
<TABLE>
Merrill Lynch Senior Floating Rate Fund
Schedule of Investments as of February 28, 1994 (unaudited) (in Thousands)
<CAPTION>
Face Value
Industry Senior Secured Floating Rate Loan Interests* Amount (Note 1b)
<S> <S> <C> <C>
Airlines--3.35% Northwest Airlines, Inc., Term Loan, due 9/15/97:
6.1875% to 3/08/94 $ 4,776 $ 4,776
6.125% to 4/20/94 9,327 9,327
6.1875% to 6/21/94 4,403 4,403
6.1875% to 7/20/94 3,731 3,731
6.50% to 8/10/94 1,836 1,836
-------- --------
24,073 24,073
Communications Magnavox Electronic Systems Co., Term Loan,
Equipment--0.86% due 9/30/2000, 6.6875% to 5/03/94 6,189 6,189
Computer-Related Anacomp, Inc., Term Loan, due 3/31/96, 6.00% to 4/26/94 13,354 13,354
Services--1.86%
Computing Equipment Lexmark Holdings, US, Term Loan, due 3/27/98:
Manufacturing--2.56% 5.875% to 3/31/94 10,248 10,248
5.875% to 7/29/94 8,155 8,155
-------- --------
18,403 18,403
Corporate Aircraft Allison Engine Co., Term Loan, due 12/31/98, 6.31% to 6/06/94 25,000 25,000
Manufacturing--8.87% Aviall Inc., Term Loan B, due 11/30/2000:
6.57% to 4/07/94 3,529 3,529
6.76% to 6/07/94 8,824 8,824
6.80% to 8/08/94 2,647 2,647
Gulfstream Corp., Revolving Credit Loan, due 3/31/98, 5.50% to 3/31/94 3,154 3,154
Gulfstream Corp.:
Term Loan, due 3/31/97, 5.50% to 4/13/94(1) 11,373 11,373
Term Loan, due 3/31/98, 6.50% to 3/08/94 9,260 9,260
-------- --------
63,787 63,787
<PAGE>
Electrical Instruments Berg Electronics Inc., Term Loan, due 3/31/2000:
& Controls--1.78% 7.50%(1) 3 3
6.13% to 3/29/94 12,811 12,811
-------- --------
12,814 12,814
Grocery--7.86% Big V Supermarkets Inc., Term Loan B, due 3/15/2000, 6.625% to 8/15/94 10,400 10,400
Carr-Gottstein Foods Co., Term Loan B, due 12/31/2000, 5.63% to 3/14/94 10,000 10,000
Grand Union Company, Term Loan B, due 6/30/98:
8.00%(1) 48 48
6.9375% to 3/09/94 6,667 6,667
7.00% to 5/16/94 6,333 6,333
Pathmark Stores Inc., Term Loan, due 10/31/1999, 6.25% to 4/26/94 5,000 5,000
Ralph's Grocery Company, Term Loan, due 6/30/98:
5.9375% to 3/04/94 518 518
6.25% to 3/07/94 7,715 7,715
6.125% to 3/14/94 603 603
6.1875% to 3/23/94 3,616 3,616
6.25% to 4/22/94 301 301
6.1875% to 5/09/94 5,328 5,328
-------- --------
56,529 56,529
</TABLE>
<TABLE>
Merrill Lynch Senior Floating Rate Fund
Schedule of Investments as of February 28, 1994 (unaudited) (continued) (in Thousands)
<CAPTION>
Face Value
Industry Senior Secured Floating Rate Loan Interests* Amount (Note 1b)
<S> <S> <C> <C>
Inorganic Pigments--2.08% Hilton Davis Chemical Co., Term Loan A, due 9/09/98, 6.125% to 3/15/94 $ 1,639 $ 1,639
Hilton Davis Chemical Co., Term Loan B, due 9/09/2000, 6.625% to 3/15/94 8,333 8,333
Inspec Technologies, Term Loan B, due 12/02/2000, 5.75% to 3/01/94 5,000 5,000
-------- --------
14,972 14,972
Liquid Gas Petrolane, Inc., Term Loan, due 12/31/99:
Distribution--4.42% 5.4375% to 3/28/94 1,586 1,586
5.875% to 5/31/94 1,297 1,297
5.50% to 7/28/94 28,889 28,889
-------- --------
31,772 31,772
<PAGE>
Manufacturing-- American Standard, Inc., Term Loan A, due 6/01/2000, 6.50% to 6/02/94 25,000 25,000
Diversified--7.04% Joy Technologies, Inc., Term Loan B, due 12/31/98, 6.5625% to 5/27/94 7,837 7,837
The Pullman Co., Inc., Term Loan, due 9/30/96:
7.25%(1) 240 240
7.50%(1) 571 571
5.625% to 3/15/94 1,181 1,181
5.875% to 3/15/94 2,810 2,810
5.625% to 3/29/94 2,067 2,067
5.875% to 3/29/94 4,918 4,918
5.50% to 4/14/94 886 886
5.75% to 4/14/94 2,108 2,108
5.6875% to 5/09/94 886 886
5.9375% to 5/09/94 2,108 2,108
-------- --------
50,612 50,612
Manufacturing-- Heileman Acquisition Company, Term Loan B, due 12/31/2000, 8.00%(1) 10,000 10,000
Food & Beverage--5.53% President Baking Co., Inc., Term Loan B, due 9/30/2000, 6.0625% to 3/29/94 5,000 5,000
Specialty Foods Corp., Term Loan B, due 8/31/99, 6.63% to 4/18/94 24,800 24,800
-------- --------
39,800 39,800
Packaging--1.38% IVEX Packaging Corp., Term Loan B, due 12/31/99:
8.25%(1) 43 43
6.88% to 3/24/94 7,143 7,143
7.38% to 8/24/94 2,714 2,714
-------- --------
9,900 9,900
Paper Products--12.96% ++Fort Howard Corp., Senior Secured Notes, due 9/11/98, 6.38% to 3/12/94 5,000 5,000
++Fort Howard Corp., Senior Secured Notes, due 9/11/2000, 6.88% to 3/12/94 20,000 20,000
Fort Howard Corp., Term Loan, due 12/31/96:
7.375%(1) 52 52
7.50%(1) 14 14
5.625% to 5/31/94 1,744 1,744
5.75% to 5/31/94 473 473
++Jefferson Smurfit/Container Corp. of America, Senior Secured Notes,
due 12/01/98, 6.25% to 3/01/94 23,988 23,988
Jefferson Smurfit/Container Corp. of America, Term Loan, due 12/31/97:
5.69% to 3/18/94 13,814 13,814
5.69% to 3/25/94 8 8
6.50% to 3/28/94 10,063 10,063
Silgan Corp., Term Loan B, due 9/15/96:
6.56% to 3/07/94 5,000 5,000
6.63% to 5/09/94 5,000 5,000
</TABLE>
<PAGE>
<TABLE>
Merrill Lynch Senior Floating Rate Fund
Schedule of Investments as of February 28, 1994 (unaudited) (continued) (in Thousands)
<CAPTION>
Face Value
Industry Senior Secured Floating Rate Loan Interests* Amount (Note 1b)
<S> <S> <C> <C>
Paper Products Stone Container, Canadian, Tender Loan, due 3/01/97:
(concluded) 8.00%(1) $ 15 $ 15
6.50% to 3/08/94 573 573
6.375% to 3/14/94 2,854 2,854
6.50% to 3/28/94 530 530
Stone Container, Canadian, Term Loan, due 3/01/97, 6.50% to 3/28/94 387 387
Stone Container, US, Term Loan, due 3/01/97:
8.00%(1) 14 14
6.4375% to 3/18/94 3,174 3,174
6.4375% to 3/24/94 482 482
-------- --------
93,185 93,185
Restaurants--1.25% TW Services, Term Loan, Facility A2, due 8/15/95, 6.1875% to 3/28/94 5,610 5,610
TW Services, Term Loan, Facility A3, due 8/15/95, 6.1875% to 3/28/94 3,404 3,404
-------- --------
9,014 9,014
Retail--Apparel--3.16% Saks & Co., Term Loan B, due 6/30/2000, 6.69% to 8/09/94 22,750 22,750
Retail--
Convenience Stores--2.53% Circle K Acquisitions Corp., Term Loan A, due 4/30/98, 6.00% to 3/28/94 4,848 4,848
Circle K Acquisitions Corp., Term Loan B, due 4/30/2000:
6.50% to 3/28/94 3,556 3,556
6.4375% to 4/27/94 9,778 9,778
-------- --------
18,182 18,182
Retail--Drug Stores--7.16% Duane Reade, Term Loan A, due 9/30/97:
6.50% to 3/28/94 768 768
6.75% to 5/31/94 12,835 12,835
Duane Reade, Term Loan B, due 9/30/99:
7.00% to 3/28/94 333 333
7.25% to 5/31/94 9,667 9,667
Hook-SupeRx, Inc., Term Loan, Series C, due 7/31/2000, 6.195% to 3/30/94 13,697 13,697
Jack Eckerd Corp., Term Loan B, due 6/14/2000, 6.75% to 5/31/94 14,174 14,174
-------- --------
51,474 51,474
Retail--Record & Tape--4.17% Camelot Music, Inc., Term Loan B, due 8/31/2001:
6.50% to 5/17/94 8,437 8,437
6.75% to 8/17/94 14,062 14,062
Camelot Music, Inc., Term Loan C, due 8/31/2002, 6.81% to 3/17/94 7,500 7,500
-------- --------
29,999 29,999
<PAGE>
Search & Navigation Sperry Marine, Inc., Term Loan, due 11/15/2000, 6.5625% to 3/23/94 10,500 10,500
Equipment--1.46%
Specialty Chemicals--1.33% OSI Specialties, Inc., Term Loan, due 6/30/2000:
6.19% to 3/22/94 4,773 4,773
6.32% to 5/23/94 4,773 4,773
-------- --------
9,546 9,546
Timber Tracts--1.37% Crown Pacific Inland, Term Loan A, due 1/02/96, 6.125% to 3/31/94 1,515 1,515
Crown Pacific Inland, Term Loan B, due 10/31/98, 6.125% to 4/05/94 8,333 8,333
-------- --------
9,848 9,848
</TABLE>
<TABLE>
Merrill Lynch Senior Floating Rate Fund
Schedule of Investments as of February 28, 1994 (unaudited) (concluded) (in Thousands)
<CAPTION>
Face Value
Industry Senior Secured Floating Rate Loan Interests* Amount (Note 1b)
<S> <S> <C> <C>
Tools--4.40% Desa International Inc., Term Loan B, due 11/30/2000, 6.75% to 6/27/94 $ 10,000 $ 10,000
Thermadyne Company, Term Loan B, due 2/01/2001, 7.75%(1) 21,625 21,625
-------- --------
31,625 31,625
Warehousing-- Pierce Leahy Corp., Term Loan A, due 1/31/2000:
Business Records--1.70% 6.625% to 4/29/94 156 156
6.50% to 6/07/94 4,581 4,581
Pierce Leahy Corp., Term Loan B, due 7/31/2000, 6.50% to 3/07/94 7,500 7,500
-------- --------
12,237 12,237
Total Senior Secured Floating Rate Loan Interests
(Cost--$640,565)--89.08% 640,565 640,565
<CAPTION>
Short-Term Securities
<S> <S> <C> <C>
Commercial Paper**--10.34% General Electric Capital Corp., 3.40% due 3/01/94 34,459 34,459
Matterhorn Capital Corp., 3.37% due 3/18/94 20,000 19,968
PHH Corp., 3.40% due 3/21/94 20,000 19,962
Total Short-Term Securities (Cost--$74,389)--10.34% 74,459 74,389
<CAPTION>
Shares
Common Stock Held
<S> <S> <C> <C>
Restaurants--0.06% ++TW Services, Inc. (Cost--$0)--0.06% 44 409
Total Common Stock (Cost--$0)--0.06% 44 409
Total Investments (Cost--$714,954)--99.48% 715,363
Other Assets Less Liabilities--0.52% 3,740
--------
Net Assets--100.00% $719,103
========
<PAGE>
<FN>
(1)Index is based on the prime rate of a US bank, which is subject to change daily.
*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. The interest rates
shown are those in effect at February 28, 1994.
**Commercial Paper is traded on a discount basis; the interest rates shown are the
discount rates paid at the time of purchase by the Fund.
++Restricted securities as to resale. The value of the Fund's investment in restricted
securities was approximately $49,397,000, representing 6.87% of net assets.
Cost Acquisition
Senior Secured Notes (In Thousands) Date
Fort Howard Corp. $25,000 9/11/91
Jefferson Smurfit/Container
Corp. of America 23,988 4/24/91
Cost Acquisition
Common Stock (In Thousands) Date
TW Services, Inc. $0 6/03/91
The closing bid price for TW Services, Inc. Common Stock on 2/28/94
was $11.50 per share.
See Notes to Financial Statements.
</TABLE>
<TABLE>
Merrill Lynch Senior Floating Rate Fund
Statement of Assets and Liabilities as of February 28, 1994
<CAPTION>
Assets:
<S> <C> <C>
Investments, at value (identified cost--$714,954,184) (Note 1b) $715,363,124
Cash 663,230
Receivables:
Capital shares sold $ 6,801,637
Interest 4,869,454
Commitment fees 51,370 11,722,461
------------
Deferred facility fees (Note 1d) 1,527
Deferred organization expenses (Note 1e) 209,384
Prepaid registration fees and other assets (Note 1e) 159,718
------------
Total assets 728,119,444
------------
<PAGE>
Liabilities:
Payables:
Dividends to shareholders (Note 1f) 576,845
Investment adviser (Note 2) 513,430
Administrator (Note 2) 135,113 1,225,388
------------
Deferred income (Note 1d) 7,020,705
Accrued expenses and other liabilities 770,066
------------
Total liabilities 9,016,159
------------
Net assets $719,103,285
============
Net Assets Consist of:
Common Stock, par value $.10 per share; 1,000,000,000 shares authorized $ 7,179,175
Paid-in capital in excess of par 711,542,336
Accumulated realized capital losses--net (Note 7) (27,166)
Unrealized appreciation on investments--net (Note 3) 408,940
------------
Net Assets--Equivalent to $10.02 per share based on 71,791,752 capital shares outstanding $719,103,285
============
</TABLE>
<TABLE>
Merrill Lynch Senior Floating Rate Fund
Statement of Operations
<CAPTION>
For the Six Months Ended
February 28, 1994
<S> <C> <C>
Investment Income (Note 1d):
Interest and discount earned $ 20,720,458
Facility and other fees 3,305,418
------------
Total income 24,025,876
Expenses:
Investment advisory fees (Note 2) $ 3,327,894
Administrative fees (Note 2) 875,761
Transfer agent fees (Note 2) 249,871
Borrowing costs (Note 6) 106,306
Professional fees 91,898
Amortization of organization expenses (Note 1e) 82,751
Tender offer costs 49,186
Printing and shareholder reports 38,561
Custodian fees 35,183
Registration fees (Note 1e) 33,283
Directors' fees and expenses 21,884
Accounting services (Note 2) 17,803
Other 83,243
------------
Total expenses 5,013,624
------------
Investment income--net 19,012,252
Realized Loss on Investments--Net (Notes 1d & 3) (396)
Change in Unrealized Appreciation on Investments--Net (Note 3) 8,890
------------
Net Increase in Net Assets Resulting from Operations $ 19,020,746
============
<PAGE>
See Notes to Financial Statements.
</TABLE>
<TABLE>
Merrill Lynch Senior Floating Rate Fund
Statements of Changes in Net Assets
<CAPTION>
For the Six For the Year
Months Ended Ended
Increase (Decrease) in Net Assets: February 28, 1994 August 31, 1993
<S> <C> <C>
Operations:
Investment income--net $ 19,012,252 $ 39,934,642
Realized gain (loss) on investments--net (396) 2,039
Change in unrealized appreciation on investments--net 8,890 2,394,855
------------ ------------
Net increase in net assets resulting from operations 19,020,746 42,331,536
------------ ------------
Dividends to Shareholders (Note 1f):
Investment income--net (19,012,252) (39,934,642)
------------ ------------
Net decrease in net assets resulting from dividends to shareholders (19,012,252) (39,934,642)
------------ ------------
Capital Share Transactions (Note 4):
Net increase (decrease) in net assets derived from capital share transactions 5,795,134 (123,412,312)
------------ ------------
Net Assets:
Total increase (decrease) in net assets 5,803,628 (121,015,418)
Beginning of period 713,299,657 834,315,075
------------ ------------
End of period $719,103,285 $713,299,657
============ ============
</TABLE>
<TABLE>
Merrill Lynch Senior Floating Rate Fund
Statement of Cash Flows
<CAPTION>
For the Six
Months Ended
February 28, 1994
<S> <C>
Cash Provided by Operating Activities:
Net increase in net assets resulting from operations $ 19,020,746
Adjustments to reconcile net increase (decrease) in net assets resulting from
operations to net cash provided by operating activities:
Increase in receivables (584,619)
Decrease in other assets 25,139
Increase in other liabilities 831,088
Realized and unrealized gain (loss) on investments--net (8,494)
------------
Net cash provided by operating activities 19,283,860
------------
<PAGE>
Cash Used for Investing Activities:
Proceeds from principal payments and sales of loan interests 212,849,649
Purchases of loan interests (247,478,653)
Proceeds from sales and maturities of short-term investments--net 33,514,164
------------
Net cash used for investment activities (1,114,840)
------------
Cash Used in Financing Activities:
Capital share activity:
Cash receipts on capital shares sold 90,806,074
Cash payments on capital shares tendered (99,395,818)
Dividends paid to shareholders (8,916,046)
------------
Net cash used in financing activities (17,505,790)
------------
Cash:
Net increase in cash 663,230
Cash at beginning of period --
------------
Cash at end of period $ 663,230
============
Non-cash Financing Activities:
Capital shares issued in reinvestment of dividends paid to shareholders $ 10,348,496
============
See Notes to Financial Statements.
</TABLE>
<TABLE>
Merrill Lynch Senior Floating Rate Fund
Financial Highlights
<CAPTION>
For the
For the Period
The following per share data and ratios have been derived Six Months Nov. 3,
from information provided in the financial statements. Ended For the Year Ended 1989++ to
Feb. 28, August 31, Aug. 31,
Increase (Decrease) in Net Asset Value: 1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period $ 10.02 $ 9.99 $ 9.99 $ 10.00 $ 10.00
------- ------- ------- ------- -------
Investment income--net .27 .53 .64 .85 .76
Realized and unrealized gain (loss) on investments--net -- .03 -- (.01) --
------- ------- ------- ------- -------
Total from investment operations .27 .56 .64 .84 .76
------- ------- ------- ------- -------
Less Dividends:
Investment income--net (.27) (.53) (.64) (.85) (.76)
------- ------- ------- ------- -------
Total dividends (.27) (.53) (.64) (.85) (.76)
------- ------- ------- ------- -------
Net asset value, end of period $ 10.02 $ 10.02 $ 9.99 $ 9.99 $ 10.00
======= ======= ======= ======= =======
<PAGE>
Total Investment Return:*
Based on net asset value per share 2.76%+++ 5.74% 6.58% 8.79% 7.63%+++
======= ======= ======= ======= =======
Ratios to Average Net Assets:
Expenses, net of reimbursement 1.43%** 1.47% 1.39% 1.27% .79%**
======= ======= ======= ======= =======
Expenses 1.43%** 1.47% 1.41% 1.33% 1.35%**
======= ======= ======= ======= =======
Investment income--net 5.43%** 5.27% 6.58% 8.44% 9.06%**
======= ======= ======= ======= =======
Supplemental Data:
Net assets, end of period (in millions) $ 719 $ 713 $ 834 $ 1,705 $ 1,728
======= ======= ======= ======= =======
Portfolio turnover 35.22% 90.36% 46.48% 58.22% 29.61%
======= ======= ======= ======= =======
<FN>
*Total investment returns exclude the effects of sales loads. The Fund is a continuously offered closed-end fund,
the shares of which are offered at net asset value. Therefore, no separate market exists.
**Annualized.
++Commencement of Operations.
+++Aggregate total investment return.
See Notes to Financial Statements.
</TABLE>
Notes to Financial Statements
1. Significant Accounting Policies:
Merrill Lynch Senior Floating Rate Fund (the "Fund") is
registered under the Investment Company Act of 1940 as a
continuously offered non-diversified, closed-end management
investment company.
(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 for the
Fund's investment. Because agents and intermediaries are
primarily commercial banks, the Fund's investment in corporate
loans at February 28, 1994 could be considered to be
concentrated in commercial banking.
<PAGE>
(b) Valuation of investments--Loan Interests and common stocks
are valued at fair value. Fair value is determined in good faith
by or under the direction of the Board of Directors of the Fund.
Since Loan Interests are purchased and sold primarily at par
value, the Fund values the Loan Interests at par, unless Merrill
Lynch Asset Management, L.P. ("MLAM") 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. Short-term securities
are valued at amortized cost which approximates market.
(c) Income taxes--It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated
investment companies and to distribute substantially all of its
taxable income to its shareholders. Therefore, no Federal income
tax provision is required.
(d) 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 into income over the term of the
related loan.
(e) Deferred organization expenses and pre-paid registration
fees--Deferred organization expenses are amortized on a straight-
line basis over a five-year period. Prepaid registration fees are
charged to expense as the related shares are issued.
(f) Dividends and distributions--Dividends from net investment
income are declared daily and paid monthly. Distributions of
capital gains are recorded on the ex-dividend dates.
2. Investment Advisory and Administrative
Services Agreement and Transactions with
Affiliates:
The Fund has entered into an Investment Advisory Agreement with
MLAM. Effective January 1, 1994, the investment advisory business
of MLAM was reorganized from a corporation to a limited partnership.
Both prior to and after the reorganization, ultimate control of
MLAM was vested with Merrill Lynch & Co., Inc. ("ML & Co."). The
general partner of MLAM is Princeton Services, Inc., an indirect
wholly-owned subsidiary of ML & Co. The limited partners are ML &
Co. and Merrill Lynch Investment Management, Inc. ("MLIM') which
is also an indirect wholly-owned subsidiary of ML & Co. The Fund
has also entered into a Distribution Agreement and a Distribution
Plan with Merrill Lynch Funds Distributor, Inc. ("MLFD" or "Distri-
butor"), a wholly-owned subsidiary of MLIM.
<PAGE>
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 0.95% of the Fund's average daily net assets. The Fund also
has an Administrative Services Agreement with MLAM whereby MLAM
will receive a fee equal to an annual rate of 0.25% 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. The Investment Advisory Agreement
obligates MLAM to reimburse the Fund to the extent the Fund's
expenses (excluding interest, taxes, brokerage fees, commissions,
and extraordinary items) exceed the lesser of a) 2.0% of the
Fund's average daily net assets or b) 2.5% of the Fund's first
$30 million of average daily net assets, 2.0% of the next $70
million of average daily net assets, and 1.5% of the average
daily net assets in excess thereof. 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 MLIM, MLFD, FDS, or Merrill Lynch, Pierce, Fenner &
Smith Incorporated, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term
securities, for the six months ended February 28, 1994 were
$247,478,653 and $212,849,649, respectively.
Net realized and unrealized gains (losses) as of February 28,
1994 were as follows:
Realized Unrealized
Losses Gains
Short-term investments $ (396) --
Common stock -- $ 408,940
------------ ------------
Total $ (396) $ 408,940
============ ============
As of February 28, 1994, net unrealized appreciation
for financial reporting and Federal income tax
purposes aggregated $408,940, all of which related
to appreciated securities. The aggregate cost of
investments at February 28, 1994 for Federal income
tax purposes was $714,954,184.
<PAGE>
4. Capital Share Transactions:
Transactions in capital shares were as follows:
For the Six Months Ended Dollar
February 28, 1994 Shares Amount
Shares sold 9,465,384 $ 94,842,456
Shares issued to share-
holders in reinvestment
of dividends 1,032,784 10,348,496
----------- -------------
Total issued 10,498,168 105,190,952
Shares tendered (9,919,742) (99,395,818)
----------- -------------
Net increase 578,426 $ 5,795,134
=========== =============
For the Year Ended Dollar
August 31, 1993 Shares Amount
Shares sold 14,572,615 $ 145,750,963
Shares issued to share-
holders in reinvestment
of dividends 2,112,254 21,124,039
----------- -------------
Total issued 16,684,869 166,875,002
Shares tendered (29,022,869) (290,287,314)
----------- -------------
Net decrease (12,338,000) $(123,412,312)
=========== =============
5. Unfunded Loan Interests:
As of February 28, 1994, the Fund had unfunded loan commitments
of $16,722,000, which would be extended at the option of the
borrower, pursuant to the following loan agreements:
Unfunded
Commitment
Borrower (in thousands)
Gulfstream Corp. $7,038
Northwest Airlines, Inc. 6,308
Thermadyne Company 3,375
6. Short-Term Borrowings:
On March 17, 1993, the Fund extended the loan commitment. The
commitment was reduced from $150,000,000 to $100,000,000, bearing
interest at the Federal Funds rate plus 1%--3% on the outstanding
balance. For the six months ended February 28, 1994, facility and
commitment fees aggregated approximately $106,306.
<PAGE>
7. Capital Loss Carryforward:
At August 31, 1993, the Fund had a net capital loss carryforward
of approximately $34,000, all of which expires in 2001. These
will be available to offset like amounts of any future taxable
gains.
8. Subsequent Event:
The Fund began a quarterly tender offer on March 21, 1994, which
will end on April 15, 1994.
