Merrill Lynch
Prime Fund, Inc.
Quarterly Report (unaudited)
November 30, 1993
This report, including the financial information
herein, is transmitted to the shareholders of
Merrill Lynch Prime Fund, Inc. for their information.
It is not a prospectus, circular or representation
intended for use in the purchase of shares of the
Fund or any securities mentioned in this report.
Past performance results shown in this report
should not be considered a representation of
future performance.
Merrill Lynch
Prime Fund, Inc.
Box 9011
Princeton, NJ 08543-9011
Merrill Lynch Prime Fund, Inc.
Dear Shareholder:
The quarter ended November 30, 1993 was one characterized by a
marked increase in activity in the leveraged lending market as a
number of new transactions were announced. This was in contrast
to the August quarter which saw leveraged-loan volume slow to its
lowest level of the year. Although many of the financings which
came to market during the past quarter were new leveraged
buyouts or acquisitions, the market continued to be dominated
by transactions driven by the strong high-yield bond and equity
markets. Leveraged companies continue to "reequitize" and lower
interest costs with offerings of lower-coupon fixed-rate bonds
used to refinance high-coupon bonds and bank loans. In the
high-yield market alone, new-issue volume in the first 11 months
of 1993 reached $50.0 million versus $38.0 million for all of 1992.
Against this backdrop, and in tandem with an economic recovery that
is showing signs of picking up steam, the leveraged loan market
should continue to benefit from strengthening credit fundamentals
and increased liquidity.
<PAGE>
On the heels of a succession of positive economic indicators, the
interest rate environment continues to be positive for floating
rate instruments such as those in which Merrill Lynch Prime Fund,
Inc. invests. Short-term interest rates have continued to rise
throughout the November quarter, with the London Interbank
Offered Rate reaching 3.50% by the end of the quarter, up more
than 25 basis points (0.25%) from the August quarter and compared
to a prime rate of 6.0%. As it became apparent that the economy
would receive a sizable lift from interest-rate sensitive sectors
like housing and automobiles in the third and fourth quarters,
and with the potential for gross domestic product growth to be
close to 4.0%, investors in long-term fixed-rate bonds
experienced an understandable nervousness at the prospect of
renewed inflationary pressures and a less accomodative monetary
policy by the Federal Reserve Board. While such fears may be
premature, a tightening by the Federal Reserve Board and the
accompanying rise in short-term interest rates would typically
have a positive impact on the Fund's yield without affecting the
Fund's net asset value, in contrast to the typical impact on
fixed-rate investments.
Portfolio Performance
The Fund finished the November quarter with approximately 86.0%,
or $597.1 million, of its $698.9 million in net assets invested
in loan interests. Assets not invested in loan interests were
invested in high-quality, short-term securities.
The Fund's effective yield for the three-month period ended
November 30, 1993 was 5.5% versus 5.1% during the August quarter.
The upward trend in short-term interest rates during the November
quarter 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 fourth quarter. The Fund's net asset value
continued to remain stable throughout the period. During the
November quarter, the Fund earned $0.138 per share income
dividends, representing a net annualized yield of 5.50% based
on an ending per share net asset value of $10.02. The Fund's total
investment return was +1.44%, based on an unchanged net asset
value of $10.02 per share, and assuming reinvestment of $0.133
per share income dividends.
Since the Fund's inception (November 3, 1989) through November
30, 1993, the Fund's total investment return was +33.86%, based
on a change in per share net asset value from $10.00 to $10.02,
and assuming reinvestment of $2.885 per share income dividends.
<PAGE>
Investment Activities
The Fund purchased more than $84.6 million in loan interests
during the quarter ended November 30, 1993. These purchases
included investments in five new issues: Crown Pacific Inland;
Magnavox Electronic Systems Co.; Camelot Music, Inc.; Sperry
Marine, Inc.; and Hilton Davis Chemical Co. Additional
investments were made in Gulfstream Corp. Offsetting these
investments were full or partial prepayments of just over $58.5
million, the largest prepayment coming from the refinancing of
Cort Furniture Rental Corp. The Fund's exposure to selected names
was also reduced by $32.1 million in the aggregate.
At November quarter end, the Fund's portfolio was comprised of 31
borrowers representing 22 industries. The average loan size was
$18.1 million, or 2.59% of net assets. The largest industry
concentrations were in paper products (14.9% of net assets),
diversified manufacturing (9.3%), retail drug stores (7.5%),
grocery (5.9%), and airlines (5.7%).
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 the borrowers have capitalized on their access to
public markets.
The Fund completed another quarterly tender offer on October 15,
1993, with approximately 6.1 million shares tendered and accepted
for repurchase. The next tender offer began on December 15, 1993
and will conclude on January 13, 1994. The Fund remains open for
new purchases.
Investment Outlook
Although there have been some more aggressive capital structures
in recent transactions, default rates for leveraged loans have
come down to the lowest levels in six years 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 downward pressure on yields just as
has been the case in the high-yield bond market. We expect this
trend to continue as long as the public debt and equity markets
remain strong and investors aggressively bid the market.
We thank you for your continued investment in Merrill Lynch Prime
Fund, Inc., and we look forward to reviewing our strategy with
you again in our upcoming semi-annual report to shareholders.
<PAGE>
Sincerely,
(Arthur Zeikel)
Arthur Zeikel
President
(R. Douglas Henderson)
R. Douglas Henderson
Vice President and Portfolio Manager
December 28, 1993
Effective December 1993, Merrill Lynch Prime Fund, Inc. commenced
doing business under the name Merrill Lynch Senior Floating Rate
Fund. The Fund invests in senior collateralized corporate loans,
and borrowers may choose to base the interest rate of these loans
either on the London Interbank Offered Rate (LIBOR) or the prime
rate. In recent years, the differential between the lower LIBOR-
based rate and the higher prime-based rate has widened to the
point where it is more attractive for the majority of the Fund's
investments to borrow at the LIBOR-based option. This has impeded
the Fund's ability to achieve a net return to shareholders which
consistently approximates the average prime lending rate of major
US banks. The Fund's management believes that the name Merrill
Lynch Senior Floating Rate Fund better reflects its investment
capabilities, which are to invest exclusively in senior
collateralized corporate loans bearing interest at "floating",
or variable rates, which are reset at short-term intervals. The
change in the Fund's name does not connote a change in its
investment objective, which remains unchanged: to provide
shareholders with as high a level of current income and such
preservation of capital as is consistent with investment in
senior collateralized corporate loans.
<TABLE>
Merrill Lynch Prime Fund, Inc.
Schedule of Investments as of November 30, 1993 (unaudited) (in Thousands)
<CAPTION>
Face
Industry Senior Secured Floating Rate Loan Interests* Amount Value
<S> <S> <C> <C>
Airlines--5.72% Northwest Airlines, Inc., Revolving Credit Loan, due 8/04/94:
5.9375% to 12/15/93 $ 335 $ 335
5.9375% to 12/29/93 558 558
Northwest Airlines, Inc., Term Loan, due 9/15/97:
6.1875% to 12/21/93 7,146 7,146
6.125% to 1/20/94 6,056 6,056
6.25% to 2/10/94 2,980 2,980
6.1875% to 3/08/94 7,751 7,751
6.125% to 4/20/94 15,139 15,139
-------- --------
39,965 39,965
<PAGE>
Communications Magnavox Electronic Systems Co., Term Loan, due 9/30/2000:
Equipment--1.14% 6.6875% to 2/02/94 50 50
6.6875% to 5/03/94 7,950 7,950
-------- --------
8,000 8,000
Computer-Related Anacomp, Inc., Term Loan, due 3/31/96, 6.125% to 1/26/94 13,707 13,707
Services--1.96%
Computing Equipment Lexmark Holdings, Foreign, Term Loan, due 3/27/98,
Manufacturing--3.09% 5.6875% to 12/31/93 5,243 5,243
Lexmark Holdings, US, Term Loan, due 3/27/98:
6.00% to 1/31/94 8,483 8,483
5.875% to 3/31/94 7,910 7,910
-------- --------
21,636 21,636
Corporate Aircraft Gulfstream Corp., Revolving Credit Loan, due 3/31/98, 7.25%(1) 4,731 4,731
Manufacturing--3.63% Gulfstream Corp., Term Loan, due 3/31/97, 5.63% to 1/13/94 11,373 11,373
Gulfstream Corp., Term Loan, due 3/31/98, 8.00%(1) 9,260 9,260
-------- --------
25,364 25,364
Electrical Instruments Berg Electronics, Term Loan, due 3/31/95:
& Controls--0.70% 5.94% to 3/29/94 93 93
6.13% to 3/29/94 4,845 4,845
-------- --------
4,938 4,938
Grocery--5.90% Carr-Gottstein Foods Co., Term Loan B, due 12/31/2000,
5.44% to 12/31/93 10,000 10,000
Grand Union Company, Term Loan B, due 6/30/97:
8.00%(1) 48 48
6.6875% to 12/09/93 6,667 6,667
7.00% to 5/16/94 6,333 6,333
Ralph's Grocery Company, Term Loan, due 6/30/98:
7.75%(1) 603 603
5.9375% to 12/06/93 7,715 7,715
6.25% to 2/08/94 9,849 9,849
-------- --------
41,215 41,215
Inorganic Hilton Davis Chemical Co., Term Loan A, due 9/09/98,
Pigments--1.43% 5.9375% to 12/15/93 1,667 1,667
Hilton Davis Chemical Co., Term Loan B, due 9/09/2000,
6.4375% to 12/15/93 8,333 8,333
-------- --------
10,000 10,000
</TABLE>
<PAGE>
<TABLE>
Merrill Lynch Prime Fund, Inc.
Schedule of Investments as of November 30, 1993 (unaudited)(continued) (in Thousands)
<CAPTION>
Face
Industry Senior Secured Floating Rate Loan Interests* Amount Value
<S> <S> <C> <C>
Liquid Gas Petrolane, Inc., Term Loan, due 3/20/96:
Distribution--4.57% 5.3125% to 12/29/93 $ 3,028 $ 3,028
5.6875% to 1/28/94 24,290 24,290
Petrolane, Inc., Term Loan, due 9/20/96, 5.5625% to 1/28/94 4,598 4,598
-------- --------
31,916 31,916
Manufacturing-- American Standard, Inc., Term Loan A, due 6/02/2000,
Diversified--9.28% 6.50% to 12/02/93 25,000 25,000
Coltec Industries, Inc., Term Loan, due 4/01/99:
7.50%(1) 22 22
5.9375% to 12/06/93 3,626 3,626
6.3125% to 12/10/93 1,813 1,813
6.125% to 1/07/94 7,840 7,840
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) 227 227
7.50%(1) 540 540
5.8125% to 12/15/93 1,476 1,476
6.0625% to 12/15/93 3,513 3,513
5.625% to 1/14/94 886 886
5.875% to 1/14/94 2,108 2,108
5.75% to 2/08/94 886 886
6.00% to 2/08/94 2,108 2,108
5.625% to 3/29/94 2,067 2,067
5.875% to 3/29/94 4,918 4,918
-------- --------
64,867 64,867
Manufacturing-- Specialty Foods Corp., Term Loan B, due 8/31/99, 6.63% to 4/18/94 25,000 25,000
Food--3.58%
Manufacturing-- Dr. Pepper/Seven Up Inc., Term Loan A, due 6/30/98:
Soft Drinks--3.50% 7.625%(1) 9 9
5.8125% to 12/06/93 4,676 4,676
5.8125% to 12/13/93 2,586 2,586
Dr. Pepper/Seven Up Inc., Term Loan B, due 6/30/99:
8.25%(1) 201 201
6.4375% to 12/06/93 8,800 8,800
6.4375% to 12/13/93 8,166 8,166
-------- --------
24,438 24,438
<PAGE>
Packaging--1.42% IVEX Packaging Corp., Term Loan B, due 12/31/99:
8.25%(1) 68 68
6.94% to 2/24/94 2,714 2,714
6.88% to 3/24/94 7,143 7,143
-------- --------
9,925 9,925
</TABLE>
<TABLE>
Merrill Lynch Prime Fund, Inc.
Schedule of Investments as of November 30, 1993 (unaudited)(continued) (in Thousands)
<CAPTION>
Face
Industry Senior Secured Floating Rate Loan Interests* Amount Value
<S> <S> <C> <C>
Paper Products-- ++Fort Howard Corp., Senior Secured Notes, due 9/11/98,
14.89% 6.19% to 12/12/93 $ 5,000 $ 5,000
++Fort Howard Corp., Senior Secured Notes, due 9/11/2000,
6.69% to 12/12/93 30,000 30,000
Fort Howard Corp., Term Loan, due 12/31/96:
7.125%(1) 6 6
7.25%(1) 2 2
5.255% to 1/27/94 822 822
5.38% to 1/27/94 223 223
5.625% to 5/31/94 1,744 1,744
5.75% to 5/31/94 473 473
Fort Howard Corp., Term Loan, due 5/01/97,
6.44% to 4/21/94 9,125 9,125
++Jefferson Smurfit/Container Corp. of America, Senior Secured Notes,
due 12/01/98, 6.00% to 12/01/93 23,988 23,988
Jefferson Smurfit/Container Corp. of America, Term Loan,
due 12/31/97:
5.63% to 1/18/94 13,814 13,814
5.63% to 1/25/94 8 8
6.375% to 1/27/94 18,903 18,903
-------- --------
104,108 104,108
Restaurants--1.29% TW Services, Term Loan, Facility A2, due 8/15/95,
5.875% to 12/22/93 5,617 5,617
TW Services, Term Loan, Facility A3, due 8/15/95,
5.875% to 12/22/93 3,404 3,404
-------- --------
9,021 9,021
Retail--Apparel--2.86% Saks and Co., Term Loan B, due 6/30/2000,
6.50% to 12/31/93 20,000 20,000
<PAGE>
Retail-- Circle K Acquisitions Corp., Term Loan A, due 4/30/98:
Convenience Stores-- 6.1875% to 12/27/93 1,818 1,818
2.60% 5.68% to 12/29/93 3,030 3,030
Circle K Acquisitions Corp., Term Loan B, due 4/30/2000:
6.6875% to 12/27/93 3,556 3,556
6.9375% to 4/27/94 9,778 9,778
-------- --------
18,182 18,182
Retail--Drug Stores-- Duane Reade, Term Loan A, due 9/30/97:
7.46% 6.1875% to 12/27/93 352 352
6.50% to 2/28/94 13,604 13,604
Duane Reade, Term Loan B, due 9/30/99, 7.00% to 2/28/94 10,000 10,000
Hook-SupeRx, Inc., Term Loan Series C, due 7/31/2000,
6.065% to 12/31/93 14,000 14,000
Jack Eckerd Corp., Term Loan B, due 6/14/2000,
6.50% to 2/28/94 14,174 14,174
-------- --------
52,130 52,130
Retail--Record & Tape-- Camelot Music, Inc., Term Loan B, due 8/31/2001:
4.29% 6.50% to 2/17/94 14,063 14,063
6.50% to 5/17/94 8,438 8,438
Camelot Music, Inc., Term Loan C, due 8/31/2002,
6.69% to 12/17/93 7,500 7,500
-------- --------
30,001 30,001
</TABLE>
<TABLE>
Merrill Lynch Prime Fund, Inc.
Schedule of Investments as of November 30, 1993 (unaudited)(continued) (in Thousands)
<CAPTION>
Face
Industry Senior Secured Floating Rate Loan Interests* Amount Value
<S> <S> <C> <C>
Search & Navigation-- Sperry Marine, Inc., Term Loan, due 11/15/2000, 8.25%(1) $ 10,500 $ 10,500
Equipment--1.50%
Specialty OSI Specialties, Inc., Term Loan, due 6/30/2000,
Chemicals--1.37% 5.94% to 12/01/93 9,545 9,545
Timber Tracts--1.41% Crown Pacific Inland, Term Loan A, due 12/31/95,
6.3125% to 1/05/94 1,515 1,515
Crown Pacific Inland, Term Loan B, due 10/31/98,
6.3125% to 1/05/94 8,333 8,333
-------- --------
9,848 9,848
<PAGE>
Warehousing-- Pierce Leahy Corp., Term Loan A, due 1/31/2000,
Business Records-- 6.25% to 12/07/93 5,000 5,000
1.79% Pierce Leahy Corp., Term Loan B, due 7/31/2000:
6.4375% to 12/07/93 3,750 3,750
6.50% to 3/07/94 3,750 3,750
-------- --------
12,500 12,500
Total Senior Secured Floating Rate Loan Interests
(Cost--$596,806)--85.38% 596,806 596,806
<CAPTION>
Short-Term Securities
<S> <S> <C> <C>
Commercial Paper**-- APRECO, Inc., 3.10% due 12/08/93 15,000 14,991
14.84% AT&T Capital Corp., 3.06% due 12/06/93 30,000 29,988
Bank One Diversified, 3.26% due 1/11/94 8,301 8,270
CXC Inc., 3.11% due 12/10/93 10,000 9,992
General Electric Capital Corp., 3.20% due 12/01/93 25,455 25,455
Matterhorn Capital Corp., 3.08% due 12/03/93 15,000 14,997
-------- --------
Total Short-Term Securities (Cost--$103,693)--14.84% 103,756 103,693
<CAPTION>
Shares
Common Stock Held
<S> <S> <C> <C>
Restaurants--0.05% ++TW Services, Inc. 44 320
Total Common Stock (Cost--$0)--0.05% 44 320
Total Investments (Cost--$700,499)--100.27% 700,819
Liabilities in Excess of Other Assets--(0.27%) (1,910)
--------
Net Assets (Equivalent to $10.02 per share based on 69,785,192 shares
outstanding)--100.00% $698,909
========
<FN>
*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 November 30, 1993.
**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.
(1)Index is based on the prime rate of a US bank, which is subject to change daily.
++Restricted securities as to resale. The value of the Fund's investment in restricted securities was approximately $59,308,000,
representing 8.49% of net assets.
</TABLE>
<PAGE>
Officers and Directors
Arthur Zeikel--President and Director
Ronald W. Forbes--Director
Charles C. Reilly--Director
Kevin A. Ryan--Director
Richard R. West--Director
Marc A. White--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
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(800) 637-3863
