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Previous: SMITH CORONA CORP, 8-K, 1994-07-19 |
Next: NATIONAL MUNICIPAL TRUST SERIES 121, 485BPOS, 1994-07-19 |
Merrill Lynch
Senior Floating
Rate Fund, Inc.
Quarterly Report (unaudited) May 31, 1994
This report, including the financial information
herein, is transmitted to the shareholders of
Merrill Lynch Senior Floating Rate 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 representa-
tion of future performance.
Merrill Lynch
Senior Floating Rate Fund, Inc.
Box 9011
Princeton, NJ 08543-9011
<PAGE>
Dear Shareholder:
The three-month period ended May 31, 1994 was characterized by
continued volatility in the US financial markets as economic
expansion kept concerns over inflation at the forefront. On May
17, 1994, the Federal Reserve Board raised short-term interest
rates for the fourth time this year by increasing the discount
rate it charges on loans to its member banks to 3.5% from 3.0%
and by pushing the Federal Funds rate on overnight loans among
banks to 4.25% from 3.75%. The Federal Reserve Board's action
marks the first time in five years that the benchmark discount
rate has been raised and follows quarter-point increases in the
Federal Funds rate on February 4, March 22 and April 18. The bond
and stock markets surged in the wake of the Federal Reserve
Board's action, with few signs of inflation in sight.
Over 82.02% of the Fund's floating rate investments are currently
accruing interest at a spread above the London Interbank Offered
Rate (LIBOR), the rate that major international banks charge each
other for dollar-denominated deposits outside the United States.
LIBOR has historically tracked very closely with other short-term
interest rates in the United States, particularly the Federal
Funds rate. Since the Federal Reserve Board's first tightening in
February, the three-month LIBOR has risen from 3.25% to 4.65%.
Since the average LIBOR reset on the Fund's investments is 52
days, the Fund's yield should benefit from this rise in short-
term interest rates within one to two months, assuming this LIBOR
level is sustained.
Portfolio Performance
The Fund finished the May quarter with approximately 82.68%, or
$696.4 million, of its $790.5 million in net assets invested in
loan interests. Assets not invested in loan interests were in-
vested in high-quality, short-term securities.
<PAGE>
The Fund's effective yield for the three-month period ended May
31, 1994 was 5.58%, compared to 5.35% during the February quar-
ter. The upward trend in short-term interest rates during the
quarter was offset by the larger-than-expected cash position
carried by the Fund as a number of transaction closings were
pushed into the second quarter and new subscriptions to Fund
shares continued at a steady pace. The Fund's net asset value
continued to remain relatively stable throughout the period.
During the quarter, the Fund earned $0.141 per share income divi-
dends, representing a net annualized yield of 5.58%, based on
a month-end per share net asset value of $10.02. The Fund's total
investment return was +1.35%, based on a stable net asset value
and assuming reinvestment of $0.135 per share income dividends.
Since inception (November 3, 1989) through May 31, 1994, the
Fund's total investment return was +37.43%, based on a change in
per share net asset value from $10.00 to $10.02, and assuming
reinvestment of $3.160 per share income dividends.
Investment Activities
The Fund purchased over $128.1 million in loan interests during
the quarter ended May 31, 1994. These purchases included
investments in new transactions such as Deknatel Holdings Corp.,
Harris Specialty Chemicals, Playtex Family Products Inc. and
Jefferson Smurfit/Container Corp. of America. These businesses
represent the type of cyclical sectors with strong asset coverage
that are the primary focus of the Fund. In addition, the Fund
made investments in existing portfolio names such as Joy Tech-
nologies, Inc., Flagstar Corp., Pathmark Stores Inc., Aviall
Inc., Stone Container, Berg Electronics Inc., Gulfstream Aero-
space Corp., Lexmark Holdings and Saks & Co. These purchases
were offset by very little in the way of sales during the period
as secondary trading took a backseat to investing in primary
syndications in the leveraged bank loan market. The only major
prepayment during the period was that of the $47.9 million
Jefferson Smurfit investment as a result of a refinancing that
included a new debt issue and injection of equity by the
company's parent organization.
<PAGE>
At May quarter-end, the Fund was comprised of 41 different bor-
rowers representing 24 different industries. The average loan
size was $12.2 million, or 1.6% of net assets. The largest
industry concentrations were in paper products (13.0% of net
assets), diversified manufacturing (11.2%), aerospace (8.8%),
grocery (8.7%), retail specialty (6.7%), and drug stores (6.4%).
Our investment strategy continues to emphasize conservatively
structured loan facilities to borrowers with strong cash flows,
superior market share and franchise value, and experienced man-
agement. The advantages of this strategy are reflected in both
the stability of the Fund's net asset value 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 April 15,
1994, with approximately 3.2 million shares tendered and accepted
for repurchase. A tender began on June 17, 1994 and will conclude
on July 15, 1994. The Fund remains open for new shareholder
purchases.
Investment Outlook
Banks have aggressively come back into the leveraged loan market,
including some of the major Japanese investors, in an effort to
put the runoff from refinancings back to work. Although there
have been some more aggressive capital structures in recent trans-
actions, default rates over the past 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 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
aggressively bid the market.
In light of the recent volatility in fixed-income markets, the
Fund is well positioned not only to participate in an improving
credit environment as the economy expands but also should be able
to provide shareholders the 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, Inc., and we look forward to reviewing our
outlook and strategy with you again in our next report to share-
holders.
<PAGE>
Sincerely,
(Arthur Zeikel)
Arthur Zeikel
President
(R. Douglas Henderson)
R. Douglas Henderson
Vice President and Portfolio Manager
June 30, 1994
<TABLE>
Merrill Lynch Senior Floating Rate Fund, Inc.
Schedule of Investments as of May 31, 1994 (unaudited) (in Thousands)
<CAPTION>
Face
Industry Senior Secured Floating Rate Loan Interests* Amount Value
<S> <S> <C> <C>
Aerospace--8.79% Allison Engine Co., Term Loan B, due 12/31/98, 6.31% to 6/06/94 $ 25,000 $ 25,000
Aviall Inc., Term Loan B, due 11/30/2000:
6.76% to 6/07/94 12,132 12,132
6.80% to 8/08/94 3,640 3,640
7.69% to 10/07/94 4,853 4,853
Gulfstream Aerospace Corp., Revolving Credit Loan, due 3/31/98:
8.50% to 6/30/94 2,077 2,077
6.50% to 7/21/94 1,154 1,154
Gulfstream Aerospace Corp.:
Term Loan, due 3/31/97, 6.25% to 7/13/94 11,373 11,373
Term Loan, due 3/31/98, 6.82% to 6/08/94 9,260 9,260
-------- --------
69,489 69,489
Airlines--1.80% Northwest Airlines, Inc., Term Loan, due 9/15/97:
7.125% to 6/15/94 236 236
6.1875% to 6/21/94 2,895 2,895
7.125% to 6/21/94 171 171
6.1875% to 7/20/94 2,809 2,809
6.50% to 8/10/94 1,382 1,382
7.25% to 10/20/94 6,603 6,603
7.3125% to 10/20/94 104 104
-------- --------
14,200 14,200
<PAGE>
Chemicals--2.79% Harris Specialty Chemicals, Term Loan A, due 12/30/99, 7.00%
to 7/25/94 2,500 2,500
Harris Specialty Chemicals, Term Loan B, due 12/30/2001, 7.50%
to 7/25/94 5,000 5,000
Inspec Technologies, Term Loan B, due 12/02/2000, 6.6875% to 6/30/94 5,000 5,000
OSI Specialties, Inc., Term Loan, due 6/30/2000:
6.82% to 6/22/94 2,386 2,386
7.00% to 7/22/94 2,386 2,386
7.57% to 8/15/94 4,773 4,773
-------- --------
22,045 22,045
Communications Magnavox Electronic Systems Co., Term Loan, due 9/30/2000, 8.0625%
Equipment--0.51% to 11/01/94 4,007 4,007
Computing Lexmark Holdings, US, Term Loan, due 3/01/98:
Equipment--2.14% 6.375% to 6/30/94 2,338 2,338
5.875% to 7/29/94 1,860 1,860
Lexmark Holdings, US, Term Loan, due 3/27/98:
6.375% to 6/30/94 6,446 6,446
5.875% to 7/29/94 6,295 6,295
-------- --------
16,939 16,939
Consumer Playtex Family Products Inc., Term Loan B, due 6/01/2001, 7.38%
Products--1.89% to 7/11/94 14,905 14,905
Containers--2.51% Ivex Packaging Corp., Term Loan B, due 12/31/99:
9.50%(1) 18 18
7.50% to 6/24/94 1,143 1,143
7.38% to 8/24/94 2,714 2,714
7.75% to 9/26/94 6,000 6,000
Silgan Corp., Term Loan B, due 9/15/96:
7.188% to 6/07/94 5,000 5,000
7.375% to 6/09/94 5,000 5,000
-------- --------
19,875 19,875
</TABLE>
<TABLE>
Merrill Lynch Senior Floating Rate Fund, Inc.
Schedule of Investments as of May 31, 1994 (unaudited) (continued) (in Thousands)
<CAPTION>
Face
Industry Senior Secured Floating Rate Loan Interests* Amount Value
<S> <S> <C> <C>
Diversified--11.20% American Standard Inc., Term Loan A, due 6/01/2000, 6.50% to
6/02/94 $ 24,694 $ 24,694
Desa International Inc., Term Loan B, due 11/30/2000, 6.75% to
6/27/94 10,000 10,000
Joy Technologies, Inc., Term Loan B, due 12/31/98:
7.375% to 6/27/94 2,828 2,828
7.625% to 8/29/94 7,070 7,070
8.00% to 11/28/94 2,939 2,939
The Pullman Co., Inc., Term Loan, due 9/30/96:
7.50%(1) 811 811
6.125% to 6/15/94 1,181 1,181
6.375% to 6/15/94 2,810 2,810
6.125% to 6/29/94 2,067 2,067
6.375% to 6/29/94 4,918 4,918
6.25% to 7/14/94 603 603
6.50% to 7/14/94 1,436 1,436
7.0625% to 8/09/94 2,994 2,994
Thermadyne Company, Term Loan B, due 2/01/2001:
8.00%(1) 2,595 2,595
7.3125% to 8/03/94 500 500
6.9375% to 9/02/94 21,125 21,125
-------- --------
88,571 88,571
<PAGE>
Drug Stores--6.41% Duane Reade Co., Term Loan A, due 9/30/97:
7.375% to 6/30/94 512 512
7.625% to 8/31/94 12,579 12,579
Duane Reade Co., Term Loan B, due 9/30/99, 8.125% to 8/31/94 10,000 10,000
Hook-SupeRx Inc., Term Loan, Series C, due 7/31/2000, 7.255%
to 6/30/94 13,697 13,697
Jack Eckerd Corp., Term Loan B, due 6/14/2000, 7.50% to
7/29/94 13,852 13,852
-------- --------
50,640 50,640
Electrical Instruments-- Berg Electronics Inc., Term Loan A, due 3/31/2000:
2.35% 7.0625% to 6/24/94 241 241
7.3125% to 8/24/94 242 242
7.625% to 11/25/94 12,088 12,088
Berg Electronics Inc., Term Loan B, due 6/30/2001:
9.00%(1) 25 25
7.875% to 11/25/94 5,975 5,975
-------- --------
18,571 18,571
Energy--4.02% Petrolane Inc., Term Loan, due 12/31/99:
6.00% to 6/28/94 1,586 1,586
6.50% to 6/30/94 1,297 1,297
5.50% to 7/28/94 28,888 28,888
-------- --------
31,771 31,771
Food & Beverage-- Heileman Acquisition Company, Term Loan B, due 12/31/2000, 7.5625%
5.67% to 10/13/94 10,000 10,000
President Baking Co., Inc., Term Loan B, due 9/30/2000, 7.125%
to 6/24/94 4,994 4,994
Specialty Foods Corp., Term Loan B, due 8/31/99:
7.25% to 7/18/94 12,400 12,400
7.75% to 7/18/94 5,000 5,000
7.69% to 10/18/94 12,400 12,400
-------- --------
44,794 44,794
</TABLE>
<PAGE>
<TABLE>
Merrill Lynch Senior Floating Rate Fund, Inc.
Schedule of Investments as of May 31, 1994 (unaudited) (continued) (in Thousands)
<CAPTION>
Face
Industry Senior Secured Floating Rate Loan Interests* Amount Value
<S> <S> <C> <C>
Forestry--1.23% Crown Pacific lnland, Term Loan A, due 12/31/95, 6.6875% to 6/30/94 $ 1,386 $ 1,386
Crown Pacific Inland, Term Loan B, due 10/31/98:
6.8125% to 6/06/94 2,778 2,778
6.6875% to 7/05/94 5,556 5,556
-------- --------
9,720 9,720
Grocery--8.71% Big V Supermarkets Inc., Term Loan B, due 3/15/2000, 6.625% to
8/15/94 10,400 10,400
Circle K Acquisitions Corp., Term Loan A, due 4/30/98, 6.875% to
6/30/94 4,848 4,848
Circle K Acquisitions Corp., Term Loan B, due 4/30/2000:
7.375% to 6/27/94 9,778 9,778
7.375% to 6/30/94 3,556 3,556
Grand Union Company, Term Loan B, due 6/30/98:
9.25%(1) 48 48
7.9375% to 6/16/94 6,333 6,333
7.625% to 9/09/94 6,667 6,667
Pathmark Stores Inc., Term Loan, due 10/31/99, 7.25% to 7/26/94 5,000 5,000
Pathmark Stores Inc., Term Loan B, due 10/31/99, 7.25% to 7/26/94 5,000 5,000
Ralph's Grocery Company, Term Loan, due 6/30/98:
6.5625% to 6/07/94 7,715 7,715
7.1875% to 6/16/94 302 302
7.125% to 6/23/94 302 302
6.8125% to 6/27/94 2,788 2,788
6.75% to 7/14/94 301 301
7.125% to 8/04/94 518 518
7.3125% to 8/09/94 5,328 5,328
-------- --------
68,884 68,884
High Technology--1.48% Anacomp, Inc., Term Loan, due 3/31/96, 7.00% to 7/26/94 11,716 11,716
Nautical Systems--1.33% Sperry Marine, Inc., Term Loan, due 11/15/2000:
7.1875% to 6/23/94 5,122 5,122
7.4375% to 9/23/94 5,378 5,378
-------- --------
10,500 10,500
<PAGE>
Paper Products--13.00% ++Fort Howard Corp., Senior Secured Notes B, due 9/11/98, 6.88% to
6/10/94 5,000 5,000
++Fort Howard Corp., Senior Secured Notes D, due 9/11/2000,
7.38% to 6/10/94 20,000 20,000
Fort Howard Corp., Term Loan, due 12/31/96:
7.375%(1) 6 6
8.25%(1) 1 1
6.755% to 8/31/94 822 822
6.88% to 8/31/94 223 223
7.125% to 11/30/94 969 969
7.25% to 11/30/94 263 263
Jefferson Smurfit/Container Corp. of America, Term Loan B, due
4/30/2002, 7.375% to 6/20/94 59,000 59,000
Stone Container, Canadian, Tender Loan, due 3/01/97:
9.25%(1) 149 149
7.125% to 6/09/94 1,061 1,061
7.4375% to 6/16/94 5,905 5,905
7.375% to 6/30/94 1,061 1,061
Stone Container, Canadian, Term Loan, due 3/01/97, 7.375% to 6/30/94 742 742
Stone Container, US, Term Loan, due 3/01/97:
9.25%(1) 109 109
7.375% to 6/27/94 884 884
7.5625% to 7/18/94 6,518 6,518
-------- --------
102,713 102,713
</TABLE>
<TABLE>
Merrill Lynch Senior Floating Rate Fund, Inc.
Schedule of Investments as of May 31, 1994 (unaudited) (concluded) (in Thousands)
<CAPTION>
Face
Industry Senior Secured Floating Rate Loan Interests* Amount Value
<S> <S> <C> <C>
Restaurants--1.32% Flagstar Corp., Term Loan A1, due 11/17/98, 7.125% to 6/30/94 (a) $ 1,448 $ 1,448
Flagstar Corp., Term Loan A2, due 11/17/98, 7.125% to 6/30/94 (a) 5,599 5,599
Flagstar Corp., Term Loan A3, due 11/17/98, 7.125% to 6/30/94 (a) 3,404 3,404
-------- --------
10,451 10,451
Retail--Specialty-- Camelot Music, Inc., Term Loan B, due 8/31/2001:
6.66% 6.75% to 8/17/94 14,063 14,063
7.8125% to 8/17/94 8,437 8,437
Camelot Music, Inc., Term Loan C, due 8/31/2002, 7.875% to 6/20/94 7,500 7,500
Saks & Co., Term Loan B, due 6/30/2000, 6.69% to 8/09/94 22,662 22,662
-------- --------
52,662 52,662
<PAGE>
Surgical Deknatel Holdings Corp., Term Loan A, due 4/20/99:
Equipment--1.26% 7.3125% to 6/30/94 83 83
7.25% to 7/25/94 2,417 2,417
Deknatel Holdings Corp., Term Loan B, due 4/20/2001, 7.75% due
7/25/94 7,500 7 500
-------- --------
10,000 10,000
Warehousing Pierce Leahy Corp., Term Loan A, due 1/31/2000, 6.50% to 6/07/94 4,581 4,581
& Storage--1.53% Pierce Leahy Corp., Term Loan B, due 7/31/2000, 7.125% to 6/09/94 7,500 7,500
-------- --------
12,081 12,081
Total Senior Secured Floating Rate Loan Interests
(Cost--$684,534)--86.60% 684,534 684,534
<CAPTION>
Short-Term Securities
<S> <S> <C> <C>
Commercial Paper**-- Corporate Asset Funding Co., 4.32% due 6/10/94 15,000 14,984
12.85% General Electric Capital Corp., 4.22% due 6/01/94 41,662 41,662
General Mills, Inc., 4.15% due 6/07/94 8,000 7,994
Morgan (J.P.) & Company, Inc., 3.92% due 6/21/94 30,000 29,935
PepsiCo., Inc., 3.80% due 6/07/94 7,000 6,996
Total Short-Term Securities (Cost--$101,571)--12.85% 101,662 101,571
<CAPTION>
Shares
Common Stock Held
<S> <S> <C> <C>
Restaurants--0.04% ++Flagstar Companies, Inc. (a) 44 329
Total Common Stock (Cost--$0)--0.04% 44 329
Total Investments (Cost $786,105)--99.49% 786,434
Other Assets Less Liabilities--0.51% 4,060
--------
Net Assets (Equivalent to $10.02 per share based on 78,925,733 shares
outstanding)--100.00% $790,494
========
<FN>
*The interest rate 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 May 31, 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 security as to resale. The value of the Fund's investment in
restricted securities was approximately $25,329,000, representing 3.20% of
net assets.
(1) Index is based on the prime rate of a US bank, which is subject to change daily.
(a) Formerly TW Services, Inc.
</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
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
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