Merrill Lynch
Senior Floating
Rate Fund, Inc.
Annual Report August 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 pur-
chase of shares of the Fund or any securities
mentioned in this report. Past performance
results shown in this report should not be consid-
ered a representation of future performance.
Merrill Lynch
Senior Floating Rate Fund, Inc.
Box 9011
Princeton, NJ 08543-9011
<PAGE>
Dear Shareholder:
During the fiscal year ended August 31, 1994, Merrill Lynch Senior
Floating Rate Fund, Inc. was invested in a decidedly different
environment than the one that existed over the previous three years.
The steady rise in interest rates that began in February, that
resulted in increased volatility in the US financial markets and a
generally poor performance by the fixed-income sector, had a very
positive effect on the Fund's yield performance. On August 16, 1994,
in an effort to remove some uncertainty in the financial markets and
keep inflation at bay, the Federal Reserve Board raised short-term
interest rates for the fifth time this year by increasing the
discount rate it charges on loans by 50 basis points (0.50%) to
4.00% and by pushing the Federal Funds target rate to 4.75% from
4.25%. In its statement accompanying the interest rate increases,
the Federal Reserve Board noted that "these actions are expected to
be sufficient, at least for a time, to meet the objectives of
sustained, non-inflationary growth." However, selected higher-than-
expected economic indicators subsequent to the end of the period
reflected continued strong economic growth and the specter of
renewed inflationary fears, and further increases in short-term
interest rates.
Over 97% of the Fund's investments in corporate loans 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 first tightening of monetary policy by the Federal
Reserve Board in February, three-month LIBOR has risen from 3.25% to
5.00%, an increase of 175 basis points. Since the average reset on
the Fund's investments underlying LIBOR rates is 48 days, the Fund's
yield is likely to continue to benefit from this latest interest
rate increase as it moves through its resets over the coming months.
Portfolio Performance
With this interest rate environment and economic growth as a
backdrop, Merrill Lynch Senior Floating Rate Fund, Inc. ended its
fiscal year with approximately $792.8 million out of $934.5 million,
or 84.8%, of its net assets invested in corporate loan interests.
Assets not invested in loan interests were invested in high-quality,
short-term securities.
<PAGE>
The Fund's effective net annualized yield for the 12-month period
ended August 31, 1994 was 5.73%, compared to a yield of 5.27% for
the prior fiscal year. The positive effect on the Fund's yield of an
upward move in short-term interest rates was partially offset by a
31% increase in net assets as new subscriptions increased during the
second half of the fiscal year. This increase affected the Fund's
cash position during the period. The Fund's net asset value remained
relatively stable throughout the period. During the August quarter,
the Fund earned $0.163 per share income dividends, representing a
net annualized yield of 6.47%, based on a month-end per share net
asset value of $10.02. The Fund's total investment return for the
same period was +1.73%, based on a stable net asset value and
assuming reinvestment of $0.162 per share income dividends. Since
inception (November 3, 1989) through August 31, 1994, the Fund's
total investment return was +39.81%, based on a per share net asset
value of $10.02, and assuming reinvestment of $3.322 per share
income dividends.
Investment Activities
Our investment strategy during the fiscal year remained unchanged.
We continue to invest in leveraged transactions in which the bor-
rower has strong market share, experienced management, consistent
cash flows, and appropriate risk/reward in the form of its floating
interest rate spread over the prime rate or LIBOR. In addition, we
look for companies with significant underlying asset and franchise
value, strong capital structures, and equity sponsors with a history
of supporting their investments. The advantages of adhering to this
strategy are borne out by both the relative stability of the Fund's
net asset value and the continued flexibility of our borrowers to
access the capital markets.
During the early part of the fiscal year, we faced the challenge of
staying fully invested in a market characterized by numerous
refinancings via the public debt and equity markets. These
transactions included Playtex Family Products Inc. and Jefferson
Smurfit/Container Corporation of America. Other holdings involved
the refinancing and repricing of the bank debt as a result of
improved earnings and financial characteristics. Such names as
Circle K Acquisition Corp., Jack Eckerd Corp., Flagstar Corp., Crown
Pacific Inland, MAFCO Worldwide, Freedom Chemical Company, Overhead
Door Corp., and Berg Electronics Inc. were examples of such
borrowers. And lastly, the Fund continued to be selective in its
investment in new leveraged transactions coming to the market during
the course of the year. Our newest investments include InterMetro
Industries, the leading manufacturer and marketer of storage and
material transport products serving the food service and healthcare
industries, and Thrifty Payless, a combination acquisition of two of
the largest drug store chains in the western United States.
<PAGE>
In the second half of the fiscal year, the Fund experienced far less
turnover as the public markets cooled considerably with the rise in
interest rates. The Fund purchased over $205 million in new loans
during the fourth quarter alone, with little in the way of major
prepayments except for Flagstar Corp. ($10.5 million). These
purchases were offset with limited sales during the period as
secondary trading took a back seat to investing in primary
syndications in the leveraged bank loan market.
As of August 31, 1994, the Fund was invested in 49 different
borrowers across 22 industries. The largest industry concentrations
were: diversified manufacturing, 12.0% of net assets; paper, 9.4%;
food and beverage, 8.0%; aerospace, 7.3%; and grocery, 6.9%. The
average loan size equaled $16.5 million, or 1.8% of net assets.
The Fund completed its latest quarterly tender offer on July 15,
1994 with 2.2 million shares tendered and accepted for repurchase.
The next tender began on September 16, 1994 and concludes on October
14, 1994. The Fund remains open for new shareholder purchases.
Investment Outlook
In light of the recent volatility in the fixed-income markets, we
believe the Fund is well-positioned to not only benefit from the
improving credit environment as the economy expands, but also to
seek to provide shareholders with the upside yield potential from
investing in floating rate senior collateralized loans.
We thank you for your 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 shareholders.
Sincerely,
(Arthur Zeikel)
Arthur Zeikel
President
(R. Douglas Henderson)
R.Douglas Henderson
Vice President and Portfolio Manager
September 29, 1994
<PAGE>
<TABLE>
Merrill Lynch Senior Floating Rate Fund, Inc.
Schedule of Investments as of August 31, 1994 (in Thousands)
<CAPTION>
Face Value
Industry Senior Secured Floating Rate Loan Interests* Amount (Note 1b)
<S> <S> <C> <C>
Aerospace -- 7.33% Allison Engine Co., Term Loan B, due 12/31/98, 7.25% to 9/08/94 $ 25,000 $ 25,000
Aviall Inc., Term Loan B, due 11/30/00:
7.75% to 9/07/94 3,640 3,640
7.69% to 10/07/94 4,853 4,853
8.19% to 12/07/94 12,132 12,132
Gulfstream Aerospace Corp., Revolving Credit Loan, due 3/31/98:
9.00%(1) 308 308
7.00% to 10/21/94 1,923 1,923
Gulfstream Aerospace Corp., Term Loan, due 3/31/97, 7.63% to 1/13/95 11,374 11,374
Gulfstream Aerospace Corp., Term Loan, due 3/31/98, 7.57% to 9/08/94 9,260 9,260
-------- --------
68,490 68,490
Airlines -- 1.49% Northwest Airlines, Inc., Term Loan, due 9/15/97:
7.375% to 9/12/94 217 217
7.25% to 10/20/94 6,603 6,603
7.3125% to 10/20/94 105 105
7.50% to 10/20/94 2,809 2,809
7.625% to 11/10/94 1,165 1,165
7.625% to 12/21/94 3,057 3,057
-------- --------
13,956 13,956
Analytical Elsag Bailey, Term Loan, due 8/30/02, 7.0625% to 9/19/94 14,000 14,000
Instruments -- 2.86% Waters Corp., Term Loan B, due 8/31/01, 10.125%(1) 5,644 5,644
Waters Corp., Term Loan C, due 8/31/02, 10.50%(1) 3,950 3,950
Waters Corp., Term Loan D, due 2/28/03, 10.875%(1) 3,175 3,175
-------- --------
26,769 26,769
Broadcast/ Silver King Communications, Term Loan B, due 7/31/02, 7.8125% to 11/03/94 18,000 18,000
Media -- 1.93%
Building Overhead Door Corp., Revolving Credit Loan, due 8/18/99, 9.25%(1) 205 205
Materials -- 1.29% Overhead Door Corp., Revolving Credit Loan, due 8/18/99, 7.3125% to 9/30/94 1,978 1,978
Overhead Door Corp., Term Loan, due 8/18/99, 7.3125% to 9/30/94 9,886 9,886
-------- --------
12,069 12,069
<PAGE>
Chemicals -- 4.47% Freedom Chemical Company, Term Loan B, due 6/30/02, 8.1875% to 11/30/94 20,000 20,000
Inspec Technologies, Term Loan B, due 12/02/00, 7.4375% to 9/30/94 5,000 5,000
OSI Specialties, Inc., Term Loan, due 6/30/00:
7.34% to 9/15/94 4,773 4,773
7.57% to 9/22/94 4,512 4,512
Thoro PCR, Inc., Term Loan A, due 12/30/99:
7.57% to 9/26/94 39 39
7.57% to 10/25/94 1,166 1,166
Thoro PCR, Inc., Term Loan B, due 12/30/01, 7.82% to 10/25/94 2,431 2,431
Thoro Systems Products Inc., Term Loan A, due 12/30/99:
7.57% to 9/26/94 24 24
7.57% to 10/25/94 733 733
Thoro Systems Products, Inc., Term Loan B, due 12/30/01, 7.82% to 10/25/94 1,528 1,528
Thoro Worldwide Inc., Term Loan A, due 12/30/99:
7.57% to 9/26/94 17 17
7.57% to 10/25/94 500 500
Thoro Worldwide, Inc., Term Loan B, due 12/30/01,
7.82% to 10/25/94 1,042 1,042
-------- --------
41,765 41,765
Computing Lexmark Holdings, US, Term Loan, due 3/27/98:
Equipment -- 1.44% 7.2813% to 9/30/94 7,319 7,319
7.3125% to 10/31/94 6,106 6,106
-------- --------
13,425 13,425
</TABLE>
<TABLE>
Merrill Lynch Senior Floating Rate Fund, Inc.
Schedule of Investments as of August 31, 1994 (continued) (in Thousands)
<CAPTION>
Face Value
Industry Senior Secured Floating Rate Loan Interests* Amount (Note 1b)
<S> <S> <C> <C>
Consumer Playtex Family Products Inc., Term Loan B, due 6/01/01, 7.88% to 10/11/94 $ 19,857 $ 19,857
Products -- 2.13%
Containers -- 2.90% Ivex Packaging Corp., Term Loan B, due 12/31/99:
10.00%(1) 279 279
7.75% to 9/26/94 6,000 6,000
8.19% to 9/26/94 857 857
8.82% to 2/24/95 2,714 2,714
Portola Packaging, Inc., Term Loan B, due 7/01/99, 8.25% to 9/08/94 7,250 7,250
Silgan Corp., Term Loan B, due 9/15/96:
8.188% to 12/07/94 5,000 5,000
8.125% to 12/09/94 5,000 5,000
-------- --------
27,100 27,100
<PAGE>
Diversified American Standard, Inc., Term Loan A, due 6/01/00:
Manufacturing -- 8.00% to 12/02/94 22,222 22,222
12.05% 8.0625% to 12/02/94 2,472 2,472
Desa International Inc., Term Loan B, due 11/30/00, 7.875% to 9/27/94 10,000 10,000
InterMetro Industries, Term Loan B, due 6/30/01, 8.32% to 1/03/95 10,185 10,185
InterMetro Industries, Term Loan C, due 12/31/02, 8.82% to 1/03/95 14,815 14,815
Joy Technologies, Inc., Term Loan B, due 12/31/98:
7.8125% to 9/29/94 9,898 9,898
8.00% to 11/28/94 2,939 2,939
The Pullman Co., Inc., Term Loan, due 9/30/96:
9.00%(1) 1,139 1,139
9.25%(1) 2,709 2,709
6.8125% to 9/15/94 1,181 1,181
7.0625% to 9/15/94 2,810 2,810
7.00% to 9/29/94 1,772 1,772
7.25% to 9/29/94 4,215 4,215
7.25% to 10/14/94 603 603
7.50% to 10/14/94 1,436 1,436
TDII Company, Term Loan B, due 2/01/01:
9.00%(1) 64 64
6.9375% to 9/02/94 21,125 21,125
7.8125% to 11/03/94 3,000 3,000
-------- --------
112,585 112,585
Drug Stores -- 5.27% Duane Reade Co., Term Loan A, due 9/30/97:
7.8125% to 9/30/94 512 512
8.00% to 11/30/94 12,067 12,067
Duane Reade Co., Term Loan B, due 9/30/99, 8.50% to 11/30/94 10,000 10,000
Jack Eckerd Corp., Term Loan, Series C, due 7/31/2000, 6.00% to 9/06/94 13,383 13,383
Thrifty Payless, Term Loan B, due 9/30/01, 8.125% to 11/23/94 13,275 13,275
-------- --------
49,237 49,237
Electrical Berg Electronics Inc., Term Loan A, due 3/31/00:
Instruments -- 1.96% 7.5625% to 9/26/94 242 242
7.625% to 11/25/94 12,088 12,088
Berg Electronics Inc., Term Loan B, due 6/30/01:
9.50%(1) 25 25
7.875% to 11/25/94 5,975 5,975
-------- --------
18,330 18,330
Food & American Italian Pasta, Term Loan C, due 12/31/00, 8.25% to 9/08/94 5,000 5,000
Beverage -- 7.98% Domino's Pizza, Inc., Term Loan B, due 7/27/00, 7.50% to 9/06/94 15,000 15,000
Heileman Acquisition Company, Term Loan B, due 12/31/00, 7.5625% to 10/13/94 10,000 10,000
</TABLE>
<PAGE>
<TABLE>
Merrill Lynch Senior Floating Rate Fund, Inc.
Schedule of Investments as of August 31, 1994 (continued) (in Thousands)
<CAPTION>
Face Value
Industry Senior Secured Floating Rate Loan Interests* Amount (Note 1b)
<S> <S> <C> <C>
Food & Beverage MAFCO Worldwide, Term Loan B, due 6/30/01, 7.94% to 10/07/94 $ 10,000 $ 10,000
(concluded) President Baking Co., Inc., Term Loan B, due 9/30/00, 7.5625% to 9/23/94 4,988 4,988
Specialty Foods Corp., Term Loan B, due 8/31/99, 7.69% to 10/18/94 12,400 12,400
Specialty Foods Corp., Term Loan B3, due 8/31/99:
9.75%(1) 207 207
8.19% to 10/18/94 16,936 16,936
-------- --------
74,531 74,531
Fuel Distribution -- Petrolane, Inc., Term Loan B, due 12/31/99:
3.30% 6.8125% to 9/28/94 396 396
6.9375% to 9/30/94 1,551 1,551
6.9375% to 10/28/94 28,888 28,888
-------- --------
30,835 30,835
Grocery -- Big V Supermarkets Inc., Term Loan B, due 3/15/00:
6.94% 7.625% to 10/17/94 5,200 5,200
7.75% to 11/15/94 5,200 5,200
Circle K Acquisitions Corp., Term Loan B, due 7/31/01, 6.8125% to 9/29/94 15,000 15,000
Grand Union Company, Term Loan B, due 6/30/98:
9.75%(1) 48 48
8.125% to 9/06/94 6,333 6,333
7.625% to 9/09/94 6,667 6,667
Pathmark Stores Inc., Term Loan B, due 10/31/99, 7.8125% to 9/26/94 10,000 10,000
Ralph's Grocery Company, Term Loan, due 6/30/98:
7.375% to 9/07/94 7,715 7,715
7.625% to 9/14/94 301 301
7.50% to 9/19/94 301 301
7.5625% to 9/29/94 1,959 1,959
7.4375% to 10/04/94 518 518
7.625% to 10/24/94 301 301
7.5625% to 11/09/94 5,328 5,328
-------- --------
64,871 64,871
High Technology -- Anacomp, Inc., Term Loan, due 3/31/96, 7.5625% to 10/26/94 1,238 1,238
1.25% Anacomp, Inc., Term Loan C, due 3/31/96, 7.5625% to 10/26/94 10,405 10,405
-------- --------
11,643 11,643
<PAGE>
Medical Devices -- Deknatel Holdings Corp., Term Loan A, due 4/20/99, 7.8125% to 10/25/94 2,417 2,417
1.06% Deknatel Holdings Corp., Term Loan B, due 4/20/01, 8.3125% to 10/25/94 7,500 7,500
-------- --------
9,917 9,917
Nautical Systems -- Sperry Marine, Inc., Term Loan, due 11/15/00:
1.10% 7.4375% to 9/23/94 5,378 5,378
8.25% to 12/23/94 4,947 4,947
-------- --------
10,325 10,325
Paper -- 9.37% ++Fort Howard Corp., Senior Secured B Notes, due 9/11/98, 7.57% to 9/12/94 5,000 5,000
++Fort Howard Corp., Senior Secured D Notes, due 9/11/00, 8.00% to 9/12/94 20,000 20,000
Fort Howard Corp., Term Loan, due 12/31/96:
8.25%(1) 1 1
9.125%(1) 5 5
7.125% to 11/30/94 1,791 1,791
7.25% to 11/30/94 486 486
Jefferson Smurfit/Container Corp. of America, Term Loan B, due 4/30/02,
7.875% to 10/24/94 44,000 44,000
Stone Container, Canadian Tender Loan, due 3/01/97:
7.5625% to 9/12/94 1,160 1,160
7.75% to 9/19/94 5,905 5,905
7.8125% to 9/29/94 999 999
</TABLE>
<TABLE>
Merrill Lynch Senior Floating Rate Fund, Inc.
Schedule of Investments as of August 31, 1994 (concluded) (in Thousands)
<CAPTION>
Face Value
Industry Senior Secured Floating Rate Loan Interests* Amount (Note 1b)
<S> <S> <C> <C>
Paper Stone Container, Canadian Term Loan, due 3/01/97, 7.8125% to 9/29/94 $ 786 $ 786
(concluded) Stone Container, US, Term Loan, due 3/01/97:
7.75% to 9/19/94 6,519 6,519
7.8125% to 9/29/94 936 936
-------- --------
87,588 87,588
Retail -- Specialty -- Music Acquisition Corp., Term Loan B, due 8/31/01:
5.62% 7.6875% to 9/16/94 14,062 14,062
8.375% to 2/17/95 8,297 8,297
Music Acquisition Corp., Term Loan C, due 8/31/02, 8.0625% to 9/20/94 7,500 7,500
Saks & Co., Term Loan B, due 6/30/00, 7.88% to 11/09/94 22,662 22,662
-------- --------
52,521 52,521
<PAGE>
Transportation Petro Properties, Term Loan B, due 5/24/01, 7.875% to 9/30/94 9,000 9,000
Services -- 0.96%
Warehousing Pierce Leahy Corp., Term Loan B, due 6/30/01, 7.75% to 9/01/94 20,000 20,000
& Storage -- 2.14%
Total Senior Secured Floating Rate Loan Interests
(Cost -- $792,814) -- 84.84% 792,814 792,814
<CAPTION>
Short-Term Securities
<S> <S> <C> <C>
Commercial Paper** -- ABN AMRO North American Finance, Inc., 4.33% due 9/01/94 20,000 20,000
13.40% DuPont (E.I.) de Nemours & Co., 4.46% due 9/20/94 25,000 24,941
General Electric Capital Corp., 4.75% due 9/01/94 45,333 45,333
JC Penney Funding Corp:
4.71% due 9/02/94 15,000 14,998
4.75% due 10/03/94 20,000 19,916
Total Short-Term Securities (Cost -- $125,188) -- 13.40% 125,333 125,188
<CAPTION>
Shares
Common Stock Held
<S> <S> <C> <C>
Restaurants -- 0.03% ++TW Services, Inc. (Cost -- $0) -- 0.03% 44 276
Total Common Stock (Cost -- $0) -- 0.03% 44 276
Total Investments (Cost $918,003) -- 98.27% 918,278
Other Assets Less Liabilities -- 1.73% 16,185
--------
Net Assets -- 100.00% $934,463
========
<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 August 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.
(1)Index is based on the prime rate of a US bank, which is subject
to change daily.
<PAGE>
++Restricted security as to resale. The value of the Fund's invest-
ment in restricted securities was approximately $25,276,000,
representing 2.70% of net assets.
Cost Acquisition
Senior Secured Notes (In Thousands) Date
Fort Howard Corp. $ 25,000 9/11/91
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
August 31, 1994 was $7.75 per share.
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
Merrill Lynch Senior Floating Rate Fund, Inc.
Statement of Assets and Liabilities as of August 31, 1994
<S> <C> <C>
Assets:
Investments, at value (identified cost--$918,002,800) (Note 1b) $918,278,390
Cash 210,029
Receivables:
Capital shares sold $20,081,292
Interest 6,276,867
Commitment fees 8,223 26,366,382
-----------
Deferred facility fees (Note 6) 26,677
Deferred organization expenses (Note 1e) 29,912
Prepaid registration fees and other assets (Note 1e) 79,303
------------
Total assets 944,990,693
------------
Liabilities:
Payables:
Dividends to shareholders (Note 1f) 1,419,683
Investment adviser (Note 2) 715,246
Administrator (Note 2) 188,222 2,323,151
-----------
Deferred income (Note 1d) 7,931,680
Accrued expenses and other liabilities 273,165
------------
Total liabilities 10,527,996
------------
Net assets $934,462,697
============
Net Assets Consist of:
Common Stock, par value $0.10 per share; 1,000,000,000 shares authorized $ 9,329,959
Paid-in capital in excess of par 924,897,903
Accumulated realized capital losses--net (Note 7) (40,755)
Unrealized appreciation on investments--net (Note 3) 275,590
------------
Net Assets--Equivalent to $10.02 per share based on 93,299,587 shares of beneficial
interest outstanding $934,462,697
============
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
Merrill Lynch Senior Floating Rate Fund, Inc.
Statement of Operations for the Year Ended August 31, 1994
<S> <C> <C>
Investment Income (Note 1d):
Interest and discount earned $ 47,936,055
Facility and other fees 6,024,792
------------
Total income 53,960,847
Expenses:
Investment advisory fees (Note 2) $ 7,145,339
Administrative fees (Note 2) 1,880,353
Transfer agent fees (Note 2) 555,878
Borrowing costs (Note 6) 202,074
Professional fees 182,066
Amortization of organization expenses (Note 1e) 179,472
Registration fees (Note 1e) 134,054
Tender offer costs 95,134
Printing and shareholder reports 82,974
Custodian fees 72,441
Directors' fees and expenses 54,763
Accounting services (Note 2) 51,304
Other 111,583
-----------
Total expenses 10,747,435
------------
Investment income--net 43,213,412
Realized Loss on Investments--Net (Notes 1d & 3) (13,985)
Change in Unrealized Appreciation/Depreciation on Investments--Net (Note 3) (124,460)
------------
Net Increase in Net Assets Resulting from Operations $ 43,074,967
============
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
Merrill Lynch Senior Floating Rate Fund, Inc. For the Year Ended August 31,
Statements of Changes in Net Assets 1994 1993
<S> <C> <C>
Increase (Decrease) in Net Assets:
Operations:
Investment income--net $ 43,213,412 $ 39,934,642
Realized gain (loss) on investments--net (13,985) 2,039
Change in unrealized appreciation/depreciation on investments--net (124,460) 2,394,855
------------ ------------
Net increase in net assets resulting from operations 43,074,967 42,331,536
------------ ------------
Dividends to Shareholders (Note 1f):
Investment income--net (43,213,412) (39,934,642)
------------ ------------
Net decrease in net assets resulting from dividends to shareholders (43,213,412) (39,934,642)
------------ ------------
Capital Shares Transactions (Note 4):
Net increase (decrease) in net assets derived from capital share transactions 221,301,485 (123,412,312)
------------ ------------
Net Assets:
Total increase (decrease) in net assets 221,163,040 (121,015,418)
Beginning of year 713,299,657 834,315,075
------------ ------------
End of year $934,462,697 $713,299,657
============ ============
</TABLE>
<PAGE>
<TABLE>
Merrill Lynch Senior Floating Rate Fund, Inc. For the Year Ended
Statement of Cash Flows August 31, 1994
<S> <C>
Cash Provided by Operating Activities:
Net increase in net assets resulting from operations $ 43,074,967
Adjustments to reconcile net increase (decrease) in net assets
resulting from operations to net cash provided by operating activities:
Increase in receivables (1,948,885)
Decrease in other assets 259,876
Increase in other liabilities 1,500,087
Realized and unrealized loss on investments--net 138,445
Amortization of discount (1,636,509)
------------
Net cash provided by operating activities 41,387,981
------------
Cash Used for Investing Activities:
Proceeds from principal payments and sales of loan interests 399,035,411
Purchases of loan interests (585,914,057)
Purchases of short-term investments--net (15,661,889)
------------
Net cash used for investing activities (202,540,535)
------------
Cash Provided by Financing Activities:
Cash receipts on capital shares sold 334,644,640
Cash payments on capital shares tendered (153,795,940)
Dividends paid to shareholders (19,486,117)
------------
Net cash provided by financing activities 161,362,583
------------
Cash:
Net increase in cash 210,029
Cash at beginning of year --
------------
Cash at end of year $ 210,029
============
Non-Cash Financing Activities:
Capital shares issued in reinvestment of dividends paid to shareholders $ 23,136,748
============
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
Merrill Lynch Senior Floating Rate Fund, Inc.
Financial Highlights
<CAPTION>
For the
Period
Nov. 3,
The following per share data and ratios have been derived For the Year 1989++ to
from information provided in the financial statements. Ended 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 .59 .53 .64 .85 .76
Realized and unrealized gain (loss) on investments--net -- .03 -- (.01) --
------ ------ ------ ------ ------
Total from investment operations .59 .56 .64 .84 .76
------ ------ ------ ------ ------
Less Dividends:
Investment income--net (.59) (.53) (.64) (.85) (.76)
------ ------ ------ ------ ------
Net asset value, end of period $10.02 $10.02 $ 9.99 $ 9.99 $10.00
====== ====== ====== ====== ======
Total Investment Return:*
Based on net asset value per share 5.94% 5.74% 6.58% 8.79% 7.63%+++
====== ====== ====== ====== ======
Ratios to Average Net Assets:
Expenses, net of reimbusement 1.43% 1.47% 1.39% 1.27% .79%**
====== ====== ====== ====== ======
Expenses 1.43% 1.47% 1.41% 1.33% 1.35%**
====== ====== ====== ====== ======
Investment income--net 5.75% 5.27% 6.58% 8.44% 9.06%**
====== ====== ====== ====== ======
Supplemental Data:
Net assets, end of period (in millions) $ 934 $ 713 $ 834 $1,705 $1,728
====== ====== ====== ====== ======
Portfolio turnover 61.31% 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>
<PAGE>
Notes to Financial Statements
1. Significant Accounting Policies:
Merrill Lynch Senior Floating Rate Fund, Inc. (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 August 31, 1994 could be considered
to be concentrated in commercial banking.
(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 with remaining maturities
of sixty days or less are valued at amortized cost, which
approximates market value. Securities and assets for which market
quotations are not readily available are valued at fair value as
determined in good faith by or under the direction of the Board of
Directors of the Fund.
(c) lncome 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.
<PAGE>
(e) Deferred organization expenses and prepaid 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. ("PSI"), 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.
Notes to Financial Statements
(concluded)
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. No fee payment will be
made to the Investment Adviser during any fiscal year which will
cause such expenses to exceed the most restrictive expense
limitation applicable at the time of such payment.
<PAGE>
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 trustees of the Fund are officers and/or
directors of MLIM, MLAM, FDS, PSI, or Merrill Lynch, Pierce, Fenner
& Smith Incorporated, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities,
for the year ended August 31, 1994 were $585,914,057 and
$399,035,411, respectively.
Net realized and unrealized gains (losses) as of August 31, 1994
were as follows:
Realized Unrealized
Losses Gains
Short-term investments $ (13,985) --
Common stock -- $ 275,590
------------ ------------
Total $ (13,985) $ 275,590
============ ============
As of August 31, 1994, net unrealized appreciation for financial
reporting and Federal income tax purposes aggregated $275,590, all
of which related to appreciated securities. The aggregate cost of
investments at August 31, 1994 for Federal income tax purposes was
$918,002,800.
4. Capital Share Transaction:
Transactions in capital shares were as follows:
For the Year Ended Dollar
August 31, 1994 Shares Amount
Shares sold 35,126,101 $ 351,960,677
Shares issued to share-
holders in reinvestment
of dividends 2,309,056 23,136,748
------------ -------------
Total issued 37,435,157 375,097,425
Shares tendered (15,348,896) (153,795,940)
------------ -------------
Net increase 22,086,261 $ 221,301,485
============ =============
<PAGE>
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 August 31, 1994, the Fund had unfunded loan commitments of
$15,751,105, which would be extended at the option of the borrower,
pursuant to the following loan agreements:
Unfunded
Commitment
Borrower (in thousands)
Gulfstream Corp. $7,961
Northwest Airlines, Inc. 4,858
Overhead Door Corp. 2,932
6. Short-Term Borrowings:
On March 16, 1994, the Fund extended its loan commitment. The
commitment is for $100,000,000, bearing interest at the Federal
Funds Rate plus 1%--3% on the outstanding balance. The Fund had
no borrowings under this commitment during the year ended August
31, 1994. For the year ended August 31, 1994, facility and
commitment fees aggregated approximately $202,000.
7. Capital Loss Carryforward:
At August 31, 1994, 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 September 16, 1994.
<PAGE>
<AUDIT-REPORT>
Senior Floating Rate Fund, Inc.
Independent Auditors' Report
The Board of Directors and Shareholders, Merrill Lynch Senior
Floating Rate Fund, Inc.:
Wehave audited the accompanying statement of assets and liabilities,
including the schedule of investments of Merrill Lynch Senior
Floating Rate Fund, Inc. as of August 31, 1994, the related
statements of operations and cash flows for the year then ended, the
statements of changes in net assets for each of the years in the two-
year period then ended, and the financial highlights for each of the
years in the four-year period then ended and the period November 3,
1989 (commencement of operations) to August 31, 1990. These
financial statements and the financial highlights are the
responsibility of the fund's management. Our responsibility is to
express an opinion on these financial statements and the financial
highlights based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial
statements and the financial highlights are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements.
Our procedures included confirmation of securities owned at August
31, 1994 by correspondence with the custodian and financial
intermediaries. An audit also includes assessing the accounting
principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights
present fairly, in all material respects, the financial position of
Merrill Lynch Senior Floating Rate Fund, Inc. at August 31, 1994, the
results of its operations, its cash flows, the changes in its net
assets, and the financial highlights for the respective stated
periods in conformity with generally accepted accounting principles.
As discussed in Notes 1a and 1b, the financial statements include
senior secured floating rate loan interests ("Loan Interests") valued
at $792,814,431 (84.84% of all net assets of the Fund), whose values
are fair values as determined by or under the direction of the Board
of Directors in the absence of actual market values. Determination
of fair value involves subjective judgment, as the actual market
value of a particular Loan Interest can be established only by
negotiation between the parties in a sales transaction. We have
reviewed the procedures established by the Board of Directors and
used by the Fund's investment adviser in determining the fair values
of such Loan Interests and have inspected underlying documentation,
and under the circumstances, we believe that the procedures are
reasonable and the documentation appropriate.
Deloitte & Touche LLP
Princeton, New Jersey
October 6, 1994
</AUDIT-REPORT>
<PAGE>
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
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
