MERRILL LYNCH
SENIOR FLOATING
RATE FUND, INC.
FUND LOGO
Annual Report
August 31, 1995
Officers & Directors
Arthur Zeikel, President and Director
Ronald W. Forbes, Director
Cynthia A. Montgomery, Director
Charles C. Reilly, Director
Kevin A. Ryan, Director
Richard R. West, Director
Terry K. Glenn, Executive Vice President
N. John Hewitt, Senior Vice President
Donald C. Burke, Vice President
John W. Fraser, Vice President
R. Douglas Henderson, Vice President
Gerald M. Richard, Treasurer
Patrick D. Sweeney, Secretary
<PAGE>
Custodian
The Bank of New York
90 Washington Street
New York, NY 10286
Transfer Agent
Merrill Lynch Financial Data Services, Inc.
4800 Deer Lake Drive East
Jacksonville, FL 32246-6484
(800) 637-3863
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
representation of future performance.
Merrill Lynch
Senior Floating
Rate Fund, Inc.
Box 9011
Princeton, NJ
08543-9011
<PAGE>
Merrill Lynch Senior Floating Rate Fund, Inc.
DEAR SHAREHOLDER
During the majority of the fiscal year ended August 31, 1995,
Merrill Lynch Senior Floating Rate Fund, Inc. was relatively fully
invested in an environment of strong economic growth and rising
short-term interest rates. The steady rise in interest rates that
began in early 1994 and continued through the beginning of 1995
resulted in a strong performance by the Fund in terms of yield and
net asset value stability. However, economic data released during
the second quarter of 1995 showed evidence of a slowing economy.
Gross domestic product (GDP) growth for the first three months of
1995 was 2.7%, the weakest showing of the prior 18 months.
Other signs of a sluggish economy included slowing growth in the
manufacturing sector in May and June as well as three consecutive
months of declines in the Index of Leading Economic Indicators, an
occurrence that has often (but not always) forecast recessions. As a
result, by the end of the June quarter concerns had arisen that the
economic soft landing could turn into an actual recession. With the
financial markets trading for most of the second quarter on the
assumption that interest rates were heading down, the Federal
Reserve Board finally made its move on July 6, 1995, reducing the
Federal Funds rate by 25 basis points (0.25%) to 5.75%. This
resulted in short-term interest rates, specifically the London
Interbank Offered Rate (LIBOR), coming down as well.
Over 97% of the Fund's investments in corporate loans are currently
accruing interest at a spread above the 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. At the end of the
Fund's fiscal year, three-month LIBOR was 5.81% versus 6.25% at the
end of February 1995. This pressure on short-term interest rates, in
conjunction with a steady inflow of cash from new subscriptions, has
caused the Fund's yield to decline.
Since the average reset on the Fund's investments with underlying
LIBOR rates is 31 days, the Fund's yield should continue to reflect
any sustained movement, up or down, in short-term interest rates
over a one-month--two-month period. Since July, economic indicators
have reflected an economy that looks substantially healthier than in
July. No further Federal Reserve Board action was taken in August
and September. A stronger-than-expected housing industry,
strengthening auto sales, and business investment spending that
remains robust, have changed the concerns of an impending recession
to expectations of a period of moderate growth at sustainable
levels.
<PAGE>
Portfolio Performance
With this interest rate environment and economic growth prospects as
a backdrop, Merrill Lynch Senior Floating Rate Fund, Inc. ended its
fiscal year with approximately $1.92 billion out of $2.12 billion,
or 90.6%, of its net assets committed for investment in corporate
loan interests. Assets not invested in corporate loan interests were
invested in high-quality, short-term securities. Net of trades not
yet closed, the Fund had $1.79 billion, or 84.4%, invested in
corporate loan interests.
The Fund's effective net annualized yield for the 12-month period
ended August 31, 1995 was 7.46%, compared to a yield of 5.73% for
the prior year. The positive effect on the Fund's yield of an upward
move in short-term interest rates during the first half of its
fiscal year was partially offset by an increase in net assets as new
subscriptions continued at a steady pace, which were invested in
lower-yielding cash equivalents pending commitments to corporate
loans. The Fund's net asset value continued to remain relatively
stable throughout the period. During the 12-month period ended
August 31, 1995, the Fund earned $0.747 per share income dividends,
representing a net annualized yield of 7.46%, based on a year-end
per share net asset value of $10.02. The Fund's total investment
return was +7.68%, based on a stable net asset value and assuming
reinvestment of $0.743 per share income dividends. Since inception
(November 3, 1989) through August 31, 1995, the Fund's total
investment return was +50.54%, based on a change in per share net
asset value from $10.00 to $10.02, and assuming reinvestment of
$4.064 per share income dividends.
Investment Activities
The Fund's investment strategy during the fiscal year remained
unchanged--to invest in leveraged transactions in which borrowers
have strong market shares, experienced managements, consistent
cashflows and appropriate risk/reward tradeoffs in the form of
floating 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 that support
their investments. The Fund's three largest positions in the paper
industry, Jefferson Smurfit Company/Container Corp. of America, S.D.
Warren Co. and Fort Howard Corp., are examples of this strategy. The
advantages of adhering to this strategy are borne out by both the
relative stability of the Fund's asset value to date and the
continued flexibility of our borrowers as they access capital
markets.
Although as the Fund continues to grow we want the portfolio to be
as diversified as product supply will allow, we will continue to
focus on credit quality and liquidity within the non-investment
grade sector. Following this theme, we were opportunistic throughout
the fiscal year in buying lower-yielding, higher-quality names such
as US Gypsum, National Medical Enterprises Inc., Federated
Department Stores and LDDS Communications. We have also increased
the portfolio's weighting in more stable cash flow-oriented sectors
such as supermarkets, cable and broadcasting.
<PAGE>
During the Fund's fiscal year, we were faced with the challenge of
staying fully invested in a market characterized by numerous
refinancings through public debt and equity markets. These
transactions included names such as Elsag Bailey, Kraft Foods
Service and Allison Engine Co. Other transactions involved the
repricing of bank debt as a result of improved earnings and
financial characteristics. Such names as American Standard Inc.,
Playtex Family Products Inc., and Specialty Foods Corp. were
examples of just such borrowers. Finally, the Fund continued to be
selective in its investment in new leveraged transactions coming to
the market during the course of the year. Examples include its
investment in Six Flags Entertainment Corp., Crown Paper Co.,
Johnstown America Industrial Inc., Marcus Cable Operating Co., and
the financing of the merger of Ralph's Grocery Company and Food-4-
Less supermarkets.
The leveraged bank loan market remained robust as continued strong
mergers and acquisition activity drove transaction volume up.
However, the increasing popularity of senior secured bank loans as
an asset class among institutional investors has brought many new
players into the market, increasing the competition for favorable
allocations in new transactions. The positive side of the increased
demand, in tandem with the proliferation of dealers in the bank loan
market, has resulted in the highest degree of liquidity that this
market has experienced. Secondary trading volume for 1995 is on
track to exceed $30.0 billion, according to Loan Pricing
Corporation, compared to $4.0 billion just four years ago. Other
recent developments that reflect the growth of this market include
the initiation of the rating of leveraged bank loans by Moody's
Investors Service, Inc. and Standard & Poor's Corporation, as well
as the development of more standardized trade settlement procedures
to be implemented this fall. Both of these events should reinforce
the positive trends for this market both in terms of liquidity and a
growing institutional investor base.
During the latter part of the fiscal year, the Fund experienced some
increased turnover from alternative financing as the public markets
rallied with the downward movement on interest rates. The Fund
purchased over $964.8 million in loans in the primary market and
over $635.3 million in the secondary market. This was offset by the
sale of $130.3 million in investments and the full or partial
prepayment of over $349.3 million during the period.
As of August 31, 1995, the Fund was invested in 80 different
borrowers across 31 industries. The largest industry concentrations
were in paper (19.6% of net assets), specialty retail (9.4%),
broadcast/media (4.9%), food and beverage (4.8%) and diversified
manufacturing (3.3%). The average loan size equaled $22.4 million,
or 1.0%, of net assets. The largest individual credit exposures on a
committed basis are Jefferson Smurfit Company/Container Corp. of
America ($163.3 million; 7.5% of net assets), Federated Department
Stores ($146.8 million; 6.8%), Fort Howard Corp. ($87.2 million;
4.0%), Stone Container Corp. ($74.8 million; 3.5%), and S.D. Warren
Co. ($62.0 million; 2.9%).
<PAGE>
The Fund completed its latest quarterly tender offer on July 18,
1995 with 2.85 million shares tendered and accepted for repurchase.
The next tender began on September 19, 1995 and will conclude on
October 17, 1995. The Fund remains open for new shareholder
purchases.
In Conclusion
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
October 5, 1995
<TABLE>
SCHEDULE OF INVESTMENTS (in Thousands)
<CAPTION>
Face Value
Industry Senior Secured Floating Rate Loan Interests* Amount (Note 1b)
<S> <S> <C> <C>
Aerospace--1.87% Aviall Inc., Term Loan B, due 11/30/00:
9.13% to 9/07/95 $ 728 $ 728
9.75% to 9/07/95 5,225 5,225
9.25% to 10/10/95 14,558 14,558
Gulfstream Aerospace Corp., Term Loan, due 3/31/97,
10% to 9/29/95 1,538 1,538
Gulfstream Aerospace Corp., Term Loan, due 3/31/98:
9% to 9/08/95 9,260 9,260
7.88% to 10/13/95 9,224 9,224
---------- ----------
40,533 40,533
<PAGE>
Airlines--0.61% Northwest Airlines, Inc., Term Loan, due 6/15/97,
9.125% to 10/20/95 6,130 6,130
Northwest Airlines, Inc., Term Loan, due 9/15/97,
9.125% to 10/20/95 7,110 7,110
---------- ----------
13,240 13,240
Analytical Waters Corp., Term Loan B, due 8/31/01:
Instruments--1.13% 9.25% to 9/29/95 791 791
9.25% to 10/31/95 9,996 9,996
Waters Corp., Term Loan C, due 8/31/02:
9.625% to 9/29/95 554 554
9.625% to 10/31/95 6,995 6,995
Waters Corp., Term Loan D, due 2/28/03:
10% to 9/29/95 445 445
10% to 10/31/95 5,623 5,623
---------- ----------
24,404 24,404
Apparel--0.46% Humphreys, Term Loan B, due 1/15/03, 9.375% to 9/29/95 10,000 10,000
Automobile Exide Corporation, Term Loan B, due 9/30/01:
Products--0.69% 9% to 10/02/95 2,450 2,450
8.9375% to 12/29/95 2,487 2,487
Johnstown America Industrial Inc., Term Loan B, due 3/31/03,
9% to 2/23/96 10,000 10,000
---------- ----------
14,937 14,937
Broadcast/Media--4.85% Classic Cable, Term Loan A, due 3/31/03, 8.69% to 9/29/95 2,500 2,500
Classic Cable, Term Loan B, due 3/31/04, 9.69% to 9/29/95 5,000 5,000
Coaxial Communications, Term Loan, due 12/31/99:
10.75% to 9/29/95 32 32
9.13% to 10/15/95 4,402 4,402
9.19% to 6/14/96 9,468 9,468
8.94% to 7/17/96 5,035 5,035
Ellis Communications, Term Loan B, due 3/31/03:
11%(1) 33 33
9.125% to 9/18/95 4,950 4,950
Enquirer/Star, Term Loan B, due 9/30/02:
10%(1) 134 134
8.44% to 10/22/95 26,532 26,532
Journal News Inc., Term Loan, due 12/31/01, 8.255%
to 10/30/95 10,000 10,000
Marcus Cable Operating Co., Term Loan B, due 4/30/04,
10.25% to 9/30/95 11,500 11,500
Silver King Communications, Term Loan B, due 7/31/02,
8.875% to 10/31/95 17,820 17,820
US Radio Inc., Term Loan A, due 12/31/01:
9.4375% to 9/29/95 1,298 1,298
8.875% to 10/30/95 1,233 1,233
US Radio Inc., Term Loan B, due 9/23/03:
9.9375% to 9/08/95 828 828
10.4375% to 9/29/95 1,695 1,695
9.875% to 10/30/95 1,709 1,709
9.8125% to 12/11/95 823 823
---------- ----------
104,992 104,992
</TABLE>
<PAGE>
<TABLE>
SCHEDULE OF INVESTMENTS (continued)) (in Thousands)
<CAPTION>
Face Value
Industry Senior Secured Floating Rate Loan Interests* Amount (Note 1b)
<S> <S> <C> <C>
Building MTF Acquisition, Term Loan B, due 12/31/02, 9.03% to 9/29/95 $ 20,000 $ 20,000
Products--1.86% Overhead Door Corp., Revolving Credit Loan, due 8/18/99:
8.4375% to 9/28/95 205 205
8.50% to 9/29/95 1,909 1,909
Overhead Door Corp., Term Loan, due 8/18/99, 8.50% to 9/29/95 8,794 8,794
RSI Home Products, Term Loan, due 11/30/99, 8.375% to 11/30/95 9,250 9,250
---------- ----------
40,158 40,158
Carbon & Graphite UCAR International, Term Loan B, due 1/31/03, 8.875% to 9/08/95 7,311 7,311
Products--0.69% UCAR International, Term Loan C, due 7/31/03, 9.375% to 9/08/95 3,827 3,827
UCAR International, Term Loan D, due 1/31/04, 10.0625% to 11/08/95 3,827 3,827
---------- ----------
14,965 14,965
Chemicals--2.17% Freedom Chemical Company, Term Loan B, due 6/30/02,
9.1875% to 10/27/95 27,000 27,000
Harris Specialty Chemicals, Term Loan A, due 12/30/99,
8.75% to 9/18/95 616 616
Harris Specialty Chemicals, Term Loan B, due 12/30/01,
9.25% to 9/18/95 2,871 2,871
Hydro Chemical, Term Loan B, due 7/01/02, 10.0625% to 10/31/95 5,000 5,000
Inspec Technologies, Term Loan B, due 12/02/00, 8.50% to 9/29/95 4,311 4,311
Thoro World Systems, Inc., Term Loan A, due 12/30/99, 8.69%
to 9/29/95 2,252 2,252
Thoro World Systems, Inc., Term Loan B, due 12/30/01, 8.69%
to 9/19/95 4,916 4,916
---------- ----------
46,966 46,966
Consumer Products--2.77% CHF/Ebel USA, Term Loan B, due 9/30/01, 9.1328% to 10/30/95 10,032 10,032
Playtex Family Products Inc., Term Loan A, due 6/30/02:
6.82% to 9/06/95 328 328
7.57% to 9/06/95 1,311 1,311
7.44% to 1/08/96 1,748 1,748
Playtex Family Products Inc., Term Loan B, due 6/30/02:
6.82% to 9/06/95 3,059 3,059
7.57% to 9/06/95 12,237 12,237
7.44% to 1/08/96 16,316 16,316
Revlon Consumer Products, Term Loan B, due 6/30/97,
9.3125% to 12/08/95 15,000 15,000
---------- ----------
60,031 60,031
<PAGE>
Containers--1.56% Ivex Packaging Corp., Term Loan B, due 12/31/99:
11%(1) 11 11
9.44% to 9/25/95 2,714 2,714
9.94% to 9/27/95 3,143 3,143
9.94% to 9/29/95 1,429 1,429
9.57% to 11/30/95 1,429 1,429
9.32% to 12/28/95 857 857
Portola Packaging, Inc., Term Loan B, due 7/01/01,
9.6406% to 9/07/95 7,250 7,250
Silgan Corp., Term Loan B, due 3/15/02:
8.875% to 9/11/95 2,267 2,267
8.875% to 10/10/95 7,556 7,556
8.875% to 11/09/95 2,353 2,353
8.9375% to 2/09/96 4,824 4,824
---------- ----------
33,833 33,833
Diversified Desa International Inc., Term Loan B, due 11/30/00,
Manufacturing--3.33% 9.0625% to 12/27/95 9,032 9,032
InterMetro Industries, Term Loan B, due 6/30/01:
8.875% to 9/05/95 2,174 2,174
8.875% to 1/03/96 7,651 7,651
InterMetro Industries, Term Loan C, due 12/31/02:
9.375% to 9/05/95 3,163 3,163
9.375% to 1/03/96 11,132 11,132
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS (continued) (in Thousands)
<CAPTION>
Face Value
Industry Senior Secured Floating Rate Loan Interests* Amount (Note 1b)
<S> <S> <C> <C>
Diversified The Pullman Co., Inc., Revolving Credit Loan, due 12/31/99:
Manufacturing 10.25%(1) $ 821 $ 821
(concluded) 9% to 9/25/95 3,915 3,915
The Pullman Co., Inc., Term Loan A, due 12/31/99, 9% to 9/25/95 9,359 9,359
The Pullman Co., Inc., Term Loan B, due 12/31/99, 9.50%
to 9/25/95 650 650
Thermadyne Company, Term Loan B, due 2/01/01, 8.875% to 9/07/95 24,068 24,068
---------- ----------
71,965 71,965
Drug Stores--2.30% Duane Reade Co., Term Loan A, due 9/30/97, 8.875% to 11/30/95 7,711 7,711
Duane Reade Co., Term Loan B, due 9/30/99, 9.375% to 11/30/95 10,000 10,000
Eckerd Corp., Term Loan, Series C, due 7/31/00:
7.125% to 9/11/95 2,639 2,639
7.1875% to 10/10/95 2,387 2,387
7.5625% to 11/09/95 5,933 5,933
Thrifty Payless, Term Loan B, due 9/30/01, 9.0625% to 9/22/95 20,987 20,987
---------- ----------
49,657 49,657
<PAGE>
Electrical Instruments-- Berg Electronics Inc., Term Loan A, due 3/31/00:
1.89% 8.69% to 9/29/95 365 365
8.69% to 11/27/95 10,875 10,875
Berg Electronics Inc., Term Loan B, due 3/31/01:
8.94% to 9/29/95 4 4
8.94% to 11/27/95 963 963
Communications & Power Industries, Term Loan B, due 8/11/2002,
10.25% to 10/01/95 5,667 5,667
International Wire Corp., Term Loan B, due 9/30/02, 9%
to 12/12/95 10,000 10,000
Tracor Inc., Term Loan A, due 10/31/98, 8.4375% to 9/25/95 3,067 3,067
Tracor Inc., Term Loan B, due 2/28/01:
10.75%(1) 36 36
8.9375% to 9/25/95 9,889 9,889
---------- ----------
40,866 40,866
Fertilizer--0.92% Terra Industries, Term Loan B, due 10/20/01, 8.375%
to 10/20/95 19,875 19,875
Food & Beverage--4.75% American Italian Pasta, Term Loan C, due 12/31/00,
9.9375% to 11/17/95 5,000 5,000
Amerifoods, Term Loan B, due 6/30/01, 10.75% to 9/29/95 7,500 7,500
Amerifoods, Term Loan C, due 6/30/02, 11.25% to 9/29/95 7,500 7,500
Domino's Pizza, Inc., Term Loan B, due 7/27/00:
9.1875% to 9/06/95 5,155 5,155
9.0625% to 11/08/95 2,087 2,087
8.625% to 12/06/95 3,000 3,000
8.625% to 2/07/96 2,380 2,380
Heileman Acquisition Company, Term Loan B, due 12/31/00,
9.6875% to 10/13/95 10,000 10,000
MAFCO Worldwide, Term Loan B, due 6/30/01, 8.88% to 9/29/95 9,900 9,900
President Baking Co., Inc., Term Loan B, due 9/30/00,
7.75% to 12/29/95 4,949 4,949
President Baking Co., Inc., Term Loan B, due 9/30/00,
10.25% to 12/29/95 8 8
Select Beverage Inc., Term Loan B, due 6/30/01, 9.125%
to 11/01/95 2,000 2,000
Select Beverage Inc., Term Loan C, due 6/30/01, 9.375%
to 11/01/95 3,000 3,000
Specialty Foods Corp., Term Loan, due 4/30/01:
8.1875% to 9/21/95 13,399 13,399
8.125% to 10/20/95 13,399 13,399
8.0625% to 1/22/96 13,399 13,399
---------- ----------
102,676 102,676
</TABLE>
<PAGE>
<TABLE>
SCHEDULE OF INVESTMENTS (continued) (in Thousands)
<CAPTION>
Face Value
Industry Senior Secured Floating Rate Loan Interests* Amount (Note 1b)
<S> <S> <C> <C>
Grocery--3.29% Big V Supermarkets Inc., Term Loan B, due 3/15/00:
9.3125% to 9/20/95 $ 5,200 $ 5,200
8.6875% to 10/17/95 5,200 5,200
Dominick's Finer Foods, Term Loan B, due 3/31/02:
9.125% to 9/07/95 395 395
9.3125% to 10/05/95 3,943 3,943
Dominick's Finer Foods, Term Loan C, due 3/31/03:
9.625% to 9/07/95 395 395
9.8125% to 10/05/95 4,304 4,304
Dominick's Finer Foods, Term Loan D, due 9/30/03:
9.875% to 9/07/95 395 395
10.0625% to 10/05/95 4,304 4,304
Pathmark Stores Inc., Term Loan B, due 10/31/99, 8.9375%
to 11/30/95 4,576 4,576
Ralph's Grocery Company, Revolving Credit Loan, due 6/15/01,
10.25%(1) 300 300
Ralph's Grocery Company, Term Loan A, due 6/15/01:
8.6875% to 9/21/95 515 515
8.625% to 10/19/95 13,180 13,180
Ralph's Grocery Company, Term Loan B, due 6/15/02:
10.25% to 9/15/95 5 5
9.1875% to 9/21/95 19 19
9.1875% to 9/21/95 46 46
10.25% to 9/29/95 13 13
9.125% to 10/19/95 6,917 6,917
Ralph's Grocery Company, Term Loan C, due 6/15/03:
10.75% to 9/15/95 5 5
9.6875% to 9/21/95 65 65
10.75% to 9/29/95 12 12
9.625% to 10/19/95 6,918 6,918
Ralph's Grocery Company, Term Loan D, due 2/15/04:
10.75% to 9/15/95 5 5
9.9375% to 9/21/95 65 65
10.75% to 9/29/95 12 12
9.875% to 10/19/95 6,918 6,918
Star Markets Co., Inc., Term Loan B, due 12/31/01, 8.94%
to 9/18/95 4,211 4,211
Star Markets Co., Inc., Term Loan C, due 12/31/02, 9.44%
to 9/18/95 3,158 3,158
---------- ----------
71,076 71,076
<PAGE>
Health Services--2.25% National Medical Enterprises Inc., Revolving Credit Loan,
due 8/31/01:
9%(1) 380 380
7.125% to 9/07/95 600 600
7.1875% to 9/22/95 250 250
7.1875 to 9/29/95 220 220
7.1875% to 10/23/95 200 200
7.1875% to 11/22/95 200 200
7.25% to 2/22/96 1,200 1,200
National Medical Enterprises Inc., Term Loan, due 8/31/01:
7.3125% to 9/01/95 2,917 2,917
7.6875% to 9/01/95 12,500 12,500
7.25% to 10/03/95 6,722 6,722
7.25% to 12/05/95 8,333 8,333
7.125% to 1/03/96 6,750 6,750
7.125% to 2/01/96 8,333 8,333
---------- ----------
48,605 48,605
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS (continued) (in Thousands)
<CAPTION>
Face Value
Industry Senior Secured Floating Rate Loan Interests* Amount (Note 1b)
<S> <S> <C> <C>
Leasing & Rental Prime Acquisition, Term Loan, due 12/31/00:
Services--0.92% 9.0625% to 9/05/95 $ 6,400 $ 6,400
9.0313% to 10/03/95 7,120 7,120
8.875% to 10/06/95 6,400 6,400
---------- ----------
19,920 19,920
Leisure/ Metro Goldwyn Meyer Co., Term Loan, due 4/15/97, 8.19%
Entertainment--1.36% to 1/24/96 10,000 10,000
Six Flags Entertainment Corp., Term Loan B, due 6/23/03:
8.875% to 12/27/95 16,154 16,154
9% to 2/23/96 3,247 3,247
---------- ----------
29,401 29,401
Manufacturing--0.69% Trans Technology Corp., Term Loan B, due 6/30/02, 9.125%
to 11/02/95 15,000 15,000
Medical Devices--0.79% Deknatel Holdings Corp., Term Loan A, due 4/20/99:
9.3125% to 9/29/95 115 115
9.3125% to 10/25/95 1,938 1,938
9.8125% to 10/25/95 7,500 7,500
Deknatel Holdings Corp., Term Loan B, due 4/20/01, 9.8125%
to 10/25/95 7,500 7,500
---------- ----------
17,053 17,053
<PAGE>
Message Dictaphone Co., Term Loan B, due 6/30/02, 9.1875% to 9/15/95 10,000 10,000
Communications--0.46%
Nautical Systems--0.40% Sperry Marine, Inc., Term Loan, due 11/15/00:
9.6875% to 9/29/95 3,639 3,639
9.125% to 12/29/95 4,947 4,947
---------- ----------
8,586 8,586
Paper--19.63% Crown Paper Co., Term Loan B, due 8/22/2003:
9.25% to 9/22/95 5,000 5,000
9.25% to 10/23/95 5,000 5,000
9.25% to 11/21/95 5,000 5,000
9.25% to 2/20/96 5,000 5,000
Fort Howard Corp., Term Loan A, due 3/08/02:
8.50% to 9/19/95 12,000 12,000
8.38% to 12/19/95 12,000 12,000
Fort Howard Corp., Term Loan B, due 12/31/02:
9% to 9/19/95 31,604 31,604
8.88% to 12/19/95 31,604 31,604
Jefferson Smurfit Company/Container Corp. of America,
Revolving Credit Loan, due 4/30/01:
10.25%(1) 179 179
8.375% to 9/07/95 60 60
8.4375% to 9/22/95 149 149
8.4375% to 9/29/95 119 119
Jefferson Smurfit Company/Container Corp. of America,
Term Loan A, due 4/30/01:
8.9375% to 9/28/95 31,043 31,043
8.9375% to 9/29/95 11,340 11,340
8.375% to 10/20/95 22,680 22,680
8.4375% to 10/20/95 2,495 2,495
8.375% to 10/30/95 22,680 22,680
Jefferson Smurfit Company/Container Corp. of America,
Term Loan B, due 4/30/02:
9.4375% to 9/25/95 2,968 2,968
8.9375% to 10/20/95 12,928 12,928
9.375% to 10/24/95 54,086 54,086
</TABLE>
<PAGE>
<TABLE>
SCHEDULE OF INVESTMENTS (continued) (in Thousands)
<CAPTION>
Face Value
Industry Senior Secured Floating Rate Loan Interests* Amount (Note 1b)
<S> <S> <C> <C>
Paper Mail Well, Term Loan B, due 7/31/03:
(concluded) 10.25%(1) $ 6,100 $ 6,100
8.875% to 9/06/95 13,900 13,900
S.D. Warren Co., Term Loan A, due 12/20/01, 8.38%
to 10/24/95 10,000 10,000
S.D. Warren Co., Term Loan B, due 12/19/02, 8.94%
to 9/25/95 52,000 52,000
Stone Container Corp., Term Loan B, due 4/01/00:
9% to 9/18/95 27,607 27,607
9% to 10/16/95 29,707 29,707
Stone Container Corp., Term Loan C, due 4/01/00, 9.25%
to 9/29/95 17,500 17,500
---------- ----------
424,749 424,749
Printing & K-III Communications, Term Loan, due 12/31/00, 7.13%
Publishing--2.05% to 11/09/95 6,000 6,000
Print Tech International, Term Loan B, due 12/29/01:
8.9375% to 9/29/95 1,375 1,375
8.8125% to 12/08/95 3,542 3,542
Ziff Davis, Term Loan B, due 12/31/01, 9.4375% to 9/28/95 13,696 13,696
Ziff Davis, Term Loan C, due 12/31/02, 9.4375% to 9/28/95 19,755 19,755
---------- ----------
44,368 44,368
Retail-- Federated Department Stores, Revolving Credit Loan,
Specialty--9.43% due 3/31/00:
7.0625% to 9/05/95 3,125 3,125
7.4375% to 9/18/95 7,812 7,812
6.875% to 9/29/95 14,062 14,062
6.9375% to 9/29/95 4,688 4,688
Federated Department Stores, Term Loan, due 3/31/00:
7.4375% to 9/25/95 53,125 53,125
7% to 9/29/95 31,875 31,875
Music Acquisition Corp., Term Loan B, due 8/31/01:
8.875% to 9/18/95 8,156 8,156
8.9375% to 9/21/95 13,781 13,781
Music Acquisition Corp., Term Loan C, due 8/31/02, 9.4375%
to 9/21/95 7,500 7,500
QVC, Inc., Term Loan B, due 1/31/04, 9% to 9/05/95 28,000 28,000
Saks & Co., Term Loan A, due 6/30/98, 8.75% to 11/09/95 4,375 4,375
Saks & Co., Term Loan B, due 6/30/00, 9.25% to 11/09/95 27,469 27,469
---------- ----------
203,968 203,968
<PAGE>
Telecommunications--1.82% LDDS Communications, Term Loan, due 12/31/96, 6.88%
to 10/10/95 10,000 10,000
Paging Network, Term Loan B, due 3/31/02, 9.445% to 11/06/95 29,333 29,333
---------- ----------
39,333 39,333
Textiles--1.15% Chicopee, Inc., Term Loan B, due 3/31/03, 9.19% to 9/29/95 24,937 24,937
Transportation Petro Properties, Term Loan B, due 5/24/01, 9.25% to 9/28/95 8,765 8,765
Services--0.40%
Warehousing & Pierce Leahy Corp., Term Loan B, due 6/30/01, 9.125%
Storage--0.69% to 9/29/95 15,000 15,000
Total Senior Secured Floating Rate Loan Interests
(Cost--$1,669,859)--77.18% 1,669,859 1,669,859
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS (concluded) (in Thousands)
<CAPTION>
Face Value
Short-Term Securities Amount (Note 1b)
<S> <S> <C> <C>
Commercial Ciesco L.P., 5.70% due 10/13/95 $ 30,000 $ 29,801
Paper**--19.68% Corporate Asset Funding Co., 5.73% due 9/07/95 50,000 49,952
First Boston, Inc.:
5.71% due 9/27/95 20,000 19,918
5.73% due 9/27/95 30,000 29,876
5.71% due 10/03/95 20,000 19,898
General Electric Capital Corp., 5.82% due 9/01/95 31,448 31,448
Matterhorn Capital Corp.:
5.73% due 9/20/95 30,000 29,909
5.72% due 10/05/95 30,000 29,838
National Fleet Fund, Inc.:
5.70% due 9/13/95 30,000 29,943
5.76% due 9/14/95 40,700 40,615
5.73% due 9/28/95 25,000 24,893
5.74% due 10/06/95 50,000 49,721
Sheffield Receivables Co., 5.75% due 9/08/95 40,000 39,955
---------- ----------
427,148 425,767
US Government & Agency Federal National Mortgage Association, 5.66% due 9/06/95 50,000 49,961
Obligations**--2.31%
Total Short-Term Securities (Cost--$475,728)--21.99% 477,148 475,728
<PAGE> Shares
Common Stock Held
Restaurants--0.01% Flagstar Companies, Inc. 44 173
Total Common Stock (Cost--$0)--0.01% 44 173
Total Investments (Cost--$2,145,587)--99.18% 2,145,760
Other Assets Less Liabilities--0.82% 17,710
----------
Net Assets--100.00% $2,163,470
==========
<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, 1995.
**Commercial Paper and certain US Government & Agency Obligations
are 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.
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION
<TABLE>
Statement of Assets and Liabilities as of August 31, 1995
<S> <S> <C> <C>
Assets: Investments, at value (identified cost-- $2,145,586,427)
(Note 1b) $2,145,759,782
Receivables:
Capital shares sold $ 23,090,039
Interest 15,293,047
Commitment fees 78,144 38,461,230
------------
Prepaid registration fees and other assets (Note 1f) 1,619,465
--------------
Total assets 2,185,840,477
--------------
<PAGE>
Liabilities: Payables:
Dividends to shareholders (Note 1g) 4,220,943
Investment adviser (Note 2) 1,664,057
Administrator (Note 2) 437,910 6,322,910
------------
Deferred income (Note 1e) 15,408,761
Accrued expenses and other liabilities 639,193
--------------
Total liabilities 22,370,864
--------------
Net Assets: Net assets $2,163,469,613
==============
Net Assets Common Stock, par value $0.10 per share; 1,000,000,000
Consist of: shares authorized $ 21,597,247
Paid-in capital in excess of par 2,140,838,484
Undistributed realized capital gains on investments--net 860,527
Unrealized appreciation on investments--net (Note 3) 173,355
--------------
Net Assets--Equivalent to $10.02 per share based on
215,972,462 shares of Common Stock outstanding $2,163,469,613
==============
</TABLE>
<TABLE>
Statement of Operations
<CAPTION>
For the Year Ended
August 31, 1995
<S> <S> <C> <C>
Investment Income Interest and discount earned $122,873,692
(Note 1e): Facility and other fees 3,427,067
------------
Total income 126,300,759
------------
Expenses: Investment advisory fees (Note 2) $ 13,654,371
Administrative fees (Note 2) 3,593,255
Transfer agent fees (Note 2) 956,857
Professional fees 329,753
Accounting services (Note 2) 197,653
Borrowing costs (Note 6) 189,883
Custodian fees 143,988
Printing and shareholder reports 87,900
Directors' fees and expenses 47,374
Other 18,482
------------
Total expenses 19,219,516
------------
Investment income--net. 107,081,243
------------
<PAGE>
Realized & Realized gain on investments--net 901,282
Unrealized Change in unrealized appreciation/depreciation on
Gain (Loss) on investments--net (102,235)
Investments--Net ------------
(Notes 1c, 1e Net Increase in Net Assets Resulting from Operations $107,880,290
& 3): ============
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION (continued)
<TABLE>
Statements of Changes in Net Assets
<CAPTION>
For the Year
Ended August 31,
Increase (Decrease) in Net Assets: 1995 1994
<S> <S> <C> <C>
Operations: Investment income--net $ 107,081,243 $ 43,213,412
Realized gain (loss) on investments--net 901,282 (13,985)
Change in unrealized appreciation/depreciation on
investments--net (102,235) (124,460)
-------------- ------------
Net increase in net assets resulting from operations 107,880,290 43,074,967
-------------- ------------
Dividends to Investment income--net (107,081,243) (43,213,412)
Shareholders -------------- ------------
(Note 1g): Net decrease in net assets resulting from dividends
to shareholders (107,081,243) (43,213,412)
-------------- ------------
Capital Share Net increase in net assets resulting from capital
Transactions share transactions 1,228,207,869 221,301,485
(Note 4): -------------- ------------
Net Assets: Total increase in net assets 1,229,006,916 221,163,040
Beginning of year 934,462,697 713,299,657
-------------- ------------
End of year $2,163,469,613 $934,462,697
============== ============
</TABLE>
<PAGE>
<TABLE>
Statement of Cash Flows
<CAPTION>
For the Year Ended
August 31, 1995
<S> <S> <C>
Cash Provided by Net increase in net assets resulting from operations $ 107,880,290
Operating Adjustments to reconcile net increase (decrease) in
Activities: net assets resulting from operations to net cash
provided by operating activities:
Increase in receivables (9,086,101)
Increase in other assets (1,483,573)
Increase in other liabilities 9,041,608
Realized and unrealized gain on investments--net (799,047)
Amortization of discount (20,924,413)
----------------
Net cash provided by operating activities 84,628,764
----------------
Cash Used for Proceeds from principal payments and sales of loan interests 651,663,489
Investing Purchases of loan interests (1,521,021,788)
Activities: Purchases of short-term investments--net (13,212,737,918)
Proceeds from sales and maturities of short-term investments--net 12,876,338,285
----------------
Net cash used for investing activities (1,205,757,932)
----------------
Cash Provided by Cash receipts on capital shares sold 1,291,293,618
Financing Cash payments on capital shares tendered (116,306,108)
Activities: Dividends paid to shareholders (54,068,371)
----------------
Net cash provided by financing activities 1,120,919,139
----------------
Cash: Net decrease in cash (210,029)
Cash at beginning of year 210,029
----------------
Cash at end of year $ --
================
Non-Cash Capital shares issued in reinvestment of dividends paid to shareholders $ 50,211,612
Financing ================
Activities:
See Notes to Financial Statements.
</TABLE>
<PAGE>
FINANCIAL INFORMATION (concluded)
<TABLE>
Financial Highlights
<CAPTION>
The following per share data and ratios have been derived
from information provided in the financial statements.
For the Year Ended August 31,
Increase (Decrease) in Net Asset Value: 1995 1994 1993 1992 1991
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of year $ 10.02 $ 10.02 $ 9.99 $ 9.99 $ 10.00
Operating -------- -------- -------- -------- --------
Performance: Investment income--net .75 .59 .53 .64 .85
Realized and unrealized gain (loss) on
investments--net --++ --++ .03 -- (.01)
-------- -------- -------- -------- --------
Total from investment operations .75 .59 .56 .64 .84
-------- -------- -------- -------- --------
Less dividends from investment income--net (.75) (.59) (.53) (.64) (.85)
-------- -------- -------- -------- --------
Net asset value, end of year $ 10.02 $ 10.02 $ 10.02 $ 9.99 $ 9.99
======== ======== ======== ======== ========
Total Investment Based on net asset value per share 7.68% 5.94% 5.74% 6.58% 8.79%
Return:* ======== ======== ======== ======== ========
Ratios to Average Expenses, net of reimbursement 1.34% 1.43% 1.47% 1.39% 1.27%
Net Assets: ======== ======== ======== ======== ========
Expenses 1.34% 1.43% 1.47% 1.41% 1.33%
======== ======== ======== ======== ========
Investment income--net 7.45% 5.75% 5.27% 6.58% 8.44%
======== ======== ======== ======== ========
Supplemental Net assets, end of year (in millions) $ 2,163 $ 934 $ 713 $ 834 $ 1,705
Data: ======== ======== ======== ======== ========
Portfolio turnover 55.23% 61.31% 90.36% 46.48% 58.22%
======== ======== ======== ======== ========
<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.
++Amount is less than $.01 per share.
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 of the Fund's investment. Because
agents and intermediaries are primarily commercial banks, the Fund's
investment in corporate loans at August 31, 1995 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) Derivative financial instruments--The Fund may engage in various
portfolio strategies to seek to increase its return by hedging its
portfolio against adverse movements in the debt markets. Losses may
arise due to changes in the value of the contract or if the
counterparty does not perform under the contract.
<PAGE>
* Interest rate transactions--The Fund is authorized to enter into
interest rate swaps and purchase or sell interest rate caps and
floors. In an interest rate swap, the Fund exchanges with another
party their respective commitments to pay or receive interest on a
specified notional principal amount. The purchase of an interest
rate cap (or floor) entitles the purchaser, to the extent that a
specified index exceeds (or falls below) a predetermined interest
rate, to receive payments of interest equal to the difference
between the index and the predetermined rate on a notional principal
amount from the party selling such interest rate cap (or floor).
(d) Income taxes--It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated
investment companies and to distribute substantially all of its
taxable income to its shareholders. Therefore, no Federal income tax
provision is required.
(e) Security transactions and investment income--Security
transactions are recorded on the dates the transactions are entered
into (the trade dates). Interest 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. For income tax purposes, as of
September 1, 1994, the Loan Interests are treated as discount
obligations.
(f) Prepaid registration fees--Prepaid registration fees are charged
to expense as the related shares are issued.
(g) 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. The general partner of MLAM is Princeton Services, Inc.
("PSI"), an indirect wholly-owned subsidiary of Merrill Lynch & Co.,
Inc. ("ML & Co."), which is the limited partner.
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.
<PAGE>
NOTES TO FINANCIAL STATEMENTS (concluded)
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,
distribution fees, brokerage fees and 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 Fund's 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 during any fiscal year which will cause
such expenses to exceed the most restrictive expense limitation at
the time of such payment.
Merrill Lynch Financial Data Services, Inc. ("MLFDS"), 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 MLAM, PSI, Merrill Lynch, Pierce, Fenner, & Smith Inc.,
MLFDS, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities,
for the year ended August 31, 1995 were $1,521,021,788 and
$651,663,489, respectively.
Net realized and unrealized gains (losses) as of August 31, 1995
were as follows:
Realized
Gains Unrealized
(Losses) Gains
Long-term investments $ 904,582 $ 173,355
Short-term investments (3,300) --
---------- -----------
Total $ 901,282 $ 173,355
========== ===========
As of August 31, 1995, net unrealized appreciation for financial
reporting and Federal income tax purposes aggregated $173,355, all
of which is related to appreciated securities. The aggregate cost of
investments at August 31, 1995 for Federal income tax purposes was
$2,145,586,427.
<PAGE>
4. Capital Share Transactions:
Transactions in capital shares were as follows:
For the Year Ended Dollar
August 31,1995 Shares Amount
Shares sold 129,276,626 $1,294,302,365
Shares issued to share-
holders in reinvestment of
dividends 5,015,241 50,211,612
Total issued 134,291,867 1,344,513,977
Shares tendered (11,618,992) (116,306,108)
------------ --------------
Net increase 122,672,875 $1,228,207,869
============ ==============
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
============ ==============
5. Unfunded Loan Interests:
As of August 31, 1995, the Fund had unfunded loan commitments of
$122,405,057, which would be extended at the option of the borrower,
pursuant to the following loan agreements:
<PAGE>
Unfunded Commitment
Borrower (in thousands)
Jefferson Smurfit Company/
Container Corp. of America $ 2,551
Federated Department Stores 32,098
Gulfstream Corp. 10,192
Marcus Cable Co. 31,500
National Medical Enterprises Inc. 1,950
Northwest Airlines, Inc. 2,649
Overhead Door Corp. 3,000
The Pullman Co., Inc. 1,790
Ralph's Grocery Company 15,950
Tracor Inc. 8,385
UCAR International 9,340
Waters Corp. 3,000
6. Short-Term Borrowings:
On March 20, 1995, the Fund extended its loan commitment from a
commercial bank. The commitment is for $100,000,000 bearing interest
at the Federal Funds Rate plus 0.75%--2% on the outstanding balance.
The Fund had no borrowings under this commitment during the year
ended August 31, 1995. For the year ended August 31, 1995, facility
and commitment fees aggregated approximately $190,000.
7. Subsequent Event:
The Fund began a quarterly tender offer on September 19, 1995 which
concludes on October 17, 1995.
<AUDIT-REPORT>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders,
Merrill Lynch Senior Floating Rate Fund, Inc.:
We have 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, 1995, 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 five-year period then ended. 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.
<PAGE>
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, 1995 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. as of August 31, 1995,
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 $1,669,858,757 (77.18% 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 parties in a sales transaction. We have
reviewed the procedures established by the Board of Directors and
used by the Fund's investment advisor 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 16, 1995
</AUDIT-REPORT>
