MERRILL LYNCH
SENIOR FLOATING
RATE FUND, INC.
FUND LOGO
Annual Report
August 31, 1996
<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
John W. Fraser, Vice President
R. Douglas Henderson, Vice President
Gerald M. Richard, Treasurer
Patrick D. Sweeney, Secretary
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. Statements and other
information herein are as dated and are subject to change.
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 fiscal year ended August 31, 1996, Merrill Lynch Senior
Floating Rate Fund, Inc. operated in an environment of strong
economic growth and little evidence of inflation. As a result, since
January 1996 there has been no action by the Federal Reserve Board
to move the Federal Funds target rate. Gross domestic product growth
for the first eight months of 1996 was 4.4%. The favorable economic
environment during the year was evidenced by bullish economic
indicators such as strong employment numbers, factory orders and
durable goods orders.
Over 98% 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. At the end of the Fund's fiscal year, three-month LIBOR was
5.63% versus 5.25% at the end of February. This pressure on short-
term interest rates, in conjunction with a steady inflow of cash
from new subscriptions, pushed down the Fund's yield from the annual
highs generated in the first half of the year.
Since the average reset on the Fund's investments' underlying LIBOR
rates is 49 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 much of the second-quarter expectations
of a recession to an expectation of a period of moderate growth at
sustainable levels.
Portfolio Performance
With a relatively stable interest rate environment and economic
growth as a backdrop, Merrill Lynch Senior Floating Rate Fund, Inc.
ended its fiscal year with approximately $2.4 billion out of $2.9
billion, or 82.4%, of its net assets committed for investment in
corporate loan interests. Assets not invested in loan interests were
invested in high-quality, short-term securities. Net of trades not
yet closed, the Fund had $2.2 billion, or 73.2%, invested in
corporate loan interests.
<PAGE>
The Fund's effective net annualized yield for the 12-month period
ended August 31, 1996 was 6.59%, compared to a yield of 7.46% for
the prior year. The Fund's net asset value continued to remain
relatively stable throughout the period. During the period, the Fund
earned $0.664 per share income dividends, representing a net
annualized yield of 6.59%, based on a month-end per share net asset
value of $9.99. The Fund's total investment return was +6.53%, based
on a change in per share net asset value from $10.02 to $9.99, and
assuming reinvestment of $0.672 per share income dividends. Since
inception (November 3, 1989) through August 31, 1996, the Fund's
total investment return was +60.36%, based on a change in per
share net asset value from $10.00 to $9.99, and assuming reinvestment
of $4.736 per share income dividends.
Investment Activities
The past 12 months were very favorable for investment in senior
secured floating rate bank loans. A strong economy translated into
continued improvement in earnings for the majority of the sectors in
which the Fund invests. This has resulted in low default levels of
less than 1% for the market as a whole in 1996, year-to-date. This
strong credit environment, in conjunction with a high volume of
syndicated loans, has created an environment of high turnover within
the portfolio of 80.20%.
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, Jefferson
Smurfit Company/Container Corp. of America, Riverwood International
Corp. and Marcus Cable Operating Co., are examples of this strategy.
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 as they access capital
markets.
Although as the Fund continues to grow, we want to stay as
diversified as product supply will allow, continuing 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 Loewen
Group Inc., Viacom, Inc. and OrNda Healthcare Corp. We have also in-
creased 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 Ampad/Williamhouse Regency,
Inc., Deknatel Holdings Corp., Heftel Broadcasting Corp., InterMetro
Industries, K-III Communications, Pierce Leahy Corp., and
Westinghouse Electric Corp. Other transactions involved the
repricing of bank debt as a result of improved earnings and
financial characteristics. Thermadyne Industries, Inc., Saks & Co.
and Specialty Foods Corp. were examples of these 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 included its investment in the Community Health
Systems buyout by Forstman Little, the buyout of Bruno's
Supermarkets by KKR and the buyout of the home furnishings division
of Masco by Citicorp Venture Capital.
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, resulted in the highest degree of liquidity that this market
has experienced. Secondary trading volume for 1996 is on track to
exceed $34.0 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
continued 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.
In our last shareholder's report we informed you that the Fund had
moved to daily mark-to-market pricing of its investments through
dealer quotes. We believe the evolution of the bank loan market, in
terms of liquidity and market participation, made this a necessary
and desirable change. The transition to this pricing methodology has
been a smooth one with no adverse impact on the Fund's performance.
During the later two-thirds of the fiscal year, the Fund experienced
some increased turnover from alternative financing as both the
equity and high-yield bond markets rallied with the downward
movement in interest rates. The Fund purchased over $609.9 million
in loans in the primary market and over $74.8 million in the
secondary market. This was offset by the sale of $98.9 million in
investments and the full or partial prepayment of over $217.5
million during the period.
<PAGE>
As of August 31, 1996, the Fund was invested in 127 different
borrowers across 35 industries. The largest industry concentrations
were in paper (11.7% of net assets), cable TV services (6.8%), food
& kindred products (5.5%), and electronics/ electrical components
(3.8%). The average loan size equaled $19.4 million, or 0.7%
of net assets. The largest individual credit exposures were Stone
Container Corp. ($102.2 million; 3.5% of net assets), Jefferson
Smurfit Company/Container Corp. of America ($97.6 million; 3.3%),
Federated Department Stores ($91.1 million; 3.1%), Marcus Cable
Operating Co. ($89.3 million; 3.0%) and Riverwood International
Corp. ($88.0 million; 3.0%).
The Fund completed its latest quarterly tender offer on July 16,
1996 with 10.1 million shares tendered and accepted for repurchase.
The current tender began on September 17, 1996 and will conclude on
October 15, 1996. The Fund remains open for new shareholder
purchases.
In Conclusion
We anticipate reasonably strong economic growth for the balance of
the year with inflation held in check. This scenario bodes well for
a stable interest rate environment as we head into the Presidential
election and the beginning of 1997.
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
<PAGE>
October 11, 1996
<TABLE>
SCHEDULE OF INVESTMENTS (in Thousands)
<CAPTION>
Face Loan Moody's Stated Value
Industries Amount Borrower Type Rating Maturity* (Note 1b)
Senior Secured Floating Rate Loan Interests*
<S> <C> <S> <S> <S> <S> <C>
Advertising-- $17,500 Eller Industries, Inc. Term A NR++ 6/30/02 $ 17,533
1.93% 14,327 Eller Industries, Inc. Term B NR++ 12/21/03 14,376
12,500 Outdoor Systems, Inc. Term B NR++ 12/31/02 12,516
9,167 Outdoor Systems, Inc. Term C NR++ 12/31/03 9,178
3,333 Outdoor Systems, Inc. Term C NR++ 12/31/03 3,338
Total Advertising (Cost--$56,069) 56,941
Aircraft & 5,000 Banner Industries, Inc. Term B NR++ 6/30/03 5,000
Parts--0.97% 4,612 Gulfstream Aerospace Corp. Term NR++ 3/31/97 4,615
9,260 Gulfstream Aerospace Corp. Term NR++ 3/31/98 9,263
4,041 Howmet Corp. Term B Ba3 11/20/02 4,056
2,237 Howmet Corp. Term C Ba3 5/20/03 2,246
3,500 Technetics Term NR++ 6/20/02 3,504
Total Aircraft & Parts (Cost--$28,540) 28,684
Amusement & 21,481 AMF Group, Inc. Axel A Ba3 3/31/03 21,629
Recreational 8,473 AMF Group, Inc. Axel B NR++ 3/31/04 8,553
Services-- 4,167 Amfac Parks, Inc. Term B NR++ 9/30/02 4,143
2.54% 10,000 Metro Goldwyn Mayer Co. Term NR++ 3/31/04 9,988
4,956 Orion Pictures Corp. Term Ba2 12/31/00 4,912
6,500 Panavision Inc. Term B NR++ 3/31/04 6,492
18,911 Six Flags Entertainment Corp. Term B Ba3 6/23/03 18,958
Total Amusement & Recreational Services (Cost--$74,176) 74,675
<PAGE>
Apparel--0.33% 9,900 Humphreys Inc. Term B NR++ 1/15/03 9,800
Total Apparel (Cost--$9,800) 9,800
Automobile 24,683 Collins & Aikman Corp. Term B B1 12/31/02 24,667
Equipment-- 420 Johnstown America Industrial Inc. Revolving Credit B1 3/31/02 401
1.61% 3,267 Johnstown America Industrial Inc. Term A B1 3/31/02 3,177
19,667 Johnstown America Industrial Inc. Term B B1 3/31/03 19,323
Total Automobile Equipment (Cost--$47,755) 47,568
Broadcast-- 4,600 Benedek Broadcasting Corp. Axel A Ba3 5/01/01 4,640
Radio & TV-- 4,500 Benedek Broadcasting Corp. Axel B Ba3 11/01/02 4,539
1.93% 3,989 Chancellor Broadcasting Inc. Term B Ba2 9/01/03 4,009
4,837 Ellis Communications Term B NR++ 3/31/03 4,849
16,770 Silver King Communications, Inc. Term B NR++ 7/31/02 16,728
12,000 Sinclair Broadcasting Group Inc. Term B NR++ 11/30/03 12,075
10,000 Sullivan Broadcasting Term B NR++ 12/31/03 10,025
Total Broadcast--Radio & TV (Cost--$56,450) 56,865
Building 4,506 Fenway Holdings, Inc. Term B NR++ 9/15/02 4,489
Materials-- 23,094 MTF Acquisition Term B NR++ 12/31/02 23,152
2.57% 29,975 National Gypsum Co. Term B NR++ 9/20/03 30,087
8,000 RSI Home Products Term NR++ 11/30/99 7,970
9,917 Walter Industrials, Inc. Term B NR++ 2/22/03 9,929
Total Building Materials (Cost--$75,186) 75,627
Cable TV 6,000 Cablevision of Ohio Term NR++ 12/31/05 5,996
Services-- 24,375 Chelsea Communications Term B NR++ 9/30/04 24,322
6.79% 20,000 Classic Cable Inc. Term B B1 6/30/05 19,900
18,810 Coaxial Communications Term B NR++ 12/31/99 18,763
5,000 Frontier Vision Term B NR++ 6/30/05 4,981
10,000 Intermedia Communications, Inc. Term Ba3 1/1/05 10,025
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS (continued) (in Thousands)
<CAPTION>
Face Loan Moody's Stated Value
Industries Amount Borrower Type Rating Maturity* (Note 1b)
Senior Secured Floating Rate Loan Interests*
<S> <C> <S> <S> <S> <S> <C>
Cable TV $ 3,937 Marcus Cable Operating Co. Revolving Credit NR++ 4/30/14 $ 3,908
Services 33,937 Marcus Cable Operating Co. Term A NR++ 12/31/02 33,895
(concluded) 43,000 Marcus Cable Operating Co. Term B NR++ 4/30/04 43,242
10,000 Triax Midwest Term B NR++ 6/30/05 9,950
25,000 Viacom, Inc. Term Ba2 7/1/02 24,992
<PAGE>
Total Cable TV Services (Cost--$199,083) 199,974
Chemicals-- 9,250 Cedar Chemical Term B NR++ 10/31/03 9,256
3.79% 26,662 Freedom Chemical Company Term B Ba3 6/30/02 26,596
5,071 Harris Specialty Chemicals Revolving Credit NR++ 12/30/01 4,691
229 Harris Specialty Chemicals Term A NR++ 12/30/01 212
366 Harris Specialty Chemicals Term A NR++ 12/30/01 339
1,035 Harris Specialty Chemicals Term B NR++ 12/30/99 957
4,902 Harris Specialty Chemicals Term B NR++ 12/30/01 4,534
1,508 Huntsman Corp. Revolving Credit NR++ 12/31/02 1,498
22,180 Huntsman Corp. Term NR++ 12/31/02 22,111
5,000 Hydrochem Term B NR++ 7/01/02 4,941
2,908 Inspec Chemical Corp. Term B NR++ 12/02/00 2,918
20,000 Sterling Chemicals, Inc. Term B B3 9/30/04 20,000
7,000 Texas Petrochemicals Term B Ba3 6/30/04 6,974
2,175 Thoro World Systems, Inc. Term A NR++ 12/31/00 2,012
4,849 Thoro World Systems, Inc. Term B NR++ 12/31/02 4,485
Total Chemicals (Cost--$112,516) 111,524
Consumer 3,212 Playtex Family Products Inc. Term A Ba2 6/30/02 3,190
Products-- 29,981 Playtex Family Products Inc. Term B Ba2 6/30/02 29,775
2.12% 7,246 RTI Funding Corp. Term B NR++ 2/07/03 7,255
7,246 RTI Funding Corp. Term C NR++ 2/07/04 7,255
15,000 Revlon Consumer Products Corp. Term Ba3 9/30/00 15,009
Total Consumer Products (Cost--$62,268) 62,484
Diversified 2,740 IMO Industries, Inc. Term A Ba3 4/30/01 2,740
Manufacturing-- 3,822 IMO Industries, Inc. Term B Ba3 4/30/01 3,829
0.93% 8,437 InterMetro Industries Term B NR++ 6/30/03 8,453
6,562 InterMetro Industries Term C NR++ 6/30/04 6,581
5,940 Thermadyne Industries, Inc. Revolving Credit B2 6/30/01 5,920
Total Diversified Manufacturing (Cost--$27,465) 27,523
Drug/ 6,526 Duane Reade Co. Term A NR++ 9/30/97 6,323
Proprietary 10,000 Duane Reade Co. Term B NR++ 9/30/99 9,688
Stores-- 8,312 Smith's Food & Drug Centers, Inc. Term B Ba3 11/30/03 8,375
2.25% 8,312 Smith's Food & Drug Centers, Inc. Term C Ba3 11/30/04 8,380
8,312 Smith's Food & Drug Centers, Inc. Term D Ba3 8/31/05 8,385
15,480 Thrifty Payless Holdings, Inc. Revolving Credit B1 12/31/02 15,228
10,000 Thrifty Payless Holdings, Inc. Term A B1 12/31/02 9,922
Total Drug/Proprietary Stores (Cost--$66,439) 66,301
Electronics/ 21,450 Berg Electronics Inc. Term Ba3 12/31/02 21,423
Electrical 5,617 Communications & Power Industries Inc. Term B NR++ 8/11/02 5,610
Components-- 4,831 Details, Inc. Term A NR++ 1/31/01 4,831
3.84% 9,955 International Wire Corp. Term B NR++ 9/30/02 9,970
9,974 International Wire Corp. Term C NR++ 9/30/03 10,005
16,344 Northrop Grumman Corp. Term II NR++ 3/01/02 16,318
565 Reliance Communications Technology Revolving Credit NR++ 9/11/01 564
4,500 Reliance Communications Technology Term A NR++ 9/11/01 4,494
</TABLE>
<PAGE>
<TABLE>
SCHEDULE OF INVESTMENTS (continued)) (in Thousands)
<CAPTION>
Face Loan Moody's Stated Value
Industries Amount Borrower Type Rating Maturity* (Note 1b)
Senior Secured Floating Rate Loan Interests*
<S> <C> <S> <S> <S> <S> <C>
Electronics/ $12,893 Reliance Communications Technology Term B NR++ 3/11/04 $ 12,905
Electrical 11,903 Reliance Communications Technology Term C NR++ 3/11/03 11,914
Components 7,460 Tracor Inc. Term B Ba3 10/31/00 7,483
(concluded) 7,461 Tracor Inc. Term C Ba3 4/30/01 7,484
Total Electronics/Electrical Components (Cost--$112,613) 113,001
Food & 7,481 American Italian Pasta Term C NR++ 2/28/04 7,416
Kindred 7,500 Amerifoods Term B NR++ 6/30/01 5,625
Products-- 7,500 Amerifoods Term C NR++ 6/30/02 5,625
5.53% 3,990 Ameriking Inc. Term B NR++ 1/31/04 3,992
8,611 MAFCO Worldwide Corp. Term B NR++ 6/30/01 8,589
4,907 President Baking Co., Inc. Term B NR++ 9/30/00 4,895
13,600 SC International Corp., Inc. Caterair 'A' B2 9/15/00 13,583
8,791 SC International Corp., Inc. Caterair 'B' B2 9/15/01 8,835
14,356 SC International Corp., Inc. SCI 'A' B2 9/15/00 14,335
1,027 SC International Corp., Inc. SCI 'A2' B2 9/15/00 1,024
10,962 SC International Corp., Inc. SCI 'B' B2 9/15/02 11,016
3,024 SC International Corp., Inc. SCI 'C' B2 9/15/03 3,040
2,000 Select Beverages Inc. Term B NR++ 6/30/01 2,000
2,970 Select Beverages Inc. Term C NR++ 6/30/01 2,977
43,159 Specialty Foods Corp. Term B B3 4/30/01 43,048
7,385 Van De Kamps Inc. Term B Ba3 4/30/03 7,403
4,615 Van De Kamps Inc. Term C Ba3 9/30/03 4,627
6,652 Volume Services Term B NR++ 12/31/02 6,636
3,326 Volume Services Term C NR++ 12/31/03 3,326
4,969 Windsor Quality Food Term B NR++ 12/31/02 4,944
Total Food & Kindred Products (Cost--$165,634) 162,936
Funeral Homes 7,980 Loewen Group Inc. Revolving Credit Ba1 5/29/01 7,955
& Parlors-- 15,000 Prime Succession International Group Axel NR++ 7/25/01 15,187
0.79%
Total Funeral Homes & Parlors (Cost--$22,924) 23,142
Furniture & 4,945 Furniture Brands International Term B Ba3 3/29/03 4,966
Fixtures-- 11,370 Knoll, Inc. Term B B1 8/31/03 11,413
1.07% 15,000 Lifestyle Furnishings International Term B NR++ 8/31/04 15,038
Total Furniture & Fixtures (Cost--$31,153) 31,417
<PAGE>
General 11,719 Federated Department Stores Inc. Revolving Credit Ba1 3/31/00 11,528
Merchandise 26,677 Federated Department Stores Inc. Term Ba1 3/31/00 26,611
Stores--3.14% 2,614 Federated Department Stores Inc. Term B Ba1 3/31/00 2,607
35,000 Kmart Corp. Term A Ba1 6/17/99 35,011
4,485 Music Acquisition Term B NR++ 8/31/01 1,615
4,952 Music Acquisition Term C NR++ 8/31/02 1,783
1,902 Saks & Co. Term A NR++ 6/30/98 1,897
11,320 Saks & Co. Term B NR++ 6/30/00 11,292
Total General Merchandise Stores (Cost--$97,699) 92,344
Grocery 10,400 Big V Supermarkets Inc. Term B NR++ 3/15/00 10,244
Stores--2.28% 4,863 Bruno's, Inc. Term B B1 2/18/02 4,887
4,863 Bruno's, Inc. Term C B1 2/18/03 4,887
4,294 Dominick's Finer Foods Inc. Term B Ba2 3/31/02 4,315
4,652 Dominick's Finer Foods Inc. Term C Ba2 3/31/03 4,675
4,652 Dominick's Finer Foods Inc. Term D Ba2 9/30/03 4,675
4,530 Pathmark Stores Inc. Term B Ba3 10/31/99 4,532
3,700 Ralph's Grocery Company Revolving Credit Ba3 6/15/01 3,628
3,316 Ralph's Grocery Company Term A Ba3 6/15/01 3,318
4,860 Ralph's Grocery Company Term B Ba3 6/15/02 4,884
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS (continued)) (in Thousands)
<CAPTION>
Face Loan Moody's Stated Value
Industries Amount Borrower Type Rating Maturity* (Note 1b)
Senior Secured Floating Rate Loan Interests*
<S> <C> <S> <S> <S> <S> <C>
Grocery $ 4,859 Ralph's Grocery Company Term C Ba3 6/15/03 $ 4,879
Stores 4,859 Ralph's Grocery Company Term D Ba3 2/15/04 4,909
(concluded) 4,197 Star Markets Co., Inc. Term B Ba3 12/31/01 4,182
3,145 Star Markets Co., Inc. Term C Ba3 12/31/02 3,133
Total Grocery Stores (Cost--$66,624) 67,148
Health 16,336 Community Health Systems, Inc. Term B NR++ 12/31/03 16,376
Services-- 16,336 Community Health Systems, Inc. Term C NR++ 12/31/04 16,376
3.50% 12,329 Community Health Systems, Inc. Term D NR++ 12/31/05 12,360
3,273 Dade International, Inc. Term B B1 12/31/02 3,293
3,273 Dade International, Inc. Term C B1 12/31/03 3,297
3,455 Dade International, Inc. Term D B1 12/31/04 3,487
4,909 Medical Specialties Term NR++ 6/30/01 4,894
13,091 Medical Specialties Axel NR++ 6/30/01 13,050
6,491 Merit Behavioral Care Corp. Term A B2 4/06/02 6,465
16,009 Merit Behavioral Care Corp. Term B B2 10/06/03 16,019
3,088 OrNda Healthcare Corp. Revolving Credit NR++ 10/30/01 3,086
4,534 OrNda Healthcare Corp. Term A NR++ 10/30/01 4,536
<PAGE>
Total Health Services (Cost--$102,597) 103,239
Leasing & 19,760 Prime Acquisition Term B1 12/31/00 19,772
Rental
Services--
0.67%
Total Leasing & Rental Services (Cost--$19,675) 19,772
Manufacturing-- 10,492 Calmar Inc. Axel A B1 9/15/03 10,433
1.12% 7,869 Calmar Inc. Axel B B1 3/15/04 7,840
14,700 Trans Technology Corp. Term B NR++ 6/30/02 14,663
Total Manufacturing (Cost--$32,838) 32,936
Measuring, 9,331 CHF/Ebel USA Inc. Term B NR++ 9/30/01 9,184
Analyzing & 10,956 Graphic Controls Corp. Term B B1 9/28/03 10,976
Controlling
Instruments--
0.68%
Total Measuring, Analyzing & Controlling Instruments (Cost--$20,088) 20,160
Message 5,000 Dictaphone Co. Term B B1 6/30/02 4,800
Communications--
0.16%
Total Message Communications (Cost--$4,967) 4,800
Metals & 5,000 Anker Coal Term B NR++ 6/30/04 4,988
Mining-- 220 UCAR International Inc. Revolving Credit Ba3 12/31/01 220
0.61% 1,319 UCAR International Inc. Term A Ba3 12/31/01 1,320
11,571 UCAR International Inc. Term B Ba3 12/31/03 11,586
Total Metals & Mining (Cost--$18,076) 18,114
Packaging-- 8,625 IPC, Inc. Term B1 9/30/01 8,636
1.64% 5,800 Mail-Well, Inc./Supremex Revolving Credit Ba2 7/31/03 5,811
9,541 Mail-Well, Inc./Supremex Term B Ba2 7/31/03 9,560
7,170 Silgan Corp. Revolving Credit Ba3 12/31/00 7,166
16,794 Silgan Corp. Term B Ba3 3/15/02 16,999
Total Packaging (Cost--$47,744) 48,172
Paper-- 19,850 Crown Paper Co. Term B Ba3 8/22/03 19,949
11.70% 21,919 Fort Howard Corp. Term A Ba3 3/08/02 21,947
16,760 Fort Howard Corp. Term B Ba3 12/31/02 16,864
274 Jefferson Smurfit Company/Container
Corp. of America Revolving Credit Ba3 4/30/01 270
25,012 Jefferson Smurfit Company/Container
Corp. of America Term A Ba3 4/30/01 24,942
</TABLE>
<PAGE>
<TABLE>
SCHEDULE OF INVESTMENTS (continued)) (in Thousands)
<CAPTION>
Face Loan Moody's Stated Value
Industries Amount Borrower Type Rating Maturity* (Note 1b)
Senior Secured Floating Rate Loan Interests*
<S> <C> <S> <S> <S> <S> <C>
Paper $ 6,786 Jefferson Smurfit Company/Container
(concluded) Corp. of America Term B Ba3 4/30/01 $ 6,829
49,530 Jefferson Smurfit Company/Container
Corp. of America Term B Ba3 4/30/02 49,839
13,210 Jefferson Smurfit Company/Container
Corp. of America Term C Ba2 10/31/02 13,292
63,571 Riverwood International Corp. Term B Ba3 2/28/04 63,850
24,429 Riverwood International Corp. Term C Ba3 8/28/04 24,535
29,744 S.D. Warren Co. Term B Ba2 6/30/02 29,847
36,820 Stone Container Corp. Term B Ba3 4/01/00 36,981
25,372 Stone Container Corp. Term C Ba3 4/01/00 25,499
10,000 Stone Container Corp. Term D Ba3 10/01/03 10,050
Total Paper (Cost--$340,762) 344,694
Printing & 7,500 Advanstar Communications Term B NR++ 12/21/03 7,467
Publishing-- 21,358 American Media Term B Ba2 9/30/02 21,251
3.17% 9,312 Journal News Co. Term NR++ 12/31/01 9,289
7,000 Marvel Entertainment Group, Inc. Term B NR++ 2/28/02 6,921
3,452 Print Tech International PLC Term B NR++ 12/29/01 3,424
10,000 Treasure Chest Term NR++ 12/31/02 10,025
35,000 World Color Press, Inc. Term C B1 12/29/02 34,891
Total Printing & Publishing (Cost--$93,381) 93,268
Rendering-- 4,990 CBP Resources Inc. Term B NR++ 9/30/03 4,993
0.17%
Total Rendering (Cost--$4,954) 4,993
Security 9,920 Borg Warner Corp. Term B3 12/31/98 9,901
Systems
Services--
0.34%
Total Security Systems Services (Cost--$9,842) 9,901
Telephone 8,000 Arch Communications Group, Inc. Term B B1 12/31/03 8,027
Communica- 18,316 Comcast Corp. Term Ba3 9/30/04 18,219
tions--3.14% 808 MobileMedia Corp. Revolving Credit B1 6/30/02 801
13,034 MobileMedia Corp. Term A B1 6/30/02 13,052
1,667 MobileMedia Corp. Term B1 B1 6/30/02 1,672
9,667 MobileMedia Corp. Term B B1 6/30/03 9,637
3,333 MobileMedia Corp. Term B2 B1 6/30/03 3,343
12,712 Paging Network Inc. Revolving Credit Ba2 12/31/04 12,688
4,964 Shared Technologies Cellular, Inc. Term B B1 3/31/03 4,946
20,000 Western Wireless Corp. Term B B1 3/31/05 20,144
<PAGE>
Total Telephone Communications (Cost--$92,096) 92,529
Textiles/Mill 10,000 Polymer Group, Inc. Term A Ba3 3/31/02 9,975
Products--
0.34%
Total Textiles/Mill Products (Cost--$9,966) 9,975
Transportation 7,546 Atlas Air, Inc. Revolving Credit NR++ 6/30/98 7,532
Services-- 25,000 Continental Micronesia Axel NR++ 7/31/03 25,016
1.39% 8,373 Petro PSC Properties L.P. Term B NR++ 5/24/01 8,315
Total Transportation Services (Cost--$40,702) 40,863
Waste Manage- 5,000 American Disposal Services, Inc. Term NR++ 6/30/03 4,969
ment--0.17%
Total Waste Management (Cost--$4,969) 4,969
Total Senior Secured Floating Rate Loan Interests (Cost--$2,155,051)--73.21% 2,156,339
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS (concluded) (in Thousands)
<CAPTION>
Shares Value
Industries Held Equity Investments (Note 1b)
<S> <C> <S> <C>
Broadcast/ 1 Classic Cable, Inc. (Warrants) (a) $ --
Media--0.00%
Restaurants-- 44 Flagstar Companies, Inc. 93
0.00%
Total Equity Investments (Cost--$0)--0.00% 93
Total Long-Term Investments (Cost--$2,155,051)--73.21% 2,156,432
Short-Term Investments
Commercial American Express Credit Corp. ($40,000 par, maturing 10/11/1996, yielding 5.30%) 39,776
Paper**--25.60% CIT Group Holdings Inc. ($25,000 par, maturing 9/10/1996, yielding 5.32%) 24,974
CIT Group Holdings Inc. ($32,000 par, maturing 9/23/1996, yielding 5.35%) 31,905
CIT Group Holdings Inc. ($30,000 par, maturing 10/04/1996, yielding 5.31%) 29,863
Ciesco L.P. ($30,000 par, maturing 9/06/1996, yielding 5.40%) 29,987
Ciesco L.P. ($50,000 par, maturing 10/16/1996, yielding 5.28%) 49,685
General Electric Capital Corp. ($62,560 par, maturing 9/03/1996, yielding 5.30%) 62,560
Goldman Sachs Group L.P. ($50,000 par, maturing 9/06/1996, yielding 5.42%) 49,977
Goldman Sachs Group L.P. ($50,000 par, maturing 9/20/1996, yielding 5.28%) 49,875
<PAGE>
Goldman Sachs Group L.P. ($30,000 par, maturing 10/07/1996, yielding 5.30%) 29,850
Knight-Ridder Inc. ($48,500 par, maturing 9/23/1996, yielding 5.28%) 48,358
Monsanto Co. ($10,000 par, maturing 9/06/1996, yielding 5.40%) 9,995
National Fleet Fund, Inc. ($20,000 par, maturing 9/13/1996, yielding 5.35%) 19,970
National Fleet Fund, Inc. ($28,700 par, maturing 9/16/1996, yielding 5.40%) 28,644
National Fleet Fund, Inc. ($10,500 par, maturing 10/01/1996, yielding 5.33%) 10,456
National Fleet Fund, Inc. ($15,000 par, maturing 10/02/1996, yielding 5.29%) 14,936
Preferred Receivables Funding, Inc. ($50,225 par, maturing 9/04/1996, yielding
5.35%) 50,218
Preferred Receivables Funding, Inc. ($34,825 par, maturing 9/09/1996, yielding
5.42%) 34,794
Preferred Receivables Funding, Inc. ($30,000 par, maturing 9/10/1996, yielding
5.38%) 29,969
Shell Oil Co. ($20,000 par, maturing 9/04/1996, yielding 5.36%) 19,997
USAA Capital Corp. ($30,000 par, maturing 9/03/1996, yielding 5.40%) 30,000
Xerox Corp. ($30,000 par, maturing 9/18/1996, yielding 5.35%) 29,933
Xerox Credit Corp. ($28,600 par, maturing 10/11/1996, yielding 5.27%) 28,441
Total Commercial Paper (Cost--$754,163) 754,163
US Government Federal Home Loan Mortgage Corp. ($23,000 par, maturing 9/26/1996, yielding 5.28%) 22,922
& Agency
Obligations**--
0.78%
Total US Government & Agency Obligations (Cost--$22,922) 22,922
Total Short-Term Investments (Cost--$777,085)--26.38% 777,085
Total Investments (Cost--$2,932,136)--99.59% 2,933,517
Other Assets Less Liabilities--0.41% 12,010
----------
Net Assets--100.00% $2,945,527
==========
<FN>
(a)Warrants entitle the Fund to purchase a predetermined number of
common stock. The purchase price and numbers of share are subject to
adjustment under certain conditions until the expiration date.
++Not Rated.
Ratings of issues shown have not been audited by Deloitte &
Touche LLP.
*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, 1996.
**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.
See Notes to Financial Statements.
</TABLE>
<PAGE>
FINANCIAL INFORMATION
<TABLE>
Statement of Assets and Liabilities as of August 31, 1996
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$2,932,135,993) (Note 1b) $ 2,933,517,310
Cash 2,660,488
Receivables:
Interest $ 17,464,064
Capital shares sold 2,846,301
Commitment fees 243,999 20,554,364
----------------
Prepaid registration fees and other assets (Note 1f) 1,680,474
----------------
Total assets 2,958,412,636
----------------
Liabilities: Payables:
Dividends to shareholders (Note 1g) 3,531,978
Investment adviser (Note 2) 2,500,916
Administrator (Note 2) 658,136
Securities purchased 210,453 6,901,483
----------------
Deferred income (Note 1e) 2,944,484
Accrued expenses and other liabilities 3,039,323
----------------
Total liabilities 12,885,290
----------------
Net Assets: Net assets $ 2,945,527,346
================
Net Assets Common Stock, par value $0.10 per share; 1,000,000,000
Consist of: shares authorized $ 29,484,938
Paid-in capital in excess of par 2,922,519,503
Accumulated realized capital losses on investments--net (Note 7) (7,858,412)
Unrealized appreciation on investments--net (Note 3) 1,381,317
----------------
Net Assets--Equivalent to $9.99 per share based on 294,849,377
shares of beneficial interest outstanding $ 2,945,527,346
================
</TABLE>
<PAGE>
<TABLE>
Statement of Operations
<CAPTION>
For the Year Ended August 31, 1996
<S> <S> <C> <C>
Investment Income Interest and discount earned $ 210,982,851
(Note 1e): Facility and other fees 4,338,982
Dividends 149
----------------
Total income 215,321,982
----------------
Expenses: Investment advisory fees (Note 2) $ 25,872,222
Administrative fees (Note 2) 6,808,480
Transfer agent fees (Note 2) 1,697,281
Registration fees (Note 1f) 707,018
Accounting services (Note 2) 401,728
Professional fees 368,275
Tender offer costs 189,772
Custodian fees 189,706
Printing and shareholder reports 173,171
Borrowing costs (Note 6) 141,903
Directors' fees and expenses 47,788
Other 28,416
----------------
Total expenses 36,625,760
----------------
Investment income--net 178,696,222
----------------
Realized & Realized loss on investments--net (8,718,939)
Unrealized Change in unrealized appreciation on investments--net 1,207,962
Gain (Loss) on ----------------
Investments--Net Net Increase in Net Assets Resulting from Operations $ 171,185,245
(Notes 1c, 1e & 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: 1996 1995
<S> <S> <C> <C>
Operations: Investment income--net $ 178,696,222 $ 107,081,243
Realized gain (loss) on investments--net (8,718,939) 901,282
Change in unrealized appreciation/depreciation on
investments--net 1,207,962 (102,235)
---------------- ----------------
Net increase in net assets resulting from operations 171,185,245 107,880,290
---------------- ----------------
<PAGE>
Dividends to Investment income--net (178,696,222) (107,081,243)
Shareholders ---------------- ----------------
(Note 1g): Net decrease in net assets resulting from dividends to
shareholders (178,696,222) (107,081,243)
---------------- ----------------
Capital Share Net increase in net assets resulting from capital share
Transactions transactions 789,568,710 1,228,207,869
(Note 4): ---------------- ----------------
Net Assets: Total increase in net assets 782,057,733 1,229,006,916
Beginning of year 2,163,469,613 934,462,697
---------------- ----------------
End of year $ 2,945,527,346 $ 2,163,469,613
================ ================
</TABLE>
<TABLE>
Statement of Cash Flows
<CAPTION>
For the Year Ended
August 31, 1996
<S> <S> <C>
Cash Provided by Net increase in net assets resulting from operations $ 171,185,245
Operating Adjustments to reconcile net increase (decrease) in net assets
Activities: resulting from operations to net cash provided by operating activities:
Increase in receivables (2,336,872)
Increase in other assets (61,009)
Increase in other liabilities 5,662,709
Realized and unrealized loss on investments--net 7,510,977
Amortization of discount (45,530,880)
----------------
Net cash provided by operating activities 136,430,170
----------------
Cash Used for Proceeds from principal payments and sales of loan interests 1,502,664,427
Investing Purchases of loan interests (2,009,125,818)
Activities: Purchases of short-term investments (24,131,663,141)
Proceeds from sales and maturities of short-term investments 23,873,927,588
----------------
Net cash used for investing activities (764,196,944)
----------------
Cash Provided by Cash receipts on capital shares sold 993,247,884
Financing Cash payments on capital shares tendered (273,723,209)
Activities: Dividends paid to shareholders (89,097,413)
----------------
Net cash provided by financing activities 630,427,262
----------------
<PAGE>
Cash: Net increase in cash 2,660,488
Cash at beginning of year 0
----------------
Cash at end of year $ 2,660,488
================
Non-Cash Capital shares issued in reinvestment of dividends paid to shareholders $ 90,287,773
Financing ================
Activities:
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION (concluded)
<TABLE>
Financial Highlights
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: 1996 1995 1994 1993 1992
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of year $ 10.02 $ 10.02 $ 10.02 $ 9.99 $ 9.99
Operating -------- -------- -------- -------- --------
Performance: Investment income--net .66 .75 .59 .53 .64
Realized and unrealized gain (loss) on
investments--net (.03) --++ --++ .03 --
-------- -------- -------- -------- --------
Total from investment operations .63 .75 .59 .56 .64
-------- -------- -------- -------- --------
Less dividends from investment income--net (.66) (.75) (.59) (.53) (.64)
-------- -------- -------- -------- --------
Net asset value, end of year $ 9.99 $ 10.02 $ 10.02 $ 10.02 $ 9.99
======== ======== ======== ======== ========
Total Investment Based on net asset value per share 6.53% 7.68% 5.94% 5.74% 6.58%
Return:* ======== ======== ======== ======== ========
Ratios to Expenses, net of reimbursement 1.34% 1.34% 1.43% 1.47% 1.39%
Average ======== ======== ======== ======== ========
Net Assets: Expenses 1.34% 1.34% 1.43% 1.47% 1.41%
======== ======== ======== ======== ========
Investment income--net 6.54% 7.45% 5.75% 5.27% 6.58%
======== ======== ======== ======== ========
<PAGE>
Supplemental Net assets, end of year (in millions) $ 2,946 $ 2,163 $ 934 $ 713 $ 834
Data: ======== ======== ======== ======== ========
Portfolio turnover 80.20% 55.23% 61.31% 90.36% 46.48%
======== ======== ======== ======== ========
<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>
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, 1996 could be considered
to be concentrated in commercial banking.
(b) Valuation of investments--Until June 17, 1996, Loan Interests
were valued at fair value as determined in good faith by or under
the direction of the Board of Directors of the Fund. As of June 17,
1996, pursuant to the approval of the Board of Directors, the Loan
Interests are valued at the average of the mean between the bid
and asked quotes received from one or more brokers, if available.
<PAGE>
Other portfolio securities may be valued on the basis of prices
furnished by one or more pricing services which determine prices for
normal, institutional-size trading units of such securities using
market information, transactions for comparable securities and
various relationships between securities which are generally
recognized by institutional traders. In certain circumstances,
portfolio securities are valued at the last sale price on the
exchange that is the primary market for such securities, or the last
quoted bid price for those securities for which the over-the-counter
market is the primary market or for listed securities in which there
were no sales during the day. 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.
* 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.
(f) Prepaid registration fees--Prepaid registration fees are charged
to expense as the related shares are issued.
<PAGE>
(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
Merrill Lynch Asset Management, L.P. ("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.
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.
<PAGE>
3. Investments:
Purchases and sales of investments, excluding short-term securities,
for the year ended August 31, 1996 were $2,009,336,271 and
$1,502,664,427, respectively.
Net realized and unrealized gains (losses) as of August 31, 1996
were as follows:
Realized Unrealized
Losses Gains
Long-term investments $ (8,715,722) $ 1,381,317
Short-term investments (3,217) --
-------------- --------------
Total $ (8,718,939) $ 1,381,317
============== ==============
As of August 31, 1996, net unrealized appreciation for financial
reporting and Federal income tax purposes aggregated $1,227,650, of
which $14,145,679 is related to appreciated securities and
$12,918,029 is related to depreciated securities. The aggregate cost
of investments at August 31, 1996 for Federal income tax purposes
was $2,932,289,660.
4. Capital Share Transactions:
Transactions in capital shares were as follows:
For the Year Ended Dollar
August 31, 1996 Shares Amount
Shares sold 97,262,448 $ 973,004,146
Shares issued to share-
holders in reinvestment
of dividends 9,032,914 90,287,773
-------------- --------------
Total issued 106,295,362 1,063,291,919
Shares tendered (27,418,447) (273,723,209)
-------------- --------------
Net increase 78,876,915 $ 789,568,710
============== ==============
For the Year Ended Dollar
August 31, 1995 Shares Amount
<PAGE>
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
============== ==============
5. Unfunded Loan Interests:
As of August 31, 1996, the Fund had unfunded loan commitments of
$268,840,813 which would be extended at the option of the borrower,
pursuant to the following loan agreements:
Unfunded
Commitment
Borrower (in thousands)
Atlas Air, Inc. $17,453
Jefferson Smurfit Company/
Container Corp. of America 2,784
Federated Department Stores Inc. 50,067
Fort Howard Corp. 2,703
Gulfstream Aerospace Corp. 10,192
Huntsman Corp. 572
IMO Industries, Inc. 8,077
Johnstown America Industrial Inc. .3,080
Loewen Group, Inc. 14,520
Marcus Cable Operating Co. 8,438
MobileMedia Corp. 874
OrNda Health Corp. 2,139
Overhead Door Corp. 5,114
Paging Network Inc. 21,621
The Pullman Co., Inc. 6,526
Ralph's Grocery Company 12,550
Reliance Communications Technology 9,862
SC International Corp., Inc. 18,000
Silgan Corp. 4,780
Stone Container Corp. 30,000
Thermadyne Industries, Inc. 14,064
Thrifty Payless Holdings, Inc. 14,520
UCAR International Inc. 6,906
<PAGE>
6. Short-Term Borrowings:
On March 14, 1996, 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 .50% on the outstanding balance.
The Fund had no borrowings under this commitment during the
year ended August 31, 1996. For the year ended August 31, 1996,
facility and commitment fees aggregated $141,903.
7. Capital Loss Carryforward:
At August 31, 1996, the Fund had a net capital loss carryforward of
approximately $1,471,000, all of which expires in 2004. This amount
will be available to offset like amounts of any future taxable
gains.
8. Subsequent Event:
The Fund began a quarterly tender offer on September 17, 1996 which
concludes on October 15, 1996.
<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, 1996, 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.
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, 1996 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.
<PAGE>
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, 1996,
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.
Deloitte & Touche LLP
Princeton, New Jersey
October 18, 1996
</AUDIT-REPORT>