MERRILL LYNCH
SENIOR FLOATING
RATE FUND, INC.
[FUND LOGO]
STRATEGIC
Performance
Annual Report
August 31, 1997
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. The
Fund has the ability to leverage its Common Stock to provide Common
Stock shareholders with a potentially higher rate of return. Leverage
creates risk for Common Stock shareholders, including the likelihood of
greater volatility of net asset value and market price of Common Stock
shares, and the risk that fluctuations in short-term interest rates may
reduce the Common Stock's yield. 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 #11022 -- 8/97
MERRILL LYNCH SENIOR FLOATING RATE FUND, INC.
DEAR SHAREHOLDER
During most of the year ended August 31, 1997, Merrill Lynch Senior
Floating Rate Fund, Inc. was invested in an environment of moderate to
strong economic growth with little sign of inflation. After raising the
target Federal Funds rate by 25 basis points (0.25%) in March, the
Federal Reserve Board (FRB) held short-term interest rates steady
throughout the remainder of the August period. Strong economic growth
failed to ignite inflation, allowing the FRB to maintain stable monetary
policy. However, the Treasury bond market experienced significant
volatility during the August quarter. Treasury bonds responded
negatively to economic strength and inflationary fears during the second
calendar quarter of 1997, pushing the ten-year Treasury bond above 6.35%
by mid-July. However, with increasing investor confidence in the
economy's ability to grow without sparking inflation and bi-partisan
efforts to balance the Federal budget, the yield on the ten-year
Treasury bond rallied again to 6.10% by the end of September. Increasing
evidence of noninflationary economic growth, together with continued
strong corporate earnings, helped produce a significant rally in the US
stock market. The Dow Jones Industrial Average and the Standard & Poor's
500 Index both traded to record levels by late summer.
Current consensus expectations are for the US economy's rate of growth
to continue at a pace below the first quarter gross domestic product
(GDP) growth of 5.9%. However, the 3.3% rate generated in the second
quarter still reflects a strong economy. Currently, inflationary
pressures remain contained, supported by recent labor and unemployment
reports showing moderate growth in wages along with a slight increase in
unemployment. It remains to be seen whether economic activity
moderates enough to rule out future FRB monetary policy tightenings.
At August 31, 1997, over 98% of the Fund's investments in corporate
loans were 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. A steady inflow of cash from new subscriptions pushed down the
Fund's yield in the first half of the fiscal year. However, yields
bounced back later in the second half of the Fund's fiscal year as the
primary transaction flow improved and the Fund's cash position was
substantially reduced through primary and secondary purchases.
Meanwhile, the three-month LIBOR traded in a relatively narrow range of
5.50%--5.85% during the year, even with long-term interest rates
exhibiting more volatility. At August 31, 1997, it was trading at 5.72%,
and the average LIBOR reset on the Fund's investments was 37 days. The
yield typically reflects any sustained decrease or increase in short-
term interest rates within a one-month--two-month period, depending on
the Fund's cash position.
Fund Performance
With this interest rate environment and strong economic growth as a
backdrop, Merrill Lynch Senior Floating Rate Fund, Inc. ended the year
with approximately $2.6 billion out of $2.9 billion, or 85.8%, 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 $2.5 billion, or
81.0%, invested in corporate loan interests.
The Fund's effective net annualized yield for the 12-month period ended
August 31, 1997 was 6.70%, compared to a yield of 6.59% for the prior
year. The Fund's net asset value continued to remain relatively stable
throughout the year but moved up as particular credits, such as Camelot
Music, saw their trading values increase as they went through the
restructuring process. During the year ended August 31, 1997, the Fund
earned $0.669 per share income dividends, representing a net annualized
yield of 6.70%, based on a month-end per share net asset value of
$10.02. For the year ended August 31, 1997, the Fund's total investment
return was +7.23%, based on a change in net asset value from $9.99 to
$10.02, and assuming reinvestment of $0.668 per share income dividends.
Since inception (November 3, 1989) through August 31, 1997, the Fund's
total investment return was +71.96%, based on a change in per share net
asset value from $10.00 to $10.02, and assuming reinvestment of $5.404
per share income dividends.
Investment Activities
The Fund's investment strategy remained unchanged: to invest in
leveraged transactions in which borrowers have strong market share,
experienced management, consistent cashflows and appropriate risk/reward
in the form of its 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 --
Riverwood International Corp., Jefferson Smurfit Company/Container Corp.
of America, and Nextel Communications, Inc. -- are examples of the type
of names that fit this investment philosophy. The advantages of adhering
to this strategy are borne out by both the relative stability of the
Fund's net asset value and the continued flexibility of our borrowers to
access capital markets.
In our opinion, a stable economy and relatively low cost of carry for
debt helped maintain reasonably strong credit fundamentals in the bank
loan market. In most industries, including cyclicals, prices remained
firm based on strong underlying collateral value, as well as a dearth of
sellers as investors were reluctant to part with high-coupon senior
secured paper that could not be replaced. Paper companies, particularly
those involved in market pulp, newsprint and fresh sheet ungrounded, saw
prices slide earlier in the year and then rebound strongly with price
increases late in the year. With the continued merger and acquisition
activity, pricing in both the cable and telecommunications area
continued to tighten through the end of the period. Media and
communications issuers initially extended the rally that began with the
1996 Telecommunications Act. However, abundant supply driven by huge
capital needs for network development negatively impacted returns late
in the year. The domestic cable sector, previously under some pressure,
benefited from a $1 billion investment by Microsoft
Corp. in Comcast Corp.
As evidenced by the number of investments in the portfolio, the Fund has
become more varied by sector and by actual number of issuers. This is in
part by design to help lessen credit exposure to any one holding, but it
is also caused by the number of investors in the market today. This
resulted in smaller allocations in our market, continued strong demand
and improved liquidity. We expect these trends to continue for the
foreseeable future.
During the last six months, we were faced with the challenge of staying
fully invested in a market characterized by numerous refinancings that
were driven by the extremely strong public debt and equity markets. During
the most recent quarter, refinancings included names such as Chancellor
Broadcasting, Inc., Furniture Brands International, Playtex Family
Products Inc., International Wire Group, Inc. and Outdoor Systems, Inc.
Finally, we continued to be selective in investing in new leveraged
transactions coming to the market during the course of the year. Examples
include our investments in Continental Airlines, Inc. and Huntsman Corp.
Merger and acquisition financings included such names as Hedstrom Corp.,
Snapple Beverage Corp. and KSL Recreation Group, Inc. We purchased over
$359.8 million in loans in the primary market and over $117.6 million in
the secondary market. This was offset by the sale of $172.3 million in
investments and the full or partial prepayment of over $434.5 million
during the three months ended August 31, 1997.
High-yield loan markets benefited from a strong economy and generally
solid capital markets during the August quarter. Growth enhanced credit
quality, leading to improving credit statistics and low default rates.
Leveraged loan mutual funds experienced record inflows, and other
institutional investors increased allocations to floating rate loans,
attracted by high yields and perceived low credit risk. Demand for bank
loans again outpaced supply, even though 1997 year-to-date leveraged
loan new-issue volume of $65.5 billion has surpassed 1996's volume by
6%. Insufficient new-issue supply caused many loan buyers to turn to the
secondary market, contributing to strong loan liquidity and bids above
par for performing term loans. Both LIBOR spreads and upfront fees came
down as a result. However, the actual credit structures of the
transactions brought to market continued to be strong relative to
transactions generated in the late 1980s, when compared on the basis of
equity invested and coverage ratios. Most high-yield loans appear fully
valued as reflected by the historically tight spreads over LIBOR.
However, continued low default rates and strong technicals are likely to
keep spreads tight though the remainder of the year.
At August 31, 1997, the Fund was invested in 190 borrowers across 43
industries. The largest industry concentrations were paper (9.4% of
total assets); broadcast -- radio and TV (6.2%); health services (5.9%);
telephone communications (5.4%); and cable TV services (5.3%). The
average loan size equaled $14.3 million, or 0.48% of net assets. The
largest individual credit exposures were Riverwood International Corp.
($99.3 million; 3.3% of net assets); Jefferson Smurfit Company/Container
Corp. of America ($94.1 million; 3.2%); Nextel Communications, Inc.
($80.3 million; 2.7%); Huntsman Corp. ($75.9 million; 2.69%); Evergreen
Media Corp. ($74.8 million; 2.5%); and AMF Group, Inc. ($70.4 million;
2.4%).
The Fund completed its latest quarterly tender offer on July 15, 1997
with 11.1 million shares tendered and accepted for repurchase. The next
tender began on September 23, 1997 and concludes on October 21, 1997.
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,
/S/ARTHUR ZEIKEL
Arthur Zeikel
President
/S/R. DOUGLAS HENDERSON
R. Douglas Henderson
Vice President and Portfolio Manager
October 17, 1997
THE BENEFITS AND RISKS OF LEVERAGING
Merrill Lynch Senior Floating Rate Fund, Inc. has the ability to utilize
leverage through the borrowings or issuance of short-term debt
securities or shares of Preferred Stock. The concept of leveraging is
based on the premise that the cost of assets to be obtained from
leverage will be based on short-term interest rates, which normally will
be lower than the return earned by the fund on its longer-term portfolio
investments. Since the total assets of the Fund (including the assets
obtained from leverage) are invested in higher-yielding portfolio
investments, the Fund's Common Stock shareholders are the beneficiaries
of the incremental yield. Should the differential between the underlying
interest rates narrow, the incremental yield "pick up" will be reduced.
Furthermore, if long-term interest rates rise, the Common Stock's net
asset value will reflect the full decline in the entire portfolio
holdings resulting therefrom since the assets obtained from leverage do
not fluctuate.
Leverage creates risks for holders of Common Stock including the
likelihood of greater net asset value and market price volatility. In
addition, there is the risk that fluctuations in interest rates on
borrowings (or in the dividend rates on any Preferred Stock, if the Fund
were to issue the Preferred Stock) may reduce the Common Stock's yield
and negatively impact its market price. If the income derived from
securities purchased with assets received from leverage exceeds the cost
of leverage, the Fund's net income will be greater than if leverage had
not been used. Conversely, if the income from the securities purchased
is not sufficient to cover the cost of leverage, the Fund's net income
will be less than if leverage had not been used, and therefore the
amount available for distribution to Common Stock shareholders will be
reduced. In this case, the Fund may nevertheless decide to maintain its
leveraged position in order to avoid capital losses on securities
purchased with leverage. However, the Fund will not generally utilize
leverage if it anticipates that its leveraged capital structure would
result in a lower rate of return for its Common Stock than would be
obtained if the Common Stock were unleveraged for any significant amount
of time.
<TABLE>
<CAPTION>
Merrill Lynch Senior Floating Rate Fund, Inc. August 31, 1997
SCHEDULE OF INVESTMENTS (in Thousands)
Face Loan S&P Moody's Stated Value
Industries Amount Borrower Type Rating Rating Maturity Cost (Note 1a)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Senior Secured Floating Rate Loan Interests*
Advertising -- $471 Katz Media Corporation Reducing
0.7% Revolver NR+ Ba3 9/30/03 $472 $471
2,143 Katz Media Corporation Term A NR+ Ba3 9/30/03 2,140 2,146
6,633 Katz Media Corporation Term B NR+ Ba3 12/31/04 6,618 6,658
7,500 Outdoor Systems, Inc. Term NR+ NR+ 6/30/04 7,485 7,537
5,000 Outdoor Systems, Inc. Canadian
Term Loan NR+ NR+ 6/30/04 4,990 5,025
--------- ---------
Total Advertising 21,705 21,837
========= =========
Aerospace -- 0.3% 5,168 Whittaker Corporation Revolving
Credit NR+ NR+ 4/09/01 5,168 5,175
3,825 Whittaker Corporation Term NR+ NR+ 4/09/01 3,773 3,829
--------- ---------
Total Aerospace 8,941 9,004
========= =========
Air Transport -- 3,600 Continental Airlines, Inc. Term A BB- NR+ 7/31/02 3,595 3,586
0.3% 6,400 Continental Airlines, Inc. Term B BB- NR+ 7/31/04 6,400 6,396
--------- ---------
Total Air Transport 9,995 9,982
========= =========
Aircraft & 5,060 Aerostructures Hamble Holdings PLC Term B NR+ NR+ 9/30/03 5,037 5,089
Parts -- 2.2% 1,840 Aerostructures Hamble Holdings PLC Term C NR+ NR+ 9/30/04 1,832 1,850
9,783 Alliant Techsystems, Inc. Term NR+ Ba2 3/15/01 9,775 9,783
4,950 Banner Industries, Inc. Term B NR+ NR+ 6/30/03 4,928 4,941
7,494 Evergreen International Aviation, Inc. Term B NR+ Ba3 5/31/03 7,458 7,461
24,583 Gulfstream Aerospace Corp. Term NR+ NR+ 9/30/02 24,540 24,614
4,975 Mag Aerospace Term B NR+ NR+ 12/06/01 4,942 4,956
2,970 Technetics Term A NR+ NR+ 6/20/02 2,951 2,961
5,000 Tri Star Inc. Term NR+ NR+ 9/30/03 4,954 4,975
--------- ---------
Total Aircraft & Parts 66,417 66,630
========= =========
Amusement & 4,263 AMF Group, Inc. Revolving
Recreational Credit NR+ Ba3 3/31/02 4,263 4,263
Services -- 5.2% 9,929 AMF Group, Inc. Axel A NR+ Ba3 3/31/03 10,043 10,053
19,813 AMF Group, Inc. Axel B NR+ Ba3 3/31/04 19,844 20,110
2,453 AMF Group, Inc. Term NR+ Ba3 3/31/02 2,448 2,462
21,283 AMF Group, Inc. Term B NR+ Ba3 3/31/03 21,238 21,549
3,039 AMF Group, Inc. Term C1 NR+ Ba3 3/31/02 3,058 3,050
2,862 AMF Group, Inc. Term C1 NR+ Ba3 3/31/03 2,905 2,898
2,106 AMF Group, Inc. Term C2 NR+ Ba3 3/31/04 2,137 2,137
4,125 Amfac Parks, Inc. Term B NR+ NR+ 9/30/02 4,092 4,112
5,000 Fitness Holdings Term NR+ NR+ 12/31/00 4,971 4,981
7,143 KSL Recreation Group, Inc. Revolving
Credit NR+ B2 4/30/04 7,143 7,214
7,750 KSL Recreation Group, Inc. Term A NR+ B2 4/30/05 7,773 7,828
7,750 KSL Recreation Group, Inc. Term B NR+ B2 4/30/06 7,773 7,828
6,283 Kerastotes Revolving
Credit NR+ NR+ 12/31/03 6,283 6,251
3,677 Kerastotes Term NR+ NR+ 12/31/04 3,647 3,666
14,888 Metro Goldwyn Mayer Co. Term B NR+ Ba3 3/31/04 14,786 14,962
872 Six Flags Entertainment Corp. Term NR+ Ba3 10/28/01 872 873
5,496 Six Flags Entertainment Corp. Term A NR+ Ba3 10/28/01 5,510 5,510
17,473 Six Flags Entertainment Corp. Term B NR+ Ba3 6/23/03 17,404 17,604
7,500 Vail Corporation Term B NR+ NR+ 4/15/04 7,490 7,519
--------- ---------
Total Amusement & Recreational Services 153,680 154,870
========= =========
Apparel -- 1.2% 4,571 CS Brooks Canada Axel A NR+ NR+ 6/30/02 4,551 4,548
10,157 CS Brooks Canada Axel B NR+ NR+ 6/30/04 10,114 10,106
9,683 Humphreys Inc. Term B NR+ NR+ 1/15/03 9,683 9,683
5,000 Renfro Corp. Term B NR+ NR+ 1/15/03 4,977 4,994
6,237 William Carter Co. (The) Term BB- Ba3 10/31/03 6,209 6,237
--------- ---------
Total Apparel 35,534 35,568
========= =========
Automotive 4,000 American Bumper Term B NR+ NR+ 10/31/02 3,990 4,015
Equipment -- 23,731 Collins & Aikman Corp. Term B B+ B1 12/31/02 23,635 23,790
1.7% 385 Johnstown America Industrial Inc. Revolving
Credit NR+ B1 3/31/02 385 375
19,001 Johnstown America Industrial Inc. Term B NR+ B1 3/31/03 18,925 18,639
5,000 Safelite Glass Corp. Term B BB- Ba3 9/08/04 4,982 5,028
--------- ---------
Total Automotive Equipment 51,917 51,847
========= =========
Broadcast -- 5,593 American Radio Systems Corp. Revolving
Radio & TV -- Credit B+ Ba2 12/31/04 5,593 5,588
6.2% 3,905 Benedek Broadcasting Corp. Axel A B+ Ba3 5/01/01 3,894 3,896
4,200 Benedek Broadcasting Corp. Axel B B+ Ba3 11/01/02 4,187 4,190
480 Chancellor Broadcasting, Inc. Revolving
Credit NR+ Ba2 6/26/04 480 479
12,000 Chancellor Broadcasting, Inc. Term NR+ Ba2 6/26/04 11,956 11,985
4,613 Citicasters Inc. (Jacor) Term B BB- Ba2 9/17/04 4,592 4,608
7,371 Evergreen Media Corp. Revolving
Credit NR+ NR+ 6/30/05 7,371 7,325
53,571 Evergreen Media Corp. Term NR+ NR+ 6/30/05 53,391 53,471
8,261 Latin Communications Term NR+ NR+ 3/31/04 8,211 8,235
10,000 Sinclair Broadcasting Group Inc. Term B NR+ Ba2 12/31/04 9,985 10,000
9,193 Sullivan Broadcasting Term B NR+ Ba3 12/31/03 9,164 9,175
46,682 Viacom, Inc. Term NR+ Ba2 7/01/02 46,622 46,639
20,000 Western Wireless Corp. Term B B+ B1 3/31/05 20,000 20,119
--------- ---------
Total Broadcast -- Radio & TV 185,446 185,710
========= =========
Building & Con- 4,447 Fenway Holdings, Inc. Term B NR+ NR+ 9/15/02 4,421 4,395
struction -- 0.1% --------- ---------
Total Building & Construction 4,421 4,395
========= =========
Building 3,750 Amerimax Term C NR+ NR+ 6/30/04 3,745 3,750
Materials -- 3.0% 4,190 Behr Process Term B NR+ NR+ 3/31/04 4,184 4,190
2,793 Behr Process Term C NR+ NR+ 3/31/05 2,789 2,796
3,695 Dal Tile International Inc. Revolving
Credit NR+ NR+ 12/31/02 3,695 3,665
4,143 Dal Tile International Inc. Term NR+ NR+ 12/31/02 4,138 4,121
27,000 Dal Tile International Inc. Term B NR+ NR+ 12/31/03 26,868 26,916
2,521 Euramax Holdings Term B NR+ NR+ 6/30/04 2,518 2,521
5,000 Falcon Building Products, Inc. Term NR+ B1 6/30/05 4,980 5,006
29,875 National Gypsum Co. Term B NR+ Ba3 9/20/03 29,824 29,987
8,248 Walter Industrials, Inc. Term B NR+ NR+ 2/22/03 8,234 8,263
--------- ---------
Total Building Materials 90,975 91,215
========= =========
Cable TV 6,000 Cablevision of Ohio Term NR+ Ba2 12/31/05 5,987 5,992
Services -- 5.4% 24,375 Chelsea Communications Term B NR+ NR+ 12/31/04 24,278 24,322
17,081 Classic Cable Inc. Term B NR+ B1 6/30/05 16,911 16,568
18,683 Coaxial Communications Term B NR+ NR+ 12/31/99 18,627 18,497
5,000 FrontierVision Operating Partners L.P. Term B NR+ Ba3 6/30/05 4,972 5,000
10,000 Intermedia Communications, Inc. Term NR+ Ba3 1/01/05 9,977 10,038
3,193 Marcus Cable Operating Co. Revolving
Credit NR+ NR+ 4/30/14 3,193 3,177
30,625 Marcus Cable Operating Co. Term A NR+ NR+ 12/31/02 30,521 30,644
35,750 Marcus Cable Operating Co. Term B NR+ NR+ 4/30/04 35,483 35,951
10,000 Triax Midwest Term B NR+ NR+ 6/30/05 9,942 9,997
--------- ---------
Total Cable TV Services 159,891 160,186
========= =========
Casinos -- 0.2% 5,293 Alliance Gaming Corp. Term B NR+ NR+ 1/31/05 5,294 5,336
1,392 Alliance Gaming Corp. Term C NR+ NR+ 7/31/05 1,392 1,404
--------- ---------
Total Casinos 6,686 6,740
========= =========
Chemicals -- 5.3% 8,890 Aztar Corporation Revolving
Credit NR+ NR+ 12/31/99 8,890 8,890
4,140 Aztar Corporation Term NR+ NR+ 12/31/99 4,142 4,137
11,396 Cedar Chemical Term B NR+ NR+ 10/31/03 11,321 11,368
4,988 Exide Corporation Term D NR+ NR+ 6/15/01 4,988 4,994
2,189 HSC Holdings Revolving
Credit NR+ NR+ 12/31/99 2,189 2,184
3,350 HSC Holdings Term NR+ NR+ 12/31/99 3,335 3,342
2,886 Harris Specialty Chemicals Revolving
Credit NR+ NR+ 12/30/01 2,886 2,897
219 Harris Specialty Chemicals Term A NR+ NR+ 12/30/00 219 220
226 Harris Specialty Chemicals Term A NR+ NR+ 12/30/01 226 227
602 Harris Specialty Chemicals Term B NR+ NR+ 12/30/99 601 605
2,447 Harris Specialty Chemicals Term B NR+ NR+ 12/30/01 2,437 2,457
35,990 Huntsman Corp. Term A NR+ NR+ 12/31/02 35,962 35,934
5,000 Huntsman Corp. Term B NR+ NR+ 3/15/04 4,995 5,050
14,850 Huntsman Corp. Term B NR+ NR+ 12/31/05 14,800 14,850
15,000 Huntsman Corp. Term B NR+ NR+ 6/30/04 15,000 15,103
5,000 Huntsman Corp. Term C NR+ NR+ 3/15/05 4,995 5,050
8,000 Pioneer Americas Acquisition Corp. Term NR+ NR+ 12/5/06 8,069 8,077
24,143 Sterling Chemicals, Inc. Term B NR+ Ba3 9/30/04 24,033 24,173
6,611 Texas Petrochemicals Corp. Term B NR+ Ba3 6/30/04 6,589 6,595
1,047 Thoro World Systems, Inc. Term A NR+ NR+ 12/30/00 1,042 1,051
1,422 Thoro World Systems, Inc. Term B NR+ NR+ 12/30/01 1,413 1,427
--------- ---------
Total Chemicals 158,132 158,631
========= =========
Computer-Related 7,000 Anacomp, Inc. Term NR+ B2 3/31/01 6,969 7,057
Services & 11,000 DecisionOne Corp. Term B NR+ B1 8/07/05 10,983 10,986
Products -- 1.4% 7,417 Fairchild Semiconductors Corp. Term B NR+ Ba3 3/11/03 7,399 7,473
12,438 Phase Metrics Term NR+ NR+ 11/12/01 12,383 12,189
5,000 Triad Systems Corp. Term NR+ NR+ 2/27/03 4,971 4,953
--------- ---------
Total Computer-Related Services & Products 42,705 42,658
========= =========
Consumer 615 E & S Holdings Corp. Revolving
Products -- Credit NR+ B1 9/30/03 615 615
1.8% 2,059 E & S Holdings Corp. Term NR+ B1 9/30/03 2,059 2,059
5,172 Hedstrom Corp. Term A NR+ B1 6/30/03 5,147 5,153
15,000 Playtex Family Products Inc. Term B NR+ Ba2 9/15/03 14,926 15,112
7,228 RTI Funding Corp. (Ritvik Toys) Term B NR+ NR+ 2/07/03 7,168 7,255
7,228 RTI Funding Corp. (Ritvik Toys) Term C NR+ NR+ 2/07/04 7,165 7,255
15,000 Revlon Consumer Products Corp. Term NR+ NR+ 5/30/02 14,988 15,007
--------- ---------
Total Consumer Products 52,068 52,456
========= =========
Diversified 1,712 Ameriserve Food Corp. Term A NR+ NR+ 6/30/03 1,721 1,722
Manufacturing -- 5,000 Sarah Michael Term B NR+ NR+ 6/30/04 5,000 5,000
0.5% 7,490 Thermadyne Industries, Inc. Revolving
Credit NR+ Ba3 6/30/01 7,490 7,490
--------- ---------
Total Diversified Manufacturing 14,211 14,212
========= =========
Drilling -- 0.3% 4,676 IRI International Term A NR+ NR+ 3/31/02 4,660 4,702
4,846 Rigco North America Term NR+ NR+ 9/30/98 4,832 4,871
--------- ---------
Total Drilling 9,492 9,573
========= =========
Drug/Proprietary 204 Duane Reade Co. Term A NR+ NR+ 9/30/98 204 204
Stores -- 0.9% 10,000 Duane Reade Co. Term B NR+ NR+ 9/30/99 9,953 9,987
8,366 Smith's Food & Drug Centers, Inc. Term A NR+ NR+ 3/31/05 8,356 8,369
9,574 Smith's Food & Drug Centers, Inc. Term B NR+ NR+ 3/31/05 9,563 9,586
--------- ---------
Total Drug/Proprietary Stores 28,076 28,146
========= =========
Electronics/ 7,275 Amphenol Corp. Term B NR+ Ba3 3/31/02 7,390 7,364
Electrical 6,911 Amphenol Corp. Term C NR+ Ba3 3/31/03 7,021 7,000
Components -- 2,986 Circo Craft Co. (Viasystems) Term B NR+ NR+ 6/30/04 2,976 2,997
2.2% 1,800 Circo Craft Co. (Viasystems) Term C NR+ NR+ 6/30/05 1,794 1,807
5,550 Communications & Power Industries Inc. Term B NR+ NR+ 8/11/02 5,507 5,564
4,089 Details, Inc. Term A NR+ NR+ 1/31/01 4,066 4,076
2,957 Dictaphone Corp. Revolving
Credit B- B1 3/31/01 2,957 2,817
2,870 Dictaphone Corp. Term A B- B1 3/31/01 2,818 2,769
20,000 International Wire Group, Inc. Term B NR+ B1 9/30/03 19,981 20,040
1,364 L-3 Communications Corp. Term A NR+ Ba3 3/31/03 1,361 1,381
2,494 L-3 Communications Corp. Term B NR+ Ba3 3/31/05 2,490 2,526
1,645 L-3 Communications Corp. Term C NR+ Ba3 3/31/06 1,641 1,665
7,000 Telex Communications, Inc. Term B NR+ Ba3 11/30/04 6,983 7,048
--------- ---------
Total Electronics/Electrical Components 66,985 67,054
========= =========
Entertainment -- 4,500 Moovies Inc. Term A NR+ NR+ 3/31/02 4,500 4,500
0.2% --------- ---------
Total Entertainment 4,500 4,500
========= =========
Financial 14,842 Outsourcing Solutions Inc. Term B NR+ B1 10/15/03 14,774 14,888
Services -- 0.5% --------- ---------
Total Financial Services 14,774 14,888
========= =========
Food & Kindred 7,369 American Italian Pasta Company Term C NR+ NR+ 2/26/04 7,303 7,378
Products -- 2,945 Del Monte Corp. Revolving
4.7% Credit NR+ B2 3/31/03 2,945 2,945
3,273 Del Monte Corp. Term A NR+ B2 3/31/03 3,273 3,285
5,100 Del Monte Corp. Term B NR+ B2 3/31/05 5,095 5,145
17,418 Favorite Brands International Term B NR+ NR+ 8/30/04 17,345 17,461
163 International Homefoods, Inc. Revolving
Credit NR+ Ba3 3/31/03 163 163
3,983 International Homefoods, Inc. Term A NR+ Ba3 3/31/03 4,003 3,994
15,000 International Homefoods, Inc. Term B NR+ Ba3 9/30/04 14,940 15,088
2,500 Mistic Beverage, Inc. Term B NR+ NR+ 6/01/04 2,488 2,513
2,500 Mistic Beverage, Inc. Term C NR+ NR+ 6/01/05 2,488 2,513
4,609 President Baking Co., Inc. Term B NR+ NR+ 9/30/00 4,590 4,616
3,358 Rykoff-Sexton, Inc. Term B BB- Ba3 10/31/02 3,358 3,364
1,611 Rykoff-Sexton, Inc. Term C BB- Ba3 4/30/03 1,611 1,614
1,960 Select Beverages Inc. Term B NR+ NR+ 6/30/01 1,946 1,963
2,910 Select Beverages Inc. Term C NR+ NR+ 6/30/02 2,890 2,919
7,500 Snapple Beverage Corp. Term B NR+ NR+ 6/01/04 7,463 7,537
7,500 Snapple Beverage Corp. Term C NR+ NR+ 6/01/05 7,463 7,537
23,057 Specialty Foods Inc. Term B NR+ B3 4/30/01 22,958 23,005
7,062 Van De Kamps Inc. Term B NR+ Ba3 4/30/03 7,031 7,097
4,431 Van De Kamps Inc. Term C NR+ Ba3 9/30/03 4,411 4,453
6,617 Volume Services Term B NR+ B2 12/31/02 6,563 6,617
3,312 Volume Services Term C NR+ B2 12/31/03 3,284 3,312
4,844 Windsor Quality Food Term B NR+ NR+ 12/31/02 4,823 4,783
--------- ---------
Total Food & Kindred Products 138,434 139,302
========= =========
Funeral Homes & 15,448 Loewen Group Inc. Revolving
Parlors -- 1.3% Credit NR+ Ba1 5/29/01 15,448 15,410
14,833 Prime Succession International Group Axel A BB- NR+ 8/01/03 14,784 15,019
6,907 Rose Hills Acquisition Corp. Axel A BB NR+ 12/01/03 6,891 7,010
--------- ---------
Total Funeral Homes & Parlors 37,123 37,439
========= =========
Furniture & 9,978 Lifestyle Furnishings International
Fixtures -- 0.3% Ltd. Term NR+ Ba2 6/27/07 9,978 10,028
--------- ---------
Total Furniture & Fixtures 9,978 10,028
========= =========
General 8,458 CSK Auto Inc. Term NR+ Ba3 10/31/03 8,409 8,513
Merchandise 1,000 Kmart Corp. Revolving
Stores -- 0.7% Credit BB+ B1 1/06/00 1,000 999
1,938 Music Acquisition Term B NR+ NR+ 8/31/01 1,912 1,288
7,500 Music Acquisition Term C NR+ NR+ 8/31/02 7,400 4,988
5,000 Sneaker Stadium Term NR+ NR+ 12/31/02 5,000 5,000
--------- ---------
Total General Merchandise Stores 23,721 20,788
========= =========
Grocery -- 1.6% 10,400 Big V Supermarkets Inc. Term B NR+ NR+ 3/15/00 10,326 10,296
3,120 Bruno's, Inc. Revolving
Credit NR+ B1 6/02/03 3,120 3,038
4,000 Bruno's, Inc. Term B NR+ B1 6/02/05 3,990 3,980
806 Carr Gottstein Foods Co. Revolving
Credit NR+ NR+ 6/30/01 806 806
2,499 Carr Gottstein Foods Co. Term A NR+ B1 6/30/01 2,503 2,509
3,546 Carr Gottstein Foods Co. Term B NR+ B1 12/31/02 3,553 3,572
2,971 Ralph's Grocery Company Revolving
Credit NR+ Ba3 2/15/03 2,971 2,964
4,952 Ralph's Grocery Company Term A NR+ Ba3 2/15/03 4,941 4,969
6,983 Ralph's Grocery Company Term B NR+ Ba3 2/15/04 6,974 7,044
4,184 Star Markets Co., Inc. Term B NR+ Ba3 12/31/01 4,170 4,174
3,132 Star Markets Co., Inc. Term C NR+ Ba3 12/31/02 3,120 3,120
--------- ---------
Total Grocery 46,474 46,472
========= =========
Health 16,212 Community Health Systems, Inc. Term B NR+ NR+ 12/31/03 16,140 16,263
Services -- 5.9% 16,212 Community Health Systems, Inc. Term C NR+ NR+ 12/31/04 16,139 16,263
12,205 Community Health Systems, Inc. Term D NR+ NR+ 12/31/05 12,149 12,259
5,001 Corning/Quest Term A NR+ NR+ 12/06/02 4,989 5,007
3,252 Dade International, Inc. Term B NR+ B1 12/31/02 3,235 3,256
3,252 Dade International, Inc. Term C NR+ B1 12/31/03 3,235 3,256
3,433 Dade International, Inc. Term D NR+ B1 12/31/04 3,413 3,451
7,500 Endo Pharmaceuticals Term B NR+ NR+ 6/30/04 7,485 7,533
5,000 FPA Medical Management, Inc. Term NR+ NR+ 9/30/01 4,993 5,000
8,069 Horizons/CMS Revolving
Credit NR+ NR+ 3/31/03 8,069 8,067
2,447 Imed Corp. (Alaris) Term B BB- B1 11/30/03 2,441 2,472
2,447 Imed Corp. (Alaris) Term C BB- B1 11/30/04 2,441 2,473
2,303 Imed Corp. (Alaris) Term D BB- B1 11/30/05 2,297 2,327
9,905 MEDIQ, Inc. Term B B+ NR+ 9/30/04 9,850 9,911
13,009 Medical Specialties Axel NR+ NR+ 6/30/04 12,935 12,977
4,786 Medical Specialties Term NR+ NR+ 6/30/01 4,762 4,774
6,491 Merit Behavioral Care Corp. Term A NR+ B2 6/01/03 6,451 6,485
15,849 Merit Behavioral Care Corp. Term B NR+ B2 4/06/02 15,783 15,893
35,000 National Medical Care Inc. Term BB Ba1 9/30/03 34,888 34,869
5,000 Prime Medical Services, Inc. Term B NR+ NR+ 4/30/03 4,982 5,005
--------- ---------
Total Health Services 176,677 177,541
========= =========
Hotels & 3,125 Capstar Hotel Company Term B NR+ NR+ 6/30/04 3,125 3,142
Motels -- 0.8% 5,130 Doubletree Corporation Term B NR+ NR+ 5/15/04 5,112 5,159
2,424 Westin Hotels Ltd. Revolving
Credit NR+ NR+ 2/08/02 2,424 2,429
13,576 Westin Hotels Ltd. Term NR+ NR+ 2/08/02 13,544 13,601
--------- ---------
Total Hotels & Motels 24,205 24,331
========= =========
Industrial 8,955 Elis/Omni Axel NR+ NR+ 10/30/05 8,944 9,179
Services -- 0.3% --------- ---------
Total Industrial Services 8,944 9,179
========= =========
Leasing & Rental 2,978 Brand Scaffold Term B NR+ NR+ 9/30/03 2,964 2,987
Services -- 0.6% 1,985 Brand Scaffold Term C NR+ NR+ 9/30/04 1,975 1,993
12,959 Coinmachine Corp. Term B NR+ NR+ 6/30/04 12,923 13,056
--------- ---------
Total Leasing & Rental Services 17,862 18,036
========= =========
Manufacturing -- 10,386 Calmar Inc. Axel A NR+ B1 9/15/03 10,344 10,374
2.0% 7,790 Calmar Inc. Axel B NR+ B1 3/15/04 7,757 7,809
10,000 Polyfibron Technologies Term B NR+ NR+ 12/28/03 10,000 10,000
2,757 Rayovac Corp. Term B NR+ Ba3 9/30/03 2,751 2,776
2,757 Rayovac Corp. Term C NR+ Ba3 9/30/04 2,751 2,779
5,000 Russell Stanley Term B NR+ NR+ 6/30/05 4,981 5,050
701 Trans Technology Corp. Revolving
Credit NR+ NR+ 3/31/02 701 698
1,715 Trans Technology Corp. Term A NR+ NR+ 3/31/02 1,715 1,715
14,400 Trans Technology Corp. Term B NR+ NR+ 6/30/02 14,282 14,418
1,277 Walls Industries Term B NR+ NR+ 2/28/05 1,277 1,277
1,723 Walls Industries Term C NR+ NR+ 2/28/06 1,723 1,723
--------- ---------
Total Manufacturing 58,282 58,619
========= =========
Measuring, 9,331 CHF/Ebel USA Inc. Term B NR+ NR+ 9/30/01 9,331 9,331
Analyzing & 10,840 Graphic Controls Corp. Term B NR+ B1 9/28/03 10,794 10,867
Controlling 5,000 Packard Bioscience Co. Term NR+ Ba3 3/31/03 4,982 5,013
Instruments --
0.8% --------- ---------
Total Measuring, Analyzing & Controlling Instruments 25,107 25,211
========= =========
Metals & 5,059 Adience, Inc. Term B NR+ NR+ 4/15/05 5,040 5,084
Mining -- 1.2% 4,767 Alliance Coal Term B NR+ B1 12/31/02 4,746 4,770
4,955 Anker Coal Group, Inc. Term B NR+ NR+ 6/30/04 4,952 4,943
2,192 Centennial Resources Term A NR+ NR+ 3/31/02 2,172 2,181
5,163 Centennial Resources Term B NR+ NR+ 12/31/03 5,114 5,151
2,400 Northwestern Steel & Mining Revolving
Credit NR+ B2 12/31/00 2,400 2,400
10,171 UCAR International Inc. Term B NR+ Ba2 12/31/02 10,162 10,179
--------- ---------
Total Metals & Mining 34,586 34,708
========= =========
Packaging -- 7,875 IPC, Inc. Term NR+ B1 9/30/01 7,853 7,895
0.7% 2,716 Mail-Well, Inc./Supremex Term A NR+ Ba2 3/31/03 2,713 2,709
3,870 Mail-Well, Inc./Supremex Term A NR+ Ba3 3/31/03 3,866 3,867
1,207 Mail-Well, Inc./Supremex Term B NR+ Ba2 7/31/03 1,207 1,204
1,941 Silgan Corp. Revolving
Credit NR+ Ba2 12/31/03 1,941 1,937
2,813 Silgan Corp. Term A NR+ Ba2 12/31/03 2,812 2,807
--------- ---------
Total Packaging 20,392 20,419
========= =========
Paper -- 9.4% 4,764 Crown Paper Co. Term B BB Ba3 8/22/03 4,715 4,794
828 Jefferson Smurfit Company/ Revolving
Container Corp. of America Credit BB Ba3 4/30/01 828 826
24,191 Jefferson Smurfit Company/
Container Corp. of America Term A BB Ba3 4/30/01 24,135 24,214
6,564 Jefferson Smurfit Company/
Container Corp. of America Term B BB Ba3 4/30/01 6,558 6,621
47,905 Jefferson Smurfit Company/
Container Corp. of America Term B BB Ba3 4/30/02 47,840 48,324
12,776 Jefferson Smurfit Company/
Container Corp. of America Term C BB Ba3 10/31/02 12,749 12,888
5,620 Riverwood International Corp. Term A B+ B1 2/28/03 5,451 5,634
63,415 Riverwood International Corp. Term B B+ B1 2/28/04 62,591 63,930
24,368 Riverwood International Corp. Term C B+ B1 8/28/04 24,046 24,566
1,147 S.D. Warren Co. Term A NR+ Ba2 12/31/01 1,147 1,149
19,301 S.D. Warren Co. Term B NR+ Ba2 6/30/02 19,261 19,373
2,423 St. Laurent Paperboard, Inc. Term B NR+ NR+ 5/31/03 2,416 2,453
2,577 St. Laurent Paperboard, Inc. Term C NR+ NR+ 5/31/04 2,570 2,610
13,930 Stone Container Corp. Term B NR+ Ba3 4/01/00 13,833 14,043
20,117 Stone Container Corp. Term C NR+ Ba3 4/01/00 20,091 20,287
20,000 Stone Container Corp. Term E NR+ Ba3 10/01/03 20,119 20,200
9,451 Stronghaven Term B NR+ NR+ 5/15/04 9,407 9,475
--------- ---------
Total Paper 277,757 281,387
========= =========
Printing & 7,187 Advanstar Communications Term B NR+ NR+ 12/21/03 7,148 7,178
Publishing -- 21,097 American Media Term B BB- Ba2 9/30/02 21,028 21,071
3.9% 8,789 Garden State Newspapers, Inc. Revolving
Credit 'A' NR+ NR+ 6/30/03 8,789 8,773
1,740 Garden State Newspapers, Inc. Term A NR+ NR+ 3/31/04 1,737 1,737
4,000 Garden State Newspapers, Inc. Term B NR+ NR+ 3/31/04 3,985 3,992
8,762 Journal News Co. Term NR+ NR+ 12/31/01 8,746 8,751
2,948 K-III Communications Corp. Revolving
Credit NR+ Ba3 12/31/00 2,948 2,931
12,620 K-III Communications Corp. Revolving
Credit 'A' NR+ Ba3 12/31/00 12,620 12,549
5,000 K-III Communications Corp. Revolving
Credit 'C' NR+ Ba3 12/31/00 5,000 4,972
6,000 K-III Communications Corp. Term NR+ Ba3 6/30/04 5,995 5,974
10,000 Morris Communications Term B NR+ NR+ 6/30/05 9,981 10,000
14,000 Newsquest Capital PLC Term 2 NR+ NR+ 12/31/04 13,934 14,017
6,213 Petersen Publishing Co. Term 3 B+ B1 9/30/04 6,191 6,228
3,571 Von Hoffmann Press Inc. Term B NR+ B1 5/22/05 3,563 3,603
3,571 Von Hoffmann Press Inc. Term C NR+ B1 5/22/06 3,563 3,603
--------- ---------
Total Printing & Publishing 115,228 115,379
========= =========
Rendering -- 0.2% 4,956 CBP Resources Inc. Term B NR+ NR+ 9/30/03 4,924 4,943
--------- ---------
Total Rendering 4,924 4,943
========= =========
Restaurants -- 0.1% 4,000 AFC Enterprises Term NR+ Ba3 6/30/02 3,981 4,005
--------- ---------
Total Restaurants 3,981 4,005
========= =========
Retail -- 0.1% 2,500 Murray's Discount Auto Stores Term NR+ NR+ 6/30/03 2,500 2,500
--------- ---------
Total Retail 2,500 2,500
========= =========
Telephone 8,000 Arch Communications Group, Inc. Term B NR+ B1 12/31/03 7,972 7,975
Communications -- 8,368 MobileMedia Corp. Term A NR+ Caa 6/30/02 8,339 7,447
5.5% 1,667 MobileMedia Corp. Term B1 NR+ Caa 6/30/02 1,667 1,485
8,000 MobileMedia Corp. Term B2 NR+ Caa 6/30/03 7,980 7,130
1,989 Nextel Communications, Inc. Revolving
Credit NR+ B1 3/31/03 1,989 1,970
10,348 Nextel Communications, Inc. Revolving
Credit 'B' NR+ B1 3/31/03 10,348 10,248
8,427 Nextel Communications, Inc. Term C NR+ B1 3/31/03 8,295 8,391
35,000 Nextel Communications, Inc. Term D NR+ B1 6/30/03 34,404 35,339
17,888 Paging Network Inc. Revolving
Credit NR+ Ba3 12/31/04 17,888 17,636
4,821 Shared Technologies Cellular, Inc. Term B NR+ B1 3/31/03 4,796 4,828
25,000 Sprint Spectrum L.P./Nortel Term NR+ B1 6/29/01 24,918 25,125
17,775 Sprint Spectrum L.P. Term 1 NR+ B1 7/04/05 17,636 17,875
17,776 Sprint Spectrum L.P. Term 2 NR+ B1 7/04/05 17,634 17,875
--------- ---------
Total Telephone Communications 163,866 163,324
========= =========
Textiles/Mill 4,267 Ithaca Industries, Inc. Revolving
Products -- Credit NR+ NR+ 8/31/99 4,267 4,245
0.7% 12,237 Ithaca Industries, Inc. Term NR+ NR+ 8/31/99 12,202 12,176
3,289 Joan Fabrics Term B NR+ NR+ 6/30/05 3,285 3,328
1,711 Joan Fabrics Term C NR+ NR+ 6/30/06 1,708 1,731
--------- ---------
Total Textiles/Mill Products 21,462 21,480
========= =========
Transportation 28,107 Atlas Air, Inc. Revolving
Services -- 1.8% Credit NR+ NR+ 6/30/98 28,107 28,142
10,000 Atlas Freight Term NR+ NR+ 5/29/04 9,976 10,031
7,469 International Logistics Term B NR+ NR+ 12/31/03 7,435 7,455
3,333 Petro Stopping Centers Term B BB- Ba3 12/31/03 3,325 3,327
3,994 Travel Centers Term B NR+ B2 3/27/05 3,979 4,021
--------- ---------
Total Transportation Services 52,822 52,976
========= =========
Waste 11,000 American Disposal Services, Inc. Term NR+ NR+ 5/31/04 10,984 11,014
Management -- 2,500 Laidlaw Environmental Services, Inc. Term B NR+ NR+ 5/15/05 2,494 2,547
0.5% 2,500 Laidlaw Environmental Services, Inc. Term C NR+ NR+ 5/15/04 2,494 2,548
--------- ---------
Total Waste Management 15,972 16,109
========= =========
Total Senior Secured Floating Rate Loan Securities -- 82.7% 2,466,848 2,474,278
========= =========
<CAPTION>
Shares
Held Equity Investments
<S> <C> <C> <C> <C>
Cable TV 1 Classic Cable, Inc. (Warrants) (a) 0 0
Services -- 0.0%
Drilling -- 0.0% 12 Rigco North America (Warrants)(a) 0 0
Restaurants -- 0.0% 44 Flagstar Companies, Inc. 0 12
--------- ---------
Total Equity Investments -- 0.0% 0 12
========= =========
Total Long-Term Investments -- 82.7% 2,466,848 2,474,290
========= =========
<CAPTION>
Short-Term Investments
<S> <C> <C> <C>
Commercial Countrywide Home Loans, Inc. ($14,000 par, maturing 9/18/1997, yielding
Paper** -- 14.2% 5.52%) 13,966 13,966
GTE Funding Inc. ($48,000 par, maturing 10/06/1997, yielding 5.50%) 47,751 47,751
General Motors Acceptance Corp. ($57,368 par, maturing 9/02/1997, yielding
5.69%) 57,368 57,368
Goldman Sachs Group ($50,000 par, maturing 9/16/1997, yielding 5.53%) 49,892 49,892
Goldman Sachs Group ($26,000 par, maturing 9/18/1997, yielding 5.52%) 25,936 25,936
Morgan (J.P.) & Company, Inc. ($37,870 par, maturing 9/08/1997, yielding
5.49%) 37,835 37,835
Morgan Stanley Group, Inc. ($50,000 par, maturing 10/07/1997, yielding
5.50%) 49,732 49,732
National Fleet Funding Corp. ($15,275 par, maturing 9/11/1997, yielding
5.53%) 15,254 15,254
Riverwoods Funding Corp. ($50,000 par, maturing 9/02/1997, yielding 5.50%) 50,000 50,000
Xerox Corp. ($32,000 par, maturing 9/10/1997, yielding 5.50%) 31,961 31,961
Xerox Corp. ($46,000 par, maturing 9/23/1997, yielding 5.48%) 45,853 45,853
---------- ----------
Total Commercial Paper 425,548 425,548
========== ==========
US Government Agency Federal Home Loan Mortgage Corporation ($20,000 par, maturing 9/05/1997,
Obligations** -- 2.4% yielding 5.46%) 19,991 19,991
Federal Home Loan Mortgage Corporation
($50,000 par, maturing 9/12/1997, yielding 5.41%) 49,925 49,925
---------- ----------
Total US Government Agency Obligations 69,916 69,916
========== ==========
Total Short-Term Investments -- 16.6% 495,464 495,464
========== ==========
Total Investments -- 99.3% $2,962,312 2,969,754
==========
Other Assets Less Liabilities -- 0.7% 22,036
----------
Net Assets -- 100.0% $2,991,790
==========
(a) Warrants entitle the Fund to purchase a predetermined number of shares of common stock. The purchase price and numbers
of shares are subject to adjustment under certain conditions until expiration date.
+ Not Rated.
* 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, 1997.
** 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.
Ratings of issues shown have not been audited by Deloitte & Touche LLP.
See Notes to Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
FINANCIAL INFORMATION
Statement of Assets and Liabilities as of August 31, 1997
<S> <C> <C> <C>
Assets: Investments, at value (identified cost -- $2,962,312,311) (Note 1b) $2,969,754,258
Cash 3,333,212
Receivables:
Interest $23,156,172
Capital shares sold 6,864,898
Principal paydowns 1,323,008
Commitment fees 407,651 31,751,729
---------------
Prepaid registration fees and other assets (Note 1f) 2,827,494
---------------
Total assets 3,007,666,693
---------------
Liabilities: Payables:
Securities purchased 5,040,176
Dividends to shareholders (Note 1g) 3,944,807
Investment adviser (Note 2) 2,458,075
Administrator (Note 2) 646,862
Interest expense (Note 6) 256,210 12,346,130
---------------
Deferred income (Note 1e) 2,620,628
Accrued expenses and other liabilities. 910,294
---------------
Total liabilities 15,877,052
---------------
Net Assets: Net assets $2,991,789,641
===============
Net Assets Common Stock, par value $0.10 per share; 1,000,000,000 shares
Consist of: authorized $29,871,117
Paid-in capital in excess of par 2,960,840,225
Accumulated realized capital losses on investments -- net (Note 7) (6,363,648)
Unrealized appreciation on investments -- net 7,441,947
---------------
Net Assets -- Equivalent to $10.02 per share based on 298,711,170
shares of capital stock outstanding $2,991,789,641
===============
See Notes to Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of Operations
For the Year Ended
August 31, 1997
<S> <C> <C> <C>
Investment Income Interest and discount earned $231,932,345
(Note 1e): Facility and other fees 2,570,817
---------------
Total income 234,503,162
---------------
Expenses: Investment advisory fees (Note 2) $27,674,808
Administrative fees (Note 2) 7,282,844
Transfer agent fees (Note 2) 1,688,406
Professional fees 595,135
Accounting services (Note 2) 373,370
Custodian fees 300,414
Loan interest expense (Note 6) 256,210
Tender offer costs 189,018
Printing and shareholder reports 152,575
Borrowing costs (Note 6) 74,125
Registration fees (Note 1f) 66,689
Directors' fees and expenses 48,329
Other 42,802
---------------
Total expenses 38,744,725
---------------
Investment income -- net 195,758,437
---------------
Realized & Realized gain on investments -- net 1,494,764
Unrealized Gain on Change in unrealized appreciation on investments -- net 6,060,630
Investments -- Net ---------------
(Notes 1c, 1e & 3): Net Increase in Net Assets Resulting from Operations $203,313,831
===============
See Notes to Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
Statements of Changes in Net Assets
For the Year Ended August 31,
Increase (Decrease) in Net Assets: 1997 1996
<S> <C> <C> <C>
Operations: Investment income -- net $195,758,437 $178,696,222
Realized gain (loss) on investments -- net 1,494,764 (8,718,939)
Change in unrealized appreciation/depreciation on
investments -- net. 6,060,630 1,207,962
-------------- --------------
Net increase in net assets resulting from operations 203,313,831 171,185,245
-------------- --------------
Dividends to Investment income -- net (195,758,437) (178,696,222)
Shareholders -------------- --------------
(Note 1g): Net decrease in net assets resulting from dividends to shareholders (195,758,437) (178,696,222)
-------------- --------------
Capital Share Net increase in net assets resulting from capital share transactions 38,706,901 789,568,710
Transactions -------------- --------------
(Note 4):
Net Assets: Total increase in net assets 46,262,295 782,057,733
Beginning of year 2,945,527,346 2,163,469,613
-------------- --------------
End of year $2,991,789,641 $2,945,527,346
============== ==============
See Notes to Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of Cash Flows
For the Year Ended
August 31, 1997
<S> <C> <C>
Cash Provided by Net increase in net assets resulting from operations $203,313,831
Operating Activities: Adjustments to reconcile net increase in net assets resulting from operations to net
cash provided by operating activities:
Increase in receivables (5,855,760)
Increase in other assets (1,147,020)
Decrease in other liabilities (2,250,790)
Realized and unrealized gain on investments -- net (7,555,394)
Amortization of discount (27,355,717)
----------------
Net cash provided by operating activities 159,149,150
----------------
Cash Provided by Proceeds from principal payments and sales of loan interests 1,961,516,374
Investing Activities: Purchases of loan interests (2,268,240,139)
Purchases of short-term investments (21,312,835,470)
Proceeds from sales and maturities of short-term investments 21,621,740,112
----------------
Net cash provided by investing activities 2,180,877
----------------
Cash Used for Cash receipts from borrowings 50,000,000
Financing Activities: Cash payments from borrowings (50,000,000)
Cash receipts on capital shares sold 426,269,518
Cash payments on capital shares tendered (486,786,078)
Dividends paid to shareholders (100,140,743)
----------------
Net cash used for financing activities (160,657,303)
----------------
Cash: Net increase in cash 672,724
Cash at beginning of year 2,660,488
----------------
Cash at end of year $3,333,212
================
Non-Cash Capital shares issued in reinvestment of dividends paid to shareholders $95,204,864
Financing Activities: ================
See Notes to Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
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,
1997 1996 1995 1994 1993
Increase (Decrease) in Net Asset Value:
<S> <C> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of year $9.99 $10.02 $10.02 $10.02 $9.99
Operating -------- -------- -------- -------- --------
Performance: Investment income -- net .68 .66 .75 .59 .53
Realized and unrealized gain (loss) on
investments -- net .03 (.03) --+ --+ .03
-------- -------- -------- -------- --------
Total from investment operations .71 .63 .75 .59 .56
-------- -------- -------- -------- --------
Less dividends from investment income -- net (.68) (.66) (.75) (.59) (.53)
-------- -------- -------- -------- --------
Net asset value, end of year $10.02 $9.99 $10.02 $10.02 $10.02
======== ======== ======== ======== ========
Total Investment Based on net asset value per share 7.23% 6.53% 7.68% 5.94% 5.74%
Return:* ======== ======== ======== ======== ========
Ratio to Average Expenses, excluding interest expense 1.32% -- -- -- --
Net Assets: ======== ======== ======== ======== ========
Expenses 1.33% 1.34% 1.34% 1.43% 1.47%
======== ======== ======== ======== ========
Investment income -- net 6.72% 6.54% 7.45% 5.75% 5.27%
======== ======== ======== ======== ========
Leverage: Amount of borrowings (in thousands) -- -- -- -- --
======== ======== ======== ======== ========
Average amount of borrowings outstanding
during the period (in thousands) $4,409 -- -- -- --
======== ======== ======== ======== ========
Average amount of borrowings outstanding
per share during the period $.02 -- -- -- --
======== ======== ======== ======== ========
Supplemental Net assets, end of year (in millions) $2,992 $2,946 $2,163 $934 $713
Data: ======== ======== ======== ======== ========
Portfolio turnover 74.00% 80.20% 55.23% 61.31% 90.36%
======== ======== ======== ======== ========
* Total investment returns exclude the early withdrawal charge, if any. 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>
Merrill Lynch Senior Floating Rate Fund, Inc. August 31, 1997
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,
1997 could be considered to be concentrated in commercial banking.
(b) Valuation of investments -- The Loan Interests will be valued in
accordance with guidelines established by the Fund's Board of Directors.
Under the Fund's current guidelines, Loan Interests will be valued at
the average of the mean between the bid and asked quotes received from
one or more brokers, if available.
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.
[bullet] 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.
(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.
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.
For the year ended August 31, 1997, Merrill Lynch Funds Distributor,
Inc. ("MLFD") earned early withdrawal charges of $4,868,307 relating to
the tender of the Fund's shares.
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.
The Fund's credit facility is currently provided by Merrill Lynch
International Bank Limited, an affiliate of MLAM (see Note 6).
Certain officers and/or directors of the Fund are officers and/or
directors of MLAM, PSI, MLFDS, MLFD, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities, for
the year ended August 31, 1997 were $2,273,069,862 and $1,962,839,382,
respectively.
Net realized and unrealized gains as of August 31, 1997 were as follows:
Realized Unrealized
Gains Gains
Long-term investments $1,487,434 $7,441,947
Short-term investments 7,330 --
----------- -----------
Total $1,494,764 $7,441,947
=========== ===========
As of August 31, 1997, net unrealized appreciation for financial
reporting and Federal income tax purposes aggregated $7,441,947, of
which $14,800,526 is related to appreciated securities and $7,358,579 is
related to depreciated securities. The aggregate cost of investments at
August 31, 1997 for Federal income tax purposes was $2,962,312,311.
4. Capital Share Transactions:
Transactions in capital shares were as follows:
For the Year Ended Dollar
August 31, 1997 Shares Amount
Shares sold 43,063,467 $430,288,115
Shares issued to share-
holders in reinvestment
of dividends 9,529,624 95,204,864
------------- -------------
Total issued 52,593,091 525,492,979
Shares tendered (48,731,298) (486,786,078)
------------- -------------
Net increase 3,861,793 $38,706,901
============= =============
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
============= =============
5. Unfunded Loan Interests:
As of August 31, 1997, the Fund had unfunded loan commitments of
$342,215,631, which would be extended at the option of the borrower,
pursuant to the following loan agreements:
Unfunded
Commitment
Borrower (in thousands)
AFC Enterprises $10,000
AMF Group, Inc. 383
Alliance Gaming Corp. 15,000
American Radio Systems Corp. 4,407
Ameriserve Financial Corp. 3,288
Arch Communications Group, Inc. 3,125
Aztar Corporation 1,738
Bruno's, Inc. 1,947
Capstar Hotel Company 3,125
Carr Gottstein Foods Co. 2,294
Chancellor Broadcasting Inc. 12,569
Continental Airlines, Inc. 6,400
Corning/Quest 1,667
Dal Tile International Inc. 1,409
Del Monte Corp. 2,782
Dictaphone Corp. 328
E&S Holdings Corp. 2,287
Evergreen Media Corp. 14,057
Fort Howard Corp. 11,409
Garden State Newspapers, Inc. 1,421
HSC Holdings 5,131
Hedstrom Corp. 4,710
Horizons/CMS 1,813
Huntsman Corp. 9,581
IMO Industries, Inc. 3,813
International Homefoods, Inc. 1,355
Ithaca Industries, Inc. 12,216
Jefferson Smurfit Company/Container
Corp. of America 2,230
Johnstown America Industrial Inc. 3,115
K-III Communications Corp. 3,307
KSL Recreation Group, Inc. 5,357
Kmart Corp. 9,000
Katz Media Corporation 2,386
Kerastotes 7,022
Loewen Group Inc. 17,052
Marcus Cable Operating Co. 10,369
Nextel Communications, Inc. 17,090
Northwestern Steel & Mining 12,600
Paging Network Inc. 16,446
Ralph's Grocery Company 4,903
Riverwood International Corp. 5,000
SC International Corp., Inc. 18,000
S.D. Warren Co. 1,897
Silgan Corp. 16,197
Six Flags Entertainment Corp. 1,787
Smith's Food & Drug Centers, Inc. 3,273
Sprint Spectrum L.P. 15,000
Thermadyne Industries, Inc. 7,510
Trans Technology Corp. 1,422
UCAR International Inc. 7,126
Viasystems Technologies, Inc. 5,000
Whittaker Corporation 872
Worldcom Inc. 10,000
6. Short-Term Borrowings:
On June 13, 1997, the Fund extended its credit agreement with Merrill
Lynch International Bank Limited, an affiliate of MLAM, through June 12,
1998. The agreement is a $100,000,000 credit facility bearing interest
at the Federal Funds rate plus 0.25% and/or LIBOR plus 0.25%. For the
year ended August 31, 1997, the maximum amount borrowed was $50,000,000,
the average amount borrowed was approximately $4,409,000, and the daily
weighted average interest rate was 5.81%. For the year ended August 31,
1997, facility and commitment fees aggregated approximately $74,125.
7. Capital Loss Carryforward:
At August 31, 1997, the Fund had a net capital loss carryforward of
approximately $4,752,000, of which $1,471,000 expires in 2004 and
$3,281,000 expires in 2005. 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 23, 1997 which
concludes on October 21, 1997.
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, 1997, 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, 1997 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, 1997, 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 24, 1997
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
Joseph T. Monagle Jr., Senior Vice President
Donald C. Burke, Vice President
R. Douglas Henderson, Vice President
Gerald M. Richard, Treasurer
Patrick D. Sweeney, Secretary
Custodian
The Bank of New York
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
