MERRILL LYNCH
SENIOR FLOATING
RATE FUND, INC.
FUND LOGO
Semi-Annual Report
February 28, 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. Statements and other
information herein are as dated and are subject to change.
<PAGE>
Merrill Lynch
Senior Floating
Rate Fund, Inc.
Box 9011
Princeton, NJ
08543-9011
DEAR SHAREHOLDER
During the quarter ended February 28, 1997, Merrill Lynch Senior
Floating Rate Fund, Inc. operated in an environment of growing
concern in the fixed-income markets over the strength of the US
economy and the threat of inflation. A continued tight labor market
and strong consumer demand resulted in strong indications by Federal
Reserve Board Chairman Alan Greenspan in late February that the
central bank would take a preemptive stance against perceived
inflationary pressures. This was followed by the first increase in
the Federal Funds target rate in over 24 months on March 25, 1997.
This 25 basis point increase caused disruption to the domestic fixed-
income and equity markets amid concerns over further tightening by
the Federal Reserve Board in the months ahead.
Over 98.8% of the Fund's investments in corporate loans accrue
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. The
Federal Reserve Board's tightening action caused the three-month
LIBOR to rise to 5.77% from 5.55% at the beginning of the February
quarter, compared to 5.3125% at the same time last year. Since the
average reset on the Fund's investment's underlying LIBOR rates is
41 days, the Fund's yield should reflect any further upward move of
short-term interest rates as it moves through its resets over the 30
days--60 days subsequent to the monetary tightening.
<PAGE>
Fund Performance
With this interest rate environment and strong economic growth as a
backdrop, Merrill Lynch Senior Floating Rate Fund, Inc. ended the
February quarter 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 $2.4 billion closed and invested in
corporate loan interests.
The Fund's effective net annualized yield for the 12-month period
ended February 28, 1997 was 6.39%, compared to a yield of 7.35% for
the prior year. The Fund's yield was partially affected by an
increase in investments in partially funded revolving credit
commitments. This change affected the Fund's cash position during
the period along with the early prepayment of selected investments,
raising the Fund's cash position to approximately $495 million
compared to about $480 million at November 30, 1996. During the 12-
month period ended February 28, 1997, the Fund's per share net asset
value remained relatively stable, changing from $10.01 to $9.98.
During the February quarter, the Fund earned $0.163 per share income
dividends, representing a net annualized yield of 6.55%, based on a
month-end per share net asset value of $9.98. The Fund's total
investment return was +1.64%, based on an unchanged per share net
asset value of $9.98, and assuming reinvestment of $0.163 per share
income dividends. Since inception (November 3, 1989) through
February 28, 1997, the Fund's total investment return was +65.48%,
based on a change in per share net asset value from $10.00 to $9.98,
and assuming reinvestment of $5.062 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 their 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 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. As the
Fund grows, we intend to stay as diversified as the corporate loan
supply will allow, and we will continue to focus on credit quality
and liquidity within the non-investment grade sector. During the
three months ended February 28, 1997, new transaction volume
remained relatively light in the face of record levels in the stock
market and the continued strong level of high-yield bond issuance.
Historically tight spreads to Treasury securities in that market
enabled issuers to sometimes issue unsecured subordinated debt at
levels less expensive than those available in the senior secured
loan market.
<PAGE>
During the February quarter, the Fund invested $529.7 million in new
purchases, with over $347.2 million in new primary transactions such
as the refinancings of Kmart Corp., OrNda Health Corp., Chancellor
Broadcasting, Inc., Mag Aerospace, AMF Group, Inc., and Polyfibron
Technologies. Leveraged buyouts included Doubletree Corporation,
Circo Craft. Co., Favorite Brands International and Newsquest
Capital PLC. In addition, there were the financing of acquisitions
of Vail Corporation, Safelite Glass Corp. and Sneaker Stadium as
well as the financing of the spin-off of Allied Waste Industries,
Inc. from Laidlaw International. These issues were supplemented by
the purchase of $102.5 million of secondary paper in existing loans
such as Bruno's Inc., Fort Howard Corp. and Six Flags Entertainment
Corp. These purchases were offset by the sale of $129.1 million in
the secondary market, the partial prepayment of $41.2 million across
73 different investments, and the full prepayment of Fund
investments totaling $172.8 million, including Ameriking Inc.,
Dominick's Finer Foods Inc., Eller Industries, Inc., Experian Corp.
and Thrifty Payless Holdings, Inc.
As of February 28, 1997, the Fund was invested in 157 different
borrowers across 37 industries. The largest industry concentrations
were: paper (11.9% of net assets); cable TV services (6.3%); food &
kindred products (5.2%); health services (5.1%), and printing &
publishing (4.6%). The largest individual credit exposures were:
Riverwood International Corp. ($98.4 million; 3.3% of net assets);
Jefferson Smurfit Company/Container Corp. of America ($95.1 million;
3.1%); Federated Department Stores Inc. ($91.1 million; 3.0%);
Marcus Cable Operating Co. ($80.6 million; 2.7%); and Stone
Container Corp. ($76.9 million; 2.5%). The average loan size equaled
$15.1 million, or 0.5% of net assets.
We will continue to reduce average exposure to any one company, if
feasible, and focus on achieving greater diversification across the
portfolio. Over the three months ended February 28, 1997, the Fund
became more diversified both from an industry standpoint as well as
in total number of issuers. This was partly by design in order to
lessen exposure to any one company, particularly now that the vast
majority of the portfolio is marked to market daily through dealer
quotes. Additionally, it is also a reflection of the number of
investors in the senior secured leveraged loan market today. With
institutional investors continuing to look for a floating-rate hedge
to insulate themselves against an upward movement in short-term
interest rates, we expect money to continue to flow into this market
through 1997. Although this diversification results in smaller
allocations in any one investment than was the case historically, it
also means that there is more liquidity in the secondary market for
bank loans than at any point since the inception of the Fund.
<PAGE>
In Conclusion
The Fund completed its latest quarterly tender offer on January 21,
1997 with 13.1 million shares tendered and accepted for repurchase.
The next tender began on March 18, 1997 and concludes on April 15,
1997.
We thank you for your investment in the 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
April 9, 1997
<TABLE>
SCHEDULE OF INVESTMENTS (In Thousands)
<CAPTION>
Face Loan S&P Moody's Stated Value
Industries Amount Borrower Type Rating Rating Maturity (Note 1b)
<PAGE>
Senior Secured Floating Rate Loan Interests*
<S> <C> <S> <S> <S> <S> <S> <C>
Advertising $ 8,571 Eller Industries, Inc. Term A NR++ NR++ 9/30/03 $ 8,579
- --1.9% 21,429 Eller Industries, Inc. Term B NR++ NR++ 12/31/04 21,489
750 Katz Media Corporation Revolving
Credit NR++ Ba3 9/30/03 749
2,143 Katz Media Corporation Term NR++ Ba3 9/30/03 2,146
6,667 Katz Media Corporation Term B NR++ Ba3 12/31/04 6,692
3,333 Outdoor Systems, Inc. Canadian
Term B NR++ Ba2 12/31/03 3,346
12,500 Outdoor Systems, Inc. Term A NR++ Ba2 12/30/02 12,516
833 Outdoor Systems, Inc. Term B NR++ Ba2 12/31/03 836
Total Advertising (Cost--$55,793) 56,353
Aircraft & 5,060 Aerostructures Hamble Holdings PLC Term B NR++ NR++ 9/30/03 5,085
Parts--1.7% 1,840 Aerostructures Hamble Holdings PLC Term C NR++ NR++ 9/30/04 1,849
4,975 Banner Industries, Inc. Term B NR++ NR++ 6/30/03 4,966
25,000 Gulfstream Aerospace Corp. Term NR++ NR++ 9/30/02 25,016
5,000 Mag Aerospace Term B NR++ NR++ 12/06/01 4,981
3,288 Technetics Term A NR++ NR++ 6/20/02 3,288
5,000 Tri Star Inc. Term NR++ NR++ 9/30/03 4,950
Total Aircraft & Parts (Cost--$49,952) 50,135
Amusement & 31,379 AMF Group, Inc. Axel A NR++ Ba3 3/31/03 31,732
Recreational 19,975 AMF Group, Inc. Axel B NR++ Ba3 3/31/04 20,199
Services-- 4,125 Amfac Parks, Inc. Term B NR++ NR++ 9/30/02 4,102
3.8% 1,109 Kerastotes Revolving
Credit NR++ NR++ 12/31/03 1,099
3,696 Kerastotes Term NR++ NR++ 12/31/04 3,670
14,962 Metro Goldwyn Mayer Co. Term B1 NR++ 3/31/04 14,953
4,625 Orion Pictures Corp. Term NR++ Ba2 12/31/00 4,619
383 Six Flags Entertainment Corp. Revolving
Credit NR++ Ba3 10/28/01 384
5,496 Six Flags Entertainment Corp. Term A NR++ Ba3 10/28/01 5,500
17,473 Six Flags Entertainment Corp. Term B NR++ Ba3 6/23/03 17,604
7,500 Vail Corporation Term B NR++ NR++ 4/15/04 7,500
Total Amusement & Recreational Services (Cost--$110,534) 111,362
Apparel--0.7% 9,850 Humphreys Inc. Term B NR++ NR++ 1/15/03 9,850
5,000 Renfro Corp. Term B NR++ NR++ 11/15/03 4,994
6,300 William Carter Co. (The) Term BB- Ba3 10/31/03 6,300
Total Apparel (Cost--$21,095) 21,144
<PAGE>
Automotive 8,500 CSK Auto Inc. Term NR++ Ba3 10/31/03 8,526
Equipment-- 24,365 Collins & Aikman Corp. Term B B+ B1 12/31/02 24,411
2.4% 4,722 Hayes Wheels International, Inc. Term B NR++ B1 6/15/03 4,746
3,778 Hayes Wheels International, Inc. Term C NR++ B1 6/15/04 3,797
3,033 Johnstown America Industrial Inc. Term A NR++ B1 3/31/02 2,946
19,334 Johnstown America Industrial Inc. Term B NR++ B1 3/31/03 18,839
5,000 Safelite Glass Corp. Term B BB- Ba3 12/20/04 5,031
Total Automotive Equipment (Cost--$68,408) 68,296
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS (continued) (In Thousands)
<CAPTION>
Face Loan S&P Moody's Stated Value
Industries Amount Borrower Type Rating Rating Maturity (Note 1b)
Senior Secured Floating Rate Loan Interests*
<S> <C> <S> <S> <S> <S> <S> <C>
Broadcast-- $ 4,436 Benedek Broadcasting Corp. Axel A B+ Ba3 5/01/01 $ 4,425
Radio & TV-- 4,461 Benedek Broadcasting Corp. Axel B B+ Ba3 11/01/02 4,450
1.9% 2,076 Chancellor Broadcasting, Inc. Revolving
Credit NR++ Ba2 1/31/03 2,076
4,891 Chancellor Broadcasting, Inc. Term A NR++ Ba2 1/31/03 4,891
5,000 Citicasters Inc. (Jacor) Term B BB- Ba2 9/17/04 4,994
12,228 Silver King Communications, Inc. Term B NR++ NR++ 7/31/02 12,198
11,910 Sinclair Broadcasting Group Inc. Term B NR++ Ba3 11/30/03 11,940
9,750 Sullivan Broadcasting Term B NR++ Ba3 12/31/03 9,756
Total Broadcast--Radio & TV (Cost--$54,556) 54,730
Building & 4,487 Fenway Holdings, Inc. Term B NR++ NR++ 9/15/02 4,481
Construction
- --0.2%
Total Building & Construction (Cost--$4,459) 4,481
Building 7,638 Dal Tile International Inc. Revolving
Materials-- Credit NR++ NR++ 12/31/02 7,629
2.3% 10,476 Dal Tile International Inc. Term NR++ NR++ 12/31/02 10,463
9,975 Euramax Holdings Term B NR++ Ba3 9/30/03 9,975
29,925 National Gypsum Co. Term B NR++ Ba3 9/20/03 30,018
9,833 Walter Industrials, Inc. Term B NR++ NR++ 2/22/03 9,852
Total Building Materials (Cost--$67,715) 67,937
<PAGE>
Cable TV 6,000 Cablevision of Ohio Term NR++ NR++ 12/31/05 5,985
Services--6.3% 24,375 Chelsea Communications Term B NR++ NR++ 9/30/04 24,375
17,459 Classic Cable Inc. Term B NR++ B1 6/30/05 16,979
18,747 Coaxial Communications Term B NR++ NR++ 12/31/99 18,700
5,000 Frontier Vision Term B NR++ Ba3 6/30/05 4,989
10,000 Intermedia Communications, Inc. Term NR++ Ba3 1/01/05 10,006
1,750 Marcus Cable Operating Co. Revolving
Credit NR++ NR++ 12/31/02 1,741
33,937 Marcus Cable Operating Co. Term A NR++ NR++ 12/31/02 33,916
33,000 Marcus Cable Operating Co. Term B NR++ NR++ 4/30/04 33,186
10,000 Triax Midwest Term B NR++ NR++ 6/30/05 9,997
24,070 Viacom, Inc. Term NR++ Ba2 7/01/02 24,070
Total Cable TV Services (Cost--$183,460) 183,944
Chemicals--4.0% 9,134 Cedar Chemical Term B NR++ NR++ 10/31/03 9,112
5,051 Harris Specialty Chemicals Revolving
Credit NR++ NR++ 12/30/01 4,975
227 Harris Specialty Chemicals Term A NR++ NR++ 12/30/00 224
363 Harris Specialty Chemicals Term A NR++ NR++ 12/30/00 357
5,921 Harris Specialty Chemicals Term B NR++ NR++ 12/30/01 5,832
5,210 Huntsman Corp. Revolving
Credit NR++ NR++ 12/31/02 5,170
26,161 Huntsman Corp. Term NR++ NR++ 12/31/02 26,055
6,973 Huntsman Corp. Term A NR++ NR++ 12/31/02 6,945
15,000 Huntsman Corp. Term B NR++ NR++ 9/30/03 15,000
5,000 Hydrochem Term B NR++ NR++ 7/01/02 5,000
24,217 Sterling Chemicals, Inc. Term B NR++ Ba3 9/30/04 24,141
7,000 Texas Petrochemicals Term B NR++ Ba3 6/30/04 6,982
2,133 Thoro World Systems, Inc. Term A NR++ NR++ 12/30/00 2,101
4,824 Thoro World Systems, Inc. Term B NR++ NR++ 12/30/01 4,752
Total Chemicals (Cost--$116,810) 116,646
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS (continued) (In Thousands)
<CAPTION>
Face Loan S&P Moody's Stated Value
Industries Amount Borrower Type Rating Rating Maturity (Note 1b)
Senior Secured Floating Rate Loan Interests*
<S> <C> <S> <S> <S> <S> <S> <C>
Computer- $ 7,000 Anacomp, Inc. Term NR++ B2 3/31/01 $ 6,965
Related 12,500 Phase Metrics Term NR++ NR++ 12/04/01 12,531
Services & 5,000 Triad Systems Corp. Term NR++ NR++ 2/27/03 4,969
Products--
0.8%
Total Computer-Related Services & Products (Cost--$24,374) 24,465
<PAGE>
Consumer 294 E & S Holdings Corp. Revolving
Products-- Credit NR++ B1 9/30/03 294
2.2% 2,059 E & S Holdings Corp. Term NR++ B1 9/30/03 2,060
33,193 Playtex Family Products Inc. Term A NR++ Ba2 6/30/02 33,152
7,237 RTI Funding Corp. (Ritvik Toys) Term B NR++ NR++ 2/07/03 7,264
7,237 RTI Funding Corp. (Ritvik Toys) Term C NR++ NR++ 2/07/04 7,264
14,885 Revlon Consumer Products Corp. Term BB Ba3 9/30/00 14,866
Total Consumer Products (Cost--$64,520) 64,900
Defense-- 11,022 Alliant Techsystems, Inc. Term NR++ Ba2 3/15/01 11,012
0.4%
Total Defense (Cost--$11,012) 11,012
Diversified 7,117 Im Acquisition Term B NR++ NR++ 6/30/03 7,137
Manufacturing 5,535 Im Acquisition Term C NR++ NR++ 6/30/04 5,551
- --1.0% 3,208 IMO Industries, Inc. Revolving
Credit NR++ B1 4/30/01 3,155
2,452 IMO Industries, Inc. Term A NR++ B1 4/30/01 2,417
3,216 IMO Industries, Inc. Term B NR++ B1 4/30/01 3,176
7,560 Thermadyne Industries, Inc. Revolving
Credit NR++ Ba3 6/30/01 7,550
Total Diversified Manufacturing (Cost--$29,058) 28,986
Drilling--0.2% 4,881 Rigco North America Term NR++ NR++ 9/30/98 4,930
Total Drilling (Cost--$4,861) 4,930
Drug/ 215 Duane Reade Co. Term A NR++ NR++ 9/30/98 215
Proprietary 10,000 Duane Reade Co. Term B NR++ NR++ 9/30/98 9,981
Stores--0.4%
Total Drug/Proprietary Stores (Cost--$10,158) 10,196
Electronics/ 20,900 Berg Electronics Inc. Term NR++ Ba3 12/31/02 20,874
Electrical 3,000 Circo Craft Co. Term B NR++ NR++ 6/30/04 3,011
Components-- 3,000 Circo Craft Co. Term C NR++ NR++ 6/30/05 3,011
2.5% 5,583 Communications & Power Industries Inc. Term B NR++ NR++ 8/11/02 5,569
4,492 Details, Inc. Term A NR++ NR++ 1/31/01 4,492
9,924 International Wire Group, Inc. Term B NR++ NR++ 9/30/02 9,965
9,947 International Wire Group, Inc. Term C NR++ NR++ 9/30/03 9,988
7,420 Tracor Inc. Term B NR++ Ba3 10/31/00 7,436
7,421 Tracor Inc. Term C NR++ Ba3 4/30/01 7,444
Total Electronics/Electrical Components (Cost--$71,459) 71,790
Financial 14,937 Outsourcing Solutions Inc. Term B NR++ B1 10/15/03 14,983
Services--
0.5% Total Financial Services (Cost--$14,865) 14,983
</TABLE>
<PAGE>
<TABLE>
SCHEDULE OF INVESTMENTS (continued) (In Thousands)
<CAPTION>
Face Loan S&P Moody's Stated Value
Industries Amount Borrower Type Rating Rating Maturity (Note 1b)
Senior Secured Floating Rate Loan Interests*
<S> <C> <S> <S> <S> <S> <S> <C>
Food & $ 7,462 American Italian Pasta Company Term C NR++ NR++ 2/28/04 $ 7,369
Kindred 7,500 Amerifoods Term B NR++ NR++ 6/30/01 5,888
Products-- 7,500 Amerifoods Term C NR++ NR++ 6/30/02 5,888
5.2% 25,645 Favorite Brands International Term B NR++ B1 8/30/04 25,709
8,108 International Homefoods Term B NR++ Ba3 9/30/04 8,184
6,892 International Homefoods Term C NR++ Ba3 9/30/05 6,957
4,882 President Baking Co., Inc. Term B NR++ NR++ 9/30/00 4,878
3,365 Rykoff-Sexton, Inc. Term B NR++ Ba3 10/31/02 3,373
1,615 Rykoff-Sexton, Inc. Term C NR++ Ba3 4/30/03 1,619
6,510 SC International Corp., Inc. Caterair 'B' NR++ B2 9/15/01 6,538
2,360 SC International Corp., Inc. SCI 'A' NR++ B2 9/15/00 2,358
8,120 SC International Corp., Inc. SCI 'B' NR++ B2 9/15/02 8,155
3,000 SC International Corp., Inc. SCI 'C' NR++ B2 9/15/03 3,015
1,980 Select Beverages Inc. Term B NR++ NR++ 6/30/01 1,983
2,970 Select Beverages Inc. Term C NR++ NR++ 6/30/02 2,977
28,097 Specialty Foods Inc. Term B NR++ B2 4/30/01 27,993
7,120 Van De Kamps Inc. Term B NR++ Ba3 4/30/03 7,155
4,455 Van De Kamps Inc. Term C NR++ Ba3 9/30/03 4,478
6,638 Volume Services Term B NR++ B2 12/31/02 6,638
3,319 Volume Services Term C NR++ B2 12/31/03 3,319
4,906 Windsor Quality Food Term B NR++ NR++ 12/31/02 4,857
Total Food & Kindred Products (Cost--$151,680) 149,331
Funeral Homes 13,303 Loewen Group Inc. Revolving
& Parlors-- Credit NR++ Ba1 5/29/01 13,270
1.2% 14,917 Prime Succession International Group Axel BB- NR++ 8/01/03 15,103
7,000 Rose Hills Acquisition Corp. Axel A BB NR++ 12/01/03 7,105
Total Funeral Homes & Parlors (Cost--$35,150) 35,478
Furniture & 12,027 Lifestyle Furnishings International Term B NR++ Ba2 8/31/04 12,072
Fixtures--
0.4%
Total Furniture & Fixtures (Cost--$11,970) 12,072
General 1,562 Federated Department Stores Inc. Revolving
Merchandise Credit NR++ Ba1 3/31/00 1,555
Stores--2.7% 29,009 Federated Department Stores Inc. Term NR++ Ba1 3/31/00 8,955
37,654 Kmart Corp. Term BB+ Ba1 1/06/00 37,715
1,937 Music Acquisition Term B NR++ NR++ 8/31/01 835
7,500 Music Acquisition Term C NR++ NR++ 8/31/02 3,234
1,902 Saks & Co. Term A NR++ NR++ 6/30/98 1,898
5,000 Sneaker Stadium Term 2 NR++ NR++ 12/31/02 4,925
<PAGE>
Total General Merchandise Stores (Cost--$84,025) 79,117
Grocery 10,400 Big V Supermarkets Inc. Term B NR++ NR++ 3/15/00 10,192
Stores--2.8% 9,265 Bruno's, Inc. Term B NR++ B1 2/18/02 9,297
4,521 Bruno's, Inc. Term C NR++ B1 2/18/03 4,540
4,454 Pathmark Stores Inc. Term B BB- B1 10/31/99 4,467
5,450 Ralph's Grocery Company Revolving
Credit NR++ Ba3 6/15/01 5,414
1,616 Ralph's Grocery Company Term A NR++ Ba3 6/15/01 1,632
4,836 Ralph's Grocery Company Term B NR++ Ba3 6/15/02 4,864
4,835 Ralph's Grocery Company Term C NR++ Ba3 6/15/03 4,877
4,835 Ralph's Grocery Company Term D NR++ Ba3 2/15/04 4,877
2,992 Ralph's Grocery Company Term E NR++ Ba3 6/15/02 3,013
998 Ralph's Grocery Company Term F NR++ Ba3 6/15/03 1,004
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS (continued) (In Thousands)
<CAPTION>
Face Loan S&P Moody's Stated Value
Industries Amount Borrower Type Rating Rating Maturity (Note 1b)
Senior Secured Floating Rate Loan Interests*
<S> <C> <S> <S> <S> <S> <S> <C>
Grocery $ 998 Ralph's Grocery Company Term G NR++ Ba3 2/15/04 $ 1,004
Stores 6,496 Smith's Food & Drug Centers, Inc. Term B NR++ Ba3 11/30/03 6,506
(concluded) 6,496 Smith's Food & Drug Centers, Inc. Term C NR++ Ba3 11/30/04 6,506
6,496 Smith's Food & Drug Centers, Inc. Term D NR++ Ba3 8/31/05 6,506
4,184 Star Markets Co., Inc. Term B NR++ Ba3 12/31/01 4,171
3,132 Star Markets Co., Inc. Term C NR++ Ba3 12/31/02 3,122
Total Grocery Stores (Cost--$81,769) 81,992
Health 16,212 Community Health Systems, Inc. Term B NR++ NR++ 12/31/03 16,263
Services-- 16,212 Community Health Systems, Inc. Term C NR++ NR++ 12/31/04 16,263
5.1% 12,205 Community Health Systems, Inc. Term D NR++ NR++ 12/31/05 12,244
3,273 Dade International, Inc. Term B NR++ B1 12/31/02 3,297
3,273 Dade International, Inc. Term C NR++ B1 12/31/03 3,301
3,455 Dade International, Inc. Term D NR++ B1 12/31/04 3,489
2,459 Imed Corp. Term B BB- B1 11/30/04 2,484
2,459 Imed Corp. Term C BB- B1 11/30/01 2,484
2,314 Imed Corp. Term D BB- B1 5/01/05 2,337
9,975 MEDIQ, Inc. Term B NR++ B+ 9/30/04 9,956
13,091 Medical Specialties Axel NR++ NR++ 6/30/04 13,042
4,909 Medical Specialties Term NR++ NR++ 6/30/01 4,891
6,491 Merit Behavioral Care Corp. Term A NR++ B2 6/01/03 6,485
15,849 Merit Behavioral Care Corp. Term B NR++ B2 4/06/02 15,893
35,000 National Medical Care Inc. Term BB NR++ 9/30/03 34,978
<PAGE>
Total Health Services (Cost--$146,493) 147,407
Hotels & 5,646 Doubletree Corporation Term B NR++ NR++ 5/15/04 5,681
Motels--
0.2%
Total Hotels & Motels (Cost--$5,625) 5,681
Leasing 2,992 Brand Scaffold Term B NR++ NR++ 9/30/03 2,994
& Rental 1,995 Brand Scaffold Term C NR++ NR++ 9/30/04 1,998
Services-- 9,000 Coinmachine Laundry Corporation Term B NR++ NR++ 6/30/04 9,040
1.3% 24,899 PrimeCo Term BB B1 12/31/00 24,948
Total Leasing & Rental Services (Cost--$38,715) 38,980
Manufacturing 2,778 Rayovac Corp. Term B NR++ Ba3 9/30/03 2,797
- --0.7% 2,778 Rayovac Corp. Term C NR++ Ba3 9/30/04 2,800
14,700 Trans Technology Corp. Term B NR++ NR++ 6/30/02 14,719
Total Manufacturing (Cost--$20,113) 20,316
Measuring, 9,331 CHF/Ebel USA Inc. Term B NR++ NR++ 9/30/01 9,331
Analyzing & 10,893 Graphic Controls Corp. Term B NR++ B1 9/28/03 10,920
Controlling
Instruments
- --0.7%
Total Measuring, Analyzing & Controlling Instruments (Cost--$20,175) 20,251
Metals & 4,975 Alliance Coal Term B NR++ NR++ 12/31/02 4,972
Mining--1.1% 4,975 Anker Coal Term B NR++ NR++ 6/30/04 4,962
10,000 Sinter Metals, Inc. Term B NR++ NR++ 6/30/05 10,000
440 UCAR International Inc. Revolving
Credit NR++ Ba2 12/31/01 440
751 UCAR International Inc. Term A NR++ Ba2 12/31/01 752
10,286 UCAR International Inc. Term B NR++ Ba2 12/31/02 10,299
Total Metals & Mining (Cost--$31,372) 31,425
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS (continued) (In Thousands)
<CAPTION>
Face Loan S&P Moody's Stated Value
Industries Amount Borrower Type Rating Rating Maturity (Note 1b)
<PAGE>
Senior Secured Floating Rate Loan Interests*
<S> <C> <S> <S> <S> <S> <S> <C>
Packaging-- $ 10,466 Calmar Inc. Axel A NR++ B1 9/15/03 $ 10,453
1.9% 7,849 Calmar Inc. Axel B NR++ B1 3/15/04 7,869
8,250 IPC, Inc. Term NR++ B1 9/30/01 8,265
7,006 Mail-Well, Inc./Supremex Term A NR++ Ba3 3/31/03 7,003
1,238 Mail-Well, Inc./Supremex Term B NR++ Ba3 7/31/03 1,237
2,496 Silgan Corp. Revolving
Credit NR++ Ba3 12/31/00 2,499
16,452 Silgan Corp. Term B NR++ Ba3 3/15/02 16,570
Total Packaging (Cost--$53,594) 53,896
Paper--11.9% 4,788 Crown Paper Co. Term B BB Ba3 8/22/03 4,803
380 Fort Howard Corp. Revolving
Credit BB+ Ba3 3/16/02 380
28,271 Fort Howard Corp. Term A BB+ Ba3 3/08/02 28,351
15,581 Fort Howard Corp. Term B BB+ Ba3 12/31/02 15,752
334 Jefferson Smurfit Company/Container Revolving
Corp. of America Credit BB Ba3 4/30/01 329
24,191 Jefferson Smurfit Company/Container Term A BB Ba3 4/30/01 24,222
Corp.of America
6,564 Jefferson Smurfit Company/Container Term B BB Ba3 4/30/01 6,625
Corp. of America
47,905 Jefferson Smurfit Company/Container Term B BB Ba3 4/30/02 48,354
Corp. of America
12,776 Jefferson Smurfit Company/Container Term C BB Ba3 10/31/02 12,896
Corp. of America
1,525 Riverwood International Corp. Revolving
Credit B+ B1 2/28/03 1,451
8,028 Riverwood International Corp. Term A B+ B1 2/28/03 7,682
63,571 Riverwood International Corp. Term B B+ B1 2/28/04 62,121
24,429 Riverwood International Corp. Term C B+ B1 8/28/04 23,871
1,810 S.D. Warren Co. Term A NR++ Ba2 6/30/02 1,813
27,907 S.D. Warren Co. Term B NR++ Ba2 6/30/02 28,011
5,879 Stone Container Corp. Revolving
Credit NR++ Ba3 5/19/99 5,761
36,625 Stone Container Corp. Term B NR++ Ba3 4/01/00 36,819
25,245 Stone Container Corp. Term C NR++ Ba3 4/01/03 25,411
9,500 Stronghaven Term B NR++ NR++ 5/15/04 9,500
Total Paper (Cost--$342,931) 344,152
Printing & 7,400 Advanstar Communications Term B NR++ NR++ 12/21/03 7,391
Publishing 21,250 American Media Term B NR++ Ba2 9/30/02 21,197
- --4.6% 6,421 Garden State Newspapers, Inc. Revolving
Credit 'A' NR++ NR++ 6/30/03 6,401
263 Garden State Newspapers, Inc. Revolving
Credit 'B' NR++ NR++ 3/31/04 262
789 Garden State Newspapers, Inc. Term A NR++ NR++ 3/31/04 787
4,000 Garden State Newspapers, Inc. Term B NR++ NR++ 3/31/04 3,987
8,900 Journal News Co. Term NR++ NR++ 12/31/01 8,889
10,000 Morris Communications Term B NR++ NR++ 6/30/05 10,000
14,000 Newsquest Capital PLC Term 2 NR++ NR++ 12/31/04 13,930
7,000 Peterson Publishing Term B NR++ NR++ 9/30/04 7,018
10,000 Polyfibron Technologies Term B NR++ NR++ 12/31/03 10,000
9,900 Treasure Chest Advertising Co. Term NR++ Ba3 12/31/02 9,937
35,000 World Color Press, Inc. Term C NR++ B1 12/29/02 34,967
<PAGE>
Total Printing & Publishing (Cost--$134,616) 134,766
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS (continued) (In Thousands)
<CAPTION>
Face Loan S&P Moody's Stated Value
Industries Amount Borrower Type Rating Rating Maturity (Note 1b)
Senior Secured Floating Rate Loan Interests*
<S> <C> <S> <S> <S> <S> <S> <C>
Rendering-- $ 4,979 CBP Resources Inc. Term B NR++ NR++ 9/30/03 $ 4,967
0.2%
Total Rendering (Cost--$4,946) 4,967
Security 11,461 Borg-Warner Corp. Term BBB+ B1 12/31/98 11,457
Systems
Services--
0.4%
Total Security Systems Services (Cost--$11,384) 11,457
Telephone 1,069 Arch Communications Group, Inc. Revolving
Communications Credit NR++ B1 12/31/02 1,058
- --4.4% 1,875 Arch Communications Group, Inc. Term A NR++ B1 12/31/02 1,856
8,000 Arch Communications Group, Inc. Term B NR++ B1 12/31/03 8,010
18,316 Comcast Corp. Term NR++ Ba3 9/30/04 18,162
8,367 MobileMedia Corp. Term A NR++ C 6/30/02 6,893
1,667 MobileMedia Corp. Term B NR++ C 6/30/02 1,387
8,000 MobileMedia Corp. Term B2 NR++ C 6/30/03 6,655
1,588 Nextel Communications, Inc. Revolving
Credit NR++ B1 3/31/03 1,559
1,873 Nextel Communications, Inc. Term NR++ B1 3/31/03 1,839
35,000 Nextel Communications, Inc. Term D NR++ B1 6/30/03 35,098
4,944 Paging Network Inc. Revolving
Credit NR++ Ba2 12/31/04 4,916
4,893 Shared Technologies Cellular, Inc. Term B NR++ B1 3/31/03 4,868
2,887 Sprint Sprectrum L.P. Term 1 NR++ B1 12/31/00 2,833
2,887 Sprint Sprectrum L.P. Term 2 NR++ B1 12/31/01 2,833
20,000 Western Wireless Corp. Term B NR++ B1 3/31/05 20,144
9,364 World Communications Revolving
Credit NR++ Ba1 6/30/01 9,349
<PAGE>
Total Telephone Communications (Cost--$129,606) 127,460
Textiles/Mill 4,655 CS Brooks Canada Axel A NR++ NR++ 6/30/02 4,632
Products 10,345 CS Brooks Canada Axel B NR++ NR++ 6/30/04 10,293
- --0.9% 10,000 Polymer Group, Inc. Term A NR++ Ba3 3/31/02 9,975
Total Textiles/Mill Products (Cost--$24,899) 24,900
Transportation 19,353 Atlas Air, Inc. Revolving
Services-- Credit NR++ NR++ 6/30/98 19,304
2.4% 22,922 Continental Micronesia Axel NR++ NR++ 7/31/03 22,901
7,500 International Logistics Term B NR++ NR++ 12/31/03 7,500
3,333 Petro Shopping Centers Term B BB- NR++ 12/31/03 3,327
16,057 Ryder TRS Term NR++ Ba3 12/31/01 16,077
Total Transportation Services (Cost--$68,995) 69,109
Waste 5,400 Allied Waste Industries, Inc. Axel A BB+ Ba3 3/31/03 5,447
Management-- 10,800 Allied Waste Industries, Inc. Axel B BB+ Ba3 3/31/04 10,895
1.1% 10,800 Allied Waste Industries, Inc. Axel C BB+ Ba3 3/31/05 10,895
4,950 American Disposal Services, Inc. Term NR++ NR++ 6/30/03 4,931
Total Waste Management (Cost--$31,788) 32,168
Total Senior Secured Floating Rate Loan Interests
(Cost--$2,392,935)--82.4% 2,391,215
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS (concluded) (In Thousands)
<CAPTION>
Shares Value
Industries Held Equity Investments (Note 1b)
<S> <C> <S> <C>
Cable TV 1 Classic Cable, Inc. (Warrants) (a) $ 0
Services--0.0%
Drilling--0.0% 12 Rigco North America (Warrants) (a) 0
Restaurants-- 44 Flagstar Companies, Inc. 36
0.0%
Total Equity Investments (Cost--$0)--0.0% 36
Total Long-Term Investments (Cost--$2,392,935)--82.4% 2,391,251
Short-Term Investments
<PAGE>
Commercial American Express Credit Corp. ($30,000 par, maturing 3/05/1997, yielding 5.30%) 29,991
Paper**--15.9% Ciesco L.P. ($50,000 par, maturing 3/07/1997, yielding 5.30%) 49,971
Ciesco L.P. ($40,000 par, maturing 3/19/1997, yielding 5.30%) 39,906
GTE Corporation ($39,100 par, maturing 3/04/1997, yielding 5.31%) 39,094
GTE Corporation ($40,000 par, maturing 3/14/1997, yielding 5.31%) 39,935
GTE Corporation ($20,000 par, maturing 3/18/1997, yielding 5.28%) 19,956
General Electric Capital Corp. ($44,415 par, maturing 3/03/1997, yielding 5.38%) 44,415
Goldman Sachs Group ($25,000 par, maturing 3/04/1997, yielding 5.30%) 24,996
National Fleet Funding Corp. ($15,000 par, maturing 3/14/1997, yielding 5.34%) 14,976
National Fleet Funding Corp. ($20,000 par, maturing 4/10/1997, yielding 5.30%) 19,888
Preferred Receivables Funding Corp. ($13,850 par, maturing 3/03/1997, yielding 5.32%) 13,850
Preferred Receivables Funding Corp. ($44,850 par, maturing 3/13/1997, yielding 5.35%) 44,783
Xerox Credit Corp. ($19,000 par, maturing 3/07/1997, yielding 5.30%) 18,989
Xerox Credit Corp. ($18,750 par, maturing 3/11/1997, yielding 5.32%) 18,728
Xerox Corp. ($15,567 par, maturing 3/07/1997, yielding 5.30%) 15,558
Xerox Corp. ($25,000 par, maturing 3/11/1997, yielding 5.32%) 24,970
Total Commercial Paper (Cost--$460,006) 460,006
US Government Federal Home Loan Mortgage Corp. ($35,000 par, maturing 3/04/1997, yielding 5.19%) 34,995
& Agency
Obligations**
- --1.2%
Total US Government & Agency Obligations (Cost--$34,995) 34,995
Total Short-Term Investments (Cost--$495,001)--17.1% 495,001
Total Investments (Cost--$2,887,936)--99.5% 2,886,252
Other Assets Less Liabilities--0.5% 14,309
----------
Net Assets--100.0% $2,900,561
==========
<FN>
(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.
**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.
<PAGE>
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION
<TABLE>
Statement of Assets and Liabilities as of February 28, 1997
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$2,887,935,583)
(Note 1b) $ 2,886,251,767
Receivables:
Interest $ 22,208,720
Principal paydowns 7,983,610
Capital shares sold 3,562,467
Commitment fees 126,539 33,881,336
----------------
Prepaid registration fees and other assets (Note 1f) 1,680,474
----------------
Total assets 2,921,813,577
----------------
Liabilities: Payables:
Custodian bank (Note 1h) 5,761,175
Dividends to shareholders (Note 1g) 3,192,367
Investment adviser (Note 2) 2,096,373
Administrator (Note 2) 551,677 11,601,592
----------------
Deferred income (Note 1e) 2,478,681
Accrued expenses and other liabilities 7,172,500
----------------
Total liabilities 21,252,773
----------------
Net Assets: Net assets $ 2,900,560,804
================
Net Assets Common Stock, par value $0.10 per share; 1,000,000,000
Consist of: shares authorized $ 29,054,383
Paid-in capital in excess of par 2,879,925,546
Accumulated realized capital losses on investments--net
(Note 7) (6,735,309)
Unrealized depreciation on investments--net (Note 3) (1,683,816)
----------------
Net Assets--Equivalent to $9.98 per share based on
290,543,828 shares of capital stock outstanding $ 2,900,560,804
================
See Notes to Financial Statements.
</TABLE>
<PAGE>
FINANCIAL INFORMATION (continued)
<TABLE>
Statement of Operations
<CAPTION>
For the Six Months Ended
February 28, 1997
<S> <S> <C> <C>
Investment Income Interest and discount earned $ 113,127,970
(Note 1e): Facility and other fees 902,444
----------------
Total income 114,030,414
----------------
Expenses: Investment advisory fees (Note 2) $ 13,730,923
Administrative fees (Note 2) 3,613,401
Transfer agent fees (Note 2) 855,198
Professional fees 207,803
Accounting services (Note 2) 172,881
Registration fees (Note 1f) 150,349
Custodian fees 114,262
Tender offer costs 94,073
Printing and shareholder reports 75,717
Borrowing costs (Note 6) 56,924
Directors' fees and expenses 23,170
Other 27,892
----------------
Total expenses 19,122,593
----------------
Investment income--net 94,907,821
----------------
Realized & Realized gain on investments--net 939,603
Unrealized Gain Change in unrealized appreciation on investments--net (3,065,133)
(Loss) on ----------------
Investments--Net Net Increase in Net Assets Resulting from Operations $ 92,782,291
(Notes 1c, 1e ================
& 3):
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION (continued)
<PAGE>
<TABLE>
Statements of Changes in Net Assets
<CAPTION>
For the Six For the
Months Ended Year Ended
February 28, August 31,
Increase (Decrease) in Net Assets: 1997 1996
<S> <S> <C> <C>
Operations: Investment income--net $ 94,907,821 $ 178,696,222
Realized gain (loss) on investments--net 939,603 (8,718,939)
Change in unrealized appreciation/depreciation on
investments--net (3,065,133) 1,207,962
---------------- ----------------
Net increase in net assets resulting from operations 92,782,291 171,185,245
---------------- ----------------
Dividends to Investment income--net (94,724,321) (178,696,222)
Shareholders ---------------- ----------------
(Note 1g): Net decrease in net assets resulting from dividends to
shareholders (94,724,321) (178,696,222)
---------------- ----------------
Capital Share Net increase (decrease) in net assets resulting from
Transactions capital share transactions (43,024,512) 789,568,710
(Note 4): ---------------- ----------------
Net Assets: Total increase (decrease) in net assets (44,966,542) 782,057,733
Beginning of period 2,945,527,346 2,163,469,613
---------------- ----------------
End of period $ 2,900,560,804 $ 2,945,527,346
================ ================
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION (continued)
<TABLE>
Statement of Cash Flows
<CAPTION>
For the Six Months Ended
February 28, 1997
<S> <S> <C>
Cash Provided Net increase in net assets resulting from operations $ 92,782,291
by Operating Adjustments to reconcile net increase in net assets resulting from
Activities: operations to net cash provided by operating activities:
Increase in receivables (4,627,196)
Increase in other liabilities 8,559,479
Realized and unrealized loss on investments--net 2,125,530
Amortization of discount (15,545,232)
----------------
Net cash provided by operating activities 83,294,872
----------------
<PAGE>
Cash Provided Proceeds from principal payments and sales of loan interests 740,502,321
by Investing Purchases of loan interests (985,349,696)
Activities: Purchases of short-term investments (8,439,954,364)
Proceeds from sales and maturities of short-term investments 8,737,650,989
----------------
Net cash provided by investing activities 52,849,250
----------------
Cash Used for Cash receipts on capital shares sold 170,604,553
Financing Cash payments on capital shares tendered (260,601,425)
Activities: Dividends paid to shareholders (48,807,738)
----------------
Net cash used for financing activities (138,804,610)
----------------
Cash: Net decrease in cash (2,660,488)
Cash at beginning of period 2,660,488
----------------
Cash at end of period $ 0
================
Non-Cash Capital shares issued in reinvestment of dividends paid to shareholders $ 46,256,194
Financing ================
Activities:
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION (concluded)
<TABLE>
Financial Highlights
<CAPTION>
The following per share data and ratios have been derived For the Six
from information provided in the financial statements. Months Ended
February 28, For the Year Ended August 31,
Increase (Decrease) in Net Asset Value: 1997 1996 1995 1994 1993
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 9.99 $ 10.02 $ 10.02 $ 10.02 $ 9.99
Operating -------- -------- -------- -------- --------
Performance: Investment income--net .32 .66 .75 .59 .53
Realized and unrealized gain (loss)
on investments--net (.01) (.03) --++ --++ .03
-------- -------- -------- -------- --------
Total from investment operations .31 .63 .75 .59 .56
-------- -------- -------- -------- --------
Less dividends from investment
income--net (.32) (.66) (.75) (.59) (.53)
-------- -------- -------- -------- --------
Net asset value, end of period $ 9.98 $ 9.99 $ 10.02 $ 10.02 $ 10.02
======== ======== ======== ======== ========
<PAGE>
Total Investment Based on net asset value per share 3.19%+++ 6.53% 7.68% 5.94% 5.74%
Return:** ======== ======== ======== ======== ========
Ratios to Average Expenses 1.32%* 1.34% 1.34% 1.43% 1.47%
Net Assets: ======== ======== ======== ======== ========
Investment income--net 6.57%* 6.54% 7.45% 5.75% 5.27%
======== ======== ======== ======== ========
Supplemental Net assets, end of period (in millions) $ 2,901 $ 2,946 $ 2,163 $ 934 $ 713
Data: ======== ======== ======== ======== ========
Portfolio turnover 31.02% 80.20% 55.23% 61.31% 90.36%
======== ======== ======== ======== ========
<FN>
*Annualized.
**Total investment returns exclude the effect 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.
+++Aggregate total investment return.
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. These unaudited financial statements reflect all
adjustments which are, in the opinion of management, necessary to a
fair statement of the results for the interim period presented. All
such adjustments are of a normal recurring nature.
(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 February 28, 1997 could be
considered to be concentrated in commercial banking.
<PAGE>
(b) Valuation of investments--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.
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.
<PAGE>
(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.
(h) Custodian bank--The Fund recorded an amount payable to the
custodian bank reflecting an overnight draft which resulted from a
failed trade which settled the next day.
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 six months ended February 28, 1997, Merrill Lynch Funds
Distributor, Inc. ("MLFD") earned early withdrawal charges of
$2,785,582, 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.
Certain officers and/or directors of the Fund are officers and/or
directors of MLAM, PSI, MLFDS, MLFD, and/or ML & Co.
<PAGE>
3. Investments:
Purchases and sales of investments, excluding short-term securities,
for the six months ended February 28, 1997 were $985,139,243 and
$748,485,931, respectively.
Net realized and unrealized gains (losses) as of February 28, 1997
were as follows:
Realized Unrealized
Gains Losses
Long-term investments $ 932,987 $ (1,683,816)
Short-term investments 6,616 --
-------------- --------------
Total $ 939,603 $ (1,683,816)
============== ==============
As of February 28, 1997, net unrealized depreciation for financial
reporting and Federal income tax purposes aggregated $1,683,816, of
which $12,690,334 is related to appreciated securities and
$14,374,150 is related to depreciated securities. The aggregate cost
of investments at February 28, 1997 for Federal income tax purposes
was $2,887,935,583.
4. Capital Share Transactions:
Transactions in capital shares were as follows:
For the Six Months Ended Dollar
February 28, 1997 Shares Amount
Shares sold 17,171,051 $ 171,320,719
Shares issued to share-
holders in reinvestment
of dividends 4,635,764 46,256,194
------------- -------------
Total issued 21,806,815 217,576,913
Shares tendered (26,112,364) (260,601,425)
------------- -------------
Net decrease (4,305,549) $ (43,024,512)
============= =============
For the Year Ended Dollar
August 31, 1996 Shares Amount
<PAGE>
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
============= =============
NOTES TO FINANCIAL STATEMENTS (concluded)
5. Unfunded Loan Interests:
As of February 28, 1997, the Fund had unfunded loan commitments of
$254,317,326, which would be extended at the option of the borrower,
pursuant to the following loan agreements:
Unfunded
Commitment
Borrower (in thousands)
Arch Communications Group, Inc. $ 2,056
Atlas Air, Inc. 5,647
Chancellor Broadcasting, Inc. 533
Dal Tile International Inc. 1,886
E & S Holdings Corp. 2,647
Federated Department Stores Inc. 60,223
Fort Howard Corp. 11,029
Garden State Newspapers, Inc. 3,526
Huntsman Corp. 4,371
IMO Industries, Inc. 4,869
Jefferson Smurfit Company/Container Corp.
of America 2,724
Johnstown America Industrial Inc. 3,500
Katz Media Corporation 2,107
Kerastotes 12,196
Loewen Group Inc. 19,197
Marcus Cable Operating Co. 11,813
Nextel Communications, Inc. 6,539
OrNda Healthcare Corp. 278
Paging Network Inc. 29,390
Ralph's Grocery Company 10,800
Riverwood International Corp. 3,475
SC International Corp., Inc. 18,000
S.D. Warren Co. 1,897
Silgan Corp. 9,454
Six Flags Entertainment Corp. 2,277
Stone Container Corp. 9,121
Thermadyne Industries, Inc. 7,440
UCAR International Inc. 6,686
World Communications 636
<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 0.50% on the outstanding balance. The
Fund had no borrowings under this commitment during the six months
ended February 28, 1997. For the six months ended February 28, 1997,
facility and commitment fees aggregated $56,924.
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 March 18, 1997 which
concludes on April 15, 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
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, New York 10286
Transfer Agent
Merrill Lynch Financial Data Services, Inc.
4800 Deer Lake Drive East
Jacksonville, Florida 32246-6484
(800) 637-3863
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