<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 17, 1997
SECURITIES ACT FILE NO. 333-15973
INVESTMENT COMPANY ACT FILE NO. 811-5870
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------
SCHEDULE 13E-4
ISSUER TENDER OFFER STATEMENT
(PURSUANT TO SECTION 13(E)(1) OF THE
SECURITIES EXCHANGE ACT OF 1934)
MERRILL LYNCH SENIOR FLOATING RATE FUND, INC.
(Name of Issuer)
MERRILL LYNCH SENIOR FLOATING RATE FUND, INC.
(Name of Person(s) Filing Statement)
SHARES OF COMMON STOCK, PAR VALUE $.10 PER SHARE
(Title of Class of Securities)
59019R 10 5
(CUSIP Number of Class of Securities)
ARTHUR ZEIKEL
MERRILL LYNCH SENIOR FLOATING RATE FUND, INC.
800 SCUDDERS MILL ROAD
PLAINSBORO, NEW JERSEY 08536
(609) 282-2800
(Name, Address and Telephone Number of Person Authorized to
Receive Notices and Communications on Behalf of Person(s) Filing Statement)
COPIES TO:
<TABLE>
<S> <C>
THOMAS R. SMITH, JR., ESQ. PATRICK D. SWEENEY, ESQ.
BROWN & WOOD LLP MERRILL LYNCH ASSET MANAGEMENT
ONE WORLD TRADE CENTER P.O. BOX 9011
NEW YORK, NEW YORK 10048-0557 PRINCETON, NEW JERSEY 08543-9011
JUNE 17, 1997
(Date Tender Offer First Published,
Sent or Given to Security Holders)
</TABLE>
CALCULATION OF FILING FEE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
Transaction Amount of Filing
Valuation: $125,000,000(a) Fee: $25,000(b)
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(a) Calculated as the aggregate maximum purchase price to be paid for 12,500,000
shares in the offer, based upon the net asset value per share ($10.00) at
June 12, 1997.
(b) Calculated as 1/50th of 1% of the Transaction Valuation.
/ /
Check box if any part of the fee is offset as provided by Rule 0-11(a)(2) and
identify the filing with which the offsetting fee was previously paid.
Identify the previous filing by registration statement number, or the Form
or Schedule and the date of its filing.
Amount Previously Paid: ________________________________________________________
Form or Registration No.: ______________________________________________________
Filing Party: __________________________________________________________________
Date of Filing: ________________________________________________________________
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
ITEM 1. SECURITY AND ISSUER.
(a) The name of the issuer is Merrill Lynch Senior Floating Rate Fund, Inc.,
a closed-end investment company organized as a Maryland corporation (the
"Fund"). The principal executive offices of the Fund are located at 800 Scudders
Mill Road, Plainsboro, New Jersey 08536.
(b) The title of the securities being sought is shares of common stock, par
value $0.10 per share (the "Shares"). As of May 30, 1997 there were
approximately 292 million Shares issued and outstanding.
The Fund is seeking tenders for 12,500,000 Shares (the "Offer"), at net
asset value per Share (the "NAV") calculated on the day the tender offer
terminates, less any "Early Withdrawal Charge," upon the terms and subject to
the conditions set forth in the Offer to Purchase dated June 17, 1997 (the
"Offer to Purchase"). A copy of each of the Offer to Purchase and the related
Letter of Transmittal is attached hereto as Exhibit (a)(1)(ii) and Exhibit
(a)(2), respectively. Reference is hereby made to the Cover Page and Section 1
"Price; Number of Shares" of the Offer to Purchase, which are incorporated
herein by reference. The Fund has been informed that no Directors, officers or
affiliates of the Fund intend to tender Shares pursuant to the Offer.
(c) The Shares are not currently traded on an established trading market.
(d) Not Applicable.
ITEM 2. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION.
(a)-(b) Reference is hereby made to Section 9 "Source and Amount of Funds"
of the Offer to Purchase, which is incorporated herein by reference.
ITEM 3. PURPOSE OF THE TENDER OFFER AND PLANS OR PROPOSALS OF THE ISSUER OR
AFFILIATE.
Reference is hereby made to Section 7 "Purpose of the Offer," Section 8
"Certain Effects of the Offer" and Section 9 "Source and Amount of Funds" of the
Offer to Purchase, which are incorporated herein by reference. The Fund is
currently engaged in a public offering, from time to time, of its Shares. The
Fund otherwise has no plans or proposals which relate to or would result in (a)
the acquisition by any person of additional securities of the Fund or the
disposition of securities of the Fund; (b) an extraordinary corporate
transaction, such as a merger, reorganization or liquidation, involving the
Fund; (c) a sale or transfer of a material amount of assets of the Fund; (d) any
change in the present Board of Directors or management of the Fund, including,
but not limited to, any plans or proposals to change the number or the term of
Directors, or to fill any existing vacancy on the Board or to change any
material term of the employment contract of any executive officer; (e) any
material change in the present dividend rate or policy, or indebtedness or
capitalization of the Fund; (f) any other material change in the Fund's
corporate structure or business, including any plans or proposals to make any
changes in its investment policy for which a vote would be required by Section
13 of the Investment Company Act of 1940, as amended; or (g) changes in the
Fund's articles of incorporation, bylaws or instruments corresponding thereto or
other actions which may impede the acquisition of control of the Fund by any
person. Paragraphs (h) through (j) of this Item 3 are not applicable.
ITEM 4. INTEREST IN SECURITIES OF THE ISSUER.
There have not been any transactions involving the Shares of the Fund that
were effected during the past 40 business days by the Fund, any executive
officer or Director of the Fund, any person controlling the Fund, any executive
officer or director of any corporation ultimately in control of the Fund or by
any associate or subsidiary of any of the foregoing including any executive
officer or director of any such subsidiary, except that within the past 40
business days pursuant to the public offering of its Shares the Fund has sold
approximately 1.2 million Shares at a price equal to the NAV of the Fund on the
date of each such sale.
i
<PAGE>
ITEM 5. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH RESPECT TO
THE ISSUER'S SECURITIES.
The Fund does not know of any contract, arrangement, understanding or
relationship relating directly or indirectly, to the Offer (whether or not
legally enforceable) between the Fund, any of the Fund's executive officers or
Directors, any person controlling the Fund or any executive officer or director
of any corporation ultimately in control of the Fund and any person with respect
to any securities of the Fund (including, but not limited to, any contract,
arrangement, understanding or relationship concerning the transfer or the voting
of any such securities, joint ventures, loan or option arrangements, puts or
calls, guarantees of loans, guarantees against loss, or the giving or
withholding of proxies, consents or authorizations).
ITEM 6. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED.
No persons have been employed, retained or are to be compensated by the Fund
to make solicitations or recommendations in connection with the Offer.
ITEM 7. FINANCIAL INFORMATION.
(a) Reference is hereby made to the financial statements included as
Exhibits (g)(1), (g)(2) and (g)(3) hereto, which are incorporated herein by
reference.
(b) None.
ITEM 8. ADDITIONAL INFORMATION.
(a) None.
(b) None.
(c) Not applicable.
(d) None.
(e) The Offer to Purchase, attached hereto as Exhibit (a)(1)(ii), is
incorporated herein by reference in its entirety.
ITEM 9. MATERIAL TO BE FILED AS EXHIBITS.
<TABLE>
<C> <C> <S>
(a)(1) (i) Advertisement to be printed in THE WALL STREET JOURNAL.
(ii) Offer to Purchase.
(a)(2) Form of Letter of Transmittal.
(a)(3) Letter to Stockholders.
(b) Form of Loan Agreement by and between Merrill Lynch International Bank
Limited and the Fund.
(c)-(f) Not Applicable.
(g)(1) Audited Financial Statements of the Fund for the fiscal year ended August
31, 1995.
(g)(2) Audited Financial Statements of the Fund for the fiscal year ended August
31, 1996.
(g)(3) Unaudited Financial Statements of the Fund for the six months ended
February 28, 1997.
</TABLE>
ii
<PAGE>
SIGNATURE
After due inquiry and to the best of my knowledge and belief, I certify that
the information set forth in this statement is true, complete and correct.
MERRILL LYNCH SENIOR FLOATING RATE FUND,
INC.
By /s/ TERRY K. GLENN
...........................
(Terry K. Glenn, Executive
Vice President)
June 17, 1997
iii
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
- -----------
<S> <C>
(a)(1)(i) Advertisement to be printed in THE WALL STREET JOURNAL.
(a)(1)(ii) Offer to Purchase.
(a)(2) Form of Letter of Transmittal.
(a)(3) Letter to Stockholders.
(b) Form of Loan agreement by and between Merrill Lynch International Bank Limited and the Fund.
(c)-(f) Not Applicable.
(g)(1) Audited Financial Statements of the Fund for the fiscal year ended
August 31, 1995.
(g)(2) Audited Financial Statements of the Fund for the fiscal year ended
August 31, 1996.
(g)(3) Unaudited Financial Statements of the Fund for the six months ended
February 28, 1997.
</TABLE>
- ------------------------
iv
<PAGE>
EXHIBIT (a)(1)(i)
<PAGE>
THIS ANNOUNCEMENT IS NOT AN OFFER TO PURCHASE OR A SOLICITATION OF AN OFFER TO
SELL SHARES. THE OFFER IS MADE ONLY BY THE OFFER TO PURCHASE DATED JUNE 17,
1997, AND THE RELATED LETTER OF TRANSMITTAL. THE OFFER IS NOT BEING MADE TO, NOR
WILL TENDERS BE ACCEPTED FROM OR ON BEHALF OF, HOLDERS OF SHARES IN ANY
JURISDICTION IN WHICH MAKING OR ACCEPTING THE OFFER WOULD VIOLATE THAT
JURISDICTION'S LAWS.
[LOGO]
NOTICE OF OFFER TO PURCHASE FOR CASH 12,500,000 OF ITS
ISSUED AND OUTSTANDING SHARES AT NET ASSET VALUE PER SHARE
THE EXPIRATION DATE AND THE WITHDRAWAL DEADLINE ARE 12:00 MIDNIGHT,
NEW YORK CITY TIME, ON TUESDAY, JULY 15, 1997, UNLESS EXTENDED.
Merrill Lynch Senior Floating Rate Fund, Inc. (the "Fund") is offering to
purchase 12,500,000 of its issued and outstanding shares of common stock par
value $.10 per share (the "Shares") at a price equal to their net asset value
("NAV") less any applicable early withdrawal charge as of the close of the New
York Stock Exchange on the Expiration Date, July 15, 1997, unless extended, upon
the terms and conditions set forth in the Offer to Purchase dated June 17, 1997
(the "Offer"). The NAV on June 12, 1997, was $10.00 per Share. The purpose of
the Offer is to provide liquidity to stockholders since the Fund is unaware of
any secondary market which exists for the Shares. The Offer is not conditioned
upon the tender of any minimum number of Shares.
If more than 12,500,000 Shares are duly tendered prior to the expiration of
the Offer, assuming no changes in the factors originally considered by the Board
of Directors when it determined to make the Offer, the Fund will either extend
the Offer period, if necessary, and increase the number of Shares that the Fund
is offering to purchase to an amount which it believes will be sufficient to
accommodate the excess Shares tendered, as well as any Shares tendered during
the extended Offer period, or purchase 12,500,000 Shares (or such larger number
of Shares sought) on a pro rata basis.
Shares tendered pursuant to the Offer may be withdrawn at any time prior to
12:00 midnight, New York City time, on Tuesday, July 15, 1997, unless the Offer
is extended, and, if not yet accepted for payment by the Fund, Shares may also
be withdrawn after August 12, 1997.
The information required to be disclosed by paragraph (d)(1) of Rule 13e-4
under the Securities Exchange Act of 1934, as amended, is contained in the Offer
to Purchase and is incorporated herein by reference.
The Offer to Purchase and the related Letter of Transmittal contain
important information that should be read carefully before any decision is made
with respect to the Offer.
Questions and requests for assistance, for current NAV quotations or for
copies of the Offer to Purchase, Letter of Transmittal, and any other tender
offer documents, may be directed to the Merrill Lynch Response Center at the
address and telephone number below. Copies will be furnished promptly at no
expense to you and also may be obtained by completing and returning the coupon
below to the Merrill Lynch Response Center. Stockholders who do not own Shares
directly should effect a tender through their broker, dealer or nominee. For
example, stockholders who purchased Shares through Merrill Lynch, Pierce, Fenner
& Smith Incorporated should effect tenders through their Financial Consultant.
1-800-MERRILL, EXT. 7198
1-800-637-7455
<TABLE>
<S> <C>
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MAIL TO: MERRILL LYNCH RESPONSE CENTER,
P.O. BOX 30200, NEW BRUNSWICK, NJ 08989-0200
/ / PLEASE SEND ME MERRILL LYNCH SENIOR FLOATING RATE FUND, INC. TENDER
OFFER MATERIALS
NAME ADDRESS
BUSINESS PHONE CITY
HOME PHONE STATE ZIP
MERRILL LYNCH CLIENTS, PLEASE GIVE THE NAME AND OFFICE ADDRESS OF YOUR
FINANCIAL CONSULTANT:
- ----------------------------------------------------------------------------
7198
</TABLE>
June 17, 1997
[LOGO]
<PAGE>
EXHIBIT (a)(1)(ii)
<PAGE>
MERRILL LYNCH SENIOR FLOATING RATE FUND, INC.
800 SCUDDERS MILL ROAD
PLAINSBORO, NEW JERSEY 08536
OFFER TO PURCHASE FOR CASH 12,500,000
OF ITS ISSUED AND OUTSTANDING SHARES
AT NET ASSET VALUE PER SHARE
THE EXPIRATION DATE AND THE WITHDRAWAL DEADLINE IS 12:00 MIDNIGHT,
NEW YORK CITY TIME, ON JULY 15, 1997, UNLESS EXTENDED.
To the Holders of Shares of
MERRILL LYNCH SENIOR FLOATING RATE FUND, INC.:
The Fund is offering to purchase up to 12,500,000 of its shares of common
stock, par value $.10 per share (the "Shares"), for cash at a price equal to
their net asset value ("NAV"), less any applicable Early Withdrawal Charge, as
of the close of the New York Stock Exchange on July 15, 1997, the Expiration
Date, unless extended, upon the terms and conditions set forth in this Offer to
Purchase (the "Offer") and the related Letter of Transmittal. The Shares are not
currently traded on an established secondary market. The NAV on June 12, 1997
was $10.00 per Share. You can obtain current NAV quotations from your Merrill
Lynch Financial Consultant or the Merrill Lynch, Pierce, Fenner & Smith
Incorporated Response Center (the "Merrill Lynch Response Center") (see Section
1). The Fund presently intends each quarter to consider making a tender offer
for its Shares at a price equal to their current NAV.
If more than 12,500,000 Shares are duly tendered prior to the expiration of
the Offer, assuming no changes in the factors originally considered by the Board
of Directors when it determined to make the Offer, the Fund will either (1)
extend the Offer period, if necessary, and increase the number of Shares that
the Fund is offering to purchase to an amount which it believes will be
sufficient to accommodate the excess Shares tendered as well as any Shares
tendered during the extended Offer period or (2) purchase 12,500,000 Shares (or
such greater number of Shares sought) on a pro rata basis.
THIS OFFER IS BEING MADE TO ALL STOCKHOLDERS OF THE FUND AND IS NOT
CONDITIONED UPON ANY MINIMUM NUMBER OF SHARES BEING TENDERED.
IMPORTANT
If you desire to tender all or any portion of your Shares, you should either
(1) request your broker, dealer, commercial bank, trust company or other nominee
to effect the transaction for you or (2) if you own your Shares directly,
complete and sign the Letter of Transmittal and mail or deliver it along with
any Share certificate(s) and any other required documents to the Fund's transfer
agent, Merrill Lynch Financial Data Services, Inc. (the "Transfer Agent"). If
your Shares are registered in the name of a broker, dealer, commercial bank,
trust company or other nominee, you must contact such broker, dealer, commercial
bank, trust company or other nominee if you desire to tender your Shares. Shares
held in your Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill
Lynch") brokerage account are registered in the name of Merrill Lynch and are
not held by you directly. Merrill Lynch may charge its customers a $5.35
processing fee to confirm a repurchase of Shares from such customers pursuant to
the Offer.
NEITHER THE FUND NOR ITS BOARD OF DIRECTORS MAKES ANY RECOMMENDATION TO ANY
STOCKHOLDER AS TO WHETHER TO TENDER OR REFRAIN FROM TENDERING SHARES. EACH
STOCKHOLDER MUST MAKE HIS OWN DECISION WHETHER TO TENDER SHARES, AND IF SO, HOW
MANY SHARES TO TENDER.
NO PERSON HAS BEEN AUTHORIZED TO MAKE ANY RECOMMENDATION ON BEHALF OF THE
FUND AS TO WHETHER STOCKHOLDERS SHOULD TENDER SHARES PURSUANT TO THE OFFER. NO
PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THE OFFER OTHER THAN THOSE CONTAINED HEREIN
OR IN THE LETTER OF TRANSMITTAL. IF GIVEN OR MADE, SUCH RECOMMENDATION AND SUCH
INFORMATION AND REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE FUND.
<PAGE>
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE FAIRNESS OR MERITS OF SUCH TRANSACTION NOR UPON THE ACCURACY OR ADEQUACY OF
THE INFORMATION CONTAINED IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY
IS UNLAWFUL.
Questions and requests for assistance may be directed to your Merrill Lynch
Financial Consultant or other nominee, or to the Transfer Agent at the address
and telephone number set forth below. Requests for additional copies of this
Offer to Purchase and the Letter of Transmittal should be directed to the
Merrill Lynch Response Center.
<TABLE>
<S> <C>
June 17, 1997 MERRILL LYNCH SENIOR FLOATING RATE
FUND, INC.
Merrill Lynch Response Center Transfer Agent: Merrill Lynch Financial Data
P.O. Box 30200 Services, Inc.
New Brunswick, New Jersey 08989-0200 Attn: Merrill Lynch Senior Floating Rate
Attn: Merrill Lynch Senior Floating Rate Fund, Inc.
Fund, Inc. P.O. Box 45289
(800) 637-7455, ext. 7198 Jacksonville, Florida 32232-5289
(800) 637-3863
</TABLE>
--------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
SECTIONS PAGE
- ------------- ---------
<C> <S> <C>
1. Price; Number of Shares......................................................................... 3
2. Procedure for Tendering Shares.................................................................. 3
3. Early Withdrawal Charge......................................................................... 4
4. Withdrawal Rights............................................................................... 5
5. Payment for Shares.............................................................................. 5
6. Certain Conditions of the Offer................................................................. 5
7. Purpose of the Offer............................................................................ 6
8. Certain Effects of the Offer.................................................................... 6
9. Source and Amount of Funds...................................................................... 6
10. Summary of Selected Financial Information....................................................... 7
11. Certain Information About the Fund.............................................................. 8
12. Additional Information.......................................................................... 8
13. Certain Federal Income Tax Consequences......................................................... 8
14. Extension of Tender Period; Termination; Amendments............................................. 9
15. Miscellaneous................................................................................... 9
</TABLE>
2
<PAGE>
1. PRICE; NUMBER OF SHARES. The Fund will, upon the terms and subject to
the conditions of the Offer, purchase up to 12,500,000 of its issued and
outstanding Shares which are tendered and not withdrawn prior to 12:00 midnight,
New York City time, on July 15, 1997 (such time and date being hereinafter
called the "Initial Expiration Date"), unless it determines to accept none of
them. The purchase price of the Shares will be their NAV as of the close of the
New York Stock Exchange on the Expiration Date. An Early Withdrawal Charge to
recover distribution expenses will be assessed on Shares accepted for purchase
which have been held for less than the applicable holding period (See Section
3). The Fund reserves the right to extend the Offer (See Section 14). The later
of the Initial Expiration Date or the latest time and date to which the Offer is
extended is hereinafter called the "Expiration Date."
The Offer is being made to all stockholders of the Fund and is not
conditioned upon any number of Shares being tendered. If more than 12,500,000
Shares are duly tendered prior to the expiration of the Offer, assuming no
changes in the factors originally considered by the Board of Directors when it
initially determined to make the Offer, the Fund will either (1) extend the
Offer period, if necessary, and increase the number of Shares that the Fund is
offering to purchase to an amount which it believes will be sufficient to
accommodate the excess Shares tendered as well as any Shares tendered during the
extended Offer period or (2) purchase 12,500,000 Shares (or greater number of
Shares sought) on a pro rata basis.
As of May 30, 1997 there were approximately 292 million Shares issued and
outstanding and there were 2,429 holders of record of Shares (in addition,
Merrill Lynch maintains accounts for 103,545 beneficial owners of Shares). The
Fund has been informed that none of the Directors, officers or affiliates of the
Fund intends to tender any Shares pursuant to the Offer. The Shares currently
are not traded on any established secondary market. Current NAV quotations for
the Shares can be obtained from your Merrill Lynch Financial Consultant or from
the Merrill Lynch Response Center at (800) 637-7455, ext. 7198.
2. PROCEDURE FOR TENDERING SHARES. In order for you to tender any of your
Shares pursuant to the Offer, you may either: (a) request your broker, dealer,
commercial bank, trust company or other nominee to effect the transaction for
you, in which case a Letter of Transmittal is not required or (b) if the Shares
are registered in your name, send to the Transfer Agent, at the address set
forth on page 2, any certificates for such Shares, a properly completed and
executed Letter of Transmittal and any other documents required therein. Please
contact the Merrill Lynch Response Center at (800) 637-7455, ext. 7198 as to any
additional documents which may be required.
A. PROCEDURES FOR BENEFICIAL OWNERS HOLDING SHARES THROUGH MERRILL LYNCH OR
OTHER BROKERS OR NOMINEES.
If your Shares are registered in the name of a broker, dealer, commercial
bank, trust company or other nominee, you must contact such broker, dealer,
commercial bank, trust company or other nominee if you desire to tender your
Shares. You should contact such broker, dealer, commercial bank, trust company
or other nominee in sufficient time to permit notification of your desire to
tender to reach the Transfer Agent by the Expiration Date. No brokerage
commission will be charged on the purchase of Shares by the Fund pursuant to the
Offer. However, a broker or dealer may charge a fee for processing the
transaction on your behalf. Merrill Lynch may charge its customers a $5.35
processing fee to confirm a purchase of Shares pursuant to the Offer.
B. PROCEDURES FOR REGISTERED STOCKHOLDERS.
If you will be mailing or delivering the Letter of Transmittal and any other
required documents to the Transfer Agent in order to tender your Shares, they
must be received on or prior to the Expiration Date by the Transfer Agent at its
address set forth on page 2 of this Offer to Purchase.
Signatures on the Letter of Transmittal MUST be guaranteed by an "eligible
guarantor institution" as such is defined in Rule 17Ad-15 under the Securities
Exchange Act of 1934, the existence and validity of which may be verified by the
Transfer Agent through the use of industry publications. Notarized signatures
are not sufficient.
3
<PAGE>
Payment for Shares tendered and purchased will be made only after receipt by
the Transfer Agent on or before the Expiration Date of a properly completed and
duly executed Letter of Transmittal and any other required documents. If your
Shares are evidenced by certificates, those certificates must also be received
by the Transfer Agent on or prior to the Expiration Date.
THE METHOD OF DELIVERY OF ANY DOCUMENTS, INCLUDING CERTIFICATES FOR SHARES,
IS AT THE ELECTION AND RISK OF THE PARTY TENDERING THE SHARES. IF DOCUMENTS ARE
SENT BY MAIL, IT IS RECOMMENDED THAT THEY BE SENT BY REGISTERED MAIL, PROPERLY
INSURED, WITH RETURN RECEIPT REQUESTED.
C. DETERMINATIONS OF VALIDITY.
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance of tenders will be determined by the Fund, in its sole
discretion, whose determination shall be final and binding. The Fund reserves
the absolute right to reject any or all tenders determined by it not to be in
appropriate form or the acceptance of or payment for which would, in the opinion
of counsel for the Fund, be unlawful. The Fund also reserves the absolute right
to waive any of the conditions of the Offer or any defect in any tender with
respect to any particular Shares or any particular stockholder, and the Fund's
interpretations of the terms and conditions of the Offer will be final and
binding. Unless waived, any defects or irregularities in connection with tenders
must be cured within such times as the Fund shall determine. Tenders will not be
deemed to have been made until the defects or irregularities have been cured or
waived. Neither the Fund, its investment adviser and administrator, Merrill
Lynch Asset Management, L.P. ("MLAM"), nor the Transfer Agent, nor any other
person shall be obligated to give notice of any defects or irregularities in
tenders, nor shall any of them incur any liability for failure to give such
notice.
D. TENDER CONSTITUTES AN AGREEMENT.
A tender of Shares made pursuant to any one of the procedures set forth
above will constitute an agreement between the tendering stockholder and the
Fund in accordance with the terms and subject to the conditions of the Offer.
3. EARLY WITHDRAWAL CHARGE. The Fund will assess an Early Withdrawal
Charge on Shares accepted for purchase which have been held for less than three
years. The charge will be paid to Merrill Lynch Funds Distributor, Inc., a
wholly owned subsidiary of MLAM and the distributor of the Shares, to recover
distribution expenses. The Early Withdrawal Charge will be imposed on those
Shares accepted for tender based on an amount equal to the lesser of the then
current net asset value of the Shares or the cost of the Shares being tendered.
Accordingly, the Early Withdrawal Charge is not imposed on increases in the net
asset value above the initial purchase price. In addition, the Early Withdrawal
Charge is not imposed on Shares derived from reinvestments of dividends or
capital gains distributions. In determining whether an Early Withdrawal Charge
is payable, it is assumed that the acceptance of an offer to purchase tendered
Shares will be made first from Shares acquired through dividend reinvestment and
then from the earliest outright purchase of Shares. The Early Withdrawal Charge
imposed will vary depending on the length of time the Shares have been owned
since purchase (separate purchases shall not be aggregated for these purposes),
as set forth in the following table:
<TABLE>
<CAPTION>
EARLY
YEAR OF TENDER AFTER PURCHASE WITHDRAWAL CHARGE
- -------------------------------------------------------------------- -------------------------
<S> <C>
First............................................................... 3.0%
Second.............................................................. 2.0%
Third............................................................... 1.0%
Fourth and following................................................ 0.0%
</TABLE>
4
<PAGE>
In determining whether an Early Withdrawal Charge is applicable to a tender
of Shares, the calculation will be determined in the manner that results in the
lowest possible amount being charged. Therefore, it will be assumed that the
tender is first of Shares acquired through dividend reinvestment and of Shares
held for over three years and then of Shares held longest during the three-year
period. The Early Withdrawal Charge will not be applied to dollar amounts
representing an increase in the net asset value since the time of purchase.
4. WITHDRAWAL RIGHTS. You may withdraw Shares tendered at any time prior
to the Expiration Date and, if the Shares have not yet been accepted for payment
by the Fund, at any time after August 12, 1997.
Stockholders whose accounts are maintained through Merrill Lynch should
notify their Financial Consultant prior to the Expiration Date if they wish to
withdraw Shares. Stockholders whose accounts are maintained through another
broker, dealer, commercial bank, trust company or other nominee should notify
such nominee prior to the Expiration Date. Shareholders whose accounts are
maintained directly through the Transfer Agent should submit written notice to
the Transfer Agent.
To be effective, any notice of withdrawal must be timely received by the
Transfer Agent at the address set forth on page 2 of this Offer to Purchase. Any
notice of withdrawal must specify the name of the person having deposited the
Shares to be withdrawn, the number of Shares to be withdrawn, and, if the
certificates representing such Shares have been delivered or otherwise
identified to the Transfer Agent, the name of the registered holder(s) of such
Shares as set forth in such certificates and the number of Shares to be
withdrawn. If the certificates have been delivered to the Transfer Agent, then,
prior to the release of such certificate, you must also submit the certificate
numbers shown on the particular certificates evidencing such Shares and the
signature on the notice of the withdrawal must be guaranteed by an Eligible
Institution. All questions as to the form and validity (including time of
receipt) of notices of withdrawal will be determined by the Fund in its sole
discretion, whose determination shall be final and binding. Shares properly
withdrawn shall not thereafter be deemed to be tendered for purposes of the
Offer. However, withdrawn Shares may be retendered by following one of the
procedures described in Section 2 prior to the Expiration Date.
5. PAYMENT FOR SHARES. For purposes of the Offer, the Fund will be deemed
to have accepted for payment (and thereby purchased) Shares which are tendered
as, if and when it gives oral or written notice to the Transfer Agent of its
election to purchase such Shares.
Payment for Shares will be made promptly by the Transfer Agent to tendering
stockholders as directed by the Fund. Certificates for Shares not purchased (see
Sections 1 and 6), or for Shares not tendered included in certificates forwarded
to the Transfer Agent, will be returned promptly following the termination,
expiration or withdrawal of the Offer, without expense to the tendering
stockholder.
The Fund will pay all transfer taxes, if any, payable on the transfer to it
of Shares purchased pursuant to the Offer. If tendered certificates are
registered in the name of any person other than the person signing the Letter of
Transmittal, the amount of any such transfer taxes (whether imposed on the
registered holder or such other person) payable on account of the transfer to
such person will be deducted from the purchase price unless satisfactory
evidence of the payment of such taxes, or exemption therefrom, is submitted. The
Fund will not pay any interest on the purchase price under any circumstances.
As noted above, Merrill Lynch may charge its customers a $5.35 processing
fee to confirm a purchase of Shares from such customers pursuant to the Offer.
6. CERTAIN CONDITIONS OF THE OFFER. The Fund shall not be required to
accept for payment or pay for any Shares tendered, and may terminate or amend
the Offer or may postpone the acceptance for payment of or payment for Shares
tendered, if: (1) such purchases would impair the Fund's status as a regulated
investment company under the Internal Revenue Code (which would make the Fund a
taxable entity, causing the Fund's income to be taxed at the corporate level in
addition to the taxation of stockholders who receive dividends from the Fund);
(2) the Fund would not be able to liquidate portfolio securities in a manner
which is orderly and consistent with the Fund's investment objective and
policies in order to purchase Shares tendered pursuant to the Offer; or (3)
there is, in the Board's judgment, any (a) legal
5
<PAGE>
action or proceeding instituted or threatened challenging the Offer or otherwise
materially adversely affecting the Fund, (b) declaration of a banking moratorium
by Federal or state authorities or any suspension of payment by banks in the
United States or New York State, which is material to the Fund, (c) limitation
imposed by Federal or state authorities on the extension of credit by lending
institutions, (d) commencement of war, armed hostilities or other international
or national calamity directly or indirectly involving the United States which is
material to the Fund, or (e) other event or condition which would have a
material adverse effect on the Fund or its stockholders if Shares tendered
pursuant to the Offer were purchased.
If the Fund determines to amend the Offer or to postpone the acceptance for
payment of or payment for Shares tendered, it will, to the extent necessary,
extend the period of time during which the Offer is open as provided in Section
14. Moreover, in the event any of the foregoing conditions are modified or
waived in whole or in part at any time, the Fund will promptly make a public
announcement of such waiver and may, depending on the materiality of the
modification or waiver, extend the Offer period as provided in Section 14.
7. PURPOSE OF THE OFFER. The Fund does not currently believe there will be
an active secondary market for its Shares. The Board of Directors has determined
that it would be in the best interest of stockholders for the Fund to take
action to attempt to provide liquidity to stockholders. To that end, the
Directors presently intend each quarter to consider the making of a tender offer
to purchase the Shares at NAV. The Fund will at no time be required to make any
such tender offer.
8. CERTAIN EFFECTS OF THE OFFER. The Purchase of Shares pursuant to the
Offer will have the effect of increasing the proportionate interest in the Fund
of stockholders who do not tender their Shares. If you retain your Shares,
however, you will be subject to any increased risks that may result from the
reduction in the Fund's aggregate assets resulting from payment for the Shares,
including, for example, the potential for greater volatility due to decreased
diversification and higher expenses. However, the Fund believes that those risks
will be reduced to the extent new Shares of the Fund are sold. All Shares
purchased by the Fund pursuant to the Offer will be retired by the Board of
Directors of the Fund.
9. SOURCE AND AMOUNT OF FUNDS. The aggregate purchase price if 12,500,000
Shares are tendered and accepted for payment pursuant to the Offer will be
approximately $125,000,000. The Fund anticipates that the purchase price for any
Shares acquired pursuant to the Offer may be derived from (i) cash on hand, (ii)
the proceeds of the sale of cash equivalents held by the Fund, (iii) the
proceeds of sales of senior collateralized corporate loans held by the Fund
and/or (iv) borrowings by the Fund. If, in the judgment of the Directors, there
is not sufficient liquidity of the assets of the Fund, or availability of funds
from borrowings, to pay for tendered Shares, the Fund may terminate the Offer.
The Fund has entered into an agreement with Merrill Lynch International Bank
Limited, an affiliate of MLAM, providing for an unsecured revolving credit
facility (the "Facility"), the proceeds of which may be used to finance the
payment for Shares tendered in a tender offer by the Fund, and to pay interest
and fees incurred in connection with the Facility. The Facility provides for the
borrowing by the Fund of up to $100,000,000 at a rate of interest equal to, at
the Fund's option, the sum of the federal funds rate (as published by the
Federal Reserve Bank of New York) plus .25% or the sum of the London Interbank
Offered Rate ("LIBOR") plus .25%. Interest on borrowings is computed on the
basis of a year of 360 days for the actual number of days elapsed and is payable
in arrears on the last day of June, September, December and March commencing
June 1997, in the case of borrowings that bear interest at the federal funds
rate, and on the earlier of the end of the interest period selected by the Fund,
and three month intervals thereof, in the case of borrowings that bear interest
at the LIBOR rate. Each borrowing under the Facility is required to be repaid on
June 12, 1998, the maturity date of the Facility. Borrowings under the Facility,
if any, may be repaid with the proceeds of portfolio investments sold by the
Fund subsequent to the expiration date of a tender offer.
The terms of the Facility may be modified by written agreement of the
parties thereto. Pursuant to the terms of the Facility the Fund is required to
maintain asset coverage of 150% of the outstanding principal balance of
borrowings under the Facility and accrued interest. The Fund also may not during
the term of
6
<PAGE>
the Facility incur indebtedness except for indebtedness incurred under the
Facility, in hedging transactions and for purchases of securities on short-term
credit as may be necessary for the clearance of sales or purchases of portfolio
securities and subordinated indebtedness. Additionally, during the term of the
Facility, the Fund is restricted with respect to the declaration or payment of
dividends. Pursuant to such agreement as long as no default has occurred and is
continuing under the Facility the Fund may make its periodic dividend payments
to shareholders in an amount not in excess of its net investment income for such
period, and as long as the maturity of any borrowings under the Facility have
not been accelerated prior to the maturity date thereof the Fund may distribute
each year all of its net investment income (including net capital gain) so that
it will not be subject to tax under the Internal Revenue Code of 1986, as
amended (the "Code"). The Fund has determined that the terms of the Facility are
at least as favorable as those available from comparable sources of funds in the
marketplace.
Under the Investment Company Act of 1940 (the "1940 Act"), the Fund is not
permitted to incur indebtedness unless immediately after such incurrence the
Fund has an asset coverage of 300% of the aggregate outstanding principal
balance of indebtedness. Additionally, under the 1940 Act the Fund may not
declare any dividend or other distribution upon any class of its capital stock,
or purchase any such capital stock, unless the aggregate indebtedness of the
Fund has at the time of the declaration of any such dividend or distribution or
at the time of any such purchase an asset coverage of at least 300% after
deducting the amount of such dividend, distribution, or purchase price, as the
case may be.
10. SUMMARY OF SELECTED FINANCIAL INFORMATION. Set forth below is a
summary of selected financial information for the Fund for the fiscal years
ended August 31, 1995 and 1996 and the six months ended February 28, 1997. The
information with respect to the fiscal years ended August 31, 1995 and 1996 has
been excerpted from the Fund's audited financial statements. More comprehensive
financial information is included in such reports (copies of which have been
filed as exhibits to the Schedule 13E-4 filed with the Securities and Exchange
Commission (the "SEC") in connection with the Offer and may be obtained from the
Transfer Agent) and the summary of selected financial information set forth
below is qualified in its entirety by reference to such documents and the
financial information, the notes thereto and related matter contained therein.
SUMMARY OF SELECTED FINANCIAL INFORMATION
(IN 000'S EXCEPT PER SHARE DATA AND RATIOS)
<TABLE>
<CAPTION>
FOR THE
SIX MONTHS
ENDED
FEBRUARY
YEAR ENDED YEAR ENDED 28,
AUGUST 31, AUGUST 31, 1997
1995 1996 (UNAUDITED)
----------- ----------- -----------
<S> <C> <C> <C>
INCOME STATEMENT
Investment income........................................................ $ 126,301 $ 215,322 $ 114,030
Expenses................................................................. 19,220 36,626 19,123
----------- ----------- -----------
Investment income--net................................................... $ 107,081 $ 178,696 $ 94,907
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS--NET
Realized gain (loss) on investments--net................................. 901 (8,719) 940
Change in unrealized appreciation on investments--net.................... (102) 1,208 (3,065)
FINANCIAL HIGHLIGHTS (AT END OF PERIOD)
Total assets............................................................. $2,185,841 $2,958,412 $2,921,814
Total liabilities........................................................ 22,371 12,885 21,253
----------- ----------- -----------
Net assets............................................................... $2,163,470 $2,945,527 $2,900,561
Net asset value per share................................................ $ 10.02 $ 9.99 $ 9.98
Shares of common stock outstanding....................................... 215,972 294,849 290,544
PER SHARE
Investment income--net................................................... $ .75 $ .66 $ .32
Realized and unrealized gain (loss) on investments--net.................. --* (.03) (.01)
Dividends from net investment income to common shareholders.............. $ (.75) $ (.66) $ (.32)
RATIOS
Total expenses to average net assets..................................... 1.34% 1.34% 1.32%**
Investment income--net, to average net assets............................ 7.45% 6.54% 6.57%**
</TABLE>
- ------------------------------
* Amount is less than $0.01 per share.
** Annualized
7
<PAGE>
11. CERTAIN INFORMATION ABOUT THE FUND. The Fund was incorporated under
the laws of the State of Maryland on July 17, 1989 and is a non-diversified,
closed-end, management investment company registered under the 1940 Act. The
Fund seeks as high a level of current income and such preservation of capital as
is consistent with investment in senior collateralized corporate loans
("Corporate Loans") made by banks and other financial institutions. The
Corporate Loans pay interest at rates which float or reset at a margin above a
generally-recognized base lending rate such as the prime rate of a designated
U.S. bank, the Certificate of Deposit rate or the London InterBank Offered Rate.
MLAM, an affiliate of Merrill Lynch, acts as investment adviser and
administrator for the Fund.
There have not been any transactions involving the Shares of the Fund that
were effected during the past 40 business days by the Fund, any executive
officer or Director of the Fund, any person controlling the Fund, any executive
officer or director of any corporation ultimately in control of the Fund or by
any associate or subsidiary of any of the foregoing including any executive
officer or director of any such subsidiary, except that within the past 40
business days pursuant to the public offering of its Shares the Fund has sold
approximately 1.2 million Shares at a price equal to NAV on the date of each
such sale.
The principal executive offices of the Fund are located at 800 Scudders Mill
Road, Plainsboro, New Jersey 08536.
12. ADDITIONAL INFORMATION. The Fund has filed a statement on Schedule
13E-4 with the SEC which includes certain additional information relating to the
Offer. Such material may be inspected and copied at prescribed rates at the
SEC's public reference facilities at Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549; Seven World Trade Center, New York, New York 10048; and
Room 3190, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies
of such material may also be obtained by mail at prescribed rates from the
Public Reference Branch of the SEC at 450 Fifth Street, N.W., Washington, D.C.
20549.
13. CERTAIN FEDERAL INCOME TAX CONSEQUENCES. The following discussion is a
general summary of the Federal income tax consequences of a sale of Shares
pursuant to the Offer. You should consult your own tax adviser for a complete
description of the tax consequences to you of a sale of Shares pursuant to the
Offer.
The sale of Shares pursuant to the Offer will be a taxable transaction for
Federal income tax purposes, either as a "sale or exchange," or under certain
circumstances, as a "dividend." In general, the transaction should be treated as
a sale or exchange of the Shares under Section 302 of the Code, if the receipt
of cash (a) is "substantially disproportionate" with respect to the stockholder,
(b) results in a "complete redemption" of the stockholder's interest in the
Fund, or (c) is "not essentially equivalent to a dividend" with respect to the
stockholder. A "substantially disproportionate" distribution generally requires
a reduction of at least 20% in the stockholder's proportionate interest in the
Fund after all shares are tendered. A "complete redemption" of a stockholder's
interest generally requires that all Shares directly owned or attributed to such
stockholder under Section 318 of the Code be disposed of. A distribution "not
essentially equivalent to a dividend" requires that there be a "meaningful
reduction" in the stockholder's interest, which should be the case if the
stockholder has a minimal interest in the Fund, exercises no control over Fund
affairs and suffers a reduction in his proportionate interest in the Fund.
If any of these three tests for "sale or exchange" treatment is met, you
will recognize gain or loss equal to the difference between the amount of cash
received pursuant to the Offer and the adjusted tax basis of the Shares sold.
Such gain or loss will be a capital gain or loss if the Shares sold have been
held by you as a capital asset. In general, capital gain or loss with respect to
Shares sold will be long-term capital gain or loss if the holding period for
such Shares is more than one year.
If none of the Code Section 302 tests is met, you may be treated as having
received, in whole or in part, a dividend, return of capital or capital gain,
depending on (i) whether the Fund has sufficient earnings and profits to support
a dividend and (ii) your tax basis in the Shares. The tax basis in the Shares
tendered to the Fund will be transferred to any remaining Shares held by you. In
addition, if the sale of Shares pursuant to the Offer is treated as a "dividend"
to a tendering stockholder, a Code Section 305(c)
8
<PAGE>
constructive dividend may result to a non-tendering stockholder whose
proportionate interest in the earnings and assets of the Fund has been increased
as a result of such tender.
Accordingly, the differentiation between "dividend" and "sale or exchange"
treatment is important with respect to the amount and character of income that
tendering stockholders are deemed to receive. In addition, while the marginal
tax rates for dividends and capital gains remain the same for corporate
stockholders, under the Code the top income tax rate on ordinary income of
individuals (39.6%) will exceed the maximum tax rate on long-term capital gains
(28%).
In the event that the sale of Shares by a corporate stockholder pursuant to
the Offer is treated as a dividend, the corporate stockholder may be entitled to
claim a "dividends received deduction" on the cash received, which ordinarily
would be 70% of such dividend. However, corporate stockholders should consult
their tax advisers about certain provisions of the Code that may affect the
dividends received deduction.
The Transfer Agent will be required to withhold 31% of the gross proceeds
paid to a stockholder or other payee pursuant to the Offer unless either: (a)
the stockholder has provided the stockholder's taxpayer identification
number/social security number, and certifies under penalties of perjury: (i)
that such number is correct, and (ii) either that (A) the stockholder is exempt
from backup withholding, (B) the stockholder is not otherwise subject to backup
withholding as a result of a failure to report all interest or dividends, or (C)
the Internal Revenue Service has notified the stockholder that the stockholder
is no longer subject to backup withholding; or (b) an exception applies under
applicable law and Treasury regulations. Foreign stockholders may be required to
provide the Transfer Agent with a completed Form W-8, available from the
Transfer Agent, in order to avoid 31% backup withholding.
Unless a reduced rate of withholding or a withholding exemption is available
under an applicable tax treaty, a stockholder who is a nonresident alien or a
foreign entity may be subject to a 30% United States withholding tax on the
gross proceeds received by such stockholder, if the proceeds are treated as a
"dividend" under the rules described above. Foreign stockholders should consult
their tax advisers regarding application of these withholding rules.
14. EXTENSION OF TENDER PERIOD; TERMINATION; AMENDMENTS. The Fund reserves
the right, at any time and from time to time, to extend the period of time
during which the Offer is pending by making a public announcement thereof. In
the event that the Fund so elects to extend the tender period, the NAV for the
Shares tendered will be determined as of the close of the New York Stock
Exchange on the Expiration Date, as extended. During any such extension, all
Shares previously tendered and not purchased or withdrawn will remain subject to
the Offer. The Fund also reserves the right, at any time and from time to time
up to and including the Expiration Date, to (a) terminate the Offer and not to
purchase or pay for any Shares, and (b) amend the Offer in any respect by making
a public announcement. Such public announcement will be issued no later than
9:00 a.m., New York City time, on the next business day after the previously
scheduled Expiration Date and will disclose the approximate number of Shares
tendered as of that date. Without limiting the manner in which the Fund may
choose to make a public announcement of extension, termination or amendment,
except as provided by applicable law (including Rule 13e-4(e)(2)), the Fund
shall have no obligation to publish, advertise or otherwise communicate any such
public announcement, other than by making a release to the Dow Jones News
Service.
15. MISCELLANEOUS. The Offer is not being made to, nor will tenders be
accepted from, stockholders in any jurisdiction in which the Offer or its
acceptance would not comply with the securities laws of such jurisdiction. The
Fund is not aware of any jurisdiction in which the Offer or tenders pursuant
thereto would not be in compliance with the laws of such jurisdiction. However,
the Fund reserves the right to exclude stockholders from the Offer in any
jurisdiction in which it is asserted that the Offer cannot lawfully be made. The
Fund believes such exclusion is permissible under applicable tender offer rules,
provided the Fund makes a good faith effort to comply with any state law deemed
applicable to the Offer. In any jurisdiction the securities laws of which
require the Offer to be made by a licensed broker or dealer the Offer shall be
deemed to be made on the Fund's behalf by Merrill Lynch.
MERRILL LYNCH SENIOR FLOATING
RATE FUND, INC.
June 17, 1997
9
<PAGE>
EXHIBIT (a)(2)
<PAGE>
LETTER OF TRANSMITTAL
TO BE USED TO TENDER SHARES OF
MERRILL LYNCH SENIOR FLOATING RATE FUND, INC.
PURSUANT TO THE OFFER TO PURCHASE
DATED JUNE 17, 1997
-------------------
THE EXPIRATION DATE AND THE WITHDRAWAL DEADLINE IS 12:00 MIDNIGHT,
NEW YORK CITY TIME, ON TUESDAY, JULY 15, 1997, UNLESS EXTENDED
-------------------
TRANSFER AGENT:
MERRILL LYNCH FINANCIAL DATA SERVICES, INC.
ATTENTION: MERRILL LYNCH SENIOR FLOATING RATE FUND, INC.
P.O. BOX 45289
JACKSONVILLE, FLORIDA 32232-5289
TELEPHONE INFORMATION NUMBER: (800) 637-3863
DELIVERY TO AN ADDRESS OTHER THAN THAT SHOWN ABOVE DOES NOT CONSTITUTE VALID
DELIVERY.
THIS LETTER OF TRANSMITTAL IS TO BE USED ONLY IF THE STOCKHOLDER IS A RECORD
OWNER OF SHARES WHO DESIRES TO EFFECT THE TENDER OFFER TRANSACTION HIMSELF OR
HERSELF BY TRANSMITTING THE NECESSARY DOCUMENTS TO THE FUND'S TRANSFER AGENT AND
DOES NOT INTEND TO REQUEST HIS OR HER BROKER OR DEALER TO EFFECT THE TRANSACTION
FOR HIM OR HER. A STOCKHOLDER WHO HOLDS SHARES IN A MERRILL LYNCH ACCOUNT OR
THROUGH ANOTHER BROKER, DEALER, COMMERCIAL BANK, TRUST COMPANY OR OTHER NOMINEE
IS NOT THE RECORD OWNER AND SHOULD INSTRUCT HIS OR HER MERRILL LYNCH FINANCIAL
CONSULTANT OR SUCH OTHER NOMINEE TO EFFECT THE TENDER ON HIS OR HER BEHALF.
<PAGE>
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
LADIES AND GENTLEMEN:
The undersigned hereby tenders to the Merrill Lynch Senior Floating Rate
Fund, Inc., a closed-end investment company incorporated under the laws of the
State of Maryland (the "Fund"), the shares described below of its common stock,
par value $.10 per share (the "Shares"), at a price equal to the net asset value
per Share ("NAV") calculated on the Expiration Date (as defined in the Offer to
Purchase), in cash, less any applicable Early Withdrawal Charge, upon the terms
and conditions set forth in the Offer to Purchase dated June 17, 1997, receipt
of which is hereby acknowledged, and in this Letter of Transmittal (which
together constitute the "Offer").
The undersigned hereby sells to the Fund all Shares tendered hereby that are
purchased pursuant to the Offer and hereby irrevocably constitutes and appoints
the Transfer Agent as attorney in fact of the undersigned, with full power of
substitution (such power of attorney being deemed to be an irrevocable power
coupled with an interest), to present such Shares and any Share certificates for
cancellation of such Shares on the Fund's books. The undersigned hereby warrants
that the undersigned has full authority to sell the Shares tendered hereby and
that the Fund will acquire good title thereto, free and clear of all liens,
charges, encumbrances, conditional sales agreements or other obligations
relating to the sale thereof, and not subject to any adverse claim, when and to
the extent the same are purchased by it. Upon request, the undersigned will
execute and deliver any additional documents necessary to complete the sale in
accordance with the terms of the Offer.
The undersigned recognizes that under certain circumstances set forth in the
Offer to Purchase, the Fund may not be required to purchase any of the Shares
tendered hereby. In that event, the undersigned understands that, in the case of
Shares evidenced by certificates, certificate(s) for any Shares not purchased
will be returned to the undersigned at the address indicated above. In the case
of Shares not evidenced by certificates and held in an Investment Account, the
Transfer Agent will cancel the tender order and no Shares will be withdrawn from
the Account.
The check for the purchase price for the tendered Shares purchased will be
issued to the order of the undersigned and mailed to the address indicated in
the "Description of Shares Tendered" table below.
All authority herein conferred or agreed to be conferred shall survive the
death or incapacity of the undersigned and the obligation of the undersigned
hereunder shall be binding upon the heirs, personal representatives, successors
and assigns of the undersigned. Except as stated in the Offer, this tender is
irrevocable.
<PAGE>
DESCRIPTION OF SHARES TENDERED
(SEE INSTRUCTIONS 3 AND 4)
<TABLE>
<CAPTION>
NAME(S) AND ADDRESS(ES) OF REGISTERED HOLDER(S)
(PLEASE FILL IN EXACTLY THE NAME(S) IN WHICH SHARES ARE SHARES TENDERED
REGISTERED) (ATTACH ADDITIONAL SCHEDULE IF NECESSARY)
NO. OF SHARES
CERTIFICATE LISTED NO. OF SHARES
NO.(S)* ON CERTIFICATE* TENDERED**
<S> <C> <C> <C>
Account No. Total Shares Tendered...........
</TABLE>
* Need not be completed by stockholders whose Shares are not evidenced by
certificates.
** To be completed by all tendering stockholders, whether or not your Shares
are evidenced by certificates. If you desire to tender fewer than all
Shares held in your account or evidenced by a certificate listed above,
please indicate in this column the number you wish to tender. Otherwise all
Shares evidenced by such certificate or held in your account will be deemed
to have been tendered.
SIGNATURE FORM
--SIGN HERE--
(SEE INSTRUCTIONS 1, 5 AND 8)
Social Security No.
or Taxpayer Identification No. ................
Under penalty of perjury, I certify (1) that the number set forth above is
my correct Social Security No. or Taxpayer Identification No. and (2) that I
am not subject to backup withholding either because (a) I am exempt from
backup withholding, (b) I have not been notified by the Internal Revenue
Service (the "IRS") that I am subject thereto as a result of failure to
report all interest or dividends, or (c) the IRS has notified me that I am
no longer subject thereto. INSTRUCTION: You must strike out the language in
(2) above if you have been notified that you are subject to backup
withholding due to underreporting and you have not received a notice from
the IRS that backup withholding has been terminated.
...........................................................................
...........................................................................
(SIGNATURE(S) OF OWNER(S) EXACTLY AS REGISTERED)
Date ................ , 1997
Name(s) ....................................................................
Address(es) ................................................................
(PLEASE PRINT)
Telephone Number ( ) ................
Signature(s) Guaranteed ....................................................
....................................................
<PAGE>
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE OFFER
1. GUARANTEE OF SIGNATURES. All signatures on this Letter of Transmittal
must be guaranteed by a member firm of a registered national securities
exchange, or a commercial bank or trust company having an office, branch or
agency in the United States. This Letter of Transmittal is to be used only if
you may effect the tender offer transaction yourself and do not intend to
request your broker or dealer to effect the transaction for you.
2. DELIVERY OF LETTER OF TRANSMITTAL AND CERTIFICATES. Certificates for all
tendered Shares, together with a properly completed and duly executed Letter of
Transmittal, should be mailed or delivered to the Transfer Agent on or prior to
the Expiration Date at the appropriate address set forth herein and must be
received by the Transfer Agent prior to the Expiration Date.
THE METHOD OF DELIVERY OF ALL DOCUMENTS, INCLUDING CERTIFICATES FOR SHARES,
IS AT THE ELECTION AND RISK OF THE TENDERING STOCKHOLDER.
3. INADEQUATE SPACE. If the space provided is inadequate, the certificate
numbers and number of Shares should be listed on a separate signed schedule
attached hereto.
4. PARTIAL TENDERS. If fewer than all of the Shares in your Investment
Account or evidenced by any certificate submitted are to be tendered, fill in
the number of Shares which are to be tendered in the column entitled "No. of
Shares Tendered." If applicable, a new certificate for the remainder of the
Shares evidenced by your old certificate(s) will be sent to you as soon as
practicable after the Expiration Date of the Offer. All Shares represented by
certificate(s) listed or in your Investment Account are deemed to have been
tendered unless otherwise indicated.
5. SIGNATURES ON LETTER OF TRANSMITTAL, AUTHORIZATION AND ENDORSEMENTS.
(a) If the Letter of Transmittal is signed by the registered holder of the
Shares tendered hereby, the signature(s) must correspond with the name(s) in
which the Shares are registered.
(b) If the Shares are held of record by two or more joint holders, all such
holders must sign this Letter of Transmittal.
(c) If any tendered Shares are registered in different names it will be
necessary to complete, sign and submit as many separate Letters of Transmittal
as there are different registrations of Shares.
(d) When this Letter of Transmittal is signed by the registered holder(s) of
the Shares listed and, if applicable, of the certificates transmitted hereby, no
endorsements of certificates or separate authorizations are required.
(e) If this Letter of Transmittal or any certificates or authorizations are
signed by trustees, executors, administrators, guardians, attorneys in fact,
officers of corporations or others acting in a fiduciary or representative
capacity, such persons should so indicate when signing, and must submit proper
evidence satisfactory to the Fund of their authority so to act.
6. TRANSFER TAXES. The Fund will pay all the taxes, if any, payable on the
transfer to it of Shares purchased pursuant to the Offer. If tendered
certificates are registered in the name of any person other than the person(s)
signing this Letter of Transmittal, the amount of any transfer taxes (whether
imposed on the registered holder or such other person) payable on account of the
transfer to such person will be deducted from the purchase price unless
satisfactory evidence of the payment of such taxes, or exemption therefrom, is
submitted.
<PAGE>
7. IRREGULARITIES. All questions as to the validity, form, eligibility
(including time of receipt) and acceptance of any tender of Shares will be
determined by the Fund, whose determinations shall be final and binding. The
Fund reserves the absolute right to reject any or all tenders determined by it
not to be in appropriate form or the acceptance of or payment for which would,
in the opinion of counsel for the Fund, be unlawful. The Fund also reserves the
absolute right to waive any of the conditions of the Offer or any defect in any
tender with respect to any particular Shares or any particular stockholder, and
the Fund's interpretations of the terms and conditions of the Offer (including
these instructions) will be final and binding. Unless waived, any defects or
irregularities in connection with tenders must be cured within such time as the
Fund shall determine. Tenders will not be deemed to have been made until all
defects and irregularities have been cured or waived. Neither the Fund, Merrill
Lynch Asset Management, L.P. nor the Transfer Agent, nor any other person shall
be obligated to give notice of defects or irregularities in tenders, nor shall
any of them incur any liability for failure to give any such notice.
8. IMPORTANT TAX INFORMATION. Under Federal income tax law, a stockholder
whose tendered Shares are accepted for payment is required by law to provide the
Transfer Agent (as payer) with his correct taxpayer identification number, which
is accomplished by completing and signing the Signature Form.
<PAGE>
EXHIBIT (a)(3)
<PAGE>
MERRILL LYNCH, PIERCE,
FENNER & SMITH
INCORPORATED
RESPONSE CENTER
P.O. BOX 30200
NEW BRUNSWICK, NJ
08989-0200
[LOGO]
Dear Stockholder:
As you requested, we are enclosing a copy of the Merrill Lynch Senior
Floating Rate Fund, Inc. (the "Fund") Offer to Purchase dated June 17, 1997 (the
"Offer to Purchase") 12,500,000 Issued and Outstanding Shares (the "Shares").
The Offer to Purchase is for cash at Net Asset Value ("NAV") per share as of the
expiration date of the Offer, less any Early Withdrawal Charge. Together with
the Offer to Purchase we are sending you a Form Letter of Transmittal (the
"Letter") for use by holders of record of Shares which you should read
carefully. Certain selected financial information with respect to the Fund is
set forth in the Offer to Purchase.
If, after reviewing the information set forth in the Offer to Purchase and
Letter, you wish to tender Shares for purchase by the Fund, please either
contact your Merrill Lynch Financial Consultant or other broker, dealer or
nominee to effect the tender for you or, if you are the record owner of the
Shares, you may follow the instructions contained in the Offer to Purchase and
Letter.
Neither the Fund nor its Board of Directors is making any recommendation to
any holder of Shares as to whether to tender Shares. Each stockholder is urged
to consult his or her broker or tax adviser before deciding whether to tender
any Shares.
The Fund's annualized distribution rate for the period April 22, 1997
through May 27, 1997, based on the amounts actually distributed by the Fund, was
6.92%. The Fund's NAV on June 12, 1997 was $10.00 per Share. The Fund publishes
its NAV each week in BARRON'S. It appears in the "Investment Company Institute
List" under the sub-heading "Loan Participation Funds" within the listings of
mutual funds and closed-end funds.
Requests for current NAV quotations or for additional copies of the Offer to
Purchase, the Letter and any other tender offer documents may be directed to the
Merrill Lynch Response Center at (800) 637-7455, ext. 7198.
Should you have any other questions on the enclosed material, please do not
hesitate to contact your Merrill Lynch Financial Consultant or other broker or
dealer or call the Fund's Transfer Agent, Merrill Lynch Financial Data Services,
Inc., at (800) 637-3863. We appreciate your continued interest in Merrill Lynch
Senior Floating Rate Fund, Inc.
Yours truly,
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
<PAGE>
Exhibit 99.(b)
<PAGE>
LOAN AGREEMENT
LOAN AGREEMENT dated as of June 13, 1997 (as the same may be
amended, supplemented or otherwise modified from time to time, the
"Agreement"), by and between Merrill Lynch International Bank Limited, a bank
organized under the laws of England (the "Lender") and Merrill Lynch Senior
Floating Rate Fund, Inc., a Maryland corporation (the "Borrower"). This
Agreement establishes the terms and conditions that will govern the Loans
from the Lender to the Borrower.
RECITALS
All terms not otherwise defined above or in this Introductory
Statement are as defined in Article 1 hereof, or as defined elsewhere herein.
The Borrower has requested the Lender to make Loans to the Borrower
in the maximum amount of $100,000,000 or such lesser amount as indicated
herein.
Subject to the terms and conditions set forth herein, the Lender is
willing to make the Loans to the Borrower.
Accordingly, the parties hereto hereby agree as follows:
1. DEFINITIONS
For the purposes hereof unless the context otherwise requires, the
following terms shall have the meanings indicated. Unless the context
otherwise requires, any of the following terms may be used in the singular or
the plural, depending on the reference:
"Act" shall have the meaning given to such term in Section 3.13.
"Affiliate" means with respect to any Person, any other Person which
directly or indirectly controls, is controlled by or is under common control
with such Person. A Person shall be deemed to control a Person if such
Person possesses, directly or indirectly, the power to direct or cause the
direction of the management and policies of such other Person, whether
through ownership of voting securities, by contract or otherwise.
"Borrowing Date" shall have the meaning given to such term in
Section 2.2.
<PAGE>
"Business Day" means with respect (a) to LIBOR Loans, a day (other
than a Saturday or Sunday) on which banks are open in London and New York
City and on which deposits in Dollars may be dealt in on the London Inter
Bank Market and (b) to Fed Funds Loans, a day (other than a Saturday or
Sunday) on which banks are open in New York City.
"Commitment" shall mean one hundred million Dollars ($100,000,000)
or such lesser amount to the extent the Commitment is reduced in accordance
with the provisions of Section 2.12.
"Continue", "Continuation" and "Continued" shall refer to the
continuation pursuant to Section 2.11 of a LIBOR Loan as a LIBOR Loan from
one Interest Period to the next Interest Period.
"Convert", "Conversion" and "Converted" shall refer to a conversion
pursuant to Section 2.11 hereof of one Type of Loan into another Type of Loan.
"Custodian" shall mean The Bank of New York and any successor
custodian appointed by the Borrower.
"Custodian Agreement" shall mean the agreement between the Custodian
and the Borrower in connection with the Securities.
"Dollars" or "$" means the lawful currency of the United States of
America.
"Event of Default" shall have the meaning given to such term in
Section 5.1.
"Excess Liens" means Liens permitted for Indebtedness in swaps,
caps, interest rate or foreign exchange hedging, options and financial
futures contracts; Liens for overdrafts extended by the Custodian; Liens
securing purchases of Securities on short-term credit; and tax, statutory and
judgment Liens.
"Federal Funds Rate" means for any day, the weighted average of the
rates on overnight Federal funds transactions with members of the Federal
Reserve System arranged by Federal funds brokers, as published on the next
succeeding Business Day by the Federal Reserve Bank of New York, or, if such
rate is not so published for any day which is a Business Day, the average of
the quotations for the day of such transactions received by the Lender from
three Federal funds brokers of recognized standing selected by it.
"Fed Funds Loan" means a Loan, the Interest Rate on which is
calculated based on the Federal Funds Rate.
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"GAAP" shall mean generally accepted accounting principles
consistently applied (except for accounting changes in response to FASB
releases or other authoritative pronouncements).
"Indebtedness" of any Person means (a) liability of such Person (i)
for borrowed money, or under any reimbursement obligation related to a letter
of credit or bond or performance bond facility, or (ii) evidenced by a bond,
note, debenture or other evidence of indebtedness (including a purchase money
obligation) representing extensions of credit or given in connection with the
acquisition of any business, property, service or asset of any kind (other
than current liabilities (except the current portion of funded debt) (in each
case as determined in accordance with GAAP)) or (iii) under swap, cap or
other interest rate or foreign currency hedging agreements and options,
financial future contracts and options on financial futures contracts or (iv)
under margin accounts or other securities transactions conducted by the
Borrower on margin or (v) for obligations with respect to a capital lease;
(b) any liability of others for any obligation described in the preceding
clause (a) that (i) the Person has guaranteed or that is otherwise its legal
liability (whether contingent or otherwise or direct or indirect, but
excluding endorsements of negotiable instruments for deposit or collection in
the ordinary course of business) or (ii) is secured by any Lien or any
restriction or limitation of any kind on any property or asset owned or held
by that Person, regardless of whether the obligation secured thereby shall
have been assumed by or is a personal liability of that Person and (c) any
amendment, supplement, modification, deferral, renewal, extension or
refunding of any liability of the types referred to in clauses (a) and (b)
above.
"Interest Period" shall, with respect to a LIBOR Loan, mean a period
of one day to twelve months as selected by the Borrower in a written notice
received by the Lender no later than 4:00 P.M. (London time) on the third
Business Day before the first day of the Interest Period. In the case of
each LIBOR Loan, the first Interest Period shall begin on the proposed date
of such Loan and each subsequent Interest Period shall begin on the last date
of the previous Interest Period. If any Interest Period would end on a day
which is not a Business Day, the last day of such Interest Period shall be
extended to occur on the next succeeding Business Day, provided, however, if
such extension would cause such interest period to occur in the next
following calendar month, the last day of such Interest Period shall occur on
the next preceding Business Day. If the Borrower fails to timely specify an
Interest Period applicable to a LIBOR Loan, then the Interest Period for such
Loan shall be one month. No Interest Period may be selected which would end
later than the Maturity Date.
"Interest Rate" shall mean a rate per annum (i) during each Interest
Period with respect to a LIBOR Loan, LIBOR plus .25% and (ii) the Federal
Funds Rate plus .25% for each Fed Funds Loan or if the Borrower has selected
the LIBOR option for such Loan and for any reason the Lender is unable to
determine LIBOR.
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<PAGE>
"Investment Advisor" shall mean Merrill Lynch Asset Management,
L.P., an entity indirectly owned and controlled by Merrill Lynch & Co., Inc.,
or any successor thereto or assignee thereof, in its capacity as investment
advisor to the Borrower.
"LIBOR" means in relation to a particular Interest Period, the rate
per annum equal to the rate (as determined by the Lender) (rounded to the
nearest 1/16 of 1% or, if there is no nearest 1/16 of 1%, then to the next
higher 1/16 of 1%) as quoted by three leading banks in the interbank
eurodollar market selected by the Lender after consultation with the Borrower
as the rate at which such banks are offering Dollar deposits in an amount
equal approximately to the Loan to which such Interest Period shall apply for
a period equal to such Interest Period, as quoted at approximately 11:00 a.m.
two Business Days prior to the first day of such Interest Period.
"LIBOR Loan" means a Loan, the Interest Rate on which is calculated
based on LIBOR.
"Lien" means any mortgage, pledge, hypothecation, assignment,
deposit arrangement, encumbrance, lien (statutory or other), preference,
priority or other security agreement of any kind or nature whatsoever
(including, without limitation, any conditional sale or other title
retention agreement, any financing or similar statement or notice filed under
the Uniform Commercial Code or any other similar recording or notice statute,
and any lease having substantially the same effect as any of the foregoing).
"Loan" shall have the meaning given to such term in Section 2.1.
"Maintenance Requirement" means that (a) the sum of (x) the market
value of the Borrower's total assets, minus (y) 100% of the value of any
assets pledged to third parties in connection with any Indebtedness of the
type referred to in Section 5.1(iii) and (iv), minus (z) 100% of the dollar
amount of any Indebtedness secured by the Lien referred to in Section 5.2(v)
must be equal to or greater than (b) 150% of the principal amount of the
Loans outstanding together with accrued and unpaid interest thereon (in each
case, as determined on the date the Borrower calculates its Net Asset Value
and as determined by the Borrower in determining the net asset value of its
shares).
"Maturity Date" shall mean June 12, 1998 or such earlier date on
which the Loans shall become due in accordance with Section 7.2.
"Net Asset Value" shall mean the market value of the securities held
by the Borrower plus cash or other assets (including interest accrued but not
yet received) held by the Borrower and minus liabilities (including accrued
expenses) of the Borrower and the aggregate liquidation value of any
outstanding shares of preferred stock of the Borrower, all as determined
4
<PAGE>
in accordance with the methods used by the Borrower in determining the net
asset value of its shares.
"Note" shall have the meaning given to such term in Section 2.1.
"Notice of Borrowing" shall have the meaning given to such term in
Section 2.2.
"Obligations" shall mean the due and punctual payment of principal
of and interest on the Loans, all fees and other monetary obligations of the
Borrower to the Lender under this Agreement or the Note.
"Person" shall include any individual, company, corporation, firm,
partnership, joint venture, association, organization, trust, state or agency
of a state (in each case, whether or not having separate legal personality).
"Prospectus" shall mean the Prospectus dated December 20, 1996 in
connection with the offering of shares of the Borrower's Common Stock.
"Report" shall have the meaning given to such term in Section 4.10.
"Securities" shall mean all securities and other instruments in
which the Borrower has invested.
"Shareholders" shall mean Persons owning shares of common stock of
the Borrower.
"Subordinated Indebtedness. shall mean Indebtedness of the Borrower
subordinated to the Obligations pursuant to written agreements containing
subordination provisions and other material terms in form and substance
satisfactory to the Lender.
"Subsidiary" means, at any time, in relation to a company, any other
company which is directly or indirectly controlled, or more than 50% of whose
issued or outstanding shares or stock having general voting power in ordinary
circumstances is beneficially owned, directly or indirectly, by that first
company.
"Termination Date" shall mean June 11, 1998 or such earlier date on
which the Commitment shall terminate in accordance with Section 7.2 or in
accordance with Section 2.10.
"Type" refers to whether a Loan is a LIBOR Loan or a Fed Funds Loan.
5
<PAGE>
2. THE LOANS
2.1. Loans. The Lender agrees, on the terms and conditions set
forth herein, from and including the date hereof through and including the
Termination Date to make advances ("Loans") to the Borrower from time to time
in an amount not to exceed the Commitment less the aggregate principal amount
of any outstanding Loans; provided, however, that (i) the minimum amount of
any Loan shall be $100,000 (or such lesser amount as shall equal the
available but unused portion or the Commitment) or such greater amount which
is an integral multiple thereof and (ii) the principal amount of any Loan
when added to the principal amount of all outstanding Loans plus accrued and
unpaid interest thereon shall not exceed 33 1/3% of the sum of the Net Asset
Value of the Borrower plus the principal amount of all Loans outstanding plus
accrued and unpaid interest thereon after giving effect to such new Loan as
at the date of such Loan. Subject to the terms of this Agreement, the
Borrower may borrow, repay and reborrow Loans at any time prior to the
Termination Date. The Loans shall be evidenced by a promissory note
substantially in the form of Exhibit A hereto (the "Note").
2.2. Borrowing Notice. The Borrower shall give the Lender
irrevocable notice (substantially in the form of Exhibit D hereto (a "Notice
of Borrowing")) not later than (a) 4:00 P.M. (London time) at least three
Business Days before the proposed borrowing date (the "Borrowing Date") of
any LIBOR Loan and (b) 2:00 P.M. (New York City time) on the Borrowing Date
of any Fed Funds Loan, in each case specifying (i) the Borrowing Date of such
Loan which shall be a Business Day, (ii) the principal amount of such Loan,
(iii) whether such Loan is to be a LIBOR Loan or a Fed Funds Loan and (iv) as
to any LIBOR Loan, the initial Interest Period applicable to such Loan.
2.3. Method of Funding Loans. The Lender shall make available to
the Borrower on each Borrowing Date the principal amount of Loans specified
in the applicable Notice of Borrowing to the Borrower's account (Account No.
__________, Reference: For the account of Merrill Lynch Senior Floating Rate
Fund, Inc., Attention: Michelle Moore) at the Custodian via Federal Funds
wire transfer.
2.4. Interest. Interest shall accrue on the unpaid principal amount
of each Loan at the Interest Rate from and including the date of the Loan to
but excluding the date of any principal payment. Interest accrued on each
LIBOR Loan shall be payable in arrears on the last day of the Interest Period
applicable thereto and on any day on which LIBOR Loans are repaid whether due
to acceleration or otherwise. Interest on any LIBOR Loan having an Interest
Period in excess of six months shall also be payable on the date during such
Interest Period that would be the last day of an Interest Period commencing
on the same day of such Interest Period but having a duration of three
months. Interest accrued on any Fed Funds Loan shall be payable in arrears
on the last day of each March, June, September and December during the term
hereof commencing June 1997 and on any day on which Fed Funds Loans are to be
paid (other than a
6
<PAGE>
prepayment) whether due to acceleration or otherwise. Notwithstanding
anything in this Agreement to the contrary, the Interest Rate on the Loans
shall in no event be in excess of the maximum interest rate permitted by
applicable law. All interest shall accrue from day to day and shall be
calculated on the basis of a 360 (three hundred and sixty) day year and the
number of days elapsed.
2.5.Facility Fee. The Borrower agrees to pay to the Lender a fee
(the "Facility Fee") of 0.075% on the amount of the Commitment on the date
this Agreement is executed by the Borrower.
2.6. Default Interest. If an Event of Default shall have occurred
and be continuing (after as well as before judgment) and the Lender shall
have accelerated the Loans or if, all or any portion of the principal balance
of the Loans or any interest, fees or other amounts payable hereunder shall
not be paid when due (whether at the stated maturity thereof, by acceleration
or otherwise), the Borrower shall pay interest on such overdue principal
amount of the Loans and on such overdue interest, fees and other amounts
payable hereunder, on demand at a rate per annum equal (i) in the case of the
principal amount of the Loans, the Interest Rate then applicable to such
Loans plus 2% per annum and (ii) in the case of such other amounts, an amount
equal to the Federal Funds Rate plus 1.5% per annum, in each case, from the
date such amount was due until payment in full thereof.
2.7. Repayment and Termination. The Borrower shall repay the
outstanding principal amount of all Loans on the Maturity Date.
2.8. Optional Prepayments. The Borrower may from time to time pay
the outstanding principal amount of the Loans, in whole or in part, without
prepayment premium or penalty, (i) in case of LIBOR Loans, on the last day of
any Interest Period applicable thereto and upon three Business Days' prior
written notice to the Lender and (ii) in the case of Fed Funds Loans, on any
Business Day and upon notice given to the Lender not later than 2:00 p.m.
(New York City time) on the date of such prepayment, in each case which
notice shall be irrevocable once given. Each such prepayment on any LIBOR
Loan shall be made together with accrued interest to the date of such
prepayment on the principal amount prepaid, provided that each partial
principal repayment is in a minimum aggregate amount of $100,000 or any
integral multiple of $100,000 in excess thereof.
2.9.Manner of Payments. All payments by the Borrower hereunder and
under the Note shall be made by the Borrower on the date when due without
offset or counterclaim in Dollars in federal or other immediately available
funds to the account of the Lender at Northern Trust International Bank
Corp., New York, New York, Account No.____________, Reference Merrill Lynch
International Bank of London, name of Merrill Lynch Senior Floating Rate
Fund, Inc., or in accordance with the wire transfer instructions provided by
the Lender to the Borrower
7
<PAGE>
in writing from time to time. Any such payment received after 11:00 a.m. (New
York City time) on the date when due shall be deemed received on the
following Business Day. Should any payment of principal of or interest on
the Loans or any other amount due hereunder become due and payable on a day
other than a Business Day, the maturity thereof shall be extended to the next
succeeding Business Day and, in the case of principal, interest shall be
payable thereon at the rate herein specified during such extension.
2.10. Change in Circumstances. (a) In the event that after the date
hereof any change in applicable law or in the official interpretation or
administration thereof (including, without limitation, any request, guideline
or policy not having the force of law) by any authority charged with the
administration or interpretation thereof or, with respect to clause (ii),
(iii) or (iv) below any change in conditions, shall occur which shall:
(i) subject the Lender to, or increase the net amount of, any tax,
levy, impost, duty, charge, fee, deduction or withholding with respect to
any LIBOR Loan (other than withholding tax imposed by the United States of
America or any political subdivision or taxing authority thereof or any
other tax, levy, impost, duty, charge, fee, deduction or withholding (x)
that is measured with respect to the overall net income of the Lender, and
that is imposed by the United States of America, or by the jurisdiction in
which the Lender is incorporated, or in which the Lender has its principal
office (or any political subdivision or taxing authority thereof or
therein), or (y) that is imposed solely by reason of the Lender failing to
make a declaration of, or otherwise to establish, non-residence, or to make
any other claim for exemption, or otherwise to comply with any
certification, identification, information, documentation or reporting
requirements prescribed under the laws of the relevant jurisdiction, in
those cases where a Lender may properly make such declaration or claim or
so establish non-residence or otherwise comply); or
(ii) change the basis of taxation of any payment to the Lender of
principal or any interest on any LIBOR Loan (except as limited in clause
(i) above); or
(iii) impose, modify or deem applicable any reserve, deposit or
similar requirement against any assets held by, deposits with or for the
account of or loans or commitments by an office of the Lender with respect
to any Loan for which the interest rate is based upon LIBOR; or
(iv) impose upon the Lender or the London Interbank Market any other
condition with respect to any LIBOR Loans or this Agreement;
and the result of any of the foregoing shall be to increase the actual cost
to the Lender of making or maintaining any LIBOR Loan hereunder or to reduce
the amount of any payment (whether of principal, interest or otherwise)
received or receivable by the Lender in connection with any
8
<PAGE>
LIBOR Loan hereunder, or to require the Lender to make any payment in
connection with any LIBOR Loan hereunder, in each case by or in an amount
which the Lender in its sole judgment shall deem material, then and in each
case the Borrower shall pay to the Lender, as provided in paragraph (b)
below, such amounts as shall be necessary to compensate the Lender for such
cost, reduction or payment.
(b) The Lender shall deliver to the Borrower from time to time, one
or more certificates setting forth the amounts due to the Lender under
paragraph (a) above, the changes as a result of which such amounts are due,
the manner of computing such amounts and the manner of computing the amounts
allocable to LIBOR Loans hereunder pursuant to paragraph (a) above. Each
such certificate shall be conclusive in the absence of manifest error. The
Borrower shall pay to the Lender the amounts shown as due on any such
certificate within ten Business Days after its receipt of the same. No
failure on the part of the Lender to demand compensation under paragraph (a)
above on any one occasion shall constitute a waiver of its rights to demand
compensation on any other occasion. The protection of this Section shall be
available to the Lender regardless of any possible contention of the
invalidity or inapplicability of any law, regulation or other condition which
shall give rise to any demand by the Lender for compensation thereunder.
(c) The Lender agrees that, as promptly as practicable after it
becomes aware of the occurrence of an event or the existence of a condition
that (i) would cause it to incur any increased cost under this Section 2.10
or (ii) would require the Borrower to pay an increased amount under this
Section 2.10, it will use reasonable efforts to notify the Borrower of such
event or condition and, to the extent not inconsistent with the Lender's
internal policies, will use its reasonable efforts to make, fund or maintain
the affected LIBOR Loans through another lending office of the Lender if as a
result thereof the additional monies which would otherwise be required to be
paid or the reduction of amounts receivable by the Lender thereunder in
respect of such LIBOR Loans would be materially reduced or the increased
costs which would otherwise be required to be paid in respect of such LIBOR
Loans pursuant to this Section 2.10 would be materially reduced or the taxes
or other amounts otherwise payable under this Section 2.10 would be
materially reduced, and if, as determined by the Lender, in its sole
discretion, the making, funding or maintaining of such LIBOR Loans through
such other lending office would not otherwise materially adversely affect
such LIBOR Loans or the Lender.
2.11. Conversions or Continuations of Loans. The Borrower shall
have the right to Convert Loans of one Type into Loans of another Type or
Continue Loans of one Type as Loans of the same Type, at any time or from
time to time, provided that: (a) the Borrower shall give the Lender
irrevocable notice of each such Conversion or Continuation (with the same
notice period as is provided for Loans pursuant to Section 2.2); and (b)
LIBOR Loans may be Converted only on the last day of an Interest Period for
such Loans. Notwithstanding the foregoing, and without limiting the rights
and remedies of the Lender under Section 7.2 hereof,
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<PAGE>
in the event that any Event of Default shall have occurred and be continuing,
the Lender may suspend the right of the Borrower to Convert any Loan into a
LIBOR Loan, or to Continue any Loan as a LIBOR Loan, in which event all Loans
shall be Converted (on the last day(s) of the respective Interest Periods
therefor) or Continued, as the case may be, as Fed Fund Loans.
2.12. Reduction or Termination of Commitment. (a) The Borrower
shall have the right, upon at least five (5) Business Days' prior written
notice to the Lender, to reduce permanently the Commitment in whole at any
time, or in part from time to time, to an amount not less than the aggregate
principal balance of the Loans then outstanding (after giving effect to any
contemporaneous prepayment thereof in accordance with Section 2.8), without
premium or penalty, provided that each partial reduction of the Commitment
shall be in an amount equal to $1,000,000 or such greater amount which is an
integral multiple thereof.
3. REPRESENTATIONS AND WARRANTIES
The Borrower represents and warrants to the Lender the following:
3.1. Securities. The Borrower owns the Securities free of any
interest or lien in favor of any third party other than as permitted pursuant
to Section 5.2 hereof.
3.2. Due Organization. The Borrower is a corporation duly
organized, validly existing and in good standing under the laws of the State
of Maryland and has the requisite power and authority to own its assets and
to conduct the business which it conducts. The Borrower is duly qualified to
do business in all jurisdictions in which the nature of its activities
requires such qualification or has made all filings necessary to so qualify,
except where the failure to do so could not reasonably be expected to have a
material adverse effect on the business, condition (financial or otherwise),
obligations, operations, performance or properties of the Borrower.
3.3. Power and Authority; Binding Agreements. The Borrower has the
full right, corporate power and authority to make, execute, deliver and
perform its obligations under this Agreement and the execution, delivery and
performance of the documents contemplated by this Agreement and consummation
of the transactions contemplated by this Agreement have been duly authorized
by all necessary corporate action on the part of the Borrower. This
Agreement and the Note constitute the legal, valid and binding obligation of
the Borrower, enforceable in accordance with their respective terms, subject,
as to the enforcement of remedies, to applicable bankruptcy, insolvency and
similar laws affecting creditors' rights generally and to general principles
of equity regardless of whether enforcement is considered in a proceeding at
law or in equity.
3.4. No Violation. Neither the execution, delivery or performance
by the Borrower of this Agreement and the related documents, the consummation
of the transactions contemplated by this Agreement, nor compliance with the
provisions of this Agreement will (i)
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<PAGE>
violate any law, regulation, order, judgment or decree binding on the
Borrower, (ii) violate or conflict with, as applicable, any provision of the
Borrower's Articles of Incorporation or other organizational documents or the
Borrower's By-laws or other governing documents or (iii) conflict with, cause
a breach of, constitute a default under, be cause for the acceleration of the
maturity of, or create or result in the creation or imposition of any Lien on
any of the Borrower's property under, any agreement, indenture, instrument or
other undertaking to which the Borrower is a party.
3.5. No Consents. No order, consent, license, authorization,
recording or registration is required to authorize or is required in
connection with the execution, delivery and performance or the legality,
validity, binding effect or enforceability of this Agreement, any documents
executed in connection with this Agreement or any transactions contemplated
by this Agreement other than those which have been obtained or made or will
be obtained or made as and when required in accordance with applicable law.
3.6. No Litigation. There are no actions, suits, litigation or
investigations, pending or threatened, against the Borrower that are
reasonably likely to (i) have a material adverse effect on the business,
condition (financial or otherwise), obligations, operations, performance or
properties of the Borrower or (ii) affect the Borrower's ability to enter
into and perform its obligations under this Agreement or any of the
transactions contemplated by this Agreement.
3.7. Compliance with Laws. The operations of the Borrower are in
compliance with all federal, state, local and foreign laws and regulations
applicable to it, including, without limitation, tax, environmental and
health and safety laws and regulations, except where the failure to do so
could not reasonably be expected to have a material adverse effect on the
business, condition (financial or otherwise), obligations, operations,
performance or properties of the Borrower.
3.8. No Material Adverse Change. Since August 31, 1996 there has
been no material adverse change in the business, condition (financial or
otherwise), obligations, operations, performance or properties of the
Borrower.
3.9. Solvency. After giving effect to the Loans, (i) the present
fair value of the Borrower's assets exceeds the total amount of the
Borrower's liabilities (including, without limitation, contingent
liabilities), (ii) the Borrower has capital and assets sufficient to carry on
its business, (iii) the Borrower is not engaged and is not about to engage in
a business or a transaction for which its remaining assets are unreasonably
small in relation to such business or transaction and (iv) the Borrower does
not intend to incur or believe that it will incur debts beyond its ability to
pay as they become due. The Borrower will not be rendered insolvent by
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the execution, delivery and performance of this Agreement or the Note or by
the consummation of the transactions contemplated under this Agreement.
3.10. Place of Business. The address of the principal executive
office of the Borrower as indicated on the signature page hereto (or as to
which the Borrower has otherwise informed the Lender in writing) is correct.
3.11. Full Disclosure. Neither this Agreement nor any agreement,
document, certificate or written statement furnished to the Lender by the
Borrower in connection with the transactions contemplated hereby, at the time
it was furnished or delivered, contained any untrue statement of a material
fact or omitted to state a material fact, under the circumstances under which
it was made, necessary in order to make the statements contained herein or
therein taken as a whole not misleading.
3.12. Sole Business. The Borrower is not engaged in any business
other than as described in the Prospectus.
3.13. Investment Company Act. The Borrower is an investment company
within the meaning of the Investment Company Act of 1940, as amended (the
"Act") and has registered under the Act as a non-diversified, closed-end
management investment company.
3.14. Prospectus. All transactions contemplated by this Agreement
are consistent in all material respects with the descriptions thereof, if
any, contained in the Prospectus and the Borrower has not entered into any
agreements which would otherwise prohibit, restrict or limit the transactions
contemplated by this Agreement or the Prospectus.
3.15. Indebtedness. As of the date hereof, the Borrower has no
outstanding Indebtedness (or commitments from third parties to extend
Indebtedness to the Borrower) other than Indebtedness not otherwise
prohibited under this Agreement.
4. AFFIRMATIVE COVENANTS
Until this Agreement has terminated and all Obligations have been
indefeasibly paid in full, the Borrower will:
4.1. Maintenance of Existence. Preserve and maintain its existence
and all rights and franchises material to its business.
4.2. Compliance with Laws. Comply with all applicable laws,
statutes, codes, ordinances, regulations, rules, orders, awards, judgments,
decrees, injunctions, approvals and
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permits applicable to it including, but not limited to, the Act and rules and
regulations of the Securities and Exchange Commission, except where the
failure to do so could not reasonably be expected to have a material adverse
effect on the business, condition (financial or otherwise), obligations,
operations, performance or properties of the Borrower.
4.3. Payment of Taxes. Pay all taxes, assessments and governmental
charges imposed upon it or upon its property and all claims (including,
without limitation, claims for labor, materials, supplies or services) which
might, if unpaid, become a lien upon its property, unless, in each case, the
validity or amount thereof is being contested in good faith by appropriate
proceedings and the Borrower has maintained adequate reserves with respect
thereto.
4.4. Books and Records. Maintain or cause to be maintained at all
times in accordance with GAAP true and complete books and records of its
financial and business operations.
4.5. Audit Rights. Permit any representative of the Lender to visit
the office of the Borrower to discuss the Borrower's affairs, finances and
accounts with the officers of the Borrower, and with the Investment Advisor,
all at such reasonable times, upon reasonable notice and as often as the
Lender may reasonably request.
4.6. Notices. Furnish to the Lender: (i) within ten (10) days of
becoming aware of the occurrence of any Event of Default, or event, condition
or act which with the passage of time or notice, or both, would constitute an
Event of Default, notice of the occurrence and nature of such Event of
Default and of the steps that are being taken to cure such Event of Default
or event, condition or act; (ii) promptly after (a) the occurrence thereof,
notice of the institution of or any material adverse development in any
action, suit or proceeding or any governmental investigation or any
arbitration, before any court or arbitrator or any governmental authority
(involving in excess of $1,000,000, or otherwise material) against the
Borrower or any material property of the Borrower, or (b) actual knowledge
thereof, written notice of the threat of any such action, suit, proceeding,
investigation or arbitration; (iii) within one (1) Business Day after the
appointment of any successor Custodian or Investment Advisor, the name and
address of such successor and (iv) promptly after the adoption thereof,
notice of any amendment or modification to any investment policy or objective
which amendment or modification does not require shareholder authorization.
4.7. Bankruptcy. Notify the Lender in writing before filing any
petition seeking the protection of any bankruptcy, insolvency or any similar
statutes.
4.8. Financial and Credit Information. (a) Notify the Lender
immediately, in writing, of any material change in the Borrower's financial
condition which would adversely
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affect the Borrower's ability to repay any of its Obligation(s) to the Lender
according to the terms of this Agreement and the Note.
(b) Supply to the Lender such current financial information or
other information as the Lender may reasonably request from time to time.
4.9. Financial Statements. Furnish the Lender (i) within 90 days
after the end of the first semi-annual accounting period in each fiscal year
of the Borrower, a copy of the unaudited financial statements of the
Borrower, including the Statement of Assets and Liabilities as at the end of
such semi-annual period, together with the related Schedule of Investments
and Statements of Operations, Changes in Net Assets and Cash Flows for such
period, and certified by the treasurer or other authorized officer of the
Borrower, that such statements are correct and fairly present the financial
condition of the Borrower as at the end of such semi-annual accounting period
(subject to normal year-end audit adjustments); (ii) within 90 days after the
end of each fiscal year of the Borrower, a copy of the audited financial
statements of the Borrower, including the Statement of Assets and Liabilities
as at the end of such fiscal year, together with the related Schedule of
Investments and Statements of Operations, Changes in Net Assets and Cash
Flows as of and through the end of such fiscal year, attached to which shall
be a report of Deloitte & Touche LLP or such other independent certified
public accountants of recognized standing and which statement shall have been
prepared in accordance with GAAP other than as described in the footnotes to
such statements and (iii) concurrently with such distribution, copies of all
financial reports distributed by or on behalf of the Borrower to all
Shareholders or presented to the Board of Directors of the Borrower, in each
case in addition to the foregoing.
4.10. Report. Provide the Lender, not later than the third Business
Day next succeeding the final Business Day of each week, a Statement in the
form of Exhibit B hereto (the "Report"); provided, however, that in the event
there are no Loans outstanding, the Borrower shall deliver the Report to the
Lender not later than the third Business Day not succeeding the final
Business Day of each calendar month. The Lender reserves the right to
request such additional information from the Borrower or the Custodian in
connection with the Report and any Security as it reasonably deems
appropriate.
4.11. Government Approval. If any further authorizations,
approvals, registrations or filings with any governmental or public
regulatory body or authority of the United States, any state thereof or any
other jurisdiction required for the performance by the Borrower of this
Agreement should hereafter become necessary, obtain or make, or cause to be
obtained or made, all such authorizations, approvals, registrations or
filings as the Lender shall reasonably request.
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4.12. Use of Proceeds. The Borrower shall use the proceeds of the
Loans for the payment for Shares tendered in a tender offer by the Borrower
and to pay interest and fees incurred hereunder.
5. NEGATIVE COVENANTS OF THE BORROWER
Until this Agreement has terminated and all amounts and Obligations
have been indefeasibly paid in full, the Borrower will not:
5.1. No Indebtedness. Create, incur, assume or suffer to exist any
Indebtedness, except for (i) Indebtedness of the Borrower under this
Agreement and the Note, (ii) Subordinated Indebtedness, (iii) Indebtedness in
respect of swap, cap or other interest rate or foreign currency hedging
arrangements (in each case, where used for hedging purposes), (iv)
Indebtedness in respect of purchases of securities on short-term credit as
may be necessary for the clearance of purchases and sales of portfolio
securities and (v) overdrafts extended by the Custodian under the Custodian
Agreement.
5.2. No Liens. Create, incur, assume or suffer to exist any lien on
any of its properties or assets except (i) Liens in respect of Indebtedness
permitted under Section 5.1(iii), (iv) and (v), (ii) Liens for taxes,
assessments or similar charges incurred in the ordinary course of business
which are not delinquent or which are being contested in good faith and by
appropriate proceedings diligently conducted, and for which adequate reserves
have been set aside in accordance with GAAP, provided that enforcement of
such Liens is stayed pending such contest, (iii) statutory Liens arising by
operation of law such as mechanics, materials, carriers', warehouse liens,
(A) which occur in the ordinary course of business (B) secure normal trade
debt which is not yet due and payable, (C) do not secure Indebtedness for
borrowed money, (D) are being contested in good faith and by appropriate
proceedings diligently conducted, and (E) for which adequate reserves have
been set aside in accordance with GAAP, provided that enforcement of such
Liens is stayed pending such contest, (iv) Liens arising out of judgments or
decrees which are being contested in good faith and by appropriate
proceedings diligently conducted, and for which adequate reserves have been
set aside in accordance with GAAP, provided that enforcement thereof is
stayed pending such contest and (v) Liens of the Custodian under the
Custodian Agreement.
5.3. No Mergers. Enter into any transaction of merger or
consolidation or liquidate, wind up, dissolve itself (or suffer any
liquidation or dissolution) or take any such action.
5.4. No New Business; Shareholder Approval. Engage in any business
other than as described in the Prospectus or amend or modify any fundamental
investment policies or
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objectives set forth in the Prospectus as a "fundamental investment policy or
objective" or take any other action requiring shareholder authorization
without the prior written consent of the Lender, which consent will not be
unreasonably withheld.
5.5. Distributions. Declare or make any dividends or distributions
or honor any requests for redemptions by a Shareholder at any time if, either
before or after giving effect thereto, (a) an Event of Default or event, act
or condition which with the passage of time or notice, or both, would
constitute an Event of Default shall have occurred and be continuing
(provided that, unless any amounts payable hereunder have been declared due
and payable pursuant to Section 7.2 hereof, nothing contained in this clause
(a) shall limit the ability of the Borrower to distribute each year all of
its net investment income (including net realized capital gains) so that it
will not be subject to tax (including corporate and/or excise taxes) under
the Internal Revenue Code of 1986 or the rules and regulations issued
thereunder, as now and hereafter in effect, or any successor provision
thereto) or (b) such dividend, distribution or redemption would be in
violation of the Act.
5.6. Amendments. Amend or modify, or permit to be amended or
modified the Articles of Incorporation or By-laws of the Borrower except (i)
such amendments or modifications as are deemed ministerial by the Borrower or
(ii) with the prior written consent of the Lender, which consent shall not be
unreasonably withheld.
5.7. Concentration. (a) Invest in (i) short term debt obligations
in the lowest rating categories (Caa or below for Moody's Investors Service,
Inc., ("Moody's") and CCC or below for Standard and Poor's Ratings Group
("S&P")) or in non-rated short term debt obligations of comparable quality,
provided that securities which are downgraded subsequent to investment may
continue to be held or (ii) Corporate Loans if the outstanding debt
obligations of the Agent Bank or any Intermediate Participant (at the time of
the investment) is rated below BBB by S&P or Baa by Moody's.
(b) (i) Invest more than 20% of its total assets in Unsecured
Corporate Loans and (ii) under "normal market conditions" (to be determined
by the Borrower in its reasonable business judgment), invest more than (1)
20% of its total assets in securities or debt obligations other than
Corporate Loans or (2) 35% of its total assets in other than floating or
variable rate loans.
(c) Invest more than 25% of its total assets in securities of a
single issuer, provided that this limitation shall not apply with respect to
obligations issued or guaranteed by the U.S. Government or by its agencies or
instrumentalities.
(d) Invest more than 25% of its total assets in securities of issuers
in any one industry, provided that this limitation shall not apply with
respect to obligations issued or
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guaranteed by the U.S. Government or by its agencies or instrumentalities,
and provided further that the Borrower may invest more than 25% and up to
100% of its total assets in securities of issuers in the industry group
consisting of financial institutions and their holding companies, including
commercial banks, thrift institutions, insurance companies and finance
companies. For purposes hereof, the term "issuer" is deemed to include not
only the borrower but also the Agent Bank and any Intermediate Participant.
(e) With respect to 50% of its total assets, invest more than 5% of
its total assets in the securities of a single issuer, provided that this
limitation shall not apply with respect to obligations issued or guaranteed
by the U.S. Government or by its agencies or instrumentalities.
(f) Take any action which would result in the Borrower no longer (1)
meeting the criteria of a "Closed-end company" under SEC.5(a)(2) of the Act
or (2) being a registered company under the Act or (3) qualifying as a
"regulated investment company" under the Internal Revenue Code of 1986, as
amended.
(g) Unless otherwise defined here, the capitalized terms used in
this Section 5.7 are as defined in the Prospectus.
6. CONDITIONS PRECEDENT TO CLOSING
6.1. Conditions Precedent to Initial Loan. It shall be a condition
precedent to the effectiveness of this Agreement that
(a) the Lender shall have received the following, in form and
substance satisfactory to the Lender in its sole discretion:
(i) Evidence satisfactory to the Lender that the Borrower is
duly authorized to enter into this Agreement and all transactions contemplated
hereby and to execute and deliver this Agreement, the Note and all documents
to be executed in connection therewith;
(ii) A certificate of the Secretary of the Borrower attesting,
among other things, (w) that a true, correct and complete copy of the
Borrower's Articles of Incorporation, together with all amendments thereto,
has been delivered to the Lender, (x) that a true, correct and complete copy
of the resolutions adopted by the Board of Directors authorizing the
execution, delivery and performance in accordance with their terms of this
Agreement, the Note and the other documents and transactions contemplated
hereby or thereby and the borrowings hereunder has been delivered to the
Lender and such authorization is in full force and effect, (y) that the
Prospectus has not been amended
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or supplemented or if it has been so amended or supplemented, that true,
correct and complete copies of such amendments or supplements have been
delivered to the Lender and (z) to the incumbency of officers of the
Borrower executing this Agreement, the Note and any related documents on
behalf of the Borrower;
(iii) A copy of the Articles of Incorporation and the By-laws
of the Borrower;
(iv) A copy of the Custodian Agreement;
(v) The favorable opinion of Brown & Wood LLP, special
New York Counsel and special Maryland Counsel to the Borrower, which covers
matters of Maryland, New York and United States law, in the form of Exhibit C
hereto;
(vi) The Note, dated as of the date hereof, duly executed on
behalf of the Borrower;
(vii) A Certificate of an Officer of the Borrower certifying
that (x) that all representations and warranties made in connection with this
Agreement are true, accurate and correct in all respects, (y) the condition
contained in clause (c) below has been satisfied and (z) attached thereto
is a Schedule of Investments of the Borrower as of May 31, 1997; and
(viii) Such other documents as the Lender may reasonably
require.
(b) All parties to this Agreement shall have executed this Agreement.
6.2. Conditions Precedent to All Loans. It shall be a condition
precedent to all Loans that on the date of such Loan the following statements
shall be true (and each request for a Loan shall constitute a representation
and warranty by the Borrower that on the date of such Loan such statements
are true):
(a) After giving effect to such Loan, the total of all Loans
outstanding will not exceed the Commitment and the total of all
Loans outstanding plus accrued and unpaid interest thereon will
not exceed 33 1/3% of Net Asset Value plus the outstanding
principal amount of the Loans plus accrued and unpaid interest
thereon after giving effect to the Loans to be made on such date;
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(b) The representations and warranties contained in Article 3 are
true and correct on and as of the date of such Loan, except to
the extent such representations and warranties specifically
relate to an earlier date;
(c) No event has occurred and is continuing or would result from the
making of such Loan which would constitute an Event of Default
and no event, act or condition which with the passage of time or
notice, or both, would constitute an Event of Default has
occurred and is continuing; and
(d) The Borrower has delivered to the Lender the Notice of Borrowing
required pursuant to Section 2.2 hereof.
7. EVENTS OF DEFAULTS; REMEDIES
7.1. Events of Defaults. An event of default ("Event of Default") will
occur under this Agreement and the Note if:
(a) the Borrower fails to make any payment of principal hereunder or
under the Note on the date when due and payable;
(b) the Borrower fails to make any payment of interest or any fees or
expenses payable hereunder or under the Note for five (5) or more Business
Days after the same shall be due and payable;
(c) the Borrower fails to observe or perform any covenant or agreement
contained in Article 5 or in Section 4.6(i) or (ii);
(d) the Borrower fails to observe or perform any other term, covenant,
or agreement contained in this Agreement and such failure shall have
continued unremedied for a period of ten (10) Business Days after the
Borrower shall have received written notice thereof from the Lender;
(e) any representation or warranty of the Borrower made in this
Agreement or in any certificate, report or other document delivered pursuant
to this Agreement, shall prove to have been incorrect in any material respect
when made;
(f) default (after giving effect to any applicable grace period) shall
be made with respect to the payment of any Indebtedness of the Borrower,
which Indebtedness exceeds $1,000,000;
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(g) an attachment is levied against all or any material portion of the
Securities and such attachment is not stayed or lifted within forty-five (45)
days;
(h) final judgment for the payment of money in excess of $1,000,000
shall be rendered against the Borrower and within thirty (30) days from the
entry of judgment, such judgment shall not have been dismissed or discharged
or stayed or bonded pending appeal or shall not have been discharged within
sixty (60) days from the entry of a final order of affirmance or appeal;
(i) any legal proceeding started by any Person in the bankruptcy of the
Borrower or for the appointment of a receiver, administrator, trustee or
similar officer of the Borrower or of any or all of the revenues and assets
of the Borrower or the winding-up, administration, dissolution or
reorganization of the Borrower and such proceeding (unless commenced by the
Borrower) is not stayed or discontinued within sixty (60) days after the
commencement thereof or the Borrower makes a general assignment for the
benefit of its creditors;
(j) the Borrower is unable to pay its debts as they fall due, stops,
suspends or threatens to stop or suspend payment of all or a material part of
its debts, or takes any proceeding or other step with a view to readjustment,
rescheduling or deferral of all of its Indebtedness or any part of its
Indebtedness which it would or might otherwise be unable to pay when due or
proposes a general assignment or an arrangement or composition with or for
the benefit of the creditors; or
(k) the Borrower fails to meet the Maintenance Requirement and the
Borrower has not reduced the outstanding principal balance of the Loans or
taken such other action as is required in order to meet the Maintenance
Requirement within three Business Days thereafter; or
(l) (i) the Borrower is subject to liquidation or dissolution as the
result of a vote by the Shareholders to liquidate or dissolve or (ii) the
Borrower disposes of all or substantially all of its assets (other than in
the regular course of the Borrower's investment activities).
7.2. Remedies. Upon the occurrence and during the continuation of an
Event of Default, the Lender may, without prejudice to any other right or
remedy of the Lender, at law, by contract or otherwise, by notice to the
Borrower declare all Loans, accrued interest thereon and any other sum then
payable hereunder to be immediately due and payable by the Borrower to the
Lender whereupon they shall become so due and payable, and/or declare the
Commitment to be terminated, whereupon it shall so terminate. If an Event of
Default specified in clause (i) above shall have occurred, the Commitment
shall automatically terminate and the Note shall automatically become due and
payable, both as to interest and principal, without presentment, demand,
protest or other notice of any kind. Upon the occurrence and continuation of
an Event of Default, the Lender may to the extent permitted by applicable
law, also set-off, against any
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amount owing to it under this Agreement and the Note, any securities, cash or
other property of the Borrower in the Lender's possession.
8. MISCELLANEOUS
8.1. Expenses. Whether or not the transactions hereby contemplated
shall be consummated, the Borrower agrees to pay all reasonable expenses
incurred by the Lender in connection with the negotiation, preparation,
execution, delivery, waiver, modification or enforcement and administration
of this Agreement (including any amendment hereto) and the Note, including,
but not limited to, the reasonable fees and disbursements of counsel for the
Lender.
8.2. Cost of Collection. If the Borrower fails to make any payment
under this Agreement as and when required, the Borrower must pay, to the
extent permitted by applicable law, the Lender's court and collection costs,
including reasonable legal fees, and, if the Loan is referred for collection
to any attorney not employed by the Lender or one of its affiliates, the
Lender's reasonable attorney fees.
8.3. Indemnities. The Borrower shall within five (5) Business Days
after written demand indemnify the Lender for:
(i) Any funding and any other cost, expense or liability (including
reasonable legal fees and taxes (other than taxes excluded pursuant to
Section 8.16) sustained or incurred by the Lender (1) to render this
Agreement enforceable, (2) in connection with protecting or enforcing the
Lender's rights under, this Agreement and/or any amendment thereto or (3)
as a result of the occurrence or continuance of any Event of Default;
(ii) Any funding and any other cost, expense or liability (including
loss of profit, reasonable legal fees and taxes (other than taxes excluded
pursuant to Section 8.16)) sustained or incurred by the Lender as a result
of the receipt or recovery by the Lender of all or any part of a LIBOR Loan
or an overdue sum otherwise than on the last day of an Interest Period
applicable to such LIBOR Loan;
(iii) Any stamp, documentary, registration or similar tax payable in
connection with the entry into, registration, performance, enforcement or
admissibility in evidence of the Agreement and/or any such amendment,
supplement or waiver, promptly and in any event before any interest or
penalty becomes payable, together with any liability with respect to or
resulting from any delay in paying or omission to pay any such tax; and
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(iv) Any claims, demands, losses, judgments, damages and liabilities
(including liabilities for penalties) incurred by the Lender and/or its
directors, officers, employees and agents (each an "Indemnified Party") as
a result of, or arising out of, or in any way related to, or by reason of,
any investigation, litigation or other proceeding (whether or not the
Lender is a party thereto) related to the entering into and/or the
performance of this Agreement, or the use of the proceeds of any Loan
hereunder or the consummation of any other transaction contemplated by
this Agreement, including, without limitation, the reasonable fees and
disbursements of counsel incurred in connection with any such
investigation, litigation or other proceeding (but excluding any such
losses, liabilities, claims, damages or expenses of an Indemnified Party to
the extent incurred by reason of the gross negligence or willful misconduct
of any Indemnified Party).
8.4. Delay in Enforcement; No Waiver. The Lender can choose to delay or
not to enforce any of its rights under this Agreement without losing such
rights. If the Lender choose not to exercise or enforce any of such rights,
the Borrower agrees that the Lender is not waiving the right to enforce such
rights at a later time or any of its other rights. Any waiver of the
Lender's rights under this Agreement must be in writing.
8.5. Statements and Notices. Statements and notices will be sent to the
address for the Borrower indicated on the signature page hereto, unless the
Borrower notifies the Lender in writing of a change in address. The Borrower
agrees to provide the Lender with 30 days' prior written notice of any change
of address or name. The Borrower agrees to send correspondence to the Lender
at the address for the Lender indicated on the signature page or as otherwise
provided by the Lender from time to time with a copy to Merrill Lynch Bank
and Trust Company (Cayman) Limited, Representative Office, 701 Brickell
Avenue, 24th Floor, Miami, Florida 33131, Attention: George O. Morgan, Jr.,
Direct Finance Group.
8.6. Waivers. To the extent permitted by applicable law, the Borrower
waives the Borrower's rights to require the Lender, (a) to demand payments of
amounts due (known as "presentment"); (b) to give notice that amounts due
have not been paid (known as "notice of dishonor"); and (c) to obtain an
official certification of non-payment (known as "protest").
8.7. Successors and Assigns. (a) This Agreement shall be binding upon
and inure to the benefit of the successors and permitted assigns of all the
parties to this Agreement. The Lender shall not assign all or part of its
rights, obligations and remedies under this Agreement without the prior
written consent of the Borrower (which consent shall be in the sole
discretion of the Borrower). Any such permitted assignee of such rights and
obligations shall be entitled to the full benefit and the same obligations
under this Agreement to the same extent as if it were an original party in
respect of the rights or obligations assigned or transferred to it. The
Borrower may not assign its rights or obligations under this Agreement.
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(b) The Lender may grant participations in all or any part of its Loans
and its Commitment to one or more commercial banks, provided that (i) the
Lender's obligations under this Agreement shall remain unchanged, (ii) the
Lender shall remain solely responsible to the Borrower for the performance of
such obligations, (iii) the Borrower shall continue to deal solely and
directly with the Lender in connection with the Lender's rights and
obligations under this Agreement, (iv) no sub-participations shall be
permitted and (v) the voting rights of any holder of any participation shall
be limited to decisions that only do any of the following: (A) subject the
participant to any additional obligation, (B) reduce the principal of, or
interest on the Loans or any fees or other amounts payable hereunder or (C)
postpone the Termination Date, or the date fixed for payment of interest on
the Loans payable hereunder.
(c) If any participation made pursuant to subsection (b) shall be made
to any Person that is not a United States Person as defined in Section
7701(a)(30) of the Internal Revenue Code of 1986, such Person shall furnish
to the Lender the forms required by Section 8.16 to evidence such Person's
complete exemption from U.S. withholding taxes with respect to all payments
with respect to such participation.
(d) The Lender will not disclose to a potential assignee or participant
any information about the Borrower and this Agreement unless such potential
assignee or participant agrees in writing to be bound by the provisions of
Section 8.17.
8.8. GOVERNING LAW. THIS AGREEMENT AND THE NOTE HAVE BEEN EXECUTED AND
DELIVERED BY THE BORROWER IN THE STATE OF NEW YORK AND IN ALL RESPECTS SHALL
BE GOVERNED BY AND INTERPRETED UNDER THE LAWS OF THE STATE OF NEW YORK
APPLICABLE TO CONTRACTS MADE AND TO BE PERFORMED WHOLLY WITHIN SUCH STATE
AND, IN THE CASE OF PROVISIONS RELATING TO INTEREST RATES, ANY APPLICABLE
LAWS OF THE UNITED STATES OF AMERICA.
8.9. Effectiveness. The Borrower hereby acknowledges that (i) this
Agreement shall become effective only at such time as the Lender has accepted
this Agreement in London and the Lender shall have no liability or obligation
hereunder until such time, (ii) the Lender may execute this Agreement by
telecopy and provide executed originals to the Borrower, and (iii) the Loans
will be made in England.
8.10. WAIVER OF JURY TRIAL. TO THE EXTENT PERMITTED BY APPLICABLE LAW
WHICH CANNOT BE WAIVED, EACH OF THE BORROWER AND THE LENDER HEREBY WAIVES AND
COVENANTS THAT IT WILL NOT ASSERT (WHETHER AS PLAINTIFF, DEFENDANT OR
OTHERWISE), ANY RIGHT TO TRIAL BY JURY IN ANY FORUM IN RESPECT OF ANY ISSUE,
CLAIM, DEMAND, ACTION OR CAUSE OF ACTION ARISING OUT OF OR BASED UPON
23
<PAGE>
THIS AGREEMENT, THE NOTE OR THE SUBJECT MATTER HEREOF OR THEREOF, IN EACH
CASE WHETHER NOW EXISTING OR HEREAFTER ARISING OR WHETHER IN CONTRACT OR TORT
OR OTHERWISE. EACH OF THE BORROWER AND THE LENDER ACKNOWLEDGES THAT IS HAS
BEEN INFORMED BY THE LENDER OR THE BORROWER, AS THE CASE MAY BE, THAT THE
PROVISIONS OF THIS SECTION CONSTITUTE A MATERIAL INDUCEMENT UPON WHICH THE
LENDER OR THE BORROWER, AS THE CASE MAY BE, HAS RELIED, IS RELYING AND WILL
RELY IN ENTERING INTO THIS AGREEMENT AND THE NOTE AND ANY OTHER DOCUMENT
RELATED THERETO. EACH OF THE LENDER AND THE BORROWER, AS THE CASE MAY BE,
MAY FILE AN ORIGINAL COUNTERPART OF THIS SECTION WITH ANY COURT AS WRITTEN
EVIDENCE OF THE CONSENT OF THE BORROWER OR THE LENDER, AS THE CASE MAY BE, TO
THE WAIVER OF ITS RIGHTS TO TRIAL BY JURY.
8.11. Amendments. Neither this Agreement nor the Note may be amended or
modified except in writing signed by the Lender and the Borrower.
8.12. Headings. The heading of each provision of this Agreement is for
descriptive purposes only and shall not be deemed to modify or qualify any of
the rights or obligations described in each such provision.
8.13. Severability. If any provision of this Agreement is held to be
invalid, illegal, void or unenforceable, by reason of any law, rule,
administrative order or judicial or arbitral decision, such determination
shall not affect the validity of the remaining provisions of this Agreement.
8.14. Entire Agreement. This Agreement constitutes the entire agreement
between Borrower and the Lender and supersedes any and all prior agreements
(whether written or oral).
8.15. Execution in Counterparts. This Agreement may be executed in any
number of counterparts, each of which shall constitute an original, but all
of which when taken together shall constitute one and the same instrument.
8.16. U.S. Taxes. (a) The Lender hereby represents and warrants to the
Borrower that all payments to the Lender hereunder and under the Note may be
made by the Borrower to the Lender free and clear of all U.S. Taxes. The
Lender agrees to provide to the Borrower on the date hereof two accurate and
complete original signed copies of either Form 1001 or Form 4224 entitling it
to a complete exemption from withholding in respect of such payments and,
upon obsolescence of any previously delivered form, two accurate and complete
24
<PAGE>
original signed copies of Form 1001 or Form 4224 certifying to the Lender's
legal entitlement to a complete exception from U.S. Taxes with respect to
each payment.
(b) For the purposes of this Section 8.16, (x) "Form 1001" shall mean
Form 1001 (Ownership, Exemption, or Reduced Rate Certificate) of the
Department of the Treasury of the United States of America, (y) "Form 4224"
shall mean Form 4224 (Exemption from Withholding of Tax on Income Effectively
Connected with the Department of the Treasury of the United States of America
(or in relation to either such Form such successor and related forms as may
from time to time be adopted by the relevant taxing authorities of the United
States of America to document a claim to which such Form relates) and (x)
"U.S. Taxes" shall mean any present or future tax, withholding, assessment or
other charge or levy or deduction imposed by or on behalf of the United
States of America or any taxing authority thereof or therein.
(c) The Borrower will not be required to make any additional payment to
or for the account of the Lender to the extent the Borrower is required to
withhold any taxes with respect to any payment to be made by the Borrower to
the Lender hereunder.
8.17. Confidentiality. The Lender agrees that it will use its best
efforts not to disclose without the prior written consent of the Borrower
(other than to its directors, employees, auditors or counsel for the sole
purpose of enabling the Lender to administer the Loans hereunder) any
information with respect to the Borrower which is furnished pursuant to this
Agreement, except that the Lender may disclose any such information (a) as
has become generally available to the public other than by a breach of this
Section 8.17, (b) as may be required or appropriate in any report, statement
or testimony submitted to any governmental authority (whether in the United
States or elsewhere), (c) as may be required or appropriate in response to
any summons or subpoena or any law, order, regulation or ruling applicable to
the Lender and (d) to any prospective assignee or participant in connection
with any contemplated transfer or participation pursuant to Section 8.7,
provided that prior to the delivery of any information to a prospective
assignee or participant, it shall execute an agreement with the Lender
containing provisions substantially identical to those contained in this
Section 8.17. To the extent not otherwise prohibited, the Lender agrees to
provide prompt notice to the Borrower of any disclosure pursuant to clause
(b) or (c) above.
8.18. No Limitation on Service or Suit. Nothing in this Agreement or any
modification, waiver, consent or amendment thereto shall affect the right of
the Lender or the Borrower, as the case may be, to serve process in any
manner permitted by law or limit the right of the Borrower or the Lender to
bring proceedings against such other party in the courts of any jurisdiction
or jurisdictions in which the Borrower or the Lender may be served.
25
<PAGE>
IN WITNESS WHEREOF, each party hereto has caused this Agreement to be
duly executed by its authorized officer as of the day and year first written
above.
MERRILL LYNCH SENIOR FLOATING
RATE FUND, INC.
BY: ___________________________
Name:
Title:
Address:
The Lender is a member of The Securities and Futures Authority Limited
and operates a Client Complaints Procedure. If for any reason the Borrower
should have cause for concern or complaint, the Borrower should contact the
Manager, PBG Operations, at the Lender's address indicated below.
MERRILL LYNCH INTERNATIONAL
BANK LIMITED
BY: ________________________
Executed in London, Name:
England on _______, 1997 Title:
Address: 33 Chester Street
London SW1 7XD
England
Attn: Brian Spletzer
26
<PAGE>
Exhibits
A Form of Note
B Form of Report
C Opinion of Brown & Wood LLP, Special New York and Maryland Counsel
to Borrower
D Form of Notice of Borrowing
27
<PAGE>
EXHIBIT 99.(g)(1)
<PAGE>
Exhibit 99(g)(1)
INDEPENDENT AUDITORS' REPORT
THE BOARD OF DIRECTORS AND SHAREHOLDERS,
MERRILL LYNCH SENIOR FLOATING RATE FUND, INC.:
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments, of Merrill Lynch Senior Floating Rate Fund, Inc. as
of August 31, 1995, the related statements of operations and cash flows for the
year then ended, the statements of changes in net assets for each of the years
in the two-year period then ended, and the financial highlights for each of the
years in the five-year period then ended. These financial statements and the
financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and the
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and the financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned at August
31, 1995 by correspondence with the custodian and financial intermediaries. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of Merrill Lynch Senior
Floating Rate Fund, Inc. as of August 31, 1995, the results of its operations,
its cash flows, the changes in its net assets, and the financial highlights for
the respective stated periods in conformity with generally accepted accounting
principles.
As discussed in Notes 1a and 1b, the financial statements include senior secured
floating rate loan interests ("Loan Interests") valued at $1,669,858,757 (77.18%
of all net assets of the Fund), whose values are fair values as determined by
or under the direction of the Board of Directors in the absence of actual market
values. Determination of fair value involves subjective judgment, as the actual
market value of a particular Loan Interest can be established only by
negotiation between parties in a sales transaction. We have reviewed the
procedures established by the Board of Directors and used by the Fund's
investment advisor in determining the fair values of such Loan Interests and
have inspected underlying documentation, and under the circumstances, we believe
that the procedures are reasonable and the documentation appropriate.
Deloitte & Touche LLP
Princeton, New Jersey
October 16, 1995
<PAGE>
MERRILL LYNCH SENIOR FLOATING RATE FUND, INC. AUGUST 31, 1995
<TABLE><CAPTION>
SCHEDULE OF INVESTMENTS (in Thousands)
Face Value
Industry Senior Secured Floating Rate Loan Interests* Amount (Note 1b)
<S> <C> <C> <C>
Aerospace--1.87% Aviall Inc., Term Loan B, due 11/30/00:
9.13% to 9/07/95 $ 728 $ 728
9.75% to 9/07/95 5,225 5,225
9.25% to 10/10/95 14,558 14,558
Gulfstream Aerospace Corp., Term Loan, due 3/31/97,
10% to 9/29/95 1,538 1,538
Gulfstream Aerospace Corp., Term Loan, due 3/31/98:
9% to 9/08/95 9,260 9,260
7.88% to 10/13/95 9,224 9,224
---------- ----------
40,533 40,533
Airlines--0.61% Northwest Airlines, Inc., Term Loan, due 6/15/97,
9.125% to 10/20/95 6,130 6,130
Northwest Airlines, Inc., Term Loan, due 9/15/97,
9.125% to 10/20/95 7,110 7,110
---------- ----------
13,240 13,240
Analytical Waters Corp., Term Loan B, due 8/31/01:
Instruments--1.13% 9.25% to 9/29/95 791 791
9.25% to 10/31/95 9,996 9,996
Waters Corp., Term Loan C, due 8/31/02:
9.625% to 9/29/95 554 554
9.625% to 10/31/95 6,995 6,995
Waters Corp., Term Loan D, due 2/28/03:
10% to 9/29/95 445 445
10% to 10/31/95 5,623 5,623
---------- ----------
24,404 24,404
Apparel--0.46% Humphreys, Term Loan B, due 1/15/03, 9.375% to 9/29/95 10,000 10,000
Automobile Exide Corporation, Term Loan B, due 9/30/01:
Products--0.69% 9% to 10/02/95 2,450 2,450
8.9375% to 12/29/95 2,487 2,487
Johnstown America Industrial Inc., Term Loan B, due 3/31/03,
9% to 2/23/96 10,000 10,000
---------- ----------
14,937 14,937
Broadcast/Media--4.85% Classic Cable, Term Loan A, due 3/31/03, 8.69% to 9/29/95 2,500 2,500
Classic Cable, Term Loan B, due 3/31/04, 9.69% to 9/29/95 5,000 5,000
Coaxial Communications, Term Loan, due 12/31/99:
10.75% to 9/29/95 32 32
9.13% to 10/15/95 4,402 4,402
9.19% to 6/14/96 9,468 9,468
8.94% to 7/17/96 5,035 5,035
Ellis Communications, Term Loan B, due 3/31/03:
11%(1) 33 33
9.125% to 9/18/95 4,950 4,950
Enquirer/Star, Term Loan B, due 9/30/02:
10%(1) 134 134
8.44% to 10/22/95 26,532 26,532
Journal News Inc., Term Loan, due 12/31/01, 8.255%
to 10/30/95 10,000 10,000
Marcus Cable Operating Co., Term Loan B, due 4/30/04,
10.25% to 9/30/95 11,500 11,500
Silver King Communications, Term Loan B, due 7/31/02,
8.875% to 10/31/95 17,820 17,820
US Radio Inc., Term Loan A, due 12/31/01:
9.4375% to 9/29/95 1,298 1,298
8.875% to 10/30/95 1,233 1,233
US Radio Inc., Term Loan B, due 9/23/03:
9.9375% to 9/08/95 828 828
10.4375% to 9/29/95 1,695 1,695
9.875% to 10/30/95 1,709 1,709
9.8125% to 12/11/95 823 823
---------- ----------
104,992 104,992
</TABLE>
<PAGE>
MERRILL LYNCH SENIOR FLOATING RATE FUND, INC. AUGUST 31, 1995
<TABLE>
<CAPTION>
SCHEDULE OF INVESTMENTS (continued) (in Thousands)
Face Value
Industry Senior Secured Floating Rate Loan Interests* Amount (Note 1b)
<S> <C> <C> <C>
Building MTF Acquisition, Term Loan B, due 12/31/02, 9.03% to 9/29/95 $ 20,000 $ 20,000
Products--1.86% Overhead Door Corp., Revolving Credit Loan, due 8/18/99:
8.4375% to 9/28/95 205 205
8.50% to 9/29/95 1,909 1,909
Overhead Door Corp., Term Loan, due 8/18/99, 8.50% to 9/29/95 8,794 8,794
RSI Home Products, Term Loan, due 11/30/99, 8.375% to 11/30/95 9,250 9,250
---------- ----------
40,158 40,158
Carbon & Graphite UCAR International, Term Loan B, due 1/31/03, 8.875% to 9/08/95 7,311 7,311
Products--0.69% UCAR International, Term Loan C, due 7/31/03, 9.375% to 9/08/95 3,827 3,827
UCAR International, Term Loan D, due 1/31/04, 10.0625% to 11/08/95 3,827 3,827
---------- ----------
14,965 14,965
Chemicals--2.17% Freedom Chemical Company, Term Loan B, due 6/30/02,
9.1875% to 10/27/95 27,000 27,000
Harris Specialty Chemicals, Term Loan A, due 12/30/99,
8.75% to 9/18/95 616 616
Harris Specialty Chemicals, Term Loan B, due 12/30/01,
9.25% to 9/18/95 2,871 2,871
Hydro Chemical, Term Loan B, due 7/01/02, 10.0625% to 10/31/95 5,000 5,000
Inspec Technologies, Term Loan B, due 12/02/00, 8.50% to 9/29/95 4,311 4,311
Thoro World Systems, Inc., Term Loan A, due 12/30/99, 8.69%
to 9/29/95 2,252 2,252
Thoro World Systems, Inc., Term Loan B, due 12/30/01, 8.69%
to 9/19/95 4,916 4,916
---------- ----------
46,966 46,966
Consumer Products--2.77% CHF/Ebel USA, Term Loan B, due 9/30/01, 9.1328% to 10/30/95 10,032 10,032
Playtex Family Products Inc., Term Loan A, due 6/30/02:
6.82% to 9/06/95 328 328
7.57% to 9/06/95 1,311 1,311
7.44% to 1/08/96 1,748 1,748
Playtex Family Products Inc., Term Loan B, due 6/30/02:
6.82% to 9/06/95 3,059 3,059
7.57% to 9/06/95 12,237 12,237
7.44% to 1/08/96 16,316 16,316
Revlon Consumer Products, Term Loan B, due 6/30/97,
9.3125% to 12/08/95 15,000 15,000
---------- ----------
60,031 60,031
Containers--1.56% Ivex Packaging Corp., Term Loan B, due 12/31/99:
11%(1) 11 11
9.44% to 9/25/95 2,714 2,714
9.94% to 9/27/95 3,143 3,143
9.94% to 9/29/95 1,429 1,429
9.57% to 11/30/95 1,429 1,429
9.32% to 12/28/95 857 857
Portola Packaging, Inc., Term Loan B, due 7/01/01,
9.6406% to 9/07/95 7,250 7,250
Silgan Corp., Term Loan B, due 3/15/02:
8.875% to 9/11/95 2,267 2,267
8.875% to 10/10/95 7,556 7,556
8.875% to 11/09/95 2,353 2,353
8.9375% to 2/09/96 4,824 4,824
---------- ----------
33,833 33,833
Diversified Desa International Inc., Term Loan B, due 11/30/00,
Manufacturing--3.33% 9.0625% to 12/27/95 9,032 9,032
InterMetro Industries, Term Loan B, due 6/30/01:
8.875% to 9/05/95 2,174 2,174
8.875% to 1/03/96 7,651 7,651
InterMetro Industries, Term Loan C, due 12/31/02:
9.375% to 9/05/95 3,163 3,163
9.375% to 1/03/96 11,132 11,132
</TABLE>
<PAGE>
MERRILL LYNCH SENIOR FLOATING RATE FUND, INC. AUGUST 31, 1995
<TABLE>
<CAPTION>
SCHEDULE OF INVESTMENTS (continued) (in Thousands)
Face Value
Industry Senior Secured Floating Rate Loan Interests* Amount (Note 1b)
<S> <C> <C> <C>
Diversified The Pullman Co., Inc., Revolving Credit Loan, due 12/31/99:
Manufacturing 10.25%(1) $ 821 $ 821
(concluded) 9% to 9/25/95 3,915 3,915
The Pullman Co., Inc., Term Loan A, due 12/31/99, 9% to 9/25/95 9,359 9,359
The Pullman Co., Inc., Term Loan B, due 12/31/99, 9.50%
to 9/25/95 650 650
Thermadyne Company, Term Loan B, due 2/01/01, 8.875% to 9/07/95 24,068 24,068
---------- ----------
71,965 71,965
Drug Stores--2.30% Duane Reade Co., Term Loan A, due 9/30/97, 8.875% to 11/30/95 7,711 7,711
Duane Reade Co., Term Loan B, due 9/30/99, 9.375% to 11/30/95 10,000 10,000
Eckerd Corp., Term Loan, Series C, due 7/31/00:
7.125% to 9/11/95 2,639 2,639
7.1875% to 10/10/95 2,387 2,387
7.5625% to 11/09/95 5,933 5,933
Thrifty Payless, Term Loan B, due 9/30/01, 9.0625% to 9/22/95 20,987 20,987
---------- ----------
49,657 49,657
Electrical Instruments-- Berg Electronics Inc., Term Loan A, due 3/31/00:
1.89% 8.69% to 9/29/95 365 365
8.69% to 11/27/95 10,875 10,875
Berg Electronics Inc., Term Loan B, due 3/31/01:
8.94% to 9/29/95 4 4
8.94% to 11/27/95 963 963
Communications & Power Industries, Term Loan B, due 8/11/2002,
10.25% to 10/01/95 5,667 5,667
International Wire Corp., Term Loan B, due 9/30/02, 9%
to 12/12/95 10,000 10,000
Tracor Inc., Term Loan A, due 10/31/98, 8.4375% to 9/25/95 3,067 3,067
Tracor Inc., Term Loan B, due 2/28/01:
10.75%(1) 36 36
8.9375% to 9/25/95 9,889 9,889
---------- ----------
40,866 40,866
Fertilizer--0.92% Terra Industries, Term Loan B, due 10/20/01, 8.375%
to 10/20/95 19,875 19,875
Food & Beverage--4.75% American Italian Pasta, Term Loan C, due 12/31/00,
9.9375% to 11/17/95 5,000 5,000
Amerifoods, Term Loan B, due 6/30/01, 10.75% to 9/29/95 7,500 7,500
Amerifoods, Term Loan C, due 6/30/02, 11.25% to 9/29/95 7,500 7,500
Domino's Pizza, Inc., Term Loan B, due 7/27/00:
9.1875% to 9/06/95 5,155 5,155
9.0625% to 11/08/95 2,087 2,087
8.625% to 12/06/95 3,000 3,000
8.625% to 2/07/96 2,380 2,380
Heileman Acquisition Company, Term Loan B, due 12/31/00,
9.6875% to 10/13/95 10,000 10,000
MAFCO Worldwide, Term Loan B, due 6/30/01, 8.88% to 9/29/95 9,900 9,900
President Baking Co., Inc., Term Loan B, due 9/30/00,
7.75% to 12/29/95 4,949 4,949
President Baking Co., Inc., Term Loan B, due 9/30/00,
10.25% to 12/29/95 8 8
Select Beverage Inc., Term Loan B, due 6/30/01, 9.125%
to 11/01/95 2,000 2,000
Select Beverage Inc., Term Loan C, due 6/30/01, 9.375%
to 11/01/95 3,000 3,000
Specialty Foods Corp., Term Loan, due 4/30/01:
8.1875% to 9/21/95 13,399 13,399
8.125% to 10/20/95 13,399 13,399
8.0625% to 1/22/96 13,399 13,399
---------- ----------
102,676 102,676
</TABLE>
<PAGE>
MERRILL LYNCH SENIOR FLOATING RATE FUND, INC. AUGUST 31, 1995
<TABLE>
<CAPTION>
SCHEDULE OF INVESTMENTS (continued) (in Thousands)
Face Value
Industry Senior Secured Floating Rate Loan Interests* Amount (Note 1b)
<S> <C> <C> <C>
Grocery--3.29% Big V Supermarkets Inc., Term Loan B, due 3/15/00:
9.3125% to 9/20/95 $ 5,200 $ 5,200
8.6875% to 10/17/95 5,200 5,200
Dominick's Finer Foods, Term Loan B, due 3/31/02:
9.125% to 9/07/95 395 395
9.3125% to 10/05/95 3,943 3,943
Dominick's Finer Foods, Term Loan C, due 3/31/03:
9.625% to 9/07/95 395 395
9.8125% to 10/05/95 4,304 4,304
Dominick's Finer Foods, Term Loan D, due 9/30/03:
9.875% to 9/07/95 395 395
10.0625% to 10/05/95 4,304 4,304
Pathmark Stores Inc., Term Loan B, due 10/31/99, 8.9375%
to 11/30/95 4,576 4,576
Ralph's Grocery Company, Revolving Credit Loan, due 6/15/01,
10.25%(1) 300 300
Ralph's Grocery Company, Term Loan A, due 6/15/01:
8.6875% to 9/21/95 515 515
8.625% to 10/19/95 13,180 13,180
Ralph's Grocery Company, Term Loan B, due 6/15/02:
10.25% to 9/15/95 5 5
9.1875% to 9/21/95 19 19
9.1875% to 9/21/95 46 46
10.25% to 9/29/95 13 13
9.125% to 10/19/95 6,917 6,917
Ralph's Grocery Company, Term Loan C, due 6/15/03:
10.75% to 9/15/95 5 5
9.6875% to 9/21/95 65 65
10.75% to 9/29/95 12 12
9.625% to 10/19/95 6,918 6,918
Ralph's Grocery Company, Term Loan D, due 2/15/04:
10.75% to 9/15/95 5 5
9.9375% to 9/21/95 65 65
10.75% to 9/29/95 12 12
9.875% to 10/19/95 6,918 6,918
Star Markets Co., Inc., Term Loan B, due 12/31/01, 8.94%
to 9/18/95 4,211 4,211
Star Markets Co., Inc., Term Loan C, due 12/31/02, 9.44%
to 9/18/95 3,158 3,158
---------- ----------
71,076 71,076
Health Services--2.25% National Medical Enterprises Inc., Revolving Credit Loan,
due 8/31/01:
9%(1) 380 380
7.125% to 9/07/95 600 600
7.1875% to 9/22/95 250 250
7.1875 to 9/29/95 220 220
7.1875% to 10/23/95 200 200
7.1875% to 11/22/95 200 200
7.25% to 2/22/96 1,200 1,200
National Medical Enterprises Inc., Term Loan, due 8/31/01:
7.3125% to 9/01/95 2,917 2,917
7.6875% to 9/01/95 12,500 12,500
7.25% to 10/03/95 6,722 6,722
7.25% to 12/05/95 8,333 8,333
7.125% to 1/03/96 6,750 6,750
7.125% to 2/01/96 8,333 8,333
---------- ----------
48,605 48,605
</TABLE>
<PAGE>
MERRILL LYNCH SENIOR FLOATING RATE FUND, INC. AUGUST 31, 1995
<TABLE>
<CAPTION>
SCHEDULE OF INVESTMENTS (continued) (in Thousands)
Face Value
Industry Senior Secured Floating Rate Loan Interests* Amount (Note 1b)
<S> <C> <C> <C>
Leasing & Rental Prime Acquisition, Term Loan, due 12/31/00:
Services--0.92% 9.0625% to 9/05/95 $ 6,400 $ 6,400
9.0313% to 10/03/95 7,120 7,120
8.875% to 10/06/95 6,400 6,400
---------- ----------
19,920 19,920
Leisure/ Metro Goldwyn Meyer Co., Term Loan, due 4/15/97, 8.19%
Entertainment--1.36% to 1/24/96 10,000 10,000
Six Flags Entertainment Corp., Term Loan B, due 6/23/03:
8.875% to 12/27/95 16,154 16,154
9% to 2/23/96 3,247 3,247
---------- ----------
29,401 29,401
Manufacturing--0.69% Trans Technology Corp., Term Loan B, due 6/30/02, 9.125%
to 11/02/95 15,000 15,000
Medical Devices--0.79% Deknatel Holdings Corp., Term Loan A, due 4/20/99:
9.3125% to 9/29/95 115 115
9.3125% to 10/25/95 1,938 1,938
9.8125% to 10/25/95 7,500 7,500
Deknatel Holdings Corp., Term Loan B, due 4/20/01, 9.8125%
to 10/25/95 7,500 7,500
---------- ----------
17,053 17,053
Message Dictaphone Co., Term Loan B, due 6/30/02, 9.1875% to 9/15/95 10,000 10,000
Communications--0.46%
Nautical Systems--0.40% Sperry Marine, Inc., Term Loan, due 11/15/00:
9.6875% to 9/29/95 3,639 3,639
9.125% to 12/29/95 4,947 4,947
---------- ----------
8,586 8,586
Paper--19.63% Crown Paper Co., Term Loan B, due 8/22/2003:
9.25% to 9/22/95 5,000 5,000
9.25% to 10/23/95 5,000 5,000
9.25% to 11/21/95 5,000 5,000
9.25% to 2/20/96 5,000 5,000
Fort Howard Corp., Term Loan A, due 3/08/02:
8.50% to 9/19/95 12,000 12,000
8.38% to 12/19/95 12,000 12,000
Fort Howard Corp., Term Loan B, due 12/31/02:
9% to 9/19/95 31,604 31,604
8.88% to 12/19/95 31,604 31,604
Jefferson Smurfit Company/Container Corp. of America,
Revolving Credit Loan, due 4/30/01:
10.25%(1) 179 179
8.375% to 9/07/95 60 60
8.4375% to 9/22/95 149 149
8.4375% to 9/29/95 119 119
Jefferson Smurfit Company/Container Corp. of America,
Term Loan A, due 4/30/01:
8.9375% to 9/28/95 31,043 31,043
8.9375% to 9/29/95 11,340 11,340
8.375% to 10/20/95 22,680 22,680
8.4375% to 10/20/95 2,495 2,495
8.375% to 10/30/95 22,680 22,680
Jefferson Smurfit Company/Container Corp. of America,
Term Loan B, due 4/30/02:
9.4375% to 9/25/95 2,968 2,968
8.9375% to 10/20/95 12,928 12,928
9.375% to 10/24/95 54,086 54,086
</TABLE>
<PAGE>
MERRILL LYNCH SENIOR FLOATING RATE FUND, INC. AUGUST 31, 1995
<TABLE>
<CAPTION>
SCHEDULE OF INVESTMENTS (continued) (in Thousands)
Face Value
Industry Senior Secured Floating Rate Loan Interests* Amount (Note 1b)
<S> <C> <C> <C>
Paper Mail Well, Term Loan B, due 7/31/03:
(concluded) 10.25%(1) $ 6,100 $ 6,100
8.875% to 9/06/95 13,900 13,900
S.D. Warren Co., Term Loan A, due 12/20/01, 8.38%
to 10/24/95 10,000 10,000
S.D. Warren Co., Term Loan B, due 12/19/02, 8.94%
to 9/25/95 52,000 52,000
Stone Container Corp., Term Loan B, due 4/01/00:
9% to 9/18/95 27,607 27,607
9% to 10/16/95 29,707 29,707
Stone Container Corp., Term Loan C, due 4/01/00, 9.25%
to 9/29/95 17,500 17,500
---------- ----------
424,749 424,749
Printing & K-III Communications, Term Loan, due 12/31/00, 7.13%
Publishing--2.05% to 11/09/95 6,000 6,000
Print Tech International, Term Loan B, due 12/29/01:
8.9375% to 9/29/95 1,375 1,375
8.8125% to 12/08/95 3,542 3,542
Ziff Davis, Term Loan B, due 12/31/01, 9.4375% to 9/28/95 13,696 13,696
Ziff Davis, Term Loan C, due 12/31/02, 9.4375% to 9/28/95 19,755 19,755
---------- ----------
44,368 44,368
Retail-- Federated Department Stores, Revolving Credit Loan,
Specialty--9.43% due 3/31/00:
7.0625% to 9/05/95 3,125 3,125
7.4375% to 9/18/95 7,812 7,812
6.875% to 9/29/95 14,062 14,062
6.9375% to 9/29/95 4,688 4,688
Federated Department Stores, Term Loan, due 3/31/00:
7.4375% to 9/25/95 53,125 53,125
7% to 9/29/95 31,875 31,875
Music Acquisition Corp., Term Loan B, due 8/31/01:
8.875% to 9/18/95 8,156 8,156
8.9375% to 9/21/95 13,781 13,781
Music Acquisition Corp., Term Loan C, due 8/31/02, 9.4375%
to 9/21/95 7,500 7,500
QVC, Inc., Term Loan B, due 1/31/04, 9% to 9/05/95 28,000 28,000
Saks & Co., Term Loan A, due 6/30/98, 8.75% to 11/09/95 4,375 4,375
Saks & Co., Term Loan B, due 6/30/00, 9.25% to 11/09/95 27,469 27,469
---------- ----------
203,968 203,968
Telecommunications--1.82% LDDS Communications, Term Loan, due 12/31/96, 6.88%
to 10/10/95 10,000 10,000
Paging Network, Term Loan B, due 3/31/02, 9.445% to 11/06/95 29,333 29,333
---------- ----------
39,333 39,333
Textiles--1.15% Chicopee, Inc., Term Loan B, due 3/31/03, 9.19% to 9/29/95 24,937 24,937
Transportation Petro Properties, Term Loan B, due 5/24/01, 9.25% to 9/28/95 8,765 8,765
Services--0.40%
Warehousing & Pierce Leahy Corp., Term Loan B, due 6/30/01, 9.125%
Storage--0.69% to 9/29/95 15,000 15,000
Total Senior Secured Floating Rate Loan Interests
(Cost--$1,669,859)--77.18% 1,669,859 1,669,859
</TABLE>
<PAGE>
MERRILL LYNCH SENIOR FLOATING RATE FUND, INC. AUGUST 31, 1995
<TABLE>
<CAPTION>
SCHEDULE OF INVESTMENTS (concluded) (in Thousands)
Face Value
Short-Term Securities Amount (Note 1b)
<S> <C> <C> <C>
Commercial Ciesco L.P., 5.70% due 10/13/95 $ 30,000 $ 29,801
Paper**--19.68% Corporate Asset Funding Co., 5.73% due 9/07/95 50,000 49,952
First Boston, Inc.:
5.71% due 9/27/95 20,000 19,918
5.73% due 9/27/95 30,000 29,876
5.71% due 10/03/95 20,000 19,898
General Electric Capital Corp., 5.82% due 9/01/95 31,448 31,448
Matterhorn Capital Corp.:
5.73% due 9/20/95 30,000 29,909
5.72% due 10/05/95 30,000 29,838
National Fleet Fund, Inc.:
5.70% due 9/13/95 30,000 29,943
5.76% due 9/14/95 40,700 40,615
5.73% due 9/28/95 25,000 24,893
5.74% due 10/06/95 50,000 49,721
Sheffield Receivables Co., 5.75% due 9/08/95 40,000 39,955
---------- ----------
427,148 425,767
US Government & Agency Federal National Mortgage Association, 5.66% due 9/06/95 50,000 49,961
Obligations**--2.31%
Total Short-Term Securities (Cost--$475,728)--21.99% 477,148 475,728
<CAPTION>
Shares
Common Stock Held
<S> <C> <C> <C>
Restaurants--0.01% Flagstar Companies, Inc. 44 173
Total Common Stock (Cost--$0)--0.01% 44 173
Total Investments (Cost--$2,145,587)--99.18% 2,145,760
Other Assets Less Liabilities--0.82% 17,710
----------
Net Assets--100.00% $2,163,470
==========
<FN>
*The interest rates on senior secured floating rate loan interests
are subject to change periodically based on the change in the prime
rate of a US Bank, LIBOR (London Interbank Offered Rate), or, in
some cases, another base lending rate. The interest rates shown are
those in effect at August 31, 1995.
**Commercial Paper and certain US Government & Agency Obligations
are traded on a discount basis; the interest rates shown are the
discount rates paid at the time of purchase by the Fund.
(1)Index is based on the prime rate of a US bank, which is subject
to change daily.
</TABLE>
See Notes to Financial Statements.
*<PAGE>
MERRILL LYNCH SENIOR FLOATING RATE FUND, INC. AUGUST 31, 1995
<TABLE>
<CAPTION>
FINANCIAL INFORMATION
Statement of Assets and Liabilities as of August 31, 1995
<S> <C> <C> <C>
Assets: Investments, at value (identified cost-- $2,145,586,427)
(Note 1b) $2,145,759,782
Receivables:
Capital shares sold $ 23,090,039
Interest 15,293,047
Commitment fees 78,144 38,461,230
------------
Prepaid registration fees and other assets (Note 1f) 1,619,465
--------------
Total assets 2,185,840,477
--------------
Liabilities: Payables:
Dividends to shareholders (Note 1g) 4,220,943
Investment adviser (Note 2) 1,664,057
Administrator (Note 2) 437,910 6,322,910
------------
Deferred income (Note 1e) 15,408,761
Accrued expenses and other liabilities 639,193
--------------
Total liabilities 22,370,864
--------------
Net Assets: Net assets $2,163,469,613
==============
Net Assets Common Stock, par value $0.10 per share; 1,000,000,000
Consist of: shares authorized $ 21,597,247
Paid-in capital in excess of par 2,140,838,484
Undistributed realized capital gains on investments--net 860,527
Unrealized appreciation on investments--net (Note 3) 173,355
--------------
Net Assets--Equivalent to $10.02 per share based on
215,972,462 shares of Common Stock outstanding $2,163,469,613
==============
</TABLE>
<TABLE>
<CAPTION>
Statement of Operations
For the Year Ended
August 31, 1995
<S> <C> <C> <C>
Investment Income Interest and discount earned $122,873,692
(Note 1e): Facility and other fees 3,427,067
------------
Total income 126,300,759
------------
Expenses: Investment advisory fees (Note 2) $ 13,654,371
Administrative fees (Note 2) 3,593,255
Transfer agent fees (Note 2) 956,857
Professional fees 329,753
Accounting services (Note 2) 197,653
Borrowing costs (Note 6) 189,883
Custodian fees 143,988
Printing and shareholder reports 87,900
Directors' fees and expenses 47,374
Other 18,482
------------
Total expenses 19,219,516
------------
Investment income--net. 107,081,243
------------
Realized & Realized gain on investments--net 901,282
Unrealized Change in unrealized appreciation/depreciation on
Gain (Loss) on investments--net (102,235)
Investments--Net ------------
(Notes 1c, 1e Net Increase in Net Assets Resulting from Operations $107,880,290
& 3): ============
</TABLE>
See Notes to Financial Statements.
<PAGE>
MERRILL LYNCH SENIOR FLOATING RATE FUND, INC. AUGUST 31, 1995
<TABLE>
<CAPTION>
FINANCIAL INFORMATION (continued)
Statements of Changes in Net Assets
For the Year
Ended August 31,
Increase (Decrease) in Net Assets: 1995 1994
<S> <C> <C> <C>
Operations: Investment income--net $ 107,081,243 $ 43,213,412
Realized gain (loss) on investments--net 901,282 (13,985)
Change in unrealized appreciation/depreciation on
investments--net (102,235) (124,460)
-------------- ------------
Net increase in net assets resulting from operations 107,880,290 43,074,967
-------------- ------------
Dividends to Investment income--net (107,081,243) (43,213,412)
Shareholders -------------- ------------
(Note 1g): Net decrease in net assets resulting from dividends
to shareholders (107,081,243) (43,213,412)
-------------- ------------
Capital Share Net increase in net assets resulting from capital
Transactions share transactions 1,228,207,869 221,301,485
(Note 4): -------------- ------------
Net Assets: Total increase in net assets 1,229,006,916 221,163,040
Beginning of year 934,462,697 713,299,657
-------------- ------------
End of year $2,163,469,613 $934,462,697
============== ============
</TABLE>
<TABLE>
<CAPTION>
Statement of Cash Flows
For the Year Ended
August 31, 1995
<S> <C> <C>
Cash Provided by Net increase in net assets resulting from operations $ 107,880,290
Operating Adjustments to reconcile net increase (decrease) in
Activities: net assets resulting from operations to net cash
provided by operating activities:
Increase in receivables (9,086,101)
Increase in other assets (1,483,573)
Increase in other liabilities 9,041,608
Realized and unrealized gain on investments--net (799,047)
Amortization of discount (20,924,413)
----------------
Net cash provided by operating activities 84,628,764
----------------
Cash Used for Proceeds from principal payments and sales of loan interests 651,663,489
Investing Purchases of loan interests (1,521,021,788)
Activities: Purchases of short-term investments--net (13,212,737,918)
Proceeds from sales and maturities of short-term investments--net 12,876,338,285
----------------
Net cash used for investing activities (1,205,757,932)
----------------
Cash Provided by Cash receipts on capital shares sold 1,291,293,618
Financing Cash payments on capital shares tendered (116,306,108)
Activities: Dividends paid to shareholders (54,068,371)
----------------
Net cash provided by financing activities 1,120,919,139
----------------
Cash: Net decrease in cash (210,029)
Cash at beginning of year 210,029
----------------
Cash at end of year $ --
================
Non-Cash Capital shares issued in reinvestment of dividends paid to shareholders $ 50,211,612
Financing ================
Activities:
</TABLE>
See Notes to Financial Statements.
<PAGE>
MERRILL LYNCH SENIOR FLOATING RATE FUND, INC. AUGUST 31, 1995
<TABLE>
<CAPTION>
FINANCIAL INFORMATION (concluded)
Financial Highlights
The following per share data and ratios have been derived
from information provided in the financial statements.
For the Year Ended August 31,
Increase (Decrease) in Net Asset Value: 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of year $ 10.02 $ 10.02 $ 9.99 $ 9.99 $ 10.00
Operating -------- -------- -------- -------- --------
Performance: Investment income--net .75 .59 .53 .64 .85
Realized and unrealized gain (loss) on
investments--net --++ --++ .03 -- (.01)
-------- -------- -------- -------- --------
Total from investment operations .75 .59 .56 .64 .84
-------- -------- -------- -------- --------
Less dividends from investment income--net (.75) (.59) (.53) (.64) (.85)
-------- -------- -------- -------- --------
Net asset value, end of year $ 10.02 $ 10.02 $ 10.02 $ 9.99 $ 9.99
======== ======== ======== ======== ========
Total Investment Based on net asset value per share 7.68% 5.94% 5.74% 6.58% 8.79%
Return:* ======== ======== ======== ======== ========
Ratios to Average Expenses, net of reimbursement 1.34% 1.43% 1.47% 1.39% 1.27%
Net Assets: ======== ======== ======== ======== ========
Expenses 1.34% 1.43% 1.47% 1.41% 1.33%
======== ======== ======== ======== ========
Investment income--net 7.45% 5.75% 5.27% 6.58% 8.44%
======== ======== ======== ======== ========
Supplemental Net assets, end of year (in millions) $ 2,163 $ 934 $ 713 $ 834 $ 1,705
Data: ======== ======== ======== ======== ========
Portfolio turnover 55.23% 61.31% 90.36% 46.48% 58.22%
======== ======== ======== ======== ========
<FN>
*Total investment returns exclude the effects of sales loads. The
Fund is a continuously offered closed-end fund, the shares of which
are offered at net asset value. Therefore, no separate market
exists.
++Amount is less than $.01 per share.
</TABLE>
See Notes to Financial Statements.
<PAGE>
MERRILL LYNCH SENIOR FLOATING RATE FUND, INC. AUGUST 31, 1995
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies:
Merrill Lynch Senior Floating Rate Fund, Inc. (the "Fund") is
registered under the Investment Company Act of 1940 as a
continuously offered non-diversified, closed-end management
investment company.
(a) Loan participation interests--The Fund invests in senior secured
floating rate loan interests ("Loan Interests") with collateral
having a market value, at time of acquisition by the Fund, which
Fund management believes equals or exceeds the principal amount of
the corporate loan. The Fund may invest up to 20% of its total
assets in loans made on an unsecured basis. Depending on how the
loan was acquired, the Fund will regard the issuer as including the
corporate borrower along with an agent bank for the syndicate of
lenders and any intermediary of the Fund's investment. Because
agents and intermediaries are primarily commercial banks, the Fund's
investment in corporate loans at August 31, 1995 could be considered
to be concentrated in commercial banking.
(b) Valuation of investments--Loan interests and common stocks are
valued at fair value. Fair value is determined in good faith by or
under the direction of the Board of Directors of the Fund. Since
Loan Interests are purchased and sold primarily at par value, the
Fund values the Loan Interests at par, unless Merrill Lynch Asset
Management, L.P. ("MLAM") determines par does not represent fair
value. In the event such a determination is made, fair value will be
determined in accordance with guidelines approved by the Fund's
Board of Directors. Short-term securities with remaining maturities
of sixty days or less are valued at amortized cost, which
approximates market value. Securities and assets for which market
quotations are not readily available are valued at fair value as
determined in good faith by or under the direction of the Board of
Directors of the Fund.
(c) Derivative financial instruments--The Fund may engage in various
portfolio strategies to seek to increase its return by hedging its
portfolio against adverse movements in the debt markets. Losses may
arise due to changes in the value of the contract or if the
counterparty does not perform under the contract.
* Interest rate transactions--The Fund is authorized to enter into
interest rate swaps and purchase or sell interest rate caps and
floors. In an interest rate swap, the Fund exchanges with another
party their respective commitments to pay or receive interest on a
specified notional principal amount. The purchase of an interest
rate cap (or floor) entitles the purchaser, to the extent that a
specified index exceeds (or falls below) a predetermined interest
rate, to receive payments of interest equal to the difference
between the index and the predetermined rate on a notional principal
amount from the party selling such interest rate cap (or floor).
(d) Income taxes--It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated
investment companies and to distribute substantially all of its
taxable income to its shareholders. Therefore, no Federal income tax
provision is required.
(e) Security transactions and investment income--Security
transactions are recorded on the dates the transactions are entered
into (the trade dates). Interest is recognized on the accrual basis.
Realized gains and losses on security transactions are determined on
the identified cost basis. Facility fees are accreted into income
over the term of the related loan. For income tax purposes, as of
September 1, 1994, the Loan Interests are treated as discount
obligations.
(f) Prepaid registration fees--Prepaid registration fees are charged
to expense as the related shares are issued.
(g) Dividends and distributions--Dividends from net investment
income are declared daily and paid monthly. Distributions of capital
gains are recorded on the ex-dividend dates.
2. Investment Advisory and Administrative
Services Agreement and Transactions with
Affiliates:
The Fund has entered into an Investment Advisory Agreement with
MLAM. The general partner of MLAM is Princeton Services, Inc.
("PSI"), an indirect wholly-owned subsidiary of Merrill Lynch & Co.,
Inc. ("ML & Co."), which is the limited partner.
MLAM is responsible for the management of the Fund's portfolio and
provides the necessary personnel, facilities, equipment and certain
other services necessary to perform this investment advisory
function.
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
<PAGE>
MERRILL LYNCH SENIOR FLOATING RATE FUND, INC. AUGUST 31, 1995
NOTES TO FINANCIAL STATEMENTS (concluded)
Agreement with MLAM whereby MLAM will receive a fee equal to an annual
rate of 0.25% of the Fund's average daily net assets on a monthly
basis, in return for the performance of administrative services (other
than investment advice and related portfolio activities) necessary for
the operation of the Fund. The Investment Advisory Agreement obligates
MLAM to reimburse the Fund to the extent the Fund's expenses
(excluding interest, taxes, distribution fees, brokerage fees and
commissions, and extraordinary items) exceed the lesser of (a) 2.0% of
the Fund's average daily net assets or (b) 2.5% of the Fund's first
$30 million of average daily net assets, 2.0% of the Fund's next $70
million of average daily net assets, and 1.5% of the average daily net
assets in excess thereof. No fee payment will be made during any
fiscal year which will cause such expenses to exceed the most
restrictive expense limitation at the time of such payment.
Merrill Lynch Financial Data Services, Inc. ("MLFDS"), a wholly-
owned subsidiary of ML & Co., is the Fund's transfer agent.
Accounting services are provided to the Fund by MLAM at cost.
Certain officers and/or directors of the Fund are officers and/or
directors of MLAM, PSI, Merrill Lynch, Pierce, Fenner, & Smith Inc.,
MLFDS, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities,
for the year ended August 31, 1995 were $1,521,021,788 and
$651,663,489, respectively.
Net realized and unrealized gains (losses) as of August 31, 1995
were as follows:
Realized
Gains Unrealized
(Losses) Gains
Long-term investments $ 904,582 $ 173,355
Short-term investments (3,300) --
---------- -----------
Total $ 901,282 $ 173,355
========== ===========
As of August 31, 1995, net unrealized appreciation for financial
reporting and Federal income tax purposes aggregated $173,355, all
of which is related to appreciated securities. The aggregate cost of
investments at August 31, 1995 for Federal income tax purposes was
$2,145,586,427.
4. Capital Share Transactions:
Transactions in capital shares were as follows:
For the Year Ended Dollar
August 31,1995 Shares Amount
Shares sold 129,276,626 $1,294,302,365
Shares issued to share-
holders in reinvestment of
dividends 5,015,241 50,211,612
Total issued 134,291,867 1,344,513,977
Shares tendered (11,618,992) (116,306,108)
------------ --------------
Net increase 122,672,875 $1,228,207,869
============ ==============
For the Year Ended Dollar
August 31, 1994 Shares Amount
Shares sold 35,126,101 $ 351,960,677
Shares issued to share-
holders in reinvestment
of dividends 2,309,056 23,136,748
------------ --------------
Total issued 37,435,157 375,097,425
Shares tendered (15,348,896) (153,795,940)
------------ --------------
Net increase 22,086,261 $ 221,301,485
============ ==============
5. Unfunded Loan Interests:
As of August 31, 1995, the Fund had unfunded loan commitments of
$122,405,057, which would be extended at the option of the borrower,
pursuant to the following loan agreements:
Unfunded Commitment
Borrower (in thousands)
Jefferson Smurfit Company/
Container Corp. of America $ 2,551
Federated Department Stores 32,098
Gulfstream Corp. 10,192
Marcus Cable Co. 31,500
National Medical Enterprises Inc. 1,950
Northwest Airlines, Inc. 2,649
Overhead Door Corp. 3,000
The Pullman Co., Inc. 1,790
Ralph's Grocery Company 15,950
Tracor Inc. 8,385
UCAR International 9,340
Waters Corp. 3,000
<PAGE>
MERRILL LYNCH SENIOR FLOATING RATE FUND, INC. AUGUST 31, 1995
6. Short-Term Borrowings:
On March 20, 1995, the Fund extended its loan commitment from a
commercial bank. The commitment is for $100,000,000 bearing interest
at the Federal Funds Rate plus 0.75%--2% on the outstanding balance.
The Fund had no borrowings under this commitment during the year
ended August 31, 1995. For the year ended August 31, 1995, facility
and commitment fees aggregated approximately $190,000.
7. Subsequent Event:
The Fund began a quarterly tender offer on September 19, 1995 which
concludes on October 17, 1995.
<PAGE>
EXHIBIT 99.(g)(2)
<PAGE>
Exhibit 99(g)(2)
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders,
Merrill Lynch Senior Floating Rate Fund, Inc.:
We have audited the accompanying statement of assets and
liabilities, including the schedule of investments, of Merrill Lynch
Senior Floating Rate Fund, Inc. as of August 31, 1996, the related
statements of operations and cash flows for the year then ended, the
statements of changes in net assets for each of the years in the two-
year period then ended, and the financial highlights for each of the
years in the five-year period then ended. These financial statements
and the financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these
financial statements and the financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial
statements and the financial highlights are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements.
Our procedures included confirmation of securities owned at August
31, 1996 by correspondence with the custodian and financial
intermediaries. An audit also includes assessing the accounting
principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights
present fairly, in all material respects, the financial position of
Merrill Lynch Senior Floating Rate Fund, Inc. as of August 31, 1996,
the results of its operations, its cash flows, the changes in its
net assets, and the financial highlights for the respective stated
periods in conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Princeton, New Jersey
October 18, 1996
<PAGE>
<TABLE>
SCHEDULE OF INVESTMENTS (in Thousands)
<CAPTION>
Face Loan Moody's Stated Value
Industries Amount Borrower Type Rating Maturity* (Note 1b)
Senior Secured Floating Rate Loan Interests*
<S> <C> <S> <S> <S> <S> <C>
Advertising-- $17,500 Eller Industries, Inc. Term A NR++ 6/30/02 $ 17,533
1.93% 14,327 Eller Industries, Inc. Term B NR++ 12/21/03 14,376
12,500 Outdoor Systems, Inc. Term B NR++ 12/31/02 12,516
9,167 Outdoor Systems, Inc. Term C NR++ 12/31/03 9,178
3,333 Outdoor Systems, Inc. Term C NR++ 12/31/03 3,338
Total Advertising (Cost--$56,069) 56,941
Aircraft & 5,000 Banner Industries, Inc. Term B NR++ 6/30/03 5,000
Parts--0.97% 4,612 Gulfstream Aerospace Corp. Term NR++ 3/31/97 4,615
9,260 Gulfstream Aerospace Corp. Term NR++ 3/31/98 9,263
4,041 Howmet Corp. Term B Ba3 11/20/02 4,056
2,237 Howmet Corp. Term C Ba3 5/20/03 2,246
3,500 Technetics Term NR++ 6/20/02 3,504
Total Aircraft & Parts (Cost--$28,540) 28,684
Amusement & 21,481 AMF Group, Inc. Axel A Ba3 3/31/03 21,629
Recreational 8,473 AMF Group, Inc. Axel B NR++ 3/31/04 8,553
Services-- 4,167 Amfac Parks, Inc. Term B NR++ 9/30/02 4,143
2.54% 10,000 Metro Goldwyn Mayer Co. Term NR++ 3/31/04 9,988
4,956 Orion Pictures Corp. Term Ba2 12/31/00 4,912
6,500 Panavision Inc. Term B NR++ 3/31/04 6,492
18,911 Six Flags Entertainment Corp. Term B Ba3 6/23/03 18,958
Total Amusement & Recreational Services (Cost--$74,176) 74,675
<PAGE>
Apparel--0.33% 9,900 Humphreys Inc. Term B NR++ 1/15/03 9,800
Total Apparel (Cost--$9,800) 9,800
Automobile 24,683 Collins & Aikman Corp. Term B B1 12/31/02 24,667
Equipment-- 420 Johnstown America Industrial Inc. Revolving Credit B1 3/31/02 401
1.61% 3,267 Johnstown America Industrial Inc. Term A B1 3/31/02 3,177
19,667 Johnstown America Industrial Inc. Term B B1 3/31/03 19,323
Total Automobile Equipment (Cost--$47,755) 47,568
Broadcast-- 4,600 Benedek Broadcasting Corp. Axel A Ba3 5/01/01 4,640
Radio & TV-- 4,500 Benedek Broadcasting Corp. Axel B Ba3 11/01/02 4,539
1.93% 3,989 Chancellor Broadcasting Inc. Term B Ba2 9/01/03 4,009
4,837 Ellis Communications Term B NR++ 3/31/03 4,849
16,770 Silver King Communications, Inc. Term B NR++ 7/31/02 16,728
12,000 Sinclair Broadcasting Group Inc. Term B NR++ 11/30/03 12,075
10,000 Sullivan Broadcasting Term B NR++ 12/31/03 10,025
Total Broadcast--Radio & TV (Cost--$56,450) 56,865
Building 4,506 Fenway Holdings, Inc. Term B NR++ 9/15/02 4,489
Materials-- 23,094 MTF Acquisition Term B NR++ 12/31/02 23,152
2.57% 29,975 National Gypsum Co. Term B NR++ 9/20/03 30,087
8,000 RSI Home Products Term NR++ 11/30/99 7,970
9,917 Walter Industrials, Inc. Term B NR++ 2/22/03 9,929
Total Building Materials (Cost--$75,186) 75,627
Cable TV 6,000 Cablevision of Ohio Term NR++ 12/31/05 5,996
Services-- 24,375 Chelsea Communications Term B NR++ 9/30/04 24,322
6.79% 20,000 Classic Cable Inc. Term B B1 6/30/05 19,900
18,810 Coaxial Communications Term B NR++ 12/31/99 18,763
5,000 Frontier Vision Term B NR++ 6/30/05 4,981
10,000 Intermedia Communications, Inc. Term Ba3 1/1/05 10,025
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS (continued) (in Thousands)
<CAPTION>
Face Loan Moody's Stated Value
Industries Amount Borrower Type Rating Maturity* (Note 1b)
Senior Secured Floating Rate Loan Interests*
<S> <C> <S> <S> <S> <S> <C>
Cable TV $ 3,937 Marcus Cable Operating Co. Revolving Credit NR++ 4/30/14 $ 3,908
Services 33,937 Marcus Cable Operating Co. Term A NR++ 12/31/02 33,895
(concluded) 43,000 Marcus Cable Operating Co. Term B NR++ 4/30/04 43,242
10,000 Triax Midwest Term B NR++ 6/30/05 9,950
25,000 Viacom, Inc. Term Ba2 7/1/02 24,992
<PAGE>
Total Cable TV Services (Cost--$199,083) 199,974
Chemicals-- 9,250 Cedar Chemical Term B NR++ 10/31/03 9,256
3.79% 26,662 Freedom Chemical Company Term B Ba3 6/30/02 26,596
5,071 Harris Specialty Chemicals Revolving Credit NR++ 12/30/01 4,691
229 Harris Specialty Chemicals Term A NR++ 12/30/01 212
366 Harris Specialty Chemicals Term A NR++ 12/30/01 339
1,035 Harris Specialty Chemicals Term B NR++ 12/30/99 957
4,902 Harris Specialty Chemicals Term B NR++ 12/30/01 4,534
1,508 Huntsman Corp. Revolving Credit NR++ 12/31/02 1,498
22,180 Huntsman Corp. Term NR++ 12/31/02 22,111
5,000 Hydrochem Term B NR++ 7/01/02 4,941
2,908 Inspec Chemical Corp. Term B NR++ 12/02/00 2,918
20,000 Sterling Chemicals, Inc. Term B B3 9/30/04 20,000
7,000 Texas Petrochemicals Term B Ba3 6/30/04 6,974
2,175 Thoro World Systems, Inc. Term A NR++ 12/31/00 2,012
4,849 Thoro World Systems, Inc. Term B NR++ 12/31/02 4,485
Total Chemicals (Cost--$112,516) 111,524
Consumer 3,212 Playtex Family Products Inc. Term A Ba2 6/30/02 3,190
Products-- 29,981 Playtex Family Products Inc. Term B Ba2 6/30/02 29,775
2.12% 7,246 RTI Funding Corp. Term B NR++ 2/07/03 7,255
7,246 RTI Funding Corp. Term C NR++ 2/07/04 7,255
15,000 Revlon Consumer Products Corp. Term Ba3 9/30/00 15,009
Total Consumer Products (Cost--$62,268) 62,484
Diversified 2,740 IMO Industries, Inc. Term A Ba3 4/30/01 2,740
Manufacturing-- 3,822 IMO Industries, Inc. Term B Ba3 4/30/01 3,829
0.93% 8,437 InterMetro Industries Term B NR++ 6/30/03 8,453
6,562 InterMetro Industries Term C NR++ 6/30/04 6,581
5,940 Thermadyne Industries, Inc. Revolving Credit B2 6/30/01 5,920
Total Diversified Manufacturing (Cost--$27,465) 27,523
Drug/ 6,526 Duane Reade Co. Term A NR++ 9/30/97 6,323
Proprietary 10,000 Duane Reade Co. Term B NR++ 9/30/99 9,688
Stores-- 8,312 Smith's Food & Drug Centers, Inc. Term B Ba3 11/30/03 8,375
2.25% 8,312 Smith's Food & Drug Centers, Inc. Term C Ba3 11/30/04 8,380
8,312 Smith's Food & Drug Centers, Inc. Term D Ba3 8/31/05 8,385
15,480 Thrifty Payless Holdings, Inc. Revolving Credit B1 12/31/02 15,228
10,000 Thrifty Payless Holdings, Inc. Term A B1 12/31/02 9,922
Total Drug/Proprietary Stores (Cost--$66,439) 66,301
Electronics/ 21,450 Berg Electronics Inc. Term Ba3 12/31/02 21,423
Electrical 5,617 Communications & Power Industries Inc. Term B NR++ 8/11/02 5,610
Components-- 4,831 Details, Inc. Term A NR++ 1/31/01 4,831
3.84% 9,955 International Wire Corp. Term B NR++ 9/30/02 9,970
9,974 International Wire Corp. Term C NR++ 9/30/03 10,005
16,344 Northrop Grumman Corp. Term II NR++ 3/01/02 16,318
565 Reliance Communications Technology Revolving Credit NR++ 9/11/01 564
4,500 Reliance Communications Technology Term A NR++ 9/11/01 4,494
</TABLE>
<PAGE>
<TABLE>
SCHEDULE OF INVESTMENTS (continued)) (in Thousands)
<CAPTION>
Face Loan Moody's Stated Value
Industries Amount Borrower Type Rating Maturity* (Note 1b)
Senior Secured Floating Rate Loan Interests*
<S> <C> <S> <S> <S> <S> <C>
Electronics/ $12,893 Reliance Communications Technology Term B NR++ 3/11/04 $ 12,905
Electrical 11,903 Reliance Communications Technology Term C NR++ 3/11/03 11,914
Components 7,460 Tracor Inc. Term B Ba3 10/31/00 7,483
(concluded) 7,461 Tracor Inc. Term C Ba3 4/30/01 7,484
Total Electronics/Electrical Components (Cost--$112,613) 113,001
Food & 7,481 American Italian Pasta Term C NR++ 2/28/04 7,416
Kindred 7,500 Amerifoods Term B NR++ 6/30/01 5,625
Products-- 7,500 Amerifoods Term C NR++ 6/30/02 5,625
5.53% 3,990 Ameriking Inc. Term B NR++ 1/31/04 3,992
8,611 MAFCO Worldwide Corp. Term B NR++ 6/30/01 8,589
4,907 President Baking Co., Inc. Term B NR++ 9/30/00 4,895
13,600 SC International Corp., Inc. Caterair 'A' B2 9/15/00 13,583
8,791 SC International Corp., Inc. Caterair 'B' B2 9/15/01 8,835
14,356 SC International Corp., Inc. SCI 'A' B2 9/15/00 14,335
1,027 SC International Corp., Inc. SCI 'A2' B2 9/15/00 1,024
10,962 SC International Corp., Inc. SCI 'B' B2 9/15/02 11,016
3,024 SC International Corp., Inc. SCI 'C' B2 9/15/03 3,040
2,000 Select Beverages Inc. Term B NR++ 6/30/01 2,000
2,970 Select Beverages Inc. Term C NR++ 6/30/01 2,977
43,159 Specialty Foods Corp. Term B B3 4/30/01 43,048
7,385 Van De Kamps Inc. Term B Ba3 4/30/03 7,403
4,615 Van De Kamps Inc. Term C Ba3 9/30/03 4,627
6,652 Volume Services Term B NR++ 12/31/02 6,636
3,326 Volume Services Term C NR++ 12/31/03 3,326
4,969 Windsor Quality Food Term B NR++ 12/31/02 4,944
Total Food & Kindred Products (Cost--$165,634) 162,936
Funeral Homes 7,980 Loewen Group Inc. Revolving Credit Ba1 5/29/01 7,955
& Parlors-- 15,000 Prime Succession International Group Axel NR++ 7/25/01 15,187
0.79%
Total Funeral Homes & Parlors (Cost--$22,924) 23,142
Furniture & 4,945 Furniture Brands International Term B Ba3 3/29/03 4,966
Fixtures-- 11,370 Knoll, Inc. Term B B1 8/31/03 11,413
1.07% 15,000 Lifestyle Furnishings International Term B NR++ 8/31/04 15,038
Total Furniture & Fixtures (Cost--$31,153) 31,417
<PAGE>
General 11,719 Federated Department Stores Inc. Revolving Credit Ba1 3/31/00 11,528
Merchandise 26,677 Federated Department Stores Inc. Term Ba1 3/31/00 26,611
Stores--3.14% 2,614 Federated Department Stores Inc. Term B Ba1 3/31/00 2,607
35,000 Kmart Corp. Term A Ba1 6/17/99 35,011
4,485 Music Acquisition Term B NR++ 8/31/01 1,615
4,952 Music Acquisition Term C NR++ 8/31/02 1,783
1,902 Saks & Co. Term A NR++ 6/30/98 1,897
11,320 Saks & Co. Term B NR++ 6/30/00 11,292
Total General Merchandise Stores (Cost--$97,699) 92,344
Grocery 10,400 Big V Supermarkets Inc. Term B NR++ 3/15/00 10,244
Stores--2.28% 4,863 Bruno's, Inc. Term B B1 2/18/02 4,887
4,863 Bruno's, Inc. Term C B1 2/18/03 4,887
4,294 Dominick's Finer Foods Inc. Term B Ba2 3/31/02 4,315
4,652 Dominick's Finer Foods Inc. Term C Ba2 3/31/03 4,675
4,652 Dominick's Finer Foods Inc. Term D Ba2 9/30/03 4,675
4,530 Pathmark Stores Inc. Term B Ba3 10/31/99 4,532
3,700 Ralph's Grocery Company Revolving Credit Ba3 6/15/01 3,628
3,316 Ralph's Grocery Company Term A Ba3 6/15/01 3,318
4,860 Ralph's Grocery Company Term B Ba3 6/15/02 4,884
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS (continued)) (in Thousands)
<CAPTION>
Face Loan Moody's Stated Value
Industries Amount Borrower Type Rating Maturity* (Note 1b)
Senior Secured Floating Rate Loan Interests*
<S> <C> <S> <S> <S> <S> <C>
Grocery $ 4,859 Ralph's Grocery Company Term C Ba3 6/15/03 $ 4,879
Stores 4,859 Ralph's Grocery Company Term D Ba3 2/15/04 4,909
(concluded) 4,197 Star Markets Co., Inc. Term B Ba3 12/31/01 4,182
3,145 Star Markets Co., Inc. Term C Ba3 12/31/02 3,133
Total Grocery Stores (Cost--$66,624) 67,148
Health 16,336 Community Health Systems, Inc. Term B NR++ 12/31/03 16,376
Services-- 16,336 Community Health Systems, Inc. Term C NR++ 12/31/04 16,376
3.50% 12,329 Community Health Systems, Inc. Term D NR++ 12/31/05 12,360
3,273 Dade International, Inc. Term B B1 12/31/02 3,293
3,273 Dade International, Inc. Term C B1 12/31/03 3,297
3,455 Dade International, Inc. Term D B1 12/31/04 3,487
4,909 Medical Specialties Term NR++ 6/30/01 4,894
13,091 Medical Specialties Axel NR++ 6/30/01 13,050
6,491 Merit Behavioral Care Corp. Term A B2 4/06/02 6,465
16,009 Merit Behavioral Care Corp. Term B B2 10/06/03 16,019
3,088 OrNda Healthcare Corp. Revolving Credit NR++ 10/30/01 3,086
4,534 OrNda Healthcare Corp. Term A NR++ 10/30/01 4,536
<PAGE>
Total Health Services (Cost--$102,597) 103,239
Leasing & 19,760 Prime Acquisition Term B1 12/31/00 19,772
Rental
Services--
0.67%
Total Leasing & Rental Services (Cost--$19,675) 19,772
Manufacturing-- 10,492 Calmar Inc. Axel A B1 9/15/03 10,433
1.12% 7,869 Calmar Inc. Axel B B1 3/15/04 7,840
14,700 Trans Technology Corp. Term B NR++ 6/30/02 14,663
Total Manufacturing (Cost--$32,838) 32,936
Measuring, 9,331 CHF/Ebel USA Inc. Term B NR++ 9/30/01 9,184
Analyzing & 10,956 Graphic Controls Corp. Term B B1 9/28/03 10,976
Controlling
Instruments--
0.68%
Total Measuring, Analyzing & Controlling Instruments (Cost--$20,088) 20,160
Message 5,000 Dictaphone Co. Term B B1 6/30/02 4,800
Communications--
0.16%
Total Message Communications (Cost--$4,967) 4,800
Metals & 5,000 Anker Coal Term B NR++ 6/30/04 4,988
Mining-- 220 UCAR International Inc. Revolving Credit Ba3 12/31/01 220
0.61% 1,319 UCAR International Inc. Term A Ba3 12/31/01 1,320
11,571 UCAR International Inc. Term B Ba3 12/31/03 11,586
Total Metals & Mining (Cost--$18,076) 18,114
Packaging-- 8,625 IPC, Inc. Term B1 9/30/01 8,636
1.64% 5,800 Mail-Well, Inc./Supremex Revolving Credit Ba2 7/31/03 5,811
9,541 Mail-Well, Inc./Supremex Term B Ba2 7/31/03 9,560
7,170 Silgan Corp. Revolving Credit Ba3 12/31/00 7,166
16,794 Silgan Corp. Term B Ba3 3/15/02 16,999
Total Packaging (Cost--$47,744) 48,172
Paper-- 19,850 Crown Paper Co. Term B Ba3 8/22/03 19,949
11.70% 21,919 Fort Howard Corp. Term A Ba3 3/08/02 21,947
16,760 Fort Howard Corp. Term B Ba3 12/31/02 16,864
274 Jefferson Smurfit Company/Container
Corp. of America Revolving Credit Ba3 4/30/01 270
25,012 Jefferson Smurfit Company/Container
Corp. of America Term A Ba3 4/30/01 24,942
</TABLE>
<PAGE>
<TABLE>
SCHEDULE OF INVESTMENTS (continued)) (in Thousands)
<CAPTION>
Face Loan Moody's Stated Value
Industries Amount Borrower Type Rating Maturity* (Note 1b)
Senior Secured Floating Rate Loan Interests*
<S> <C> <S> <S> <S> <S> <C>
Paper $ 6,786 Jefferson Smurfit Company/Container
(concluded) Corp. of America Term B Ba3 4/30/01 $ 6,829
49,530 Jefferson Smurfit Company/Container
Corp. of America Term B Ba3 4/30/02 49,839
13,210 Jefferson Smurfit Company/Container
Corp. of America Term C Ba2 10/31/02 13,292
63,571 Riverwood International Corp. Term B Ba3 2/28/04 63,850
24,429 Riverwood International Corp. Term C Ba3 8/28/04 24,535
29,744 S.D. Warren Co. Term B Ba2 6/30/02 29,847
36,820 Stone Container Corp. Term B Ba3 4/01/00 36,981
25,372 Stone Container Corp. Term C Ba3 4/01/00 25,499
10,000 Stone Container Corp. Term D Ba3 10/01/03 10,050
Total Paper (Cost--$340,762) 344,694
Printing & 7,500 Advanstar Communications Term B NR++ 12/21/03 7,467
Publishing-- 21,358 American Media Term B Ba2 9/30/02 21,251
3.17% 9,312 Journal News Co. Term NR++ 12/31/01 9,289
7,000 Marvel Entertainment Group, Inc. Term B NR++ 2/28/02 6,921
3,452 Print Tech International PLC Term B NR++ 12/29/01 3,424
10,000 Treasure Chest Term NR++ 12/31/02 10,025
35,000 World Color Press, Inc. Term C B1 12/29/02 34,891
Total Printing & Publishing (Cost--$93,381) 93,268
Rendering-- 4,990 CBP Resources Inc. Term B NR++ 9/30/03 4,993
0.17%
Total Rendering (Cost--$4,954) 4,993
Security 9,920 Borg Warner Corp. Term B3 12/31/98 9,901
Systems
Services--
0.34%
Total Security Systems Services (Cost--$9,842) 9,901
Telephone 8,000 Arch Communications Group, Inc. Term B B1 12/31/03 8,027
Communica- 18,316 Comcast Corp. Term Ba3 9/30/04 18,219
tions--3.14% 808 MobileMedia Corp. Revolving Credit B1 6/30/02 801
13,034 MobileMedia Corp. Term A B1 6/30/02 13,052
1,667 MobileMedia Corp. Term B1 B1 6/30/02 1,672
9,667 MobileMedia Corp. Term B B1 6/30/03 9,637
3,333 MobileMedia Corp. Term B2 B1 6/30/03 3,343
12,712 Paging Network Inc. Revolving Credit Ba2 12/31/04 12,688
4,964 Shared Technologies Cellular, Inc. Term B B1 3/31/03 4,946
20,000 Western Wireless Corp. Term B B1 3/31/05 20,144
<PAGE>
Total Telephone Communications (Cost--$92,096) 92,529
Textiles/Mill 10,000 Polymer Group, Inc. Term A Ba3 3/31/02 9,975
Products--
0.34%
Total Textiles/Mill Products (Cost--$9,966) 9,975
Transportation 7,546 Atlas Air, Inc. Revolving Credit NR++ 6/30/98 7,532
Services-- 25,000 Continental Micronesia Axel NR++ 7/31/03 25,016
1.39% 8,373 Petro PSC Properties L.P. Term B NR++ 5/24/01 8,315
Total Transportation Services (Cost--$40,702) 40,863
Waste Manage- 5,000 American Disposal Services, Inc. Term NR++ 6/30/03 4,969
ment--0.17%
Total Waste Management (Cost--$4,969) 4,969
Total Senior Secured Floating Rate Loan Interests (Cost--$2,155,051)--73.21% 2,156,339
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS (concluded) (in Thousands)
<CAPTION>
Shares Value
Industries Held Equity Investments (Note 1b)
<S> <C> <S> <C>
Broadcast/ 1 Classic Cable, Inc. (Warrants) (a) $ --
Media--0.00%
Restaurants-- 44 Flagstar Companies, Inc. 93
0.00%
Total Equity Investments (Cost--$0)--0.00% 93
Total Long-Term Investments (Cost--$2,155,051)--73.21% 2,156,432
Short-Term Investments
Commercial American Express Credit Corp. ($40,000 par, maturing 10/11/1996, yielding 5.30%) 39,776
Paper**--25.60% CIT Group Holdings Inc. ($25,000 par, maturing 9/10/1996, yielding 5.32%) 24,974
CIT Group Holdings Inc. ($32,000 par, maturing 9/23/1996, yielding 5.35%) 31,905
CIT Group Holdings Inc. ($30,000 par, maturing 10/04/1996, yielding 5.31%) 29,863
Ciesco L.P. ($30,000 par, maturing 9/06/1996, yielding 5.40%) 29,987
Ciesco L.P. ($50,000 par, maturing 10/16/1996, yielding 5.28%) 49,685
General Electric Capital Corp. ($62,560 par, maturing 9/03/1996, yielding 5.30%) 62,560
Goldman Sachs Group L.P. ($50,000 par, maturing 9/06/1996, yielding 5.42%) 49,977
Goldman Sachs Group L.P. ($50,000 par, maturing 9/20/1996, yielding 5.28%) 49,875
<PAGE>
Goldman Sachs Group L.P. ($30,000 par, maturing 10/07/1996, yielding 5.30%) 29,850
Knight-Ridder Inc. ($48,500 par, maturing 9/23/1996, yielding 5.28%) 48,358
Monsanto Co. ($10,000 par, maturing 9/06/1996, yielding 5.40%) 9,995
National Fleet Fund, Inc. ($20,000 par, maturing 9/13/1996, yielding 5.35%) 19,970
National Fleet Fund, Inc. ($28,700 par, maturing 9/16/1996, yielding 5.40%) 28,644
National Fleet Fund, Inc. ($10,500 par, maturing 10/01/1996, yielding 5.33%) 10,456
National Fleet Fund, Inc. ($15,000 par, maturing 10/02/1996, yielding 5.29%) 14,936
Preferred Receivables Funding, Inc. ($50,225 par, maturing 9/04/1996, yielding
5.35%) 50,218
Preferred Receivables Funding, Inc. ($34,825 par, maturing 9/09/1996, yielding
5.42%) 34,794
Preferred Receivables Funding, Inc. ($30,000 par, maturing 9/10/1996, yielding
5.38%) 29,969
Shell Oil Co. ($20,000 par, maturing 9/04/1996, yielding 5.36%) 19,997
USAA Capital Corp. ($30,000 par, maturing 9/03/1996, yielding 5.40%) 30,000
Xerox Corp. ($30,000 par, maturing 9/18/1996, yielding 5.35%) 29,933
Xerox Credit Corp. ($28,600 par, maturing 10/11/1996, yielding 5.27%) 28,441
Total Commercial Paper (Cost--$754,163) 754,163
US Government Federal Home Loan Mortgage Corp. ($23,000 par, maturing 9/26/1996, yielding 5.28%) 22,922
& Agency
Obligations**--
0.78%
Total US Government & Agency Obligations (Cost--$22,922) 22,922
Total Short-Term Investments (Cost--$777,085)--26.38% 777,085
Total Investments (Cost--$2,932,136)--99.59% 2,933,517
Other Assets Less Liabilities--0.41% 12,010
----------
Net Assets--100.00% $2,945,527
==========
<FN>
(a)Warrants entitle the Fund to purchase a predetermined number of
common stock. The purchase price and numbers of share are subject to
adjustment under certain conditions until the expiration date.
++Not Rated.
Ratings of issues shown have not been audited by Deloitte &
Touche LLP.
*The interest rates on senior secured floating rate loan interests
are subject to change periodically based on the change in the prime
rate of a US Bank, LIBOR (London Interbank Offered Rate), or, in
some cases, another base lending rate. The interest rates shown are
those in effect at August 31, 1996.
**Commercial Paper and certain US Government & Agency Obligations
are traded on a discount basis; the interest rates shown are the
discount rates paid at the time of purchase by the Fund.
See Notes to Financial Statements.
</TABLE>
<PAGE>
FINANCIAL INFORMATION
<TABLE>
Statement of Assets and Liabilities as of August 31, 1996
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$2,932,135,993) (Note 1b) $ 2,933,517,310
Cash 2,660,488
Receivables:
Interest $ 17,464,064
Capital shares sold 2,846,301
Commitment fees 243,999 20,554,364
----------------
Prepaid registration fees and other assets (Note 1f) 1,680,474
----------------
Total assets 2,958,412,636
----------------
Liabilities: Payables:
Dividends to shareholders (Note 1g) 3,531,978
Investment adviser (Note 2) 2,500,916
Administrator (Note 2) 658,136
Securities purchased 210,453 6,901,483
----------------
Deferred income (Note 1e) 2,944,484
Accrued expenses and other liabilities 3,039,323
----------------
Total liabilities 12,885,290
----------------
Net Assets: Net assets $ 2,945,527,346
================
Net Assets Common Stock, par value $0.10 per share; 1,000,000,000
Consist of: shares authorized $ 29,484,938
Paid-in capital in excess of par 2,922,519,503
Accumulated realized capital losses on investments--net (Note 7) (7,858,412)
Unrealized appreciation on investments--net (Note 3) 1,381,317
----------------
Net Assets--Equivalent to $9.99 per share based on 294,849,377
shares of beneficial interest outstanding $ 2,945,527,346
================
</TABLE>
<PAGE>
<TABLE>
Statement of Operations
<CAPTION>
For the Year Ended August 31, 1996
<S> <S> <C> <C>
Investment Income Interest and discount earned $ 210,982,851
(Note 1e): Facility and other fees 4,338,982
Dividends 149
----------------
Total income 215,321,982
----------------
Expenses: Investment advisory fees (Note 2) $ 25,872,222
Administrative fees (Note 2) 6,808,480
Transfer agent fees (Note 2) 1,697,281
Registration fees (Note 1f) 707,018
Accounting services (Note 2) 401,728
Professional fees 368,275
Tender offer costs 189,772
Custodian fees 189,706
Printing and shareholder reports 173,171
Borrowing costs (Note 6) 141,903
Directors' fees and expenses 47,788
Other 28,416
----------------
Total expenses 36,625,760
----------------
Investment income--net 178,696,222
----------------
Realized & Realized loss on investments--net (8,718,939)
Unrealized Change in unrealized appreciation on investments--net 1,207,962
Gain (Loss) on ----------------
Investments--Net Net Increase in Net Assets Resulting from Operations $ 171,185,245
(Notes 1c, 1e & 3): ================
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION (continued)
<TABLE>
Statements of Changes in Net Assets
<CAPTION>
For the Year Ended August 31,
Increase (Decrease) in Net Assets: 1996 1995
<S> <S> <C> <C>
Operations: Investment income--net $ 178,696,222 $ 107,081,243
Realized gain (loss) on investments--net (8,718,939) 901,282
Change in unrealized appreciation/depreciation on
investments--net 1,207,962 (102,235)
---------------- ----------------
Net increase in net assets resulting from operations 171,185,245 107,880,290
---------------- ----------------
<PAGE>
Dividends to Investment income--net (178,696,222) (107,081,243)
Shareholders ---------------- ----------------
(Note 1g): Net decrease in net assets resulting from dividends to
shareholders (178,696,222) (107,081,243)
---------------- ----------------
Capital Share Net increase in net assets resulting from capital share
Transactions transactions 789,568,710 1,228,207,869
(Note 4): ---------------- ----------------
Net Assets: Total increase in net assets 782,057,733 1,229,006,916
Beginning of year 2,163,469,613 934,462,697
---------------- ----------------
End of year $ 2,945,527,346 $ 2,163,469,613
================ ================
</TABLE>
<TABLE>
Statement of Cash Flows
<CAPTION>
For the Year Ended
August 31, 1996
<S> <S> <C>
Cash Provided by Net increase in net assets resulting from operations $ 171,185,245
Operating Adjustments to reconcile net increase (decrease) in net assets
Activities: resulting from operations to net cash provided by operating activities:
Increase in receivables (2,336,872)
Increase in other assets (61,009)
Increase in other liabilities 5,662,709
Realized and unrealized loss on investments--net 7,510,977
Amortization of discount (45,530,880)
----------------
Net cash provided by operating activities 136,430,170
----------------
Cash Used for Proceeds from principal payments and sales of loan interests 1,502,664,427
Investing Purchases of loan interests (2,009,125,818)
Activities: Purchases of short-term investments (24,131,663,141)
Proceeds from sales and maturities of short-term investments 23,873,927,588
----------------
Net cash used for investing activities (764,196,944)
----------------
Cash Provided by Cash receipts on capital shares sold 993,247,884
Financing Cash payments on capital shares tendered (273,723,209)
Activities: Dividends paid to shareholders (89,097,413)
----------------
Net cash provided by financing activities 630,427,262
----------------
<PAGE>
Cash: Net increase in cash 2,660,488
Cash at beginning of year 0
----------------
Cash at end of year $ 2,660,488
================
Non-Cash Capital shares issued in reinvestment of dividends paid to shareholders $ 90,287,773
Financing ================
Activities:
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION (concluded)
<TABLE>
Financial Highlights
The following per share data and ratios have been derived
from information provided in the financial statements.
For the Year Ended August 31,
Increase (Decrease) in Net Asset Value: 1996 1995 1994 1993 1992
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of year $ 10.02 $ 10.02 $ 10.02 $ 9.99 $ 9.99
Operating -------- -------- -------- -------- --------
Performance: Investment income--net .66 .75 .59 .53 .64
Realized and unrealized gain (loss) on
investments--net (.03) --++ --++ .03 --
-------- -------- -------- -------- --------
Total from investment operations .63 .75 .59 .56 .64
-------- -------- -------- -------- --------
Less dividends from investment income--net (.66) (.75) (.59) (.53) (.64)
-------- -------- -------- -------- --------
Net asset value, end of year $ 9.99 $ 10.02 $ 10.02 $ 10.02 $ 9.99
======== ======== ======== ======== ========
Total Investment Based on net asset value per share 6.53% 7.68% 5.94% 5.74% 6.58%
Return:* ======== ======== ======== ======== ========
Ratios to Expenses, net of reimbursement 1.34% 1.34% 1.43% 1.47% 1.39%
Average ======== ======== ======== ======== ========
Net Assets: Expenses 1.34% 1.34% 1.43% 1.47% 1.41%
======== ======== ======== ======== ========
Investment income--net 6.54% 7.45% 5.75% 5.27% 6.58%
======== ======== ======== ======== ========
<PAGE>
Supplemental Net assets, end of year (in millions) $ 2,946 $ 2,163 $ 934 $ 713 $ 834
Data: ======== ======== ======== ======== ========
Portfolio turnover 80.20% 55.23% 61.31% 90.36% 46.48%
======== ======== ======== ======== ========
<FN>
*Total investment returns exclude the effects of
sales loads. The Fund is a continuously offered
closed-end fund, the shares of which are offered
at net asset value. Therefore, no separate market exists.
++Amount is less than $.01 per share.
See Notes to Financial Statements.
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies:
Merrill Lynch Senior Floating Rate Fund, Inc. (the "Fund") is
registered under the Investment Company Act of 1940 as a
continuously offered, non-diversified, closed-end management
investment company.
(a) Loan participation interests--The Fund invests in senior secured
floating rate loan interests ("Loan Interests") with collateral
having a market value, at time of acquisition by the Fund, which
Fund management believes equals or exceeds the principal amount of
the corporate loan. The Fund may invest up to 20% of its total
assets in loans made on an unsecured basis. Depending on how the
loan was acquired, the Fund will regard the issuer as including the
corporate borrower along with an agent bank for the syndicate of
lenders and any intermediary of the Fund's investment. Because
agents and intermediaries are primarily commercial banks, the Fund's
investment in corporate loans at August 31, 1996 could be considered
to be concentrated in commercial banking.
(b) Valuation of investments--Until June 17, 1996, Loan Interests
were valued at fair value as determined in good faith by or under
the direction of the Board of Directors of the Fund. As of June 17,
1996, pursuant to the approval of the Board of Directors, the Loan
Interests are valued at the average of the mean between the bid
and asked quotes received from one or more brokers, if available.
<PAGE>
Other portfolio securities may be valued on the basis of prices
furnished by one or more pricing services which determine prices for
normal, institutional-size trading units of such securities using
market information, transactions for comparable securities and
various relationships between securities which are generally
recognized by institutional traders. In certain circumstances,
portfolio securities are valued at the last sale price on the
exchange that is the primary market for such securities, or the last
quoted bid price for those securities for which the over-the-counter
market is the primary market or for listed securities in which there
were no sales during the day. Short-term securities with remaining
maturities of sixty days or less are valued at amortized cost, which
approximates market value. Securities and assets for which market
quotations are not readily available are valued at fair value as
determined in good faith by or under the direction of the Board of
Directors of the Fund.
(c) Derivative financial instruments--The Fund may engage in various
portfolio strategies to seek to increase its return by hedging its
portfolio against adverse movements in the debt markets. Losses may
arise due to changes in the value of the contract or if the
counterparty does not perform under the contract.
* Interest rate transactions--The Fund is authorized to enter into
interest rate swaps and purchase or sell interest rate caps and
floors. In an interest rate swap, the Fund exchanges with another
party their respective commitments to pay or receive interest on a
specified notional principal amount. The purchase of an interest
rate cap (or floor) entitles the purchaser, to the extent that a
specified index exceeds (or falls below) a predetermined interest
rate, to receive payments of interest equal to the difference
between the index and the predetermined rate on a notional principal
amount from the party selling such interest rate cap (or floor).
(d) Income taxes--It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated
investment companies and to distribute substantially all of its
taxable income to its shareholders. Therefore, no Federal income tax
provision is required.
(e) Security transactions and investment income--Security
transactions are recorded on the dates the transactions are entered
into (the trade dates). Interest is recognized on the accrual basis.
Realized gains and losses on security transactions are determined on
the identified cost basis. Facility fees are accreted into income
over the term of the related loan.
(f) Prepaid registration fees--Prepaid registration fees are charged
to expense as the related shares are issued.
<PAGE>
(g) Dividends and distributions--Dividends from net investment
income are declared daily and paid monthly. Distributions of capital
gains are recorded on the ex-dividend dates.
2. Investment Advisory and Administrative Services
Agreement and Transactions with Affiliates:
The Fund has entered into an Investment Advisory Agreement with
Merrill Lynch Asset Management, L.P. ("MLAM"). The general partner
of MLAM is Princeton Services, Inc. ("PSI"), an indirect wholly-
owned subsidiary of Merrill Lynch & Co., Inc. ("ML & Co."), which is
the limited partner.
MLAM is responsible for the management of the Fund's portfolio and
provides the necessary personnel, facilities, equipment and certain
other services necessary to perform this investment advisory
function.
NOTES TO FINANCIAL STATEMENTS (concluded)
For such services, the Fund pays a monthly fee at an annual rate of
0.95% of the Fund's average daily net assets. The Fund also has an
Administrative Services Agreement with MLAM whereby MLAM will
receive a fee equal to an annual rate of 0.25% of the Fund's average
daily net assets on a monthly basis, in return for the performance
of administrative services (other than investment advice and related
portfolio activities) necessary for the operation of the Fund. The
Investment Advisory Agreement obligates MLAM to reimburse the Fund
to the extent the Fund's expenses (excluding interest, taxes,
distribution fees, brokerage fees and commissions, and extraordinary
items) exceed the lesser of (a) 2.0% of the Fund's average daily net
assets or (b) 2.5% of the Fund's first $30 million of average daily
net assets, 2.0% of the Fund's next $70 million of average daily net
assets, and 1.5% of the average daily net assets in excess thereof.
No fee payment will be made during any fiscal year which will cause
such expenses to exceed the most restrictive expense limitation at
the time of such payment.
Merrill Lynch Financial Data Services, Inc. ("MLFDS"), a wholly-
owned subsidiary of ML & Co., is the Fund's transfer agent.
Accounting services are provided to the Fund by MLAM at cost.
Certain officers and/or directors of the Fund are officers and/or
directors of MLAM, PSI, Merrill Lynch, Pierce, Fenner & Smith Inc.,
MLFDS, and/or ML & Co.
<PAGE>
3. Investments:
Purchases and sales of investments, excluding short-term securities,
for the year ended August 31, 1996 were $2,009,336,271 and
$1,502,664,427, respectively.
Net realized and unrealized gains (losses) as of August 31, 1996
were as follows:
Realized Unrealized
Losses Gains
Long-term investments $ (8,715,722) $ 1,381,317
Short-term investments (3,217) --
-------------- --------------
Total $ (8,718,939) $ 1,381,317
============== ==============
As of August 31, 1996, net unrealized appreciation for financial
reporting and Federal income tax purposes aggregated $1,227,650, of
which $14,145,679 is related to appreciated securities and
$12,918,029 is related to depreciated securities. The aggregate cost
of investments at August 31, 1996 for Federal income tax purposes
was $2,932,289,660.
4. Capital Share Transactions:
Transactions in capital shares were as follows:
For the Year Ended Dollar
August 31, 1996 Shares Amount
Shares sold 97,262,448 $ 973,004,146
Shares issued to share-
holders in reinvestment
of dividends 9,032,914 90,287,773
-------------- --------------
Total issued 106,295,362 1,063,291,919
Shares tendered (27,418,447) (273,723,209)
-------------- --------------
Net increase 78,876,915 $ 789,568,710
============== ==============
For the Year Ended Dollar
August 31, 1995 Shares Amount
<PAGE>
Shares sold 129,276,626 $1,294,302,365
Shares issued to share-
holders in reinvestment
of dividends 5,015,241 50,211,612
-------------- --------------
Total issued 134,291,867 1,344,513,977
Shares tendered (11,618,992) (116,306,108)
-------------- --------------
Net increase 122,672,875 $1,228,207,869
============== ==============
5. Unfunded Loan Interests:
As of August 31, 1996, the Fund had unfunded loan commitments of
$268,840,813 which would be extended at the option of the borrower,
pursuant to the following loan agreements:
Unfunded
Commitment
Borrower (in thousands)
Atlas Air, Inc. $17,453
Jefferson Smurfit Company/
Container Corp. of America 2,784
Federated Department Stores Inc. 50,067
Fort Howard Corp. 2,703
Gulfstream Aerospace Corp. 10,192
Huntsman Corp. 572
IMO Industries, Inc. 8,077
Johnstown America Industrial Inc. 3,080
Loewen Group, Inc. 14,520
Marcus Cable Operating Co. 8,438
MobileMedia Corp. 874
OrNda Health Corp. 2,139
Overhead Door Corp. 5,114
Paging Network Inc. 21,621
The Pullman Co., Inc. 6,526
Ralph's Grocery Company 12,550
Reliance Communications Technology 9,862
SC International Corp., Inc. 18,000
Silgan Corp. 4,780
Stone Container Corp. 30,000
Thermadyne Industries, Inc. 14,064
Thrifty Payless Holdings, Inc. 14,520
UCAR International Inc. 6,906
<PAGE>
6. Short-Term Borrowings:
On March 14, 1996, the Fund extended its loan commitment from a
commercial bank. The commitment is for $100,000,000 bearing interest
at the Federal Funds rate plus .50% on the outstanding balance.
The Fund had no borrowings under this commitment during the
year ended August 31, 1996. For the year ended August 31, 1996,
facility and commitment fees aggregated $141,903.
7. Capital Loss Carryforward:
At August 31, 1996, the Fund had a net capital loss carryforward of
approximately $1,471,000, all of which expires in 2004. This amount
will be available to offset like amounts of any future taxable
gains.
8. Subsequent Event:
The Fund began a quarterly tender offer on September 17, 1996 which
concludes on October 15, 1996.
<PAGE>
EXHIBIT 99.(g)(3)
<PAGE>
Exhibit 99(g)(3)
<TABLE>
SCHEDULE OF INVESTMENTS (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>
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
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
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
<CAPTION>
SCHEDULE OF INVESTMENTS (continued) (In Thousands)
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
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
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>
<PAGE>
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>
<PAGE>
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies:
Merrill Lynch Senior Floating Rate Fund, Inc. (the "Fund") is
registered under the Investment Company Act of 1940 as a
continuously offered, non-diversified, closed-end management
investment company. 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.
