MERRILL LYNCH
SENIOR FLOATING
RATE FUND, INC.
FUND LOGO
Annual Report
August 31, 1998
This report, including the financial information herein, is
transmitted to the shareholders of Merrill Lynch Senior Floating
Rate Fund, Inc. for their information. It is not a prospectus,
circular or representation intended for use in the purchase of
shares of the Fund or any securities mentioned in this report. Past
performance results shown in this report should not be considered a
representation of future performance. The Fund has the ability to
leverage its Common Stock to provide Common Stock shareholders with
a potentially higher rate of return. Leverage creates risk for
Common Stock shareholders, including the likelihood of greater
volatility of net asset value and market price of Common Stock
shares, and the risk that fluctuations in short-term interest rates
may reduce the Common Stock's yield. Statements and other
information herein are as dated and are subject to change.
Merrill Lynch
Senior Floating
Rate Fund, Inc.
Box 9011
Princeton, NJ
08543-9011
Printed on post-consumer recycled paper
Merrill Lynch Senior Floating Rate Fund, Inc.
DEAR SHAREHOLDER
During most of the year ended August 31, 1998, Merrill Lynch Senior
Floating Rate Fund, Inc. was invested in an environment of moderate-
to-strong economic growth with little sign of inflation. However,
from the time the US equity markets reached their peak in July and
on into September, the Fund operated in a decidedly different
environment.
The dislocation of the world financial markets was set off by the
devaluation of the ruble by Russia in August and further exacerbated
by the resulting liquidity crisis in emerging market securities and
losses suffered by hedge funds. Hedge funds and high-yield mutual
funds that had come into the bank loan market over the last 24
months to take advantage of this market's lower volatility suddenly
became sellers, since the loans could be sold at a fraction of the
losses that would have been incurred if they sold high-yield bonds
or emerging market debt securities. This put technical pressure on
the price levels quoted by dealers in the bank loan market and
resulted in the largest technical correction in the loan market
since the Fund's inception in 1989. Even with two 25 basis point
(0.25%) easings by the Federal Reserve Board in less than a month,
the market for any credit-sensitive fixed-income instrument remained
relatively illiquid as spreads widened dramatically across every
asset class, including high-yield bonds, investment-grade bonds and
mortgage-backed securities. On a comparative basis, senior secured
bank loans have demonstrated relatively little volatility and have
far outperformed other credit-sensitive fixed-income products such
as high-yield bonds on a year-to-date basis.
Current consensus expectations are for the US economy's rate of
growth to continue to slow as a result of slowing business activity
worldwide. We do not anticipate a recessionary scenario,
particularly if the Federal Reserve Board continues to aggressively
cut short-term interest rates. Currently, inflationary pressures
remain contained, supported by moderate growth in wages along with a
slight increase in unemployment.
At August 31, 1998, over 98% of the Fund's investments in corporate
loans were accruing interest at a spread above the London Interbank
Offered Rate (LIBOR), the rate that major international banks charge
each other for dollar-denominated deposits outside the United
States. Historically, LIBOR has tracked other US short-term interest
rates very closely, particularly the Federal Funds rate. A steady
inflow of cash from new subscriptions pushed down the Fund's yield
during the first nine months of the year ended August 31, 1998, and
strong investor demand for bank loans compressed the average spread
over LIBOR on the loans in the Fund's portfolio. However, yields
bounced back later in the last half of the Fund's fiscal year as the
primary transaction flow improved and the Fund's cash position was
substantially reduced through primary and secondary purchases.
Meanwhile, the three-month LIBOR traded in a relatively narrow range
of 5.50%--5.85% during the period, even as yields on US Treasury
issues came down substantially with the general flight to quality.
The average number of days to LIBOR reset on the Fund's investments
was 37 days at the end of the fiscal year. The recent Federal
Reserve Board easings should be reflected in the Fund's yield over
the next few months as the Fund's investments move through their
LIBOR resets. The lower LIBOR should be offset by the higher spread
over LIBOR that loan investors are demanding on new issues in this
environment. On new transactions and on existing transactions that
are amended, lenders are requiring spreads above LIBOR that are 100
basis points--150 basis points higher than pre-August levels. The
Fund's yield typically reflects any sustained decrease, or increase,
up or down, in short-term interest rates within a one-month--two-
month period, depending on the Fund's cash position.
Merrill Lynch Senior Floating Rate Fund, Inc.
August 31, 1998
Fund Performance
With this interest rate environment and economic growth as a
backdrop, Merrill Lynch Senior Floating Rate Fund, Inc. ended the
fiscal year with approximately $3.1 billion out of $3.3 billion, or
91.2%, of its net assets committed for investment in corporate loan
interests. Assets not invested in loan interests were invested in
high-quality, short-term securities.
The Fund's effective net annualized yield for the three-month period
ended August 31, 1998 was 6.61%, compared to a yield of 6.94% for
the same period a year earlier. The Fund's net asset value continued
to remain relatively stable throughout the period, but did begin to
move down subsequent to August 31, 1998 as bid prices in the market
backed up across the board. During the 12-month period ended August
31, 1998, the Fund earned $0.678 per share income dividends,
representing a net annualized yield of 6.82%, based on a month-end
per share net asset value of $9.97. For the year ended August 31,
1998, the Fund's total investment return was +6.47%, based on a
change in net asset value from $10.02 to $9.97, and assuming
reinvestment of $0.679 per share income dividends. Since inception
(November 3, 1989) through August 31, 1998, the Fund's total
investment return was +83.07%, based on a change in per share net
asset value from $10.00 to $9.97, and assuming reinvestment of
$6.083 per share income dividends.
Investment Activities
During the year ended August 31, 1998, the Fund's investment
strategy remained unchanged: to invest in leveraged transactions in
which borrowers have strong market shares, experienced managements
and consistent cash flows. The loans in which we invest also must
have appropriate risk/reward characteristics in the form of floating
rate spreads over LIBOR. In addition, we continued to look for
companies with significant underlying asset and franchise value,
strong capital structures, and equity sponsors that support their
investments. The Fund's three largest positions, Riverwood
International Corp., Stone Container Corp. and Starwood Hotels &
Resorts Trust, are examples that fit this investment philosophy. The
advantages of adhering to this strategy are borne out by both the
relative stability of the Fund's net asset value as compared to
other fixed-income asset classes and the continued flexibility of
our borrowers as they access capital markets during the fiscal year.
A stable economy, continuous refinancings in the strong capital
markets environment over most of the last 12 months and a relatively
low cost of carry for debt helped maintain reasonably strong credit
fundamentals in the bank loan market. In most industries, including
cyclicals, prices remained relatively firm based on strong
underlying collateral value, as well as a lack of sellers as
investors were reluctant to part with high-coupon senior secured
paper that could not be replaced. Paper companies, particularly
those involved in market pulp, newsprint and linerboard, saw prices
slide with the slow down in global economies. With the continued
merger and acquisition activity, pricing in both the cable and
telecommunications sectors continued to tighten through the year but
widened with other sectors through the September period-end.
The Fund is presently more varied by sector and by actual number
of issuers. This change in part reflects our strategy to help
spread credit exposure among more holdings. However, it was also
caused by an increase in the number of investors in the market. This
increase resulted in smaller allocations in individual transactions
during the first half of the year amid continued strong demand and
improved liquidity. Since the beginning of the correction in August,
investors have grown increasingly concerned with secondary trading
levels on their loans and have become much more selective in terms
of price, liquidity required in the aftermarket and overall size
that they would be willing to hold in this environment. We expect
these trends to continue through the end of the year and into the
first quarter of 1999 as banks and the dealer community manage their
balance sheets toward 1998 year-end.
During the last six months, we were faced with the challenge of
staying fully invested in a market characterized by numerous
refinancings driven by the extremely strong public debt and equity
markets. In the August quarter, refinancings included names such as
Journal Register Co., Repap Brunswick and Thermadyne Industries,
Inc. Finally, we continued to be selective in investing in new
leveraged buyouts coming to the market during the course of the
year. Examples included our investments in Ziff-Davis Inc. and
Collins & Aikman Corp. Merger and acquisition financings included
such names as Lyondell Petrochemical Co. and Ispat Inland LP. During
the quarter ended August 31, 1998, the Fund purchased over $588.9
million in loans in the primary market and over $76.5 million in the
secondary market. This was offset by the sale of $81.1 million in
investments and the full or partial prepayment of over $391.0
million during the three months ended August 31, 1998.
Merrill Lynch Senior Floating Rate Fund, Inc.
August 31, 1998
As of August 31, 1998, the Fund was invested in 219 borrowers across
46 industries. See the "Portfolio Information" section of this
report to shareholders on page 4 which provides listings of the
Fund's ten largest holdings and five largest industries as of August
31, 1998.
Looking further ahead, we believe there will be strong improvement
in the high-yield loan market as equities stabilize and new capital
comes into the asset class.
The Fund completed its latest quarterly tender offer on July 24,
1998 with 16.6 million shares tendered and accepted for repurchase.
The next tender began on September 22, 1998 and concludes on October
20, 1998. The Fund remains open for new shareholder purchases.
In Conclusion
We thank you for your investment in Merrill Lynch Senior Floating
Rate Fund, Inc., and we look forward to reviewing our outlook and
strategy with you again in our next report to shareholders.
Sincerely,
(Arthur Zeikel)
Arthur Zeikel
President
(R. Douglas Henderson)
R. Douglas Henderson
Senior Vice President and Portfolio Manager
October 16, 1998
OFFICERS AND DIRECTORS
Arthur Zeikel, President and Director
Ronald W. Forbes, Director
Cynthia A. Montgomery, Director
Charles C. Reilly, Director
Kevin A. Ryan, Director
Richard R. West, Director
Terry K. Glenn, Executive Vice President
R. Douglas Henderson, Senior Vice President
Joseph T. Monagle Jr., Senior Vice President
Donald C. Burke, Vice President
Gerald M. Richard, Treasurer
Patrick D. Sweeney, Secretary
Custodian
The Bank of New York
90 Washington Street
New York, NY 10286
Transfer Agent
Financial Data Services, Inc.
4800 Deer Lake Drive East
Jacksonville, FL 32246-6484
(800) 637-3863
Merrill Lynch Senior Floating Rate Fund, Inc.
August 31, 1998
THE BENEFITS AND RISKS OF LEVERAGING
Merrill Lynch Senior Floating Rate Fund, Inc. (the "Fund") has the
ability to utilize leverage through the borrowings or issuance of
short-term debt securities or shares of Preferred Stock. The concept
of leveraging is based on the premise that the cost of assets to be
obtained from leverage will be based on short-term interest rates,
which normally will be lower than the return earned by the Fund on
its longer-term portfolio investments. Since the total assets of the
Fund (including the assets obtained from leverage) are invested in
higher-yielding portfolio investments, the Fund's Common Stock
shareholders are the beneficiaries of the incremental yield. Should
the differential between the underlying interest rates narrow, the
incremental yield "pick up" will be reduced. Furthermore, if
long-term interest rates rise, the Common Stock's net asset value
will reflect the full decline in the entire portfolio holdings
resulting therefrom since the assets obtained from leverage do not
fluctuate.
Leverage creates risks for holders of Common Stock including the
likelihood of greater net asset value and market price volatility.
In addition, there is the risk that fluctuations in interest rates
on borrowings (or in the dividend rates on any Preferred Stock, if
the Fund were to issue the Preferred Stock) may reduce the Common
Stock's yield and negatively impact its market price. If the income
derived from securities purchased with assets received from leverage
exceeds the cost of leverage, the Fund's net income will be greater
than if leverage had not been used. Conversely, if the income from
the securities purchased is not sufficient to cover the cost of
leverage, the Fund's net income will be less than if leverage had
not been used, and therefore the amount available for distribution
to Common Stock shareholders will be reduced. In this case, the Fund
may nevertheless decide to maintain its leveraged position in order
to avoid capital losses on securities purchased with leverage.
However, the Fund will not generally utilize leverage if it
anticipates that its leveraged capital structure would result in a
lower rate of return for its Common Stock than would be obtained if
the Common Stock were unleveraged for any significant amount of
time.
PORTFOLIO INFORMATION
As of August 31, 1998
Quality Rating* Percent of
S&P/Moody's Long-Term Investments
BB/Ba 37.2%
B/B 22.3
CCC/Caa 0.5
NR (Not Rated) 40.0
[FN]
*In cases where bonds are rated differently by Standard & Poor's
Corp. and Moody's Investors Services, Inc., bonds are categorized
according to the higher of the two ratings.
Percent of
Five Largest Industries Total Assets
Telephone Communications 11.0%
Paper 8.1
Health Services 7.7
Chemicals 7.3
Amusement & Recreational Services 5.4
Percent of
Ten Largest Holdings Total Assets
Riverwood International Corp. 2.9%
Stone Container Corp. 2.3
Starwood Hotels & Resorts Trust 2.2
AMF Group, Inc. 2.1
Marcus Cable Operating Co. 1.8
Lyondell Petrochemical Co. 1.7
Chancellor Media Corp. 1.7
Huntsman Corp. 1.6
Omnipoint Communications Corp. 1.6
Cellular, Inc. 1.3
Merrill Lynch Senior Floating Rate Fund, Inc.
August 31, 1998
<TABLE>
SCHEDULE OF INVESTMENTS
<CAPTION>
S&P Moody's Face Senior Secured Value
Industries Rating Rating Amount Floating Rate Loan Interests* Cost (Note 1a)
<S> <S> <S> <C> <S> <C> <C>
Advertising-- NR++ Ba2 $12,033,333 Outdoor Systems, Inc., Term,
0.4% due 6/30/2004 $ 12,010,770 $ 12,025,813
Aerospace-- NR++ Ba3 4,618,566 K & F Industries, Term B, due
0.1% 10/15/2005 4,618,566 4,630,113
Agriculture-- NR++ NR++ 5,495,875 Purina Mills Inc., Term B,
0.5% due 3/31/2007 5,489,252 5,516,485
NR++ NR++ 9,980,000 Seminis, Term B, due 12/31/2003 9,980,000 9,980,000
-------------- --------------
15,469,252 15,496,485
Air Transpor- Continental Airlines, Inc.:
tation--0.4% BB- NR++ 8,258,819 Term A, due 7/31/2002 8,222,845 8,186,555
BB- NR++ 6,314,667 Term B, due 7/31/2002 6,314,667 6,263,360
-------------- --------------
14,537,512 14,449,915
Aircraft & NR++ Ba2 3,972,003 Alliant Techsystems, Inc.,
Parts--1.2% Term, due 3/15/2001 3,969,540 3,972,003
NR++ Ba3 7,355,501 Evergreen International Aviation,
Inc., Term B, due 5/31/2003 7,325,126 7,355,501
NR++ NR++ 21,406,250 Gulfstream Aerospace Corp., Term,
due 9/30/2002 21,375,110 21,218,945
NR++ NR++ 2,359,849 Technetics, Term, due 6/20/2002 2,347,435 2,352,474
NR++ NR++ 6,250,000 WesternSky Industries, Term, due
7/31/2003 6,244,056 6,257,813
-------------- --------------
41,261,267 41,156,736
Amusement & AMF Group, Inc.:
Recreational NR++ B+ 18,521,998 Axel A, due 5/03/2003 18,706,731 18,541,106
Services--5.4% NR++ B+ 25,546,140 Axel B, due 5/01/2004 25,627,160 25,530,053
NR++ B+ 3,052,525 Term, due 3/31/2002 3,046,123 3,056,340
NR++ B+ 23,448,943 Term A, due 3/31/2002 23,409,097 23,389,571
B1 NR++ 2,000,000 ASC East Inc., Term, due 5/31/2006 1,998,131 2,003,750
B1 NR++ 5,000,000 ASC West Inc., Term, due 5/31/2006 4,995,328 5,009,375
Amfac Resorts, Inc.:
NR++ NR++ 2,500,000 Term B, due 9/30/2004 2,496,532 2,500,000
NR++ NR++ 2,500,000 Term C, due 9/30/2005 2,496,483 2,503,125
KSL Recreation Group, Inc.:
NR++ B2 11,960,000 Revolving Credit, due 4/30/2004 11,960,000 11,997,375
NR++ B2 10,890,000 Term A, due 4/30/2005 10,929,493 10,924,032
NR++ B2 10,890,000 Term B, due 4/30/2006 10,930,154 10,924,032
B+ NR++ 4,987,500 Kerastotes, Term B, due 12/31/2004 4,980,614 4,987,500
Metro Goldwyn Mayer Co.:
B1 Ba2 5,170,000 Revolving Credit, due 9/30/2003 5,170,000 5,040,750
B1 Ba2 4,000,000 Term A, due 12/31/2005 3,981,565 3,985,000
B1 Ba2 10,000,000 Term B, due 12/31/2006 9,976,651 9,981,250
NR++ NR++ 19,991,667 Patroit American Hospitality, Term B,
due 3/31/2003 19,954,896 19,991,667
B1 Ba2 4,527,163 Premier Parks Inc., Term C,
due 3/31/2006 4,524,984 4,538,481
NR++ Ba3 13,472,837 Six Flags Entertainment Corp., Term B,
due 11/03/2004 13,466,418 13,540,201
NR++ NR++ 4,200,000 Video Update Inc., Term B,
due 4/30/2003 4,161,119 4,158,000
-------------- --------------
182,811,479 182,601,608
</TABLE>
Merrill Lynch Senior Floating Rate Fund, Inc.
August 31, 1998
<TABLE>
SCHEDULE OF INVESTMENTS (continued)
<CAPTION>
S&P Moody's Face Senior Secured Value
Industries Rating Rating Amount Floating Rate Loan Interests* Cost (Note 1a)
<S> <S> <S> <C> <S> <C> <C>
Apparel--1.2% Arena Brands, Inc.:
NR++ NR++ $ 936,666 Revolving Credit, due 6/01/2002 $ 936,666 $ 940,179
NR++ NR++ 3,882,200 Term A, due 6/01/2002 3,887,052 3,896,758
NR++ NR++ 7,218,465 Term B, due 6/01/2002 7,227,488 7,245,534
NR++ NR++ 5,000,000 Cluett American Corp., Term B,
due 5/18/2005 4,995,107 5,009,375
NR++ NR++ 9,700,000 Humphreys Inc., Term B, due 1/15/2003 9,700,000 9,700,000
NR++ NR++ 4,800,000 Renfro Corp., Term B, due 11/15/2003 4,781,477 4,800,000
Walls Industries:
NR++ NR++ 1,244,681 Term B, due 2/28/2005 1,244,681 1,244,681
NR++ NR++ 1,707,447 Term C, due 2/28/2006 1,707,447 1,707,447
BB- Ba3 6,111,000 William Carter Co. (The), Term,
due 10/31/2003 6,086,846 6,091,903
-------------- --------------
40,566,764 40,635,877
Automotive American Axel:
Equipment-- NR++ NR++ 2,560,000 Revolving Credit, due 10/31/2005 2,560,000 2,534,400
3.5% NR++ NR++ 1,829,333 Revolving Credit, due 10/31/2005 1,829,333 1,779,027
NR++ NR++ 21,000,000 Term B, due 3/31/2007 21,033,664 20,842,500
NR++ NR++ 10,000,000 Breed Technologies, Inc., Term B,
due 4/27/2006 9,975,765 10,006,250
NR++ Ba3 8,376,000 CSK Automotive, Term, due 10/31/2003 8,368,470 8,378,618
B+ B1 11,000,000 Collins & Aikman Corp., Term B,
due 6/30/2005 10,994,646 11,027,500
Federal Mogul Corp.:
NR++ NR++ 328,205 Revolving Credit, due 12/30/2003 328,205 326,154
NR++ NR++ 4,403,733 Term A, due 12/31/2003 4,392,870 4,403,733
NR++ NR++ 37,500,000 Term B, due 12/31/2005 37,500,000 37,406,250
NR++ B1 15,335,000 Johnstown America Industrial, Inc.,
Term B, due 3/31/2003 15,280,722 15,219,988
Safelite Glass Corp.:
BB- B2 3,750,000 Term B, due 12/31/2004 3,744,802 3,754,688
BB- B2 3,750,000 Term C, due 12/31/2005 3,744,730 3,754,688
-------------- --------------
119,753,207 119,433,796
Broadcast-- Chancellor Media Corp.:
Radio & TV--4.1% BB- Ba2 5,259,425 Revolving Credit, due 6/26/2004 5,259,425 5,193,682
BB- Ba2 51,891,429 Term, due 6/26/2004 51,735,698 51,502,243
NR++ NR++ 10,000,000 Channel Master, Term, due 10/10/2005 9,981,605 10,000,000
NR++ NR++ 10,000,000 Emmis Communications, Term, due
2/28/2007 10,000,000 10,000,000
NR++ NR++ 8,260,870 Latin Communications, Term,
due 3/31/2004 8,216,896 8,178,261
NR++ NR++ 4,625,000 Retlaw Broadcasting, Term,
due 3/31/2006 4,613,774 4,620,375
NR++ Ba3 5,000,000 Sinclair Broadcast, Term,
due 12/31/2004 4,990,219 4,975,000
NR++ NR++ 3,750,000 Spartan Communications, Term B,
due 6/30/2005 3,750,000 3,750,000
NR++ Ba2 38,958,819 Viacom, Inc., Term, due 7/01/2002 38,914,702 38,630,103
-------------- --------------
137,462,319 136,849,664
Building & NR++ NR++ 2,509,281 Fenway Holdings, Inc., Term B,
Construction--0.1% due 9/15/2002 2,496,955 2,468,505
Building NR++ Ba3 3,218,540 Amerimax, Term C, due 6/30/2004 3,215,025 3,218,540
Materials--2.2% Behr Process Corp.:
NR++ NR++ 4,147,500 Term B, due 3/31/2004 4,142,679 4,147,500
NR++ NR++ 2,765,000 Term C, due 3/31/2005 2,761,700 2,768,456
NR++ NR++ 16,932,000 Dal Tile International, Inc., Term B,
due 12/31/2003 16,859,625 16,625,108
NR++ NR++ 5,000,000 Dayton Superior Corp., Term,
due 9/30/2005 5,000,000 5,031,250
NR++ Ba3 2,052,281 Euramax Holdings Ltd., Term B,
due 6/30/2004 2,050,040 2,052,281
NR++ B1 4,971,429 Falcon Building Products, Inc., Term,
due 6/30/2005 4,953,708 4,983,857
NR++ Ba3 29,774,623 National Gypsum Co., Term B,
due 9/20/2003 29,730,413 29,774,623
</TABLE>
Merrill Lynch Senior Floating Rate Fund, Inc.
August 31, 1998
<TABLE>
SCHEDULE OF INVESTMENTS (continued)
<CAPTION>
S&P Moody's Face Senior Secured Value
Industries Rating Rating Amount Floating Rate Loan Interests* Cost (Note 1a)
<S> <S> <S> <C> <S> <C> <C>
Building Panolam Industries:
Materials NR++ NR++ $ 459,281 Term A, due 11/01/2002 $ 459,281 $ 459,281
(concluded) NR++ NR++ 2,811,659 Term B, due 11/01/2005 2,811,659 2,811,659
NR++ NR++ 1,606,662 Term C, due 11/01/2006 1,606,662 1,606,662
-------------- --------------
73,590,792 73,479,217
Cable TV NR++ NR++ 24,314,062 Chelsea Communications, Term B,
Services--4.4% due 9/30/2004 24,227,982 24,329,259
NR++ B1 5,000,000 Classic Cable, Inc., Term, due
10/31/2007 4,995,003 4,993,750
NR++ Ba3 4,000,000 FrontierVision Operating Partners
L.P., Term B, due 3/31/2006 3,994,367 3,997,500
Intermedia Partners, Inc.:
B+ Ba3 10,000,000 Term, due 1/01/2005 9,979,890 9,981,250
B+ Ba3 7,500,000 Term B, due 12/31/2007 7,492,676 7,509,375
Marcus Cable Operating Co.:
B+ Ba3 26,343,750 Term A, due 12/31/2002 26,267,262 26,277,891
B+ Ba3 12,526,875 Term B1, due 4/30/2004 12,353,293 12,515,131
B+ Ba3 22,597,500 Term B2, due 4/30/2004 22,538,919 22,597,500
NR++ NR++ 20,073,850 NTL Group, Term, due 1/31/1999 20,073,850 20,061,303
B+ NR++ 17,000,000 Triax Midwest, Term B, due 6/30/2007 16,974,858 17,021,250
-------------- --------------
148,898,100 149,284,209
Casino--0.4% Alliance Gaming Corp.:
NR++ B1 10,633,929 Term B, due 1/31/2005 10,633,929 10,687,098
NR++ B1 4,242,857 Term C, due 7/31/2005 4,242,857 4,264,071
-------------- --------------
14,876,786 14,951,169
Chemicals--7.3% NR++ NR++ 7,500,000 AOC LLC, Term B, due 9/30/2006 7,481,250 7,481,250
NR++ NR++ 4,500,000 CII Carbon LLC, Term, due 6/25/2008 4,495,537 4,511,250
NR++ NR++ 11,283,142 Cedar Chemical, Term B, due
10/31/2003 11,217,782 11,254,934
NR++ NR++ 10,000,000 Epsillon, Term B, due 12/31/2005 10,000,000 10,000,000
NR++ Ba2 11,964,000 Exide Corporation, Term B, due
3/19/2005 11,964,000 11,978,955
NR++ Ba3 3,777,778 Foamex International PLC, Revolving
Credit, due 6/30/2003 3,777,778 3,782,500
NR++ NR++ 6,000,000 General Chemical Group, Term B,
due 6/15/2006 5,994,090 5,996,250
NR++ NR++ 10,000,000 HSC Holdings, Term B, due 3/31/2006 9,985,358 10,025,000
Huntsman Corp.:
NR++ Ba2 20,738,584 Term, due 12/31/2002 20,723,027 20,738,584
NR++ Ba2 4,900,000 Term A, due 9/30/2003 4,900,000 4,900,000
NR++ Ba2 14,850,000 Term B, due 6/30/2004 14,850,000 14,850,000
NR++ Ba2 14,700,000 Term C, due 12/31/2005 14,656,681 14,810,250
Huntsman Specialty Chemicals:
NR++ Ba2 4,950,000 Term B, due 3/15/2004 4,946,278 4,962,375
NR++ Ba2 4,950,000 Term C, due 3/15/2005 4,946,272 4,962,375
Lyondell Petrochemical Co.:
NR++ NR++ 15,000,000 Term A, due 6/30/2003 14,992,500 14,992,500
NR++ NR++ 41,900,000 Term B, due 6/30/2005 41,862,197 42,083,313
NR++ NR++ 16,615,385 Octel Corp., Term A, due 12/31/2001 16,559,441 16,521,923
NR++ B1 7,920,000 Pioneer Americas Acquisition Corp.,
Term, due 12/05/2006 7,988,063 7,910,100
BB- Ba3 4,980,000 Polymer Group, Inc., Term B, due
12/20/2005 4,980,000 4,997,119
NR++ Ba3 23,981,281 Sterling Chemicals, Inc., Term B,
due 9/30/2004 23,883,231 23,876,363
NR++ Ba3 6,373,806 Texas Petrochemicals Corp., Term B,
due 6/30/2004 6,354,552 6,357,871
-------------- --------------
246,558,037 246,992,912
Computer-Related NR++ Ba3 17,027,500 Fairchild Semiconductors Corp.,
Services & Term C, due 3/11/2003 17,027,500 17,027,500
Products--0.5%
</TABLE>
Merrill Lynch Senior Floating Rate Fund, Inc.
August 31, 1998
<TABLE>
SCHEDULE OF INVESTMENTS (continued)
<CAPTION>
S&P Moody's Face Senior Secured Value
Industries Rating Rating Amount Floating Rate Loan Interests* Cost (Note 1a)
<S> <S> <S> <C> <S> <C> <C>
Consumer NR++ B1 $ 8,412,272 Amscan Holdings, Inc., Axel,
Products--2.3% due 12/31/2004 $ 8,412,272 $ 8,412,272
B+ Ba3 4,738,889 Boyds Collection Ltd., Term B,
due 4/21/2005 4,727,442 4,747,774
E & S Holdings Corp.:
NR++ B1 3,505,882 Revolving Credit, due 9/30/2003 3,505,882 3,339,353
NR++ B1 912,941 Term A, due 9/30/2003 880,412 865,012
Hedstrom Corp.:
NR++ B1 1,241,379 Revolving Credit, due 6/30/2003 1,241,379 1,236,724
NR++ B1 4,844,828 Term A, due 6/30/2003 4,823,783 4,844,828
Pillowtex:
B+ Ba2 3,980,000 Term B, due 12/31/2004 3,976,321 3,987,463
B+ Ba2 3,500,000 Term B, due 12/31/2004 3,496,500 3,496,500
BB- Ba2 14,850,150 Playtex Family Products Inc., Term B,
due 9/15/2003 14,786,502 14,924,401
RTI Funding Corp. (Ritvik Toys):
NR++ NR++ 7,209,568 Term B, due 2/07/2003 7,158,585 6,272,324
NR++ NR++ 7,209,568 Term C, due 2/07/2004 7,154,743 6,272,324
BB- Ba3 14,925,000 Revlon Consumer Products Corp., Term,
due 5/30/2002 14,914,886 14,859,703
NR++ NR++ 4,500,000 Samsonite Corp., Term, due 6/24/2005 4,494,437 4,443,750
-------------- --------------
79,573,144 77,702,428
Defense--0.3% United Defense Industries, Inc.:
NR++ B1 1,707,473 Term A, due 10/06/2003 1,721,671 1,696,801
NR++ B1 4,378,808 Term B, due 10/06/2005 4,378,808 4,365,124
NR++ B1 4,253,111 Term C, due 10/06/2006 4,253,111 4,245,137
-------------- --------------
10,353,590 10,307,062
Diversified--1.5% NR++ NR++ 30,000,000 Bridge Inform, Term B,
due 5/29/2005 29,927,008 30,075,000
NR++ NR++ 6,000,000 Handy & Harman, Term B,
due 7/30/2006 5,985,111 5,992,500
NR++ NR++ 4,980,000 Sarah Michael's Inc., Term B,
due 6/30/2004 4,980,000 4,980,000
Thermadyne Industries, Inc.:
NR++ NR++ 3,500,000 Term B, due 7/16/2004 3,496,615 3,513,125
NR++ NR++ 3,500,000 Term C, due 7/16/2005 3,496,593 3,513,125
-------------- --------------
47,885,327 48,073,750
Drilling--0.1% BB+ Ba3 3,759,930 Rigco North America, Term,
due 9/30/1998 3,759,068 3,769,330
Drug/Proprietary NR++ NR++ 4,975,000 Duane Reade Co., Term B,
Stores--0.2% due 2/15/2005 4,960,355 5,012,313
Electronics/ NR++ Ba3 13,458,750 Amphenol Corp., Term B,
Electrical due 5/19/2006 13,672,569 13,538,662
Components-- NR++ NR++ 5,483,333 Communications & Power II
2.2% Acquisition Corp., Term B,
due 8/11/2002 5,448,270 5,469,625
NR++ NR++ 5,500,000 Details Dynamic, Term B,
due 4/22/2005 5,493,131 5,493,125
Dictaphone Corp.:
B- B1 796,937 Revolving Credit, due 3/31/2001 796,937 777,013
B- B1 7,750,000 Term C, due 6/30/2003 7,680,912 7,691,875
Dynatech Corporation:
NR++ NR++ 1,660,714 Term B, due 3/31/2005 1,660,714 1,660,714
NR++ NR++ 1,660,714 Term C, due 3/31/2006 1,660,714 1,660,714
NR++ NR++ 1,660,714 Term D, due 3/31/2007 1,660,714 1,660,714
BB- Ba3 19,875,389 International Wire Group, Inc.,
Term B, due 9/30/2003 19,858,613 19,925,078
NR++ NR++ 3,577,500 Mitel Corporation, Axel B,
due 2/26/2003 3,570,873 3,573,028
NR++ Ba3 6,872,838 Neopost, Term C, due 6/24/2006 6,856,957 6,855,656
NR++ Ba3 6,973,077 Telex Communications, Inc., Term B,
due 11/30/2004 6,957,833 6,554,692
-------------- --------------
75,318,237 74,860,896
</TABLE>
Merrill Lynch Senior Floating Rate Fund, Inc.
August 31, 1998
<TABLE>
SCHEDULE OF INVESTMENTS (continued)
<CAPTION>
S&P Moody's Face Senior Secured Value
Industries Rating Rating Amount Floating Rate Loan Interests* Cost (Note 1a)
<S> <S> <S> <C> <S> <C> <C>
Energy--0.5% NR++ Ba2 $11,000,000 Clark Refining & Marketing,
Term, due 11/15/2004 $ 11,000,000 $ 10,848,750
NR++ NR++ 5,000,000 Plains All American, Term,
due 6/30/2005 4,987,614 5,021,875
-------------- --------------
15,987,614 15,870,625
Financial Outsourcing Solutions, Inc.:
Services--1.2% NR++ B1 4,015,118 Term B, due 10/15/2003 4,011,860 4,012,608
NR++ B1 37,416,658 Term C, due 10/15/2004 37,416,658 37,393,273
-------------- --------------
41,428,518 41,405,881
Food & Kindred Del Monte Corp.:
Products--2.9% NR++ B2 1,636,364 Revolving Credit, due 3/31/2003 1,636,364 1,620,000
NR++ B2 3,272,727 Term A, due 3/31/2003 3,272,727 3,272,727
NR++ B2 7,620,065 Term B, due 3/31/2005 7,615,606 7,639,115
NR++ NR++ 5,000,000 Dr. Pepper, Term B, due 12/31/2005 4,992,974 5,009,375
Imperial Holly Corp.:
BB- Ba3 6,594,786 Term A, due 12/31/2003 6,588,807 6,528,838
BB- Ba3 5,279,536 Term B, due 12/31/2005 5,274,594 5,239,939
International Homefoods, Inc.:
BB- Ba3 3,278,226 Term A, due 11/21/2001 3,276,187 3,270,030
BB- Ba3 21,970,667 Term B, due 10/31/2005 22,000,832 21,915,740
Mistic Beverage, Inc.:
BB- Ba3 2,451,875 Term B, due 6/01/2004 2,441,057 2,461,069
BB- Ba3 2,451,875 Term C, due 6/01/2005 2,440,802 2,461,069
Snapple Beverage Corp.:
BB- Ba3 7,355,624 Term B, due 6/01/2004 7,323,172 7,392,403
BB- Ba3 7,355,624 Term C, due 6/01/2005 7,322,406 7,392,403
NR++ Ba3 5,400,000 Southern Foods Group, Term B,
due 2/28/2006 5,393,806 5,406,750
NR++ Ba3 9,520,548 Specialty Foods, Inc., Term,
due 1/31/2000 9,446,874 9,520,548
Volume Services:
NR++ B2 6,595,333 Term B, due 12/31/2002 6,549,177 6,595,333
NR++ B2 3,297,500 Term C, due 12/31/2003 3,272,906 3,297,500
-------------- --------------
98,848,291 99,022,839
Funeral Homes & NR++ Ba1 21,671,764 Loewen Group Capital, Term,
Parlors--1.3% due 7/15/2000 21,671,764 21,590,496
BB- NR++ 14,666,667 Prime Succession Inc., Axel,
due 8/01/2003 14,624,376 14,749,167
BB NR++ 6,813,647 Rose Hills Co., Axel A,
due 12/01/2003 6,799,986 6,839,198
-------------- --------------
43,096,126 43,178,861
Furniture & NR++ NR++ 10,000,000 Furniture Brands, Term,
Fixtures--0.3% due 6/27/2007 10,000,000 10,000,000
Grocery--2.1% NR++ NR++ 10,400,000 Big V Supermarkets, Inc.,
Term B, due 3/15/2000 10,353,305 10,270,000
NR++ B1 9,948,980 Carr Gottstein Foods Co.,
Term B, due 12/31/2002 9,946,429 9,961,416
NR++ NR++ 39,846,155 Fred Meyer, Term, due 2/28/2003 39,580,219 39,547,308
NR++ NR++ 4,500,000 LCP Grand Union Co., Term,
due 8/17/2003 4,495,512 4,500,000
Star Acquisition Co., Inc.:
B Ba3 3,455,179 Term B, due 12/31/2001 3,445,930 3,442,222
B Ba3 2,588,164 Term C, due 12/31/2002 2,580,198 2,575,223
-------------- --------------
70,401,593 70,296,169
Health Alaris Medical Systems, Inc.:
Services-- NR++ B1 3,763,200 Term A, due 8/01/2002 3,777,838 3,763,200
7.7% NR++ B1 3,166,428 Term B, due 11/01/2003 3,163,335 3,174,344
NR++ B1 3,166,428 Term C, due 11/01/2004 3,163,152 3,174,344
NR++ B1 2,980,216 Term D, due 5/01/2005 2,978,397 2,987,667
</TABLE>
Merrill Lynch Senior Floating Rate Fund, Inc.
August 31, 1998
<TABLE>
SCHEDULE OF INVESTMENTS (continued)
<CAPTION>
S&P Moody's Face Senior Secured Value
Industries Rating Rating Amount Floating Rate Loan Interests* Cost (Note 1a)
<S> <S> <S> <C> <S> <C> <C>
Health NR++ NR++ $10,000,000 Columbia Healthcare Corp, Term A,
Services due 6/16/1999 $ 9,975,170 $ 9,943,750
(concluded) Community Health Systems, Inc.:
NR++ NR++ 16,089,041 Term B, due 12/31/2003 16,026,350 16,094,069
NR++ NR++ 16,089,041 Term C, due 12/31/2004 16,023,236 16,094,069
NR++ NR++ 12,082,192 Term D, due 12/31/2005 12,031,010 12,093,519
NR++ NR++ 6,374,296 CONMED Corp., Term B, due 12/30/2004 6,374,296 6,370,312
Dade International, Inc.:
NR++ B1 2,961,970 Term B, due 12/31/2002 2,948,674 2,958,268
NR++ B1 2,961,970 Term C, due 12/31/2003 2,947,933 2,961,970
NR++ B1 3,125,627 Term D, due 12/31/2004 3,110,004 3,127,581
NR++ NR++ 7,357,143 Endo Pharmaceuticals, Term B,
due 6/30/2004 7,344,108 7,370,937
NR++ NR++ 9,950,000 Extendicare Health, Inc., Term B,
due 12/31/2004 9,940,812 9,943,781
FHC Health Systems:
NR++ NR++ 2,743,125 Axel B, due 4/30/2005 2,737,265 2,746,554
NR++ NR++ 2,743,125 Axel C, due 4/30/2006 2,737,238 2,746,554
Genesis Health Ventures, Inc.:
NR++ Ba3 6,285,833 Term B, due 9/30/2004 6,274,451 6,287,798
NR++ Ba3 6,270,000 Term C, due 6/01/2005 6,258,553 6,271,959
Integrated Health Services, Inc.:
NR++ Ba3 22,500,000 Term B, due 9/15/2003 22,585,383 22,429,687
NR++ Ba3 10,000,000 Term C, due 9/15/2003 10,000,000 9,993,750
Kinetic Concepts, Inc.:
BB Ba2 5,970,000 Term B, due 12/31/2004 5,970,000 5,973,731
BB Ba2 5,970,000 Term C, due 12/31/2005 5,970,000 5,973,731
NR++ NR++ 7,000,000 MEDIQ PRN Life Support Services,
Term, due 6/30/2006 6,993,155 7,010,937
Magellen Health Services:
NR++ Ba3 5,000,000 Term B, due 2/12/2005 4,992,945 4,962,500
NR++ Ba3 5,000,000 Term C, due 2/12/2006 4,992,869 4,962,500
Medical Specialties:
NR++ NR++ 12,845,455 Axel, due 6/30/2004 12,780,325 12,460,091
NR++ NR++ 4,418,182 Term, due 6/30/2001 4,400,621 4,351,909
Multicare Companies, Inc.:
NR++ B1 4,714,375 Term B, due 9/30/2004 4,705,721 4,715,848
NR++ B1 1,567,500 Term C, due 6/01/2005 1,564,619 1,567,990
Paracelsus HealthCare Corp.:
NR++ NR++ 1,381,333 Term A, due 3/31/2003 1,374,674 1,379,607
NR++ NR++ 2,000,000 Term B, due 3/31/2004 1,990,281 1,998,750
Paragon Health Network, Inc.:
NR++ Ba3 7,500,000 Term B, due 3/31/2005 7,493,127 7,443,750
NR++ Ba3 7,500,000 Term C, due 3/31/2006 7,493,023 7,443,750
Sun Healthcare Group, Inc.:
NR++ Ba3 5,518,637 Term B, due 11/12/2004 5,511,150 5,515,188
NR++ Ba3 5,518,637 Term C, due 11/12/2005 5,511,015 5,515,188
NR++ NR++ 22,500,000 Total Renal Care, Term,
due 3/31/2008 22,472,523 22,507,031
NR++ NR++ 4,912,688 Wilson Great Batch, Term B,
due 7/10/2004 4,901,675 4,900,406
-------------- --------------
259,514,928 259,217,020
Hotels & NR++ NR++ 7,125,000 Meristar Hospitality, Term B,
Motels--2.4% due 1/31/2004 7,116,192 7,107,187
NR++ NR++ 75,000,000 Starwood Hotels & Resorts Trust,
Term, due 2/23/2003 74,930,430 75,000,000
-------------- --------------
82,046,622 82,107,187
</TABLE>
Merrill Lynch Senior Floating Rate Fund, Inc.
August 31, 1998
<TABLE>
SCHEDULE OF INVESTMENTS (continued)
<CAPTION>
S&P Moody's Face Senior Secured Value
Industries Rating Rating Amount Floating Rate Loan Interests* Cost (Note 1a)
<S> <S> <S> <C> <S> <C> <C>
Industrial NR++ NR++ $ 26,177,876 Elis/Omni Services, Inc.,
Services--0.8% Axel, due 10/30/2005 $ 26,324,969 $ 26,128,793
Insurance--0.2% BRW Acquisition:
NR++ NR++ 2,500,000 Term B, due 7/09/2006 2,496,914 2,492,187
NR++ NR++ 2,500,000 Term C, due 7/09/2007 2,496,908 2,492,187
-------------- --------------
4,993,822 4,984,374
Leasing & NR++ NR++ 7,250,000 Panavision, Term B, due 3/31/2005 7,230,097 7,240,937
Rental Perf-O-Log:
Services--1.4% NR++ NR++ 1,560,341 Term, due 8/11/2003 1,557,004 1,556,440
NR++ NR++ 4,150,454 Term B, due 8/11/2003 4,141,579 4,140,078
NR++ NR++ 1,246,875 Term C, due 8/11/2003 1,245,026 1,248,434
NR++ NR++ 1,785,714 Term D, due 12/31/2004 1,779,030 1,781,250
NR++ NR++ 714,286 Term E, due 12/31/2004 711,612 712,500
Renters Choice:
NR++ NR++ 4,473,125 Term B, due 1/31/2006 4,468,680 4,464,738
NR++ NR++ 5,467,153 Term C, due 1/31/2007 5,461,714 5,456,902
NR++ NR++ 20,000,000 United Rentals Inc., Term,
due 6/30/2005 19,980,292 20,012,500
-------------- --------------
46,575,034 46,613,779
Manufacturing-- B3 B+ 4,750,000 Alliance Laundry Systems, Term,
1.6% due 6/30/2005 4,745,407 4,761,875
NR++ NR++ 9,500,000 Goodman Manufacturing, Term B,
due 7/31/2005 9,490,608 9,488,125
BB- Ba2 7,500,000 Grove Worldwide, Term B,
due 4/28/2006 7,492,726 7,523,437
NR++ NR++ 8,986,141 Polyfibron Technologies, Term B,
due 12/29/2003 8,986,141 8,986,141
NR++ NR++ 4,991,072 Russell Stanley, Term B,
due 6/30/2005 4,974,032 5,003,549
Sealy Mattress:
B+ Ba3 3,023,030 Axel B, due 12/15/2004 3,019,541 3,034,367
B+ Ba3 2,176,970 Axel C, due 12/15/2005 2,174,421 2,185,133
B+ Ba3 2,781,818 Axel D, due 12/15/2006 2,778,526 2,792,250
B+ Ba3 10,000,000 Term A, due 12/15/2003 10,062,500 10,003,125
-------------- --------------
53,723,902 53,778,002
Measuring, NR++ NR++ 9,330,624 CHF/Ebel USA, Inc., Term B,
Analyzing & due 9/30/2001 9,330,624 9,330,624
Controlling NR++ B1 10,630,866 Graphic Controls Corp., Term B,
Instruments--0.7% due 9/28/2003 10,591,201 10,624,222
NR++ Ba3 4,950,000 Packard Bioscience Co., Term,
due 3/31/2003 4,935,146 4,956,187
-------------- --------------
24,856,971 24,911,033
Metals & B+ Ba3 9,971,429 Acme Metals, Inc., Term,
Mining--3.9% due 12/01/2005 9,971,429 9,522,714
B+ NR++ 5,008,036 Adience, Inc., Term B,
due 4/15/2005 4,991,394 5,020,556
NR++ Caa 4,657,582 Alliance Coal, Term B,
due 12/31/2002 4,640,220 4,654,671
Centennial Resources:
NR++ NR++ 1,961,538 Term A, due 3/31/2002 1,946,486 1,765,384
NR++ NR++ 5,105,770 Term B, due 3/31/2004 5,062,435 4,595,193
Ispat Inland LP:
NR++ NR++ 17,000,000 Term B, due 7/15/2005 16,979,039 16,978,750
NR++ NR++ 17,000,000 Term C, due 7/15/2006 16,978,987 16,978,750
NR++ Ba3 14,884,615 Koppers Industries, Term B,
due 11/30/2004 14,867,068 14,866,010
NR++ Ba3 8,500,000 Neenah Foundry, Term B,
due 9/30/2005 8,491,842 8,489,375
NR++ NR++ 31,000,000 Ormet Corporation, Term,
due 8/15/2008 30,922,639 31,000,000
NR++ NR++ 9,230,769 P & L Coal Holdings, Term B,
due 6/30/2006 9,230,769 9,253,846
NR++ Ba2 10,129,048 UCAR Global Enterprises, Term B, due
12/31/2002 10,121,076 9,875,821
-------------- --------------
134,203,384 133,001,070
</TABLE>
Merrill Lynch Senior Floating Rate Fund, Inc.
August 31, 1998
<TABLE>
SCHEDULE OF INVESTMENTS (continued)
<CAPTION>
S&P Moody's Face Senior Secured Value
Industries Rating Rating Amount Floating Rate Loan Interests* Cost (Note 1a)
<S> <S> <S> <C> <S> <C> <C>
Packaging--0.8% NR++ NR++ $ 4,250,000 Ball Corporation, Term B,
due 2/10/2005 $ 4,245,778 $ 4,260,625
NR++ NR++ 4,339,286 Graham Packaging, Term D,
due 1/31/2007 4,339,286 4,339,286
NR++ BB 3,750,000 Huntsman Packaging Corp., Term B,
due 6/30/2006 3,746,344 3,750,000
NR++ B1 14,887,500 Ivex Packaging Corp., Term B,
due 10/02/2004 14,870,749 14,896,805
-------------- --------------
27,202,157 27,246,716
Paper--8.1% NR++ NR++ 4,975,000 Bear Island Paper Co., Term,
due 12/31/2005 4,965,706 4,990,547
BB Ba3 4,715,152 Crown Paper Co., Term B,
due 8/22/2003 4,673,444 4,706,311
BB Ba3 35,000,000 Jefferson Smurfit Company/Container
Corp. of America, Term B,
due 3/24/2006 35,000,000 35,000,000
NR++ NR++ 5,000,000 Le Groupe Forex, Term B,
due 6/30/2005 4,993,862 5,000,000
NR++ NR++ 25,000,000 Paper Acquisition, Term,
due 6/08/2001 24,964,761 24,996,875
NR++ NR++ 6,500,000 Repap Brunswick, Term B,
due 6/01/2004 6,515,000 6,565,000
Riverwood International Corp.:
B+ B1 5,620,011 Term A, due 2/28/2003 5,454,420 5,607,717
B+ B1 66,465,370 Term B, due 2/28/2004 65,749,524 66,756,156
B+ B1 25,602,280 Term C, due 8/31/2004 25,318,553 25,714,290
Stone Container Corp.:
NR++ Ba3 28,030,332 Term B, due 4/01/2000 28,068,721 28,065,370
NR++ Ba3 19,913,262 Term C, due 10/01/2003 19,896,428 19,938,153
NR++ Ba3 29,153,298 Term E, due 10/01/2003 29,382,401 29,226,181
Stronghaven:
NR++ NR++ 9,352,586 Term B, due 5/15/2004 9,314,248 9,305,823
NR++ NR++ 1,705,714 Term C, due 5/15/2004 1,705,714 1,697,186
WEC Company:
NR++ NR++ 2,916,667 Term B, due 9/30/2005 2,913,031 2,916,667
NR++ NR++ 2,083,333 Term C, due 9/30/2006 2,080,735 2,083,333
-------------- --------------
270,996,548 272,569,609
Petroleum BB- Ba3 3,242,602 Petro Shopping Centers, Term B,
Refineries--0.1% due 12/31/2003 3,235,921 3,244,628
Printing & 21st Century:
Publishing--3.0% NR++ B3 85,714 Revolving Credit, due 9/15/2003 85,714 84,857
NR++ B3 5,515,714 Term A, due 9/15/2003 5,543,293 5,460,557
NR++ B1 15,000,000 Advanstar Communications, Term B,
due 4/30/2005 14,985,507 15,011,250
NR++ NR++ 8,375,000 Journal Register Co., Term B,
due 9/30/2006 8,364,650 8,354,062
K-III Communications Corp.:
NR++ Ba3 6,640,000 Revolving Credit, due 12/31/2000 6,640,000 6,598,500
NR++ Ba3 4,000,000 Term 2, due 6/30/2004 4,000,000 3,982,500
NR++ Ba3 4,000,000 Term 3, due 12/31/2000 4,000,000 3,977,500
NR++ Ba3 9,950,000 Morris Communications, Term B,
due 6/30/2005 9,932,901 9,918,906
RH Donnolley Inc.:
NR++ NR++ 3,372,995 Term B, due 12/05/2005 3,369,702 3,366,671
NR++ NR++ 3,877,005 Term C, due 12/05/2006 3,873,205 3,869,736
Von Hoffmann Press, Inc.:
NR++ B1 3,335,714 Term B, due 5/22/2005 3,328,352 3,360,732
NR++ B1 10,828,571 Term C, due 5/22/2006 10,809,094 10,909,786
Ziff-Davis Inc.:
NR++ Ba2 5,000,000 Term A, due 3/31/2005 4,991,479 5,003,125
NR++ Ba2 22,500,000 Term B, due 3/31/2006 22,477,988 22,415,625
-------------- --------------
102,401,885 102,313,807
</TABLE>
Merrill Lynch Senior Floating Rate Fund, Inc.
August 31, 1998
<TABLE>
SCHEDULE OF INVESTMENTS (continued)
<CAPTION>
S&P Moody's Face Senior Secured Value
Industries Rating Rating Amount Floating Rate Loan Interests* Cost (Note 1a)
<S> <S> <S> <C> <S> <C> <C>
Restaurants-- AFC Enterprises:
0.4% NR++ Ba3 $ 5,440,000 Acquisition Term, due 6/30/2002 $ 5,440,000 $ 5,402,600
NR++ Ba3 560,000 Revolving Credit, due 3/30/2002 560,000 556,850
NR++ Ba3 3,640,000 Term, due 6/30/2002 3,625,591 3,628,625
NR++ Ba3 4,670,724 Shoney's, Inc., Term B, due 4/30/2002 4,645,572 4,600,663
-------------- --------------
14,271,163 14,188,738
Retail NR++ NR++ 5,750,000 Advance Store, Term B, due 4/15/2006 5,741,666 5,760,781
Specialty--0.4% NR++ NR++ 2,461,539 Murray's Discount Auto Stores, Term,
due 6/30/2003 2,461,539 2,461,539
NR++ Ba2 3,968,750 Travel Centers of America, Term B,
due 3/27/2005 3,955,841 3,978,672
-------------- --------------
12,159,046 12,200,992
Shipping--0.5% American Commercial Lines, LLC:
NR++ NR++ 6,349,693 Term B, due 6/26/2006 6,343,431 6,345,725
NR++ NR++ 8,650,305 Term C, due 6/26/2007 8,641,764 8,644,900
-------------- --------------
14,985,195 14,990,625
Telephone Cellular, Inc.:
Communica- NR++ B1 13,985,692 Term B, due 9/30/2006 13,975,885 14,029,397
tions--11.0% NR++ B1 8,130,081 Term C, due 3/31/2007 8,110,582 8,160,569
NR++ B1 22,764,227 Term D, due 9/30/2007 22,709,402 22,849,593
NR++ NR++ 25,000,000 Cox Communications, Inc., Term B,
due 12/31/2006 24,939,988 24,953,125
NR++ Ba2 17,425,000 Flag Ltd., Term, due 1/30/2005 17,343,537 17,359,656
Iridium Operating LLC:
B2 B2 2,445,013 Term, due 12/31/1998 2,433,386 2,435,844
B2 B2 2,774,936 Term, due 12/31/1998 2,772,628 2,754,124
NR++ NR++ 25,000,000 Lucent Technologies, Term,
due 5/29/2004 24,938,243 25,015,625
MobileMedia Corp.:
NR++ Caa 8,367,347 Term A, due 6/30/2002 8,344,941 8,189,541
NR++ Caa 2,366,667 Term B2, due 6/30/2003 2,361,618 2,316,375
NR++ B1 40,000,000 Nextel Communications, Inc., Term B,
due 9/30/2006 39,951,894 40,087,500
NR++ B1 27,500,000 Nortel, Term A, due 3/31/2006 27,528,125 27,508,594
Omnipoint Communications Corp.:
BB- Ba2 6,792,172 Term A, due 2/17/2006 6,785,687 6,809,152
BB- Ba2 1,938,479 Term B, due 2/17/2006 1,936,628 1,943,325
BB- Ba2 43,640,625 Term C, due 2/17/2006 43,640,625 43,749,727
Pacific Coin:
NR++ NR++ 4,552,727 Acquisition Term, due 12/31/2003 4,534,896 4,552,727
NR++ NR++ 2,213,115 Term A, due 12/31/2002 2,205,331 2,213,115
NR++ NR++ 2,740,833 Term B, due 12/31/2004 2,730,961 2,740,833
NR++ Ba3 7,598,000 PageNet Finance, Inc., Revolving
Credit, due 12/31/2004 7,598,000 7,408,050
NR++ NR++ 15,000,000 PowerTel PCS, Inc., Term, due
3/04/2001 15,000,000 14,943,750
Sprint Spectrum L.P:
NR++ B1 17,775,000 Term 1, due 1/02/2006 17,638,596 17,819,438
NR++ B1 17,775,000 Term 2, due 1/02/2006 17,638,487 17,819,438
NR++ NR++ 15,000,000 TeleCorp PCS, Term B, due 1/15/2008 14,970,245 14,925,000
NR++ NR++ 10,000,000 Triton PCS, Term B, due 4/30/2007 9,976,474 9,962,500
NR++ NR++ 10,000,000 Western PCS, Term B, due 6/30/2007 9,980,266 10,037,500
B+ B2 20,000,000 Western Wireless Corp., Term B,
due 3/31/2005 20,000,000 20,018,750
-------------- --------------
370,046,425 370,603,248
</TABLE>
Merrill Lynch Senior Floating Rate Fund, Inc.
August 31, 1998
<TABLE>
SCHEDULE OF INVESTMENTS (concluded)
<CAPTION>
S&P Moody's Face Senior Secured Value
Industries Rating Rating Amount Floating Rate Loan Interests* Cost (Note 1a)
<S> <S> <S> <C> <S> <C> <C>
Textiles/Mill Joan Fabrics:
Products--0.5% NR++ NR++ $ 3,271,053 Term B, due 6/30/2005 $ 3,266,606 $ 3,269,008
NR++ NR++ 1,700,000 Term C, due 6/30/2006 1,697,648 1,698,937
NR++ NR++ 10,500,000 Tartan Textiles, Term B,
due 5/01/2005 10,474,586 10,500,000
-------------- --------------
15,438,840 15,467,945
Transportation NR++ Ba3 14,132,432 Atlas Freighter Leasing I,
Services--1.1% Term, due 5/29/2004 14,126,427 14,150,098
NR++ Ba3 14,132,432 Atlas Freighter Leasing II,
Term, due 5/29/2004 14,123,057 14,150,098
NR++ NR++ 7,500,000 North American Van Lines, Term B,
due 3/30/2006 7,490,974 7,500,000
-------------- --------------
35,740,458 35,800,196
Total Senior Secured Floating Rate
Loan Interests--91.2% 3,072,268,439 3,070,351,435
Shares
Held Warrants & Agreements
Cable TV Services--0.0% 707 Classic Cable, Inc. (Warrants)(a) 0 0
Drilling--0.0% 12,250 Rigco North America (Warrants)(a) 0 0
General Merchandise Stores--0.1% 2,288,402 Just For Feet, Inc. (Agreement)(b) 2,288,402 1,736,916
Total Investments in Warrants &
Agreements--0.1% 2,288,402 1,736,916
Face
Amount Short-Term Securities
Commercial $50,000,000 Countrywide Home Loans, Inc.,
Paper**--7.8% 5.54% due 9/16/1998 49,884,583 49,884,583
50,000,000 Finova Capital Corp., 5.52%
due 10/05/1998 49,739,333 49,739,333
57,672,000 General Motors Acceptance Corp.,
5.81% due 9/01/1998 57,672,000 57,672,000
15,000,000 Knight-Ridder, Inc., 5.54% due
9/08/1998 14,983,842 14,983,842
15,000,000 Rank Xerox Capital, 5.53% due
9/11/1998 14,976,958 14,976,958
Republic Industries, Inc.:
14,000,000 5.50% due 9/02/1998 13,997,842 13,997,842
25,000,000 5.53% due 10/05/1998 24,869,431 24,869,431
25,000,000 Transamerica Finance Corp., 5.51%
due 9/01/1998 25,000,000 25,000,000
11,160,000 Xerox Corp., 5.50% due 9/04/1998 11,154,885 11,154,885
Total Investments in Short-Term
Securities--7.8% 262,278,874 262,278,874
Total Investments--99.1% $3,336,835,715 3,334,367,225
==============
Other Assets Less Liabilities--0.9% 30,664,967
--------------
Net Assets--100.0% $3,365,032,192
==============
<FN>
(a)Warrants entitle the Fund to purchase a predetermined number of
shares of common stock and are non-income producing. The purchase
price and numbers of shares are subject to adjustment under certain
conditions until the expiration date.
(b)Represents an obligation by Just For Feet, Inc. to pay an amount
to the Fund on April 30, 2002, contingent upon the earnings before
income taxes and depreciation of Just For Feet, Inc. as of January
31, 2002.
++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 is traded on a discount basis; the interest rates
shown reflect the discount rates paid at the time of purchase by the
Fund.
Ratings of issues shown have not been audited by Deloitte & Touche LLP.
See Notes to Financial Statements.
</TABLE>
Merrill Lynch Senior Floating Rate Fund, Inc.
August 31, 1998
FINANCIAL INFORMATION
<TABLE>
Statement of Assets and Liabilities as of August 31, 1998
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$3,336,835,715)
(Note 1b) $ 3,334,367,225
Cash 5,040,725
Receivables:
Interest $ 25,785,874
Capital shares sold 10,819,389
Commitment fees 169,232 36,774,495
---------------
Prepaid registration fees and other assets (Note 1f) 735,226
---------------
Total assets 3,376,917,671
---------------
Liabilities: Payables:
Dividends to shareholders (Note 1g) 4,346,520
Investment adviser (Note 2) 2,492,689
Administrator (Note 2) 655,971
Interest expense (Note 6) 90,461 7,585,641
---------------
Deferred income (Note 1e) 971,098
Accrued expenses and other liabilities 3,328,740
---------------
Total liabilities 11,885,479
---------------
Net Assets: Net assets $ 3,365,032,192
===============
Net Assets Common Stock, par value $0.10 per share; 1,000,000,000
Consist of: shares authorized $ 33,741,754
Paid-in capital in excess of par 3,343,726,905
Undistributed investment income--net 71,750
Accumulated realized capital losses on investments--net
(Note 7) (10,039,727)
Unrealized depreciation on investments--net (2,468,490)
---------------
Net Assets--Equivalent to $9.97 per share based on shares of
337,417,538 capital stock outstanding $ 3,365,032,192
===============
See Notes to Financial Statements.
</TABLE>
Merrill Lynch Senior Floating Rate Fund, Inc.
August 31, 1998
FINANCIAL INFORMATION (continued))
<TABLE>
Statement of Operations
<CAPTION>
For the Year Ended
August 31, 1998
<S> <S> <C> <C>
Investment Income Interest and discount earned $ 252,610,169
(Note 1e): Facility and other fees 3,411,440
---------------
Total income 256,021,609
---------------
Expenses: Investment advisory fees (Note 2) $ 29,695,074
Administrative fees (Note 2) 7,814,493
Transfer agent fees (Note 2) 1,763,950
Loan interest expense (Note 6) 1,411,904
Registration fees (Note 1f) 1,400,803
Accounting services (Note 2) 403,737
Professional fees 380,295
Tender offer costs (Note 8) 239,636
Printing and shareholder reports 114,289
Custodian fees 90,711
Borrowing costs (Note 6) 65,611
Directors' fees and expenses 36,061
Other 244,358
---------------
Total expenses 43,660,922
---------------
Investment income--net 212,360,687
---------------
Realized & Realized loss on investments--net (3,676,079)
Unrealized Change in unrealized appreciation/depreciation on
Loss on investments--net (9,910,437)
Investments--Net ---------------
(Notes 1c, 1e Net Increase in Net Assets Resulting from Operations $ 198,774,171
& 3): ===============
See Notes to Financial Statements.
</TABLE>
Merrill Lynch Senior Floating Rate Fund, Inc.
August 31, 1998
FINANCIAL INFORMATION (continued))
<TABLE>
Statements of Changes in Net Assets
<CAPTION>
For the Year Ended
August 31,
Increase (Decrease) in Net Assets: 1998 1997
<S> <S> <C> <C>
Operations: Investment income--net $ 212,360,687 $ 195,758,437
Realized gain (loss) on investments--net (3,676,079) 1,494,764
Change in unrealized appreciation/depreciation on
investments--net (9,910,437) 6,060,630
---------------- ----------------
Net increase in net assets resulting from operations 198,774,171 203,313,831
---------------- ----------------
Dividends to Investment income--net (212,288,937) (195,758,437)
Shareholders ---------------- ----------------
(Note 1g): Net decrease in net assets resulting from dividends
to shareholders (212,288,937) (195,758,437)
---------------- ----------------
Capital Share Net increase in net assets resulting from capital
Transactions share transactions 386,757,317 38,706,901
(Note 4): ---------------- ----------------
Net Assets: Total increase in net assets 373,242,551 46,262,295
Beginning of year 2,991,789,641 2,945,527,346
---------------- ----------------
End of year* $ 3,365,032,192 $ 2,991,789,641
================ ================
<FN>
*Undistributed investment income--net $ 71,750 --
================ ================
See Notes to Financial Statements.
</TABLE>
Merrill Lynch Senior Floating Rate Fund, Inc.
August 31, 1998
FINANCIAL INFORMATION (continued)
<TABLE>
Statements of Cash Flows
<CAPTION>
For the Year Ended
August 31, 1998
<S> <S> <C>
Cash Provided by Net increase in net assets resulting from operations $ 198,774,171
Operating Adjustments to reconcile net increase in net assets resulting from
Activities: operations to net cash provided by operating activities:
Increase in receivables (2,391,283)
Decrease in other assets 2,092,268
Increase in other liabilities 646,890
Realized and unrealized loss on investments--net 13,586,516
Amortization of discount (23,142,195)
----------------
Net cash provided by operating activities 189,566,367
----------------
Cash Used for Proceeds from principal payments and sales of loan interests 1,933,726,438
Investing Purchases of loan interests (2,548,414,584)
Activities: Purchases of short-term investments (24,225,359,835)
Proceeds from sales and maturities of short-term investments 24,481,273,524
----------------
Net cash used for investing activities (358,774,457)
----------------
Cash Provided by Cash receipts from borrowings 290,000,000
Financing Cash payments from borrowings (290,000,000)
Activities: Cash receipts on capital shares sold 876,459,595
Cash payments on capital shares tendered (595,698,442)
Dividends paid to shareholders (109,845,550)
----------------
Net cash provided by financing activities 170,915,603
----------------
Cash: Net increase in cash 1,707,513
Cash at beginning of year 3,333,212
----------------
Cash at end of year $ 5,040,725
================
Cash Flow Cash paid for interest $ 1,577,653
Information: ================
Non-Cash Capital shares issued in reinvestment of dividends paid to shareholders $ 102,041,674
Financing ================
Activities:
See Notes to Financial Statements.
</TABLE>
Merrill Lynch Senior Floating Rate Fund, Inc.
August 31, 1998
FINANCIAL INFORMATION (concluded)
<TABLE>
Financial Highlights
<CAPTION>
The following per share data and ratios have been derived
from information provided in the financial statements.
For the Year Ended August 31,
Increase (Decrease) in Net Asset Value: 1998 1997 1996 1995 1994
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of year $ 10.02 $ 9.99 $ 10.02 $ 10.02 $ 10.02
Operating -------- -------- -------- -------- --------
Performance: Investment income--net .68 .68 .66 .75 .59
Realized and unrealized gain (loss) on
investments--net (.05) .03 (.03) --++ --++
-------- -------- -------- -------- --------
Total from investment operations .63 .71 .63 .75 .59
-------- -------- -------- -------- --------
Less dividends from investment
income--net (.68) (.68) (.66) (.75) (.59)
-------- -------- -------- -------- --------
Net asset value, end of year $ 9.97 $ 10.02 $ 9.99 $ 10.02 $ 10.02
======== ======== ======== ======== ========
Total Investment Based on net asset value per share 6.47% 7.23% 6.53% 7.68% 5.94%
Return:* ======== ======== ======== ======== ========
Ratios to Average Expenses, excluding interest expense 1.35% 1.32% -- -- --
Net Assets: ======== ======== ======== ======== ========
Expenses 1.40% 1.33% 1.34% 1.34% 1.43%
======== ======== ======== ======== ========
Investment income--net 6.79% 6.72% 6.54% 7.45% 5.75%
======== ======== ======== ======== ========
Leverage: Average amount of borrowings outstanding
during the year (in thousands) $ 24,299 $ 4,409 -- -- --
======== ======== ======== ======== ========
Average amount of borrowings outstanding
per share during the year $ .08 $ .02 -- -- --
======== ======== ======== ======== ========
Supplemental Net assets, end of year (in millions) $ 3,365 $ 2,992 $ 2,946 $ 2,163 $ 934
Data: ======== ======== ======== ======== ========
Portfolio turnover 69.59% 74.00% 80.20% 55.23% 61.31%
======== ======== ======== ======== ========
<FN>
*Total investment returns exclude the early withdrawal charge, if
any. The Fund is a continuously offered closed-end fund,the shares
of which are offered at net asset value. Therefore, no separate
market exists.
++Amount is less than $.01 per share.
See Notes to Financial Statements.
</TABLE>
Merrill Lynch Senior Floating Rate Fund, Inc.
August 31, 1998
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, 1998 could be considered
to be concentrated in commercial banking.
(b) Valuation of investments--The Loan Interests will be valued in
accordance with guidelines established by the Fund's Board of
Directors. Under the Fund's current guidelines, Loan Interests will
be valued at the average of the mean between the bid and asked
quotes received from one or more brokers, if available.
Other portfolio securities may be valued on the basis of prices
furnished by one or more pricing services which determine prices for
normal, institutional-size trading units of such securities using
market information, transactions for comparable securities and
various relationships between securities which are generally
recognized by institutional traders. In certain circumstances,
portfolio securities are valued at the last sale price on the
exchange that is the primary market for such securities, or the last
quoted bid price for those securities for which the over-the-counter
market is the primary market or for listed securities in which there
were no sales during the day. Short-term securities with remaining
maturities of sixty days or less are valued at amortized cost, which
approximates market value. Securities and assets for which market
quotations are not readily available are valued at fair value as
determined in good faith by or under the direction of the Board of
Directors of the Fund.
(c) Derivative financial instruments--The Fund may engage in various
portfolio strategies to seek to increase its return by hedging its
portfolio against adverse movements in the debt markets. Losses may
arise due to changes in the value of the contract or if the
counterparty does not perform under the contract.
* Interest rate transactions--The Fund is authorized to enter into
interest rate swaps and purchase or sell interest rate caps and
floors. In an interest rate swap, the Fund exchanges with another
party their respective commitments to pay or receive interest on a
specified notional principal amount. The purchase of an interest
rate cap (or floor) entitles the purchaser, to the extent that a
specified index exceeds (or falls below) a predetermined interest
rate, to receive payments of interest equal to the difference
between the index and the predetermined rate on a notional principal
amount from the party selling such interest rate cap (or floor).
(d) Income taxes--It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated
investment companies and to distribute substantially all of its
taxable income to its shareholders. Therefore, no Federal income tax
provision is required.
(e) Security transactions and investment income--Security
transactions are recorded on the dates the transactions are entered
into (the trade dates). Interest is recognized on the accrual basis.
Realized gains and losses on security transactions are determined on
the identified cost basis. Facility fees are accreted into income
over the term of the related loan.
(f) Prepaid registration fees--Prepaid registration fees are charged
to expense as the related shares are issued.
(g) Dividends and distributions--Dividends from net investment
income are declared daily and paid monthly. Distributions of capital
gains are recorded on the ex-dividend dates.
Merrill Lynch Senior Floating Rate Fund, Inc.
August 31, 1998
2. Investment Advisory and Administrative
Services Agreement and Transactions with
Affiliates:
The Fund has entered into an Investment Advisory Agreement with
Merrill Lynch Asset Management, L.P. ("MLAM"). The general partner
of MLAM is Princeton Services, Inc. ("PSI"), an indirect wholly-
owned subsidiary of Merrill Lynch & Co., Inc. ("ML & Co."), which is
the limited partner.
MLAM is responsible for the management of the Fund's portfolio and
provides the necessary personnel, facilities, equipment and certain
other services necessary to perform this investment advisory
function.
For such services, the Fund pays a monthly fee at an annual rate of
0.95% of the Fund's average daily net assets. The Fund also has an
Administrative Services Agreement with MLAM whereby MLAM will
receive a fee equal to an annual rate of 0.25% of the Fund's average
daily net assets on a monthly basis, in return for the performance
of administrative services (other than investment advice and related
portfolio activities) necessary for the operation of the Fund.
For the year ended August 31, 1998, Merrill Lynch Funds Distributor
("MLFD") earned early withdrawal charges of $3,175,705 relating
to the tender of the Fund's shares.
For the year ended August 31, 1998, the Fund paid Merrill Lynch
International Bank Limited ("MLIB"), an affiliate of MLAM,
$1,411,904 for interest pursuant to a credit agreement with MLIB
that expired on June 12, 1998.
Financial Data Services, Inc. ("FDS"), 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, FDS, MLFD, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities,
for the year ended August 31, 1998 were $2,543,374,408 and
$1,932,403,430, respectively.
Net realized losses for the year ended August 31, 1998 and net
unrealized losses as of August 31, 1998 were as follows:
Realized Unrealized
Losses Losses
Long-term investments $ (3,672,662) $ (2,468,490)
Short-term investments (3,417) --
------------ ------------
Total $ (3,676,079) $ (2,468,490)
============ ============
As of August 31, 1998, net unrealized depreciation for financial
reporting and Federal income tax purposes aggregated $2,468,490, of
which $7,205,939 is related to appreciated securities and $9,674,429
is related to depreciated securities. The aggregate cost of
investments at August 31, 1998 for Federal income tax purposes was
$3,336,835,715.
4. Capital Share Transactions:
Transactions in capital shares were as follows:
For the Year Ended Dollar
August 31, 1998 Shares Amount
Shares sold 88,083,898 $880,414,085
Shares issued to share-
holders in reinvestment
of dividends 10,206,064 102,041,674
------------ ------------
Total issued 98,289,962 982,455,759
Shares tendered (59,583,594) (595,698,442)
------------ ------------
Net increase 38,706,368 $386,757,317
============ ============
For the Year Ended Dollar
August 31, 1997 Shares Amount
Shares sold 43,063,467 $430,288,115
Shares issued to share-
holders in reinvestment
of dividends 9,529,624 95,204,864
------------ ------------
Total issued 52,593,091 525,492,979
Shares tendered (48,731,298) (486,786,078)
------------ ------------
Net increase 3,861,793 $ 38,706,901
============ ============
Merrill Lynch Senior Floating Rate Fund, Inc.
August 31, 1998
NOTES TO FINANCIAL STATEMENTS (concluded)
5. Unfunded Loan Interests:
As of August 31, 1998, the Fund had unfunded loan commitments of
$156,683,506, which would be extended at the option of the borrower,
pursuant to the following loan agreements:
Unfunded
Commitment
Borrower (in thousands)
21st Century $ 3,343
AFC Enterprises 4,000
American Axel 4,201
Arena Brands, Inc. 2,459
Cellular, Inc. 8,034
Chancellor Media Corp. 7,849
Continental Airlines, Inc. 4,639
Del Monte Corp. 4,173
Dictaphone Corp. 570
E&S Holdings Corp. 2,377
FHC Health Systems 31
Federal Mogul Corp. 4,048
Foamex International PLC 4,692
Graham Packaging 5,786
Hedstrom Corp. 3,414
International Homefoods, Inc. 1,613
Iridium Operating LLC 7,780
K-III Communications Corp. 5,360
KSL Recreation Group, Inc. 8,224
Kmart Corp. 10,000
Loewen Group Capital 528
Metro Goldwyn Mayer Co. 1,020
NTL Group 14,599
Nextel Communications, Inc. 4,960
Northwestern Steel & Mining 15,000
Pacific Coin 447
PageNet Finance, Inc. 7,161
Teligent Delayed Draw 18,334
Trans Technology Corp. 2,042
6. Short-Term Borrowings:
On June 22, 1998, the Fund entered into a one-year credit agreement
with Bank of New York. The agreement is a $100,000,000 credit
facility bearing interest at the Federal Funds rate plus 0.25%--
0.40% and/or the Eurodollar rate plus 0.25%--0.40%. For the year
ended August 31, 1998, the average amount borrowed was approximately
$24,299,451, and the daily weighted average interest rate was 5.83%.
For the year ended August 31, 1998, facility and commitment fees
aggregated approximately $65,611.
7. Capital Loss Carryforward:
At August 31, 1998, the Fund had a net capital loss carryforward of
approximately $9,218,000, of which $1,471,000 expires in 2004,
$3,279,000 expires in 2005 and $4,468,000 expires in 2006. 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 22, 1998 which
concludes on October 20, 1998.
Merrill Lynch Senior Floating Rate Fund, Inc.
August 31, 1998
<AUDIT-REPORT>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders,
Merrill Lynch Senior Floating Rate Fund, Inc.:
We have audited the accompanying statement of assets and
liabilities, including the schedule of investments, of Merrill Lynch
Senior Floating Rate Fund, Inc. as of August 31, 1998, 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, 1998 by correspondence with the custodian and financial
intermediaries or other alternative procedures. 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, 1998,
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 22, 1998
</AUDIT-REPORT>
