<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 23, 1998
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, L.P.
ONE WORLD TRADE CENTER P.O. BOX 9011
NEW YORK, NEW YORK 10048-0557 PRINCETON, NEW JERSEY 08543-9011
JUNE 23, 1998
(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: $174,825,000(a) Fee: $34,965.00(b)
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(a) Calculated as the aggregate maximum purchase price to be paid for 17,500,000
shares in the offer, based upon the net asset value per share ($9.99) at
June 18, 1998.
(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 29, 1998 there were
approximately 326 million Shares issued and outstanding.
The Fund is seeking tenders for 17,500,000 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 23, 1998 (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 17.8 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 The Bank of New York and the Fund.
(c) Not Applicable.
(d)-(f) Not Applicable.
(g)(1) Audited Financial Statements of the Fund for the fiscal year ended August
31, 1996.
(g)(2) Audited Financial Statements of the Fund for the fiscal year ended August
31, 1997.
(g)(3) Unaudited Financial Statements of the Fund for the six months ended
February 28, 1998.
</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 23, 1998
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 The Bank of New York and the Fund.
(c) Not Applicable.
(d)-(f) Not Applicable.
(g)(1) Audited Financial Statements of the Fund for the fiscal year ended
August 31, 1996.
(g)(2) Audited Financial Statements of the Fund for the fiscal year ended
August 31, 1997.
(g)(3) Unaudited Financial Statements of the Fund for the six months ended February 28, 1998.
</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 23,
1998, 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 17,500,000 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 21, 1998, UNLESS EXTENDED.
Merrill Lynch Senior Floating Rate Fund, Inc. (the "Fund") is offering to
purchase 17,500,000 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 21, 1998, unless extended, upon
the terms and conditions set forth in the Offer to Purchase dated June 23, 1998
(the "Offer"). The NAV on June 18, 1998, was $9.99 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 17,500,000 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 17,500,000 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 21, 1998, unless the Offer
is extended, and, if not yet accepted for payment by the Fund, Shares may also
be withdrawn after August 18, 1998.
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. 3581
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:
- ----------------------------------------------------------------------------
</TABLE>
3581
June 23, 1998
[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 17,500,000
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 21, 1998, UNLESS EXTENDED.
To the Holders of Shares of
MERRILL LYNCH SENIOR FLOATING RATE FUND, INC.:
The Fund is offering to purchase up to 17,500,000 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 21, 1998, 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 18, 1998
was $9.99 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 17,500,000 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 17,500,000 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 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 23, 1998 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. 3581 Jacksonville, Florida 32232-5289
(800) 637-3863
</TABLE>
--------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
SECTIONS PAGE
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<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............................................. 10
15. Miscellaneous................................................................................... 10
</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 17,500,000 of its issued and
outstanding Shares which are tendered and not withdrawn prior to 12:00 midnight,
New York City time, on July 21, 1998 (such time and date being hereinafter
called the "Initial Expiration Date"), unless it determines to accept none of
them. 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 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 Offer is being made to all stockholders of the Fund and is not
conditioned upon any number of Shares being tendered. If more than 17,500,000
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 17,500,000 Shares (or greater number of
Shares sought) on a pro rata basis.
As of May 29, 1998 there were approximately 326 million Shares issued and
outstanding and there were 2,539 holders of record of Shares (in addition,
Merrill Lynch maintains accounts for 108,189 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. 3581.
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. 3581 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. (the
"Distributor"), 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. The
Early Withdrawal Charge will be waived on Shares tendered following the death of
all beneficial owners of such Shares, provided the Shares are tendered within
one year of death (a death certificate and other applicable documents may be
required). At the time of acceptance of the Offer, the record or succeeding
beneficial owner must notify the Transfer Agent either directly or indirectly
through the Distributor that the Early Withdrawal Charge should be waived. Upon
confirmation of the owner's entitlement, the waiver will be granted; otherwise,
the waiver will be lost.
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 18, 1998.
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,
5
<PAGE>
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 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 17,500,000
Shares are tendered and accepted for payment pursuant to the Offer will be
approximately $174,825,000. 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 portfolio investments 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 The Bank of New York ("BONY"),
providing for an unsecured 364-day 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 fees and expenses 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 (i.e., the rate at which BONY is offered overnight
federal funds by a federal funds broker selected by BONY) plus the Applicable
Margin (defined below) or the sum of the Eurodollar rate (based on the rates
quoted by BONY to leading banks in the London eurodollar market as the rate at
which BONY is offering dollar deposits) plus the Applicable Margin (defined
below). The Applicable Margin means, as to each loan, (i) 0.25% during the first
30 days that such loan is outstanding, (ii) 0.30% during the next 30 days that
such loan is outstanding and (iii) 0.40% during the next 30 days that such loan
is outstanding. 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 each month in the case of borrowings that bear interest at the federal
funds rate, and at the end of the interest period selected by the Fund in the
case of borrowings that bear interest at the Eurodollar rate. Each loan must be
repaid at the earlier of (i) 90 days from the borrowing date of such loan and
(ii) one
6
<PAGE>
business day prior to the date on which the Fund's next tender offer expires.
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. The Facility requires the Fund to maintain a Borrowing Base
(defined as the sum of the value of all securities held by the Fund (less
liabilities) plus the debt outstanding under the Facility, less non-performing
assets) of not less than 300% of the outstanding principal balance of borrowings
under the Facility and accrued interest. The Fund also may not during the term
of the Facility incur indebtedness except for indebtedness incurred under the
Facility, in hedging transactions, for purchases of securities on short-term
credit as may be necessary for the clearance of sales or purchases of portfolio
securities and for overdrafts extended by the custodian. 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 certain defaults
have not occurred and are not 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 (and net realized capital gains not previously distributed
to shareholders) for such period, and the Fund may distribute each year all of
its net investment income (including net realized capital gains) so that it will
not be subject to tax under the Internal Revenue Code of 1986, as amended (the
"Code").
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, 1996 and 1997 and the six months ended February 28, 1998. The
information with respect to the fiscal years ended August 31, 1996 and 1997 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.
7
<PAGE>
SUMMARY OF SELECTED FINANCIAL INFORMATION
(IN 000'S EXCEPT PER SHARE DATA AND RATIOS)
<TABLE>
<CAPTION>
FOR THE SIX
YEAR ENDED YEAR ENDED MONTHS ENDED
AUGUST 31, AUGUST 31, FEBRUARY 28,
1996 1997 1998
----------- ----------- ------------
<S> <C> <C> <C>
(UNAUDITED)
INCOME STATEMENT
Investment income....................................................... $ 215,322 $ 234,503 $ 125,595
Expenses................................................................ 36,626 38,745 20,850
----------- ----------- ------------
Investment income--net.................................................. $ 178,696 $ 195,758 $ 104,745
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS--NET
Realized gain (loss) on investments--net................................ (8,719) 1,495 (4,470)
Change in unrealized appreciation on investments--net................... 1,208 6,061 (2,164)
FINANCIAL HIGHLIGHTS (AT END OF PERIOD)
Total assets............................................................ $2,958,412 $3,007,667 $ 3,147,204
Total liabilities....................................................... 12,885 15,877 30,632
----------- ----------- ------------
Net assets.............................................................. $2,945,527 $2,991,790 $ 3,116,572
Net asset value per share............................................... $ 9.99 $ 10.02 $ 9.99
Shares of common stock outstanding...................................... 294,849 298,711 311,853
PER SHARE
Investment income--net.................................................. $ .66 $ .68 $ .35
Realized and unrealized gain (loss) on investments--net................. (.03) .03 (.03)
Dividends from net investment income to common shareholders............. $ (.66) $ (.68) $ (.35)
RATIOS
Total expenses to average net assets.................................... 1.34% 1.33% 1.39%*
Investment income--net, to average net assets........................... 6.54% 6.72% 6.99%*
</TABLE>
- ------------------------------
* Annualized
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 17.8 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. The SEC maintains a web site (http://www.sec.gov) that contains the
Schedule 13E-4 and other information regarding the Fund.
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.
8
<PAGE>
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 the sale of your Shares meets any of these three tests for "sale or
exchange" treatment, 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. Recent legislation
creates additional categories of capital gains taxable at different rates. If
the Stockholder has held the Shares for more than 18 months, the maximum capital
gains rate is reduced to 20%. The maximum 28% rate is still applicable to the
sale of assets held for more than one year but not more than 18 months.
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) 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 rates on capital gains (20% or
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.
9
<PAGE>
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 23, 1998
10
<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 23, 1998
-------------------
THE EXPIRATION DATE AND THE WITHDRAWAL DEADLINE IS 12:00 MIDNIGHT,
NEW YORK CITY TIME, ON TUESDAY, JULY 21, 1998, 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 23, 1998, 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 ................ , 1998
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 23, 1998 (the
"Offer to Purchase") 17,500,000 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 21, 1998
through May 26, 1998, based on the amounts actually distributed by the Fund, was
6.57%. The Fund's NAV on June 18, 1998 was $9.99 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. 3581.
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 (b)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
CREDIT AGREEMENT
dated as of June 22, 1998
between
MERRILL LYNCH SENIOR FLOATING RATE FUND, INC.
AND
THE BANK OF NEW YORK
------------------------
$100,000,000
------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S><C> <C>
1. DEFINITIONS............................................................ 1
1.1. Defined Terms..................................................... 1
1.2. Other Definitional Provisions..................................... 9
2. AMOUNT AND TERMS OF LOANS
2.1. Loans............................................................. 10
2.2. Note.............................................................. 10
2.3. Borrowing Procedure............................................... 11
2.4. Reduction of Commitment........................................... 11
2.5. Prepayments of the Loans.......................................... 11
2.6. Interest Rate and Payment Dates................................... 12
2.7. Conversions....................................................... 13
2.8. Concerning Interest Periods....................................... 14
2.9. Funding Loss...................................................... 15
2.10. Increased Costs; Illegality, etc................................. 15
2.11. Use of Proceeds.................................................. 17
2.12. Capital Adequacy................................................. 17
2.13. Taxes; Net Payments.............................................. 18
2.14. Transaction Record............................................... 18
3. FEES; PAYMENTS......................................................... 19
3.1. Commitment Fee.................................................... 19
3.2. Payments.......................................................... 19
4. REPRESENTATIONS AND WARRANTIES......................................... 19
4.1. Subsidiaries...................................................... 19
4.2. Corporate Existence and Power..................................... 20
4.3. Corporate Authority............................................... 20
4.4. Governmental Body Approvals....................................... 20
4.5. Binding Agreement................................................. 20
4.6. Litigation........................................................ 21
4.7. No Conflicting Agreements......................................... 21
4.8. Taxes............................................................. 21
4.9. Compliance with Applicable Laws................................... 22
4.10. Governmental Regulations......................................... 22
4.11. Property......................................................... 22
4.12. Federal Reserve Regulations; Use of Loan Proceeds................ 22
4.13. No Misrepresentation............................................. 22
4.14. Plans............................................................ 23
<PAGE>
4.15. Financial Statements............................................. 23
4.16. Material Agreements.............................................. 23
4.17. Capitalization................................................... 23
5. CONDITIONS TO EFFECTIVENESS............................................ 23
5.1. Evidence of Corporate Action...................................... 24
5.2. Note.............................................................. 24
5.3. This Agreement.................................................... 24
5.4. Certain Documents................................................. 24
5.5. Approvals......................................................... 24
5.6. Litigations....................................................... 24
5.7. Opinion of Counsel to the Borrower................................ 25
5.8. Certificate Regarding Authorized Signatories...................... 25
5.9. Fees and Expenses of Special Counsel.............................. 25
6. CONDITIONS OF LENDING-ALL LOANS........................................ 25
6.1. Compliance........................................................ 25
6.2. Borrowing Request................................................. 26
6.3. Borrowing Base Certificate........................................ 26
7. AFFIRMATIVE COVENANTS.................................................. 26
7.1. Financial Statements.............................................. 26
7.2. Certificates; Other Information................................... 27
7.3. Legal Existence................................................... 29
7.4. Regulated Investment Company...................................... 29
7.5. Insurance......................................................... 29
7.6. Payment of Indebtedness and Performance of Obligations............ 29
7.7. Observance of Legal Requirements.................................. 30
7.8. Inspection of Property; Books and Records; Discussions............ 30
7.9. Compliance with Prospectus........................................ 30
7.10. Borrowing Base................................................... 30
8. NEGATIVE COVENANTS..................................................... 30
8.1. Indebtedness...................................................... 31
8.2. Liens............................................................. 31
8.3. Compliance with ERISA............................................. 31
8.4. Consolidations, Mergers and Sales of Property..................... 32
8.5. Dividends and Purchase of Stock................................... 32
8.6. Investment Policies............................................... 32
8.7. Articles of Incorporation and By-Laws............................. 32
<PAGE>
8.8. Fiscal Year....................................................... 33
8.9. Change in Accounting Principles................................... 33
8.10. Subsidiaries..................................................... 33
8.11. Issuance of Additional Capital Stock............................. 33
8.12. Margin Stock..................................................... 33
9. DEFAULT................................................................ 33
9.1. Events of Default................................................. 33
10. OTHER PROVISIONS...................................................... 36
10.1. Amendments and Waivers.......................................... 36
10.2. Notices......................................................... 36
10.3. No Waiver; Cumulative Remedies.................................. 37
10.4. Survival of Representations and Warranties...................... 38
10.5. Payment of Expenses and Taxes; Indemnified Liabilities.......... 38
10.6. Successors and Assigns.......................................... 39
10.7. Counterparts.................................................... 40
10.8. Governing Law................................................... 40
10.9. Headings........................................................ 40
10.10. Severability................................................... 41
10.11. Integration.................................................... 41
10.12. Consent to Jurisdiction........................................ 41
10.13. No Limitation on Service or Suit............................... 41
10.14. WAIVER OF TRIAL BY JURY........................................ 41
10.15. Set-off........................................................ 42
10.16. Confidentiality................................................ 42
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBITS
- --------
<S> <C>
Exhibit A Form of Note
Exhibit B Form of Borrowing Request
Exhibit C Form of Borrowing Base Certificate
Exhibit D Form of Opinion of Counsel to the Borrower
Exhibit E Form of Notice of Conversion
Exhibit F Certificate Regarding Authorized Signatures
</TABLE>
<PAGE>
CREDIT AGREEMENT, dated as of June 22, 1998, between MERRILL LYNCH SENIOR
FLOATING RATE FUND, INC., a Maryland corporation (the "Borrower"), and THE BANK
OF NEW YORK (the "Bank").
1. DEFINITIONS
1.1. Defined Terms.
As used in this Agreement, terms defined in the preamble have the
meanings therein indicated, and the following terms have the following meanings:
"Accountants": Deloitte & Touche LLP, or any successor thereto, or
such other firm of independent public accountants of recognized international
standing selected by the Borrower.
"Advance": Eurodollar Advance or a Federal Funds Advance.
"Affected Advance": as defined in paragraph 2.10(c).
"Affiliate": as to any Person, any other Person which, directly or
indirectly, is in control of, is controlled by, or is under common control with,
such Person. For purposes of this definition, control of a Person shall mean the
power, direct or indirect, (i) to vote 5% or more of the securities having
ordinary voting power for the election of directors of such Person or (ii) to
direct or cause the direction of the management and policies of such Person
whether by contract or otherwise.
"Agreement": this Credit Agreement, as the same may be amended,
supplemented or otherwise modified from time to time.
"Applicable Margin": as to each Loan (whether consisting of a Federal
Funds Advance or a Eurodollar Advance), (i) 0.25% during the first 30 days that
such Loan is outstanding, (ii) 0.30% during the next 30 days that such Loan is
outstanding and (iii) 0.40% during the next 30 days that such Loan is
outstanding.
"Authorized Signatory": in respect of the Borrower (i) the president,
the executive vice president, the senior vice president, any vice president, the
chief financial officer, the treasurer or any other duly authorized officer of
such Person, and (ii) any employee of the Investment Adviser or the
Administrator designated by the directors of the Borrower as an Authorized
Signatory and set forth on a Certificate Regarding Authorized
1
<PAGE>
Signatories substantially in the form attached hereto as Exhibit F, as the same
may be amended from time to time by written notice from the Borrower to the
Bank, provided, however, that until receipt by the Bank of such written notice,
the Bank shall be entitled to rely on the identity and authority of each person
listed on such Certificate Regarding Authorized Signatories.
"Borrowing Base": at any date of determination, without duplication,
an amount equal to the sum of (i) Net Asset Value and (ii) the Indebtedness of
the Borrower under this Agreement less an amount equal to 100% of Non-Performing
Assets.
"Borrowing Base Certificate": a certificate of the Borrower in
substantially the form of Exhibit C, duly executed by the chief financial
officer, a vice president or such other officer of the Borrower as shall be
reasonably acceptable to the Bank.
"Borrowing Date": any date specified in a Borrowing Request delivered
pursuant to paragraph 2.3 as a date on which the Borrower requests the Bank to
make Loans.
"Borrowing Request": as defined in paragraph 2.3.
"Business Day": means any day other than a Saturday, a Sunday or a day
on which (i) commercial banks located in New York City or (ii) The New York
Stock Exchange are authorized or required by law or other governmental action to
close, provided that when used in connection with a Eurodollar Advance, the term
shall also exclude any day on which banks are not open for dealings in dollar
deposits in the London interbank market.
"Change in Law": (i) the adoption of any law, rule or regulation after
the Effective Date, (ii) the issuance or promulgation after the Effective Date
of any directive, guideline or request from any Governmental Body (whether or
not having the force of law), or (iii) any change after the Effective Date in
the interpretation of any existing law, rule, regulation, directive, guideline
or request by any Governmental Body charged with the administration thereof.
"Code": the Internal Revenue Code of 1986, as the same may be amended
from time to time, or any successor thereto, and the rules and regulations
issued thereunder, as from time to time in effect.
"Commitment": an aggregate principal amount not to exceed at any one
time outstanding $100,000,000, as the same may be reduced from time to time
pursuant to paragraph 2.4.
2
<PAGE>
"Commitment Fee": as defined in paragraph 3.1.
"Commitment Period": the period from the Effective Date to, but
excluding, the Termination Date.
"Commonly Controlled Entity": a Person, whether or not incorporated,
which is, as of the date of determination, under common control with the
Borrower within the meaning of Section 414(b) or 414(c) of the Code.
"Contingent Obligation": as to any Person, any obligation of such
Person guaranteeing or in effect guaranteeing any Indebtedness, leases,
dividends or other obligations ("primary obligations") of any other Person (the
"primary obliger") in any manner, whether directly or indirectly, including,
without limitation, any obligation of such Person, whether or not contingent,
(i) to purchase any such primary obligation or any Property constituting direct
or indirect security therefor, (ii) to advance or supply funds (a) for the
purchase or payment of any such primary obligation or (b) to maintain working
capital or equity capital of the primary obligor or otherwise to maintain the
net worth or solvency of the primary obliger, (iii) to purchase Property,
securities or services primarily for the purpose of assuring the beneficiary of
any such primary obligation of the ability of the primary obliger to make
payment of such primary obligation or (iv) otherwise to assure or hold harmless
the beneficiary of such primary obligation against loss in respect thereof;
provided, however, that the term Contingent Obligation shall not include (i) the
indorsement of instruments for deposit or collection in the ordinary course of
the Borrower's activities or (ii) commitments of the Borrower to purchase
Corporate Loans or other investments or commitments of the Borrower to extend
credit under revolving credit or other credit facilities, in either case
incurred by the Borrower in the ordinary course of the Borrower's activities.
The term Contingent Obligation shall also include the liability of a general
partner in respect of the liabilities of a partnership in which it is a general
partner. The amount of any Contingent Obligation of a Person shall be deemed to
be an amount equal to the stated or determinable amount of the primary
obligation in respect of which such Contingent Obligation is made or, if not
stated or determinable, the maximum reasonably anticipated liability in respect
thereof as determined by such Person in good faith.
"Conversion Date" means the date on which: (i) a Eurodollar Advance is
converted to a Federal Funds Advance, (ii) a Federal Funds Advance is converted
to a Eurodollar Advance or (iii) a Eurodollar Advance is converted to, or
continued as, a new Eurodollar Advance.
3
<PAGE>
"Corporate Loan": as defined in the Prospectus.
"Custodian": The Bank of New York
"Custody Agreement": the Custody Agreement dated October 12, 1989
between the Borrower and the Custodian.
"Default": any of the events specified in paragraph 9.1, whether any
requirement for the giving of notice, the lapse of time, or any other condition,
has been satisfied.
"Dollars" and "$": lawful currency of the United States of America.
"Effective Date": the date on which each of the conditions set forth
in paragraph 5 has been fulfilled.
"ERISA": the Employee Retirement Income Security Act of 1974, as
amended from time to time, and the rules and regulations issued thereunder, as
from time to time in effect.
"Eurodollar Advances": collectively, the Loans (or any portions
thereof), at such time as they (or such portions) are made and/or being
maintained at a rate of interest based upon the Eurodollar Rate.
"Eurodollar Rate" means, with respect to each Eurodollar Advance, a
rate of interest per annum (rounded upwards, if necessary, to the nearest 1/100
of 1%), as determined by the Bank, obtained by dividing:
(a) the rate of interest per annum quoted by the Bank to leading
banks in the London interbank eurodollar market as the rate at which the Bank is
offering Dollar deposits in an amount approximately equal to such Eurodollar
Advance and having a period to maturity approximately equal to the Interest
Period applicable to such Eurodollar Advance at approximately 11:00 a.m., London
time, two Business Days prior to the commencement of such Interest Period, by
(b) a number equal to 1.00 minus the aggregate of the then
stated maximum rates during such Interest Period of all reserve requirements
(including marginal, emergency, supplemental and special reserves), expressed as
a decimal, established by the Board of Governors of the Federal Reserve System,
and any other banking authority to
4
<PAGE>
which the Bank and other major money center banks chartered under the laws of
the United States or any State thereof are subject, in respect of eurocurrency
funding (currently referred to as "eurocurrency liabilities" in Regulation D of
the Board of Governors of the Federal Reserve System) without benefit of credit
for proration, exceptions or offsets that may be available from time to time to
the Bank.
"Event of Default": as defined in paragraph 9.1.
"Federal Funds Advance": collectively, the Loans (or any portions
thereof), at such time as they (or such portions) are made and/or being
maintained at a rate of interest based upon the Federal Funds Rate.
"Federal Funds Rate": for any day, the rate per annum (rounded, if
necessary, to the next greater 1/16 of 1%) equal to the rate at which the Bank
is offered overnight Federal funds by a Federal funds broker selected by the
Bank at or about 2:00 p.m., New York City time, on such day, provided that (i)
if such day is not a Business Day, the Federal Funds Rate for such day shall be
such rate at which the Bank is offered overnight Federal funds by such Federal
funds broker at or about 2:00 p.m., New York City time, on the next preceding
Business Day.
"Financial Statements": as defined in paragraph 4.15.
"GAAP": generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board and the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board, or such other statement by such other
entity as may be approved by a significant segment of the accounting profession,
which are applicable to the circumstances as of the date of determination,
consistently applied.
"Governmental Body": any nation or government, any state or other
political subdivision thereof, any entity exercising executive, legislative,
judicial, regulatory or administrative functions of or pertaining to government
and any court or arbitrator.
"Highest Lawful Rate": the maximum rate of interest, if any, that at
any time or from time to time may be contracted for, taken, charged or received
on the Note or which may be owing to the Bank pursuant to this Agreement under
the laws applicable to the Bank and this transaction.
5
<PAGE>
"Indebtedness": as to any Person, at a particular time, (a)
indebtedness for borrowed money, indebtedness evidenced by notes, bonds,
debentures or similar instruments (including, without limitation, the Note), (b)
indebtedness arising under acceptance facilities and the face amount of all
letters of credit issued for the account of such Person and, without
duplication, all drafts drawn thereunder to the extent such Person shall not
have reimbursed the issuer in respect of the issuer's payment of such drafts,
(c) all liabilities secured by any Lien on any Property owned by such Person
even though such Person has not assumed or otherwise become liable for the
payment thereof, (d) obligations under interest rate or foreign currency hedging
arrangements, and (e) all Contingent Obligations of such Person in respect of
any of the foregoing.
"Indemnified Liabilities": as defined in paragraph 10.5.
"Interest Payment Date": (i) in the case of each Federal Funds
Advance, the last day of each month, and (ii) in the case of each Eurodollar
Advance, on the last day of the Interest Period applicable thereto.
"Interest Period" means, subject to paragraph 2.8, as to each
Eurodollar Advance, the period commencing on, as the case may be, the Borrowing
Date or Conversion Date with respect thereto and ending one or two months
thereafter, as selected by the Borrower in its Borrowing Request or Notice of
Conversion.
"Investment Adviser": Merrill Lynch Asset Management, L.P., a Delaware
limited partnership, or any Affiliate of Merrill Lynch & Co., Inc. which
succeeds Merrill Lynch Asset Management, L.P., as investment adviser.
"Lien": any mortgage, pledge, hypothecation, assignment, security
deposit arrangement, encumbrance, lien (statutory or other), or other security
agreement or security interest of any kind or nature whatsoever, including,
without limitation, any conditional sale or other title retention agreement and
any financing lease having substantially the same economic effect as any of the
foregoing.
"Loan" and "Loans": as defined in paragraph 2.1.
"Loan Documents": collectively, this Agreement and the Note.
"Margin Stock": any "margin stock" as such term is defined in
Regulation U of the Board of Governors of the Federal Reserve System, as the
same may be amended or supplemented from time to time.
6
<PAGE>
"Material Adverse Change": a material adverse change in the
activities, Property, operations, or condition (financial or otherwise) of the
Borrower.
"Material Adverse Effect": a material adverse effect on the
activities, Property, operations, or condition (financial or otherwise) of the
Borrower.
"Maturity Date": as to (i) any Loan, the earlier of (x) 90 days from
the Borrowing Date in respect thereof, and (y) one Business Day prior to the
date on which the Borrower's next Tender Offer expires, or (ii) as to all Loans,
such earlier date that the Note shall become due and payable, whether by
acceleration or otherwise.
"Minimum Amount" means in respect of a Federal Funds Advance or a
Eurodollar Advance, $1,000,000 or such amount plus a whole multiple of
$1,000,000 in excess thereof.
"Multiemployer Plan": a Plan which is a multiemployer plan as defined
in Section 4001(a)(3) of ERISA.
"Net Asset Value": as of any date of determination, the value of
securities held by the Borrower plus any cash or other assets (including
interest and dividends accumulated but not yet received) minus all liabilities
(including accrued expenses) and the aggregate liquidation value of the
outstanding shares of preferred stock, if any, determined in accordance with
GAAP. Nothing herein shall be deemed to permit the issuance by the Borrower of
preferred stock.
"1940 Act": the Investment Company Act of 1940, as amended, and the
rules and regulations promulgated thereunder.
"Non-Performing Assets": at any time of determination, without
duplication, the value included by the Borrower in its Net Asset Value of (i)
all capital stock and (ii) all loans and other extensions of credit made,
directly or indirectly, to any Person in which the Borrower has an interest,
including, without limitation, a participation interest, if either (x) such
Person has defaulted in the making of any payment of principal or interest in
respect of such loan or other extension of credit when due or (y) the Borrower
does not receive any payment of principal or interest in respect of such loan or
other extension of credit when due for any reason, including, without
limitation, any default by the Person from which the Borrower acquired a
participation.
7
<PAGE>
"Notice of Conversion": as defined in paragraph 2.7(a).
"Note": as defined in paragraph 2.2.
"PBGC": the Pension Benefit Guaranty Corporation established pursuant
to Subtitle A of Title IV of ERISA, or any Governmental Body succeeding to the
functions thereof.
"Permitted Liens": Liens permitted to exist pursuant to paragraph 8.2.
"Person": an individual, a partnership, a corporation, a limited
liability company, a business trust, a joint stock company, a trust, an
unincorporated association, a joint venture, a Governmental Body or any other
entity of whatever nature.
"Plan": any pension plan which is covered by Title IV of ERISA and
which is maintained by or to which contributions are made by the Borrower or a
Commonly Controlled Entity or in respect of which the Borrower or a Commonly
Controlled Entity has or may have any liability.
"Property": all types of real, personal, tangible, intangible or mixed
property.
"Prospectus": the Borrower's Prospectus, dated December 16, 1997, as
the same may from time to time be amended or supplemented.
"Regulated Investment Company": as defined in Section 851 of the Code.
"Single Employer Plan": any Plan which is not a Multiemployer Plan.
"Special Counsel": Emmet, Marvin & Martin, LLP.
"Stock": any and all shares, interests, participations, warrants or
other equivalents (however designated) of capital stock.
"Subsidiary": as to any Person, any corporation, association,
partnership, joint venture or other business entity of which such Person,
directly or indirectly, either (i) in respect of a corporation, owns or controls
at least 50% of the outstanding Stock having ordinary voting power to elect a
majority of the board of directors or similar managing body, irrespective of
whether or not a class or classes shall or might have voting power by reason of
the happening of any contingency or (ii) in respect of an association,
partnership, joint
8
<PAGE>
venture or other business entity, is entitled to share in at least 50% of the
profits and losses, however determined.
"Taxes": any present or future income, stamp, excise or other taxes,
levies, imposts, duties, fees, assessments, deductions, withholdings, or other
charges of whatever nature, now or hereafter imposed, levied, collected,
withheld, or assessed by any Governmental Body.
"Tender Offer": an offer made by the Borrower to purchase its shares
at a price per share equal to the Net Asset Value per share as of the close of
business on the day such Tender Offer terminates as described in the Prospectus.
"Termination Date": the earlier of the date which is 364 days after
the Effective Date (provided that if such date is not a Business Day, the
immediately preceding Business Day), and the date the Commitment is terminated
pursuant to paragraph 2.4 or 9.1.
"Transaction Record": as defined in paragraph 2.14.
1.2. Other Definitional Provisions.
(a) All terms defined in this Agreement shall have the meanings given
such terms herein when used in the Loan Documents or any certificate or other
document made or delivered pursuant hereto or thereto, unless otherwise defined
therein.
(b) As used herein, in the other Loan Documents and in any certificate
or other document made or delivered pursuant hereto or thereto, accounting terms
relating to the Borrower not defined in paragraph 1.1, and accounting terms
partly defined in paragraph 1.1, to the extent not defined, shall have the
respective meanings given to them under GAAP.
(c) The words "hereof", "herein", "hereto" and "hereunder" and similar
words when used in this Agreement shall refer to this Agreement as a whole and
not to any particular provision of this Agreement, and paragraph and exhibit
references contained herein shall refer to paragraphs hereof or exhibits hereto
unless otherwise expressly provided herein.
(d) The word "or" shall not be exclusive; "may not" is prohibitive and
not permissive; and the singular includes the plural and the plural includes the
singular, unless the context requires otherwise.
9
<PAGE>
2. AMOUNT AND TERMS OF LOANS
2.1. Loans.
Subject to the terms and conditions of this Agreement, the Bank agrees
to make Loans (each a "Loan" and collectively, the "Loans") to the Borrower from
time to time during the Commitment Period in an aggregate principal amount at
any one time outstanding not to exceed the Commitment. During such period, the
Borrower may borrow, prepay in whole or in part and reborrow under the
Commitment, all in accordance with the terms and conditions hereof. Each Loan
shall be due and payable on the Maturity Date in respect of such Loan.
2.2. Note.
The Loans made by the Bank shall be evidenced by a promissory note of
the Borrower, substantially in the form of Exhibit A, with appropriate
insertions therein as to date (as indorsed or modified from time to time,
including all replacements thereof and substitutions therefor, the "Note"),
payable to the order of the Bank and representing the obligation of the Borrower
to pay the lesser of (i) the Commitment and (ii) the aggregate unpaid principal
balance of all Loans, in each case with interest thereon as prescribed in
paragraph 2.6. The Bank shall record (a) the date and amount of each Loan made
by it, (b) the Maturity Date of such Loan, (c) its character as a Federal Funds
Advance or a Eurodollar Advance, (d) the initial Interest Period for each
Eurodollar Advance and (e) the amount of each payment or prepayment of such Loan
on the Transaction Record and, prior to any transfer of the Note, on the
schedule (and any continuations thereof) annexed to and constituting a part of
the Note. Any failure so to record and any error in so recording shall not
affect the obligation of the Borrower to repay the Loans, with interest thereon,
as herein provided. Notwithstanding the preceding sentence, in the event that
the Bank transfers all or a portion of the Note, any failure by the Bank to
record the information required to be recorded on the schedule annexed to the
Note, or any error in so recording, shall not obligate the Borrower to pay to
such transferee more than the actual amount due under the Note (or such
transferee's portion thereof), with interest thereon, as herein provided. The
Note shall (i) be dated the Effective Date, (ii) be stated to mature on the
Termination Date and (iii) bear interest for the period from and including the
date thereof on the unpaid principal balance thereof from time to time
outstanding at the applicable interest rate or rates per annum determined as
provided in paragraph 2.6. Interest on the Note shall be payable as specified in
paragraph 2.6.
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2.3. Borrowing Procedure.
The Borrower may borrow a Loan on any Business Day from and after the
Effective Date to and including the day immediately preceding the Termination
Date, by giving or causing to be given to the Bank an irrevocable telephonic (to
be promptly confirmed in writing by telecopy by the close of business on such
day) or telecopy or other written notice of borrowing (each a "Borrowing
Request") substantially in the form of Exhibit B no later than 11:00 a.m., New
York City time, three Business Days prior to the requested Borrowing Date in the
case of Eurodollar Advances and no later than 12 noon, New York City time, on
the requested Borrowing Date in the case of Federal Funds Advances, specifying
(i) the aggregate amount to be borrowed under the Commitment, (ii) the requested
Borrowing Date, (iii) whether such borrowing is to consist of one or more
Eurodollar Advances, Federal Funds Advances, or a combination thereof, and (iv)
if the Loan is to consist of one or more Eurodollar Advances, the amount and
length of the Interest Period for each Eurodollar Advance. Each Advance shall
be in a principal amount equal to the Minimum Amount, or, with respect to
Federal Funds Advances, if less, the unused amount of the Commitment. Upon
receipt of each Borrowing Request, the Bank will, subject to the satisfaction of
the terms and conditions of this Agreement as reasonably determined by the Bank,
make available to the Borrower, on the Borrowing Date, the amount of each
borrowing requested by or on behalf of the Borrower, at the office of the Bank
specified in or pursuant to paragraph 10.2 by crediting the account of the
Borrower on the books of such office with such amount in immediately available
funds.
2.4. Reduction of Commitment.
(a) The Borrower shall have the right, upon at least five Business
Days, prior written notice to the Bank, 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 paragraph 2.5),
without premium or penalty, provided that each partial reduction of the
Commitment shall be in an amount equal to $1,000,000 or such amount plus a whole
multiple of $1,000,000.
(b) Simultaneously with each reduction of the Commitment under this
paragraph 2.4, the Borrower shall pay the Commitment Fee accrued on the amount
by which the Commitment has been reduced.
2.5. Prepayments of the Loans.
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(a) Voluntary Prepayments. The Borrower may, at its option, prepay the
Loans in whole or in part, without premium or penalty, by notifying or causing
such notice to be given to the Bank no later than 12 noon, New York City time,
on the proposed prepayment date in the case of Loans consisting of Federal Funds
Advances, and at least three Business Days prior to the proposed prepayment
date, in the case of Loans consisting of Eurodollar Advances, specifying the
amount to be prepaid, the date of prepayment and whether the Loans to be prepaid
consist of Federal Funds Advances, Eurodollar Advances, or a combination
thereof. If any such notice of the Borrower is given pursuant to this paragraph
2.5, such notice shall be irrevocable and payment of the amount specified in
such notice shall be due and payable on the date specified together with, in the
case of Eurodollar Advances, accrued interest to the date of such payment on the
amount prepaid. Partial prepayments shall be in a principal amount equal to the
Minimum Amount or, if less, the outstanding principal balance of the Loans.
(b) Mandatory Prepayments Relating to Tender Offers. The Borrower
shall prepay the outstanding principal balance of the Loans, together with
accrued interest to the date of such prepayment on the amount prepaid, no later
than one Business Day prior to the expiration of the Borrower's next Tender
Offer.
(c) Mandatory Borrowing Base Prepayment of the Loans. If, on any day
prior to the Termination Date, the Borrowing Base shall not exceed an amount
equal to 300% of the outstanding principal balance of the Loans and accrued and
unpaid interest thereon, the Borrower shall, within three Business Days of such
day, prepay the Loans by an amount equal to the difference between the Borrowing
Base and the amount equal to 300% of the outstanding principal balance of the
Loans and accrued and unpaid interest thereon.
2.6. Interest Rate and Payment Dates.
(a) Prior to Maturity. Prior to maturity, the outstanding principal
balance of each (i) Federal Funds Advance shall bear interest on the unpaid
principal balance thereof at the Federal Funds Rate plus the Applicable Margin
and (ii) Eurodollar Advance shall bear interest on the unpaid principal balance
thereof at the Eurodollar Rate for the applicable Interest Period plus the
Applicable Margin.
(b) Late Charges. If all or any portion of the principal balance of
or, to the extent permitted by applicable law, interest payable on any of the
Loans or any other amount payable under the Loan Documents shall not be paid
when due (whether at the stated maturity thereof, by acceleration or otherwise),
such overdue balance or amount shall bear
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interest at a rate per annum equal to the Federal Funds Rate plus 5% from the
date of such nonpayment to but not including the date such balance is paid in
full (whether before or after the entry of any judgment thereon).
(c) General. Interest shall be calculated on the basis of a 360 day
year for the actual number of days elapsed. Interest shall be payable in arrears
on each Interest Payment Date and upon payment (including, in the case of
Eurodollar Advances, prepayment) of the Loans. Any change in the interest rate
on a Loan resulting from a change in the Federal Funds Rate shall become
effective as of the opening of business on the day on which such change in the
Federal Funds Rate shall become effective. At no time shall the interest rate
payable on the Loans, together with the Commitment Fee and all other fees and
other amounts payable hereunder, to the extent the same are construed to
constitute interest, exceed the Highest Lawful Rate. If interest payable to the
Bank on any date would exceed the maximum amount permitted by the Highest Lawful
Rate, such interest payment shall automatically be reduced to such maximum
permitted amount, and interest for any subsequent period, to the extent less
than the maximum amount permitted for such period by the Highest Lawful Rate,
shall be increased by the unpaid amount of such reduction. Any interest actually
received for any period in excess of such maximum allowable amount for such
period shall be deemed to have been applied as a prepayment of the Loans.
2.7. Conversions
(a) The Borrower may elect from time to time to convert one or more
Eurodollar Advances to Federal Fund Advances by giving the Bank at least one
Business Day's prior irrevocable notice of such election, specifying the amount
to be converted, provided that any such conversion of Eurodollar Advances shall
only be made on the last day of the Interest Period applicable thereto. In
addition, the Borrower may elect from time to time to (i) convert Federal Fund
Advances to Eurodollar Advances and (ii) continue Eurodollar Advances as new
Eurodollar Advances by selecting a new Interest Period therefor, in each case by
giving the Bank at least three Business Days' prior irrevocable notice of such
election, in the case of a conversion to, or continuation of, Eurodollar
Advances, specifying the amount to be so converted or continued and the initial
Interest Period relating thereto, provided that any such conversion of Federal
Fund Advances to Eurodollar Advances shall only be made on a Business Day and
any such continuation of Eurodollar Advances as new Eurodollar Advances shall
only be made on the last day of the Interest Period applicable to the Eurodollar
Advances that are to be continued as such new Eurodollar Advances. Each such
notice (a "Notice of Conversion") shall be substantially in the form of Exhibit
E, shall be irrevocable and shall be given by facsimile (confirmed promptly, and
in any event within five Business Days, by the delivery to the Bank of a Notice
of Conversion manually signed
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by the Borrower). Advances may be converted or continued pursuant to this
paragraph in whole or in part, provided that the amount to be converted to, or
continued as, a Eurodollar Advance, when aggregated with any Eurodollar Advance
to be made on such date in accordance with paragraph 2.3 and having the same
Interest Period as such first Eurodollar Advance, shall equal the Minimum
Amount.
(b) Notwithstanding anything in this Agreement to the contrary, upon
the occurrence and during the continuance of an Event of Default, the Borrower
shall have no right to elect to convert any existing Federal Fund Advance to a
new Eurodollar Advance or to continue any existing Eurodollar Advance as a new
Eurodollar Advance. In such event, all Federal Fund Advances shall be
automatically continued as Federal Fund Advances and each Eurodollar Advance
shall be automatically converted to Federal Fund Advances on the last day of the
Interest Period applicable to such Eurodollar Advance.
(c) Each conversion or continuation shall be effected by the Bank by
applying the proceeds of its new Federal Fund Advance or Eurodollar Advance, as
the case may be, to its Advances (or portion thereof) being converted (it being
understood that any such conversion or continuation shall not constitute a
borrowing for purposes of paragraphs 4 or 6).
2.8. Concerning Interest Periods
(a) No Interest Period in respect of a Eurodollar Advance under a
Loan shall end after the Maturity Date of such Loan.
(b) With respect to Eurodollar Advances, any Interest Period that
begins on the last Business Day of a calendar month (or on a day for which there
is no numerically corresponding day in the calendar month at the end of such
Interest Period) shall end on the last Business Day of a calendar month.
(c) If an Interest Period would otherwise end on a day that is not a
Business Day, such Interest Period shall be extended to the next succeeding
Business Day, unless, in the case of an Interest Period, the result of such
extension would be to carry such Interest Period into another calendar month, in
which event such Interest Period shall end on the immediately preceding Business
Day.
(d) If the Borrower shall have failed timely to elect a Eurodollar
Advance under paragraph 2.3 or 2.7, as the case may be, in connection with any
borrowing of, conversion to, or continuation of, a Eurodollar Advance, such
borrowing or such Advance
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requested to be converted to, or continued as, a Eurodollar Advance shall
thereafter be a Federal Fund Advance until such time, if any, as the Borrower
shall elect a new Eurodollar Advance pursuant to paragraph 2.7.
(e) The Borrower shall not be permitted to have more than five
Eurodollar Advances outstanding at any one time.
2.9. Funding Loss
Notwithstanding anything contained herein to the contrary, if the
Borrower shall fail to borrow, convert or continue a Eurodollar Advance on a
Borrowing Date or Conversion Date after it shall have given notice to do so in
which it shall have requested a Eurodollar Advance, or if a Eurodollar Advance
shall be terminated for any reason prior to the last day of the Interest Period
applicable thereto, or if, while a Eurodollar Advance is outstanding, any
repayment or prepayment of such Eurodollar Advance is made for any reason
(including as a result of acceleration or illegality) on a date that is prior to
the last day of the Interest Period applicable thereto, the Borrower agrees to
indemnify the Bank against, and to pay within 10 days of demand therefor
directly to the Bank the amount (calculated by the Bank using any reasonable
method chosen by the Bank that is customarily used by the Bank for such purpose)
equal to any loss or out-of-pocket expense suffered by the Bank as a result of
such failure to borrow, convert, or continue, or such termination, repayment or
prepayment, including any loss, cost or expense suffered by the Bank in
liquidating or employing deposits acquired to fund or maintain the funding of
such Eurodollar Advance or redeploying funds prepaid or repaid, in amounts that
correspond to such Eurodollar Advance and any reasonable internal processing
charge customarily charged by the Bank in connection therewith.
2.10. Increased Costs; Illegality, etc.
(a) Increased Costs. If any Change in Law shall impose, modify or
make applicable any reserve, special deposit, compulsory loan, assessment,
increased cost or similar requirement against assets held by, or deposits of, or
advances or loans by, or other credit extended by, or any other acquisition of
funds by, any office of the Bank in respect of its Eurodollar Advances that is
not otherwise included in the determination of a Eurodollar Rate and the result
thereof is to increase the cost to the Bank of making, renewing, converting or
maintaining its Eurodollar Advances or its commitment to make such Eurodollar
Advances, or to reduce any amount receivable under the Loan Documents in respect
of its Eurodollar Advances, then, in any such case, the Borrower shall pay the
Bank such additional amount as is sufficient to compensate the Bank for such
additional cost or
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reduction in such amount receivable that the Bank deems to be material as
determined by the Bank.
(b) Illegality. Notwithstanding any other provision hereof, if the
Bank shall reasonably determine that any law, regulation, treaty or directive,
or any change therein or in the interpretation or application thereof, shall
make it unlawful for the Bank to make or maintain any Eurodollar Advance as
contemplated by this Agreement, the Bank shall promptly notify the Borrower and
(i) the commitment of the Bank to make such Eurodollar Advances or convert
Federal Funds Advances to Eurodollar Advances shall forthwith be suspended, (ii)
the Bank shall fund its portion of each requested Eurodollar Advance as a
Federal Funds Advance and (iii) the Bank's Loans then outstanding as such
Eurodollar Advances, if any, shall be converted automatically to Federal Funds
Advances on the last day of the then current Interest Period applicable thereto
or at such earlier time as may be required by law. If the commitment of the
Bank with respect to Eurodollar Advances is suspended pursuant to this paragraph
and the Bank shall have obtained actual knowledge that it is once again legal
for the Bank to make or maintain Eurodollar Advances, the Bank shall promptly
notify the Borrower thereof and, upon receipt of such notice by the Borrower,
the Bank's commitment to make or maintain Eurodollar Advances shall be
reinstated.
(c) Substituted Interest Rate. In the event that (i) the Bank shall
have determined (which determination shall be conclusive and binding upon the
Borrower) that by reason of circumstances affecting the interbank eurodollar
market either adequate and reasonable means do not exist for ascertaining the
Eurodollar Rate applicable pursuant to paragraph 2.6 or (ii) the Bank shall have
determined (which determination shall be conclusive and binding on the Borrower)
that the applicable Eurodollar Rate will not adequately and fairly reflect the
cost to the Bank of maintaining or funding loans bearing interest based on such
Eurodollar Rate, with respect to any portion of the Loans that the Borrower has
requested be made as Eurodollar Advances or Eurodollar Advances that will result
from the requested conversion or continuation of any portion of the Advances
into or of Eurodollar Advances (each, an "Affected Advance"), the Bank shall
promptly notify the Borrower (by telephone or otherwise), of such determination,
on or, to the extent practicable, prior to the requested Borrowing Date or
Conversion Date for such Affected Advances. If the Bank shall give such notice,
(A) any Affected Advances shall be made as Federal Funds Advances, (B) the
Advances (or any portion thereof) that were to have been converted to Affected
Advances shall be converted to Federal Funds Advances and (C) any outstanding
Affected Advances shall be converted, on the last day of the then current
Interest Period with respect thereto, to Federal Funds Advances. Until any
notice under clauses (i) or (ii), as the case may be, of this paragraph has been
withdrawn by the Bank (by notice to the Borrower promptly upon either (x) the
Bank having determined that such circumstances affecting the interbank
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eurodollar market no longer exist and that adequate and reasonable means do
exist for determining the Eurodollar Rate pursuant to paragraph 2.6 or (y) the
Bank having determined that circumstances no longer render the Advances (or any
portion thereof) Affected Advances), no further Eurodollar Advances shall be
required to be made by the Bank, nor shall the Borrower have the right to
convert all or any portion of the Loans to or as Eurodollar Advances.
(d) Payment; Certificates. Each payment pursuant to subparagraphs (a)
or (b) above shall be made within 10 days after demand therefor, which demand
shall be accompanied by a certificate of the Bank demanding such payment setting
forth the calculations of the additional amounts payable pursuant thereto. Each
such certificate shall be conclusive absent manifest error. No failure by the
Bank to demand, and no delay in demanding, compensation for any increased cost
shall constitute a waiver of its right to demand such compensation at any time.
2.11. Use of Proceeds.
The proceeds of the Loans shall be used to finance Tender Offers, and
the payment of the fees and expenses of Special Counsel, provided, that (i) no
portion of the proceeds of any Loan shall be used to repay any other Loan and
(ii) the use of the proceeds of the Loans shall conform with the provisions of
paragraph 4.12.
2.12. Capital Adequacy.
If the Bank determines that any Change in Law relating to capital
requirements has or would have the effect of reducing the rate of return on the
Bank's capital or on the capital of the Bank's holding company, if any, as a
consequence of this Agreement or the Loans to a level below that which the Bank
(or its holding company) would have achieved or would thereafter be able to
achieve but for such Change in Law (taking into consideration the Bank's
policies and the policies of the Bank's holding company with respect to capital
adequacy), the Borrower shall pay to the Bank, within 10 days of demand
therefor, such additional amount or amounts as will compensate the Bank (or such
holding company) for such reduction. The Bank shall calculate the amounts
payable to it under this paragraph 2.12 in a manner consistent with the manner
in which it shall calculate similar amounts payable to it by other borrowers
having provisions in their credit agreements comparable to this paragraph 2.12.
Any demand under this paragraph 2.12 shall be accompanied by a written statement
submitted by the Bank to the Borrower as to the amount that will compensate the
Bank for such reduction which certificate shall be conclusive absent manifest
error.
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2.13. Taxes; Net Payments.
Any and all payments by the Borrower hereunder, whether of principal,
interest, fees, expenses or otherwise, shall be paid in full, free and clear of
and without deduction for any and all Taxes with respect thereto, excluding any
Taxes imposed on the income of the Bank or any successor or assign thereof, and
franchise taxes imposed on any of them, by the jurisdiction under the laws of
which the Bank or any such successor or assign or any of their respective
lending offices is organized or located or any political subdivision thereof;
provided, however, that (i) except as otherwise provided in paragraph 10.6, the
obligation of the Borrower under this paragraph 2.13 shall not extend to any
Person that purchases a participation interest in any Loan and (ii) under no
circumstances shall the obligation of the Borrower under this paragraph 2.13 to
any successor or assignee exceed the amounts for which it would be liable but
for such succession or assignment. If the Borrower shall be required by law to
deduct any Taxes from or in respect of any such sum payable hereunder to the
Bank, (i) the sum payable to the Bank hereunder shall be increased as may be
necessary so that after making all required deductions the Bank receives an
amount equal to the sum it would have received had no such deductions been made,
(ii) subject to clause (i) above, the Borrower shall make such deductions and
(iii) the Borrower shall pay the full amount deducted to the relevant taxation
authority or other authority in accordance with applicable law. In the event
that any such deduction or withholding can be reduced or nullified as a result
of the application of any relevant double taxation convention, the Bank will, at
the expense of the Borrower, cooperate with the Borrower, to the extent
reasonable, in making application to the relevant taxing authorities seeking to
obtain such reduction or nullification, provided, however, that the Bank shall
have no obligation to engage in litigation with respect thereto.
2.14. Transaction Record.
The Bank shall establish a transaction record (the "Transaction
Record") with respect to this Agreement. The Transaction Record shall set forth
the Bank's Loans, the interest rates applicable thereto, each payment by the
Borrower of principal and interest on the Loans and fees, expenses and any other
amounts due and payable in connection with this Agreement. The Transaction
Record shall be presumptively correct absent manifest error as to the amount of
the Bank's Loans and as to the amount of principal and interest paid by the
Borrower in respect of such Loans and as to the other information relating to
the Loans and amounts paid and payable by the Borrower hereunder and under the
Note set forth in such Transaction Record.
3. FEES; PAYMENTS
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3.1. Commitment Fee.
The Borrower agrees to pay to the Bank a fee (the "Commitment Fee")
for the period from and including the Effective Date to but excluding the date
of the expiration or other termination of the Commitment, equal to 0.05% per
annum of the unused portion of the Commitment, payable quarterly in arrears on
the last day of each June, September, December and March of each year and on the
date of the expiration or other termination of the Commitment, such payments
commencing on September 30, 1998. The Commitment Fee shall be calculated on the
basis of a 360-day year for the actual number of days elapsed.
3.2. Payments.
All payments (including prepayments) made by the Borrower on account
of principal of or interest on the Loans or fees or expenses shall be made
without set-off or counterclaim and shall be made prior to 12:00 noon, New York
City time, on the date such payment is due, to the Bank at its office specified
in or pursuant to paragraph 10.2, in each case in lawful money of the United
States of America and in immediately available funds. The failure of the
Borrower to make any such payment by 12:00 noon, New York City time, on such due
date shall not constitute a Default or Event of Default hereunder, provided that
such payment is made on such due date. The Bank agrees to use its best efforts
to notify the Borrower promptly if it shall not receive any such payment by
12:00 noon, New York City time, on the due date thereof, provided that the
failure of the Bank to give such prompt notice shall in no way affect the
Borrower's obligation to make any payment hereunder on the date such payment is
due. If any payment hereunder or on the Note becomes due and payable on a day
other than a Business Day, the maturity thereof shall be extended to the next
succeeding Business Day and, with respect to payments of principal, interest
thereon shall be payable at the then applicable rate or rates during such
extension.
4. REPRESENTATIONS AND WARRANTIES
In order to induce the Bank to enter into this Agreement and to make the
Loans, the Borrower hereby makes the following representations and warranties to
the Bank:
4.1. Subsidiaries.
The Borrower has no Subsidiaries.
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4.2. Corporate Existence and Power.
The Borrower is a corporation duly organized, validly existing and in
good standing under the laws of the State of Maryland, has all requisite
corporate power and authority to own its Property and to carry on its activities
as now conducted, and is in good standing and authorized to do business in each
jurisdiction in which the failure to be so authorized could reasonably be
expected to have a Material Adverse Effect.
4.3. Corporate Authority.
The Borrower has full corporate power and authority to enter into,
execute, deliver and carry out the terms of this Agreement, to make the
borrowings contemplated hereby, to execute, deliver and carry out the terms of
the Note and to incur the obligations provided for herein and therein, all of
which have been duly authorized by all proper and necessary corporate action and
are not in violation of the Borrower's Articles of Incorporation and By-Laws.
4.4. Governmental Body Approvals.
No consent, authorization or approval of, filing with, notice to, or
exemption by, the Borrower's shareholders, any Governmental Body or any other
Person is required to authorize, or is required in connection with, the
execution and delivery by the Borrower of, and the performance by the Borrower
of its obligations under, the Loan Documents or is required as a condition to
the validity or enforceability of the Loan Documents with respect to or against
the Borrower. No provision of any applicable statute, law (including, without
limitation, any applicable usury or similar law), rule or regulation of any
Governmental Body will prevent the execution and delivery by the Borrower of, or
performance by the Borrower of its obligations under, or affect the validity
with respect to or against the Borrower of, the Loan Documents.
4.5. Binding Agreement.
This Agreement constitutes, and the Note, when issued and delivered
pursuant hereto for value received will constitute, the valid and legally
binding obligations of the Borrower enforceable in accordance with their
respective terms, except as such enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting creditors' rights generally (regardless of whether considered in a
proceeding at law or in equity).
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4.6. Litigation.
There are no actions, suits, arbitration proceedings or claims pending
or, to the knowledge of the Borrower, threatened against the Borrower or
maintained by the Borrower, at law or in equity, before any Governmental Body
which, if determined adversely to the Borrower, could reasonably be expected to
have a Material Adverse Effect. There are no proceedings pending or, to the
knowledge of the Borrower, threatened against the Borrower which call into
question the validity or enforceability of any of the Loan Documents.
4.7. No Conflicting Agreements.
The Borrower is not in default under any mortgage, indenture,
contract, agreement, judgment, decree or order to which it is a party or by
which it or any of its Property is bound, which defaults, taken as a whole,
could reasonably be expected to have a Material Adverse Effect. The execution,
delivery or carrying out of the terms of the Loan Documents will not constitute
a default under, conflict with, require any consent under (other than consents
which have been obtained), or result in the creation or imposition of, or
obligation to create, any Lien upon the Property of the Borrower pursuant to the
terms of any such mortgage, indenture, contract, agreement, judgment, decree or
order, which defaults, conflicts and consents, if not obtained, could reasonably
be expected to have a Material Adverse Effect.
4.8. Taxes.
The Borrower qualifies as a Regulated Investment Company and, as such,
because it intends to timely distribute all of its income (including capital
gains) to its shareholders, its income will not be subject to tax at the
corporate level under the Code. The Borrower has filed all tax returns required
to be filed and has paid, or has made adequate provision for the payment of, all
Taxes shown to be due and payable on said returns or in any assessments made
against it which if not so filed or paid could reasonably be expected to result
in a Material Adverse Effect, and no tax Liens have been filed against the
Borrower. The charges, accruals and reserves on the books of the Borrower with
respect to all Taxes are, in the judgment of the Borrower, adequate, and the
Borrower knows of no unpaid assessment which is due and payable against it or
any claims being asserted which could reasonably be expected to have a Material
Adverse Effect, except such thereof as 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.
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4.9. Compliance with Applicable Laws.
The Borrower is not in default with respect to any judgment, order,
writ, injunction, decree or decision of any Governmental Body which default
could reasonably be expected to have a Material Adverse Effect. The Borrower is
complying in all material respects with all applicable statutes and regulations,
including the 1940 Act, of all Governmental Bodies, a violation of which could
reasonably be expected to have a Material Adverse Effect.
4.10. Governmental Regulations.
The Borrower is registered under the 1940 Act as a continuously
offered, non-diversified, closed-end management investment company. The
Borrower is a Regulated Investment Company within the meaning of the Code.
Except for the 1940 Act and state securities laws to the extent applicable, the
Borrower is not subject to any statute or regulation which prohibits or
restricts the incurrence of Indebtedness under the Loan Documents.
4.11. Property.
The Borrower has good and marketable title to all of its Property,
with respect to which the absence of such marketable title could reasonably be
expected to result in a Material Adverse Effect, subject to no Liens other than
Permitted Liens.
4.12. Federal Reserve Regulations; Use of Loan Proceeds.
Except for Stock of the Borrower acquired by the Borrower with the
proceeds of a Loan in connection with a Tender Offer, no part of the proceeds of
the Loans will be used, directly or indirectly, to purchase or carry any Margin
Stock or for a purpose which violates any law, rule or regulation of any
Governmental Body, including, without limitation, the provisions of Regulations
T, U or X of the Board of Governors of the Federal Reserve System, as amended.
4.13. No Misrepresentation.
No representation or warranty made by the Borrower contained herein,
and no certificate or report furnished or to be furnished by the Borrower in
connection with the transactions contemplated hereby, contains or will contain a
misstatement of material fact, or omits or will omit to state a material fact
required to be stated in order to make the
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statements herein or therein contained not misleading in the light of the
circumstances under which made.
4.14. Plans.
Neither the Borrower nor any Commonly Controlled Entity maintains, or
has at any time maintained, any Plan or Multiemployer Plan.
4.15. Financial Statements.
The Borrower has heretofore delivered to the Bank copies of its
audited Statement of Assets and Liabilities as of August 31, 1997, together with
the related Schedule of Investments and Statements of Operations and Changes in
Net Assets and Cash Flows (with the related notes and schedules, the "Financial
Statements"). The Financial Statements fairly present, in all material respects,
the financial condition and results of the operations of the Borrower as of the
dates and for the periods indicated therein and have been prepared in conformity
with GAAP. The Borrower has no obligation or liability of any kind (whether
fixed, accrued, contingent, unmatured or otherwise) which, in accordance with
GAAP, should have been disclosed in the Financial Statements and was not. Since
August 31, 1997, the Borrower has conducted its activities only in the ordinary
course and there has been no Material Adverse Change.
4.16. Material Agreements.
All material agreements between the Borrower and the Investment
Adviser are in full force and effect.
4.17. Capitalization.
The authorized capital stock of the Borrower consists of 1,000,000,000
shares of capital stock, $0.10 par value per share.
5. CONDITIONS TO EFFECTIVENESS
This Agreement shall become effective upon the fulfillment of the following
conditions precedent:
5.1. Evidence of Corporate Action.
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The Bank shall have received a certificate, dated the Effective Date,
of the secretary or an assistant secretary of the Borrower (i) attaching a true
and complete copy of all documents evidencing necessary corporate action (in
form and substance satisfactory to the Bank and to Special Counsel) taken by it
to authorize the Loan Documents and the transactions contemplated thereby, (ii)
attaching a true and complete copy of its Articles of Incorporation and By-Laws,
(iii) setting forth the incumbency of its officer of officers who may sign the
Loan Documents, including therein a signature specimen of such and (iv)
attaching a certificate of good standing issued by the Department of Taxation
and Assessments of the State of Maryland, dated as of a recent date.
5.2. Note.
The Bank shall have received the Note duly executed by an Authorized
Signatory of the Borrower.
5.3. This Agreement.
The Bank shall have received counterparts of this Agreement signed by
each of the parties hereto.
5.4. Certain Documents.
The Bank shall have received a true and complete copy of each of the
Borrower's most recent (i) Form N-2 and all amendments and exhibits thereto,
(ii) semi-annual and annual reports, (iii) Prospectus and (iv) investment
advisory and administrative agreements.
5.5. Approvals.
The Bank shall have received evidence reasonably satisfactory to it
that all approvals and consents of all Persons required to be obtained in
connection with the consummation of the transactions contemplated by the Loan
Documents have been duly obtained and are in full force and effect and that all
required notices have been given and all required waiting periods have expired.
5.6. Litigation.
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There shall be no injunction, writ, preliminary restraining order or
other order of any nature issued by any Governmental Body in any respect
affecting the transactions provided for herein and no action or proceeding by or
before any Governmental Body shall have been commenced and be pending or, to the
knowledge of the Borrower, threatened, seeking to prevent or delay the
transactions contemplated hereby, or challenging any other terms and provisions
hereof or thereof or seeking any damages in connection therewith, and the Bank
shall have received a certificate of an Authorized Signatory of the Borrower to
the foregoing effects.
5.7. Opinion of Counsel to the Borrower.
The Bank shall have received an opinion of Brown & Wood LLP, counsel
to the Borrower, addressed to the Bank and dated the Effective Date,
substantially in the form of Exhibit D.
5.8. Certificate Regarding Authorized Signatories
The Bank shall have received a Certificate Regarding Authorized
Signatories substantially in the form of Exhibit F dated the Effective Date,
duly executed by a director.
5.9. Fees and Expenses of Special Counsel.
The Borrower shall have paid the reasonable fees and expenses of
Special Counsel.
6. CONDITIONS OF LENDING-ALL LOANS.
The obligation of the Bank to make any Loan on a Borrowing Date is subject
to the satisfaction of the following conditions precedent as of the date of such
Loan:
6.1. Compliance.
On each Borrowing Date and after giving effect to the Loan to be made
thereon, (i) there shall exist no Default or Event of Default, (ii) the
representations and warranties contained in the Loan Documents shall be true and
correct with the same effect as though such representations and warranties had
been made on such Borrowing Date, except as the context otherwise requires and
except for those representations and warranties which by their terms or by
necessary implication are expressly limited to a state of facts existing as
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<PAGE>
of or prior to the Effective Date and except such matters relating thereto as
are indicated in each Borrowing Request (which shall be satisfactory to the Bank
in its sole discretion), (iii) the Borrowing Base shall exceed an amount equal
to 300% of the outstanding principal balance of the Loans (after giving effect
to the Loan to be made on such Borrowing Date) and accrued and unpaid interest
thereon, and (iv) there shall have occurred no Material Adverse Change since
August 31, 1997. Each borrowing by the Borrower shall constitute a certification
by the Borrower as of the date of such borrowing that each of the foregoing
matters is true and correct in all respects.
6.2. Borrowing Request.
Subject to the provisions of Paragraph 2.3, with respect to any
request for a Loan, the Bank shall have received a Borrowing Request, duly
executed by an Authorized Signatory of the Borrower which Borrowing Request
shall contain a certification that no portion of the proceeds of such Loan shall
be used to repay any other Loan.
6.3. Borrowing Base Certificate.
The Bank shall have received a Borrowing Base Certificate
demonstrating that after giving effect to the Loans to be made on such date the
Borrower is in compliance with Paragraph 7.10, duly executed by an Authorized
Signatory of the Borrower.
7. AFFIRMATIVE COVENANTS
The Borrower hereby agrees that so long as this Agreement is in effect, any
Loan remains outstanding and unpaid, or any other amount is owing under any of
the Loan Documents to the Bank, the Borrower shall:
7.1. Financial Statements.
Maintain a system of accounting in accordance with GAAP, and furnish
or cause to be furnished to the Bank:
(a) As soon as available, but in any event within 60 days after the
end of each fiscal year of the Borrower, a copy of its 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. The Statement of
Assets and Liabilities and Schedules of Investments and Statements of
Operations, Changes in Net Assets and Cash Flows shall be certified without
qualification by
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<PAGE>
the Accountants, which certification shall (i) state that the examination by
such Accountants in connection with such financial statements has been made in
accordance with generally accepted auditing standards and (ii) include the
opinion of such Accountants that such financial statements have been prepared in
conformity with GAAP, except as otherwise specified in such opinion.
(b) As soon as available, but in any event not later than 60 days
after the end of the first semi-annual accounting period in each fiscal year of
the Borrower, a copy of its Statement of Assets and Liabilities an 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.
The reports to be delivered to the Bank pursuant to this paragraph 7.1(b) shall
be accompanied by a certificate of the president, executive vice president or
treasurer of the Borrower (or such other Authorized Signatory as shall be
acceptable to the Bank) in detail reasonably satisfactory to the Bank (1)
stating that there exists no violation of any of the terms or provisions of the
Loan Documents or occurrence of any condition or event which would constitute a
Default or Event of Default, or, if any such violation, condition or event
exists or has occurred, specifying in such certificate all such violations,
conditions and events, and the nature and status thereof and (2) containing
computations showing compliance with the provisions of paragraphs 7.10 and 8.5.
(c) To the extent any Loans are outstanding, no later than 5 Business
Days after the end of each month and if no Loans are outstanding, no later than
the last day of each calendar quarter, a Borrowing Base Certificate showing the
Borrowing Base as of the last day of the prior month.
(d) As soon as available, but in any event not later than 10 days
after the filing thereof with the Securities and Exchange Commission, a copy of
each document filed with the Securities and Exchange Commission, including,
without limitation, each prospectus, registration statement, semi-annual report
or annual report of the Borrower.
(e) If at any time the Borrowing Base is less than 300% of the
outstanding principal balance of the Loans, a written notice to such effect
within 2 Business Days thereafter.
7.2. Certificates; Other Information.
Furnish to the Bank:
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(a) Prompt written notice if (i) any Indebtedness of the Borrower in
excess of $1,000,000 is declared or shall become due and payable prior to its
stated maturity, or is called and not paid when due, (ii) a default shall have
occurred under any other Indebtedness (other than the Note) in excess of
$1,000,000 or the holder of any such note or other Indebtedness in excess of
$1,000,000 has the right to declare any such Indebtedness due and payable prior
to its stated maturity as a result of such default or (iii) there shall have
occurred and be continuing a Default or an Event of Default;
(b) Prompt written notice of (i) any citation, summons, subpoena,
order to show cause or other order naming the Borrower a party to any proceeding
before any Governmental Body which could reasonably be expected to have a
Material Adverse Effect or which calls into question the validity or
enforceability of any of the Loan Documents, and include with such notice a copy
of such citation, summons, subpoena, order to show cause or other order, (ii)
any lapse or other termination of any material license, permit, franchise or
other authorization issued to the Borrower by any Governmental Body, the lapse
or termination of which could reasonably be expected to result in a Material
Adverse Effect, (iii) any refusal by any Governmental Body or any other Person
to renew or extend any such material license, permit, franchise or other
authorization with respect to which such refusal could reasonably be expected to
result in a Material Adverse Effect and (iv) any dispute between the Borrower
and any Person, which dispute could reasonably be expected to have a Material
Adverse Effect;
(c) Promptly upon becoming available, copies of all financial
statements, reports and proxy statements which the Borrower may have sent to its
stockholders generally, and copies of all registration statements, prospectuses
and regular, periodic or special reports, schedules and other material which the
Borrower may now or hereafter be required to file with or deliver to any
securities exchange;
(d) Promptly after the execution thereof, copies of all amendments to
all investment advisory contracts and contracts with any principal underwriter
and any new investment advisory contracts and contracts with any principal
underwriter entered into after the Effective Date;
(e) Prompt written notice of any change in the Investment Adviser,
the directors or executive officers of the Borrower from those set forth in the
Prospectus or other informative report which has most recently been delivered to
the Bank pursuant to paragraph 7.2(c);
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(f) To the extent the Borrower will incur any Loans hereunder in
connection with a Tender Offer, prior to the incurrence of such Loan, a copy of
each Tender Offer and all disclosure and other material furnished in connection
therewith; and
(g) Promptly, such other information and financial data as the Bank
may reasonably request.
7.3. Legal Existence.
Maintain its corporate existence in good standing in the jurisdiction
of its incorporation and in each other jurisdiction in which the failure so to
do could reasonably be expected to have a Material Adverse Effect.
7.4. Regulated Investment Company.
Maintain its qualifications as a Regulated Investment Company and,
subject to the provisions of this Agreement, distribute all of its income
(including net capital gain) so that it will not be subject to tax under the
Code.
7.5. Insurance.
Maintain insurance with financially sound insurance carriers which is
required by applicable law including, without limitation, the 1940 Act, and file
with the Bank within 10 days after request therefor a detailed list of such
insurance then in effect, stating the names of the carriers thereof, the policy
numbers, the insureds thereunder, the amounts of insurance, dates of expiration
thereof, and the risks covered thereby, together with a certificate of the
president, the executive vice president or treasurer (or such other officer
acceptable to the Bank) of the Borrower certifying that in the opinion of such
officer such insurance is adequate in nature and amount, complies with the
obligations of the Borrower under this paragraph 7.5, and is in full force and
effect.
7.6. Payment of Indebtedness and Performance of Obligations.
Pay and discharge when due all lawful Indebtedness, obligations and
claims for labor, materials and supplies or otherwise which, if unpaid, could
reasonably be expected to (i) have a Material Adverse Effect or (ii) become a
Lien upon Property of the Borrower other than Permitted Liens, unless and to the
extent only that the validity of such Indebtedness, obligation or claim shall be
contested in good faith and by appropriate proceedings diligently conducted by
the Borrower, and provided further that the Borrower
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<PAGE>
shall give the Bank prompt notice of any such contest and that such reserve or
other appropriate provision as shall be required in accordance with GAAP shall
have been made therefor.
7.7. Observance of Legal Requirements.
Observe and comply in all material respects with all laws (including
the 1940 Act and the Code), ordinances, orders, judgments, rules, regulations,
certifications, franchises, permits, licenses, directions and requirements of
all Governmental Bodies, which may then be applicable to the Borrower, a
violation of which could reasonably be expected to have a Material Adverse
Effect, except such thereof as shall be contested in good faith and by
appropriate proceedings diligently conducted by the Borrower, provided that the
Borrower shall give the Bank prompt notice of such contest and that such reserve
or other appropriate provision as shall be required in accordance with GAAP
shall have been made therefor.
7.8. Inspection of Property; Books and Records; Discussions.
Keep proper books of record and account in which complete, true and
correct entries in conformity with GAAP and all requirements of law shall be
made of all material dealings and transactions in relation to its activities;
and upon reasonable notice, permit representatives of the Bank to visit the
offices of the Borrower, at any reasonable time during business hours and as
often as may reasonably be desired, to discuss the operations, and financial
condition of the Borrower with the officers thereof and with the Investment
Adviser and the Accountants.
7.9. Compliance with Prospectus.
Comply at all times with the investment objectives and other
requirements and restrictions set forth in the Borrower's currently effective
Prospectus, a violation of which could reasonably be expected to have a Material
Adverse Effect.
7.10. Borrowing Base.
Maintain at all times a Borrowing Base of not less than 300% of the
outstanding principal balance of the Loans and accrued and unpaid interest
thereon.
8. NEGATIVE COVENANTS
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The Borrower hereby agrees that, so long as this Agreement is in effect,
any Loan remains outstanding and unpaid, or any other amount is owing under any
Loan Document to the Bank, the Borrower shall not, directly or indirectly:
8.1. Indebtedness.
Create, incur, assume or suffer to exist any liability for
Indebtedness, except (i) Indebtedness hereunder and under the Note, (ii)
Indebtedness in respect of swap, cap or other interest rate or foreign currency
hedging arrangements (where used for hedging purposes), (iii) purchases of
securities on short-term credit as may be necessary for the clearance of
purchases and sales of portfolio securities as described in the Prospectus and
(iv) overdrafts extended by the Custodian under the Custody Agreement.
8.2. Liens.
Create, incur, assume or suffer to exist any Lien upon any of its
Property or assets, whether now owned or hereafter acquired, except that the
Borrower (i) may make purchases of securities on short-term credit as may be
necessary for the clearance of purchases and sales of portfolio securities as
described in the Prospectus, (ii) Liens in respect of Indebtedness permitted
under paragraph 8.1(ii), (iii) 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 (iv) statutory Liens arising by operation of law such as mechanics',
materialmen's, carriers, and warehousemen's liens 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, (v) 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 (vi) Liens of the Custodian under the Custody
Agreement.
8.3. Compliance with ERISA.
Adopt any Plan or Multiemployer Plan; or become a Commonly Controlled
Entity with respect to another Person; or engage in any "prohibited
transaction", as such term is defined in Section 4975 of the Code or Section 406
of ERISA, with respect to any
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Plan; or incur any Accumulated funding deficiency, as such term is defined in
Section 412 of the Code or Section 302 of ERISA.
8.4. Consolidations, Mergers and Sales of Property.
Consolidate or merge into or with any Person, or sell, lease or
otherwise transfer, directly or indirectly, all or substantially all of the
Property of the Borrower, except that the Borrower may sell Property in the
ordinary course of business as described in the Prospectus.
8.5. Dividends and Purchase of Stock.
Declare or pay any dividends payable in cash or otherwise or apply any
of its Property to the purchase, redemption or other retirement of, or set apart
any sum for the payment of any dividends on, or make any other distribution by
reduction of capital or otherwise in respect of, any shares of its share capital
or other similar equity interest or warrants or other rights issued in respect
thereof, except that provided that no (a) Event of Default described in
subparagraphs 9.1(h) or 9.1(i), (b) Default described in subparagraphs 9.1(a) or
9.1(b), or (c) Default or Event of Default relating to subparagraph 7.10, in
which the Borrowing Base is less than 200% of the outstanding principal balance
of the Loans and accrued and unpaid interest thereon, in each case would exist
or be continuing after giving effect thereto (i) the Borrower may make dividend
payments to shareholders each monthly dividend period in an amount not in excess
of its net investment income and realized capital gains not previously
distributed to shareholders in accordance with the Prospectus for such period,
(ii) without duplication, may 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 Code; provided, that if
the Borrower's net investment income (including net realized capital gains)
calculated on a tax basis exceeds its net investment income calculated on a GAAP
basis, the Borrower may also distribute such excess to its shareholders, and
(iii) the Borrower may repurchase shares pursuant to Tender Offers in compliance
with its Articles of Incorporation and Prospectus.
8.6. Investment Policies.
Permit to exist at any time investments other than as described in the
Prospectus.
8.7. Articles of Incorporation and By-Laws.
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Amend or otherwise modify its Articles of Incorporation and By-Laws in
any way which would materially adversely affect the Bank under the Loan
Documents.
8.8. Fiscal Year.
Change its fiscal year.
8.9. Change in Accounting Principles.
Change or permit any change in accounting principles applied to the
Borrower, except as required by GAAP.
8.10. Subsidiaries.
Create or acquire any Subsidiary.
8.11. Issuance of Additional Capital Stock.
Issue any additional Stock (other than common Stock).
8.12. Margin Stock.
Following application of the proceeds of the Loans provided for
herein, permit more than 25% of the assets of the Borrower to consist of Margin
Stock.
9. DEFAULT
9.1. Events of Default.
The following shall each constitute an "Event of Default" hereunder:
(a) the failure of the Borrower to make any payment of principal on
any Note on the date when due and payable; or
(b) the failure of the Borrower to make any payment of interest or
any fees or expenses payable hereunder or under any other Loan Document for five
or more Business Days after the same shall be due and payable; or
33
<PAGE>
(c) the use by the Borrower of the proceeds of any Loan in a manner
inconsistent with or in violation of paragraph 2.11; or
(d) the failure of the Borrower to observe or perform any covenant or
agreement contained in paragraph 7.3 (solely to the extent it requires the
Borrower to maintain its legal existence) or paragraph 8; or
(e) the failure of the Borrower to observe or perform (i) the
covenant contained in paragraph 7.10 and such failure shall have continued
unremedied for a period of three Business Days, or (ii) any other term,
covenant, or agreement contained in this Agreement and such failure shall have
continued unremedied for a period of 30 days after the Borrower shall have
obtained knowledge thereof; or
(f) any representation or warranty of the Borrower (or of any
Authorized Signatory on its behalf) made in this Agreement or any other Loan
Document or in any certificate, report or other document delivered or to be
delivered pursuant to this Agreement or any other Loan Document, shall prove to
have been incorrect or misleading (whether because of misstatement or omission)
in any material respect when made; or
(g) obligations of the Borrower, whether as principal, guarantor,
surety or other obliger, for the payment of Indebtedness in an aggregate amount
in excess of $1,000,000, shall become or shall be declared to be due and payable
prior to the expressed maturity or expiration thereof, or shall not be paid when
due or within any grace period for the payment thereof, or the holder thereof
shall have the right to declare such obligation due and payable prior to the
expressed maturity thereof; or
(h) the Borrower shall (i) make an assignment for the benefit of
creditors, or (ii) generally not be paying its debts as such debts become due,
or (iii) admit in writing its inability to pay its debts as they become due, or
(iv) file a voluntary petition in bankruptcy, or (v) file any petition or answer
seeking for itself any reorganization, arrangement, composition, readjustment of
debt, liquidation or dissolution or similar relief under any present or future
statute, law or regulation of any jurisdiction, or (vi) petition or apply to any
tribunal for any receiver, custodian or any trustee for any substantial part of
its Property, or (vii) be the subject of any such proceeding filed against it
which remains undismissed for a period of 60 days, or (viii) file any answer
(excluding motions relating to preliminary matters) admitting or not contesting
the material allegations of any such petition filed against it or any order,
judgment or decree approving such petition in any such proceeding, or (ix) seek,
approve, consent to, or acquiesce in any such proceeding, or in the appointment
of any trustee, receiver, custodian, liquidator, or fiscal agent for it, or any
substantial part of its
34
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Property, or an order is entered appointing any such trustee, receiver,
custodian, liquidator or fiscal agent and such order remains in effect for 60
days, or (x) take any formal action for the purpose of effecting any of the
foregoing or looking to the liquidation or dissolution of the Borrower; or
(i) an order for relief is entered under any bankruptcy, insolvency
or similar laws or any other decree or order is entered by a court having
jurisdiction (i) adjudging the Borrower a bankrupt or insolvent, or (ii)
approving as properly filed a petition seeking reorganization, liquidation,
arrangement, adjustment or composition of or in respect of the Borrower under
any bankruptcy, insolvency or similar law, or (iii) appointing a receiver,
liquidator, assignee, trustee, custodian, sequestrator, fiscal agent (or other
similar official) of the Borrower or of any substantial part of the Property
thereof, or (iv) ordering the winding up or liquidation of the affairs of the
Borrower, and any such decree or order continues unstayed and in effect for a
period of 60 days; or
(j) judgments or decrees against the Borrower aggregating in excess
of $1,000,000 shall remain unpaid, unstayed on appeal, undischarged, unbonded or
undismissed for a period of 60 days, or
(k) the Borrower shall change the Investment Adviser.
Upon the occurrence of an Event of Default or at any time thereafter during
the continuance thereof, (1) if such event is an Event of Default specified in
clause (i) above, the Commitment shall immediately and automatically terminate
and the Loans and all accrued and unpaid interest on any thereof and all other
amounts owing under the Loan Documents shall immediately become due and payable,
and the Bank may, in its sole discretion, exercise any and all remedies and
other rights provided pursuant to the Loan Documents, and (2) if such event is
any other Event of Default, any or all of the following actions may be taken:
(x) the Bank may, in its sole discretion, by notice to the Borrower, declare the
Commitment to be terminated forthwith, whereupon the Commitment shall
immediately terminate and (y) the Bank may, by written notice of default to the
Borrower, declare the Loans, all accrued and unpaid interest thereon and all
other amounts owing under the Loan Documents to be due and payable forthwith,
whereupon the same shall immediately become due and payable, and in all cases
the Bank may, in its sole discretion, exercise any and all remedies and other
rights provided pursuant to the Loan Documents or by law. Except as otherwise
provided in this paragraph 9.1, presentment, demand, protest and all other
notices of any kind are hereby expressly waived.
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In the event that the Commitment shall have been terminated or the Note
shall have been declared due and payable pursuant to the provisions of this
paragraph 9.1, any funds received by the Bank from or on behalf of the Borrower
shall be applied by the Bank in liquidation of the Loans and the obligations of
the Borrower hereunder and under the Note in the following manner and order: (i)
first, to reimburse the Bank for any expenses due pursuant to the provisions of
paragraph 10.5; (ii) second, to the payment of accrued and unpaid Commitment Fee
and all other fees, expenses and amounts due hereunder (other than principal and
interest on the Note); (iii) third, to the payment of interest due on the Note;
(iv) fourth, to the payment of principal outstanding on the Note; and (v) fifth,
to the payment of any other amounts owing to the Bank under any of the Loan
Documents. Any funds remaining after the foregoing applications shall be paid
over to the Borrower or as a court may otherwise direct.
10. OTHER PROVISIONS.
10.1. Amendments and Waivers.
The Bank and the Borrower may from time to time enter into written
amendments, supplements or modifications hereof and the Bank may, in its sole
discretion, execute and deliver a written instrument waiving or consenting to
the departure from, on such terms and conditions as the Bank may specify in such
instrument, any of the requirements of the Loan Documents or any Default or
Event of Default and its consequences. Any such amendment, supplement,
modification, waiver or consent shall be binding upon the Borrower, the Bank and
all future holders of the Note. In the case of any waiver, the Borrower and the
Bank shall be restored to their former position and rights under the Loan
Documents, and any Default or Event of Default waived shall not extend to any
subsequent or other Default or Event of Default, or impair any right consequent
thereon.
10.2. Notices.
All notices, requests and demands to or upon the respective parties
hereto to be effective shall be in writing and, unless otherwise expressly
provided herein, shall be deemed to have been duly given or made when delivered
by hand, or when deposited in the mail, first-class postage prepaid, or, in the
case of telecopier notice, when sent, addressed as follows, or to such other
addresses as to which the Bank may be hereafter notified by the Borrower in
accordance with the provisions of this paragraph 10.2:
The Borrower:
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MERRILL LYNCH SENIOR FLOATING RATE FUND, INC.
800 Scudders Mill Road
Plainsboro, New Jersey 08536
Attention: R. Douglas Henderson
Telephone: (609) 282-2059
Telecopy: (609) 282-2756
with a copy to:
MERRILL LYNCH ASSET MANAGEMENT, L.P.
800 Scudders Mill Road
Plainsboro, New Jersey 08536
Attention: Patrick D. Sweeney
Telephone: (609) 282-3651
Telecopy: (609) 282-3222
The Bank:
THE BANK OF NEW YORK
One Wall Street
New York, New York 10286
Attention: Lee B. Stephens, III
Vice President
Telephone: (212) 635-6736
Telecopy: (212) 809-9575,
except that any notice, request or demand by the Borrower to or upon the Bank
pursuant to paragraphs 2.3, 2.4, 2.5 or 2.7 shall not be effective until
received.
10.3. No Waiver; Cumulative Remedies.
No failure to exercise and no delay in exercising, on the part of the
Bank, any right, remedy, power or privilege under any Loan Document shall
operate as a waiver thereof; nor shall any single or partial exercise of any
right, remedy, power or privilege under any Loan Document preclude any other or
further exercise thereof or the exercise of any other right, remedy, power or
privilege. The rights, remedies, powers and privileges
37
<PAGE>
under the Loan Documents are cumulative and not exclusive of any rights,
remedies, powers and privileges
provided by law.
10.4. Survival of Representations and Warranties.
All representations and warranties made hereunder and in any document,
certificate or statement delivered pursuant hereto or in connection herewith
shall survive the execution and delivery of the Loan Documents.
10.5. Payment of Expenses and Taxes; Indemnified Liabilities.
The Borrower agrees, promptly upon presentation of a statement or
invoice therefor, and whether or not any Loan is made, (i) to pay or reimburse
the Bank for all out-of-pocket costs and expenses incurred in connection with
the development, preparation and execution of, the Loan Documents and any
amendment, supplement or modification thereto, or waiver or consent thereunder,
any documents prepared in connection therewith and the consummation of the
transactions contemplated thereby, including, without limitation, the reasonable
fees and disbursements of counsel, (ii) to pay or reimburse the Bank for its
costs and expenses incurred in connection with the enforcement of any rights
under this Agreement, the Note and any such other documents, including, without
limitation, reasonable fees and disbursements of counsel, (iii) to pay,
indemnify, and hold the Bank harmless from, any and all recording and filing
fees and any and all liabilities with respect to, or resulting from any delay in
paying, present and future stamp and other similar taxes, if any, which may be
payable or determined to be payable in connection with the execution and
delivery of, or consummation of any of the transactions contemplated by, or any
amendment, supplement or modification of, or any waiver or consent under or in
respect of, the Loan Documents and any such other documents, and (iv) to pay,
indemnify and hold the Bank and each of its officers, directors and employees
harmless from and against any and all other liabilities, obligations, claims,
losses, damages, penalties, actions, judgments, suits, costs, expenses or
disbursements of any kind or nature whatsoever that may be or become payable to
any third party (including, without limitation, reasonable counsel fees and
disbursements) with respect to the execution, delivery, enforcement and
performance of the Loan Documents or the use of the proceeds of the Loans (all
the foregoing, collectively, the "Indemnified Liabilities") and, if and to the
extent that the foregoing indemnity may be unenforceable for any reason, the
Borrower agrees to make the maximum payment permitted under applicable law;
provided, however, that the Borrower shall have no obligation hereunder to pay
Indemnified Liabilities to any Person arising from the gross negligence or
willful misconduct of such Person. The agreements in this paragraph shall
survive the termination of the Commitment and the payment of the Note, and all
other amounts payable hereunder.
38
<PAGE>
10.6. Successors and Assigns.
(a) This Agreement and the Note shall be binding upon and inure to
the benefit of the Borrower, the Bank, all future holders of the Note and their
respective successors and assigns, except that the Borrower may not assign,
delegate or transfer any of its rights or obligations under the Loan Documents
without the prior written consent of the Bank.
(b) With the prior written consent of the Borrower (which consent
shall not be unreasonably withheld), the Bank shall have the right at any time,
upon written notice to the Borrower of its intent to do so, subject to
compliance with applicable securities laws, to sell, assign, transfer or
negotiate all or any part of the Bank's rights (but not its obligations) with
respect to the Loans, the Commitment and the Note to one or more of its
Affiliates or, with the prior written consent of the Borrower (which consent
shall not be unreasonably withheld), to sell, assign, transfer or negotiate all
or any part of the Bank's rights and obligations with respect to its Loans, its
Commitment and its Note to one or more commercial banks. Upon any such
assignment, the assignee thereunder shall be a party hereto and the assignor
thereunder shall be released from its obligations under this Agreement. The
Borrower agrees upon written request of such assignor to execute and deliver (1)
to such assignee, a Note, dated the effective date of such assignment, in an
aggregate principal amount equal to the Loans assigned to, and Commitment
assumed by, such assignee and (2) to such assignor, a Note, dated the effective
date of such assignment, in an aggregate principal amount equal to the balance
of such assignor's Loans and Commitment, if any, and such assignor shall cancel
and return to the Borrower its existing Note.
(c) The Bank may without the consent of the Borrower but subject to
compliance with applicable securities laws, grant participations in all or any
part of its Loans, the Note or the Commitment to the parent, any Affiliate,
Subsidiary or branch of the Bank or to one or more commercial banks, provided
that the Bank shall not grant more than 25 participations without the prior
written consent of the Borrower and provided further that (i) the Bank's
obligations under this Agreement shall remain unchanged, (ii) the Bank shall
remain solely responsible to the other parties hereto for the performance of
such obligations, (iii) the Borrower shall continue to deal directly with the
Bank in connection with the Bank's rights and obligations under this Agreement
and (iv) the rights of any holder of any such participation shall be limited to
the right to consent to any action taken or omitted to be taken by the Bank
under this Agreement which would (1) increase the Commitment, (2) reduce the
Commitment Fee or the interest rate payable on, or increase or forgive the
principal amount
39
<PAGE>
of the Note or (3) extend the maturity date of the Note or extend the
Termination Date, or postpone the payment or scheduled due dates for payments of
principal, interest and Commitment Fee. The Borrower hereby acknowledges and
agrees that any such participant shall for purposes of paragraphs 2.9, 2.10,
2.12 and 2.13, be deemed to be the "Bank", provided that in no event shall the
Borrower be liable for any amounts under said paragraphs in excess of the
amounts for which it would be liable but for such participation.
(d) The Bank shall not, as between and among the Borrower and the
Bank, be relieved of any of its obligations hereunder as a result of any sale,
assignment, transfer or negotiation of, or granting of participations in, all or
any part of its Loans, the Commitment or the Note, except that the Bank shall be
relieved of its obligations to the extent of any sale, assignment, transfer, or
negotiation of all or any part of its Loans, the Commitment or the Note pursuant
to paragraph (b) above.
(e) Notwithstanding anything to the contrary contained in this
paragraph 10.6, the Bank may at any time or from time to time assign all or any
portion of its rights under this Agreement with respect to its Loans and the
Note to a Federal Reserve Bank. No such assignment shall release the Bank from
its obligations hereunder.
10.7. Counterparts.
This Agreement may be executed by one or more of the parties to this
Agreement on any number of separate counterparts and all of said counterparts
taken together shall be deemed to constitute one and the same instrument. It
shall not be necessary in making proof of this Agreement to produce or account
for more than one counterpart signed by the party to be charged.
10.8. Governing Law.
The Loan Documents and the rights and obligations of the parties
thereunder shall be governed by, and construed and interpreted in accordance
with, the internal laws of the State of New York, without regard to principles
of conflict of laws, but including Section 5-1401 of the General Obligations
Law.
10.9. Headings.
Paragraph headings have been inserted herein for convenience only and
shall not be construed to be a part hereof.
40
<PAGE>
10.10. Severability.
Every provision of the Loan Documents is intended to be severable, and
if any term or provision thereof shall be invalid, illegal or unenforceable for
any reason, the validity, legality and enforceability of the remaining
provisions thereof shall not be affected or impaired thereby, and any
invalidity, illegality or unenforceability in any jurisdiction shall not affect
the validity, legality or enforceability of any such term or provision in any
other jurisdiction.
10.11. Integration.
This Agreement and the Note embody the entire agreement and
understanding between the Borrower and the Bank with respect to the subject
matter hereof and thereof and supersede all prior agreements and understandings
between the Borrower and the Bank with respect to the subject matter hereof and
thereof.
10.12. Consent to Jurisdiction.
The Borrower hereby irrevocably submits to the jurisdiction of any New
York State or Federal Court sitting in the City of New York over any suit,
action or proceeding arising out of or relating to the Loan Documents. The
Borrower hereby irrevocably waives, to the fullest extent permitted by law, any
objection which it may now or hereafter have to the laying of the venue of any
such suit, action or proceeding brought in such a court and any claim that any
such suit, action or proceeding brought in such a court has been brought in an
inconvenient forum. The Borrower hereby agrees that a final judgment in any such
suit, action or proceeding brought in such a court, after all appropriate
appeals, shall be conclusive and binding upon it.
10.13. No Limitation on Service or Suit.
Nothing contained in the Loan Documents or in any modification,
waiver, consent or amendment thereto shall affect the right of the Bank to serve
process in any manner permitted by law or limit the right of the Bank to bring
proceedings against the Borrower in the courts of any jurisdiction or
jurisdictions.
10.14. WAIVER OF TRIAL BY JURY.
THE BANK AND THE BORROWER HEREBY KNOWINGLY, VOLUNTARILY AND
INTENTIONALLY WAIVE ANY RIGHT THEY MAY HAVE TO
41
<PAGE>
A TRIAL BY JURY IN RESPECT OF ANY LITIGATION ARISING OUT OF, UNDER OR IN
CONNECTION WITH THE LOAN DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED THEREIN.
FURTHER, THE BORROWER HEREBY CERTIFIES THAT NO REPRESENTATIVE OR AGENT OF THE
BANK, OR COUNSEL TO THE BANK, HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT THE
BANK WOULD NOT, IN THE EVENT OF SUCH LITIGATION, SEEK TO ENFORCE THIS WAIVER OF
RIGHT TO JURY TRIAL PROVISION. THE BORROWER ACKNOWLEDGES THAT THE BANK HAS BEEN
INDUCED TO ENTER INTO THIS AGREEMENT BY, INTER ALIA, THE PROVISIONS OF THIS
PARAGRAPH.
10.15. Set-off.
In addition to any rights and remedies of the Bank provided by law,
upon the occurrence of an Event of Default and acceleration of the obligations
owing in connection with the Loan Documents, or at any time upon the occurrence
and during the continuance of an Event of Default under paragraphs 9.1(a) or
9.1(b), the Bank shall have the right, to the extent permitted by applicable
law, without prior notice to the Borrower, any such notice being expressly
waived, to the extent permitted by applicable law, by the Borrower, to set off
and apply against any indebtedness, whether matured or unmatured, of the
Borrower to the Bank, any amount owing from the Bank to the Borrower at, or at
any time after, the happening of any of the above- mentioned events. To the
extent permitted by applicable law, the aforesaid right of set-off may be
exercised by the Bank against the Borrower, or against any trustee in
bankruptcy, custodian, debtor in possession, assignee for the benefit of
creditors, receiver, or execution, judgment or attachment creditor of the
Borrower or against anyone else claiming through or against the Borrower or such
trustee in bankruptcy, custodian, debtor in possession, assignee for the benefit
of creditors, receiver, or execution, judgment or attachment creditor,
notwithstanding the fact that such right of set-off shall not have been
exercised by the Bank prior to the making, filing or issuance, or service upon
the Bank of, or of notice of, any such petition, assignment for the benefit of
creditors, appointment or application for the appointment of a receiver, or
issuance of execution, subpoena, order or warrant. The Bank agrees promptly to
notify the Borrower after any such set-off and application made by the Bank,
provided that the failure to give such notice shall not affect the validity of
such set-off and application.
10.16. Confidentiality.
The Bank agrees that it will use its best efforts not to disclose
without the prior written consent of the Borrower (other than to the directors,
employees, auditors or counsel of the Bank for the sole purpose of enabling the
Bank to administer the Loans
42
<PAGE>
hereunder) any information with respect to the Borrower which is furnished
pursuant to this Agreement except that the Bank may disclose any such
information (a) as has become generally available to the public other than by a
breach of this paragraph 10.16, (b) as may be required or appropriate in any
report, statement or testimony submitted to any Governmental Body (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 Bank and (d) to any prospective participant or assignee in
connection with any contemplated transfer pursuant to paragraph 10.6, provided
that prior to the delivery of any information to a prospective participant or
assignee it shall execute an agreement with such Person containing provisions
substantially identical to those contained in this paragraph 10.16.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered by their proper and duly authorized directors or
officers, as the case may be, as of the day and year first above written.
MERRILL LYNCH SENIOR FLOATING RATE FUND,INC.
By:
-----------------------------------------
Title:________________________
THE BANK OF NEW YORK
By:
-----------------------------------------
Title:________________________
43
<PAGE>
EXHIBIT (g)(1)
<PAGE>
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 (g)(2)
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders,
Merrill Lynch Senior Floating Rate Fund, Inc.:
We have audited the accompanying statement of assets and liabilities,
including the schedule of investments, of Merrill Lynch Senior Floating Rate
Fund, Inc. as of August 31, 1997, the related statements of operations and cash
flows for the year then ended, the statements of changes in net assets for each
of the years in the two-year period then ended, and the financial highlights for
each of the years in the five-year period then ended. These financial statements
and the financial highlights are the responsibility of the Fund's management.
Our responsibility is to express an opinion on these financial statements and
the financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and the financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned at August
31, 1997 by correspondence with the custodian and financial intermediaries. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of Merrill Lynch Senior
Floating Rate Fund, Inc. as of August 31, 1997, the results of its operations,
its cash flows, the changes in its net assets, and the financial highlights for
the respective stated periods in conformity with generally accepted accounting
principles.
Deloitte & Touche LLP
Princeton, New Jersey
October 24, 1997
<PAGE>
<TABLE>
<CAPTION>
Merrill Lynch Senior Floating Rate Fund, Inc. August 31, 1997
SCHEDULE OF INVESTMENTS (in Thousands)
Face Loan S&P Moody's Stated Value
Industries Amount Borrower Type Rating Rating Maturity Cost (Note 1a)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Senior Secured Floating Rate Loan Interests*
Advertising -- $ 471 Katz Media Corporation Reducing
0.7% Revolver NR+ Ba3 9/30/03 $ 472 $ 471
2,143 Katz Media Corporation Term A NR+ Ba3 9/30/03 2,140 2,146
6,633 Katz Media Corporation Term B NR+ Ba3 12/31/04 6,618 6,658
7,500 Outdoor Systems, Inc. Term NR+ NR+ 6/30/04 7,485 7,537
5,000 Outdoor Systems, Inc. Canadian
Term Loan NR+ NR+ 6/30/04 4,990 5,025
------- -------
Total Advertising 21,705 21,837
======= =======
Aerospace -- 0.3% 5,168 Whittaker Corporation Revolving
Credit NR+ NR+ 4/09/01 5,168 5,175
3,825 Whittaker Corporation Term NR+ NR+ 4/09/01 3,773 3,829
------- -------
Total Aerospace 8,941 9,004
======= =======
Air Transport -- 3,600 Continental Airlines, Inc. Term A BB- NR+ 7/31/02 3,595 3,586
0.3% 6,400 Continental Airlines, Inc. Term B BB- NR+ 7/31/04 6,400 6,396
------- -------
Total Air Transport 9,995 9,982
======= =======
Aircraft & 5,060 Aerostructures Hamble Holdings PLC Term B NR+ NR+ 9/30/03 5,037 5,089
Parts -- 2.2% 1,840 Aerostructures Hamble Holdings PLC Term C NR+ NR+ 9/30/04 1,832 1,850
9,783 Alliant Techsystems, Inc. Term NR+ Ba2 3/15/01 9,775 9,783
4,950 Banner Industries, Inc. Term B NR+ NR+ 6/30/03 4,928 4,941
7,494 Evergreen International Aviation, Inc. Term B NR+ Ba3 5/31/03 7,458 7,461
24,583 Gulfstream Aerospace Corp. Term NR+ NR+ 9/30/02 24,540 24,614
4,975 Mag Aerospace Term B NR+ NR+ 12/06/01 4,942 4,956
2,970 Technetics Term A NR+ NR+ 6/20/02 2,951 2,961
5,000 Tri Star Inc. Term NR+ NR+ 9/30/03 4,954 4,975
------- -------
Total Aircraft & Parts 66,417 66,630
======= =======
Amusement & 4,263 AMF Group, Inc. Revolving
Recreational Credit NR+ Ba3 3/31/02 4,263 4,263
Services -- 5.2% 9,929 AMF Group, Inc. Axel A NR+ Ba3 3/31/03 10,043 10,053
19,813 AMF Group, Inc. Axel B NR+ Ba3 3/31/04 19,844 20,110
2,453 AMF Group, Inc. Term NR+ Ba3 3/31/02 2,448 2,462
21,283 AMF Group, Inc. Term B NR+ Ba3 3/31/03 21,238 21,549
3,039 AMF Group, Inc. Term C1 NR+ Ba3 3/31/02 3,058 3,050
2,862 AMF Group, Inc. Term C1 NR+ Ba3 3/31/03 2,905 2,898
2,106 AMF Group, Inc. Term C2 NR+ Ba3 3/31/04 2,137 2,137
4,125 Amfac Parks, Inc. Term B NR+ NR+ 9/30/02 4,092 4,112
5,000 Fitness Holdings Term NR+ NR+ 12/31/00 4,971 4,981
7,143 KSL Recreation Group, Inc. Revolving
Credit NR+ B2 4/30/04 7,143 7,214
7,750 KSL Recreation Group, Inc. Term A NR+ B2 4/30/05 7,773 7,828
7,750 KSL Recreation Group, Inc. Term B NR+ B2 4/30/06 7,773 7,828
6,283 Kerastotes Revolving
Credit NR+ NR+ 12/31/03 6,283 6,251
3,677 Kerastotes Term NR+ NR+ 12/31/04 3,647 3,666
14,888 Metro Goldwyn Mayer Co. Term B NR+ Ba3 3/31/04 14,786 14,962
872 Six Flags Entertainment Corp. Term NR+ Ba3 10/28/01 872 873
5,496 Six Flags Entertainment Corp. Term A NR+ Ba3 10/28/01 5,510 5,510
17,473 Six Flags Entertainment Corp. Term B NR+ Ba3 6/23/03 17,404 17,604
7,500 Vail Corporation Term B NR+ NR+ 4/15/04 7,490 7,519
------- -------
Total Amusement & Recreational Services 153,680 154,870
======= =======
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Merrill Lynch Senior Floating Rate Fund, Inc. August 31, 1997
SCHEDULE OF INVESTMENTS (continued) (in Thousands)
Face Loan S&P Moody's Stated Value
Industries Amount Borrower Type Rating Rating Maturity Cost (Note 1a)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Apparel -- 1.2% 4,571 CS Brooks Canada Axel A NR+ NR+ 6/30/02 4,551 4,548
10,157 CS Brooks Canada Axel B NR+ NR+ 6/30/04 10,114 10,106
9,683 Humphreys Inc. Term B NR+ NR+ 1/15/03 9,683 9,683
5,000 Renfro Corp. Term B NR+ NR+ 1/15/03 4,977 4,994
6,237 William Carter Co. (The) Term BB- Ba3 10/31/03 6,209 6,237
------- -------
Total Apparel 35,534 35,568
======= =======
Automotive 4,000 American Bumper Term B NR+ NR+ 10/31/02 3,990 4,015
Equipment -- 23,731 Collins & Aikman Corp. Term B B+ B1 12/31/02 23,635 23,790
1.7% 385 Johnstown America Industrial Inc. Revolving
Credit NR+ B1 3/31/02 385 375
19,001 Johnstown America Industrial Inc. Term B NR+ B1 3/31/03 18,925 18,639
5,000 Safelite Glass Corp. Term B BB- Ba3 9/08/04 4,982 5,028
------- -------
Total Automotive Equipment 51,917 51,847
======= =======
Broadcast -- 5,593 American Radio Systems Corp. Revolving
Radio & TV -- Credit B+ Ba2 12/31/04 5,593 5,588
6.2% 3,905 Benedek Broadcasting Corp. Axel A B+ Ba3 5/01/01 3,894 3,896
4,200 Benedek Broadcasting Corp. Axel B B+ Ba3 11/01/02 4,187 4,190
480 Chancellor Broadcasting, Inc. Revolving
Credit NR+ Ba2 6/26/04 480 479
12,000 Chancellor Broadcasting, Inc. Term NR+ Ba2 6/26/04 11,956 11,985
4,613 Citicasters Inc. (Jacor) Term B BB- Ba2 9/17/04 4,592 4,608
7,371 Evergreen Media Corp. Revolving
Credit NR+ NR+ 6/30/05 7,371 7,325
53,571 Evergreen Media Corp. Term NR+ NR+ 6/30/05 53,391 53,471
8,261 Latin Communications Term NR+ NR+ 3/31/04 8,211 8,235
10,000 Sinclair Broadcasting Group Inc. Term B NR+ Ba2 12/31/04 9,985 10,000
9,193 Sullivan Broadcasting Term B NR+ Ba3 12/31/03 9,164 9,175
46,682 Viacom, Inc. Term NR+ Ba2 7/01/02 46,622 46,639
20,000 Western Wireless Corp. Term B B+ B1 3/31/05 20,000 20,119
------- -------
Total Broadcast -- Radio & TV 185,446 185,710
======= =======
Building & Con- 4,447 Fenway Holdings, Inc. Term B NR+ NR+ 9/15/02 4,421 4,395
struction -- 0.1% ------- -------
Total Building & Construction 4,421 4,395
======= =======
Building 3,750 Amerimax Term C NR+ NR+ 6/30/04 3,745 3,750
Materials -- 3.0% 4,190 Behr Process Term B NR+ NR+ 3/31/04 4,184 4,190
2,793 Behr Process Term C NR+ NR+ 3/31/05 2,789 2,796
3,695 Dal Tile International Inc. Revolving
Credit NR+ NR+ 12/31/02 3,695 3,665
4,143 Dal Tile International Inc. Term NR+ NR+ 12/31/02 4,138 4,121
27,000 Dal Tile International Inc. Term B NR+ NR+ 12/31/03 26,868 26,916
2,521 Euramax Holdings Term B NR+ NR+ 6/30/04 2,518 2,521
5,000 Falcon Building Products, Inc. Term NR+ B1 6/30/05 4,980 5,006
29,875 National Gypsum Co. Term B NR+ Ba3 9/20/03 29,824 29,987
8,248 Walter Industrials, Inc. Term B NR+ NR+ 2/22/03 8,234 8,263
------- -------
Total Building Materials 90,975 91,215
======= =======
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Merrill Lynch Senior Floating Rate Fund, Inc. August 31, 1997
SCHEDULE OF INVESTMENTS (continued) (in Thousands)
Face Loan S&P Moody's Stated Value
Industries Amount Borrower Type Rating Rating Maturity Cost (Note 1a)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Cable TV 6,000 Cablevision of Ohio Term NR+ Ba2 12/31/05 5,987 5,992
Services -- 5.4% 24,375 Chelsea Communications Term B NR+ NR+ 12/31/04 24,278 24,322
17,081 Classic Cable Inc. Term B NR+ B1 6/30/05 16,911 16,568
18,683 Coaxial Communications Term B NR+ NR+ 12/31/99 18,627 18,497
5,000 FrontierVision Operating Partners L.P. Term B NR+ Ba3 6/30/05 4,972 5,000
10,000 Intermedia Communications, Inc. Term NR+ Ba3 1/01/05 9,977 10,038
3,193 Marcus Cable Operating Co. Revolving
Credit NR+ NR+ 4/30/14 3,193 3,177
30,625 Marcus Cable Operating Co. Term A NR+ NR+ 12/31/02 30,521 30,644
35,750 Marcus Cable Operating Co. Term B NR+ NR+ 4/30/04 35,483 35,951
10,000 Triax Midwest Term B NR+ NR+ 6/30/05 9,942 9,997
------- -------
Total Cable TV Services 159,891 160,186
======= =======
Casinos -- 0.2% 5,293 Alliance Gaming Corp. Term B NR+ NR+ 1/31/05 5,294 5,336
1,392 Alliance Gaming Corp. Term C NR+ NR+ 7/31/05 1,392 1,404
------- -------
Total Casinos 6,686 6,740
======= =======
Chemicals -- 5.3% 8,890 Aztar Corporation Revolving
Credit NR+ NR+ 12/31/99 8,890 8,890
4,140 Aztar Corporation Term NR+ NR+ 12/31/99 4,142 4,137
11,396 Cedar Chemical Term B NR+ NR+ 10/31/03 11,321 11,368
4,988 Exide Corporation Term D NR+ NR+ 6/15/01 4,988 4,994
2,189 HSC Holdings Revolving
Credit NR+ NR+ 12/31/99 2,189 2,184
3,350 HSC Holdings Term NR+ NR+ 12/31/99 3,335 3,342
2,886 Harris Specialty Chemicals Revolving
Credit NR+ NR+ 12/30/01 2,886 2,897
219 Harris Specialty Chemicals Term A NR+ NR+ 12/30/00 219 220
226 Harris Specialty Chemicals Term A NR+ NR+ 12/30/01 226 227
602 Harris Specialty Chemicals Term B NR+ NR+ 12/30/99 601 605
2,447 Harris Specialty Chemicals Term B NR+ NR+ 12/30/01 2,437 2,457
35,990 Huntsman Corp. Term A NR+ NR+ 12/31/02 35,962 35,934
5,000 Huntsman Corp. Term B NR+ NR+ 3/15/04 4,995 5,050
14,850 Huntsman Corp. Term B NR+ NR+ 12/31/05 14,800 14,850
15,000 Huntsman Corp. Term B NR+ NR+ 6/30/04 15,000 15,103
5,000 Huntsman Corp. Term C NR+ NR+ 3/15/05 4,995 5,050
8,000 Pioneer Americas Acquisition Corp. Term NR+ NR+ 12/5/06 8,069 8,077
24,143 Sterling Chemicals, Inc. Term B NR+ Ba3 9/30/04 24,033 24,173
6,611 Texas Petrochemicals Corp. Term B NR+ Ba3 6/30/04 6,589 6,595
1,047 Thoro World Systems, Inc. Term A NR+ NR+ 12/30/00 1,042 1,051
1,422 Thoro World Systems, Inc. Term B NR+ NR+ 12/30/01 1,413 1,427
------- -------
Total Chemicals 158,132 158,631
======= =======
Computer-Related 7,000 Anacomp, Inc. Term NR+ B2 3/31/01 6,969 7,057
Services & 11,000 DecisionOne Corp. Term B NR+ B1 8/07/05 10,983 10,986
Products -- 1.4% 7,417 Fairchild Semiconductors Corp. Term B NR+ Ba3 3/11/03 7,399 7,473
12,438 Phase Metrics Term NR+ NR+ 11/12/01 12,383 12,189
5,000 Triad Systems Corp. Term NR+ NR+ 2/27/03 4,971 4,953
------- -------
Total Computer-Related Services & Products 42,705 42,658
======= =======
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Merrill Lynch Senior Floating Rate Fund, Inc. August 31, 1997
SCHEDULE OF INVESTMENTS (continued) (in Thousands)
Face Loan S&P Moody's Stated Value
Industries Amount Borrower Type Rating Rating Maturity Cost (Note 1a)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Consumer 615 E & S Holdings Corp. Revolving
Products -- Credit NR+ B1 9/30/03 615 615
1.8% 2,059 E & S Holdings Corp. Term NR+ B1 9/30/03 2,059 2,059
5,172 Hedstrom Corp. Term A NR+ B1 6/30/03 5,147 5,153
15,000 Playtex Family Products Inc. Term B NR+ Ba2 9/15/03 14,926 15,112
7,228 RTI Funding Corp. (Ritvik Toys) Term B NR+ NR+ 2/07/03 7,168 7,255
7,228 RTI Funding Corp. (Ritvik Toys) Term C NR+ NR+ 2/07/04 7,165 7,255
15,000 Revlon Consumer Products Corp. Term NR+ NR+ 5/30/02 14,988 15,007
------- -------
Total Consumer Products 52,068 52,456
======= =======
Diversified 1,712 Ameriserve Food Corp. Term A NR+ NR+ 6/30/03 1,721 1,722
Manufacturing -- 5,000 Sarah Michael Term B NR+ NR+ 6/30/04 5,000 5,000
0.5% 7,490 Thermadyne Industries, Inc. Revolving
Credit NR+ Ba3 6/30/01 7,490 7,490
------- -------
Total Diversified Manufacturing 14,211 14,212
======= =======
Drilling -- 0.3% 4,676 IRI International Term A NR+ NR+ 3/31/02 4,660 4,702
4,846 Rigco North America Term NR+ NR+ 9/30/98 4,832 4,871
------- -------
Total Drilling 9,492 9,573
======= =======
Drug/Proprietary 204 Duane Reade Co. Term A NR+ NR+ 9/30/98 204 204
Stores -- 0.9% 10,000 Duane Reade Co. Term B NR+ NR+ 9/30/99 9,953 9,987
8,366 Smith's Food & Drug Centers, Inc. Term A NR+ NR+ 3/31/05 8,356 8,369
9,574 Smith's Food & Drug Centers, Inc. Term B NR+ NR+ 3/31/05 9,563 9,586
------- -------
Total Drug/Proprietary Stores 28,076 28,146
======= =======
Electronics/ 7,275 Amphenol Corp. Term B NR+ Ba3 3/31/02 7,390 7,364
Electrical 6,911 Amphenol Corp. Term C NR+ Ba3 3/31/03 7,021 7,000
Components -- 2,986 Circo Craft Co. (Viasystems) Term B NR+ NR+ 6/30/04 2,976 2,997
2.2% 1,800 Circo Craft Co. (Viasystems) Term C NR+ NR+ 6/30/05 1,794 1,807
5,550 Communications & Power Industries Inc. Term B NR+ NR+ 8/11/02 5,507 5,564
4,089 Details, Inc. Term A NR+ NR+ 1/31/01 4,066 4,076
2,957 Dictaphone Corp. Revolving
Credit B- B1 3/31/01 2,957 2,817
2,870 Dictaphone Corp. Term A B- B1 3/31/01 2,818 2,769
20,000 International Wire Group, Inc. Term B NR+ B1 9/30/03 19,981 20,040
1,364 L-3 Communications Corp. Term A NR+ Ba3 3/31/03 1,361 1,381
2,494 L-3 Communications Corp. Term B NR+ Ba3 3/31/05 2,490 2,526
1,645 L-3 Communications Corp. Term C NR+ Ba3 3/31/06 1,641 1,665
7,000 Telex Communications, Inc. Term B NR+ Ba3 11/30/04 6,983 7,048
------- -------
Total Electronics/Electrical Components 66,985 67,054
======= =======
Entertainment -- 4,500 Moovies Inc. Term A NR+ NR+ 3/31/02 4,500 4,500
0.2% ------- -------
Total Entertainment 4,500 4,500
======= =======
Financial 14,842 Outsourcing Solutions Inc. Term B NR+ B1 10/15/03 14,774 14,888
Services -- 0.5% ------- -------
Total Financial Services 14,774 14,888
======= =======
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Merrill Lynch Senior Floating Rate Fund, Inc. August 31, 1997
SCHEDULE OF INVESTMENTS (continued) (in Thousands)
Face Loan S&P Moody's Stated Value
Industries Amount Borrower Type Rating Rating Maturity Cost (Note 1a)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Food & Kindred 7,369 American Italian Pasta Company Term C NR+ NR+ 2/26/04 7,303 7,378
Products -- 2,945 Del Monte Corp. Revolving
4.7% Credit NR+ B2 3/31/03 2,945 2,945
3,273 Del Monte Corp. Term A NR+ B2 3/31/03 3,273 3,285
5,100 Del Monte Corp. Term B NR+ B2 3/31/05 5,095 5,145
17,418 Favorite Brands International Term B NR+ NR+ 8/30/04 17,345 17,461
163 International Homefoods, Inc. Revolving
Credit NR+ Ba3 3/31/03 163 163
3,983 International Homefoods, Inc. Term A NR+ Ba3 3/31/03 4,003 3,994
15,000 International Homefoods, Inc. Term B NR+ Ba3 9/30/04 14,940 15,088
2,500 Mistic Beverage, Inc. Term B NR+ NR+ 6/01/04 2,488 2,513
2,500 Mistic Beverage, Inc. Term C NR+ NR+ 6/01/05 2,488 2,513
4,609 President Baking Co., Inc. Term B NR+ NR+ 9/30/00 4,590 4,616
3,358 Rykoff-Sexton, Inc. Term B BB- Ba3 10/31/02 3,358 3,364
1,611 Rykoff-Sexton, Inc. Term C BB- Ba3 4/30/03 1,611 1,614
1,960 Select Beverages Inc. Term B NR+ NR+ 6/30/01 1,946 1,963
2,910 Select Beverages Inc. Term C NR+ NR+ 6/30/02 2,890 2,919
7,500 Snapple Beverage Corp. Term B NR+ NR+ 6/01/04 7,463 7,537
7,500 Snapple Beverage Corp. Term C NR+ NR+ 6/01/05 7,463 7,537
23,057 Specialty Foods Inc. Term B NR+ B3 4/30/01 22,958 23,005
7,062 Van De Kamps Inc. Term B NR+ Ba3 4/30/03 7,031 7,097
4,431 Van De Kamps Inc. Term C NR+ Ba3 9/30/03 4,411 4,453
6,617 Volume Services Term B NR+ B2 12/31/02 6,563 6,617
3,312 Volume Services Term C NR+ B2 12/31/03 3,284 3,312
4,844 Windsor Quality Food Term B NR+ NR+ 12/31/02 4,823 4,783
--------- ---------
Total Food & Kindred Products 138,434 139,302
========= =========
Funeral Homes & 15,448 Loewen Group Inc. Revolving
Parlors -- 1.3% Credit NR+ Ba1 5/29/01 15,448 15,410
14,833 Prime Succession International Group Axel A BB- NR+ 8/01/03 14,784 15,019
6,907 Rose Hills Acquisition Corp. Axel A BB NR+ 12/01/03 6,891 7,010
--------- ---------
Total Funeral Homes & Parlors 37,123 37,439
========= =========
Furniture & 9,978 Lifestyle Furnishings International
Fixtures -- 0.3% Ltd. Term NR+ Ba2 6/27/07 9,978 10,028
--------- ---------
Total Furniture & Fixtures 9,978 10,028
========= =========
General 8,458 CSK Auto Inc. Term NR+ Ba3 10/31/03 8,409 8,513
Merchandise 1,000 Kmart Corp. Revolving
Stores -- 0.7% Credit BB+ B1 1/06/00 1,000 999
1,938 Music Acquisition Term B NR+ NR+ 8/31/01 1,912 1,288
7,500 Music Acquisition Term C NR+ NR+ 8/31/02 7,400 4,988
5,000 Sneaker Stadium Term NR+ NR+ 12/31/02 5,000 5,000
--------- ---------
Total General Merchandise Stores 23,721 20,788
========= =========
Grocery -- 1.6% 10,400 Big V Supermarkets Inc. Term B NR+ NR+ 3/15/00 10,326 10,296
3,120 Bruno's, Inc. Revolving
Credit NR+ B1 6/02/03 3,120 3,038
4,000 Bruno's, Inc. Term B NR+ B1 6/02/05 3,990 3,980
806 Carr Gottstein Foods Co. Revolving
Credit NR+ NR+ 6/30/01 806 806
2,499 Carr Gottstein Foods Co. Term A NR+ B1 6/30/01 2,503 2,509
3,546 Carr Gottstein Foods Co. Term B NR+ B1 12/31/02 3,553 3,572
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Merrill Lynch Senior Floating Rate Fund, Inc. August 31, 1997
SCHEDULE OF INVESTMENTS (continued) (in Thousands)
Face Loan S&P Moody's Stated Value
Industries Amount Borrower Type Rating Rating Maturity Cost (Note 1a)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Grocery 2,971 Ralph's Grocery Company Revolving
(concluded) Credit NR+ Ba3 2/15/03 2,971 2,964
4,952 Ralph's Grocery Company Term A NR+ Ba3 2/15/03 4,941 4,969
6,983 Ralph's Grocery Company Term B NR+ Ba3 2/15/04 6,974 7,044
4,184 Star Markets Co., Inc. Term B NR+ Ba3 12/31/01 4,170 4,174
3,132 Star Markets Co., Inc. Term C NR+ Ba3 12/31/02 3,120 3,120
--------- ---------
Total Grocery 46,474 46,472
========= =========
Health 16,212 Community Health Systems, Inc. Term B NR+ NR+ 12/31/03 16,140 16,263
Services -- 5.9% 16,212 Community Health Systems, Inc. Term C NR+ NR+ 12/31/04 16,139 16,263
12,205 Community Health Systems, Inc. Term D NR+ NR+ 12/31/05 12,149 12,259
5,001 Corning/Quest Term A NR+ NR+ 12/06/02 4,989 5,007
3,252 Dade International, Inc. Term B NR+ B1 12/31/02 3,235 3,256
3,252 Dade International, Inc. Term C NR+ B1 12/31/03 3,235 3,256
3,433 Dade International, Inc. Term D NR+ B1 12/31/04 3,413 3,451
7,500 Endo Pharmaceuticals Term B NR+ NR+ 6/30/04 7,485 7,533
5,000 FPA Medical Management, Inc. Term NR+ NR+ 9/30/01 4,993 5,000
8,069 Horizons/CMS Revolving
Credit NR+ NR+ 3/31/03 8,069 8,067
2,447 Imed Corp. (Alaris) Term B BB- B1 11/30/03 2,441 2,472
2,447 Imed Corp. (Alaris) Term C BB- B1 11/30/04 2,441 2,473
2,303 Imed Corp. (Alaris) Term D BB- B1 11/30/05 2,297 2,327
9,905 MEDIQ, Inc. Term B B+ NR+ 9/30/04 9,850 9,911
13,009 Medical Specialties Axel NR+ NR+ 6/30/04 12,935 12,977
4,786 Medical Specialties Term NR+ NR+ 6/30/01 4,762 4,774
6,491 Merit Behavioral Care Corp. Term A NR+ B2 6/01/03 6,451 6,485
15,849 Merit Behavioral Care Corp. Term B NR+ B2 4/06/02 15,783 15,893
35,000 National Medical Care Inc. Term BB Ba1 9/30/03 34,888 34,869
5,000 Prime Medical Services, Inc. Term B NR+ NR+ 4/30/03 4,982 5,005
--------- ---------
Total Health Services 176,677 177,541
========= =========
Hotels & 3,125 Capstar Hotel Company Term B NR+ NR+ 6/30/04 3,125 3,142
Motels -- 0.8% 5,130 Doubletree Corporation Term B NR+ NR+ 5/15/04 5,112 5,159
2,424 Westin Hotels Ltd. Revolving
Credit NR+ NR+ 2/08/02 2,424 2,429
13,576 Westin Hotels Ltd. Term NR+ NR+ 2/08/02 13,544 13,601
--------- ---------
Total Hotels & Motels 24,205 24,331
========= =========
Industrial 8,955 Elis/Omni Axel NR+ NR+ 10/30/05 8,944 9,179
Services -- 0.3% --------- ---------
Total Industrial Services 8,944 9,179
========= =========
Leasing & Rental 2,978 Brand Scaffold Term B NR+ NR+ 9/30/03 2,964 2,987
Services -- 0.6% 1,985 Brand Scaffold Term C NR+ NR+ 9/30/04 1,975 1,993
12,959 Coinmachine Corp. Term B NR+ NR+ 6/30/04 12,923 13,056
--------- ---------
Total Leasing & Rental Services 17,862 18,036
========= =========
Manufacturing -- 10,386 Calmar Inc. Axel A NR+ B1 9/15/03 10,344 10,374
2.0% 7,790 Calmar Inc. Axel B NR+ B1 3/15/04 7,757 7,809
10,000 Polyfibron Technologies Term B NR+ NR+ 12/28/03 10,000 10,000
2,757 Rayovac Corp. Term B NR+ Ba3 9/30/03 2,751 2,776
2,757 Rayovac Corp. Term C NR+ Ba3 9/30/04 2,751 2,779
5,000 Russell Stanley Term B NR+ NR+ 6/30/05 4,981 5,050
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Merrill Lynch Senior Floating Rate Fund, Inc. August 31, 1997
SCHEDULE OF INVESTMENTS (continued) (in Thousands)
Face Loan S&P Moody's Stated Value
Industries Amount Borrower Type Rating Rating Maturity Cost (Note 1a)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Manufacturing 701 Trans Technology Corp. Revolving
(concluded) Credit NR+ NR+ 3/31/02 701 698
1,715 Trans Technology Corp. Term A NR+ NR+ 3/31/02 1,715 1,715
14,400 Trans Technology Corp. Term B NR+ NR+ 6/30/02 14,282 14,418
1,277 Walls Industries Term B NR+ NR+ 2/28/05 1,277 1,277
1,723 Walls Industries Term C NR+ NR+ 2/28/06 1,723 1,723
--------- ---------
Total Manufacturing 58,282 58,619
========= =========
Measuring, 9,331 CHF/Ebel USA Inc. Term B NR+ NR+ 9/30/01 9,331 9,331
Analyzing & 10,840 Graphic Controls Corp. Term B NR+ B1 9/28/03 10,794 10,867
Controlling 5,000 Packard Bioscience Co. Term NR+ Ba3 3/31/03 4,982 5,013
Instruments --
0.8% --------- ---------
Total Measuring, Analyzing & Controlling Instruments 25,107 25,211
========= =========
Metals & 5,059 Adience, Inc. Term B NR+ NR+ 4/15/05 5,040 5,084
Mining -- 1.2% 4,767 Alliance Coal Term B NR+ B1 12/31/02 4,746 4,770
4,955 Anker Coal Group, Inc. Term B NR+ NR+ 6/30/04 4,952 4,943
2,192 Centennial Resources Term A NR+ NR+ 3/31/02 2,172 2,181
5,163 Centennial Resources Term B NR+ NR+ 12/31/03 5,114 5,151
2,400 Northwestern Steel & Mining Revolving
Credit NR+ B2 12/31/00 2,400 2,400
10,171 UCAR International Inc. Term B NR+ Ba2 12/31/02 10,162 10,179
--------- ---------
Total Metals & Mining 34,586 34,708
========= =========
Packaging -- 7,875 IPC, Inc. Term NR+ B1 9/30/01 7,853 7,895
0.7% 2,716 Mail-Well, Inc./Supremex Term A NR+ Ba2 3/31/03 2,713 2,709
3,870 Mail-Well, Inc./Supremex Term A NR+ Ba3 3/31/03 3,866 3,867
1,207 Mail-Well, Inc./Supremex Term B NR+ Ba2 7/31/03 1,207 1,204
1,941 Silgan Corp. Revolving
Credit NR+ Ba2 12/31/03 1,941 1,937
2,813 Silgan Corp. Term A NR+ Ba2 12/31/03 2,812 2,807
--------- ---------
Total Packaging 20,392 20,419
========= =========
Paper -- 9.4% 4,764 Crown Paper Co. Term B BB Ba3 8/22/03 4,715 4,794
828 Jefferson Smurfit Company/ Revolving
Container Corp. of America Credit BB Ba3 4/30/01 828 826
24,191 Jefferson Smurfit Company/
Container Corp. of America Term A BB Ba3 4/30/01 24,135 24,214
6,564 Jefferson Smurfit Company/
Container Corp. of America Term B BB Ba3 4/30/01 6,558 6,621
47,905 Jefferson Smurfit Company/
Container Corp. of America Term B BB Ba3 4/30/02 47,840 48,324
12,776 Jefferson Smurfit Company/
Container Corp. of America Term C BB Ba3 10/31/02 12,749 12,888
5,620 Riverwood International Corp. Term A B+ B1 2/28/03 5,451 5,634
63,415 Riverwood International Corp. Term B B+ B1 2/28/04 62,591 63,930
24,368 Riverwood International Corp. Term C B+ B1 8/28/04 24,046 24,566
1,147 S.D. Warren Co. Term A NR+ Ba2 12/31/01 1,147 1,149
19,301 S.D. Warren Co. Term B NR+ Ba2 6/30/02 19,261 19,373
2,423 St. Laurent Paperboard, Inc. Term B NR+ NR+ 5/31/03 2,416 2,453
2,577 St. Laurent Paperboard, Inc. Term C NR+ NR+ 5/31/04 2,570 2,610
13,930 Stone Container Corp. Term B NR+ Ba3 4/01/00 13,833 14,043
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Merrill Lynch Senior Floating Rate Fund, Inc. August 31, 1997
SCHEDULE OF INVESTMENTS (continued) (in Thousands)
Face Loan S&P Moody's Stated Value
Industries Amount Borrower Type Rating Rating Maturity Cost (Note 1a)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Paper 20,117 Stone Container Corp. Term C NR+ Ba3 4/01/00 20,091 20,287
(concluded) 20,000 Stone Container Corp. Term E NR+ Ba3 10/01/03 20,119 20,200
9,451 Stronghaven Term B NR+ NR+ 5/15/04 9,407 9,475
--------- ---------
Total Paper 277,757 281,387
========= =========
Printing & 7,187 Advanstar Communications Term B NR+ NR+ 12/21/03 7,148 7,178
Publishing -- 21,097 American Media Term B BB- Ba2 9/30/02 21,028 21,071
3.9% 8,789 Garden State Newspapers, Inc. Revolving
Credit 'A' NR+ NR+ 6/30/03 8,789 8,773
1,740 Garden State Newspapers, Inc. Term A NR+ NR+ 3/31/04 1,737 1,737
4,000 Garden State Newspapers, Inc. Term B NR+ NR+ 3/31/04 3,985 3,992
8,762 Journal News Co. Term NR+ NR+ 12/31/01 8,746 8,751
2,948 K-III Communications Corp. Revolving
Credit NR+ Ba3 12/31/00 2,948 2,931
12,620 K-III Communications Corp. Revolving
Credit 'A' NR+ Ba3 12/31/00 12,620 12,549
5,000 K-III Communications Corp. Revolving
Credit 'C' NR+ Ba3 12/31/00 5,000 4,972
6,000 K-III Communications Corp. Term NR+ Ba3 6/30/04 5,995 5,974
10,000 Morris Communications Term B NR+ NR+ 6/30/05 9,981 10,000
14,000 Newsquest Capital PLC Term 2 NR+ NR+ 12/31/04 13,934 14,017
6,213 Petersen Publishing Co. Term 3 B+ B1 9/30/04 6,191 6,228
3,571 Von Hoffmann Press Inc. Term B NR+ B1 5/22/05 3,563 3,603
3,571 Von Hoffmann Press Inc. Term C NR+ B1 5/22/06 3,563 3,603
--------- ---------
Total Printing & Publishing 115,228 115,379
========= =========
Rendering -- 0.2% 4,956 CBP Resources Inc. Term B NR+ NR+ 9/30/03 4,924 4,943
--------- ---------
Total Rendering 4,924 4,943
========= =========
Restaurants -- 0.1% 4,000 AFC Enterprises Term NR+ Ba3 6/30/02 3,981 4,005
--------- ---------
Total Restaurants 3,981 4,005
========= =========
Retail -- 0.1% 2,500 Murray's Discount Auto Stores Term NR+ NR+ 6/30/03 2,500 2,500
--------- ---------
Total Retail 2,500 2,500
========= =========
Telephone 8,000 Arch Communications Group, Inc. Term B NR+ B1 12/31/03 7,972 7,975
Communications -- 8,368 MobileMedia Corp. Term A NR+ Caa 6/30/02 8,339 7,447
5.5% 1,667 MobileMedia Corp. Term B1 NR+ Caa 6/30/02 1,667 1,485
8,000 MobileMedia Corp. Term B2 NR+ Caa 6/30/03 7,980 7,130
1,989 Nextel Communications, Inc. Revolving
Credit NR+ B1 3/31/03 1,989 1,970
10,348 Nextel Communications, Inc. Revolving
Credit 'B' NR+ B1 3/31/03 10,348 10,248
8,427 Nextel Communications, Inc. Term C NR+ B1 3/31/03 8,295 8,391
35,000 Nextel Communications, Inc. Term D NR+ B1 6/30/03 34,404 35,339
17,888 Paging Network Inc. Revolving
Credit NR+ Ba3 12/31/04 17,888 17,636
4,821 Shared Technologies Cellular, Inc. Term B NR+ B1 3/31/03 4,796 4,828
25,000 Sprint Spectrum L.P./Nortel Term NR+ B1 6/29/01 24,918 25,125
17,775 Sprint Spectrum L.P. Term 1 NR+ B1 7/04/05 17,636 17,875
17,776 Sprint Spectrum L.P. Term 2 NR+ B1 7/04/05 17,634 17,875
--------- ---------
Total Telephone Communications 163,866 163,324
========= =========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Merrill Lynch Senior Floating Rate Fund, Inc. August 31, 1997
SCHEDULE OF INVESTMENTS (continued) (in Thousands)
Face Loan S&P Moody's Stated Value
Industries Amount Borrower Type Rating Rating Maturity Cost (Note 1a)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Textiles/Mill 4,267 Ithaca Industries, Inc. Revolving
Products -- Credit NR+ NR+ 8/31/99 4,267 4,245
0.7% 12,237 Ithaca Industries, Inc. Term NR+ NR+ 8/31/99 12,202 12,176
3,289 Joan Fabrics Term B NR+ NR+ 6/30/05 3,285 3,328
1,711 Joan Fabrics Term C NR+ NR+ 6/30/06 1,708 1,731
--------- ---------
Total Textiles/Mill Products 21,462 21,480
========= =========
Transportation 28,107 Atlas Air, Inc. Revolving
Services -- 1.8% Credit NR+ NR+ 6/30/98 28,107 28,142
10,000 Atlas Freight Term NR+ NR+ 5/29/04 9,976 10,031
7,469 International Logistics Term B NR+ NR+ 12/31/03 7,435 7,455
3,333 Petro Stopping Centers Term B BB- Ba3 12/31/03 3,325 3,327
3,994 Travel Centers Term B NR+ B2 3/27/05 3,979 4,021
--------- ---------
Total Transportation Services 52,822 52,976
========= =========
Waste 11,000 American Disposal Services, Inc. Term NR+ NR+ 5/31/04 10,984 11,014
Management -- 2,500 Laidlaw Environmental Services, Inc. Term B NR+ NR+ 5/15/05 2,494 2,547
0.5% 2,500 Laidlaw Environmental Services, Inc. Term C NR+ NR+ 5/15/04 2,494 2,548
--------- ---------
Total Waste Management 15,972 16,109
========= =========
Total Senior Secured Floating Rate Loan Securities -- 82.7% 2,466,848 2,474,278
========= =========
<CAPTION>
Shares
Held Equity Investments
<S> <C> <C> <C> <C>
Cable TV 1 Classic Cable, Inc. (Warrants) (a) 0 0
Services -- 0.0%
Drilling -- 0.0% 12 Rigco North America (Warrants) (a) 0 0
Restaurants -- 0.0% 44 Flagstar Companies, Inc. 0 12
--------- ---------
Total Equity Investments -- 0.0% 0 12
========= =========
Total Long-Term Investments -- 82.7% 2,466,848 2,474,290
========= =========
<CAPTION>
Short-Term Investments
<S> <C> <C> <C>
Commercial Countrywide Home Loans, Inc. ($14,000 par, maturing 9/18/1997, yielding
Paper** -- 14.2% 5.52%) 13,966 13,966
GTE Funding Inc. ($48,000 par, maturing 10/06/1997, yielding 5.50%) 47,751 47,751
General Motors Acceptance Corp. ($57,368 par, maturing 9/02/1997, yielding
5.69%) 57,368 57,368
Goldman Sachs Group ($50,000 par, maturing 9/16/1997, yielding 5.53%) 49,892 49,892
Goldman Sachs Group ($26,000 par, maturing 9/18/1997, yielding 5.52%) 25,936 25,936
Morgan (J.P.) & Company, Inc. ($37,870 par, maturing 9/08/1997, yielding
5.49%) 37,835 37,835
Morgan Stanley Group, Inc. ($50,000 par, maturing 10/07/1997, yielding
5.50%) 49,732 49,732
National Fleet Funding Corp. ($15,275 par, maturing 9/11/1997, yielding
5.53%) 15,254 15,254
Riverwoods Funding Corp. ($50,000 par, maturing 9/02/1997, yielding 5.50%) 50,000 50,000
Xerox Corp. ($32,000 par, maturing 9/10/1997, yielding 5.50%) 31,961 31,961
Xerox Corp. ($46,000 par, maturing 9/23/1997, yielding 5.48%) 45,853 45,853
---------- ----------
Total Commercial Paper 425,548 425,548
========== ==========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Merrill Lynch Senior Floating Rate Fund, Inc. August 31, 1997
SCHEDULE OF INVESTMENTS (concluded) (in Thousands)
Short-Term Investments
<S> <C> <C> <C>
US Government Agency Federal Home Loan Mortgage Corporation ($20,000 par, maturing 9/05/1997,
Obligations** -- 2.4% yielding 5.46%) 19,991 19,991
Federal Home Loan Mortgage Corporation
($50,000 par, maturing 9/12/1997, yielding 5.41%) 49,925 49,925
---------- ----------
Total US Government Agency Obligations 69,916 69,916
========== ==========
Total Short-Term Investments -- 16.6% 495,464 495,464
========== ==========
Total Investments -- 99.3% $2,962,312 2,969,754
========== ==========
22,036
----------
Other Assets Less Liabilities -- 0.7% $2,991,790
==========
Net Assets -- 100.0%
</TABLE>
(a) Warrants entitle the Fund to purchase a predetermined number of shares of
common stock. The purchase price and numbers of shares are subject to
adjustment under certain conditions until expiration date.
+ Not Rated.
* The interest rates on senior secured floating rate loan interests are
subject to change periodically based on the change in the prime rate of a
US Bank, LIBOR (London Interbank Offered Rate), or, in some cases,
another base lending rate. The interest rates shown are those in effect
at August 31, 1997.
** Commercial Paper and certain US Government Agency Obligations are traded
on a discount basis; the interest rates shown are the discount rates paid
at the time of purchase by the Fund. Ratings of issues shown have not
been audited by Deloitte & Touche LLP.
See Notes to Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
Merrill Lynch Senior Floating Rate Fund, Inc. August 31, 1997
FINANCIAL INFORMATION
Statement of Assets and Liabilities as of August 31, 1997
<S> <C> <C> <C>
Assets: Investments, at value (identified cost -- $2,962,312,311) (Note 1b) $2,969,754,258
Cash 3,333,212
Receivables:
Interest $23,156,172
Capital shares sold 6,864,898
Principal paydowns 1,323,008
Commitment fees 407,651 31,751,729
-----------
Prepaid registration fees and other assets (Note 1f) 2,827,494
--------------
Total assets 3,007,666,693
--------------
Liabilities: Payables:
Securities purchased 5,040,176
Dividends to shareholders (Note 1g) 3,944,807
Investment adviser (Note 2) 2,458,075
Administrator (Note 2) 646,862
Interest expense (Note 6) 256,210 12,346,130
-----------
Deferred income (Note 1e) 2,620,628
Accrued expenses and other liabilities. 910,294
--------------
Total liabilities 15,877,052
--------------
Net Assets: Net assets $2,991,789,641
==============
Net Assets Common Stock, par value $0.10 per share; 1,000,000,000 shares
Consist of: authorized $29,871,117
Paid-in capital in excess of par 2,960,840,225
Accumulated realized capital losses on investments -- net (Note 7) (6,363,648)
Unrealized appreciation on investments -- net 7,441,947
--------------
Net Assets -- Equivalent to $10.02 per share based on 298,711,170
shares of capital stock outstanding $2,991,789,641
==============
</TABLE>
See Notes to Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
Merrill Lynch Senior Floating Rate Fund, Inc. August 31, 1997
FINANCIAL INFORMATION (continued)
Statement of Operations For the Year Ended
August 31, 1997
<S> <C> <C> <C>
Investment Income Interest and discount earned $231,932,345
(Note 1e): Facility and other fees 2,570,817
------------
Total income 234,503,162
------------
Expenses: Investment advisory fees (Note 2) $27,674,808
Administrative fees (Note 2) 7,282,844
Transfer agent fees (Note 2) 1,688,406
Professional fees 595,135
Accounting services (Note 2) 373,370
Custodian fees 300,414
Loan interest expense (Note 6) 256,210
Tender offer costs 189,018
Printing and shareholder reports 152,575
Borrowing costs (Note 6) 74,125
Registration fees (Note 1f) 66,689
Directors' fees and expenses 48,329
Other 42,802
-----------
Total expenses 38,744,725
------------
Investment income -- net 195,758,437
------------
Realized & Realized gain on investments -- net 1,494,764
Unrealized Gain on Change in unrealized appreciation on investments -- net 6,060,630
Investments -- Net ------------
(Notes 1c, 1e & 3): Net Increase in Net Assets Resulting from Operations $203,313,831
============
</TABLE>
See Notes to Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
Merrill Lynch Senior Floating Rate Fund, Inc. August 31, 1997
FINANCIAL INFORMATION (continued)
Statements of Changes in Net Assets
For the Year Ended August 31,
Increase (Decrease) in Net Assets: 1997 1996
<S> <C> <C> <C>
Operations: Investment income -- net $195,758,437 $178,696,222
Realized gain (loss) on investments -- net 1,494,764 (8,718,939)
Change in unrealized appreciation/depreciation on
investments -- net. 6,060,630 1,207,962
-------------- --------------
Net increase in net assets resulting from operations 203,313,831 171,185,245
-------------- --------------
Dividends to Investment income -- net (195,758,437) (178,696,222)
-------------- --------------
(Note 1g): Net decrease in net assets resulting from dividends to shareholders (195,758,437) (178,696,222)
-------------- --------------
Capital Share Net increase in net assets resulting from capital share transactions 38,706,901 789,568,710
-------------- --------------
(Note 4):
Net Assets: Total increase in net assets 46,262,295 782,057,733
Beginning of year 2,945,527,346 2,163,469,613
-------------- --------------
End of year $2,991,789,641 $2,945,527,346
============== ==============
</TABLE>
See Notes to Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
Merrill Lynch Senior Floating Rate Fund, Inc. August 31, 1997
FINANCIAL INFORMATION (continued)
Statement of Cash Flows
For the Year Ended
August 31, 1997
<S> <C> <C>
Cash Provided by Net increase in net assets resulting from operations $203,313,831
Operating Activities: Adjustments to reconcile net increase in net assets resulting from operations to net
cash provided by operating activities:
Increase in receivables (5,855,760)
Increase in other assets (1,147,020)
Decrease in other liabilities (2,250,790)
Realized and unrealized gain on investments -- net (7,555,394)
Amortization of discount (27,355,717)
----------------
Net cash provided by operating activities 159,149,150
----------------
Cash Provided by Proceeds from principal payments and sales of loan interests 1,961,516,374
Investing Activities: Purchases of loan interests (2,268,240,139)
Purchases of short-term investments (21,312,835,470)
Proceeds from sales and maturities of short-term investments 21,621,740,112
----------------
Net cash provided by investing activities 2,180,877
----------------
Cash Used for Cash receipts from borrowings 50,000,000
Financing Activities: Cash payments from borrowings (50,000,000)
Cash receipts on capital shares sold 426,269,518
Cash payments on capital shares tendered (486,786,078)
Dividends paid to shareholders (100,140,743)
----------------
Net cash used for financing activities (160,657,303)
----------------
Cash: Net increase in cash 672,724
Cash at beginning of year 2,660,488
----------------
Cash at end of year $3,333,212
================
Non-Cash Capital shares issued in reinvestment of dividends paid to shareholders $95,204,864
Financing Activities: ================
</TABLE>
See Notes to Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
Merrill Lynch Senior Floating Rate Fund, Inc. August 31, 1997
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,
1997 1996 1995 1994 1993
<S> <C> <C> <C> <C>
Increase (Decrease) in Net Asset Value:
Per Share Net asset value, beginning of year $9.99 $10.02 $10.02 $10.02 $9.99
Operating -------- -------- -------- -------- --------
Performance: Investment income -- net .68 .66 .75 .59 .53
Realized and unrealized gain (loss) on
investments -- net .03 (.03) --+ --+ .03
-------- -------- -------- -------- --------
Total from investment operations .71 .63 .75 .59 .56
-------- -------- -------- -------- --------
Less dividends from investment income -- net (.68) (.66) (.75) (.59) (.53)
-------- -------- -------- -------- --------
Net asset value, end of year $10.02 $9.99 $10.02 $10.02 $10.02
======== ======== ======== ======== ========
Total Investment Based on net asset value per share 7.23% 6.53% 7.68% 5.94% 5.74%
Return:* ======== ======== ======== ======== ========
Ratio to Average Expenses, excluding interest expense 1.32% -- -- -- --
Net Assets: ======== ======== ======== ======== ========
Expenses 1.33% 1.34% 1.34% 1.43% 1.47%
======== ======== ======== ======== ========
Investment income -- net 6.72% 6.54% 7.45% 5.75% 5.27%
======== ======== ======== ======== ========
Leverage: Amount of borrowings (in thousands) -- -- -- -- --
======== ======== ======== ======== ========
Average amount of borrowings outstanding
during the period (in thousands) $4,409 -- -- -- --
======== ======== ======== ======== ========
Average amount of borrowings outstanding
per share during the period $.02 -- -- -- --
======== ======== ======== ======== ========
Supplemental Net assets, end of year (in millions) $2,992 $2,946 $2,163 $934 $713
Data: ======== ======== ======== ======== ========
Portfolio turnover 74.00% 80.20% 55.23% 61.31% 90.36%
======== ======== ======== ======== ========
</TABLE>
* 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.
<PAGE>
Merrill Lynch Senior Floating Rate Fund, Inc. August 31, 1997
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies:
Merrill Lynch Senior Floating Rate Fund, Inc. (the "Fund") is registered
under the Investment Company Act of 1940 as a continuously offered, non-
diversified, closed-end management investment company.
(a) Loan participation interests -- The Fund invests in senior secured
floating rate loan interests ("Loan Interests") with collateral having a
market value, at time of acquisition by the Fund, which Fund management
believes equals or exceeds the principal amount of the corporate loan.
The Fund may invest up to 20% of its total assets in loans made on an
unsecured basis. Depending on how the loan was acquired, the Fund will
regard the issuer as including the corporate borrower along with an
agent bank for the syndicate of lenders and any intermediary of the
Fund's investment. Because agents and intermediaries are primarily
commercial banks, the Fund's investment in corporate loans at August 31,
1997 could be considered to be concentrated in commercial banking.
(b) Valuation of investments -- The Loan Interests will be valued in
accordance with guidelines established by the Fund's Board of Directors.
Under the Fund's current guidelines, Loan Interests will be valued at
the average of the mean between the bid and asked quotes received from
one or more brokers, if available.
Other portfolio securities may be valued on the basis of prices
furnished by one or more pricing services which determine prices for
normal, institutional-size trading units of such securities using market
information, transactions for comparable securities and various
relationships between securities which are generally recognized by
institutional traders. In certain circumstances, portfolio securities
are valued at the last sale price on the exchange that is the primary
market for such securities, or the last quoted bid price for those
securities for which the over-the-counter market is the primary market
or for listed securities in which there were no sales during the day.
Short-term securities with remaining maturities of sixty days or less
are valued at amortized cost, which approximates market value.
Securities and assets for which market quotations are not readily
available are valued at fair value as determined in good faith by or
under the direction of the Board of Directors of the Fund.
(c) Derivative financial instruments -- The Fund may engage in various
portfolio strategies to seek to increase its return by hedging its
portfolio against adverse movements in the debt markets. Losses may
arise due to changes in the value of the contract or if the counterparty
does not perform under the contract.
[bullet] Interest rate transactions -- The Fund is authorized to enter
into interest rate swaps and purchase or sell interest rate caps and
floors. In an interest rate swap, the Fund exchanges with another party
their respective commitments to pay or receive interest on a specified
notional principal amount. The purchase of an interest rate cap (or
floor) entitles the purchaser, to the extent that a specified index
exceeds (or falls below) a predetermined interest rate, to receive
payments of interest equal to the difference between the index and the
predetermined rate on a notional principal amount from the party selling
such interest rate cap (or floor).
(d) Income taxes -- It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated
investment companies and to distribute substantially all of its taxable
income to its shareholders. Therefore, no Federal income tax provision
is required.
(e) Security transactions and investment income -- Security transactions
are recorded on the dates the transactions are entered into (the trade
dates). Interest is recognized on the accrual basis. Realized gains and
losses on security transactions are determined on the identified cost
basis. Facility fees are accreted into income over the term of the
related loan.
(f) Prepaid registration fees -- Prepaid registration fees are charged
to expense as the related shares are issued.
(g) Dividends and distributions -- Dividends from net investment income
are declared daily and paid monthly. Distributions of capital gains are
recorded on the ex-dividend dates.
<PAGE>
Merrill Lynch Senior Floating Rate Fund, Inc. August 31, 1997
NOTES TO FINANCIAL STATEMENTS (concluded)
2. Investment Advisory and Administrative Services Agreement and
Transactions with Affiliates:
The Fund has entered into an Investment Advisory Agreement with Merrill
Lynch Asset Management, L.P. ("MLAM"). The general partner of MLAM is
Princeton Services, Inc. ("PSI"), an indirect wholly-owned subsidiary of
Merrill Lynch & Co., Inc. ("ML & Co."), which is the limited partner.
MLAM is responsible for the management of the Fund's portfolio and
provides the necessary personnel, facilities, equipment and certain
other services necessary to perform this investment advisory function.
For such services, the Fund pays a monthly fee at an annual rate of
0.95% of the Fund's average daily net assets. The Fund also has an
Administrative Services Agreement with MLAM whereby MLAM will receive
a fee equal to an annual rate of 0.25% of the Fund's average daily net
assets on a monthly basis, in return for the performance of
administrative services (other than investment advice and related
portfolio activities) necessary for the operation of the Fund.
For the year ended August 31, 1997, Merrill Lynch Funds Distributor,
Inc. ("MLFD") earned early withdrawal charges of $4,868,307 relating to
the tender of the Fund's shares.
Merrill Lynch Financial Data Services, Inc. ("MLFDS"), a wholly-owned
subsidiary of ML & Co., is the Fund's transfer agent.
Accounting services are provided to the Fund by MLAM at cost.
The Fund's credit facility is currently provided by Merrill Lynch
International Bank Limited, an affiliate of MLAM (see Note 6).
Certain officers and/or directors of the Fund are officers and/or
directors of MLAM, PSI, MLFDS, MLFD, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities, for
the year ended August 31, 1997 were $2,273,069,862 and $1,962,839,382,
respectively.
Net realized and unrealized gains as of August 31, 1997 were as follows:
Realized Unrealized
Gains Gains
Long-term investments $1,487,434 $7,441,947
Short-term investments 7,330 --
----------- -----------
Total $1,494,764 $7,441,947
=========== ===========
As of August 31, 1997, net unrealized appreciation for financial
reporting and Federal income tax purposes aggregated $7,441,947, of
which $14,800,526 is related to appreciated securities and $7,358,579 is
related to depreciated securities. The aggregate cost of investments at
August 31, 1997 for Federal income tax purposes was $2,962,312,311.
4. Capital Share Transactions:
Transactions in capital shares were as follows:
For the Year Ended Dollar
August 31, 1997 Shares Amount
Shares sold 43,063,467 $430,288,115
Shares issued to share-
holders in reinvestment
of dividends 9,529,624 95,204,864
------------- -------------
Total issued 52,593,091 525,492,979
Shares tendered (48,731,298) (486,786,078)
------------- -------------
Net increase 3,861,793 $38,706,901
============= =============
For the Year Ended Dollar
August 31, 1996 Shares Amount
Shares sold 97,262,448 $973,004,146
Shares issued to share-
holders in reinvestment
of dividends 9,032,914 90,287,773
------------- -------------
Total issued 106,295,362 1,063,291,919
Shares tendered (27,418,447) (273,723,209)
------------- -------------
Net increase 78,876,915 $789,568,710
============= =============
<PAGE>
Merrill Lynch Senior Floating Rate Fund, Inc. August 31, 1997
5. Unfunded Loan Interests:
As of August 31, 1997, the Fund had unfunded loan commitments of
$342,215,631, which would be extended at the option of the borrower,
pursuant to the following loan agreements:
Unfunded
Commitment
Borrower (in thousands)
AFC Enterprises $10,000
AMF Group, Inc. 383
Alliance Gaming Corp. 15,000
American Radio Systems Corp. 4,407
Ameriserve Financial Corp. 3,288
Arch Communications Group, Inc. 3,125
Aztar Corporation 1,738
Bruno's, Inc. 1,947
Capstar Hotel Company 3,125
Carr Gottstein Foods Co. 2,294
Chancellor Broadcasting Inc. 12,569
Continental Airlines, Inc. 6,400
Corning/Quest 1,667
Dal Tile International Inc. 1,409
Del Monte Corp. 2,782
Dictaphone Corp. 328
E&S Holdings Corp. 2,287
Evergreen Media Corp. 14,057
Fort Howard Corp. 11,409
Garden State Newspapers, Inc. 1,421
HSC Holdings 5,131
Hedstrom Corp. 4,710
Horizons/CMS 1,813
Huntsman Corp. 9,581
IMO Industries, Inc. 3,813
International Homefoods, Inc. 1,355
Ithaca Industries, Inc. 12,216
Jefferson Smurfit Company/Container
Corp. of America 2,230
Johnstown America Industrial Inc. 3,115
K-III Communications Corp. 3,307
KSL Recreation Group, Inc. 5,357
Kmart Corp. 9,000
Katz Media Corporation 2,386
Kerastotes 7,022
Loewen Group Inc. 17,052
Marcus Cable Operating Co. 10,369
Nextel Communications, Inc. 17,090
Northwestern Steel & Mining 12,600
Paging Network Inc. 16,446
Ralph's Grocery Company 4,903
Riverwood International Corp. 5,000
SC International Corp., Inc. 18,000
S.D. Warren Co. 1,897
Silgan Corp. 16,197
Six Flags Entertainment Corp. 1,787
Smith's Food & Drug Centers, Inc. 3,273
Sprint Spectrum L.P. 15,000
Thermadyne Industries, Inc. 7,510
Trans Technology Corp. 1,422
UCAR International Inc. 7,126
Viasystems Technologies, Inc. 5,000
Whittaker Corporation 872
Worldcom Inc. 10,000
6. Short-Term Borrowings:
On June 13, 1997, the Fund extended its credit agreement with Merrill
Lynch International Bank Limited, an affiliate of MLAM, through June 12,
1998. The agreement is a $100,000,000 credit facility bearing interest
at the Federal Funds rate plus 0.25% and/or LIBOR plus 0.25%. For the
year ended August 31, 1997, the maximum amount borrowed was $50,000,000,
the average amount borrowed was approximately $4,409,000, and the daily
weighted average interest rate was 5.81%. For the year ended August 31,
1997, facility and commitment fees aggregated approximately $74,125.
7. Capital Loss Carryforward:
At August 31, 1997, the Fund had a net capital loss carryforward of
approximately $4,752,000, of which $1,471,000 expires in 2004 and
$3,281,000 expires in 2005. This amount will be available to offset like
amounts of any future taxable gains.
8. Subsequent Event:
The Fund began a quarterly tender offer on September 23, 1997 which
concludes on October 21, 1997.
<PAGE>
EXHIBIT (g)(3)
<PAGE>
Exhibit 99.(g)(3)
<PAGE>
<TABLE>
<CAPTION>
Merrill Lynch Senior Floating Rate Fund, Inc. February 28, 1998
SCHEDULE OF INVESTMENTS (in Thousands)
S&P Moody's Face Senior Secured Value
Industries Rating Rating Amount Floating Rate Loan Interests* Cost (Note 1a)
<S> <C> <C> <C> <C> <C> <C>
Advertising -- NR+ Ba2 $12,500,000 Outdoor Systems, Inc., Term, due
0.4% 6/30/2004 $12,476,567 $12,515,625
Aerospace -- 0.2% NR+ Ba3 4,995,404 KF Industries, Term B, due
10/15/2005 4,995,404 5,032,870
NR+ NR+ 1,941,127 Whittaker Corporation, Revolving
Credit, due 4/09/2001 1,941,127 1,933,848
-------------- --------------
6,936,531 6,966,718
Air Transport -- Continental Airlines, Inc.:
0.3% BB- NR+ 3,403,636 Term A, due 7/31/2002 3,399,062 3,390,447
BB- NR+ 6,357,333 Term B, due 7/31/2002 6,357,333 6,353,360
-------------- --------------
9,756,395 9,743,807
Aircraft & NR+ Ba2 4,883,319 Alliant Techsystems, Inc., Term, due
Parts -- 1.2% 3/15/2001 4,879,749 4,883,319
NR+ Ba3 7,382,250 Evergreen International Aviation,
Inc., Term B, due 5/31/2003 7,349,253 7,363,794
NR+ NR+ 23,750,000 Gulfstream Aerospace Corp., Term,
due 9/30/2002 23,711,518 23,779,688
NR+ NR+ 2,744,318 Technetics, Term, due 6/20/2002 2,728,504 2,735,742
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
-------------- --------------
38,669,024 38,762,543
Amusement & AMF Group, Inc.:
Recreational NR+ Ba3 9,889,637 Axel A, due 3/31/2003 10,002,599 9,926,724
Services -- 5.3% NR+ Ba3 3,081,042 Axel A, due 5/03/2003 3,100,298 3,106,075
NR+ Ba3 19,651,732 Axel B, due 3/31/2004 19,682,521 19,725,425
NR+ Ba3 1,918,958 Axel B, due 5/01/2004 1,930,952 1,934,550
NR+ Ba3 6,749,735 Revolving Credit, due 3/31/2002 6,749,735 6,728,642
NR+ Ba3 3,203,421 Term, due 3/31/2002 3,195,903 3,201,419
NR+ Ba3 2,711,725 Term A, due 3/31/2002 2,705,097 2,710,030
NR+ Ba3 21,152,696 Term A, due 3/31/2003 21,111,131 21,232,019
NR+ Ba3 2,850,597 Term C1, due 3/31/2003 2,893,356 2,861,286
NR+ Ba3 2,088,407 Term C2, due 3/31/2004 2,119,733 2,096,238
NR+ B1 2,000,000 ASC East Inc., Term, due 5/31/2006 1,998,049 2,003,750
NR+ B1 5,000,000 ASC West Inc., Term, due 5/31/2006 4,995,121 5,009,375
Amfac Resorts, Inc.:
NR+ NR+ 2,500,000 Term B, due 9/30/2004 2,496,315 2,501,563
NR+ NR+ 2,500,000 Term C, due 9/30/2005 2,496,304 2,504,688
KSL Recreation Group, Inc.:
NR+ B2 6,928,571 Revolving Credit, due 4/30/2004 6,928,571 6,950,223
NR+ B2 7,750,000 Term A, due 4/30/2005 7,773,567 7,774,219
NR+ B2 7,750,000 Term B, due 4/30/2006 7,773,444 7,774,219
Kerastotes:
NR+ NR+ 11,456,522 Revolving Credit, due 12/31/2003 11,456,522 11,384,919
NR+ NR+ 3,658,696 Term, due 12/31/2004 3,629,770 3,635,829
Metro Goldwyn Mayer Co.:
NR+ NR+ 2,610,000 Revolving Credit, due 9/30/2003 2,610,000 2,574,113
NR+ NR+ 4,000,000 Term A, due 12/31/2005 3,980,665 3,945,000
NR+ B1 10,000,000 Term B, due 12/31/2006 9,975,631 10,056,250
NR+ NR+ 4,200,000 Moovies, Inc., Term A, due 3/14/2002 4,200,000 4,200,000
Six Flags Entertainment Corp.:
NR+ Ba3 1,851,063 Revolving Credit, due 10/28/2001 1,851,064 1,852,220
NR+ Ba3 4,385,745 Term A, due 10/28/2001 4,396,709 4,396,709
NR+ Ba3 16,375,154 Term B, due 6/23/2003 16,314,793 16,395,623
-------------- --------------
166,367,850 166,481,108
Apparel -- 1.6% Arenabrands:
NR+ NR+ 1,307,778 Revolving Credit, due 6/01/2002 1,307,778 1,312,682
NR+ NR+ 3,973,189 Term A, due 6/01/2002 3,978,155 3,988,088
NR+ NR+ 7,233,630 Term B, due 6/01/2002 7,242,672 7,260,756
CS Brooks Canada:
NR+ NR+ 4,570,548 Axel A, due 6/30/2002 4,552,380 4,556,265
NR+ NR+ 10,156,772 Axel B, due 6/30/2004 10,119,131 10,125,032
NR+ NR+ 9,750,000 Humphreys Inc., Term B, due 1/15/2003 9,750,000 9,750,000
NR+ NR+ 4,800,000 Renfro Corp., Term B, due 11/15/2003 4,779,797 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 6,174,000 William Carter Co. (The), Term, due
10/31/2003 6,147,682 6,162,424
-------------- --------------
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
50,829,723 50,907,375
Automobiles -- 0.3% NR+ Ba3 10,000,000 CSK Automotive, Term, due 10/31/2003 9,990,336 10,015,625
Automotive NR+ NR+ 21,000,000 American Axel, Term B, due 3/31/2007 21,033,077 21,105,000
Equipment -- 3.2% NR+ NR+ 30,000,000 Breed Technologies, Inc., Term, due
10/31/1998 29,797,179 29,970,000
B+ B1 23,419,946 Collins & Aikman Corp., Term B, due
12/31/2002 23,332,172 23,478,496
NR+ B1 18,668,000 Johnstown America Industrial, Inc.,
Term B, due 3/31/2003 18,595,302 18,609,663
Safelite Glass Corp.:
NR+ Ba3 3,750,000 Term B, due 12/31/2004 3,744,492 3,761,719
NR+ Ba3 3,750,000 Term C, due 12/31/2005 3,744,472 3,761,719
-------------- --------------
100,246,694 100,686,597
Broadcast -- NR+ NR+ 10,000,000 Channel Master, Term, due 10/10/2005 9,980,700 10,000,000
Media -- 2.5% NR+ Ba3 4,000,000 FrontierVision Operating Partners L.P.,
Term B, due 3/31/2006 3,994,104 4,012,500
NR+ NR+ 7,500,000 Optel, Inc., Term, due 5/31/2004 7,463,189 7,481,250
NR+ NR+ 9,450,000 Sinclair Broadcasting Group, Inc.,
Term A, due 12/31/2004 9,450,000 9,426,848
NR+ NR+ 9,000,000 Usani, Term B, due 12/31/2003 8,986,593 8,986,500
NR+ Ba2 38,958,818 Viacom, Inc., Term, due 7/01/2002 38,909,716 38,666,627
-------------- --------------
78,784,302 78,573,725
Broadcast -- Chancellor Media Corp.:
Radio & TV -- NR+ Ba2 3,287,989 Revolving Credit, due 6/26/2004 3,287,989 3,259,219
2.3% NR+ Ba2 51,891,429 Term, due 6/26/2004 51,724,733 51,437,379
NR+ NR+ 8,260,870 Latin Communications, Term, due
3/31/2004 8,213,996 8,178,261
NR+ Ba3 8,879,413 Sullivan Broadcasting Group, Inc.,
Term B, due 12/31/2003 8,853,358 8,848,890
-------------- --------------
72,080,076 71,723,749
Building & NR+ NR+ 2,509,281 Fenway Holdings, Inc., Term B, due
Construction -- 9/15/2002 2,495,726 2,472,426
0.1%
Building Amerimax Euramax Holdings:
Materials -- 2.4% NR+ NR+ 2,521,031 Term B, due 6/30/2004 2,518,090 2,521,031
NR+ NR+ 3,718,645 Term C, due 6/30/2004 3,714,303 3,718,645
Behr Process:
NR+ NR+ 4,168,500 Term B, due 3/31/2004 4,163,315 4,168,500
NR+ NR+ 2,779,000 Term C, due 3/31/2005 2,775,496 2,782,474
NR+ NR+ 17,000,000 Dal Tile International, Inc., Term B,
due 12/31/2003 16,922,023 16,320,000
NR+ NR+ 5,000,000 Dayton Superior Corp., Term, due
9/29/2005 5,000,000 5,031,250
NR+ B1 4,985,714 Falcon Building Products, Inc., Term,
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
due 6/30/2005 4,967,006 4,979,482
NR+ Ba3 29,824,707 National Gypsum Co., Term B, due
9/20/2003 29,776,917 29,871,308
Panolam Industries:
NR+ NR+ 498,094 Term A, due 1/31/2003 498,094 498,094
NR+ NR+ 2,845,369 Term B, due 11/01/2005 2,845,369 2,845,369
NR+ NR+ 1,625,925 Term C, due 11/01/2006 1,625,925 1,625,925
-------------- --------------
74,806,538 74,362,078
Cable TV NR+ NR+ 24,375,000 Chelsea Communications, Term B,
Services -- 3.8% due 9/30/2004 24,283,256 24,390,234
NR+ B1 12,080,597 Classic Cable, Inc., Term B, due
6/30/2005 11,966,095 11,808,783
NR+ B3 10,000,000 Intermedia Communications, Inc.,
Term, due 1/01/2005 9,978,539 10,027,083
Marcus Cable Operating Co.:
NR+ NR+ 28,281,250 Term A, due 12/31/2002 28,192,521 28,237,061
NR+ NR+ 35,303,125 Term B, due 4/30/2004 35,054,553 35,350,417
NR+ NR+ 10,000,000 Triax Midwest, Term B, due 6/30/2005 9,945,080 9,990,625
-------------- --------------
119,420,044 119,804,203
Casino -- 0.9% Alliance Gaming Corp.:
NR+ NR+ 10,674,107 Term B, due 1/31/2005 10,674,107 10,740,820
NR+ NR+ 4,264,286 Term C, due 7/31/2005 4,264,286 4,290,937
NR+ NR+ 8,052,971 Aztar Corporation, Revolving Credit,
due 12/31/1999 8,052,971 8,052,971
NR+ NR+ 4,045,228 Aztar Corporation/Tropicana
Enterprises, Term, due 12/31/1999 4,047,823 4,045,228
-------------- --------------
27,039,187 27,129,956
Chemicals -- 5.2% NR+ NR+ 11,339,689 Cedar Chemical, Term B, due
10/31/2003 11,269,312 11,311,339
NR+ NR+ 10,000,000 Epsillon, Term B, due 12/31/2005 10,000,000 10,000,000
NR+ NR+ 12,000,000 Exide Corporation, Term B, due
3/19/2005 12,000,000 12,060,000
NR+ NR+ 3,925,926 Foamex International PLC, Revolving
Credit, due 6/30/2003 3,925,926 3,931,835
HSC Holdings:
NR+ NR+ 3,586,348 Revolving Credit, due 12/31/1999 3,586,348 3,577,382
NR+ NR+ 3,630,759 Term, due 12/31/1999 3,618,910 3,621,682
Harris Specialty Chemicals:
NR+ NR+ 2,835,577 Revolving Credit, due 12/30/2001 2,835,577 2,846,211
NR+ NR+ 215,568 Term A, due 12/30/1999 215,124 216,377
NR+ NR+ 222,443 Term A, due 12/30/2001 221,756 223,277
NR+ NR+ 591,814 Term B, due 12/30/1999 590,586 594,033
NR+ NR+ 2,405,189 Term B, due 12/30/2001 2,395,894 2,414,208
Huntsman Corp.:
NR+ NR+ 32 Revolving Credit, due 12/31/2002 32 32
NR+ NR+ 20,738,584 Term A, due 12/31/2002 20,724,818 20,725,623
NR+ NR+ 4,950,000 Term A, due 9/03/2003 4,945,833 4,984,031
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
NR+ NR+ 4,950,000 Term B, due 3/15/2004 4,946,714 4,946,906
NR+ NR+ 15,000,000 Term B, due 6/30/2004 15,000,000 15,037,500
NR+ Ba2 4,950,000 Term C, due 3/15/2005 4,945,829 4,984,031
NR+ NR+ 14,850,000 Term C, due 12/31/2005 14,802,795 14,998,500
NR+ B1 7,960,000 Pioneer Americas Acquisition Corp.,
Term, due 12/05/2006 8,028,406 7,967,463
BB- Ba3 5,000,000 Polymer Group, Inc., Term B, due
7/28/1998 4,994,807 5,003,125
NR+ Ba3 24,062,093 Sterling Chemicals, Inc., Term B,
due 9/30/2004 23,957,623 24,062,094
NR+ Ba3 6,450,486 Texas Petrochemicals Corp., Term B,
due 6/30/2004 6,429,753 6,434,359
Thoro World Systems, Inc.:
NR+ NR+ 1,028,889 Term A, due 12/30/1999 1,025,064 1,032,747
NR+ NR+ 1,397,373 Term B, due 12/30/2001 1,389,321 1,402,613
-------------- --------------
161,850,428 162,375,368
Computer-Related NR+ B2 6,513,977 Anacomp, Inc., Term, due 3/31/2001 6,488,364 6,530,262
Services & NR+ B1 10,972,500 DecisionOne Corp., Term B, due
Products -- 1.1% 8/07/2005 10,956,301 10,931,353
NR+ Ba3 17,375,000 Fairchild Semiconductors Corp.,
Term C, due 3/11/2003 17,375,000 17,375,000
-------------- --------------
34,819,665 34,836,615
Consumer NR+ NR+ 8,454,545 Amscan Holdings, Inc., Axel, due
Products -- 2.0% 12/19/2004 8,454,545 8,502,102
Hedstrom Corp.:
NR+ B1 1,496,552 Revolving Credit, due 6/30/2003 1,496,552 1,483,457
NR+ B1 5,103,448 Term A, due 6/30/2003 5,080,344 5,084,310
NR+ Ba2 4,000,000 Pillowtex, Term B, due 12/31/2004 3,996,086 4,015,000
NR+ B2 14,925,000 Playtex Family Products, Inc., Term B,
due 9/15/2003 14,856,402 14,999,625
RTI Funding Corp. (Ritvik Toys):
NR+ NR+ 7,218,553 Term B, due 2/07/2003 7,163,025 7,245,623
NR+ NR+ 7,218,553 Term C, due 2/07/2004 7,159,981 7,245,623
NR+ Ba3 15,000,000 Revlon Consumer Products Corp.,
Term, due 5/30/2002 14,988,680 14,981,250
-------------- --------------
63,195,615 63,556,990
Defense -- 0.3% United Defense Industries, Inc.:
NR+ NR+ 1,800,920 Term A, due 10/06/2003 1,815,895 1,798,668
NR+ B1 4,508,509 Term B, due 10/06/2005 4,508,509 4,514,144
NR+ B1 4,379,089 Term C, due 10/06/2006 4,379,089 4,384,563
-------------- --------------
10,703,493 10,697,375
Diversified NR+ NR+ 4,990,000 Sarah Michael, Term B, due 6/30/2004 4,990,000 4,990,000
Manufacturing --
0.2%
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Drilling -- 0.1% NR+ NR+ 4,137,157 Rigco North America, Term, due
9/30/1998 4,130,574 4,147,499
Drug/Proprietary NR+ NR+ 5,000,000 Duane Reade Co., Term B, due
Stores -- 0.2% 2/15/2005 4,984,443 5,037,500
Electrical NR+ NR+ 6,907,375 Neopost, Term C, due 6/24/2006 6,890,682 6,950,546
Equipment -- 0.2%
Electronics/ NR+ Ba3 13,640,625 Amphenol Corp., Term B, due
Electrical 5/19/2005 13,857,172 13,755,718
Components -- Circo Craft Co. (Viasystems):
2.1% NR+ B1 2,972,727 Term B, due 6/30/2004 2,962,950 2,991,307
NR+ B1 1,800,000 Term C, due 6/30/2005 1,793,934 1,811,250
NR+ NR+ 5,516,667 Communications & Power Industries,
Inc., Term B, due 8/11/2002 5,477,725 5,530,458
Dictaphone Corp.:
B- B1 652,039 Revolving Credit, due 3/31/2001 652,039 627,588
NR+ NR+ 7,750,000 Term C, due 6/30/2003 7,675,467 7,740,313
NR+ B1 19,937,695 International Wire Group, Inc.,
Term B, due 9/30/2003 19,919,549 19,987,539
L-3 Communications Corp.:
NR+ Ba3 1,342,000 Term A, due 3/31/2003 1,339,633 1,350,388
NR+ Ba3 2,483,333 Term B, due 3/31/2005 2,478,781 2,498,854
NR+ Ba3 1,633,500 Term C, due 3/31/2006 1,630,462 1,643,709
NR+ Ba3 7,000,000 Telex Communications, Inc., Term B,
due 11/30/2004 6,983,797 7,008,750
-------------- --------------
64,771,509 64,945,874
Energy -- 0.2% NR+ Ba2 5,000,000 Clark Refining, Term, due 11/15/2004 5,000,000 5,037,500
Financial Outsourcing Solutions, Inc.:
Services -- 1.3% NR+ B1 14,735,915 Term B, due 10/15/2003 14,672,958 14,781,965
NR+ NR+ 9,452,597 Term B, due 10/15/2003 9,449,019 9,482,136
NR+ B1 16,662,646 Term C, due 10/15/2004 16,662,646 16,719,924
-------------- --------------
40,784,623 40,984,025
Food & Kindred Del Monte Corp.:
Products -- 4.9% NR+ B2 1,227,273 Revolving Credit, due 3/31/2003 1,227,273 1,226,506
NR+ B2 3,272,727 Term A, due 3/31/2003 3,272,727 3,282,955
NR+ B2 2,550,000 Term B, due 3/31/2003 2,550,000 2,573,906
NR+ B2 5,100,000 Term B, due 3/03/2005 5,095,297 5,147,812
NR+ NR+ 5,000,000 Dr. Pepper, Term B, due 12/31/2005 4,992,628 5,009,375
NR+ NR+ 17,330,042 Favorite Brands International, Term B,
due 8/30/2004 17,261,190 17,308,380
Imperial Holdings Ltd.:
NR+ NR+ 6,717,949 Term A, due 12/31/2003 6,711,402 6,726,346
NR+ NR+ 5,282,051 Term B, due 12/31/2005 5,276,861 5,301,859
International Homefoods, Inc.:
NR+ NR+ 145,161 Revolving Credit, due 11/21/2001 145,161 144,526
NR+ Ba3 3,387,097 Term A, due 11/21/2001 3,384,706 3,384,980
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
BB- Ba3 22,000,000 Term B, due 10/31/2005 22,030,195 21,986,250
Mistic Beverage, Inc.:
NR+ NR+ 2,487,500 Term B, due 6/01/2004 2,475,806 2,496,828
NR+ NR+ 2,487,500 Term C, due 6/01/2005 2,475,674 2,496,828
Select Beverages, Inc.:
NR+ NR+ 1,940,117 Term B, due 6/30/2001 1,927,951 1,942,542
NR+ NR+ 2,910,175 Term C, due 6/30/2002 2,892,204 2,919,270
Snapple Beverage Corp.:
NR+ NR+ 7,462,500 Term B, due 6/01/2004 7,427,419 7,490,484
NR+ NR+ 7,462,500 Term C, due 6/01/2005 7,427,021 7,490,484
NR+ Ba3 5,883,360 Southern Foods Group, Term B,
due 2/28/2006 5,876,301 5,920,131
NR+ B3 23,023,378 Specialty Foods, Inc., Term B,
due 4/30/2001 22,936,951 22,971,823
Van De Kamps, Inc.:
NR+ Ba3 7,016,761 Term B, due 4/30/2003 6,988,390 7,051,845
NR+ Ba3 4,408,380 Term C, due 9/30/2003 4,390,203 4,430,422
Volume Services:
NR+ B2 6,609,600 Term B, due 12/31/2002 6,559,404 6,609,600
NR+ B2 3,304,667 Term C, due 12/31/2003 3,278,236 3,304,667
NR+ NR+ 4,781,250 Windsor Quality Food, Term B,
due 12/31/2002 4,762,378 4,730,449
-------------- --------------
151,365,378 151,948,268
Funeral Homes & BB- NR+ 14,750,000 Prime Succession International Group,
Parlors -- 0.7% Term, due 8/01/2003 14,704,100 14,952,813
BB NR+ 6,860,313 Rose Hills Acquisition Corp., Axel A,
due 12/01/2003 6,845,549 6,937,492
-------------- --------------
21,549,649 21,890,305
Furniture & NR+ NR+ 10,000,000 Lifestyles Furnishings International
Fixtures -- 0.3% Ltd., Term, due 6/27/2007 10,000,000 10,018,750
General NR+ NR+ 5,000,000 Sneaker Stadium, Term 2, due
Merchandise 12/31/2002 5,000,000 5,000,000
Stores -- 0.2%
Grocery -- 1.0% NR+ NR+ 10,400,000 Big V Supermarkets, Inc., Term B,
due 3/15/2000 10,339,304 10,322,000
Carr Gottstein Foods Co.:
NR+ B1 88,571 Revolving Credit, due 6/30/2001 88,571 88,516
NR+ B1 2,168,571 Term A, due 6/30/2001 2,172,638 2,171,282
NR+ B1 3,528,000 Term B, due 12/31/2002 3,534,615 3,539,025
NR+ Ba3 6,947,500 Ralph's Grocery Company, Term B,
due 2/15/2004 6,939,680 6,954,448
Star Markets Co., Inc.:
NR+ Ba3 4,171,053 Term B, due 12/31/2001 4,156,885 4,160,625
NR+ Ba3 3,124,402 Term C, due 12/31/2002 3,112,875 3,112,685
-------------- --------------
30,344,568 30,348,581
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Health Community Health Systems, Inc.:
Services -- NR+ NR+ 16,150,685 Term B, due 12/31/2003 16,083,151 16,201,156
8.3% NR+ NR+ 16,150,685 Term C, due 12/31/2004 16,080,803 16,201,156
NR+ NR+ 12,143,836 Term D, due 12/31/2005 12,089,965 12,196,965
NR+ NR+ 10,000,000 Conmed Corp., Term B, due 12/30/2004 10,000,000 10,025,000
NR+ NR+ 5,000,500 Corning/Quest, Term A, due
4/03/2003 4,989,565 4,972,372
Dade International, Inc.:
NR+ B1 2,979,970 Term B, due 12/31/2002 2,965,330 2,983,695
NR+ B1 2,979,970 Term C, due 12/31/2003 2,964,803 2,983,695
NR+ B1 3,144,914 Term D, due 12/31/2004 3,128,256 3,157,690
NR+ NR+ 7,500,000 Endo Pharmaceuticals, Term B,
due 6/30/2004 7,485,854 7,532,812
NR+ NR+ 10,000,000 Extendicare Health, Inc., Term B,
due 12/31/2004 9,990,283 10,001,250
Genesis Health Ventures, Inc.:
NR+ Ba3 6,317,500 Term B, due 9/30/2004 6,305,359 6,350,404
NR+ Ba3 6,312,222 Term C, due 6/01/2005 6,300,066 6,345,098
Imed Corp. (Alaris):
B+ Ba3 2,434,187 Term B, due 11/01/2003 2,428,942 2,449,401
B+ Ba3 2,434,187 Term C, due 11/01/2004 2,428,789 2,449,401
B+ Ba3 2,291,000 Term D, due 5/01/2005 2,285,811 2,305,319
NR+ NR+ 8,000,000 Insight, Term B, due 9/30/2004 7,984,356 8,045,000
Integrated Health Services, Inc.:
NR+ NR+ 17,500,000 Term, due 9/15/2003 17,596,250 17,401,562
NR+ NR+ 5,000,000 Term B, due 9/15/2003 4,988,262 4,971,875
NR+ Ba3 10,000,000 Term C, due 9/15/2003 10,000,000 10,025,000
Kinetic Concepts, Inc.:
NR+ NR+ 6,000,000 Term B, due 12/31/2004 6,000,000 6,039,375
NR+ NR+ 6,000,000 Term C, due 12/31/2005 6,000,000 6,039,375
Magellen Health Services:
NR+ Ba3 7,500,000 Term B, due 2/12/2005 7,488,810 7,523,437
NR+ Ba3 7,500,000 Term C, due 2/12/2006 7,488,800 7,523,437
Medical Specialties:
NR+ NR+ 12,927,273 Axel A, due 6/30/2004 12,857,626 12,733,364
NR+ NR+ 4,663,636 Term, due 6/30/2001 4,642,257 4,593,682
BB Ba1 18,750,000 National Medical Care, Inc., Term,
due 9/30/2003 18,671,689 18,703,125
Paragon Health Network, Inc.:
NR+ Ba3 7,500,000 Term B, due 3/31/2005 7,492,743 7,537,500
NR+ Ba3 7,500,000 Term C, due 3/31/2006 7,492,701 7,546,875
NR+ NR+ 5,000,000 Prime Medical Services, Inc., Term B,
due 4/30/2003 4,983,472 5,004,687
NR+ NR+ 22,500,000 Total Renal, Term B, due 9/30/2007 22,500,000 22,500,000
NR+ NR+ 4,925,000 Wilson Great Batch, Term B, due
7/10/2004 4,913,324 4,912,687
-------------- --------------
256,627,267 257,256,395
Healthcare -- 1.6% NR+ Ba3 4,987,500 FPA Medical Management, Inc., Term,
due 9/30/2001 4,980,968 4,975,031
B+ NR+ 9,854,629 MEDIQ, Inc., Term B, due 9/30/2004 9,803,170 9,863,867
Multicare Companies, Inc.:
NR+ B1 4,738,125 Term B, due 9/30/2004 4,728,895 4,755,893
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
NR+ B1 1,578,056 Term C, due 6/01/2005 1,575,008 1,583,973
NR+ B1 8,724,736 Paracelsus Healthcare Corp.,
Revolving Credit, due 8/15/2001 8,724,736 8,730,189
Sun Healthcare Group, Inc.:
NR+ Ba3 10,000,000 Term B, due 11/12/2004 9,985,777 10,043,750
NR+ Ba3 10,000,000 Term C, due 11/12/2005 9,985,777 10,043,750
-------------- --------------
49,784,331 49,996,453
Hotels & NR+ Ba1 6,250,000 Capstar Hotel Company, Term B,
Motels -- 0.2% due 6/30/2004 6,250,000 6,257,812
Industrial Elis/Omni:
Services -- 0.6% NR+ NR+ 8,860,188 Axel, due 10/30/2005 8,849,881 8,982,016
NR+ NR+ 9,912,500 Term C, due 10/30/2005 10,085,969 10,048,797
-------------- --------------
18,935,850 19,030,813
Leasing & Rental NR+ NR+ 4,990,909 Perf-O-Log, Term B, due 8/11/2003 4,978,871 4,978,432
Services -- 0.2%
Manufacturing -- Calmar, Inc.:
2.3% NR+ B1 7,752,381 Axel A, due 3/15/2004 7,721,706 7,817,792
NR+ B1 10,333,571 Term A, due 9/15/2003 10,293,871 10,382,009
Goodman Manufacturing:
NR+ NR+ 2,389,087 Term B, due 9/30/2004 2,409,992 2,395,060
NR+ NR+ 2,389,087 Term C, due 9/30/2005 2,409,992 2,395,060
NR+ NR+ 8,986,141 Polyfibron Technologies, Term B,
due 12/28/2003 8,986,141 8,986,141
NR+ NR+ 5,000,000 Russell Stanley, Term B, due
6/30/2005 4,982,124 5,012,500
Sealy Mattress:
NR+ NR+ 3,030,303 Axel B, due 12/15/2004 3,026,597 3,058,712
NR+ NR+ 2,181,818 Axel C, due 12/15/2005 2,179,140 2,202,273
NR+ NR+ 2,787,879 Axel D, due 12/15/2006 2,784,446 2,814,015
NR+ Ba3 10,000,000 Term A, due 12/15/2003 10,062,500 10,018,750
Trans Technology Corp.:
NR+ NR+ 970,848 Term A, due 12/31/2000 970,848 970,848
NR+ NR+ 14,400,000 Term B, due 6/30/2002 14,292,326 14,418,000
-------------- --------------
70,119,683 70,471,160
Measuring, NR+ NR+ 9,330,624 CHF/Ebel USA, Inc., Term B, due
Analyzing & 9/30/2001 9,330,624 9,330,624
Controlling NR+ B1 10,786,925 Graphic Controls Corp., Term B,
Instruments -- due 9/28/2003 10,743,775 10,813,892
0.8% NR+ Ba3 4,987,500 Packard Bioscience Co., Term, due
3/31/2003 4,971,214 4,993,734
-------------- --------------
25,045,613 25,138,250
Metals & NR+ NR+ 5,033,393 Adience, Inc., Term B, due 4/15/2005 5,015,766 5,045,976
Mining -- 1.4% NR+ Caa 4,706,099 Alliance Coal, Term B, due 12/31/2002 4,686,921 4,704,628
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Centennial Resources:
NR+ NR+ 1,961,538 Term A, due 3/31/2002 1,945,065 1,944,375
NR+ NR+ 5,105,770 Term B, due 3/31/2004 5,060,203 5,061,094
NR+ Ba2 15,000,000 Koppers Industries, Term B, due
12/01/2004 14,981,646 14,981,250
NR+ Ba2 10,162,952 UCAR International, Inc., Term B,
due 12/31/2002 10,154,188 10,175,656
-------------- --------------
41,843,789 41,912,979
Metals & NR+ Ba3 10,000,000 Acme Metals, Inc., Term, due
Steel -- 0.6% 12/01/2005 10,000,000 10,000,000
Chatham Technologies:
NR+ NR+ 3,730,000 Term A, due 8/15/2003 3,730,000 3,730,000
NR+ NR+ 5,995,385 Term B, due 8/15/2005 5,983,868 5,996,883
-------------- --------------
19,713,868 19,726,883
Packaging -- 0.6% NR+ B1 14,962,500 Ivex Packaging Corp., Term B, due
10/02/2004 14,944,552 15,037,312
NR+ Ba3 3,600,000 Thermadyne Industries, Inc.,
Revolving Credit, due 6/30/2001 3,600,000 3,589,875
-------------- --------------
18,544,552 18,627,187
Paper -- 9.8% NR+ NR+ 5,000,000 Bear Island Paper Co., Term, due
12/31/2005 4,990,214 5,031,250
BB Ba3 4,739,394 Crown Paper Co., Term B, due
8/22/2003 4,694,246 4,766,053
Jefferson Smurfit Company/Container
Corp. of America:
BB Ba3 21,789,142 Term A, due 4/30/2001 21,742,850 21,797,313
BB Ba3 6,563,826 Term B, due 4/30/2001 6,558,842 6,570,390
BB Ba3 47,904,731 Term B, due 4/30/2002 47,845,293 47,952,636
BB Ba3 12,776,184 Term C, due 10/31/2002 12,751,360 12,760,214
Riverwood International Corp.:
B+ B1 5,620,011 Term A, due 2/28/2003 5,451,639 5,623,524
B+ B1 66,796,592 Term B, due 2/28/2004 66,027,208 67,352,429
B+ B1 24,303,892 Term C, due 2/28/2004 23,999,613 24,508,956
NR+ NR+ 1,427,681 Term C, due 8/31/2004 1,429,465 1,436,604
S.D. Warren Co.:
NR+ B2 830,032 Term A, due 12/31/2001 830,032 831,588
NR+ Ba2 13,964,466 Term B, due 6/30/2002 13,937,929 14,016,833
Stone Container Corp.:
NR+ Ba3 28,181,845 Term B, due 4/01/2000 28,202,649 28,236,449
NR+ Ba3 20,015,381 Term C, due 4/01/2000 19,993,684 20,054,161
NR+ Ba3 34,850,000 Term E, due 10/01/2003 35,087,594 34,937,125
Stronghaven:
NR+ NR+ 9,401,724 Term B, due 5/15/2004 9,360,683 9,425,228
NR+ NR+ 1,285,714 Term C, due 5/15/2004 1,285,714 1,288,929
-------------- --------------
304,189,015 306,589,682
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Petroleum BB- Ba3 3,277,778 Petro Stopping Centers, Term B,
Refineries -- 0.1% due 12/31/2003 3,270,526 3,285,972
Printing & NR+ NR+ 5,571,429 21st Century, Term A, due 9/15/2003 5,599,286 5,564,464
Publishing -- 2.5% Advanstar Communications:
NR+ NR+ 1,421,569 Revolving Credit, due 6/30/2001 1,421,569 1,422,457
NR+ NR+ 5,394,479 Term A, due 6/30/2001 5,407,965 5,380,993
NR+ NR+ 7,187,356 Term B, due 12/21/2003 7,150,119 7,178,372
BB- Ba2 20,988,593 American Media, Term B, due
9/30/2002 20,926,072 20,962,357
Garden State Newspapers, Inc.:
NR+ NR+ 842,105 Revolving Credit 'A', due 6/30/2003 842,105 838,421
NR+ NR+ 315,790 Revolving Credit 'C', due 3/31/2004 315,789 314,408
NR+ NR+ 1,740,000 Term A, due 3/31/2004 1,737,329 1,736,194
NR+ NR+ 8,286,711 Journal News Co., Term, due
12/31/2001 8,272,411 8,239,891
K-III Communications Corp.:
NR+ Ba3 2,000,000 Revolving Credit 'A', due 12/31/2000 2,000,000 1,987,500
NR+ Ba3 4,000,000 Revolving Credit 'C', due 12/31/2000 4,000,000 3,977,500
NR+ Ba3 4,000,000 Term, due 6/30/2004 4,000,000 3,982,500
NR+ NR+ 10,000,000 Morris Communications, Term B,
due 6/30/2005 9,981,869 10,000,000
Von Hoffmann Press, Inc.:
NR+ B1 3,353,572 Term B, due 5/22/2004 3,345,762 3,382,915
NR+ B1 3,353,571 Term C, due 5/22/2005 3,345,675 3,382,915
-------------- --------------
78,345,951 78,350,887
Rendering -- 0.2% NR+ NR+ 4,870,122 CBP Resources, Inc., Term B, due
9/30/2003 4,840,993 4,857,947
Restaurants -- AFC Enterprises:
0.3% NR+ Ba3 3,840,000 Term, due 6/30/2002 3,823,183 3,838,800
NR+ NR+ 1,280,000 Term, due 6/30/2002 1,280,000 1,277,200
NR+ NR+ 4,937,500 Shoney's, Inc., Term B, due
4/30/2002 4,908,034 4,912,812
-------------- --------------
10,011,217 10,028,812
Retail -- 0.1% NR+ NR+ 2,480,769 Murray's Discount Auto Stores, Term,
due 6/30/2003 2,480,769 2,480,769
Telephone NR+ B1 7,920,000 Arch Communications Group, Inc.,
Communications -- Term B, due 12/31/2003 7,893,741 7,405,200
9.7% Cellular, Inc.:
NR+ NR+ 13,985,692 Term B, due 9/30/2006 13,975,474 13,950,728
NR+ B1 8,130,081 Term C, due 3/31/2007 8,109,839 8,109,756
NR+ B1 22,764,227 Term D, due 9/30/2007 22,707,525 22,707,316
NR+ NR+ 25,000,000 Cox Communications, Inc., Term B,
due 12/31/2006 24,937,557 25,000,000
NR+ B2 20,000,000 Flag Ltd., Term, due 1/30/2005 19,901,019 19,900,000
Iridium LLC:
NR+ NR+ 2,445,013 Term A, due 12/31/1998 2,416,413 2,438,900
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
NR+ NR+ 2,774,936 Term B, due 12/31/1998 2,769,306 2,767,999
MobileMedia Corp.:
NR+ Caa 5,791,589 Term A, due 6/30/2002 5,779,558 4,720,145
NR+ Caa 2,575,758 Term A, due 6/30/2003 2,562,362 2,099,242
NR+ Caa 1,759,829 Term B, due 6/30/2003 1,754,374 1,434,261
NR+ Caa 606,838 Term B2, due 6/30/2003 606,838 494,573
Nextel Communications, Inc.:
NR+ B1 3,108,616 Revolving Credit, due 3/31/2003 3,108,616 3,104,730
NR+ B1 5,078,650 Revolving Credit 'B', due 3/31/2003 5,078,650 5,072,301
NR+ B1 1,872,659 Term C, due 3/31/2003 1,851,955 1,862,711
NR+ NR+ 1,872,659 Term C, due 6/30/2003 1,861,511 1,877,341
NR+ B1 35,000,000 Term D, due 6/30/2003 34,444,090 35,000,000
Omnipoint Communications Corp.:
NR+ NR+ 6,807,203 Term A, due 2/17/2006 6,800,407 6,820,818
NR+ NR+ 1,942,797 Term B, due 2/17/2006 1,940,857 1,937,940
NR+ Ba3 13,578,000 Paging Network, Inc., Revolving
Credit, due 12/31/2004 13,578,000 13,285,224
Price Communications Corp.:
NR+ NR+ 3,433,333 Revolving Credit, due 9/30/2005 3,433,333 3,418,313
NR+ NR+ 3,333,333 Term A, due 9/30/2005 3,313,259 3,318,750
NR+ NR+ 4,987,500 Term B, due 9/30/2006 4,977,831 5,018,672
NR+ NR+ 4,750,000 Shared Technologies Cellular, Inc.,
Term C, due 3/31/2003 4,727,045 4,755,938
NR+ NR+ 25,000,000 Sprint Spectrum L.P./Lucent
Technologies, Term, due 5/29/2004 24,927,712 25,015,625
Sprint Spectrum L.P./Northern Telecom:
NR+ NR+ 6,236,587 Term A, due 3/11/2006 6,236,587 6,242,434
NR+ NR+ 13,673,961 Term A, due 3/31/2006 13,673,961 13,686,780
NR+ B1 17,775,000 Term 1, due 1/02/2006 17,654,756 17,841,656
NR+ B1 17,775,000 Term 2, due 1/02/2006 17,649,383 17,841,656
NR+ NR+ 5,000,000 Triton PCS, Term B, due 4/30/2007 5,000,000 4,981,250
B+ B1 20,000,000 Western Wireless Corp., Term B,
due 3/31/2005 20,000,000 20,031,250
-------------- --------------
303,671,959 302,141,509
Textiles/Mill Ithaca Industries, Inc.:
Products -- 0.4% NR+ NR+ 1,576,019 Revolving Credit, due 8/31/1999 1,576,019 1,562,229
NR+ NR+ 5,617,536 Term, due 8/31/1999 5,606,480 5,582,426
Joan Fabrics:
NR+ NR+ 3,289,474 Term B, due 6/30/2005 3,284,767 3,295,641
NR+ NR+ 1,710,526 Term C, due 6/30/2006 1,708,058 1,713,734
-------------- --------------
12,175,324 12,154,030
Transportation NR+ Ba3 30,000,000 Atlas Freight, Term, due 5/29/2004 29,962,889 30,075,000
Services -- 1.1% NR+ Ba2 3,981,250 Travel Centers, Term B, due
3/27/2005 3,967,558 4,003,645
-------------- --------------
33,930,447 34,078,645
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Waste Laidlaw Environmental Services,
Management -- Inc.:
0.2% NR+ Baa2 2,487,500 Term B, due 5/15/2005 2,481,712 2,503,047
NR+ Baa2 2,487,500 Term C, due 5/15/2004 2,481,811 2,503,047
-------------- --------------
4,963,523 5,006,094
Total Senior Secured Floating
Rate Loan Interests -- 85.5% 2,660,003,168 2,665,281,442
============== ==============
</TABLE>
<TABLE>
<CAPTION>
Shares
Held Equity Investments
<S> <C> <C> <C> <C>
Cable TV 707 Classic Cable, Inc. (Warrants) (a) 0 0
Services -- 0.0%
Drilling -- 0.0% 12,250 Rigco North America (Warrants) (a) 0 0
General 184,080 Sneaker Stadium (Warrants) (a) 0 0
Merchandise
Stores -- 0.0%
Total Equity Investments -- 0.0% 0 0
============== ==============
Total Long-Term
Investments -- 85.5% 2,660,003,168 2,665,281,442
============== ==============
</TABLE>
<TABLE>
<CAPTION>
Face Value
Amount Short-Term Investments Cost (Note 1a)
<S> <C> <C> <C> <C>
Commercial $50,000,000 Countrywide Home Loans, Inc., 5.50%
Paper** -- 13.4% due 3/20/1998 $49,862,500 $49,862,500
44,433,000 Ford Motor Credit Co., 5.49% due
3/11/1998 44,372,016 44,372,016
114,099,000 General Motors Acceptance Corp.,
5.69% due 3/02/1998 114,099,000 114,099,000
Lehman Brothers Holding, Inc.:
30,000,000 5.53% due 3/13/1998 29,949,308 29,949,308
50,000,000 5.51% due 4/01/1998 49,770,416 49,770,416
19,000,000 5.52% due 4/14/1998 18,874,727 18,874,727
20,000,000 Morgan (J.P.) & Company, Inc., 5.48%
due 3/16/1998 19,957,378 19,957,378
35,000,000 Republic Industries, Inc., 5.48%
due 4/02/1998 34,834,839 34,834,839
55,000,000 Riverwoods Funding Corp., 5.50%
due 3/25/1998 54,806,736 54,806,736
-------------- --------------
Total Short-Term Investments -- 13.4% 416,526,920 416,526,920
============== ==============
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
Total Investments -- 98.9% $3,076,530,088 3,081,808,362
==============
Time Deposit++ -- 0.4% 11,991,000
Other Assets Less Liabilities -- 0.7% 22,773,112
--------------
Net Assets -- 100.0% $3,116,572,474
==============
</TABLE>
(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 the expiration date.
+ Not Rated.
++ Time deposit bears interest at 5.50% with maturity on 3/02/1998.
* 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 February 28, 1998.
** Commercial Paper is 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>
<CAPTION>
FINANCIAL INFORMATION
Statement of Assets and Liabilities as of February 28, 1998
<S> <C> <C> <C>
Assets: Investments, at value (identified cost -- $3,076,530,088) (Note 1b) $3,081,808,362
Cash 9,274,387
Time deposits 11,991,000
Receivables:
Interest $22,869,453
Capital shares sold 10,468,422
Principal paydowns 8,055,351
Commitment fees 863,890 42,257,116
--------------
Prepaid registration fees and other assets (Note 1f) 1,873,541
--------------
Total assets 3,147,204,406
--------------
Liabilities: Payables:
Dividends to shareholders (Note 1g) 3,459,530
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
Investment adviser (Note 2) 2,234,560
Securities purchased 888,889
Administrator (Note 2) 588,042
Interest expense (Note 6) 459,626 7,630,647
--------------
Deferred income (Note 1e) 2,025,420
Accrued expenses and other liabilities 20,975,865
--------------
Total liabilities 30,631,932
--------------
Net Assets: Net assets $3,116,572,474
==============
Net Assets Common Stock, par value $.10 per share; 1,000,000,000 shares
Consist of: authorized $31,185,272
Paid-in capital in excess of par 3,090,942,646
Accumulated realized capital losses on investments -- net (Note 7) (10,833,718)
Unrealized appreciation on investments -- net 5,278,274
--------------
Net Assets -- Equivalent to $9.99 per share based on 311,852,718
shares of capital stock outstanding $3,116,572,474
==============
</TABLE>
See Notes to Financial Statements.
<TABLE>
<CAPTION>
Statement of Operations
For the Six Months Ended
February 28, 1998
<S> <C> <C> <C>
Investment Income Interest and discount earned $123,702,248
(Note 1e): Facility and other fees 1,892,953
--------------
Total income 125,595,201
--------------
Expenses: Investment advisory fees (Note 2) $14,227,580
Administrative fees (Note 2) 3,744,100
Loan interest expense (Note 6) 1,233,590
Transfer agent fees (Note 2) 652,529
Registration fees (Note 1f) 429,776
Professional fees 153,904
Accounting services (Note 2) 142,373
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
Tender offer costs (Note 8) 89,211
Custodian fees 60,143
Printing and shareholder reports 55,588
Borrowing costs (Note 6) 22,771
Directors' fees and expenses 14,080
Other 24,108
--------------
Total expenses 20,849,753
--------------
Investment income -- net 104,745,448
--------------
Realized & Realized loss on investments -- net (4,470,070)
Unrealized Loss on Change in unrealized appreciation on investments -- net (2,163,673)
Investments -- Net --------------
(Notes 1c, 1e & 3): Net Increase in Net Assets Resulting from Operations $98,111,705
==============
</TABLE>
See Notes to Financial Statements.
<TABLE>
<CAPTION>
Statements of Changes in Net Assets
For the Six For the
Months Ended Year Ended
February 28, August 31,
Increase (Decrease) in Net Assets: 1998 1997
<S> <C> <C> <C>
Operations: Investment income -- net $104,745,448 $195,758,437
Realized gain (loss) on investments -- net (4,470,070) 1,494,764
Change in unrealized appreciation/depreciation on
investments -- net (2,163,673) 6,060,630
-------------- --------------
Net increase in net assets resulting from operations 98,111,705 203,313,831
-------------- --------------
Dividends to Investment income -- net (104,745,448) (195,758,437)
Shareholders -------------- --------------
(Note 1g): Net decrease in net assets resulting from dividends to
shareholders (104,745,448) (195,758,437)
-------------- --------------
Capital Share Net increase in net assets resulting from capital shares 131,416,576 38,706,901
Transactions transactions -------------- --------------
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
(Note 4):
Net Assets: Total increase in net assets 124,782,833 46,262,295
Beginning of period 2,991,789,641 2,945,527,346
-------------- --------------
End of period $3,116,572,474 $2,991,789,641
============== ==============
</TABLE>
See Notes to Financial Statements.
<TABLE>
<CAPTION>
Statement of Cash Flows
For the Six Months Ended
February 28, 1998
<S> <C> <C>
Cash Provided by Net increase in net assets resulting from operations $98,111,705
Operating Activities: Adjustments to reconcile net increase in net assets resulting from
operations to net cash provided by operating activities:
Increase in receivables (169,520)
Decrease in other assets 1,939,311
Increase in other liabilities 18,406,086
Realized and unrealized loss on investments -- net 6,633,743
Amortization of discount (12,599,748)
---------------
Net cash provided by operating activities 112,321,577
---------------
Cash Used for Proceeds from principal payments and sales of loan interests 996,260,483
Investing Activities: Purchases of loan interests (1,204,266,932)
Purchases of short-term investments (12,728,774,654)
Proceeds from sales and maturities of short-term investments 12,807,818,375
---------------
Net cash used for investing activities (128,962,728)
---------------
Cash Provided by Cash receipts from borrowings 160,000,000
Financing Activities: Cash payments from borrowings (160,000,000)
Cash receipts on capital shares sold 372,033,711
Cash payments on capital shares tendered (295,128,323)
Dividends paid to shareholders (54,323,062)
---------------
Net cash provided by financing activities 22,582,326
---------------
Cash: Net increase in cash 5,941,175
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
Cash at beginning of period 3,333,212
---------------
Cash at end of period $9,274,387
===============
Cash Flow Cash paid for interest $1,030,174
Information: ===============
Non-Cash Capital shares issued in reinvestment of dividends paid to shareholders $50,907,663
Financing Activities: ===============
</TABLE>
See Notes to Financial Statements.
<TABLE>
<CAPTION>
Financial Highlights
For the Six
The following per share data and ratios have been derived Months Ended
from information provided in the financial statements. February 28, For the Year Ended August 31,
1998 1997 1996 1995 1994
Increase (Decrease) in Net Asset Value:
<S> <C> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $10.02 $9.99 $10.02 $10.02 $10.02
Operating ------------ ------------ ------------ ------------ ------------
Performance: Investment income -- net .35 .68 .66 .75 .59
Realized and unrealized gain (loss)
on investments -- net (.03) .03 (.03) --+ --+
------------ ------------ ------------ ------------ ------------
Total from investment operations .32 .71 .63 .75 .59
------------ ------------ ------------ ------------ ------------
Less dividends from investment
income -- net (.35) (.68) (.66) (.75) (.59)
------------ ------------ ------------ ------------ ------------
Net asset value, end of period $9.99 $10.02 $9.99 $10.02 $10.02
============ ============ ============ ============ ============
Total Investment Based on net asset value per share 3.21%++++ 7.23% 6.53% 7.68% 5.94%
Return:** ============ ============ ============ ============ ============
Ratio to Average Expenses, excluding interest expense 1.31%* 1.32% -- -- --
Net Assets: ============ ============ ============ ============ ============
Expenses 1.39%* 1.33% 1.34% 1.34% 1.43%
============ ============ ============ ============ ============
Investment income -- net 6.99%* 6.72% 6.54% 7.45% 5.75%
============ ============ ============ ============ ============
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Leverage: Amount of borrowings (in thousands) -- -- -- -- --
============ ============ ============ ============ ============
Average amount of borrowings
outstanding during the period (in
thousands) $41,906 $4,409 -- -- --
============ ============ ============ ============ ============
Average amount of borrowings
outstanding per share during the
period $.14 $.02 -- -- --
============ ============ ============ ============ ============
Supplemental Net assets, end of period (in
Data: millions) $3,117 $2,992 $2,946 $2,163 $934
============ ============ ============ ============ ============
Portfolio turnover 37.36% 74.00% 80.20% 55.23% 61.31%
============ ============ ============ ============ ============
</TABLE>
* Annualized. ** 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.
++++ Aggregate total investment return.
See Notes to Financial Statements.
Merrill Lynch Senior Floating Rate Fund, Inc. February 28, 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. 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
<PAGE>
investment in corporate loans at February 28, 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.
[bullet] Interest rate transactions -- The Fund is authorized to
enter into interest rate swaps and purchase or sell interest rate
caps and floors. In an interest rate swap, the Fund exchanges with
another party their respective commitments to pay or receive
interest on a specified notional principal amount. The purchase of
an interest rate cap (or floor) entitles the purchaser, to the
extent that a specified index exceeds (or falls below) a
predetermined interest rate, to receive payments of interest equal
to the difference between the index and the predetermined rate on a
notional principal amount from the party selling such interest rate
cap (or floor).
(d) Income taxes -- It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated
investment companies and to distribute substantially all of its
taxable income to its shareholders. Therefore, no Federal income tax
provision is required.
(e) Security transactions and investment income -- Security
transactions are recorded on the dates the transactions are entered
into (the trade dates). Interest is recognized on the accrual basis.
<PAGE>
Realized gains and losses on security transactions are determined on
the identified cost basis. Facility fees are accreted into income
over the term of the related loan.
(f) Prepaid registration fees -- Prepaid registration fees are
charged to expense as the related shares are issued.
(g) Dividends and distributions -- Dividends from net investment
income are declared daily and paid monthly. Distributions of capital
gains are recorded on the ex-dividend dates.
2. Investment Advisory and Administrative Services Agreement and
Transactions with Affiliates:
The Fund has entered into an Investment Advisory Agreement with
Merrill Lynch Asset Management, L.P. ("MLAM"). The general partner
of MLAM is Princeton Services, Inc. ("PSI"), an indirect wholly-
owned subsidiary of Merrill Lynch & Co., Inc. ("ML & Co."), which is
the limited partner.
MLAM is responsible for the management of the Fund's portfolio and
provides the necessary personnel, facilities, equipment and certain
other services necessary to perform this investment advisory
function.
For such services, the Fund pays a monthly fee at an annual rate of
0.95% of the Fund's average daily net assets. The Fund also has an
Administrative Services Agreement with MLAM whereby MLAM will
receive a fee equal to an annual rate of 0.25% of the Fund's average
daily net assets on a monthly basis, in return for the performance
of administrative services (other than investment advice and related
portfolio activities) necessary for the operation of the Fund.
For the six months ended February 28, 1998, Merrill Lynch Funds
Distributor, Inc. ("MLFD") earned early withdrawal charges of
$1,865,737 relating to the tender of the Fund's shares.
Merrill Lynch Financial Data Services, Inc. ("MLFDS"), a wholly-
owned subsidiary of ML & Co., is the Fund's transfer agent.
Accounting services are provided to the Fund by MLAM at cost.
The Fund's credit facility is currently provided by Merrill Lynch
International Bank Limited, an affiliate of MLAM (see Note 6).
Certain officers and/or directors of the Fund are officers and/or
directors of MLAM, PSI, MLFDS, MLFD, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities,
for the six months ended February 28, 1998 were $1,200,115,645 and
$1,003,164,603, respectively.
Net realized losses for the six months ended February 28, 1998 and
unrealized gains as of February 28, 1998 were as follows:
<PAGE>
<TABLE>
<CAPTION>
Realized Unrealized
Losses Gains
<S> <C> <C>
Long-term investments $(4,469,724) $5,278,274
Short-term investments (346) --
------------ ------------
Total $(4,470,070) $5,278,274
============ ============
</TABLE>
As of February 28, 1998, net unrealized appreciation for financial
reporting and Federal income tax purposes aggregated $5,278,274, of
which $11,363,597 is related to appreciated securities and $6,085,323
is related to depreciated securities. The aggregate cost of investments
at February 28, 1998 for Federal income tax purposes was $3,076,530,088.
4. Capital Share Transactions:
Transactions in capital shares were as follows:
<TABLE>
<CAPTION>
For the Six Months Ended Dollar
February 28, 1998 Shares Amount
<S> <C> <C>
Shares sold 37,550,533 $375,637,235
Shares issued to share-
holders in reinvestment
of dividends 5,087,510 50,907,663
------------ ------------
Total issued 42,638,043 426,544,898
Shares tendered (29,496,495) (295,128,322)
------------ ------------
Net increase 13,141,548 $131,416,576
============ ============
</TABLE>
<TABLE>
<CAPTION>
For the Year Ended Dollar
August 31, 1997 Shares Amount
<S> <C> <C>
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
============ ============
</TABLE>
5. Unfunded Loan Interests:
As of February 28, 1998, the Fund had unfunded loan commitments of
$498,549,530, which would be extended at the option of the borrower,
pursuant to the following loan agreements:
<PAGE>
<TABLE>
<CAPTION>
Unfunded
Commitment
Borrower (in thousands)
<S> <C>
21st Century $3,429
AFC Enterprises 8,720
AMF Group, Inc. 6,436
Advanstar Communications 1,197
American Axel 8,500
American Italian Pasta Company 6,300
American Radio Systems Corp. 10,173
Arenabrands 2,205
Aztar Corporation 2,913
Carr Gottstein Foods Co. 3,011
Chancellor Media Corp. 20,999
Chatham Technologies 4,237
Continental Airlines, Inc. 43
Corning/Quest 1,667
DT Acquisition, Inc 10,437
Del Monte Corp 4,336
Dictaphone Corp 2,634
Evergreen Media Corp. 10,250
Federal Mogul Corp. (Fel-Pro) 62,500
Foamex International PLC 2,630
Garden State Newspapers, Inc. 12,947
HSC Holdings 3,650
Hedstrom Corp. 3,338
Horizon/CMS 10,000
International Homefoods, Inc. 1,468
Iridium LLC 17,588
Ithaca Industries, Inc. 15,628
Jefferson Smurfit Company/Container
Corp. of America 1,932
Joan Fabrics 5,323
Johnstown America Industrial Inc. 3,500
K-III Communications Corp. 15,640
KSL Recreation Group, Inc. 5,000
Kerastotes 1,848
Kmart Corp. 10,000
Marcus Cable Operating Co. 13,563
Metro Goldwyn Mayer Co. 9,170
Nextel Communications, Inc. 33,086
Northwestern Steel & Mining 15,000
Omnipoint Communications Corp. 57,639
Outsourcing Solutions, Inc. 3,337
Paging Network, Inc. 20,312
Paracelsus Healthcare Corp. 1,441
Pathmark Stores, Inc. 7,273
Powertel 16,733
Price Communications Corp. 3,233
Ralph's Grocery Company 3,491
S.D. Warren Co. 1,897
Six Flags Entertainment Corp. 851
Sprint Spectrum L.P. 89
</TABLE>
<PAGE>
<TABLE>
<S> <C>
Stronghaven. 429
Thermadyne Industries, Inc. 11,110
Trans Technology Corp. 2,083
Triton PCS 5,000
United Defense Industries, Inc. 8,379
Whittaker Corporation 3,955
</TABLE>
6. Short-Term Borrowings:
On June 30, 1997, the Fund extended its credit agreement with
Merrill Lynch International Bank Limited, an affiliate of MLAM,
through June 12, 1998. The agreement is a $100,000,000 credit
facility bearing interest at the Federal Funds rate plus .25% and/
or LIBOR plus 0.25%. For the six months ended February 28, 1998, the
maximum amount borrowed was $85,000,000, the average amount borrowed
was approximately $41,906,000, and the daily weighted average
interest rate was 5.89%. For the six months ended February 28, 1998,
facility and commitment fees aggregated approximately $22,771.
7. Capital Loss Carryforward:
At August 31, 1997, the Fund had a net capital loss carryforward of
approximately $4,752,000, of which $1,471,000 expires in 2004 and
$3,281,000 expires in 2005. This amount will be available to offset
like amounts of any future taxable gains.
8. Subsequent Event:
The Fund began a quarterly tender offer on March 17, 1998 which
concludes on April 14, 1998.
