MERRILL LYNCH
ASSET INCOME
FUND, INC.
FUND LOGO
Annual Report
December 31, 1994
This report is not authorized for use as an offer of sale or a
solicitation of an offer to buy shares of the Fund unless
accompanied or preceded by the Fund's current prospectus. Past
performance results shown in this report should not be considered a
representation of future performance. Investment return and
principal value of shares will fluctuate so that shares, when
redeemed, may be worth more or less than their original cost.
<PAGE>
Merrill Lynch
Asset Income
Fund, Inc.
Box 9011
Princeton, NJ
08543-9011
MERRILL LYNCH ASSET INCOME FUND, INC.
Worldwide
Investments as of
December 31, 1994
Percent Breakdown of
Stocks & Fixed-Income Percent of
Securities by Country Net Assets++
United States* 76.1%
Japan 4.0
United Kingdom 3.9
Canada 2.8
Germany 2.8
France 0.8
Hong Kong 0.7
Mexico 0.5
Switzerland 0.5
Norway 0.5
Australia 0.5
Singapore 0.4
Argentina 0.4
Indonesia 0.2
Sweden 0.2
Spain 0.2
Thailand --
[FN]
*Includes investments in short-term securities.
++Percent of net assets may not equal 100%.
<PAGE>
Ten Largest Industries Percent of
(Equity Investments) Net Assets
Building & Construction 1.1%
Capital Goods 1.0
Electronics 0.9
Electrical Equipment 0.9
Telecommunications 0.8
Insurance 0.8
Multi-Industry 0.7
Pharmaceuticals 0.6
Machinery 0.6
Chemicals 0.6
Country Percent
Ten Largest Holdings of of Net
(Equity Investments) Origin Assets
Merck & Co., Inc. US 0.4%
Phillips Petroleum Co. US 0.4
United Technologies Corp. US 0.4
Schlumberger Ltd., Inc. US 0.4
Kelly Services, Inc. US 0.4
Canadian Pacific Ltd. Canada 0.3
Wheelabrator
Technologies Inc. US 0.3
Alcatel Alsthom France 0.3
Asahi Glass Co., Ltd. Japan 0.3
Tokio Marine & Fire
Insurance Co., Ltd. Japan 0.3
DEAR SHAREHOLDER
We are pleased to provide you with this first annual report for
Merrill Lynch Asset Income Fund, Inc. In this and future shareholder
reports, we will highlight the Fund's performance, describe recent
investment activities and examine some of the important market
developments that helped shape our investment strategy during the
period under review.
Merrill Lynch Asset Income Fund, Inc. seeks to provide shareholders
with a high level of current income consistent with prudent risk. In
addition, the Fund seeks capital appreciation. The Fund invests in
US and foreign debt, as well as equity and money market securities,
the combination of which will be determined with respect to the
changing market and economic trends.
<PAGE>
The Environment
Volatility in the US financial markets continued during the December
quarter, largely prompted by concerns of increasing inflationary
pressures. The possibility of continued monetary policy tightening
by the Federal Reserve Board was predominant in the minds of
investors throughout most of the period. Therefore, there was little
surprise in mid-November when the central bank announced the sixth
increase in short-term interest rates in 1994. Early in the period,
the weakness of the US dollar in foreign exchange markets prompted
declines in US stock and bond prices, but some strengthening of the
US currency has occurred recently.
The manufacturing sector was the driving force behind the US economy
through the final quarter of the year, making an important
contribution to the substantial increase in corporate earnings. US
companies have been successful at containing labor costs, which are
an important component of the inflation outlook. Although consumer
spending grew at a slower pace than in previous economic recoveries,
purchases of vehicles and household durable goods rose in the latter
months of 1994. Despite the relatively modest rise in consumer
spending, the personal savings rate fell to an all-time annual low
in 1994.
In the weeks ahead, investors will continue to assess economic data
and inflationary trends in order to gauge whether further increases
in short-term interest rates are likely. The core inflation rate
rose less than 3% in 1994 following a 3% increase in 1993, the best
sustained inflation performance in 30 years. It is not likely that
such positive inflation results will be duplicated in 1995. In
addition, investor interest in the new year will also be focused on
the progress that the new Congress makes on both reducing spending
and the Federal budget deficit and passing tax cuts that promote
savings and investment. Legislative progress, combined with
continued indications of moderate and sustainable levels of economic
growth, would be positive for the US capital markets. However, the
lagged effects of higher interest rates could slow the economy
sharply and with it, the growth of corporate profits.
<PAGE>
Fiscal Year in Review
Since the Fund commenced operations on September 2, 1994, its assets
have been deployed from cash to bonds and stocks. These investment
activities were carried out in keeping with the parameters detailed
in the Fund's prospectus. At least 65% of the Fund's assets will be
invested in debt securities, which will carry a rating of A or
better by Moody's Investors Service, Inc. or Standard & Poor's
Corporation or which, in the manager's judgement, possess similar
credit characteristics. No more than 25% of the Fund's total assets
will be invested in foreign securities. As of December 31, 1994, the
asset allocation was: US bonds, 59% of net assets; foreign bonds,
7%; US stocks, 4%; foreign stocks, 11%; and cash and cash
equivalents, 13%. Combined, foreign stocks and bonds account for 18%
of total assets.
In the bond sector, we allocated a major portion of the Fund's
assets to intermediate-term US Treasury obligations. We believe that
the high point for intermediate-term US interest rates has been seen
for this cycle. In our opinion, the Federal Reserve Board is likely
to continue to raise short-term interest rates until the US economy
shows evidence of slowing down. Such a slowdown seems likely to
develop during 1995, reducing fears of a resurgence of inflation. In
view of this outlook, we expect intermediate-term US interest rates
to decline over the next 12 months. We also have initiated
representation in Canadian, German and British bonds.
In the equity sector, we are currently underweighted in the United
States. A more positive stance on US equities awaits evidence that
the US economy is slowing down and the phase of tightening of
monetary policy by the Federal Reserve Board is at end. Our primary
overweighting is in the emerging markets of Latin America and East
Asia. The Latin American markets were hard hit in late 1994 and
early 1995 as a result of the devaluation of the Mexican peso. The
problems in Mexico also negatively impacted the Asian markets.
However, investor recognition that economic prospects for these
markets remain favorable may lead to substantial recoveries over the
next year. Rebounds may also occur for the Asian markets in response
to exceptionally attractive economic prospects.
The largest single equity commitment is in Japan. Economic growth
and a strong rebound in corporate profits should provide the
catalyst for higher share prices in Japan. Our position in European
equities is relatively neutral. Expectations of strong earnings
gains are offset by the likelihood that the Bundesbank could begin
to tighten monetary policy during 1995.
<PAGE>
Volatility in financial markets worldwide is reflected in the Fund's
negative total returns since inception through December 31, 1994.
During this period, the US bond position made a positive
contribution to performance beginning in November as the bond market
began to rally. On the other hand, the majority of the Fund's
foreign equities were under pressure during much of the reporting
period.
In Conclusion
We thank you for your investment in Merrill Lynch Asset Income Fund,
Inc., and we look forward to reviewing our outlook and strategy with
you in our upcoming quarterly report to shareholders.
Sincerely,
(Arthur Zeikel)
Arthur Zeikel
President
(Joel Heymsfeld)
Joel Heymsfeld
Vice President and Portfolio Manager
January 30, 1995
PERFORMANCE DATA
About Fund
Performance
Since October 21, 1994, investors have been able to purchase shares
of the Fund through the Merrill Lynch Select Pricing SM System,
which offers four pricing alternatives:
*Class A Shares incur a maximum initial sales charge (front-end
load) of 4% and bear no ongoing distribution or account maintenance
fees. Class A Shares are available only to eligible investors.
*Class B Shares are subject to a maximum contingent deferred sales
charge of 4% if redeemed during the first year, decreasing 1% each
year thereafter to 0% after the fourth year. In addition, Class B
Shares are subject to a distribution fee of 0.50% and an account
maintenance fee of 0.25%. These shares automatically convert to
Class D Shares after 10 years.
<PAGE>
*Class C Shares are subject to a distribution fee of 0.55% and an
account maintenance fee of 0.25%. In addition, Class C Shares are
subject to a 1% contingent deferred sales charge if redeemed within
one year of purchase.
*Class D Shares incur a maximum initial sales charge of 4% and an
account maintenance fee of 0.25% (but no distribution fee).
The "Recent Performance Results" table below shows investment
results before the deduction of any sales charges for the Fund's
shares since inception through December 31, 1994. Performance data
for the Fund's shares are also presented in the "Aggregate Total
Return" tables below. All data in this table assume imposition of
the actual total expenses incurred by each class of shares during
the relevant period.
None of the past results shown should be considered a representation
of future performance. Investment return and principal value of
shares will fluctuate so that shares, when redeemed, may be worth
more or less than their original cost. Dividends paid to each class
of shares will vary because of the different levels of account
maintenance, distribution and transfer agency fees applicable to
each class, which are deducted from the income available to be paid
to shareholders.
Aggregate
Total Return
% Return % Return
Without CDSC With CDSC**
Class A Shares*
Inception (9/02/94)
through 12/31/94 -1.37% -5.31%
[FN]
*Maximum sales charge is 4%.
**Assuming maximum sales charge.
% Return Without % Return With
Sales Charge Sales Charge**
Class B Shares*
Inception (9/02/94)
through 12/31/94 -1.62% -5.49%
<PAGE>
[FN]
*Maximum contingent deferred sales charge is 4% and is reduced to 0%
after 4 years.
**Assuming payment of applicable contingent deferred sales charge.
% Return % Return
Without CDSC With CDSC**
Class C Shares*
Inception (10/21/94)
through 12/31/94 -0.94% -1.92%
[FN]
*Maximum contingent deferred sales charge is 1% and is reduced to 0%
after one year.
**Assuming payment of applicable contingent deferred sales charge.
% Return Without % Return With
Sales Charge Sales Charge**
Class D Shares*
Inception (10/21/94)
through 12/31/94 -0.83% -4.80%
[FN]
*Maximum sales charge is 4%.
**Assuming maximum sales charge.
<TABLE>
Recent
Performance
Results*
<CAPTION>
Since Inception 3 Month
12/31/94 9/30/94++ 9/02/94** % Change % Change
<S> <C> <C> <C> <C> <C>
Class A Shares $9.68 $9.91 $10.00 -3.20% -2.32%
Class B Shares 9.68 9.91 10.00 -3.20 -2.32
Class C Shares 9.69 9.88 -- -1.92 --
Class D Shares 9.69 9.88 -- -1.92 --
Class A Shares--Total Return -1.37(1) -0.92(2)
Class B Shares--Total Return -1.62(3) -1.11(4)
Class C Shares--Total Return -0.94(5) --
Class D Shares--Total Return -0.83(6) --
<PAGE>
<FN>
*Investment results shown do not reflect any sales charges; results
would be lower if a sales charge was included.
**Commencement of Operations.
++Investment results shown for Class C and Class D Shares are since
inception (10/21/94).
(1)Percent change includes reinvestment of $0.184 per share ordinary
income dividends.
(2)Percent change includes reinvestment of $0.149 per share ordinary
income dividends.
(3)Percent change includes reinvestment of $0.159 per share ordinary
income dividends.
(4)Percent change includes reinvestment of $0.130 per share ordinary
income dividends.
(5)Percent change includes reinvestment of $0.097 per share ordinary
income dividends.
(6)Percent change includes reinvestment of $0.108 per share ordinary
income dividends.
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS (In US dollars)
<CAPTION>
Shares Value Percent of
COUNTRY Industries Held Common Stocks Cost (Note 1a) Net Assets
<S> <S> <C> <S> <C> <C> <C>
Argentina Banking 600 Banco Frances del Rio de la
Plata S.A. (ADR)* $ 18,594 $ 12,825 0.2%
Oil & Gas Producers 800 Yacimientos Petroliferos Fiscales
S.A. (Class D) (Sponsored)
(ADR)* 18,614 17,100 0.2
Total Common Stocks in Argentina 37,208 29,925 0.4
Australia Multi-Industry 6,000 CSR Ltd. 20,467 20,698 0.3
6,000 Pacific Dunlop Ltd. 18,156 15,954 0.2
---------- ---------- ------
38,623 36,652 0.5
Total Common Stocks in Australia 38,623 36,652 0.5
Canada Natural Resources 1,900 Canadian Pacific Ltd. 33,447 28,500 0.3
Telecommunications 500 Northern Telecommunications Ltd. 17,405 16,687 0.2
<PAGE> Total Common Stocks in Canada 50,852 45,187 0.5
France Building & 200 Compagnie de Saint Gobain 25,427 23,031 0.3
Construction
Capital Goods 1,500 Alcatel Alsthom (ADR)* 32,271 25,500 0.3
Petroleum 300 TOTAL S.A. (Class B) 17,819 17,453 0.2
Total Common Stocks in France 75,517 65,984 0.8
Germany Electronics 50 Siemens AG 22,176 20,963 0.3
Machinery & 70 ++Mannesmann AG 19,573 19,083 0.2
Equipment
Total Common Stocks in Germany 41,749 40,046 0.5
Hong Kong Chemicals 50,000 Shanghai Petrochemical Co., Ltd. 16,523 14,219 0.2
Multi-Industry 2,000 Swire Pacific 'A' Ltd. 16,946 12,461 0.2
Real Estate 2,000 Sun Hung Kai Properties, Ltd. 15,357 11,944 0.1
Utilities-- 3,000 China Light & Power Co., Ltd. 15,713 12,797 0.2
Electric
Total Common Stocks in Hong Kong 64,539 51,421 0.7
Indonesia Telecommunications 520 P.T. Indonesia Satellite (ADR)* 20,272 18,590 0.2
Total Common Stocks in Indonesia 20,272 18,590 0.2
Japan Building & 2,000 Asahi Glass Co., Ltd. 24,617 24,724 0.3
Construction 2,000 Maeda Corp. 22,346 20,905 0.3
2,000 Okumura Corp. 17,151 14,975 0.2
---------- ---------- ------
64,114 60,604 0.8
Capital Goods 2,000 Hitachi Cable Ltd. 17,296 16,683 0.2
2,000 Mitsubishi Heavy Industries, Inc. 16,156 15,276 0.2
---------- ---------- ------
33,452 31,959 0.4
<PAGE>
Electrical Equipment 3,000 Mitsubishi Electric Co. 20,723 21,317 0.3
Electronics 1,000 Canon, Inc. 17,439 16,985 0.2
1,000 Matsushita Electric Industrial
Co., Ltd. 16,802 16,482 0.2
1,000 Sharp Corp. 17,969 18,090 0.2
---------- ---------- ------
52,210 51,557 0.6
Insurance 3,000 Nippon Fire & Marine Insurance
Co., Ltd. 22,453 20,864 0.3
2,000 Tokio Marine & Fire Insurance
Co., Ltd. 23,827 24,523 0.3
---------- ---------- ------
46,280 45,387 0.6
Machinery 2,000 Makino Milling Machine Co. 17,764 18,050 0.2
Petroleum 3,000 Nippon Oil Co., Ltd. 22,211 19,990 0.2
Printing & 1,000 Dai Nippon Printing Co., Ltd. 18,630 17,085 0.2
Publishing
Shipping 2,000 Kamigumi Co. 23,315 21,307 0.3
Textiles 2,000 Toray Industries Ltd. 15,740 14,573 0.2
Trading 2,000 Sumimoto Corp. 20,137 20,503 0.2
Total Common Stocks in Japan 334,576 322,332 4.0
Mexico Advertising 1,500 Consorcio G Grupo Dina S.A. de
C.V. (ADR)* 19,778 14,250 0.2
Capital Goods 2,000 Cementos Mexicano, S.A. de C.V.
(Class B) (Cemex) 18,043 10,633 0.1
Telecommunications 1,000 Empresas ICA Sociedad Controla-
dora S.A. de C.V. (ADR)* 31,364 15,500 0.2
Total Common Stocks in Mexico 69,185 40,383 0.5
Norway Capital Goods 400 Kvaerner, Inc. (Class B) 16,976 18,117 0.2
Diagnostics 1,000 Hafslund Nycomed Inc. (ADR)* 18,184 20,625 0.3
Total Common Stocks in Norway 35,160 38,742 0.5
<PAGE>
Singapore Machinery 2,000 Jurong Shipyard Ltd. 19,114 15,379 0.2
Shipping 11,000 Neptune Orient Lines Ltd. 17,077 15,105 0.2
Total Common Stocks in Singapore 36,191 30,484 0.4
Spain Energy & Petroleum 600 Repsol S.A. (ADR)* 19,311 16,350 0.2
Total Common Stocks in Spain 19,311 16,350 0.2
Sweden Engineering & 1,000 SKF AB 'B' Free 17,877 16,519 0.2
Construction
Total Common Stocks in Sweden 17,877 16,519 0.2
Switzerland Electrical Equipment 25 BBC Brown Boveri & Cie (Bearer) 22,679 21,549 0.3
Machinery 25 Sulzer Gebrueder AG 18,002 17,323 0.2
Total Common Stocks in
Switzerland 40,681 38,872 0.5
Thailand Real Estate 500 MDX Company Ltd. (Foreign) 1,622 1,694 0.0
Total Common Stocks in Thailand 1,622 1,694 0.0
United Beverages 700 Grand Metropolitan PLC (ADR)* 19,242 17,500 0.2
Kingdom
Chemicals 400 Imperial Chemical Industries
PLC (ADR)* 20,682 18,600 0.2
Conglomerates 1,000 Hanson PLC (ADR)* 19,185 18,000 0.2
Electrical Equipment 5,000 General Electric Co. PLC 22,639 21,454 0.3
Utilities--Gas 400 British Gas PLC (ADR)* 18,428 19,500 0.2
Total Common Stocks in the
United Kingdom 100,176 95,054 1.1
</TABLE>
<PAGE>
<TABLE>
SCHEDULE OF INVESTMENTS (concluded)
Shares Value Percent of
COUNTRY Industries Held Common Stocks Cost (Note 1a) Net Assets
<S> <S> <C> <S> <C> <C> <C>
United States Aerospace 500 United Technologies Corp. $ 31,447 $ 31,437 0.4%
Banking 300 Morgan (J.P.) & Co. Inc. 19,074 16,800 0.2
Chemicals 300 Eastman Chemical Co. 15,958 15,150 0.2
Computer Technology 200 Hewlett-Packard Co. 17,891 19,975 0.2
Consumer--Services 1,100 Kelly Services, Inc. (Class A) 33,500 29,975 0.4
Environmental 1,900 ++Wheelabrator Technologies Inc. 31,172 28,025 0.3
Control Systems
Foods 1,050 Archer-Daniels-Midland Co. 18,154 21,656 0.3
Oil--Integrated 1,000 Phillips Petroleum Co. 34,364 32,750 0.4
Oil Field Equipment 600 Schlumberger Ltd., Inc. 33,232 30,225 0.4
Petroleum 1,000 Dresser Industries, Inc. 20,435 18,875 0.2
Pharmaceuticals 600 Abbott Laboratories 18,936 19,575 0.2
900 Merck & Co., Inc. 30,882 34,312 0.4
---------- ---------- ------
49,818 53,887 0.6
Telecommunications 400 AT&T Corp. 21,682 20,100 0.2
Total Common Stocks in the
United States 326,727 318,855 3.8
Total Investments in Common
Stocks 1,310,266 1,207,090 14.8
Face
Amount Fixed-Income Securities
Canada C$ 300,000 National Bank of Canada, 7.25%
due 6/01/2003 201,403 190,562 2.3
Total Fixed-Income Securities
in Canada 201,403 190,562 2.3
Germany DM 300,000 Bundes Obligations, 6.375% due
5/20/1998 197,809 189,741 2.3
<PAGE>
Total Fixed-Income Securities
in Germany 197,809 189,741 2.3
United Kingdom Pound Sterling 150,000 UK Treasury Gilt, 7.25% due
3/30/1998 231,941 226,238 2.8
Total Fixed-Income Securities
in the United Kingdom 231,941 226,238 2.8
United States US Treasury Notes:
US$2,500,000 6.875% due 8/31/1999 2,453,203 2,406,250 29.5
2,500,000 7.25% due 8/15/2004 2,433,164 2,399,600 29.4
---------- ---------- ------
4,886,367 4,805,850 58.9
Total Fixed-Income Securities
in the United States 4,886,367 4,805,850 58.9
Total Investments in Fixed-
Income Securities 5,517,520 5,412,391 66.3
Short-Term Securities
United States Commercial US$ 293,000 General Electric Capital Corp.,
Paper** 5.80% due 1/03/1995 293,000 293,000 3.6
Total Investments in Commercial
Paper 293,000 293,000 3.6
US Government 300,000 Federal Home Loan Bank, 5.75% due
& Agency 1/17/1995 299,329 299,329 3.7
Obligations** 300,000 Federal Home Loan Mortgage
Association, 5.61% due 1/04/1995 299,954 299,954 3.7
200,000 Federal National Mortgage
Association, 5.78% due 1/23/1995 199,358 199,358 2.4
Total Investments in US Government
& Agency Obligations 798,641 798,641 9.8
Total Investments in Short-Term
Securities 1,091,641 1,091,641 13.4
<PAGE>
Total Investments $7,919,427 7,711,122 94.5
==========
Unrealized Depreciation on Forward Foreign Exchange Contracts*** (1,550) 0.0
Other Assets Less Liabilities 451,042 5.5
---------- ------
Net Assets $8,160,614 100.0%
========== ======
<FN>
*American Depositary Receipt (ADR).
**Commercial Paper and certain US Government & Agency Obligations
are traded on a discount basis; the interest rates shown are the
rates paid at the time of purchase by the Fund.
***Forward foreign exchange contracts as of December 31, 1994 were
as follows:
Unrealized
Foreign Currency Expiration Depreciation
Sold Date (Note 1c)
YEN 20,000,000 July 1995 $(1,550)
Total Unrealized Depreciation on
Forward Foreign Exchange Contracts
(US Commitment--$204,499) $(1,550)
=======
++Non-income producing security.
See Notes to Financial Statements.
</TABLE>
<TABLE>
STATEMENT OF ASSETS AND LIABILITIES
<CAPTION>
As of December 31, 1994
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$7,919,427) (Note 1a) $7,711,122
Cash 100
Receivables:
Interest $ 142,328
Capital shares sold 115,493
Investment adviser (Note 2) 99,325
Dividends 2,852 359,998
----------
Deferred organization expenses (Note 1g) 100,945
Prepaid registration fees and other assets (Note 1g) 87,309
----------
Total assets 8,259,474
----------
<PAGE>
Liabilities: Unrealized depreciation on forward foreign exchange contracts
(Note 1c) 1,550
Payables:
Capital shares redeemed 32,044
Dividends to shareholders (Note 1h) 20,556
Distributor (Note 2) 4,387
Securities purchased 1,621 58,608
----------
Accrued expenses and other liabilities 38,702
----------
Total liabilities 98,860
----------
Net Assets: Net assets $8,160,614
==========
Net Assets Class A Shares of Common Stock, $0.10 par value, 100,000,000
Consist of: shares authorized $ 11,847
Class B Shares of Common Stock, $0.10 par value, 100,000,000
shares authorized 70,185
Class C Shares of Common Stock, $0.10 par value, 100,000,000
shares authorized 1,591
Class D Shares of Common Stock, $0.10 par value, 100,000,000
shares authorized 644
Paid-in capital in excess of par 8,286,289
Undistributed realized capital gains on investments and foreign
currency transactions--net 122
Unrealized depreciation on investments and foreign currency
transactions--net (210,064)
----------
Net assets $8,160,614
==========
Net Asset Value: Class A--Based on net assets of $1,147,251 and 118,464 shares
outstanding $ 9.68
==========
Class B--Based on net assets of $6,796,880 and 701,853 shares
outstanding $ 9.68
==========
Class C--Based on net assets of $154,114 and 15,910 shares
outstanding $ 9.69
==========
Class D--Based on net assets of $62,369 and 6,439 shares
outstanding $ 9.69
==========
<PAGE>
See Notes to Financial Statements.
</TABLE>
<TABLE>
STATEMENT OF OPERATIONS
<CAPTION>
For the Period September 2, 1994++ to December 31, 1994
<S> <S> <C> <C>
Investment Interest and discount earned $ 116,321
Income Dividends (net of $509 foreign withholding tax) 6,916
(Notes 1e & 1f): ----------
Total income 123,237
----------
Expenses: Registration fees (Note 1g) $ 40,761
Investment advisory fees (Note 2) 16,460
Printing and shareholder reports 15,000
Distribution fees--Class B (Note 2) 13,874
Accounting services (Note 2) 10,120
Professional fees 8,216
Directors' fees and expenses 7,754
Amortization of organization expenses (Note 1g) 7,210
Custodian fees 3,200
Transfer agent fees--Class B (Note 2) 1,837
Pricing fees 805
Transfer agent fees--Class A (Note 2) 252
Distribution fees--Class C (Note 2) 124
Account maintenance fees--Class D (Note 2) 25
Transfer agent fees--Class C (Note 2) 14
Transfer agent fees--Class D (Note 2) 7
Other 4,149
----------
Total expenses before reimbursements 129,808
Reimbursement of expenses (Note 2) (115,785)
----------
Total expenses after reimbursement 14,023
----------
Investment income--net 109,214
----------
<PAGE>
Realized & Realized gain (loss) from:
Unrealized Gain Investments--net $ 2,130
(Loss) on Foreign currency transactions--net (2,008) 122
Investment & ----------
Foreign Currency Unrealized depreciation on:
Transactions Investments--net (208,305)
- --Net (Notes Foreign currency transactions--net (1,759) (210,064)
1c, 1d, ---------- ----------
1f & 3): Net realized and unrealized loss on investments and foreign
currency transactions (209,942)
----------
Net Decrease in Net Assets Resulting from Operations $ (100,728)
==========
<FN>
++Commencement of Operations.
See Notes to Financial Statements.
</TABLE>
<TABLE>
STATEMENT OF CHANGES IN NET ASSETS
<CAPTION>
For the Period September 2, 1994++
Increase (Decrease) in Net Assets: to December 31, 1994
<S> <S> <C>
Operations: Investment income--net $ 109,214
Realized gain on investments and foreign currency transactions--net 122
Unrealized depreciation on investments and foreign currency transactions--net (210,064)
----------
Net decrease in net assets resulting from operations (100,728)
----------
Dividends to Investment income--net:
Shareholders Class A (18,023)
(Note 1h): Class B (89,843)
Class C (796)
Class D (552)
----------
Net decrease in net assets resulting from dividends to shareholders (109,214)
----------
Capital Share Net increase in net assets derived from capital share transactions 8,270,556
Transactions ----------
(Note 4):
Net Assets: Total increase in net assets 8,060,614
Beginning of period 100,000
----------
End of period $8,160,614
==========
<PAGE>
<FN>
++Commencement of Operations.
See Notes to Financial Statements.
</TABLE>
<TABLE>
FINANCIAL HIGHLIGHTS
<CAPTION>
The following per share data and
ratios have been derived from information For the Period For the Period
provided in the financial statements. Sept. 2, 1994++ to Oct. 21, 1994++ to
Dec. 31, 1994 Dec. 31, 1994
Increase (Decrease) in Net Asset Value: Class A Class B Class C Class D
<S> <S> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 10.00 $ 10.00 $ 9.88 $ 9.88
Operating ------- ------- ------- -------
Performance: Investment income--net .18 .16 .10 .11
Realized and unrealized loss on investments and
foreign currency transactions--net (.32) (.32) (.19) (.19)
------- ------- ------- -------
Total from investment operations (.14) (.16) (.09) (.08)
------- ------- ------- -------
Less dividends:
Investment income--net (.18) (.16) (.10) (.11)
------- ------- ------- -------
Total dividends (.18) (.16) (.10) (.11)
------- ------- ------- -------
Net asset value, end of period $ 9.68 $ 9.68 $ 9.69 $ 9.69
======= ======= ======= =======
Total Investment Based on net asset value per share (1.37%)+++ (1.62%)+++ (.94%)+++ (.83%)+++
Return:** ======= ======= ======= =======
Ratios to Expenses, net of reimbursement and excluding
Average Net account maintenance and distribution fees .00%* .00%* .00%* .00%*
Assets: ======= ======= ======= =======
Expenses, excluding account maintenance and
distribution fees 5.20%* 5.29%* 4.95%* 4.89%*
======= ======= ======= =======
Expenses 5.20%* 6.04%* 5.75%* 5.14%*
======= ======= ======= =======
Investment income--net 5.64%* 4.86%* 5.19%* 5.70%*
======= ======= ======= =======
Supplemental Net assets, end of period (in thousands) $ 1,147 $ 6,797 $ 154 $ 63
Data: ======= ======= ======= =======
Portfolio turnover .83% .83% .83% .83%
======= ======= ======= =======
<PAGE>
<FN>
*Annualized.
**Total investment returns exclude the effect of sales loads.
++Commencement of Operations.
+++Aggregate total investment return.
See Notes to Financial Statements.
</TABLE>
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies:
Merrill Lynch Asset Income Fund, Inc. (the "Fund") is registered
under the Investment Company Act of 1940 as a non-diversified,
open-end management investment company. Prior to commencement of
operations on September 2, 1994, the Fund had no operations other
than those relating to organizational matters and the sale of 5,000
Class A Shares and 5,000 Class B Shares of common stock to Merrill
Lynch Asset Management, L.P. ("MLAM") for $100,000. The Fund offers
four classes of shares under the Merrill Lynch Select Pricing SM
System. Shares of Class A and Class D are sold with a front-end
sales charge. Shares of Class B and Class C may be subject to a
contingent deferred sales charge. All classes of shares have
identical voting, dividend, liquidation and other rights and the
same terms and conditions, except that Class B, Class C and Class D
Shares bear certain expenses related to the account maintenance of
such shares, and Class B and Class C Shares also bear certain
expenses related to the distribution of such shares. Each class has
exclusive voting rights with respect to matters relating to its
account maintenance and distribution expenditures. The following is
a summary of significant accounting policies followed by the Fund.
(a) Valuation of investments--Portfolio securities which are traded
on stock exchanges are valued at the last sale price on the
principal market on which such securities are traded, as of the
close of business on the day the securities are being valued or,
lacking any sales, at the last available bid price. Securities
traded in the over-the-counter market are valued at the last
available bid price or yield equivalents obtained from one or more
dealers in the over-the-counter market prior to the time of
valuation. The Fund employs Merrill Lynch Securities Pricing Service
("MLSPS"), an affiliate of MLAM, to provide securities prices for
the Fund. In cases where securities are traded on more than one
exchange, the securities are valued on the exchange designated by or
under the authority of the Board of Directors as the primary market.
Other investments, including futures contracts and related options,
are stated at market value. Short-term securities are valued at
amortized cost, which approximates market value.
<PAGE>
Options written by the Fund are valued at the last asked price in
the case of exchange-traded options or, in the case of options
traded in the over-the-counter market, the average of the last asked
price as obtained from one or more dealers. Options purchased by the
Fund are valued at their last bid price in the case of
exchange-traded options or, in the case of options traded in the
over-the-counter market, the average of the last bid price as
obtained from two or more dealers, unless there is only one dealer,
in which case that dealer's price is used.
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, including
valuations furnished by MLSPS, which may utilize a matrix system for
valuations.
(b) Repurchase agreements--The Fund invests in US Government
securities pursuant to repurchase agreements with a member bank of
the Federal Reserve System or a primary dealer in US Government
securities. Under such agreements, the bank or primary dealer agrees
to repurchase the security at a mutually agreed upon time and price.
The Fund takes possession of the underlying securities, marks to
market such securities and, if necessary, receives additions to such
securities daily to ensure that the contract is fully collateralized.
(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 equity, debt and currency
markets. Losses may arise due to changes in the value of the
contract or if the counterparty does not perform under the contract.
* Forward foreign exchange contracts--The Fund is authorized to enter
into forward foreign exchange contracts as a hedge against either
specific transactions or portfolio positions. Such contracts are not
entered on the Fund's records. However, the effect on operations is
recorded from the date the Fund enters into such contracts. Premium
or discount is amortized over the life of the contracts.
* Foreign currency options and futures--The Fund may also purchase or
sell listed or over-the-counter foreign currency options, foreign
currency futures and related options on foreign currency futures as
a short or long hedge against possible variations in foreign
exchange rates. Such transactions may be effected with respect to
hedges on non-US dollar denominated securities owned by the Fund,
sold by the Fund but not yet delivered, or committed or anticipated
to be purchased by the Fund.
* Options--The Fund is authorized to write and purchase call and put
options. When the Fund writes an option, an amount equal to the
premium received by the Fund is reflected as an asset and an
equivalent liability. The amount of the liability is subsequently
marked to market to reflect the current value of the option written.
<PAGE>
When a security is sold or bought through an exercise of an option,
the related premium received (or paid) is deducted from (or added
to) the basis of the security sold. When an option expires (or the
Fund enters into a closing transaction), the Fund realizes a gain or
loss on the option to the extent of the premiums received or paid
(or gain or loss to the extent the cost of the closing transaction
exceeds the premium paid or received).
Written and purchased options are non-income producing investments.
* Financial futures contracts--The Fund may purchase or sell stock
index futures contracts and options on such futures contracts. Upon
entering into a contract, the Fund deposits and maintains as
collateral such initial margin as required by the exchange on which
the transaction is effected. Pursuant to the contract, the Fund
agrees to receive from or pay to the broker an amount of cash equal
to the daily fluctuation in value of the contract. Such receipts or
payments are known as variation margin and are recorded by the Fund
as unrealized gains or losses. When the contract is closed, the Fund
records a realized gain or loss equal to the difference between the
value of the contract at the time it was opened and the value at the
time it was closed.
(d) Foreign currency transactions--Transactions denominated in
foreign currencies are recorded at the exchange rate prevailing when
recognized. Assets and liabilities denominated in foreign currencies
are valued at the exchange rate at the end of the period. Foreign
currency transactions are the result of settling (realized) or
valuing (unrealized) assets or liabilities expressed in foreign
currencies into US dollars. Realized and unrealized gains or losses
from investments include the effects of foreign exchange rates on
investments.
(e) 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. Under the applicable foreign tax law, a
withholding tax may be imposed on interest, dividends, and capital
gains at various rates.
(f) Security transactions and investment income--Security
transactions are recorded on the dates the transactions are
entered into (the trade dates). Dividend income is recorded on the
ex-dividend dates except that if the ex-dividend date has passed,
certain dividends from foreign securities are recorded as soon as
the Fund is informed of the ex-dividend date. Interest income
(including amortization of discount) is recognized on the accrual
basis. Realized gains and losses on security transactions are
determined on the identified cost basis.
<PAGE>
(g) Deferred organization expenses and prepaid registration fees--
Deferred organization expenses are charged to expense on a
straight-line basis over a five-year period. Prepaid registration
fees are charged to expense as the related shares are issued.
(h) Dividends and distributions--Dividends and distributions paid by
the Fund are recorded on the ex-dividend dates.
2. Investment Advisory Agreement and Transactions
with Affiliates:
The Fund has entered into an Investment Advisory Agreement with
MLAM. The general partner of MLAM is Princeton Services, Inc.
("PSI"), an indirect wholly-owned subsidiary of Merrill Lynch & Co.,
Inc. ("ML & Co."), which is the limited partner. The Fund has also
entered into a Distribution Agreement and Distribution Plans with
Merrill Lynch Funds Distributor, Inc. ("MLFD" or "Distributor"), a
wholly-owned subsidiary of Merrill Lynch Group, Inc.
NOTES TO FINANCIAL STATEMENTS (concluded)
MLAM is responsible for the management of the Fund's portfolio and
provides the necessary personnel, facilities, equipment and certain
other services necessary to the operations of the Fund. For such
services, the Fund pays a monthly fee of 0.75%, on an annual basis,
of the average daily value of the Fund's net assets. Certain of the
states in which the shares of the Fund are qualified for sale impose
limitations on the expenses of the Fund. The most restrictive annual
expense limitation requires that the Investment Adviser reimburse
the Fund to the extent the Fund's expenses (excluding interest,
taxes, distribution fees, brokerage fees and commissions, and
extraordinary items) exceed 2.5% of the Fund's first $30 million of
average daily net assets, 2.0% of the next $70 million of average
daily net assets, and 1.5% of the average daily net assets in excess
thereof. MLAM's obligation to reimburse the Fund is limited to the
amount of the management fee. No fee payment will be made to MLAM
during any fiscal year which will cause such expenses to exceed the
most restrictive expense limitation at the time of such payment. For
the period September 2, 1994 to December 31, 1994, MLAM earned fees
of $16,460, all of which were waived. MLAM also reimbursed the Fund
for additional expenses of $99,325.
Pursuant to the distribution plans ("the Distribution Plans")
adopted by the Fund in accordance with Rule 12b-1 under the
Investment Company Act of 1940, the Fund pays the Distributor
ongoing account maintenance and distribution fees. The fees are
accrued daily and paid monthly at annual rates based upon the
average daily net assets of the shares as follows:
<PAGE>
Account Distribution
Maintenance Fee Fee
Class B 0.25% 0.50%
Class C 0.25% 0.55%
Class D 0.25% --
Pursuant to a sub-agreement with the Distributor, Merrill Lynch,
Pierce, Fenner & Smith Inc. ("MLPF&S"), a subsidiary of ML & Co.,
also provides account maintenance and distribution services to the
Fund. The ongoing account maintenance fee compensates the
Distributor and MLPF&S for providing account maintenance services to
Class B, Class C and Class D shareholders. The ongoing distribution
fee compensates the Distributor and MLPF&S for providing shareholder
and distribution-related services to Class B and Class C
shareholders.
For the period ended December 31, 1994, MLFD earned underwriting
discounts and MLPF&S earned dealer concessions on sales of the
Fund's Class A and Class D Shares as follows:
MLFD MLPF&S
Class A $424 $19,158
Class D $ -- $ --
MLPF&S received contingent deferred sales charges of $968 relating
to transactions in Class B Shares of beneficial interest, and $342
in commissions on the execution of portfolio security transactions
for the Fund for the period ended December 31, 1994.
Financial Data Services, Inc. ("FDS"), a wholly-owned subsidiary of
ML & Co., is the Fund's transfer agent.
Accounting services are provided to the Fund by MLAM at cost.
During the period September 2, 1994 to December 31, 1994, the Fund
paid MLSPS $805 for security price quotations to compute the net
asset value of the Fund.
Certain officers and/or directors of the Fund are officers and/or
directors of MLAM, PSI, MLPF&S, FDS, MLFD and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities,
for the period September 2, 1994 to December 31, 1994 were
$6,860,969 and $35,695, respectively.
Net realized and unrealized gains (losses) as of December 31, 1994
were as follows:
<PAGE>
Realized Unrealized
Gains (Losses) Losses
Long-term investments $ 2,062 $ (208,305)
Short-term investments 68 --
Forward foreign exchange contracts -- (1,550)
Foreign currency transactions (2,008) (209)
----------- ----------
Total $ 122 $ (210,064)
=========== ==========
As of December 31, 1994, net unrealized depreciation for Federal
income tax purposes aggregated $208,305, of which $16,782 related to
appreciated securities and $225,087 related to depreciated
securities. At December 31, 1994, the aggregate cost of investments
for Federal income tax purposes was $7,919,427.
4. Capital Share Transactions:
Net increase in net assets derived from capital share transactions
was $8,270,556 for the period September 2, 1994 to December 31,
1994.
Transactions in capital shares for each class were as follows:
Class A Shares for the Period Dollar
September 2, 1994++ to December 31, 1994 Shares Amount
Shares sold 124,621 $1,237,577
Shares issued to shareholders in
reinvestment of dividends 923 9,012
---------- ----------
Total issued 125,544 1,246,589
Shares redeemed (12,080) (119,643)
---------- ----------
Net increase 113,464 $1,126,946
========== ==========
[FN]
++Commencement of Operations. Prior to September 2, 1994, the Fund
issued 5,000 shares to MLAM for $50,000.
<PAGE>
Class B Shares for the Period Dollar
September 2, 1994++ to December 31, 1994 Shares Amount
Shares sold 771,236 $7,656,187
Shares issued to shareholders in
reinvestment of dividends 5,204 50,756
---------- ----------
Total issued 776,440 7,706,943
Shares redeemed (79,587) (781,691)
---------- ----------
Net increase 696,853 $6,925,252
========== ==========
[FN]
++Commencement of Operations. Prior to September 2, 1994, the Fund
issued 5,000 shares to MLAM for $50,000.
Class C Shares for the Period Dollar
October 21, 1994++ to December 31, 1994 Shares Amount
Shares sold 15,858 $ 154,725
Shares issued to shareholders in
reinvestment of dividends 52 504
---------- ----------
Total issued 15,910 155,229
Shares redeemed -- --
---------- ----------
Net increase 15,910 $ 155,229
========== ==========
[FN]
++Commencement of Operations.
Class D Shares for the Period Dollar
October 21, 1994++ to December 31, 1994 Shares Amount
Shares sold 6,419 $ 62,936
Shares issued to shareholders in
reinvestment of dividends and 31 303
---------- ----------
Total issued 6,450 63,239
Shares redeemed (11) (110)
---------- ----------
Net increase 6,439 $ 63,129
========== ==========
[FN]
++Commencement of Operations.
5. Commitments:
At December 31, 1994, the Fund had entered into
foreign exchange contracts under which it had agreed to
purchase foreign currencies with an approximate value
of $1,620.
<PAGE>
<AUDIT-REPORT>
REPORT OF INDEPENDENT AUDITORS
To the Shareholders and Board of Directors,
Merrill Lynch Asset Income Fund, Inc.:
We have audited the accompanying statement of assets and
liabilities, including the schedule of investments, of Merrill Lynch
Asset Income Fund, Inc. as of December 31, 1994, the related
statements of operations, changes in net assets and the financial
highlights for the period September 2, 1994 (commencement of
operations) to December 31, 1994. 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 financial highlights based on our audit.
We conducted our audit 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 December
31, 1994, by correspondence with the custodian and broker. 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 audit
provides 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 Asset Income Fund, Inc. as of December 31, 1994, the
results of its operations, the changes in its net assets, and the
financial highlights for the respective stated period in conformity
with generally accepted accounting principles.
Deloitte & Touche LLP
Princeton, New Jersey
February 3, 1995
</AUDIT-REPORT>
<PAGE>
OFFICERS AND DIRECTORS
Arthur Zeikel, President and Director
Joe Grills, Director
Walter Mintz, Director
Melvin R. Seiden, Director
Stephen B. Swensrud, Director
Harry Woolf, Director
Terry K. Glenn, Executive Vice President
Bernard J. Durnin, Senior Vice President
Donald C. Burke, Vice President
Joel Heymsfeld, Vice President
Gerald M. Richard, Treasurer
Mark B. Goldfus, Secretary
Custodian
The Chase Manhattan Bank, N.A.
4 MetroTech Center, 18th Floor
Brooklyn, New York 11245
Transfer Agent
Financial Data Services, Inc.
Transfer Agency Mutual Fund Operations
4800 Deer Lake Drive East
Jacksonville, Florida 32246-6484
