MERRILL LYNCH
ASSET INCOME
FUND, INC.
FUND LOGO
Quarterly Report
March 31, 1995
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.
Merrill Lynch
Asset Income
Fund, Inc.
Box 9011
Princeton, NJ
08543-9011
<PAGE>
MERRILL LYNCH ASSET INCOME FUND, INC.
Worldwide
Investments As Of
March 31, 1995
Percent Breakdown of
Stocks & Fixed-Income Percent of
Securities by Country Net Assets++
United States* 78.4%
Germany 4.8
United Kingdom 3.4
Japan 3.1
Canada 2.5
France 0.8
Hong Kong 0.5
Switzerland 0.4
Norway 0.4
Netherlands 0.4
Australia 0.3
Singapore 0.3
Argentina 0.3
Indonesia 0.2
Spain 0.2
Sweden 0.2
Mexico 0.2
Thailand 0.1
[FN]
*Includes investments in short-term securities.
++Percent of net assets may not equal 100%.
Ten Largest Industries Percent of
(Equity Investments) Net Assets
Telecommunications 1.5%
Capital Goods 1.5
Building & Construction 0.9
Multi-Industry 0.9
Machinery 0.8
Electronics 0.8
Pharmaceuticals 0.7
Chemicals 0.7
Oil Service 0.7
Electrical Equipment 0.6
<PAGE>
Country Percent
Ten Largest Holdings of of Net
(Equity Investments) Origin Assets
Kelly Services, Inc.
(Class A) US 0.4%
Merck & Co., Inc. US 0.4
Phillips Petroleum Co. US 0.4
Schlumberger Ltd., Inc. Netherlands 0.4
Stewart & Stevenson
Services, Inc. US 0.4
United Technologies
Corp. US 0.3
Ford Motor Co. US 0.3
Abbott Laboratories US 0.3
Eastman Kodak Co. US 0.3
Dresser Industries, Inc. US 0.3
DEAR SHAREHOLDER
Increasing signs of slowing economic growth led to higher US stock
and bond prices during the March quarter. Although gross domestic
product was reported to have increased at a revised 5.1% rate during
the final quarter of 1994, declines in other indicators such as new
home sales and durable goods orders registered thus far in 1995 have
led investors to anticipate that the economy is losing enough
momentum to keep inflation under control and preclude further
significant monetary policy tightening by the Federal Reserve Board.
However, as US stock and bond markets have risen, the value of the
US dollar reached new lows relative to the yen and the Deutschemark.
Persistent trade deficits and exports of capital from the United
States have kept the US currency in a decade-long decline relative
to the Japanese and German currencies. Over the longer term, since
the United States has the highest productivity among industrialized
nations and among the lowest labor costs, demand for US dollar-
denominated assets may improve. However, a reduction of the still-
widening US trade deficit may be necessary before the US dollar
appreciates substantially relative to the yen and the Deutschemark.
The first three months of 1995 were very positive for the US stock
and bond markets. Continued signs of a moderating expansion and well-
contained inflationary pressures would provide further assurance
that the peak in interest rates is behind us, creating a stronger
foundation for higher stock and bond prices. On the other hand,
indications of reaccelerating growth and further significant
monetary policy tightening by the Federal Reserve Board would be a
decided negative for the US financial markets.
<PAGE>
Portfolio Matters
As of March 31, 1995, the Fund's asset allocation was: US bonds, 69%
of net assets; foreign bonds, 9%; US stocks, 6%; foreign stocks, 9%;
and cash and cash equivalents, 7%.
During the first quarter of 1995, we enlarged the US bond position.
Assets remain allocated to intermediate-term US Treasury
obligations. The average portfolio maturity is over 7.50 years and
the average duration is 5.65 years. These bonds have benefited from
a rally which began in late 1994. Even after this advance, there is
potential for a further decline in intermediate-term US interest
rates in coming months. Our optimism is based on our belief that the
Federal Reserve Board is unlikely to undertake a further increase in
short-term interest rates in coming months, so that the monetary
environment will remain benign.
This stable monetary policy is reflective of increasing evidence
that the US economy is slowing down. The strongest evidence of a
slowdown is in consumer durable areas, such as autos, housing and
retail. Weakness is also developing in US exports in response to
dramatic declines in economic activity in Latin America,
particularly in Mexico.
In the foreign bond sector, we expanded the Fund's position in
German bonds. This enlargement resulted from our expectation of a
decline in German interest rates. While the US dollar is expected to
recover versus the Deutschemark, the recovery will be limited. We
also maintained representation in UK and Canadian bonds.
In the equity sector, the favorable monetary environment led us to
expand US equity representation. We utilized cash to add new US
common stock positions during the first quarter of 1995. These
positions included General Signal Corp., Stewart & Stevenson
Services, Inc., Ingersoll-Rand Co., Pitney Bowes, Inc., Ford Motor
Company, The Stanley Works, Bell Atlantic Corp., Comsat Corporation
and GTE Corp. We accepted profits in Hewlett-Packard Co. and
liquidated our position in J.P. Morgan & Co. Inc.
Among the foreign equities, the largest overweighting is maintained
in the emerging markets of Asia and Latin America. These markets
have begun to recover after substantial corrections in 1994 and
early 1995. Investor recognition of favorable long-term prospects
should result in further recoveries in the Asian markets, such as
Hong Kong, Singapore and Indonesia. Significant further recoveries
in Latin America might take longer to develop. However, assuming
that the Mexican peso stabilizes, the Mexican stock market should
anticipate improving economic conditions beginning by late this
year. We are encouraged by the favorable response of the Argentine
stock market to the series of economic measures announced during
March.
<PAGE>
We maintained a meaningful commitment to Japanese equities. A
significant decline in bond yields has improved the valuation
background for the Japanese stock market. We also believe that the
Japanese economy will be favorably impacted by increased spending as
a result of earthquake-induced reconstruction. Since we believe that
the recovery in Japanese share prices could be accompanied by a
weakening of the yen, we have hedged approximately 75% of the value
of the Japanese equity position back into US dollars. Select
representation continues in European equities, with emphasis placed
on the shares of companies which appear to have made exceptional
progress in restructuring operations.
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 semi-annual report to shareholders.
Sincerely,
(Arthur Zeikel)
Arthur Zeikel
President
(Joel Heymsfeld)
Joel Heymsfeld
Vice President and Portfolio Manager
May 4, 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.
<PAGE>
* 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.
* 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).
Performance data for the Fund's shares are presented in the
"Aggregate Total Return" tables below. The "Recent Performance
Results" table below shows investment results before the deduction
of any sales charges for the Fund's shares for the since inception
and three-month periods ended March 31, 1995. 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 3/31/95 +2.80% -1.31%
[FN]
*Maximum sales charge is 4%.
**Assuming maximum sales charge.
<PAGE>
% Return Without % Return With
Sales Charge Sales Charge**
Class B Shares*
Inception (9/02/94)
through 3/31/95 +2.37% -1.61%
[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 3/31/95 +2.95% +1.95%
[FN]
*Maximum contingent deferred sales charge is 1% and is reduced to 0%
after 1 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 3/31/95 +3.19% - 0.93%
[FN]
*Maximum sales charge is 4%.
**Assuming maximum sales charge.
<TABLE>
Recent
Performance
Results*
<CAPTION>
Since Inception 3 Month
3/31/95 12/31/94 Inception++ % Change++ % Change
<S> <C> <C> <C> <C> <C>
Class A Shares $9.94 $9.68 $10.00 -0.60% +2.69%
Class B Shares 9.94 9.68 10.00 -0.60 +2.69
Class C Shares 9.94 9.69 9.88 +0.61 +2.58
Class D Shares 9.94 9.69 9.88 +0.61 +2.58
Class A Shares-Total Return +2.80(1) +4.23(2)
Class B Shares-Total Return +2.37(3) +4.05(4)
Class C Shares-Total Return +2.95(5) +3.93(6)
Class D Shares-Total Return +3.19(7) +4.06(8)
<PAGE>
<FN>
*Investment results shown do not reflect sales charges; results
shown would be lower if a sales charge was included.
++Class A and Class B Shares commenced operations on 9/02/94. Class
C and Class D Shares commenced operations on 10/21/94.
(1)Percent change includes reinvestment of $0.321 per share ordinary
income dividends.
(2)Percent change includes reinvestment of $0.137 per share ordinary
income dividends.
(3)Percent change includes reinvestment of $0.279 per share ordinary
income dividends.
(4)Percent change includes reinvestment of $0.120 per share ordinary
income dividends.
(5)Percent change includes reinvestment of $0.216 per share ordinary
income dividends.
(6)Percent change includes reinvestment of $0.119 per share ordinary
income dividends.
(7)Percent change includes reinvestment of $0.239 per share ordinary
income dividends.
(8)Percent change includes reinvestment of $0.131 per share ordinary
income dividends.
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS (in US dollars)
<CAPTION>
Shares Percent of
COUNTRY Industries Held Common Stocks Cost Value Net Assets
<S> <S> <C> <S> <C> <C>
Argentina Banking 600 Banco Frances del Rio de
la Plata S.A. (ADR)* $ 18,594 $ 10,875 0.1%
Oil & Gas Producers 800 Yacimientos Petroliferos Fiscales
S.A. (Class D) (Sponsored) (ADR)* 18,614 l5,200 0.2
Total Common Stocks in Argentina 37,208 26,075 0.3
Australia Multi-Industry 6,000 CSR Ltd. 20,467 18,805 0.2
6,000 Pacific Dunlop Ltd. 18,156 13,094 0.1
Total Common Stocks in Australia 38,623 31,899 0.3
Canada Multi-Industry 1,900 Canadian Pacific Ltd. 33,447 28,500 0.3
Telecommunications 500 Northern Telecommunications Ltd. 17,405 18,938 0.2
Total Common Stocks in Canada 50,852 47,438 0.5
<PAGE>
France Building & 200 Compagnie de Saint Gobain 25,427 24,896 0.3
Construction
Capital Goods 1,500 Alcatel Alsthom (ADR)* 32,271 27,188 0.3
Petroleum 300 TOTAL S.A. (Class B) 17,819 17,910 0.2
Total Common Stocks in France 75,517 69,994 0.8
Germany Electronics 50 Siemens AG 22,176 23,208 0.2
Machinery & 70 Mannesmann AG 19,573 17,789 0.2
Equipment
Total Common Stocks in Germany 41,749 40,997 0.4
Hong Kong Chemicals 50,000 Shanghai Petrochemical Co., Ltd. 16,523 15,359 0.2
Multi-Industry 2,000 Swire Pacific Ltd. 'A' 16,946 13,645 0.1
Real Estate 2,000 Sun Hung Kai Properties, Ltd. 15,357 13,645 0.1
Utilities--Electric 3,000 China Light & Power Co., Ltd. 15,713 14,551 0.1
Total Common Stocks in Hong Kong 64,539 57,200 0.5
Indonesia Telecommunications 520 P.T. Indonesian Satellite (ADR)* 20,272 18,330 0.2
Total Common Stocks in Indonesia 20,272 18,330 0.2
Japan Building & 2,000 Asahi Glass Co., Ltd. 24,617 23,421 0.2
Construction 2,000 Maeda Corp. 22,346 22,755 0.2
2,000 Okumura Corp. 17,151 17,910 0.2
---------- ---------- ------
64,114 64,086 0.6
Capital Goods 2,000 Hitachi Cable Ltd. 17,296 14,673 0.1
2,000 Mitsubishi Heavy Industries, Inc. 16,156 14,305 0.1
---------- ---------- ------
33,452 28,978 0.2
Electrical 3,000 Mitsubishi Electric Co. 20,723 21,975 0.2
Equipment
Electronics 1,000 Canon, Inc. 17,439 16,418 0.2
1,000 Matsushita Electric Industrial
Co., Ltd. 16,802 16,073 0.2
1,000 Sharp Corp. 17,969 16,188 0.2
---------- ---------- ------
52,210 48,679 0.6
<PAGE>
Insurance 3,000 Nippon Fire & Marine Insurance
Co., Ltd. 22,453 21,320 0.2
2,000 Tokio Marine & Fire Insurance
Co., Ltd. 23,827 22,618 0.2
---------- ---------- ------
46,280 43,938 0.4
Machinery 2,000 Makino Milling Machine Co. 17,764 14,925 0.2
Petroleum 3,000 Nippon Oil Co., Ltd. 22,211 18,909 0.2
Printing & Publishing 1,000 Dai Nippon Printing Co., Ltd. 18,630 15,499 0.2
Textiles 2,000 Toray Industries Ltd. 15,740 13,525 0.1
Trading 2,000 Kamigumi Co. 23,315 19,173 0.2
2,000 Sumitomo Corp. 20,137 18,140 0.2
---------- ---------- ------
43,452 37,313 0.4
Total Common Stocks in Japan 334,576 307,827 3.1
Mexico Capital Goods 1,500 Consorcio G Grupo Dina, S.A.
de C.V. (ADR)* 19,778 5,250 0.1
Cement 2,000 Cementos Mexicano, S.A. de C.V.
(Class B) (Cemex) 18,043 4,382 0.0
Telecommunications 1,000 Empresas ICA Sociedad Controladora,
S.A. de C.V. (ADR)* 31,364 6,000 0.1
Total Common Stocks in Mexico 69,185 15,632 0.2
Netherlands Oil Service 600 Schlumberger Ltd., Inc. 33,232 35,775 0.4
Total Common Stocks
in the Netherlands 33,232 35,775 0.4
Norway Capital Goods 400 Kvaerner, Inc. (Class B) 16,976 16,737 0.2
Diagnostics 1,000 Hafslund Nycomed Inc. (ADR)* 18,184 19,875 0.2
Total Common Stocks in Norway 35,160 36,612 0.4
Singapore Machinery 2,000 Jurong Shipyard Ltd. 19,114 17,151 0.2
Shipping 11,000 Neptune Orient Lines Ltd. 17,077 13,565 0.1
Total Common Stocks in Singapore 36,191 30,716 0.3
<PAGE>
Spain Energy & Petroleum 600 Repsol S.A. (ADR)* 19,311 l7,400 0.2
Total Common Stocks in Spain 19,311 17,400 0.2
Sweden Engineering & 1,000 SKF AB 'B' Free 17,877 16,562 0.2
Construction
Total Common Stocks in Sweden 17,877 16,562 0.2
Switzerland Electrical Equipment 25 BBC Brown Boveri & Cie (Bearer) 22,679 23,700 0.2
Machinery 25 Sulzer Gebrueder AG 18,002 15,749 0.2
Total Common Stocks in Switzerland 40,681 39,449 0.4
Thailand Real Estate 6,000 MDX Company Ltd. (Foreign) 19,504 12,431 0.1
Total Common Stocks in Thailand 19,504 12,431 0.1
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS (concluded) (in US dollars)
<CAPTION>
Shares Percent of
COUNTRY Industries Held Common Stocks Cost Value Net Assets
<S> <S> <C> <S> <C> <C>
United Beverages 700 Grand Metropolitan
Kingdom PLC (ADR)* $ 19,242 $ 18,025 0.2%
Chemicals 400 Imperial Chemical Industries
PLC (ADR)* 20,682 18,800 0.2
Electrical Equipment 5,000 General Electric Co. PLC 22,639 24,042 0.2
Multi-Industry 1,000 Hanson PLC (ADR)* 19,185 18,875 0.2
Utilities--Gas 400 British Gas PLC (ADR)* 18,428 18,700 0.2
Total Common Stocks in
the United Kingdom 100,176 98,442 1.0
<PAGE>
United Aerospace 500 United Technologies Corp. 31,447 34,563 0.3
States
Automobile 1,200 Ford Motor Co. 32,137 32,400 0.3
Capital Goods 800 General Signal Corporation 28,443 28,500 0.3
1,000 Stewart & Stevenson Services, Inc. 35,398 35,250 0.4
---------- ---------- ------
63,841 63,750 0.7
Chemicals 500 Eastman Chemical Co. 26,197 27,813 0.3
Consumer--Services 1,100 Kelly Services, Inc. (Class A) 33,500 39,600 0.4
Environmental 1,900 Wheelabrator Technologies Inc. 31,172 25,888 0.3
Control Systems
Foods 1,550 Archer-Daniels-Midland Co. 28,064 28,869 0.3
Hardware Products 800 Stanley Works (The) 31,572 31,500 0.3
Machinery 600 Ingersoll-Rand Company 18,942 19,725 0.2
Office--Related 600 Pitney Bowes, Inc. 20,090 21,600 0.2
Oil--Integrated 1,000 Phillips Petroleum Co. 34,364 36,625 0.4
Oil Service 1,500 Dresser Industries, Inc. 30,407 31,875 0.3
Pharmaceuticals 900 Abbott Laboratories 29,082 32,063 0.3
900 Merck & Co., Inc. 30,882 38,362 0.4
---------- ---------- ------
59,964 70,425 0.7
Photography 600 Eastman Kodak Co. 28,913 31,875 0.3
Telecommunications 400 AT&T Corp. 21,682 20,700 0.2
600 Bell Atlantic Corporation 30,590 31,650 0.3
900 Comsat Corporation 18,901 16,763 0.2
900 GTE Corp. 29,377 29,925 0.3
---------- ---------- ------
100,550 99,038 1.0
Total Common Stocks in
the United States 571,160 595,546 6.0
Total Investments in
Common Stocks 1,605,813 1,498,325 15.3
<PAGE>
Face
Amount Fixed-Income Securities
Canada C$ 300,000 National Bank of Canada, 7.25%
due 6/01/2003 201,403 198,224 2.0
Total Fixed-Income Securities 201,403 198,224 2.0
in Canada
Germany Bundes Obligations:
DM 300,000 6.375% due 5/20/1998 197,809 216,936 2.2
300,000 7.375% due 1/03/2005 217,005 218,064 2.2
Total Fixed-Income Securities
in Germany 414,814 435,000 4.4
United Kingdom Pound 150,000 UK Treasury Gilt, 7.25%
Sterling due 3/30/1998 232,448 237,158 2.4
Total Fixed-Income Securities
in the United Kingdom 232,448 237,158 2.4
United States US Treasury Notes:
US$ 2,500,000 6.875% due 8/31/1999 2,453,203 2,480,475 25.2
3,750,000 7.25% due 8/15/2004 3,639,063 3,750,600 38.1
500,000 7.50% due 2/15/2005 503,750 510,155 5.2
Total Fixed-Income Securities
in the United States 6,596,016 6,741,230 68.5
Total Investments in
Fixed-Income Securities 7,444,681 7,611,612 77.3
Short-Term Securities
United States US Government US$ 100,000 Federal Home Loan Bank, 5.90%
& Agency due 4/17/1995 99,771 99,771 1.0
Obligations** Federal Home Loan Mortgage Corp.:
134,000 5.92% due 4/17/1995 133,692 133,692 1.4
150,000 5.90% due 4/20/1995 149,582 149,582 1.5
Total Investments in
Short-Term Securities 383,045 383,045 3.9
<PAGE>
Total Investments $9,433,539 9,492,982 96.5
==========
Unrealized Depreciation on Forward Foreign Exchange Contracts*** (28,226) (0.3)
Other Assets Less Liabilities 372,089 3.8
---------- ------
Net Assets $9,836,845 100.0%
========== ======
Net Asset Value: Class A--Based on net assets of $1,217,827 and
122,520 shares outstanding $ 9.94
==========
Class B--Based on net assets of $7,905,461 and
795,326 shares outstanding $ 9.94
==========
Class C--Based on net assets of $239,094 and
24,057 shares outstanding $ 9.94
==========
Class D--Based on net assets of $474,463 and
47,742 shares outstanding $ 9.94
==========
<FN>
*American Depositary Receipt (ADR).
**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.
***Forward foreign exchange contracts as of March 31, 1995 were as follows:
Foreign Currency Expiration Unrealized
Sold Date Depreciation
YEN20,000,000 July 1995 $(28,226)
Total Unrealized Depreciation on Forward Foreign
Exchange Contracts (US Commitment--$204,499) $(28,226)
========
</TABLE>
<PAGE>
PORTFOLIO CHANGES
For the Quarter Ended March 31, 1995
Additions
Bell Atlantic Corporation
Comsat Corporation
Eastman Kodak Co.
Ford Motor Co.
GTE Corp.
General Signal Corporation
Ingersoll-Rand Company
Pitney Bowes, Inc.
Stanley Works (The)
Stewart & Stevenson Services, Inc.
Deletions
Hewlett-Packard Co.
Morgan (J.P.) & Co. Inc.
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
<PAGE>
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
