MERRILL LYNCH
ASSET INCOME
FUND, INC.
FUND LOGO
Semi-Annual Report
June 30, 1995
<PAGE>
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
MERRILL LYNCH ASSET INCOME FUND, INC.
Worldwide
Investments as of
June 30, 1995
<PAGE>
Percent Breakdown of
Stocks & Fixed-Income Percent of
Securities by Country Net Assets++
United States* 78.0%
Germany 4.6
Japan 3.2
United Kingdom 3.2
Canada 2.5
France 0.7
Hong Kong 0.4
Switzerland 0.4
Netherlands 0.3
Mexico 0.3
Australia 0.3
Singapore 0.2
Argentina 0.2
Philippines 0.2
Sweden 0.2
Indonesia 0.2
Spain 0.2
Norway 0.2
Italy 0.2
Thailand 0.1
[FN]
*Includes investments in short-term securities.
++Percent of net assets may not total 100%.
Ten Largest Industries Percent of
(Equity Investments) Net Assets
Telecommunications 2.0%
Capital Goods 1.3
Multi-Industry 0.9
Building & Construction 0.8
Electronics 0.7
Machinery 0.7
Pharmaceuticals 0.7
Chemicals 0.7
Electrical Equipment 0.6
Oil Service 0.6
<PAGE>
Country Percent
Ten Largest Holdings of of Net
(Equity Investments) Origin Assets
Merck & Co., Inc. US 0.4%
United Technologies
Corp.* US 0.4
Schlumberger
Ltd., Inc. Netherlands 0.3
Abbott Laboratories US 0.3
Eastman Kodak Co. US 0.3
Stewart & Stevenson
Services, Inc. US 0.3
Ford Motor Co. US 0.3
Bell Atlantic
Corporation US 0.3
Dresser Industries,
Inc. US 0.3
Phillips Petroleum Co. US 0.3
DEAR SHAREHOLDER
In the June quarter economic data showed evidence of slowing
activity. Gross domestic product (GDP) growth for the first three
months of 1995 was reported at 2.7%, the weakest showing in the past
18 months. Other signs of a sluggish economy included slowing growth
in the manufacturing sector in May and June as well as three
consecutive months of declines in the Index of Leading Economic
Indicators, an occurrence which has often (but not always) forecast
recessions. As a result, by the end of the June quarter concerns had
arisen that the economic "soft landing" could turn into an actual
recession. However, at the same time there were also expectations
that a few months of very slow or zero growth could be followed by a
pickup in economic activity later in the year. This view was
supported by the stronger-than-expected employment data for June and
an upward revision in May's employment figures.
Thus far in 1995, economic developments have been very positive for
the US stock and bond markets, and most US stock market averages
recently have attained record levels. In contrast, the US dollar has
been persistently weak, especially relative to the yen. Following
the Federal Reserve Board's cut in short-term interest rates in
early July, continued signs of a moderating expansion and well-
contained inflationary pressures could provide further assurance
that the peak in US interest rates is behind us, creating a stronger
foundation for higher stock and bond prices. On the other hand,
indications of reaccelerating growth and increasing inflationary
pressures would likely suggest that higher interest rates are on the
horizon, a negative development for the US financial markets.
<PAGE>
Portfolio Matters
As of June 30, 1995, the Fund's asset allocation was: US bonds, 62%
of net assets; foreign bonds, 8%; US stocks, 6%; foreign stocks, 9%;
and cash and other assets, 15%.
During the second quarter of 1995, we took advantage of a continuing
rally in the US bond market to reduce the size of our US bond
investments. The remaining US bond holdings are concentrated in
intermediate-term US Treasury obligations. The average duration of
the Fund's US bond commitment stands at 5.4 years with the average
maturity at 7.2 years.
Our decision to reduce the Fund's bond holdings reflects our belief
that the major portion of a rally in the US bond market had taken
place, at least for the next several quarters. The bond market, by
the end of the second quarter, seemed to discount the modest
slowdown in US economic activity which was already underway. We
expect the slowdown to be followed by a gradual reacceleration in
economic activity during the second half of 1995 and into 1996. In
such an environment, the Federal Reserve Board is unlikely to
aggressively ease monetary policy. Instead, we believe that the US
central bank will follow a stable policy that would not support a
significant further decline in intermediate-term US interest rates.
In our foreign bond area, commitments are maintained in Canada, the
United Kingdom and Germany.
In the equity sector, we further enlarged US common stock
representation through a position in Fisher Scientific Inter-
national, Inc. The economic environment outlined with reference to
the US bond market should be a positive one for US equities in the
upcoming months. Our US equity assets are focused on the shares of
companies whose earnings performance should be favorable in an
environment of gradually accelerating economic growth.
In the foreign stock sector, we enlarged representation in Japanese
equities, taking advantage of market weakness during the second
quarter. We established new positions in Komatsu Ltd., Makita
Electric Work Ltd., Sekisui Chemical Co., Ltd., and Mitsubishi Trust
& Banking Corp. We believe that the Japanese stock market should
recover in upcoming months as a result of more aggressive policy
moves by the government to stimulate the economy and deal with
problems affecting the Japanese financial sector. Since we expect
the US dollar to recover relative to the yen, we maintain a currency
hedge for the equivalent of 62% of the value of the Japanese equity
positions.
<PAGE>
We continue to overweight the Fund's position in emerging market
equities. We increased our position in Asian markets with a position
in Philippine Long Distance Telephone Co. We expect further recovery
in the Asian markets as a result of favorable economic prospects.
The Latin American stock markets should also attract renewed
interest with the improving financial condition in Mexico. We also
retain selective representation in European equity markets as well
as in Australian and Canadian common stocks.
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
August 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:
<PAGE>
* 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.
* 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 all of the Fund's shares are presented in the
"Aggregate Total Return" and "Recent Performance Results" tables
below and on page 5. The "Recent Performance Results" table shows
investment results before the deduction of any sales charges for the
Fund's shares for the since inception and three-month periods
through June 30, 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
<PAGE>
% Return Without % ReturnWith
Sales Charge Sales Charge**
Class A Shares*
Inception (9/02/94)
through 6/30/95 +8.66% +4.31%
[FN]
*Maximum sales charge is 4%.
**Assuming maximum sales charge.
% Return % Return
Without CDSC With CDSC**
Class B Shares*
Inception (9/02/94)
through 6/30/95 +8.00% +4.00%
[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 6/30/95 +8.60% +7.60%
[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 6/30/95 +9.01% +4.65%
[FN]
*Maximum sales charge is 4%.
**Assuming maximum sales charge.
<PAGE>
<TABLE>
Recent
Performance
Results
<CAPTION>
Since Inception 3 Month
6/30/95 3/31/95 Inception++ % Change++ % Change
<S> <C> <C> <C> <C> <C>
Class A Shares* $10.35 $9.94 $10.00 +3.50% +4.12%
Class B Shares* 10.35 9.94 10.00 +3.50 +4.12
Class C Shares* 10.35 9.94 9.88 +4.76 +4.12
Class D Shares* 10.35 9.94 9.88 +4.76 +4.12
Class A Shares--Total Return* +8.66(1) +5.70(2)
Class B Shares--Total Return* +8.00(3) +5.50(4)
Class C Shares--Total Return* +8.60(5) +5.49(6)
Class D Shares--Total Return* +9.01(7) +5.63(8)
Class A Shares--Standardized 30-day Yield 5.14%
Class B Shares--Standardized 30-day Yield 4.60%
Class C Shares--Standardized 30-day Yield 4.55%
Class D Shares--Standardized 30-day Yield 4.89%
<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 $0.475 per share ordinary
income dividends.
(2)Percent change includes reinvestment of $0.154 per share ordinary
income dividends.
(3)Percent change includes reinvestment of $0.414 per share ordinary
income dividends.
(4)Percent change includes reinvestment of $0.135 per share ordinary
income dividends.
(5)Percent change includes reinvestment of $0.350 per share ordinary
income dividends.
(6)Percent change includes reinvestment of $0.134 per share ordinary
income dividends.
(7)Percent change includes reinvestment of $0.387 per share ordinary
income dividends.
(8)Percent change includes reinvestment of $0.148 per share ordinary
income dividends.
</TABLE>
<PAGE>
<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 $ 10,800 0.1%
Oil & Gas Producers 800 Yacimientos Petroliferos Fiscales S.A.
(Class D) (Sponsored) (ADR)* 18,614 15,100 0.1
Total Common Stocks in Argentina 37,208 25,900 0.2
Australia Multi-Industry 6,000 CSR Ltd. 20,467 18,816 0.2
6,000 Pacific Dunlop Ltd. 18,156 12,601 0.1
Total Common Stocks in Australia 38,623 31,417 0.3
Canada Multi-Industry 1,900 Canadian Pacific Ltd. 33,447 33,013 0.3
Telecommunications 500 Northern Telecommunications Ltd. 17,405 18,250 0.2
Total Common Stocks in Canada 50,852 51,263 0.5
France Building & 200 Compagnie de Saint Gobain 25,427 24,185 0.2
Construction
Capital Goods 1,500 Alcatel Alsthom (ADR)* 32,271 27,188 0.3
Petroleum 300 TOTAL S.A. (Class B) 17,819 18,077 0.2
Total Common Stocks in France 75,517 69,450 0.7
Germany Electronics 50 Siemens AG 22,176 24,819 0.2
Machinery & 70 Mannesmann AG 19,573 21,385 0.2
Equipment
Total Common Stocks in Germany 41,749 46,204 0.4
<PAGE>
Hong Kong Chemicals 50,000 Shanghai Petrochemical Co., Ltd. 16,523 15,671 0.1
Multi-Industry 2,000 Swire Pacific Ltd. 'A' 16,946 15,251 0.1
Real Estate 2,000 Sun Hung Kai Properties, Ltd. 15,357 14,798 0.1
Utilities-- 3,000 China Light & Power Co., Ltd. 15,713 15,432 0.1
Electric
Total Common Stocks in Hong Kong 64,539 61,152 0.4
Indonesia Telecommunications 520 P.T. Indonesian Satellite (ADR)* 20,272 19,890 0.2
Total Common Stocks in Indonesia 20,272 19,890 0.2
Italy Telecommunications 6,000 Societa Finanziara Telefonica S.p.A.
(STET) 18,206 16,595 0.2
Total Common Stocks in Italy 18,206 16,595 0.2
Japan Building & 2,000 Asahi Glass Co., Ltd. 24,617 22,099 0.2
Construction 2,000 Maeda Corp. 22,346 22,193 0.2
2,000 Okumura Corp. 17,151 19,006 0.2
---------- ----------- ------
64,114 63,298 0.6
Capital Goods 2,000 Hitachi Cable Ltd. 17,296 13,033 0.1
2,000 Mitsubishi Heavy Industries, Inc. 16,156 13,599 0.1
---------- ----------- ------
33,452 26,632 0.2
Chemicals 1,000 Sekisui Chemical Co., Ltd. 12,418 11,805 0.1
Construction & 1,000 Kandenko Co., Ltd. 15,845 13,694 0.1
Housing
Electrical 3,000 Mitsubishi Electric Co. 20,723 21,107 0.2
Equipment
Electronics 1,000 Canon, Inc. 17,439 16,291 0.2
1,000 Makita Electric Work Ltd. 15,192 13,694 0.1
1,000 Matsushita Electric Industrial Co., Ltd. 16,802 15,583 0.1
1,000 Sharp Corp. 17,969 13,222 0.1
---------- ----------- ------
67,402 58,790 0.5
Financial 1,000 Mitsubishi Trust & Banking Corp. 18,121 14,166 0.1
Services
<PAGE>
Insurance 3,000 Nippon Fire & Marine Insurance Co., Ltd. 22,453 18,912 0.2
2,000 Tokio Marine & Fire Insurance Co., Ltd. 23,827 22,949 0.2
---------- ----------- ------
46,280 41,861 0.4
Machinery 2,000 Komatsu Ltd. 15,860 15,276 0.1
2,000 ++Makino Milling Machine Co. 17,764 11,616 0.1
---------- ----------- ------
33,624 26,892 0.2
Petroleum 3,000 Nippon Oil Co., Ltd. 22,211 18,876 0.2
Printing & 1,000 Dai Nippon Printing Co., Ltd. 18,630 15,937 0.1
Publishing
Textiles 2,000 Toray Industries Ltd. 15,740 12,442 0.1
Trading 2,000 Kamigumi Co. 23,315 20,068 0.2
2,000 Sumitomo Corp. 20,137 18,227 0.2
---------- ----------- ------
43,452 38,295 0.4
Total Common Stocks in Japan 412,012 363,795 3.2
Mexico Cement 4,000 Cementos Mexicano, S.A. de C.V.
(Class B) (Cemex) 25,167 14,452 0.1
Telecommunications 2,000 Empresas ICA Sociedad Controladora,
S.A. de C.V. (ADR)* 40,309 20,500 0.2
Total Common Stocks in Mexico 65,476 34,952 0.3
Netherlands Oil Service 600 Schlumberger Ltd., Inc. 33,233 37,275 0.3
Total Common Stocks in the Netherlands 33,233 37,275 0.3
Norway Capital Goods 400 Kvaerner, Inc. (Class B) 16,976 17,525 0.2
Total Common Stocks in Norway 16,976 17,525 0.2
Philippines Telecommunications 300 Philippine Long Distance Telephone
Co. (ADR)* 20,990 21,525 0.2
Total Common Stocks in the Philippines 20,990 21,525 0.2
<PAGE>
Singapore Machinery 2,000 Jurong Shipyard Ltd. 19,114 14,316 0.1
Shipping 11,000 Neptune Orient Lines Ltd. 17,077 12,756 0.1
Total Common Stocks in Singapore 36,191 27,072 0.2
Spain Energy & Petroleum 600 Repsol S.A. (ADR)* 19,311 18,975 0.2
Total Common Stocks in Spain 19,311 18,975 0.2
Sweden Engineering & 1,000 SKF AB 'B' Free 17,877 20,215 0.2
Construction
Total Common Stocks in Sweden 17,877 20,215 0.2
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS (concluded) (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>
Switzerland Electrical 25 BBC Brown Boveri & Cie (Bearer) $ 22,679 $ 25,891 0.2%
Equipment
Machinery 25 Sulzer Gebrueder AG 18,002 16,942 0.2
Total Common Stocks in Switzerland 40,681 42,833 0.4
Thailand Real Estate 6,000 MDX Company Ltd. (Foreign) 19,504 13,739 0.1
Total Common Stocks in Thailand 19,504 13,739 0.1
United Beverages 700 Grand Metropolitan PLC (ADR)* 19,242 17,500 0.2
Kingdom
Chemicals 400 Imperial Chemical Industries PLC (ADR)* 20,682 19,500 0.2
Electrical Equipment 5,000 General Electric Co. PLC 22,639 24,414 0.2
Multi-Industry 1,000 Hanson PLC (Sponsored)(ADR)* 18,470 17,625 0.2
<PAGE>
Utilities--Gas 400 British Gas PLC (ADR)* 18,428 18,400 0 2
Total Common Stocks in the
United Kingdom 99,461 97,439 1.0
United Aerospace 500 United Technologies Corp. 31,447 39,063 0.4
States
Automobile 1,200 Ford Motor Co. 32,137 35,700 0.3
Capital Goods 800 General Signal Corporation 28,443 31,800 0.3
1,000 Stewart & Stevenson Services, Inc. 35,398 35,750 0.3
---------- ----------- ------
63,841 67,550 0.6
Chemicals 500 Eastman Chemical Co. 26,197 29,750 0.3
Conglomerates 50 ++US Industries, Inc. 715 681 0.0
Consumer--Services 1,100 Kelly Services, Inc. (Class A) 33,500 27,775 0.3
Environmental 1,900 Wheelabrator Technologies Inc. 31,172 29,212 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 30,300 0.3
Machinery 600 Ingersoll-Rand Company 18,942 22,950 0.2
Manufacturing 1,000 Fisher Scientific International, Inc. 30,407 33,125 0.3
Office-Related 600 Pitney Bowes, Inc. 20,090 23,025 0.2
Oil--Integrated 1,000 Phillips Petroleum Co. 34,364 33,375 0.3
Oil Service 1,500 Dresser Industries, Inc. 30,407 33,375 0.3
Pharmaceuticals 900 Abbott Laboratories 29,082 36,450 0.3
900 Merck & Co., Inc. 30,882 44,100 0.4
---------- ----------- ------
59,964 80,550 0.7
Photography 600 Eastman Kodak Co. 28,913 36,375 0.3
Telecommunications 400 AT&T Corp. 21,682 21,250 0.2
600 Bell Atlantic Corporation 30,590 33,600 0.3
900 Comsat Corporation 18,901 17,662 0.2
900 GTE Corp. 29,377 30,712 0.3
---------- ----------- ------
100,550 103,224 1.0
<PAGE>
Total Common Stocks in the
United States 602,282 654,899 6.1
Total Investments in Common Stocks 1,730,960 1,672,115 15.3
Face
Amount Fixed-Income Securities
Canada C$ 300,000 National Bank of Canada, 7.25% due
6/01/2003 201,403 210,603 2.0
Total Fixed-Income Securities in Canada 201,403 210,603 2.0
Germany Bundes Obligations:
DM 300,000 6.375% due 5/20/1998 197,809 221,032 2.1
300,000 7.375% due 1/03/2005 217,005 222,429 2.1
Total Fixed-Income Securities in
Germany 414,814 443,461 4.2
United Kingdom Pound 150,000 UK Treasury Gilt, 7.25% due 3/30/1998 231,490 234,698 2.2
Sterling
Total Fixed-Income Securities in the
United Kingdom 231,490 234,698 2.2
United US Treasury Notes:
States US$ 2,500,000 6.875% due 8/31/1999 2,453,203 2,579,300 24.0
3,250,000 7.25% due 8/15/2004 3,153,750 3,472,917 32.3
500,000 7.50% due 2/15/2005 503,750 544,455 5.1
Total Fixed-Income Securities in the
United States 6,110,703 6,596,672 61.4
Total Investments in Fixed-Income
Securities 6,958,410 7,485,434 69.8
Short-Term Securities
<PAGE>
United Commercial US$ 524,000 General Electric Capital Corp., 6.20%
States Paper** due 7/03/1995 524,000 524,000 4.9
US Government & 600,000 Federal Home Loan Mortgage Corp., 5.87%
Agency due 7/19/1995 598,435 598,435 5.6
Obligations**
Total Investments in Short-Term
Securities 1,122,435 1,122,435 10.5
Total Investments $9,811,805 10,279,984 95.6
==========
Unrealized Depreciation on Forward Foreign Exchange Contracts*** (30,710) (0.3)
Other Assets Less Liabilities 503,597 4.7
----------- ------
Net Assets $10,752,871 100.0%
=========== ======
<FN>
++Non-income producing securities.
*American Depositary Receipt (ADR).
**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.
***Forward foreign exchange contracts as of June 30, 1995 were as
follows:
Foreign Currency Expiration Unrealized
Sold Date Depreciation
YEN 19,167,200 July 1995 $(30,710)
Total Unrealized Depreciation on
Forward Foreign Exchange Contracts
(US Commitment--$195,984) $(30,710)
========
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
STATEMENT OF ASSETS AND LIABILITIES
<CAPTION>
As of June 30, 1995
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$9,811,805) (Note 1a) $10,279,984
Cash 1,562
Receivables:
Interest $ 180,143
Dividends 9,078
Capital shares sold 2,228 191,449
-----------
Deferred organization expenses (Note 1g). 100,945
Prepaid registration fees and other assets (Note 1g) 233,719
-----------
Total assets 10,807,659
-----------
Liabilities: Unrealized depreciation on forward foreign exchange contracts
(Note 1c) 30,710
Payables:
Dividends to shareholders (Note 1h) 9,302
Distributor (Note 2) 5,882
Forward foreign exchange contracts (Note 1c) 1,485
Capital shares redeemed 266 16,935
-----------
Accrued expenses and other liabilities 7,143
-----------
Total liabilities 54,788
-----------
Net Assets: Net assets $10,752,871
===========
Net Assets Class A Shares of Common Stock, $0.10 par value, 100,000,000
Consist of: shares authorized $ 12,261
Class B Shares of Common Stock, $0.10 par value, 100,000,000
shares authorized 82,667
Class C Shares of Common Stock, $0.10 par value, 100,000,000
shares authorized 3,129
Class D Shares of Common Stock, $0.10 par value, 100,000,000
shares authorized 5,811
Paid-in capital in excess of par 10,196,269
Undistributed realized capital gains on investments and
foreign currency transactions--net 15,060
Unrealized appreciation on investments and foreign currency
transactions--net 437,674
-----------
Net assets $10,752,871
===========
<PAGE>
Net Asset Value: Class A--Based on net assets of $1,269,321 and 122,609 shares
outstanding $ 10.35
===========
Class B--Based on net assets of $8,558,189 and 826,668 shares
outstanding $ 10.35
===========
Class C--Based on net assets of $323,878 and 31,289 shares
outstanding $ 10.35
===========
Class D--Based on net assets of $601,483 and 58,109 shares
outstanding. $ 10.35
===========
See Notes to Financial Statements.
</TABLE>
<TABLE>
STATEMENT OF OPERATIONS
<CAPTION>
For the Six Months Ended June 30, 1995
<S> <S> <C> <C>
Investment Interest and discount earned $ 273,104
Income Dividends (net of $1,436 foreign withholding tax) 20,986
(Notes 1e & 1f): -----------
Total income 294,090
-----------
Expenses: Registration fees (Note 1g) $ 63,060
Printing and shareholder reports 38,899
Professional fees 37,711
Investment advisory fees (Note 2) 36,317
Account maintenance and distribution fees--Class B (Note 2) 29,008
Accounting services (Note 2) 21,713
Directors' fees and expenses 12,201
Amortization of organization expenses (Note 1g) 10,709
Custodian fees 6,604
Transfer agent fees--Class B (Note 2) 5,713
Pricing fees 2,803
Account maintenance and distribution fees--Class C (Note 2) 1,090
Transfer agent fees--Class A (Note 2) 783
Account maintenance fees--Class D (Note 2) 586
Transfer agent fees--Class D (Note 2) 302
Transfer agent fees--Class C (Note 2) 208
Other 3,849
-----------
Total expenses before reimbursements 271,556
Reimbursement of expenses (Note 2) (240,872)
-----------
Total expenses after reimbursement 30,684
-----------
Investment income--net 263,406
-----------
<PAGE>
Realized & Realized gain from:
Unrealized Investments--net 13,683
Gain (Loss) on Foreign currency transactions--net 1,255 14,938
Investment & -----------
Foreign Currency Change in unrealized depreciation on:
Transactions--Net Investments--net 676,484
(Notes 1c, 1d, Foreign currency transactions--net (28,745) 647,739
1f & 3): ----------- -----------
Net realized and unrealized gain on investments and foreign
currency transactions 662,677
-----------
Net Increase in Net Assets Resulting from Operations $ 926,083
===========
See Notes to Financial Statements.
</TABLE>
<TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
<CAPTION>
For the
For the Period
Six Months Sept. 2,
Ended 1994++ to
June 30, Dec. 31,
Increase (Decrease) in Net Assets: 1995 1994
<S> <S> <C> <C>
Operations: Investment income--net $ 263,406 $ 109,214
Realized gain on investments and foreign currency transactions--net 14,938 122
Change in unrealized depreciation on investments and foreign
currency transactions--net 647,739 (210,064)
----------- -----------
Net increase (decrease) in net assets resulting from operations 926,083 (100,728)
----------- -----------
Dividends to Investment income--net:
Shareholders Class A (36,667) (18,023)
(Note 1h): Class B (205,902) (89,843)
Class C (7,183) (796)
Class D (13,654) (552)
----------- -----------
Net decrease in net assets resulting from dividends to
shareholders (263,406) (109,214)
----------- -----------
<PAGE>
Capital Share Net increase in net assets derived from capital share
Transactions transactions 1,929,580 8,270,556
(Note 4): ----------- -----------
Net Assets: Total increase in net assets 2,592,257 8,060,614
Beginning of period 8,160,614 100,000
----------- -----------
End of period $10,752,871 $ 8,160,614
=========== ===========
<FN>
++Commencement of Operations.
See Notes to Financial Statements.
</TABLE>
<TABLE>
FINANCIAL HIGHLIGHTS
<CAPTION>
Class A Class B
For the For the For the For the
The following per share data and ratios have Six Period Six Period
been derived from information provided in Months Sept. 2, Months Sept. 2,
the financial statements. Ended 1994++ to Ended 1994++ to
June 30, Dec. 31, June 30, Dec. 31,
Increase (Decrease) in Net Asset Value: 1995 1994 1995 1994
<S> <S> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 9.68 $10.00 $ 9.68 $10.00
Operating ------ ------ ------ ------
Performance: Investment income--net .30 .18 .26 .16
Realized and unrealized gain (loss) on investments
and foreign currency transactions--net .67 (.32) .67 (.32)
------ ------ ------ ------
Total from investment operations .97 (.14) .93 (.16)
------ ------ ------ ------
Less dividends from investment income--net (.30) (.18) (.26) (.16)
------ ------ ------ ------
Net asset value, end of period $10.35 $ 9.68 $10.35 $ 9.68
====== ====== ====== ======
Total Based on net asset value per share 10.17%+++ (1.37%)+++ 9.78%+++ (1.62%)+++
Investment ====== ====== ====== ======
Return:**
<PAGE>
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 4.96%* 5.20%* 4.98%* 5.29%*
====== ====== ====== ======
Expenses 4.96%* 5.20%* 5.73%* 6.04%*
====== ====== ====== ======
Investment income--net 6.07%* 5.64%* 5.32%* 4.86%*
====== ====== ====== ======
Supplemental Net assets, end of period (in thousands) $1,269 $1,147 $8,558 $6,797
Data: ====== ====== ====== ======
Portfolio turnover 6.87% .83% 6.87% .83%
====== ====== ====== ======
<FN>
*Annualized.
**Total investment returns exclude the effects of sales loads.
+++Aggregate total investment return.
++Commencement of Operations.
See Notes to Financial Statements.
</TABLE>
<TABLE>
FINANCIAL HIGHLIGHTS (concluded)
<CAPTION>
Class C Class D
For the For the For the For the
The following per share data and ratios have Six Period Six Period
been derived from information provided in Months Sept. 2, Months Sept. 2,
the financial statements. Ended 1994++ to Ended 1994++ to
June 30, Dec. 31, June 30, Dec. 31,
Increase (Decrease) in Net Asset Value: 1995 1994 1995 1994
<S> <S> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 9.69 $ 9.88 $ 9.69 $ 9.88
Operating ------ ------ ------ ------
Performance: Investment income--net .26 .10 .29 .11
Realized and unrealized gain (loss) on investments
and foreign currency transactions--net .66 (.19) .66 (.19)
------ ------ ------ ------
Total from investment operations .92 (.09) .95 (.08)
------ ------ ------ ------
Less dividends from investment income--net (.26) (.10) (.29) (.11)
------ ------ ------ ------
Net asset value, end of period $10.35 $ 9.69 $10.35 $ 9.69
====== ====== ====== ======
<PAGE>
Total Investment Based on net asset value per share 9.64%+++ (.94%)+++ 9.92%+++ (.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 4.98%* 4.95%* 4.94%* 4.89%*
====== ====== ====== ======
Expenses 5.78%* 5.75%* 5.19%* 5.14%*
====== ====== ====== ======
Investment income--net 5.27%* 5.19%* 5.83%* 5.70%*
====== ====== ====== ======
Supplemental Net assets, end of period (in thousands) $ 324 $ 154 $ 601 $ 63
Data: ====== ====== ====== ======
Portfolio turnover 6.87% .83% 6.87% .83%
====== ====== ====== ======
<FN>
*Annualized.
**Total investment returns exclude the effects of sales loads.
+++Aggregate total investment return.
++Commencement of Operations.
See Notes to Financial Statements.
</TABLE>
<PAGE>
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. 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. 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.
<PAGE>
(a) Valuation of investments--Portfolio securities which are traded
on stock exchanges are valued at the last sale price on the exchange
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 prior to
the time of valuation. 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. Securities which are traded both in the over-the-
counter market and on a stock exchange are valued according to the
broadest and most representative market. Options written are valued
at the last sale price in the case of exchange-traded options or, in
the case of options traded in the over-the-counter market, the last
asked price. Options purchased are valued at the last sale price in
the case of exchange-traded options or, in the case of options
traded in the over-the-counter market, the last bid price. Short-
term securities are valued at amortized cost, which approximates
market value. Other investments, including futures contracts and
related options, are stated at market value. Securities and assets
for which market quotations are not available are valued at fair
value as determined in good faith by or under the direction of the
Fund's Board of Directors.
(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.
* Financial futures contracts--The Fund may purchase or sell interest
rate futures contracts and options on such futures contracts for the
purpose of hedging the market risk on existing securities or the
intended purchase of securities. Futures contracts are contracts for
delayed delivery of securities at a specific future date and at a
specific price or yield. 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.
<PAGE>
* 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.
NOTES TO FINANCIAL STATEMENTS (continued)
* 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 covered call options and
purchase 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 market value of
the option written. When a security is purchased or sold through an
exercise of an option, the related premium paid (or received) is
added to (or deducted from) the basis of the security acquired or
deducted from (or added to) the proceeds 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.
(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) receivables or payables 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.
<PAGE>
(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.
(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 from net investment
income are declared daily and paid monthly. Distributions of capital
gains 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
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. 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.
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 six months ended June 30, 1995, MLAM earned fees of $36,317, all
of which were waived. MLAM also reimbursed the Fund for additional
expenses of $204,555.
<PAGE>
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 Class B, Class C and Class D Shares
as follows:
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 June 30, 1995, 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 $ 6 $ 73
Class D $149 $1,577
MLPF&S received contingent deferred sales charges of $7,756 relating
to transactions in Class B Shares of beneficial interest and $399 in
commissions on the execution of portfolio security transactions for
the Fund for the period ended June 30, 1995.
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.
<PAGE>
During the six months ended June 30, 1995, the Fund paid MLPF&S $72
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, MLFDS, MLFD and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities,
for the six months ended June 30, 1995 were $2,434,764 and $586,236,
respectively.
Net realized and unrealized gains (losses) as of June 30, 1995 were
as follows:
Unrealized
Realized Gains
Gains (Losses)
Long-term investments $ 13,664 $ 468,179
Short-term investments 19 --
Forward foreign exchange contracts -- (30,710)
Foreign currency transactions 1,255 205
---------- ----------
Total $ 14,938 $ 437,674
========== ==========
As of June 30, 1995, net unrealized depreciation for Federal income
tax purposes aggregated $468,179, of which $611,540 related to
appreciated securities and $143,361 related to depreciated
securities. At June 30, 1995, the aggregate cost of investments for
Federal income tax purposes was $9,811,805.
4. Capital Share Transactions:
Net increase in net assets derived from capital share transactions
was $1,929,580 for the six months ended June 30, 1995 and $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 Six Months Dollar
Ended June 30, 1995 Shares Amount
<PAGE>
Shares sold 12,651 $ 124,429
Shares issued to shareholders in
reinvestment of dividends 1,207 13,770
---------- ----------
Total issued 13,858 138,199
Shares redeemed (9,713) (97,594)
---------- ----------
Net increase 4,145 $ 40,605
========== ==========
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 50,000 shares to MLAM for $50,000.
NOTES TO FINANCIAL STATEMENTS (concluded)
Class B Shares for the Six Months Dollar
Ended June 30, 1995 Shares Amount
Shares sold 248,979 $2,483,246
Shares issued to shareholders in
reinvestment of dividends 11,834 118,877
---------- ----------
Total issued 260,813 2,602,123
Shares redeemed (135,998) (1,369,802)
---------- ----------
Net increase 124,815 $1,232,321
========== ==========
<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 50,000 shares to MLAM for $50,000.
Class C Shares for the Six Months Dollar
Ended June 30, 1995 Shares Amount
Shares sold 33,780 $ 332,203
Shares issued to shareholders in
reinvestment of dividends 471 4,748
---------- ----------
Total issued 34,251 336,951
Shares redeemed (18,872) (186,761)
---------- ----------
Net increase 15,379 $ 150,190
========== ==========
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
---------- ----------
Net increase 15,910 $ 155,229
========== ==========
[FN]
++Commencement of Operations.
<PAGE>
Class D Shares for the Six Months Dollar
Ended June 30, 1995 Shares Amount
Shares sold 57,143 $ 560,950
Shares issued to shareholders in
reinvestment of dividends 1,120 11,310
---------- ----------
Total issued 58,263 572,260
Shares redeemed (6,593) (65,796)
---------- ----------
Net increase 51,670 $ 506,464
========== ==========
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 31 303
---------- ----------
Total issued 6,450 63,239
Shares redeemed (11) (110)
---------- ----------
Net increase 6,439 $ 63,129
========== ==========
[FN]
++Commencement of Operations.
PORTFOLIO CHANGES
For the Quarter Ended June 30, 1995
Additions
Fisher Scientific International, Inc.
Kandenko Co., Ltd.
Komatsu Ltd.
Makita Electric Work Ltd.
Mitsubishi Trust & Banking Corp.
Philippine Long Distance
Telephone Co. (ADR)
Sekisui Chemical Co., Ltd.
Societa Finanziara Telefonica S.p.A. (STET)
US Industries, Inc.
<PAGE>
Deletions
Consorcio G Grupo Dina, S.A. de C.V. (ADR)
Hafslund Nycomed Inc. (ADR)
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
Merrill Lynch Financial Data Services, Inc.
Transfer Agency Mutual Fund Operations
4800 Deer Lake Drive East
Jacksonville, Florida 32246-6484
(800) 637-3863
