MERRILL LYNCH
ASSET INCOME
FUND, INC.
FUND LOGO
Annual Report
December 31, 1996
Officers and Directors
Arthur Zeikel, President and Director
Joe Grills, Director
Walter Mintz, Director
Robert S. Salomon Jr., Director
Melvin R. Seiden, Director
Stephen B. Swensrud, Director
Terry K. Glenn, Executive Vice President
Norman R. Harvey, Senior Vice President
Donald C. Burke, Vice President
Thomas R. Robinson, Vice President
Gerald M. Richard, Treasurer
Mark B. Goldfus, Secretary
<PAGE>
Custodian
The Chase Manhattan Bank
4 MetroTech Center, 18th Floor
Brooklyn, NY 11245
Transfer Agent
Merrill Lynch Financial Data Services, Inc.
4800 Deer Lake Drive East
Jacksonville, FL 32246-6484
(800)637-3863
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.
Statements and other information herein are as dated and are subject
to change.
Merrill Lynch
Asset Income
Fund, Inc.
Box 9011
Princeton, NJ
08543-9011
Printed on post-consumer recycled paper
MERRILL LYNCH ASSET INCOME FUND, INC.
<PAGE>
Worldwide
Investments as of
December 31, 1996
Percent Breakdown of
Stocks & Fixed-Income Percent of
Securities by Country Net Assets++
United States* 79.3%
Denmark 5.3
Sweden 3.8
Germany 3.6
United Kingdom 3.0
Italy 2.8
Japan 1.9
France 0.8
Brazil 0.7
Mexico 0.7
Canada 0.6
Switzerland 0.4
Argentina 0.4
Hong Kong 0.3
Spain 0.2
Finland 0.2
Philippines 0.2
Indonesia 0.1
Netherlands 0.1
Norway 0.1
South Korea 0.0
[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 1.9%
Banking 1.8
Chemicals 1.5
Electronics 1.3
Computer Services & Software 1.3
Pharmaceuticals 1.2
Insurance 1.1
Retail Stores 1.0
Aerospace 1.0
Beverages 0.8
Country Percent
Ten Largest Holdings of of Net
(Equity Investments) Origin Assets
<PAGE>
FMC Corporation United States 0.5%
American Express
Company United States 0.4
Corning, Inc. United States 0.4
Schlumberger Ltd. United States 0.4
Lear Corporation United States 0.4
Spieker Properties,
Inc. United States 0.4
Airtouch Communi-
cations, Inc. United States 0.4
Merck &Co., Inc. United States 0.4
Carnival Corp.
(Class A) United States 0.4
Bank of New York
Co., Inc. United States 0.4
Important Tax
Information
(unaudited)
Of the net investment income distributions paid monthly by Merrill
Lynch Asset Income Fund, Inc. during the fiscal year ended December
31, 1996, 5.43% qualifies for the dividends received deduction for
corporations. Additionally, the Fund distributed long-term capital
gains of $0.270013 per share to shareholders of record on December
18, 1996.
Please retain this information for your records.
DEAR SHAREHOLDER
A relatively benign economic environment created the backdrop for
strong US stock and bond markets in 1996. Although expectations of
an overheating economy sparked inflationary concerns at mid-year,
business activity subsequently subsided back to a more moderate
pace. As a result, equity and bond prices rebounded in the latter
half of the year. Positive investor sentiment was further reinforced
when the Federal Reserve Board kept monetary policy unchanged. The
results of the US election were well-received by investors, and
further enhanced the already positive investment outlook.
<PAGE>
Highlighting the economic results as 1996 drew to a close were
reports of a decline in the trade deficit in October and stronger
industrial production. Underscoring the moderating growth trend were
some signs of softening in the labor market, and initial indications
suggested a respectable but unremarkable holiday selling season.
On balance, US economic fundamentals appear to be the most positive
they have been for many years. However, as 1997 begins, the dilemma
facing investors is how long the economic expansion can continue at
a steady, noninflationary pace. At this late stage of the current
economic recovery, investor expectations can quickly change from
positive to negative with the release of surprising economic
results. Therefore, continued reassurance of steady, noninflationary
economic growth would be a very positive development for the stock
and bond markets in the new year.
Fiscal Year In Review
As of December 31, 1996, the asset allocation for Merrill Lynch
Asset Income Fund, Inc. was: US bonds, 51% of net assets; foreign
bonds, 15%; US stocks, 18%; foreign stocks, 10%; and cash reserves,
6%.
The Fund's US equity performance was driven by strong gains in both
the financial and technology sectors. Specifically, the Fund
recorded good performance in companies such as Citicorp, American
Express Company, International Business Machines Corp., cisco
Systems, Inc. and BMC Software, Inc. The foreign equity markets were
mixed during 1996. However, the Fund benefited from overweighted
positions and strong performances in Europe, Latin America and
Canada. In addition, we believe underweightings in Japan and Asia
also added value.
The average duration of the fixed-income portion of the portfolio
was changed significantly during 1996. We shortened the average
duration considerably during the first quarter of 1996 in response
to stronger-than-expected economic growth. Performance was enhanced
greatly as we extended the Fund's duration in August in expectation
of a slowing in the US economy from the lofty growth level of the
second quarter. At December 31, 1996, the Fund held an average
duration of five years in the US bond sector. US bonds rallied
significantly from August through December before year-end profit-
taking and early signs of stronger fourth quarter US growth
prospects materialized. Positions in foreign bonds, primarily in
European core and higher-yielding markets, also benefitted returns
during the year. The holdings enhanced performance as the march
toward the European Monetary Union in Europe contributed to tighter
fiscal policies and easier monetary policies. This policy mix
allowed European bonds to greatly outperform US bonds during 1996,
despite the considerable appreciation of the US dollar relative to
the European currencies. Active currency hedging with respect to
both our foreign bond and foreign equity holdings served to shield
the Fund from potentially damaging currency losses. As we enter
1997, we expect to maintain our maximum allowable holdings in
foreign securities (25%) as detailed in the Fund's prospectus.
<PAGE>
Sincerely,
(Arthur Zeikel)
Arthur Zeikel
President
(Thomas R. Robinson)
Thomas R. Robinson
Vice President and Senior
Portfolio Manager
(Joel Heymsfeld)
Joel Heymsfeld
Portfolio Manager
February 12, 1997
PERFORMANCE DATA
About Fund
Performance
<PAGE>
Investors are 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 approximately 10 years. (There is no initial
sales charge for automatic share conversions.)
* 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).
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.
<TABLE>
Recent
Performance
Results
<CAPTION>
12 Month 3 Month
12/30/96 9/30/96 12/31/95 % Change % Change
<S> <C> <C> <C> <C> <C>
Class A Shares* $10.53 $10.57 $10.62 +1.70%(1) +2.18%(1)
Class B Shares* 10.53 10.58 10.62 +1.70%(1) +2.08(1)
Class C Shares* 10.53 10.58 10.62 +1.70%(1) +2.08(1)
Class D Shares* 10.53 10.58 10.62 +1.70%(1) +2.08(1)
Class A Shares-Total Return* +7.11%(2) +3.77(3)
Class B Shares-Total Return* +6.31%(4) +3.48(5)
Class C Shares-Total Return* +6.25%(6) +3.46(7)
Class D Shares-Total Return* +6.84%(8) +3.61(9)
Class A Shares-Standardized 30-day Yield 4.63%
Class B Shares-Standardized 30-day Yield 4.06%
Class C Shares-Standardized 30-day Yield 3.98%
Class D Shares-Standardized 30-day Yield 4.37%
<PAGE>
<FN>
*Investment results shown do not reflect sales charges; results
would be lower if a sales charge was included.
(1)Percent change includes reinvestment of $0.270 per share capital
gains distributions.
(2)Percent change includes reinvestment of $0.549 per share ordinary
income dividends and $0.270 per share capital gains distributions.
(3)Percent change includes reinvestment of $0.178 per share ordinary
income dividends and $0.270 per share capital gains distributions.
(4)Percent change includes reinvestment of $0.470 per share ordinary
income dividends and $0.270 per share capital gains distributions.
(5)Percent change includes reinvestment of $0.156 per share ordinary
income dividends and $0.270 per share capital gains distributions.
(6)Percent change includes reinvestment of $0.464 per share ordinary
income dividends and $0.270 per share capital gains distributions.
(7)Percent change includes reinvestment of $0.154 per share ordinary
income dividends and $0.270 per share capital gains distributions.
(8)Percent change includes reinvestment of $0.522 per share ordinary
income dividends and $0.270 per share capital gains distributions.
(9)Percent change includes reinvestment of $0.171 per share ordinary
income dividends and $0.270 per share capital gains distributions.
</TABLE>
PERFORMANCE DATA (concluded)
Total Return
Based on a
$10,000
Investment
A line graph depicting the growth of an investment in the Fund's
Class A and Class B Shares compared to the growth of an investment
in the ML BOAO Index and the Composite Index. Beginning and ending
values are:
9/02/94** 12/96
ML Asset Income Fund, Inc.++--
Class A Shares* $ 9,600 $11,904
ML Asset Income Fund, Inc.++--
Class B Shares* $10,000 $11,986
ML BOAO Index++++ $10,000 $12,136
<PAGE>
Composite Index++++++ $10,000 $12,873
A line graph depicting the growth of an investment in the Fund's
Class C and Class D Shares compared to the growth of an investment
in the ML BOAO Index and the Composite Index. Beginning and ending
values are:
10/21/94** 12/96
ML Asset Income Fund, Inc.++--
Class C Shares* $10,000 $12,245
ML Asset Income Fund, Inc.++--
Class D Shares* $ 9,600 $11,898
ML BOAO Index++++ $10,000 $12,347
Composite Index++++++ $10,000 $13,022
[FN]
*Assuming maximum sales charge, transaction costs and other
operating expenses, including advisory fees.
**Commencement of Operations.
++ML Asset Income Fund, Inc. invests in a portfolio of US and
foreign debt, equity and money market securities.
++++This unmanaged Index is comprised of investment grade bonds.
++++++The Composite Index consists of: 5%--3-month US Treasury
Bills; 75%--ML Bond Index: BOAO--Corporate & Government Master; and
20%--Standard & Poor's 500.
Past performance is not predictive of future performance.
Average Annual
Total Return
% Return Without % Return With
Sales Charge Sales Charge**
Class A Shares*
Year Ended 12/30/96 +7.11% +2.82%
Inception (9/02/94) through 12/30/96 +9.68 +7.77
<PAGE>
[FN]
*Maximum sales charge is 4%.
**Assuming maximum sales charge.
% Return % Return
Without CDSC With CDSC**
Class B Shares*
Year Ended 12/30/96 +6.31% +2.34%
Inception (9/02/94) through 12/30/96 +8.86 +8.09
[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*
Year Ended 12/30/96 +6.25% +5.26%
Inception (10/21/94) through 12/30/96 +9.67 +9.67
[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*
Year Ended 12/30/96 + 6.84% +2.57%
Inception (10/21/94) through 12/30/96 +10.27 +8.24
[FN]
*Maximum sales charge is 4%.
**Assuming maximum sales charge.
<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 794 Banco Frances del Rio de la Plata
S.A. (ADR)* $ 18,594 $ 21,821 0.2%
Oil & Gas Producers 1,200 Yacimientos Petroliferos Fiscales
S.A. (Class D)(ADR)* 25,283 30,300 0.2
Total Common Stocks in Argentina 43,877 52,121 0.4
Brazil Beverages 45,000 Companhia Cervejaria Brahma S.A.
PN (Preferred) 25,807 24,603 0.2
Oil & Related 230,000 Petroleo Brasileiro S.A.--Petrobras
(Preferred) 27,101 36,640 0.3
Telecommunications 400 Telecomunicacoes Brasileiras S.A.--
Telebras (ADR)* 21,165 30,600 0.2
Total Common Stocks in Brazil 74,073 91,843 0.7
Canada Automobile Parts 500 Magna International Inc. (Class A) 22,929 27,875 0.2
Mining 280 Potash Corp. of Saskatchewan, Inc. 17,625 23,800 0.2
Multi-Industry 1,000 Canadian Pacific, Ltd. 17,418 26,500 0.2
Total Common Stocks in Canada 57,972 78,175 0.6
Finland Telecommunications 500 Nokia Corp. (ADR)* 17,218 28,813 0.2
Equipment
Total Common Stocks in Finland 17,218 28,813 0.2
France Iron & Steel 1,900 Usinor-Sacilor S.A. 29,039 27,650 0.2
Reinsurance 700 Scor S.A. 26,665 24,624 0.2
Semiconductor Capital 400 ++SGS-Thompson Microelectronics N.V.
Equipment (NY Registered Shares) 15,040 28,000 0.2
Tires & Rubber 600 Michelin (C.G.D.E.)(Class B) 26,463 32,394 0.2
Total Common Stocks in France 97,207 112,668 0.8
</TABLE>
<PAGE>
<TABLE>
SCHEDULE OF INVESTMENTS (continued) (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>
Germany Chemicals 75 ++Henkel KGaA $ 3,334 $ 3,598 0.0%
675 ++Henkel KGaA (Preferred) 28,688 33,915 0.3
----------- ----------- ------
32,022 37,513 0.3
Electronics 500 Siemens AG 22,176 23,562 0.2
Footwear 100 ++Puma AG 3,247 3,393 0.0
Machinery & 70 Mannesmann AG 19,573 30,348 0.2
Equipment
Total Common Stocks in Germany 77,018 94,816 0.7
Hong Kong Banking 1,200 HSBC Holdings PLC 18,562 25,679 0.2
Telecommunications 1,200 Hong Kong Telecommunications,
Ltd. (ADR)* 21,418 19,500 0.1
Total Common Stocks in Hong Kong 39,980 45,179 0.3
Indonesia Telecommunications 720 P.T. Indonesian Satellite Corp.
(ADR)* 26,205 19,710 0.1
Total Common Stocks in Indonesia 26,205 19,710 0.1
Italy Telecommunications 8,500 Societa Finanziara Telefonica
S.p.A. (STET) 24,838 38,630 0.3
Total Common Stocks in Italy 24,838 38,630 0.3
Japan Building & 3,000 Maeda Corp. 31,463 22,202 0.2
Construction 4,000 Okumura Corp. 35,729 24,318 0.2
----------- ----------- ------
67,192 46,520 0.4
Capital Goods 3,000 Mitsubishi Heavy Industries, Inc. 24,018 23,834 0.2
Electrical Equipment 3,000 Mitsubishi Electric Co. 21,636 17,876 0.1
Electronics 1,000 Canon, Inc. 19,005 22,107 0.2
1,000 Matsushita Electric Industrial
Co., Ltd. 16,152 16,321 0.1
----------- ----------- ------
35,157 38,428 0.3
<PAGE>
Financial Services 1,000 Nomura Securities Co., Ltd. 22,237 15,026 0.1
Insurance 2,000 Tokio Marine & Fire Insurance
Co., Ltd. 24,908 18,826 0.1
Pharmaceuticals 1,000 Eisai Co., Ltd. 17,650 19,689 0.1
Textiles 3,000 Toray Industries Ltd. 19,082 18,523 0.1
Tires & Rubber 2,000 Bridgestone Corporation 34,483 37,997 0.3
Warehouse & Storage 3,000 Mitsui-Soko Co., Ltd. 25,215 19,611 0.2
Total Common Stocks in Japan 291,578 256,330 1.9
Mexico Beverages 700 Panamerican Beverages, Inc.
(Class A) 28,172 32,813 0.2
Financial Services 29 Grupo Financiero Inbursa, S.A. de
C.V. (ADR)* 588 493 0.0
Multi-Industry 2,100 Grupo Carso, S.A. de C.V. (ADR)* 33,457 21,788 0.2
Paper Products 700 Kimberly-Clark de Mexico, S.A. de
C.V. (ADR)* 26,338 26,775 0.2
Telecommunications 2,100 ++Carso Global Telecom, S.A. de
C.V. (ADR)* 9,975 9,450 0.1
Total Common Stocks in Mexico 98,530 91,319 0.7
Netherlands Banking 300 ABN AMRO Holding N.V. 16,900 19,537 0.1
Total Common Stocks in the
Netherlands 16,900 19,537 0.1
Norway Cruise Lines 3,000 Color Line ASA 11,280 13,966 0.1
Total Common Stocks in Norway 11,280 13,966 0.1
<PAGE>
Philippines Beverages 6,250 San Miguel Corp. (Class B) 20,578 27,609 0.2
Total Common Stocks in the
Philippines 20,578 27,609 0.2
South Korea Engineering & 700 ++Hyundai Engineering & Construction
Construction Co., Ltd. (GDR)**++++++ 9,121 4,375 0.0
Total Common Stocks in South Korea 9,121 4,375 0.0
Spain Energy & Petroleum 900 Repsol S.A. (ADR)* 31,784 34,313 0.2
Total Common Stocks in Spain 31,784 34,313 0.2
Sweden Banking 1,200 Sparbanken Sverige AB (Class A) 15,094 20,602 0.2
Investment 2,300 Bure Investment AB 19,273 27,337 0.2
Management
Total Common Stocks in Sweden 34,367 47,939 0.4
Switzerland Electrical Equipment 25 BBC Brown Boveri & Cie (Bearer) 22,679 31,091 0.2
Pharmaceuticals 500 ++Novartis AG (ADR)* 21,705 27,938 0.2
Total Common Stocks in Switzerland 44,384 59,029 0.4
United Banking 2,600 National Westminster Bank PLC 27,449 30,514 0.2
Kingdom
Beverages 3,900 Grand Metropolitan PLC 26,591 30,692 0.2
Chemicals 1,200 Imperial Chemical Industries PLC 15,490 15,777 0.1
400 Imperial Chemical Industries PLC
(ADR)* 22,878 20,800 0.2
----------- ----------- ------
38,368 36,577 0.3
Electrical Equipment 5,000 General Electric Co. PLC (Ordinary) 22,639 32,762 0.3
Merchandising 2,800 Boots Company PLC 26,311 28,861 0.2
Pharmaceuticals 2,000 Glaxo Wellcome PLC 27,207 32,437 0.2
Steel 10,000 British Steel PLC 26,271 27,544 0.2
<PAGE>
Telecommunications 8,000 Vodafone Group PLC 27,839 33,805 0.3
Total Common Stocks in the
United Kingdom 222,675 253,192 1.9
United Aerospace 400 Allied Signal, Inc. 29,436 26,800 0.2
States 1,100 ++Gulfstream Aerospace Corp. 27,119 26,675 0.2
500 Northrop Grumman Corp. 34,652 41,375 0.3
600 United Technologies Corp. 18,809 39,600 0.3
----------- ----------- ------
110,016 134,450 1.0
Automobile 600 General Motors Corp. 31,232 33,450 0.2
Automobile Parts 1,700 ++Lear Corporation 57,537 58,013 0.4
Banking 1,600 Bank of New York Co., Inc. 42,717 54,000 0.4
200 BankAmerica Corp. 20,429 19,950 0.1
500 Citicorp 41,897 51,500 0.4
----------- ----------- ------
105,043 125,450 0.9
Broadcasting-- 1,362 ++Viacom, Inc. (Class B) 49,846 47,500 0.4
Media
Building Products 900 Oakwood Homes Corporation 20,515 20,588 0.2
1,600 Spieker Properties, Inc. 43,279 57,600 0.4
----------- ----------- ------
63,794 78,188 0.6
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS (continued) (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>
United Chemicals 1,000 ++FMC Corporation $ 71,038 $ 70,125 0.5%
States 900 PPG Industries, Inc. 44,154 50,512 0.4
(concluded) ----------- ----------- ------
115,192 120,637 0.9
Computer Services 570 ++cisco Systems, Inc. 26,449 36,266 0.3
& Software 1,230 First Data Corp. 47,688 44,895 0.3
300 International Business Machines
Corp. 31,106 45,300 0.4
1,052 ++Oracle Corp.(b) 37,454 43,789 0.3
----------- ----------- ------
142,697 170,250 1.3
<PAGE>
Computers 400 ++Compaq Computer Corp. 29,673 29,700 0.2
Electronics 1,300 Corning, Inc. 42,362 60,125 0.4
400 General Electric Company 32,801 39,550 0.3
200 Linear Technology Corporation 8,075 8,750 0.1
----------- ----------- ------
83,238 108,425 0.8
Engineering & 1,100 Foster Wheeler Corp. 46,941 40,837 0.3
Construction
Fertilizers 500 IMC Global, Inc. 19,377 19,562 0.1
Financial Services 1,075 American Express Company 49,310 60,737 0.4
Foods 1,300 H.J. Heinz Company 41,766 46,475 0.3
Insurance 400 Aetna Inc. (a) 28,876 32,000 0.2
900 Allstate Corp. 37,195 52,087 0.4
700 UNUM Corporation 44,604 50,575 0.4
----------- ----------- ------
110,675 134,662 1.0
Leisure/Tourism 1,800 Brunswick Corporation 44,654 43,200 0.3
480 TCI Pacific Communications
(Convertible Preferred) 44,276 43,560 0.3
----------- ----------- ------
88,930 86,760 0.6
Machine Tools 1,400 ++American Standard Companies, Inc. 45,663 53,550 0.4
& Machinery 1,300 Deere & Co. 51,589 52,812 0.4
----------- ----------- ------
97,252 106,362 0.8
Manufacturing 700 Fisher Scientific International,
Inc. 21,337 32,987 0.2
Medical Services 1,700 ++Health Management Associates,
Inc. (Class A) 38,381 38,250 0.3
Natural Gas 400 El Paso Natural Gas Co. 19,863 20,200 0.1
1,200 Enron Corp. 47,249 51,750 0.4
----------- ----------- ------
67,112 71,950 0.5
Oil Service 1,600 Dresser Industries, Inc. 36,951 49,600 0.4
600 Schlumberger Ltd. 41,477 59,925 0.4
----------- ----------- ------
78,428 109,525 0.8
<PAGE>
Paper 500 Kimberly-Clark Corp. 38,794 47,625 0.4
Petroleum 700 Pennzoil Co. 29,082 39,550 0.3
1,300 Unocal Corp. 43,754 52,812 0.4
----------- ----------- ------
72,836 92,362 0.7
Pharmaceuticals 700 Abbott Laboratories 29,869 35,525 0.3
700 Merck & Co., Inc. 24,045 55,475 0.4
----------- ----------- ------
53,914 91,000 0.7
Railroads 600 Burlington Northern Santa Fe Inc. 48,542 51,825 0.4
Real Estate 950 Prentiss Properties Trust 19,286 23,750 0.2
Investment Trust
Retail Stores 910 Rite Aid Corporation 27,064 36,172 0.3
1,060 Sears, Roebuck & Co. 47,686 48,892 0.3
1,800 ++Toys 'R' Us, Inc. 56,192 54,000 0.4
----------- ----------- ------
130,942 139,064 1.0
Software--Computer 1,200 ++BMC Software, Inc. 44,805 49,650 0.4
Steel 1,300 AK Steel Holding Corp. 52,133 51,512 0.4
Telecommunications 2,200 ++Airtouch Communications, Inc. 62,972 55,550 0.4
800 Bell Atlantic Corporation 44,677 51,800 0.4
----------- ----------- ------
107,649 107,350 0.8
Tobacco 300 Philip Morris Companies, Inc. 27,058 33,787 0.2
Travel & Lodging 1,650 Carnival Corp. (Class A) 47,536 54,450 0.4
Utilities 2,400 Edison International 44,885 47,700 0.4
Total Common Stocks in the
United States 2,136,157 2,444,245 18.0
Total Investments in Common
Stocks 3,375,742 3,813,809 28.0
Face
Amount Fixed-Income Securities
<PAGE>
Denmark Dkr 3,900,000 Denmark Government Bonds, 8% due
3/15/2006 716,715 728,539 5.3
Total Fixed-Income Securities in
Denmark 716,715 728,539 5.3
Germany DM 550,000 Bundesrepublik Deutschland, 7.125%
due 12/20/2002 387,865 392,525 2.9
Total Fixed-Income Securities in
Germany 387,865 392,525 2.9
Italy Lit 490,000,000 Buoni Poliennali del Tesoro
(Italian Government Bonds), 8.50%
due 1/01/2004 347,145 345,703 2.5
Total Fixed-Income Securities in
Italy 347,145 345,703 2.5
Sweden Government of Sweden:
Skr 1,000,000 10.25% due 5/05/2000 171,007 169,285 1.3
1,800,000 8% due 8/15/2007 282,566 288,301 2.1
Total Fixed-Income Securities in
Sweden 453,573 457,586 3.4
United United Kingdom Treasury Gilt:
Kingdom Pound 30,000 7% due 11/06/2001 49,443 50,763 0.4
Sterling 55,000 7.50% due 12/07/2006 91,834 93,976 0.7
Total Fixed-Income Securities in
the United Kingdom 141,277 144,739 1.1
United Federal National Mortgage
States Association:
US$ 379,171 6% due 11/01/2000 375,379 370,283 2.7
855,032 6% due 6/06/2001 846,348 843,409 6.2
535,511 6% due 11/01/2006 529,152 527,311 3.9
</TABLE>
<PAGE>
<TABLE>
SCHEDULE OF INVESTMENTS (concluded) (in US dollars)
<CAPTION>
Face Value Percent of
COUNTRY Amount Fixed-Income Securities Cost (Note 1a) Net Assets
<S> <S> <C> <S> <C> <C> <C>
United States US Treasury Notes:
(concluded) US$ 600,000 5% due 1/31/1998 $ 594,703 $ 595,782 4.4%
1,340,000 6.25% due 4/30/2001 1,357,435 1,342,935 9.9
1,000,000 7.25% due 5/15/2004 1,057,578 1,052,190 7.7
2,115,000 7% due 7/15/2006 2,204,532 2,197,295 16.2
Total Fixed-Income Securities in
the United States 6,965,127 6,929,205 51.0
Total Investments in Fixed-Income
Securities 9,011,702 8,998,297 66.2
Short-Term Securities
United Commercial US $ 108,000 General Motors Acceptance Corp.,
States Paper*** 7.50% due 1/02/1997 108,000 108,000 0.8
US Government 1,290,000 Federal National Mortgage
& Agency Association, 5.40% due 1/17/1997 1,287,098 1,287,098 9.5
Obligations***
Total Investments in Short-Term
Securities 1,395,098 1,395,098 10.3
Total Investments $13,782,542 14,207,204 104.5
===========
Unrealized Depreciation on Forward Foreign Exchange Contracts++++ (18,196) (0.1)
Liabilities in Excess of Other Assets (590,560) (4.4)
----------- ------
Net Assets $13,598,448 100.0%
=========== ======
<FN>
++Non-income producing security.
++++Forward foreign exchange contracts sold as of December 31, 1996
were as follows:
Unrealized
Appreciation
Expiration (Depreciation)
Foreign Currency Sold Date (Note 1c)
Chf 40,000 January 1997 $ 616
DM 904,000 January 1997 (5,683)
DM 1,021,781 February 1997 4,463
Frf 425,000 January 1997 (502)
Pound 210,000 January 1997 (16,654)
Sterling
YEN 29,500,000 February 1997 (436)
<PAGE>
Total Unrealized Depreciation on Forward Foreign
Exchange Contracts (US$ Commitment--$1,962,708) $(18,196)
========
++++++Restricted security as to resale. The value of the Fund's
investments in restricted securities was approximately $4,000,
representing 0.0% of net assets.
Acquisition Value
Issue Date Cost (Note 1a)
Hyundai Engineering &
Construction Co., Ltd. (GDR) 3/19/1996 $9,121 $ 4,375
Total $9,121 $ 4,375
====== ========
(a)Formerly Aetna Life & Casualty Company.
(b)Formerly Oracle Systems Corp.
*American Depositary Receipts (ADR).
**Global Depositary Receipts (GDR).
***Commercial Paper and certain US Government & Agency Obligations
are traded on a discount basis; the interest rates shown are
discount rates paid at the time of purchase by the Fund.
See Notes to Financial Statements.
</TABLE>
<TABLE>
STATEMENT OF ASSETS AND LIABILITIES
<CAPTION>
As of December 31, 1996
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$13,782,542) (Note 1a) $14,207,204
Cash 5,382
Foreign cash (Note 1d) 35,283
Receivables:
Interest $ 190,858
Capital shares sold 64,938
Forward foreign exchange contracts (Note 1c) 18,279
Dividends 7,454 281,529
-----------
Deferred organization expenses (Note 1g). 59,185
Prepaid registration fees and other assets (Note 1g) 146,240
-----------
Total assets 14,734,823
-----------
<PAGE>
Liabilities: Unrealized depreciation on forward foreign exchange contracts
(Note 1c) 18,196
Payables:
Securities purchased 823,453
Distributions to shareholders (Note 1h) 159,017
Dividends to shareholders (Note 1h) 64,412
Capital shares redeemed 9,265
Distributor (Note 2) 5,950
Forward foreign exchange contracts (Note 1c) 443 1,062,540
-----------
Accrued expenses and other liabilities 55,639
-----------
Total liabilities $ 1,136,375
-----------
Net Assets: Net assets $13,598,448
===========
Net Assets Class A Shares of Common Stock, $0.10 par value, 100,000,000
Consist of: shares authorized $ 37,208
Class B Shares of Common Stock, $0.10 par value, 100,000,000
shares authorized 82,510
Class C Shares of Common Stock, $0.10 par value, 100,000,000
shares authorized 3,394
Class D Shares of Common Stock, $0.10 par value, 100,000,000
shares authorized 6,007
Paid-in capital in excess of par 12,813,977
Undistributed realized capital gains on investments and foreign
currency transactions--net 252,105
Unrealized appreciation on investments and foreign currency
transactions--net 403,247
-----------
Net assets $13,598,448
===========
Net Asset Value: Class A--Based on net assets of $3,918,053 and 372,079 shares
outstanding $ 10.53
===========
Class B--Based on net assets of $8,690,463 and 825,099 shares
outstanding $ 10.53
===========
Class C--Based on net assets of $357,373 and 33,935 shares
outstanding $ 10.53
===========
Class D--Based on net assets of $632,559 and 60,067 shares
outstanding. $ 10.53
===========
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
STATEMENT OF OPERATIONS
<CAPTION>
For the Year Ended December 31, 1996
<S> <S> <C> <C>
Investment Interest and discount earned (net of $4,276 foreign witholding tax) $ 624,129
Income Dividends (net of $2,988 foreign witholding tax) 67,925
(Notes 1e & 1f): -----------
Total income 692,054
-----------
Expenses: Investment advisory fees (Note 2) $ 103,776
Registration fees (Note 1g) 84,991
Printing and shareholder reports 74,606
Account maintenance and distribution fees--Class B (Note 2) 66,442
Professional fees 58,846
Transfer agent fees--Class B (Note 2) 35,249
Accounting services (Note 2) 35,078
Amortization of organization expenses (Note 1g) 22,195
Custodian fees 19,103
Transfer agent fees--Class A (Note 2) 14,439
Directors' fees and expenses 12,360
Account maintenance and distribution fees--Class C (Note 2) 3,097
Transfer agent fees--Class D (Note 2) 3,029
Pricing fees 2,810
Account maintenance fees--Class D (Note 2) 2,007
Transfer agent fees--Class C (Note 2) 1,556
Other 15,619
-----------
Total expenses before reimbursements 555,203
Reimbursement of expenses (Note 2) (449,075)
-----------
Total expenses after reimbursement 106,128
-----------
Investment income--net 585,926
-----------
Realized & Realized gain from:
Unrealized Gain Investments--net 703,561
(Loss) on Foreign currency transactions--net 79,041 782,602
Investments & -----------
Foreign Currency Change in unrealized appreciation/depreciation on:
Transactions--Net Investments--net (414,303)
(Notes 1c, 1d, Foreign currency transactions--net (59,670) (473,973)
1f & 3): ----------- -----------
Net realized and unrealized gain on investments and foreign
currency transactions 308,629
-----------
Net Increase in Net Assets Resulting from Operations $ 894,555
===========
<PAGE>
See Notes to Financial Statements.
</TABLE>
<TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
<CAPTION>
For the Year Ended
December 31,
Increase (Decrease) in Net Assets: 1996 1995
<S> <S> <C> <C>
Operations: Investment income--net $ 585,926 $ 556,494
Realized gain on investments and foreign currency transactions
--net 782,602 16,659
Change in unrealized appreciation/depreciation on investments
and foreign currency transactions--net (473,973) 1,087,284
----------- -----------
Net increase in net assets resulting from operations 894,555 1,660,437
----------- -----------
Dividends & Investment income--net:
Distributions to Class A (178,761) (83,814)
Shareholders Class B (356,040) (424,788)
(Note 1h): Class C (15,319) (16,003)
Class D (35,806) (31,889)
In excess of investment income--net:
Class A (19,148) --
Class B (38,138) --
Class C (1,641) --
Class D (3,835) --
Realized gain on investments--net:
Class A (99,948) (4,541)
Class B (217,791) (10,847)
Class C (8,964) (494)
Class D (19,583) (899)
In excess of realized gain on investments--net:
Class A -- (32,862)
Class B -- (78,505)
Class C -- (3,574)
Class D -- (6,508)
----------- -----------
Net decrease in net assets resulting from dividends and
distributions to shareholders (994,974) (694,724)
----------- -----------
Capital Share Net increase (decrease) in net assets derived from capital
Transactions share transactions (598,413) 5,170,953
(Note 4): ----------- -----------
<PAGE>
Net Assets: Total increase (decrease) in net assets (698,832) 6,136,666
Beginning of year 14,297,280 8,160,614
----------- -----------
End of year $13,598,448 $14,297,280
=========== ===========
See Notes to Financial Statements.
</TABLE>
<TABLE>
FINANCIAL HIGHLIGHTS (concluded)
<CAPTION>
Class A Class B
The following per share data and
ratios have been derived from For the For the
information provided in the financial Period Period
statements. For the Sept. 2, For the Sept. 2,
Year Ended 1994++ to Year Ended 1994++ to
Increase (Decrease) in Net Asset December 31, Dec. 31, December 31, Dec. 31,
Value: 1996 1995 1994 1996 1995 1994
<S> <S> <C> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 10.62 $ 9.68 $ 10.00 $ 10.62 $ 9.68 $ 10.00
Operating ------- ------- ------- ------- ------- -------
Performance: Investment income--net .50 .60 .18 .42 .51 .16
Realized and unrealized gain (loss)
on investments and foreign currency
transactions--net .23 1.04 (.32) .23 1.04 (.32)
------- ------- ------- ------- ------- -------
Total from investment operations .73 1.64 (.14) .65 1.55 (.16)
------- ------- ------- ------- ------- -------
Less dividends and distributions:
Investment income--net (.50) (.60) (.18) (.42) (.51) (.16)
In excess of investment income
--net (.05) -- -- (.05) -- --
Realized gain on investments--net (.27) (.01) -- (.27) (.01) --
In excess of realized gain on
investments--net -- (.09) -- -- (.09) --
------- ------- ------- ------- ------- -------
Total dividends and distributions (.82) (.70) (.18) (.74) (.61) (.16)
------- ------- ------- ------- ------- -------
Net asset value, end of period $ 10.53 $ 10.62 $ 9.68 $ 10.53 $ 10.62 $ 9.68
======= ======= ======= ======= ======= =======
Total Investment Based on net asset value per share 7.11% 17.38% (1.37%)+++ 6.31% 16.51% (1.62%)+++
Return:** ======= ======= ======= ======= ======= =======
<PAGE>
Ratios to Expenses, net of reimbursement .25% .00% .00%* 1.00% .75% .75%*
Average Net ======= ======= ======= ======= ======= =======
Assets: Expenses 3.48% 5.12% 5.20%* 4.24% 5.94% 6.04%*
======= ======= ======= ======= ======= =======
Investment income--net 4.73% 5.78% 5.64%* 3.99% 5.06% 4.86%*
======= ======= ======= ======= ======= =======
Supplemental Net assets, end of period
Data: (in thousands) $ 3,918 $ 3,872 $ 1,147 $ 8,690 $ 9,236 $ 6,797
======= ======= ======= ======= ======= =======
Portfolio turnover 342.71% 46.75% .83% 342.71% 46.75% .83%
======= ======= ======= ======= ======= =======
Average commission rate paid++++ $ .0265 -- -- $ .0265 -- --
======= ======= ======= ======= ======= =======
<CAPTION>
Class C Class D
The following per share data and
ratios have been derived from For the For the
information provided in the financial Period Period
statements. For the Oct. 21, For the Oct. 21,
Year Ended 1994++ to Year Ended 1994++ to
Increase (Decrease) in Net Asset December 31, Dec. 31, December 31, Dec. 31,
Value: 1996 1995 1994 1996 1995 1994
<S> <S> <C> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 10.62 $ 9.69 $ 9.88 $ 10.62 $ 9.69 $ 9.88
Operating ------- ------- ------- ------- ------- -------
Performance: Investment income--net .41 .52 .10 .46 .57 .11
Realized and unrealized gain (loss)
on investments and foreign currency
transactions--net .23 1.03 (.19) .24 1.03 (.19)
------- ------- ------- ------- ------- -------
Total from investment operations .64 1.55 (.09) .70 1.60 (.08)
------- ------- ------- ------- ------- -------
Less dividends and distributions:
Investment income--net (.42) (.52) (.10) (.47) (.57) (.11)
In excess of investment income--net (.04) -- -- (.05) -- --
Realized gain on investments--net (.27) (.01) -- (.27) (.01) --
In excess of realized gain on
investments--net -- (.09) -- -- (.09) --
------- ------- ------- ------- ------- -------
Total dividends and distributions (.73) (.62) (.10) (.79) (.67) (.11)
------- ------- ------- ------- ------- -------
Net asset value, end of period $ 10.53 $ 10.62 $ 9.69 $ 10.53 $ 10.62 $ 9.69
======= ======= ======= ======= ======= =======
Total Investment Based on net asset value per share 6.25% 16.33% (.94%)+++ 6.84% 16.97% (.83%)+++
Return:** ======= ======= ======= ======= ======= =======
<PAGE>
Ratios to Expenses, net of reimbursement 1.04% .80% .80%* .50% .25% .25%*
Average Net ======= ======= ======= ======= ======= =======
Assets: Expenses 4.28% 6.02% 5.75%* 3.70% 5.44% 5.14%*
======= ======= ======= ======= ======= =======
Investment income--net 3.95% 4.99% 5.19%* 4.48% 5.53% 5.70%*
======= ======= ======= ======= ======= =======
Supplemental Net assets, end of period
Data: (in thousands) $ 357 $ 418 $ 154 $ 633 $ 771 $ 63
======= ======= ======= ======= ======= =======
Portfolio turnover 342.71% 46.75% .83% 342.71% 46.75% .83%
======= ======= ======= ======= ======= =======
Average commission rate paid++++ $ .0265 -- -- $ .0265 -- --
======= ======= ======= ======= ======= =======
<FN>
*Annualized.
**Total investment returns exclude the effect of sales loads.
+++Aggregate total investment return.
++Commencement of Operations.
++++For fiscal years beginning on or after September 1, 1995,
the Fund is required to disclose its average commission
rate per share for purchases and sales of equity
securities. The "Average Commission Rate Paid" includes
commissions paid in foreign currencies, which have been
converted into US dollars using the prevailing exchange rate
on the date of the transaction. Such conversions may
significantly affect the rate shown.
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. 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.
NOTES TO FINANCIAL STATEMENTS (continued)
(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.
<PAGE>
* 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.
* 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 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.
<PAGE>
(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. Dividends from foreign securities where the ex-
dividend date may have passed are subsequently recorded when the
Fund has determined 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. Distributions in excess
of realized capital gains are due primarily to differing tax
treatments for post-October losses.
(i) Reclassification--Generally accepted accounting principles
require that certain components of net assets be adjusted to reflect
permanent differences between financial and tax reporting.
Accordingly, current year's permanent book/tax differences of
$62,762 have been reclassified between undistributed net realized
capital gains and undistributed net investment income. These
reclassifications have no effect on net assets or net asset values
per share.
<PAGE>
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 subsidi-
ary 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.
For the year ended December 31, 1996, MLAM earned fees of $103,776,
all of which were waived. MLAM also reimbursed the Fund for
additional expenses of $345,299.
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:
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 year ended December 31, 1996, 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
<PAGE>
Class A $ 8 $ 82
Class D $ 11 $ 113
For the year ended December 31, 1996, MLPF&S received contingent
deferred sales charges of $13,295 and $292 relating to transactions
in Class B and Class C Shares, respectively
In addition, MLPF&S received $1,286 in commissions on the execution
of portfolio security transactions for the Fund for the year ended
December 31, 1996.
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.
During the year ended December 31, 1996, the Fund paid Merrill Lynch
Security Pricing Service, an affiliate of MLPF&S, $90 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 year ended December 31, 1996 were $43,630,522 and
$42,242,017, respectively.
Net realized and unrealized gains (losses) as of December 31, 1996
were as follows:
Realized Unrealized
Gains Gains
(Losses) (Losses)
Long-term investments $703,917 $ 424,662
Short-term investments (356) --
Forward foreign exchange contracts 73,936 (18,196)
Foreign currency transactions 5,105 (3,219)
-------- ---------
Total $782,602 $ 403,247
======== =========
As of December 31, 1996, net unrealized appreciation for Federal
income tax purposes aggregated $423,000, of which $569,312 related
to appreciated securities and $146,312 related to depreciated
securities. At December 31, 1996, the aggregate cost of investments
for Federal income tax purposes was $13,784,204.
<PAGE>
NOTES TO FINANCIAL STATEMENTS (concluded)
4. Capital Share Transactions:
Net increase(decrease) in net assets derived from capital share
transactions were $(598,413) and $5,170,953 for the years ended
December 31, 1996 and December 31, 1995, respectively.
Transactions in capital shares for each class were as follows:
Class A Shares for the Year Ended Dollar
December 31, 1996 Shares Amount
Shares sold 148,235 $1,558,183
Shares issued to shareholders in
reinvestment of dividends and
distributions 6,575 68,638
---------- ----------
Total issued 154,810 1,626,821
Shares redeemed (147,468) (1,548,311)
---------- ----------
Net increase 7,342 $ 78,510
========== ==========
Class A Shares for the Year Ended Dollar
December 31, 1995 Shares Amount
Shares sold 472,669 $4,997,372
Shares issued to shareholders in
reinvestment of dividends and
distributions 7,443 79,751
---------- ----------
Total issued 480,112 5,077,123
Shares redeemed (233,839) (2,476,825)
---------- ----------
Net increase 246,273 $2,600,298
========== ==========
Class B Shares for the Year Ended Dollar
December 31, 1996 Shares Amount
Shares sold 188,856 $1,980,405
Shares issued to shareholders in
reinvestment of dividends and
distributions 32,429 340,779
---------- ----------
Total issued 221,285 2,321,184
Shares redeemed (262,466) (2,771,235)
Automatic conversion of shares (3,441) (35,577)
---------- ----------
Net decrease (44,622) $ (485,628)
========== ==========
<PAGE>
Class B Shares for the Year Ended Dollar
December 31, 1995 Shares Amount
Shares sold 395,975 $4,018,024
Shares issued to shareholders in
reinvestment of dividends and
distributions 29,811 307,641
---------- ----------
Total issued 425,786 4,325,665
Shares redeemed (257,918) (2,648,106)
---------- ----------
Net increase 167,868 $1,677,559
========== ==========
Class C Shares for the Year Ended Dollar
December 31, 1996 Shares Amount
Shares sold 7,915 $ 84,054
Shares issued to shareholders in
reinvestment of dividends and
distributions 1,406 14,763
---------- ----------
Total issued 9,321 98,817
Shares redeemed (14,748) (155,613)
---------- ----------
Net decrease (5,427) $ (56,796)
========== ==========
Class C Shares for the Year Ended Dollar
December 31, 1995 Shares Amount
Shares sold 44,492 $ 445,570
Shares issued to shareholders in
reinvestment of dividends and
distributions 1,385 13,383
---------- ----------
Total issued 45,877 458,953
Shares redeemed (22,425) (224,003)
---------- ----------
Net increase 23,452 $ 234,950
========== ==========
<PAGE>
Class D Shares for the Year Ended Dollar
December 31, 1996 Shares Amount
Shares sold 19,806 $ 207,380
Automatic conversion of shares 3,441 35,577
Shares issued to shareholders in
reinvestment of dividends and
distributions 5,725 60,261
---------- ----------
Total issued 28,972 303,218
Shares redeemed (41,498) (437,717)
---------- ----------
Net decrease (12,526) $ (134,499)
========== ==========
Class D Shares for the Year Ended Dollar
December 31, 1995 Shares Amount
Shares sold 73,881 $ 726,037
Shares issued to shareholders in
reinvestment of dividends and
distributions 2,407 35,301
---------- ----------
Total issued 76,288 761,338
Shares redeemed (10,134) (103,192)
---------- ----------
Net increase 66,154 $ 658,146
========== ==========
5. Commitments:
At December 31, 1996, the Fund entered into foreign exchange
contracts, in addition to the contracts listed on the Schedule of
Investments, under which it had agreed to purchase various foreign
currencies with a value of approximately $826,000.
<AUDIT-REPORT>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders,
Merrill Lynch Asset Income Fund, Inc.:
<PAGE>
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, 1996, the related
statements of operations for the year then ended and changes in net
assets for each of the years in the two-year period then ended, and
the financial highlights for each of the years in the two-year
period then ended and 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 audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial
statements and the financial highlights are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements.
Our procedures included confirmation of securities owned at December
31, 1996, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights
present fairly, in all material respects, the financial position of
Merrill Lynch Asset Income Fund, Inc. as of December 31, 1996, the
results of its operations, the changes in its net assets, and the
financial highlights for the respective stated periods in conformity
with generally accepted accounting principles.
Deloitte & Touche LLP
Princeton, New Jersey
February 14, 1997
</AUDIT-REPORT>
COMMON STOCK PORTFOLIO CHANGES (unaudited)
For the Quarter Ended December 31, 1996
Additions
<PAGE>
*Allegiance Corp.
Allied Signal Inc.
BankAmerica Corp.
Bridgestone Corporation
Brunswick Corporation
Color Line ASA
Compaq Computer Corp.
Edison International
El Paso Natural Gas Co.
FMC Corporation
Grupo Financiero Inbursa,
S.A. de C.V. (ADR)
Gulfstream Aerospace Corp.
IMC Global, Inc.
Imperial Chemical Industries PLC
Linear Technology Corporation
Oakwood Homes Corporation
Prentiss Properties Trust
Puma AG
Rite Aid Corporation
Scor S.A.
*Sabre Group Holdings Inc.
Toys 'R' Us, Inc.
Deletions
*Allegiance Corp.
Baxter International, Inc.
Boeing Co.
The Coca-Cola Co.
Conrail, Inc.
Delta Air Lines, Inc.
Electronic Data Systems Corp.
Invercorporacion S.A. (ADR)
The Limited, Inc.
Microsoft Corp.
Northern Telecommunications Ltd.
Procter & Gamble Co.
*Sabre Group Holdings Inc.
Sun Mircosystems, Inc.
Thrifty PayLess Holdings, Inc. (Class B)
[FN]
*Added and deleted in the same quarter.
