MERRILL LYNCH
ASSET INCOME
FUND, INC.
FUND LOGO
Semi-Annual Report
June 30, 1998
Investing in emerging market securities involves a number of risk
factors and special considerations, including restrictions on
foreign investments and on repatriation of capital invested in
emerging markets, currency fluctuations, and potential price
volatility and less liquidity of securities traded in emerging
markets. In addition, there may be less publicly available
information about the issurers of securities, and such issuers may
not be subject to accounting, auditing and financial reporting
standards and requirements comparable to those to which US companies
are subject. Therefore, the Fund is designed as a long-term
investment for investors capable of assuming the risks of investing
in emerging markets. The Fund should be considered as a vehicle for
diversification and not as a complete investment program. Please
refer to the prospectus for details.
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.
Worldwide
Investments as of
June 30, 1998
Breakdown of
Stocks & Fixed-Income Percent of
Securities by Country Net Assets++
United States* 79.5%
United Kingdom 4.1
Sweden 3.7
France 2.1
Germany 2.0
Japan 1.9
Finland 1.1
Mexico 0.9
Spain 0.8
Italy 0.7
Switzerland 0.7
Canada 0.6
Netherlands 0.3
Argentina 0.3
Singapore 0.1
Indonesia 0.1
Ireland 0.1
Norway 0.0+++
South Korea 0.0+++
[FN]
*Includes investments in short-term securities.
++Percent of net assets may not total 100%.
+++Percent of net assets is less than 0.1%.
Ten Largest Industries Percent of
(Equity Investments) Net Assets
Banking 2.8%
Insurance 2.5
Computer Services & Software 1.9
Retail Stores 1.5
Electronics 1.2
Telecommunications 1.1
Chemicals 1.0
Travel & Lodging 0.9
Automobile Parts 0.9
Beverages 0.9
Ten Largest Holdings Country Percent of
(Equity Investments) of Origin Net Assets
Allmerica Financial Corp. US 0.7%
BMC Software, Inc. US 0.6
COMPAQ Computer Corp. US 0.6
Premier Parks, Inc. US 0.5
Cisco Systems, Inc. US 0.5
Computer Associates
International, Inc. US 0.5
The Equitable
Companies Inc. US 0.5
Gartner Group, Inc.
(Class A) US 0.4
Sears, Roebuck & Co. US 0.4
Great Lakes
Chemical Corp. US 0.4
Merrill Lynch Asset Income Fund, Inc., June 30, 1998
DEAR SHAREHOLDER
Increasing volatility characterized the capital markets during the
quarter ended June 30, 1998. At times, US stock and bond prices
reflected expectations that the slowdown in Asian economic growth
would impact US exports and the US trade deficit and slow overall US
business activity. The deterioration of economic conditions in Japan
was of particular concern, and caused a sharp drop in the yen's
value relative to the US dollar. During other periods, US investors
appeared to expect that the positive trends of a moderately
expanding economy, declining unemployment, enhanced productivity and
corporate profits growth would continue, unimpeded by developments
in Asia. To date, there have been only a few signs that Asia's
troubles are influencing US economic activity--such as a surge in
the accumulation of inventories--largely because domestic demand has
remained strong. In Europe, the major event was the greater progress
toward achieving European Monetary Union, although there were
concerns that interest rates may have to be increased, especially in
the United Kingdom, to curtail potential inflationary pressures.
As we move into the second half of 1998, it is likely that investor
focus will remain on developments in Asia. The US Federal Reserve
Board has kept monetary policy on hold as the Asian financial crisis
deepened, which has benefited US bond and stock prices. Looking ahead,
if there is continued evidence of noninflationary economic growth, it
should have a positive influence on US capital markets.
Portfolio Matters
As of June 30, 1998, the asset allocation for Merrill Lynch Asset
Income Fund, Inc. was: US bonds, 52% of net assets; foreign bonds,
5%; US stocks, 18%; foreign stocks, 14%; and cash and cash
equivalents, 11%.
During the quarter ended June 30, 1998, we expanded the Fund's
allocation to US bonds from 44% of net assets to 52%. We also
modestly extended the average duration from 4.7 years to 5.2 years.
While we believed that there was limited potential for a significant
further decline in US interest rates during the quarter, the risk of
a significant upward spike in US interest rates also appeared
limited. As of June 30, 1998, strength in domestic consumer demand
in the United States seemed to be offsetting the impact of weakness
in Asian economies on US exports. While US inflation remained
subdued, we believed that conditions were absent for a significant
further deceleration in inflation, a prerequisite for a meaningful
additional decline in long-term US interest rates.
Within the foreign bond sector, we took advantage of price strength
to liquidate the Fund's commitments in Danish and Italian bonds
during the June quarter. Representation in Europe is limited mainly
to Germany and the United Kingdom, which we regarded as attractive
safe-haven investments during a time of instability in Asia and
Eastern Europe. We have also retained our position in Swedish bonds
where yields remain relatively attractive compared to the rest of
Europe. Given our expectation of renewed strength in the US dollar
relative to European currencies, we maintained our hedges against
commitments in European stocks and bonds. During the quarter,
we also retained our hedge against Japanese equities.
By enlarging the Fund's foreign equity commitment from 7% of net
assets to 14% during the three months ended June 30, 1998, we
continued to emphasize European companies given the favorable
economic fundamentals and prospects for corporate restructuring. On
the other hand, concerns over prospects in the Japanese economy led
us to remain underweighted in Japanese equities relative to the
unmanaged Morgan Stanley Capital International Europe Australasia
Far East Index. In emerging markets, we continued to prefer Latin
American equities (particularly those in Mexico) over Asian
companies.
Within the US equity sector, we continued to place emphasis on
shares of companies that can benefit from a healthy economy and a
high level of consumer confidence. We also preferred companies with
limited exposure to the economic problems in Asia. At June 30, 1998,
the largest weighting was in consumer-related sectors, while other
sectors with significant representation included financial services
and technology. We also reduced the Fund's commitment to the largest-
capitalization issues through the sales of positions in Microsoft
Corporation, American Express Company and Pfizer Inc.
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 next report to shareholders.
Sincerely,
(Arthur Zeikel)
Arthur Zeikel
President
(Thomas R. Robinson)
Thomas R. Robinson
Senior Vice President and
Portfolio Manager
August 4, 1998
PERFORMANCE DATA
About Fund
Performance
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. Figures shown in the "Recent Performance
Results" and "Average Annual Total Return" tables as well as the
total returns and cumulative total returns in the "Performance
Summary" tables assume reinvestment of all dividends and capital
gains distributions at net asset value on the payable date.
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.
Merrill Lynch Asset Income Fund, Inc., June 30, 1998
PERFORMANCE DATA (concluded)
Average Annual
Total Return
% Return Without % Return With
Sales Charge Sales Charge**
Class A Shares*
Year Ended 6/30/98 +11.39% +6.93%
Inception (9/02/94)
through 6/30/98 +10.55 +9.38
[FN]
*Maximum sales charge is 4%.
**Assuming maximum sales charge.
% Return % Return
Without CDSC With CDSC**
Class B Shares*
Year Ended 6/30/98 +10.66% +6.73%
Inception (9/02/94)
through 6/30/98 +9.76 +9.56
[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 6/30/98 +10.61% + 9.63%
Inception (10/21/94)
through 6/30/98 +10.25 +10.25
[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 6/30/98 +11.12% +6.67%
Inception (10/21/94)
through 6/30/98 +10.83 +9.61
[FN]
*Maximum sales charge is 4%.
**Assuming maximum sales charge.
<TABLE>
Recent Performance
Results*
<CAPTION>
Standardized
12 Month 3 Month Since Inception 30-Day Yield
Total Return Total Return Total Return As of 6/30/98
<S> <C> <C> <C> <C>
ML Asset Income Fund, Inc. Class A Shares +11.39% +2.19% +46.78% 3.61%
ML Asset Income Fund, Inc. Class B Shares +10.66 +2.10 +42.78 3.02
ML Asset Income Fund, Inc. Class C Shares +10.61 +2.08 +43.36 2.97
ML Asset Income Fund, Inc. Class D Shares +11.12 +2.13 +46.16 3.37
<FN>
*Investment results shown do not reflect sales charges; results
would be lower if a sales charge was included. Total investment
returns are based on changes in net asset values for the periods
shown, and assume reinvestment of all dividends and capital gains
distributions at net asset value on the payable date. The Fund's
inception dates are: Class A and Class B Shares, 9/02/94; and Class
C and Class D Shares, 10/21/94.
</TABLE>
COMMON STOCK PORTFOLIO CHANGES
For the Quarter Ended June 30, 1998
Additions
AXA-UAP
Alstom S.A.
Amer Group Ltd.
Autoliv AB
Bank of Ireland
Beckman Coulter Inc.
Capstar Broadcasting Corp. (Class A)
Daimler-Benz AG
Danieli & Company--RNC
Dinamia Capital Privado-Sociedad de
Capital Riesgo, S.A.
Fastighets Tornet AB
Finnlines Oyj
Haldex AB
Heller Financial, Inc.
Henkel KGaA (Preferred)
Intel Corporation
*Mandamus AB
Metrovaseca S.A.
*Octel Corp.
Orion-Yhtymae Oyj (Class B)
Overseas Chinese Banking Corp. Ltd.
Providian Financial Corporation
Sampro Insurance Co. (Class A)
Sanwa Bank, Ltd.
Schindler Holding AG
Seagram Company Ltd. (The)
Sponda Oyj
Texas Instruments Inc.
Thomson Travel Group PLC
Tokyo Electron Limited
UBS AG
UPM--Kymmene Oyj (Class B)
Uralita S.A.
Valora Holding AG
World Color Press, Inc.
Deletions
AT&T Corp.
Allied Signal, Inc.
American Express Company
Broken Hill Proprietary Co., Ltd.
COMSAT Corporation
DENTSPLY International Inc.
Danka Business Systems PLC (ADR)
Dixons Group PLC
Globalstar Telecommunications Ltd.
Groupo Financiera Bancomer S.A. (Class B)(ADR)
Gucci Group N.V. (NY Registered Shares)
*Mandamus AB
Matsushita Electric Works, Ltd.
MGIC Investment Corporation
Microsoft Corporation
National Semiconductor Corporation
*Octel Corp.
Pfizer Inc.
Philip Morris Companies, Inc.
Public Service Enterprise Group, Inc.
Rio Tinto PLC
Roche Holding AG
SPX Corp.
Sasol Limited
Smith International, Inc.
Sun International Hotels Ltd.
Walt Disney Company (The)
[FN]
*Added and deleted in the same quarter.
Merrill Lynch Asset Income Fund, Inc., June 30, 1998
<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 Oil & Gas Producers 1,600 Yacimientos Petroliferos Fiscales
S.A. (ADR)* $ 47,781 $ 48,100 0.3%
Total Common Stocks in Argentina 47,781 48,100 0.3
Canada Automobile Parts 500 Magna International, Inc. (Class A) 34,305 34,313 0.3
Beverages 800 Seagram Company Ltd. (The) 34,673 32,750 0.2
Leisure/Tourism 700 ++Imax Corp. 17,796 15,750 0.1
Total Common Stocks in Canada 86,774 82,813 0.6
Finland Holding Company 1,000 ++Amer Group Ltd. 21,663 19,521 0.1
Insurance 400 Sampro Insurance Co. (Class A) 18,682 18,974 0.1
Paper & Forest 1,700 UPM-Kymmene Oyj 50,373 46,832 0.3
Products
Pharmaceuticals 700 Orion-Yhtymae Oyj (Class B) 21,766 21,582 0.2
Real Estate 3,000 ++Sponda Oyj 21,548 21,072 0.2
Investment Trust
Transportation 500 Finnlines Oyj 29,640 31,015 0.2
Total Common Stocks in Finland 163,672 158,996 1.1
France Electronics 1,300 Thomson CSF S.A. 49,412 49,475 0.3
Insurance 500 AXA-UAP 57,808 56,259 0.4
Machinery & 1,200 ++Alstom S.A. 40,918 39,514 0.3
Equipment
Oil--Related 400 Elf Aquitaine S.A. 50,791 56,259 0.4
Reinsurance 700 Scor S.A. 34,198 44,420 0.3
Semiconductor 800 ++SGS-Thomson Microelectronics N.V.
Capital Equipment (NY Registered Shares) 54,057 55,900 0.4
Total Common Stocks in France 287,184 301,827 2.1
Germany Auto & Truck 600 Daimler-Benz AG 60,967 58,996 0.4
Banking 550 Bayerische Vereinsbank AG 37,658 46,615 0.3
Chemicals 400 Henkel KGaA (Preferred) 36,882 39,552 0.3
Machinery & Equipment 600 Mannesmann AG 30,495 61,655 0.4
Total Common Stocks in Germany 166,002 206,818 1.4
Indonesia Telecommunications 1,320 P.T. Indonesian Satellite Corp. (ADR)* 29,767 14,685 0.1
Total Common Stocks in Indonesia 29,767 14,685 0.1
Ireland Banking 500 Bank of Ireland 10,423 10,245 0.1
Total Common Stocks in Ireland 10,423 10,245 0.1
Italy Machinery 12,000 Danieli & Company-RNC 60,069 55,712 0.4
Publishing 3,500 Arnoldo Mondadori Editore S.p.A. 36,289 41,362 0.3
Total Common Stocks in Italy 96,358 97,074 0.7
Japan Banking 4,000 Bank of Tokyo-Mitsubishi, Ltd. (The) 49,925 42,405 0.3
4,000 Sanwa Bank, Ltd. 35,002 35,823 0.2
------------ ------------ ------
84,927 78,228 0.5
Computers 1,000 Tokyo Electron Limited 34,531 30,670 0.2
Electronics 3,000 Matsushita Electric Industrial Co., Ltd. 46,789 48,279 0.3
500 Sony Corporation (ADR)* 38,996 43,031 0.3
------------ ------------ ------
85,785 91,310 0.6
Insurance 4,000 Tokio Marine & Fire Insurance Co., Ltd. 44,448 41,163 0.3
Machine Tools 6,000 Makino Milling Machine Co., Ltd. 41,751 42,304 0.3
& Machinery
Total Common Stocks in Japan 291,442 283,675 1.9
Mexico Beverages 1,200 Panamerican Beverages, Inc. (Class A)
(US Registered Shares) 40,101 37,725 0.3
Multi-Industry 4,750 Grupo Carso, S.A. de C.V. (ADR)* 55,660 38,333 0.3
Telecommunications 1,050 Telefonos de Mexico, S.A. de C.V. (ADR)* 51,130 50,466 0.3
Total Common Stocks in Mexico 146,891 126,524 0.9
Netherlands Oil--International 950 Royal Dutch Petroleum Co. (NY
Registered Shares) 52,841 52,072 0.3
Total Common Stocks in the Netherlands 52,841 52,072 0.3
Norway Travel & Lodging 1,200 Color Line ASA 4,312 3,758 0.0
Total Common Stocks in Norway 4,312 3,758 0.0
Singapore Banking 5,000 Overseas Chinese Banking Corp. Ltd. 22,200 17,027 0.1
Total Common Stocks in Singapore 22,200 17,027 0.1
South Korea Engineering & 510 Hyundai Engineering & Construction Co.,
Construction Ltd. (GDR)(a)** 6,551 161 0.0
Total Common Stocks in South Korea 6,551 161 0.0
Spain Building Materials 1,300 ++Uralita, S.A. 18,230 18,557 0.1
Energy & Petroleum 950 Repsol, S.A. (ADR)* 44,818 52,250 0.4
Real Estate 600 Metrovaseca, S.A. 18,788 17,678 0.1
428 Metrovaseca, S.A. (Rights) (b) 0 601 0.0
------------ ------------ ------
18,788 18,279 0.1
Venture Capital 1,400 ++Dinamia Capital Privado-Sociedad
de Capital Riesgo, S.A. 25,340 24,237 0.2
Total Common Stocks in Spain 107,176 113,323 0.8
</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>
Sweden Auto & Truck 700 Autoliv AB $ 22,059 $ 22,384 0.1%
Automobile Parts 800 ++Haldex AB 14,074 14,446 0.1
Banking 1,200 ForeningsSparbanken AB 14,922 36,115 0.2
5,400 Nordbanken Holding AB 35,003 39,614 0.3
------------ ------------ ------
49,925 75,729 0.5
Chemicals 1,500 Perstorp AB (Class B) 30,046 28,027 0.2
Diversified 900 Custos AB (Class A) 24,393 22,911 0.2
100 Custos AB (Class B) 2,653 2,521 0.0
------------ ------------ ------
27,046 25,432 0.2
Investment 1,800 Bure Investment AB 23,080 28,666 0.2
Management
Laser Components 800 Spectra-Physics AB (Class A) 19,323 12,791 0.1
Real Estate 1,000 Fastighets Tornet AB 16,637 16,051 0.1
Real Estate 1,600 Castellum AB 15,160 18,860 0.1
Investment Trusts
Total Common Stocks in Sweden 217,350 242,386 1.6
Switzerland Banking 145 UBS AG 50,352 53,952 0.4
Machinery 22 Schindler Holding AG 38,788 33,527 0.2
Merchandising 35 Valora Holding AG 9,581 9,236 0.1
Total Common Stocks in Switzerland 98,721 96,715 0.7
United Aerospace 7,200 British Aerospace PLC 56,813 55,141 0.4
Kingdom
Automobile Parts 8,700 LucasVarity PLC 35,770 34,548 0.2
Beverages 4,382 Diageo PLC (Class B) 47,807 51,911 0.4
Chemicals 250 Imperial Chemical Industries PLC (ADR)* 14,299 16,125 0.1
Foods 3,700 Devro PLC 29,536 30,991 0.2
Travel & Lodging 13,000 ++Thomson Travel Group PLC 42,117 40,561 0.3
Total Common Stocks in the
United Kingdom 226,342 229,277 1.6
United Aerospace 750 GenCorp, Inc. 20,484 18,938 0.1
States 150 ++Orbital Sciences Corp. 3,935 5,606 0.0
------------ ------------ ------
24,419 24,544 0.1
Airlines 450 ++US Airways Group, Inc. 28,357 35,663 0.2
Automobile Parts 700 Federal-Mogul Corp. 28,586 47,250 0.3
Automobile Rental 960 ++Avis Rent-A-Car, Inc. 30,409 23,760 0.2
600 Hertz Corp. (Class A) 20,563 26,587 0.2
------------ ------------ ------
50,972 50,347 0.4
Banking 750 Bank of New York Co., Inc. 20,839 45,516 0.3
350 BankAmerica Corp. 19,241 30,253 0.2
890 First Union Corp. 44,459 51,842 0.4
------------ ------------ ------
84,539 127,611 0.9
Broadcasting 450 ++Chancellor Media Corp. 14,724 22,331 0.2
Broadcasting/Cable 1,742 ++Tele-Communications TCI Ventures
Group (Class A) 16,670 34,840 0.2
Chemicals 1,600 Great Lakes Chemical Corp. 69,010 63,100 0.4
Commercial Services 1,840 ++Gartner Group, Inc. (Class A) 61,984 64,285 0.4
Computer Services 1,700 ++BMC Software, Inc. 56,354 88,294 0.6
& Software 845 ++Cisco Systems, Inc. 55,206 77,793 0.5
1,220 Computer Associates International, Inc. 54,772 67,786 0.5
320 International Business Machines Corp. 37,019 36,740 0.3
------------ ------------ ------
203,351 270,613 1.9
Computers 2,880 COMPAQ Computer Corp. 85,094 81,720 0.6
Consumer Products 1,530 Dial Corp. 30,536 39,684 0.3
Containers 950 ++Owens-Illinois, Inc. 27,117 42,512 0.3
Cosmetics 500 Gillette Company (The) 28,606 28,344 0.2
Electronic/ 495 Intel Corporation 40,606 36,661 0.3
Instruments 600 Texas Instruments Inc. 38,980 34,987 0.2
------------ ------------ ------
79,586 71,648 0.5
Electronics 500 General Electric Company 37,155 45,500 0.3
Entertainment 1,200 ++Premier Parks, Inc. 67,956 79,950 0.5
Financial Services 1,200 ++Heller Financial, Inc. 33,332 36,000 0.2
700 Providian Financial Corporation 44,556 54,994 0.4
------------ ------------ ------
77,888 90,994 0.6
Foods 800 ++Keebler Foods Co. 22,608 22,000 0.2
Hardware Products 700 Black & Decker Corporation 23,461 42,700 0.3
Health Care 930 Columbia/HCA Healthcare Corp. 29,385 27,086 0.2
1,900 ++HEALTHSOUTH Corp. 49,816 50,706 0.3
------------ ------------ ------
79,201 77,792 0.5
Insurance 1,500 Allmerica Financial Corp. 92,207 97,500 0.7
900 The Equitable Companies Inc. 47,121 67,444 0.5
700 Travelers Group, Inc. 28,234 42,437 0.3
500 UNUM Corporation 15,861 27,750 0.2
------------ ------------ ------
183,423 235,131 1.7
Machine Tools 1,040 Ingersoll-Rand Co. 34,576 45,825 0.3
& Machinery
Manufacturing 500 Tyco International Ltd. 25,812 31,500 0.2
Medical 600 Beckman Coulter Inc. 35,969 34,950 0.2
Natural Gas 1,100 El Paso Natural Gas Co. 28,248 42,075 0.3
820 Enron Corp. 38,103 44,331 0.3
------------ ------------ ------
66,351 86,406 0.6
Oil Service 250 Schlumberger Ltd. 13,812 17,078 0.1
</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>
United Petroleum 850 Unocal Corp. $ 28,542 $ 30,387 0.2%
States
(concluded) Pharmaceuticals 350 Bristol-Myers Squibb Co. 33,277 40,228 0.3
690 Warner-Lambert Co. 32,904 47,869 0.3
------------ ------------ ------
66,181 88,097 0.6
Printing & 1,300 ++World Color Press, Inc. 39,080 45,500 0.3
Publishing
Radio & Television 2,100 ++Capstar Broadcasting Corp. (Class A) 39,900 52,762 0.4
Railroads 350 Burlington Northern Santa Fe Inc. 28,317 34,366 0.2
Real Estate 380 Starwood Hotel & Resort 17,100 18,359 0.1
Investment Trust
Retail Specialty 800 Lowe's Companies, Inc. 28,737 32,450 0.2
Retail Stores 1,520 Rite Aid Corporation 24,882 57,095 0.4
950 ++Safeway Inc. 28,346 38,653 0.3
1,050 Sears, Roebuck & Co. 55,862 64,116 0.4
850 Wal-Mart Stores, Inc. 35,032 51,637 0.4
------------ ------------ ------
144,122 211,501 1.5
Telecommunications 500 ++SmarTalk TeleServices, Inc. 13,921 7,062 0.1
884 ++Tele-Communications, Inc. (Class A)
(Convertible Preferred) 18,169 33,923 0.2
1,300 ++WorldCom Inc. 34,335 62,806 0.4
------------ ------------ ------
66,425 103,791 0.7
Travel & Lodging 1,380 Carnival Corp. (Class A) 19,879 54,682 0.4
450 Royal Caribbean Cruises Ltd. 22,291 35,775 0.2
------------ ------------ ------
42,170 90,457 0.6
Waste Management 1,060 ++USA Waste Services, Inc. 44,187 52,337 0.4
Total Common Stocks in the
United States 2,046,524 2,574,325 17.6
Total Investments in Common Stocks 4,108,311 4,659,801 31.9
<CAPTION>
Face
Amount Fixed-Income Securities
<S> <S> <S> <C> <S> <C> <C> <C>
Germany Federal DM 160,000 Bundesrepublik Deutschland, 5.625%
Government due 1/04/2028 92,224 92,036 0.6
Obligations
Total Fixed-Income Securities
in Germany 92,224 92,036 0.6
Sweden Federal Government of Sweden:
Government Skr 700,000 5.50% due 4/12/2002 88,977 90,717 0.6
Obligations 1,400,000 8% due 8/15/2007 204,289 214,421 1.5
Total Fixed-Income Securities in
Sweden 293,266 305,138 2.1
United Federal UK Treasury Bills:
Kingdom Government Pound 80,000 8% due 12/07/2000 135,193 136,650 0.9
Obligations Ster- 125,000 7.25% due 12/07/2007 206,901 229,158 1.6
ling
Total Fixed-Income Securities in
the United Kingdom 342,094 365,808 2.5
United US US$ 240,000 Federal National Mortgage
States Government Association, 5.75% due 2/15/2008 235,752 238,874 1.6
Agency
Obligations
US Government 2,030,000 US Treasury Bonds, 6.625% due
Obligations 2/15/2027 2,167,893 2,292,317 15.7
US Treasury Notes:
1,925,000 6% due 8/15/1999 1,928,734 1,934,933 13.3
1,150,000 6.125% due 9/30/2000 1,171,023 1,164,191 8.0
1,420,000 6.50% due 5/31/2002 1,446,081 1,467,258 10.0
515,000 6.625% due 5/15/2007 542,309 553,141 3.8
------------ ------------ ------
7,256,040 7,411,840 50.8
Total Fixed-Income Securities
in the United States 7,491,792 7,650,714 52.4
Total Investments in Fixed-Income
Securities 8,219,376 8,413,696 57.6
Short-Term Securities
United US Government 1,380,000 Federal Home Loan Mortgage Corp.,
States Agency 5.85% due 7/01/1998 1,380,000 1,380,000 9.5
Obligations***
Total Investments in Short-Term
Securities 1,380,000 1,380,000 9.5
Total Investments $13,707,687 14,453,497 99.0
============
Unrealized Appreciation on Forward Foreign Exchange Contracts++++ 4,035 0.0
Other Assets Less Liabilities 142,018 1.0
------------ ------
Net Assets $14,599,550 100.0%
============ ======
<FN>
*American Depositary Receipts (ADR).
**Global Depositary Receipts (GDR).
***Certain US Government Agency Obligations are traded on a discount
basis; the interest rate shown is the discount rate paid at the time
of purchase by the Fund.
(a)The security may be offered and sold to "qualified institutional
buyers" under Rule 144A of the Securities Act of 1933.
(b)The rights may be exercised until 7/24/1998.
++Non-income producing security.
++++Forward foreign exchange contracts sold as of June 30, 1998 were
as follows:
Unrealized
Appreciation
Expiration (Depreciation)
Foreign Currency Sold Date (Note 1c)
C$ 110,000 July 1998 $ (29)
Chf 180,000 July 1998 3,579
DM 810,000 July 1998 3,301
Fim 800,000 September 1998 667
Frf 2,310,000 July 1998 1,633
Lit 178,000,000 August 1998 474
Pound 450,000 July 1998 (2,381)
Sterling
Pta 22,000,000 August 1998 185
Skr 5,450,000 September 1998 (5,730)
YEN 45,800,000 September 1998 2,336
--------
Total Unrealized Appreciation on Forward
Foreign Exchange Contracts--Net
(US$ Commitment--$3,190,126) $ 4,035
========
See Notes to Financial Statements.
</TABLE>
Merrill Lynch Asset Income Fund, Inc., June 30, 1998
<TABLE>
STATEMENT OF ASSETS AND LIABILITIES
<CAPTION>
As of June 30, 1998
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$13,707,687) (Note 1a) $14,453,497
Unrealized appreciation on forward foreign exchange
contracts (Note 1c) 4,035
Cash 47,394
Receivables:
Interest $ 146,897
Capital shares sold 47,606
Securities sold 18,754
Dividends 8,148
Forward foreign exchange contracts (Note 1c) 875 222,280
-----------
Deferred organization expenses (Note 1g). 36,991
Prepaid registration fees and other assets (Note 1g) 123,863
-----------
Total assets 14,888,060
-----------
Liabilities: Payables:
Securities purchased 127,773
Capital shares redeemed 77,509
Dividends to shareholders (Note 1h) 10,446
Distributor (Note 2) 5,724 221,452
-----------
Accrued expenses and other liabilities 67,058
-----------
Total liabilities 288,510
-----------
Net Assets: Net assets $14,599,550
===========
Net Assets Class A Shares of Common Stock, $0.10 par value,
Consist of: 100,000,000 shares authorized $ 44,301
Class B Shares of Common Stock, $0.10 par value,
100,000,000 shares authorized 80,711
Class C Shares of Common Stock, $0.10 par value,
100,000,000 shares authorized 5,446
Class D Shares of Common Stock, $0.10 par value,
100,000,000 shares authorized 5,794
Paid-in capital in excess of par 13,429,129
Undistributed realized capital gains on investments
and foreign currency transactions--net 284,762
Unrealized appreciation on investments and foreign
currency transactions--net 749,407
-----------
Net assets $14,599,550
===========
Net Asset Class A--Based on net assets of $4,746,810 and 443,012
Value: shares outstanding $ 10.71
===========
Class B--Based on net assets of $8,648,363 and 807,110
shares outstanding $ 10.72
===========
Class C--Based on net assets of $583,817 and 54,462
shares outstanding $ 10.72
===========
Class D--Based on net assets of $620,560 and 57,942
shares outstanding. $ 10.71
===========
See Notes to Financial Statements.
</TABLE>
<TABLE>
STATEMENT OF OPERATIONS
<CAPTION>
For the Six Months Ended June 30, 1998
<S> <S> <C> <C>
Investment Interest and discount earned $ 271,729
Income Dividends (net of $1,959 foreign witholding tax) 26,931
(Notes 1e & 1f): -----------
Total income 298,660
-----------
Expenses: Investment advisory fees (Note 2) $ 46,657
Accounting services (Note 2) 31,874
Account maintenance and distribution fees--Class B (Note 2) 30,682
Printing and shareholder reports 30,676
Professional fees 25,388
Registration fees (Note 1g) 25,375
Custodian fees 12,116
Amortization of organization expenses (Note 1g) 10,695
Directors' fees and expenses 6,202
Transfer agent fees--Class B (Note 2) 6,170
Transfer agent fees--Class A (Note 2) 2,243
Account maintenance and distribution fees--Class C (Note 2) 2,061
Pricing fees 1,461
Account maintenance fees--Class D (Note 2) 567
Transfer agent fees--Class C (Note 2) 399
Transfer agent fees--Class D (Note 2) 307
Other 7,356
-----------
Total expenses before reimbursement 240,229
Reimbursement of expenses (Note 2) (175,817)
-----------
Total expenses after reimbursement 64,412
-----------
Investment income--net 234,248
-----------
Realized & Realized gain from:
Unrealized Investments--net 269,607
Gain on Foreign currency transactions--net 1,012 270,619
Investments & -----------
Foreign Currency Change in unrealized appreciation/depreciation on:
Transactions--Net Investments--net 196,536
(Notes 1c, 1d, Foreign currency transactions--net 3,831 200,367
1f & 3): ----------- -----------
Net realized and unrealized gain on investments and
foreign currency transactions 470,986
-----------
Net Increase in Net Assets Resulting from Operations $ 705,234
===========
See Notes to Financial Statements.
</TABLE>
Merrill Lynch Asset Income Fund, Inc., June 30, 1998
<TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
<CAPTION>
For the Six
Months For the
Ended Year Ended
June 30, December 31,
Increase (Decrease) in Net Assets: 1998 1997
<S> <S> <C> <C>
Operations: Investment income--net $ 234,248 $ 495,042
Realized gain on investments and foreign currency transactions--net 270,619 684,182
Change in unrealized appreciation/depreciation on investments
and foreign currency transactions--net 200,367 145,793
----------- -----------
Net increase in net assets resulting from operations 705,234 1,325,017
----------- -----------
Dividends & Investment income--net:
Distributions to Class A (70,596) (147,348)
Shareholders Class B (145,537) (303,839)
(Note 1h): Class C (9,041) (21,893)
Class D (9,074) (21,962)
Realized gain on investments--net:
Class A -- (168,574)
Class B -- (675,967)
Class C -- (50,558)
Class D -- (27,046)
----------- -----------
Net decrease in net assets resulting from dividends
and distributions to shareholders (234,248) (1,417,187)
----------- -----------
Capital Share Net increase (decrease) in net assets derived from capital
Transactions share transactions 2,969,809 (2,347,523)
(Note 4): ----------- -----------
Net Assets: Total increase (decrease) in net assets 3,440,795 (2,439,693)
Beginning of period 11,158,755 13,598,448
----------- -----------
End of period $14,599,550 $11,158,755
=========== ===========
See Notes to Financial Statements.
</TABLE>
<TABLE>
FINANCIAL HIGHLIGHTS
<CAPTION>
Class A
For the For the
The following per share data and ratios Six Period
have been derived from information provided Months For the Sept. 2,
in the financial statements. Ended Year Ended 1994++ to
June 30, December 31, Dec. 31,
Increase (Decrease) in Net Asset Value: 1998 1997 1996 1995 1994
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 10.32 $ 10.53 $ 10.62 $ 9.68 $ 10.00
Operating ------- ------- ------- ------- -------
Performance: Investment income--net .22 .49 .50 .60 .18
Realized and unrealized gain (loss) on
investments and foreign currency
transactions--net .39 .71 .23 1.04 (.32)
------- ------- ------- ------- -------
Total from investment operations .61 1.20 .73 1.64 (.14)
------- ------- ------- ------- -------
Less dividends and distributions:
Investment income--net (.22) (.49) (.50) (.60) (.18)
In excess of investment income--net -- -- (.05) -- --
Realized gain on investments--net -- (.92) (.27) (.01) --
In excess of realized gain on
investments--net -- -- -- (.09) --
------- ------- ------- ------- -------
Total dividends and distributions (.22) (1.41) (.82) (.70) (.18)
------- ------- ------- ------- -------
Net asset value, end of period $ 10.71 $ 10.32 $ 10.53 $ 10.62 $ 9.68
======= ======= ======= ======= =======
Total Investment Based on net asset value per share 6.00%+++ 11.67% 7.11% 17.38% (1.37%)+++
Return:** ======= ======= ======= ======= =======
Ratios to Expenses, net of reimbursement .52%* .50% .25% .00% .00%*
Average Net ======= ======= ======= ======= =======
Assets: Expenses 3.32%* 3.28% 3.48% 5.12% 5.20%*
======= ======= ======= ======= =======
Investment income--net 4.29%* 4.58% 4.73% 5.78% 5.64%*
======= ======= ======= ======= =======
Supplemental Net assets, end of period (in thousands) $ 4,747 $ 2,188 $ 3,918 $ 3,872 $ 1,147
Data: ======= ======= ======= ======= =======
Portfolio turnover 54.01% 155.57% 342.71% 46.75% .83%
======= ======= ======= ======= =======
<FN>
++Commencement of operations.
+++Aggregate total investment returns.
*Annualized.
**Total investment returns exclude the effects of sales loads.
See Notes to Financial Statements.
</TABLE>
Merrill Lynch Asset Income Fund, Inc., June 30, 1998
<TABLE>
FINANCIAL HIGHLIGHTS (continued)
<CAPTION>
Class B
For the For the
The following per share data and ratios Six Period
have been derived from information provided Months For the Sept. 2,
in the financial statements. Ended Year Ended 1994++ to
June 30, December 31, Dec. 31,
Increase (Decrease) in Net Asset Value: 1998 1997 1996 1995 1994
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 10.32 $ 10.53 $ 10.62 $ 9.68 $ 10.00
Operating ------- ------- ------- ------- -------
Performance: Investment income--net .18 .41 .42 .51 .16
Realized and unrealized gain (loss) on
investments and foreign currency
transactions--net .40 .71 .23 1.04 (.32)
------- ------- ------- ------- -------
Total from investment operations .58 1.12 .65 1.55 (.16)
------- ------- ------- ------- -------
Less dividends and distributions:
Investment income--net (.18) (.41) (.42) (.51) (.16)
In excess of investment income--net -- -- (.05) -- --
Realized gain on investments--net -- (.92) (.27) (.01) --
In excess of realized gain on
investments--net -- -- -- (.09) --
------- ------- ------- ------- -------
Total dividends and distributions (.18) (1.33) (.74) (.61) (.16)
------- ------- ------- ------- -------
Net asset value, end of period $ 10.72 $ 10.32 $ 10.53 $ 10.62 $ 9.68
======= ======= ======= ======= =======
Total Investment Based on net asset value per share 5.71%+++ 10.84% 6.31% 16.51% (1.62%)+++
Return:** ======= ======= ======= ======= =======
Ratios to Expenses, net of reimbursement 1.24%* 1.25% 1.00% .75% .75%*
Average Net ======= ======= ======= ======= =======
Assets: Expenses 4.08%* 4.01% 4.24% 5.94% 6.04%*
======= ======= ======= ======= =======
Investment income--net 3.55%* 3.79% 3.99% 5.06% 4.86%*
======= ======= ======= ======= =======
Supplemental Net assets, end of period (in thousands) $ 8,648 $ 8,078 $ 8,690 $ 9,236 $ 6,797
Data: ======= ======= ======= ======= =======
Portfolio turnover 54.01% 155.57% 342.71% 46.75% .83%
======= ======= ======= ======= =======
<CAPTION>
Class C
For the For the
The following per share data and ratios Six Period
have been derived from information provided Months For the Oct. 21,
in the financial statements. Ended Year Ended 1994++ to
June 30, December 31, Dec. 31,
Increase (Decrease) in Net Asset Value: 1998 1997 1996 1995 1994
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 10.32 $ 10.53 $ 10.62 $ 9.69 $ 9.88
Operating ------- ------- ------- ------- -------
Performance: Investment income--net .18 .41 .41 .52 .10
Realized and unrealized gain (loss) on
investments and foreign currency
transactions--net .40 .71 .23 1.03 (.19)
------- ------- ------- ------- -------
Total from investment operations .58 1.12 .64 1.55 (.09)
------- ------- ------- ------- -------
Less dividends and distributions:
Investment income--net (.18) (.41) (.42) (.52) (.10)
In excess of investment income--net -- -- (.04) -- --
Realized gain on investments--net -- (.92) (.27) (.01) --
In excess of realized gain on
investments--net -- -- -- (.09) --
------- ------- ------- ------- -------
Total dividends and distributions (.18) (1.33) (.73) (.62) (.10)
------- ------- ------- ------- -------
Net asset value, end of period $ 10.72 $ 10.32 $ 10.53 $ 10.62 $ 9.69
======= ======= ======= ======= =======
Total Investment Based on net asset value per share 5.68%+++ 10.79% 6.25% 16.33% (.94%)+++
Return:** ======= ======= ======= ======= =======
Ratios to Expenses, net of reimbursement 1.30%* 1.30% 1.04% .80% .80%*
Average Net ======= ======= ======= ======= =======
Assets: Expenses 4.14%* 4.12% 4.28% 6.02% 5.75%*
======= ======= ======= ======= =======
Investment income--net 3.51%* 3.78% 3.95% 4.99% 5.19%*
======= ======= ======= ======= =======
Supplemental Net assets, end of period (in thousands) $ 584 $ 575 $ 357 $ 418 $ 154
Data: ======= ======= ======= ======= =======
Portfolio turnover 54.01% 155.57% 342.71% 46.75% .83%
======= ======= ======= ======= =======
<FN>
++Commencement of operations.
+++Aggregate total investment returns.
*Annualized.
**Total investment returns exclude the effects of sales loads.
See Notes to Financial Statements.
</TABLE>
Merrill Lynch Asset Income Fund, Inc., June 30, 1998
<TABLE>
FINANCIAL HIGHLIGHTS (concluded)
<CAPTION>
Class D
For the For the
The following per share data and ratios Six Period
have been derived from information provided Months For the Oct. 21,
in the financial statements. Ended Year Ended 1994++ to
June 30, December 31, Dec. 31,
Increase (Decrease) in Net Asset Value: 1998 1997 1996 1995 1994
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 10.31 $ 10.53 $ 10.62 $ 9.69 $ 9.88
Operating ------- ------- ------- ------- -------
Performance: Investment income--net .21 .47 .46 .57 .11
Realized and unrealized gain (loss) on
investments and foreign currency
transactions--net .40 .70 .24 1.03 (.19)
------- ------- ------- ------- -------
Total from investment operations .61 1.17 .70 1.60 (.08)
------- ------- ------- ------- -------
Less dividends and distributions:
Investment income--net (.21) (.47) (.47) (.57) (.11)
In excess of investment income--net -- -- (.05) -- --
Realized gain on investments--net -- (.92) (.27) (.01) --
In excess of realized gain on
investments--net -- -- -- (.09) --
------- ------- ------- ------- -------
Total dividends and distributions (.21) (1.39) (.79) (.67) (.11)
------- ------- ------- ------- -------
Net asset value, end of period $ 10.71 $ 10.31 $ 10.53 $ 10.62 $ 9.69
======= ======= ======= ======= =======
Total Investment Based on net asset value per share 5.97%+++ 11.29% 6.84% 16.97% (.83%)+++
Return:** ======= ======= ======= ======= =======
Ratios to Expenses, net of reimbursement .77%* .75% .50% .25% .25%*
Average Net ======= ======= ======= ======= =======
Assets: Expenses 3.57%* 3.54% 3.70% 5.44% 5.14%*
======= ======= ======= ======= =======
Investment income--net 4.03%* 4.32% 4.48% 5.53% 5.70%*
======= ======= ======= ======= =======
Supplemental Net assets, end of period (in thousands) $ 621 $ 318 $ 633 $ 771 $ 63
Data: ======= ======= ======= ======= =======
Portfolio turnover 54.01% 155.57% 342.71% 46.75% .83%
======= ======= ======= ======= =======
<FN>
++Commencement of operations.
+++Aggregate total investment returns.
*Annualized.
**Total investment returns exclude the effects of sales loads.
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. 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.
(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
financial 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.
Merrill Lynch Asset Income Fund, Inc., June 30, 1998
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 and write 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) 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.
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 ("MLFD" or "Distributor"), a division of Princeton Funds
Distributor, Inc. ("PFD"), which is 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.
For the six months ended June 30, 1998, MLAM earned fees of $46,657,
all of which were waived. MLAM also reimbursed the Fund for
additional expenses of $129,160.
Pursuant to 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
Maintenance Distribution
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 six months ended June 30, 1998, 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 $ 3 $ 33
Class D $227 $1,744
For the six months ended June 30, 1998, MLPF&S received contingent
deferred sales charges of $12,280 and $131 relating to transactions
in Class B and Class C Shares, respectively
In addition, MLPF&S received $235 in commissions on the execution of
portfolio security transactions for the Fund for the six months
ended June 30, 1998.
Merrill Lynch Financial Data Services, Inc. ("MLFDS"), a wholly-
owned subsidiary of ML & Co., is the Fund's transfer agent.
Accounting services are provided to the Fund by MLAM at cost.
Certain officers and/or directors of the Fund are officers and/or
directors of MLAM, PSI, MLFDS, PFD, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities,
for the six months ended June 30, 1998 were $8,872,397 and
$5,885,498, respectively.
Net realized gains for the six months June 30, 1998 and unrealized
gains (losses) as of June 30, 1998 were as follows:
Unrealized
Realized Gains
Gains (Losses)
Long-term investments $ 269,607 $ 745,810
Forward foreign exchange contracts 625 4,035
Foreign currency transactions 387 (438)
--------- ----------
Total $ 270,619 $ 749,407
========= ==========
As of June 30, 1998, net unrealized appreciation for Federal income
tax purposes aggregated $745,810, of which $895,370 related to
appreciated securities and $149,560 related to depreciated
securities. At June 30, 1998, the aggregate cost of investments for
Federal income tax purposes was $13,707,687.
4. Capital Share Transactions:
Net increase (decrease) in net assets derived from capital share
transactions were $2,969,809 and $(2,347,523) for the six months
ended June 30, 1998 and the year ended December 31, 1997,
respectively.
Transactions in capital shares for each class were as follows:
Class A Shares
For the Six Months Dollar
Ended June 30, 1998 Shares Amount
Shares sold 285,368 $ 3,011,424
Shares issued to shareholders
in reinvestment of dividends 1,292 13,514
---------- -----------
Total issued 286,660 3,024,938
Shares redeemed (55,743) (586,240)
---------- -----------
Net increase 230,917 $ 2,438,698
========== ===========
Class A Shares
For the Year Dollar
Ended December 31, 1997 Shares Amount
Shares sold 219,328 $ 2,372,110
Shares issued to shareholders in
reinvestment of dividends
and distributions 17,302 179,770
---------- -----------
Total issued 236,630 2,551,880
Shares redeemed (396,614) (4,337,800)
---------- -----------
Net decrease (159,984) $(1,785,920)
========== ===========
Class B Shares
For the Six Months Dollar
Ended June 30, 1998 Shares Amount
Shares sold 117,965 $ 1,246,822
Shares issued to shareholders
in reinvestment of dividends 8,393 88,494
---------- -----------
Total issued 126,358 1,335,316
Shares redeemed (102,298) (1,077,905)
---------- -----------
Net increase 24,060 $ 257,411
========== ===========
Merrill Lynch Asset Income Fund, Inc., June 30, 1998
NOTES TO FINANCIAL STATEMENTS (concluded)
Class B Shares for the Year Ended Dollar
December 31, 1997 Shares Amount
Shares sold 155,829 $ 1,701,811
Shares issued to shareholders
in reinvestment of dividends
and distributions 62,225 652,787
---------- -----------
Total issued 218,054 2,354,598
Shares redeemed (255,141) (2,742,988)
Automatic conversion of shares (4,962) (53,559)
---------- -----------
Net decrease (42,049) $ (441,949)
========== ===========
Class C Shares for the Six Months Dollar
Ended June 30, 1998 Shares Amount
Shares sold 11,013 $ 116,508
Shares issued to shareholders
in reinvestment of dividends 414 4,372
---------- -----------
Total issued 11,427 120,880
Shares redeemed (12,646) (132,573)
---------- -----------
Net decrease (1,219) $ (11,693)
========== ===========
Class C Shares for the Year Ended Dollar
December 31, 1997 Shares Amount
Shares sold 98,085 $ 1,038,826
Shares issued to shareholders
in reinvestment of dividends
and distributions 4,838 51,010
---------- -----------
Total issued 102,923 1,089,836
Shares redeemed (81,177) (885,235)
---------- -----------
Net increase 21,746 $ 204,601
========== ===========
Class D Shares for the Six Months Dollar
Ended June 30, 1998 Shares Amount
Shares sold 31,096 $ 326,731
Shares issued to shareholders
in reinvestment of dividends 622 6,570
---------- -----------
Total issued 31,718 333,301
Shares redeemed (4,576) (47,908)
---------- -----------
Net increase 27,142 $ 285,393
========== ===========
Class D Shares for the Year Ended Dollar
December 31, 1997 Shares Amount
Shares sold 9,787 $ 104,433
Automatic conversion of shares 4,962 53,559
Shares issued to shareholders
in reinvestment of dividends
and distributions 3,652 38,561
---------- -----------
Total issued 18,401 196,553
Shares redeemed (47,668) (520,808)
---------- -----------
Net decrease (29,267) $ (324,255)
========== ===========
5. Commitments:
At June 30, 1998, the Fund had entered into foreign exchange
contracts, in addition to the contracts listed on the Schedule of
Investments, under which it had to agree to purchase and sell
various foreign currencies with approximate values of $126,500 and
$13,800, respectively.
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
Thomas R. Robinson, Senior Vice President
and Portfolio Manager
Donald C. Burke, Vice President
Gerald M. Richard, Treasurer
Barbara G. Fraser, Secretary
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
