MERRILL LYNCH
ASSET INCOME
FUND, INC.
FUND LOGO
Semi-Annual Report
June 30, 1999
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 issuers 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, 1999
Breakdown of
Stocks & Fixed-Income Percent of
Securities by Country Net Assets++
United States* 79.6%
Germany 8.6
United Kingdom 4.2
Japan 2.1
France 0.6
Sweden 0.4
Brazil 0.2
Netherlands 0.2
Spain 0.2
Canada 0.2
Finland 0.2
Australia 0.1
South Korea 0.1
Ireland 0.1
Switzerland 0.1
Italy 0.1
Norway 0.0+++
Austria 0.0+++
Hong Kong 0.0+++
Denmark 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 1.8%
Telecommunications 1.5
Electronics 1.0
Computer Services & Software 0.9
Pharmaceuticals 0.8
Computers 0.5
Insurance 0.4
Automobiles 0.4
Household Products 0.3
Machine Tools & Machinery 0.3
Ten Largest Holdings Percent of
(Equity Investments) Net Assets
Wells Fargo Company 0.8%
Microsoft Corporation 0.3
Colgate-Palmolive Company 0.3
International Business Machines
Corporation 0.3
MCI WorldCom Inc. 0.3
Bristol-Myers Squibb Company 0.3
Toshiba Corporation 0.2
AT&T Corp.-Liberty Media Group
(Class A) 0.2
Cisco Systems, Inc. 0.2
Tandy Corporation 0.2
Merrill Lynch Asset Income Fund, Inc., June 30, 1999
DEAR SHAREHOLDER
There were some conflicting signals regarding the future direction
of the US economy during the quarter ended June 30, 1999. However,
on balance the economic outlook continued to be positive. The US
economic expansion is ongoing, especially in the consumer sector.
Economic growth is not occurring at inflationary rates, although the
Organization of Petroleum Exporting Countries (OPEC) successfully
engineered a near-term increase in the price of crude oil. Against
this backdrop, the US Federal Reserve Board raised the Federal Funds
rate 0.25% at its June 30, 1999 meeting. Outside of the United
States, signs of growth are less apparent in other major industrial
economies. European equity markets have entered a period of
consolidation, and investors are looking for evidence of an economic
pickup. Meanwhile, Japan reported its first quarter of positive
economic growth in more than a year. There were growing signs of
improvement in some emerging economies (most notably South Korea and
Mexico), although concerns remain for others (such as Brazil and
Argentina).
In the US capital markets, long-term interest rates rose during the
June quarter. While the spread between yields on Treasury securities
and corporate issues of similar maturities has narrowed somewhat, it
remains wide by historic standards. Although the US stock market
exhibited greater price volatility, its advances broadened beyond
relatively few growth stocks to the previously languishing cyclical
sectors.
Portfolio Matters
As of June 30, 1999, the asset allocation for Merrill Lynch Asset
Income Fund, Inc. was: US bonds, 68% of net assets; foreign bonds,
12%; US stocks, 10%; foreign stocks, 5%; and cash reserves, 5%.
During the three months ended June 30, 1999, we continued to enlarge
the Fund's US bond commitment, with an increase from 64% of net
assets to 68%. We also extended the average duration from 6.8 years
to 7.1 years. Strength in the US economy persisted during the first
half of 1999. However, the rise in intermediate-term and longer-term
interest rates that has taken place in recent months could begin to
gradually slow the rate of US economic growth in coming months. The
resultant reduction of inflationary expectations is likely to be
supportive of a decline in US interest rates during the second half
of 1999.
During the June quarter, we reduced the foreign bond sector from 15%
of net assets to 12%. Attractive risk/reward relationships led us to
establish positions in Japanese and New Zealand bonds early in 1999.
During the June quarter, we eliminated our position in Japanese
bonds following a decline in yields, which reduced potential for
additional appreciation. We also took advantage of appreciation to
liquidate our position in New Zealand bonds. We retained positions
in German and UK bonds where the risk/reward relationship remains
favorable, in our view.
We increased our allocation to US equities slightly from 9% of net
assets to 10% during the three months ended June 30, 1999. We
continued to believe that investors will favor the shares of
companies that offer a high degree of earnings visibility
in a steady growth/low inflation economy. On this basis, technology
remains the largest single group represented among our US equity
commitments. Consumer staples, including healthcare and financial
services, also continued to account for a significant portion of US
equity assets.
We reduced the foreign equity sector of the portfolio from 7% of net
assets to 5% during the June quarter. We retained a significant
weighting in Japan, reflecting an increasingly optimistic assessment
of the potential of corporate restructuring to improve
profitability. We enlarged our commitment to Asia (excluding Japan)
and retained a position in Brazilian equities. European equities
remain our largest regional commitment, with significant
representation maintained in financial services, telecommunications
services and equipment, and consumer staple goods.
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,
(Terry K. Glenn)
Terry K. Glenn
President and Director
(Thomas R. Robinson)
Thomas R. Robinson
Senior Vice President and
Portfolio Manager
August 13, 1999
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 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, 1999
PERFORMANCE DATA (concluded)
Average Annual
Total Return
% Return Without % Return With
Sales Charge Sales Charge**
Class A Shares*
Year Ended 6/30/99 +1.59% -2.48%
Inception (9/02/94)
through 6/30/99 +8.63 +7.72
[FN]
*Maximum sales charge is 4%.
**Assuming maximum sales charge.
% Return % Return
Without CDSC With CDSC**
Class B Shares*
Year Ended 6/30/99 +0.54% -3.25%
Inception (9/02/94)
through 6/30/99 +7.78 +7.78
[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 6/30/99 +0.49% -0.46%
Inception (10/21/94)
through 6/30/99 +8.09 +8.09
[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 6/30/99 +1.04% -3.00%
Inception (10/21/94)
through 6/30/99 +8.67 +7.73
[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 6/30/99
<S> <C> <C> <C> <C>
ML Asset Income Fund, Inc. Class A Shares +1.59% -0.74% +49.11% 4.38%
ML Asset Income Fund, Inc. Class B Shares +0.54 -1.02 +43.55 3.82
ML Asset Income Fund, Inc. Class C Shares +0.49 -1.03 +44.07 3.77
ML Asset Income Fund, Inc. Class D Shares +1.04 -0.90 +47.68 4.15
<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 from 9/02/94 for Class A & Class B Shares and
from 10/21/94 for Class C & Class D Shares.
</TABLE>
COMMON STOCK PORTFOLIO CHANGES
For the Quarter Ended June 30, 1999
Additions
Akzo Nobel NV
Applied Materials, Inc.
BASF AG
Baan Company, NV
Bergesen d.y. ASA 'B'
The British Land Company PLC
Broken Hill Proprietary Company
Limited
*Burlington Northern Santa Fe
Corporation
CSM NV
Caterpillar Inc.
Citigroup Inc.
Clear Channel Communications, Inc.
Dixons Group PLC
Federated Department Stores, Inc.
*Ford Motor Company
The Goldman Sachs Group, Inc.
*Grupo Ferrovial, SA
Hewlett-Packard Company
Hilton Group PLC
Hutchison Whampoa Limited
International Paper Company
Lattice Semiconductor Corporation
Merck & Co., Inc.
The News Corporation Limited
(Preferred) (ADR)
Pechiney SA 'A'
*The Peninsular and Oriental Steam
Navigation Company
Pohang Iron & Steel Company, Ltd.
(ADR)
Rohm and Haas Company
Siebel Systems, Inc.
TD Waterhouse Group, Inc.
Telecomunicacoes Brasileiras SA-
Telebras (ADR)
Transaction Systems Architects, Inc.
(Class A)
Deletions
Avis Rent A Car, Inc.
*Burlington Northern Santa Fe
Corporation
Castellum AB
Centocor, Inc.
Custos AB 'A'
Devro PLC
Dinamia Capital Privado Sociedad de
Capital Riesgo, SA
Elan Corporation PLC (ADR)
Embratel Participacoes SA (ADR)
The Equitable Companies Incorporated
Flextronics International Ltd.
*Ford Motor Company
Fujikura Ltd.
General Motors Corporation
*Grupo Ferrovial, SA
Henkel KGaA (Preferred)
Keane, Inc.
Metrovacesa, SA
Morgan Stanley Dean Witter & Co.
National Westminster Bank PLC
Nordbanken Holding AB
Oracle Corporation
*The Peninsular and Oriental Steam
Navigation Company
Providian Financial Corporation
Rio Tinto PLC (Registered Shares)
Rite Aid Corporation
Sampo Insurance Company Ltd. 'A'
Sundstrand Corporation
TDK Corporation (ADR)
TeleWest Communications PLC
Telecom Italia SpA
Wal-Mart Stores, Inc.
[FN]
*Added and deleted in the same quarter.
Merrill Lynch Asset Income Fund, Inc., June 30, 1999
<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>
Australia Broadcasting 200 The News Corporation Limited
& Publishing (Preferred) (ADR)* $ 6,714 $ 6,312 0.0%
Diversified 900 Broken Hill Proprietary Company
Limited 9,907 10,425 0.1
Total Common Stocks in Australia 16,621 16,737 0.1
Austria Paper Products 87 Mayr-Melnhof Karton AG 4,397 3,945 0.0
Total Common Stocks in Austria 4,397 3,945 0.0
Brazil Forest Products 430 Aracruz Celulose SA (ADR)* 6,011 9,460 0.1
Mining 400 Companhia Vale do Rio Doce 'A'
(Preferred) 5,720 7,856 0.0
Telecommunications 72 ++Telecomunicacoes Brasileiras
SA-Telebras (ADR)* 11 5 0.0
72 Telecomunicacoes Brasileiras SA-
Telebras (Preferred Block) (ADR)* 5,676 6,494 0.1
----------- ----------- ------
5,687 6,499 0.1
Total Common Stocks in Brazil 17,418 23,815 0.2
Canada Computer Graphics 300 ++ATI Technologies Inc. 4,699 4,842 0.0
Paper & Forest 700 Domtar, Inc. 5,615 6,584 0.1
Products
Telecommunications 279 Teleglobe Inc. 7,892 8,300 0.1
Total Common Stocks in Canada 18,206 19,726 0.2
Denmark Commercial Services 50 ++ISS International Service System A/S 'B' 3,263 2,657 0.0
Total Common Stocks in Denmark 3,263 2,657 0.0
Finland Communications 143 Nokia Oyj 7,098 12,527 0.1
Equipment
Paper & Forest 200 UPM-Kymmene Oyj 4,466 5,730 0.1
Products
Real Estate 800 Sponda Oyj 5,746 4,040 0.0
Investment Trusts
Total Common Stocks in Finland 17,310 22,297 0.2
France Electronics 215 Thomson CSF 8,329 7,467 0.1
Foods 24 Groupe Danone SA 6,479 6,184 0.0
Information Processing 15 Cap Gemini SA 2,288 2,356 0.0
Insurance 52 Axa 5,640 6,340 0.1
Metals 265 Pechiney SA 'A' 12,031 11,383 0.1
Oil--Related 43 Elf Aquitaine SA 5,906 6,306 0.0
Reinsurance 170 Scor 10,744 8,427 0.1
Semiconductor Capital 178 STMicroelectronics NV (NY Registered
Equipment Shares) 6,402 12,349 0.1
Telecommunications 85 France Telecom SA 5,951 6,417 0.0
Utilities--Water 120 Vivendi 9,130 9,714 0.1
Total Common Stocks in France 72,900 76,943 0.6
Germany Automobiles 80 DaimlerChrysler AG 6,258 6,926 0.1
Chemicals 55 BASF AG 2,468 2,429 0.0
Total Common Stocks in Germany 8,726 9,355 0.1
Hong Kong Multi-Industry 300 Hutchison Whampoa Limited 2,770 2,716 0.0
Total Common Stocks in Hong Kong 2,770 2,716 0.0
Ireland Banking 538 Bank of Ireland 11,526 9,073 0.1
Total Common Stocks in Ireland 11,526 9,073 0.1
Italy Publishing 388 Mondadori (Arnoldo) Editore SpA 5,017 6,718 0.1
Total Common Stocks in Italy 5,017 6,718 0.1
Japan Automobiles 110 Honda Motor Co., Ltd. (ADR)* 9,239 9,543 0.1
169 Toyota Motor Corporation (ADR)* 9,264 10,689 0.1
----------- ----------- ------
18,503 20,232 0.2
Banking 1,000 The Bank of Tokyo-Mitsubishi, Ltd. 14,274 14,242 0.1
1,000 The Sanwa Bank, Ltd. 9,695 9,845 0.1
1,000 The Sumitomo Bank, Ltd. 11,598 12,407 0.1
----------- ----------- ------
35,567 36,494 0.3
Computers 2,000 NEC Corporation 20,080 24,880 0.2
Electronics 1,000 Fujitsu Limited 11,369 20,127 0.2
1,000 Matsushita Electric Industrial
Company, Ltd. 19,161 19,425 0.1
132 Sony Corporation (ADR)* 11,128 14,570 0.1
4,000 Toshiba Corporation 26,299 28,534 0.2
----------- ----------- ------
67,957 82,656 0.6
Glass 3,000 Nippon Sheet Glass Company, Ltd. 9,243 10,688 0.1
Insurance 2,000 The Tokio Marine & Fire
Insurance Co. Ltd. 22,856 21,739 0.2
Machine Tools & 1,000 Minebea Company Ltd. 10,289 11,159 0.1
Machinery
Photography 300 Fuji Photo Film (ADR)* 11,553 11,400 0.1
Retail 156 Ito-Yokado Co., Ltd. (ADR)* 9,048 10,394 0.1
Retail--Stores 1,000 The Daimaru, Inc. 4,673 4,893 0.0
Telecommunications 2 Nippon Telegraph & Telephone
Corporation (NTT) 16,607 23,310 0.2
Total Common Stocks in Japan 226,376 257,845 2.1
Nether- Broadcasting 256 Wolters Kluwer NV 'A' 9,797 10,184 0.1
lands & Publishing
Chemicals 55 Akzo Nobel NV 2,514 2,313 0.0
Computer Software 200 ++Baan Company, NV 3,142 3,092 0.0
Electronic Components 65 ++ASM Lithography Holding NV 2,612 3,758 0.0
Foods 100 CSM NV 5,287 4,993 0.0
Multi-Industry 147 Unilever NV 'A' 12,160 9,922 0.1
Total Common Stocks in the
Netherlands 35,512 34,262 0.2
</TABLE>
Merrill Lynch Asset Income Fund, Inc., June 30, 1999
<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>
Norway Computer Software 356 Merkantildata ASA $ 2,722 $ 3,440 0.0%
Transport Services 200 Bergesen d.y. ASA 'B' 2,824 2,835 0.0
Total Common Stocks in Norway 5,546 6,275 0.0
South Electronics 30 Samsung Electronics 2,172 3,292 0.0
Korea
Steel 300 Pohang Iron & Steel Company, Ltd. (ADR)* 8,556 10,088 0.1
Total Common Stocks in South Korea 10,728 13,380 0.1
Spain Building Materials 710 Uralita, SA 9,969 5,964 0.0
Telecommunications 204 ++Telefonica SA 9,277 9,820 0.1
Utilities--Electric 341 Endesa SA 8,930 7,268 0.1
Total Common Stocks in Spain 28,176 23,052 0.2
Sweden Auto & Truck 221 Autoliv, Inc. 6,964 6,752 0.1
Automobile Parts 424 Haldex AB 7,587 5,552 0.0
Automobiles 200 Volvo AB 'B' 5,577 5,815 0.1
Banking 750 ForeningsSparbanken AB 6,218 10,616 0.1
Communications 297 Telefonaktiebolaget LM Ericsson (ADR)* 7,310 9,764 0.1
Equipment
Investment Management 1,070 Investment AB Bure 8,761 5,680 0.0
Real Estate 354 Fastighets AB Tornet 4,871 4,823 0.0
Investment Trusts
Total Common Stocks in Sweden 47,288 49,002 0.4
Switzerland Telecommunications 21 Swisscom AG (Registered Shares) 5,987 7,912 0.1
Total Common Stocks in Switzerland 5,987 7,912 0.1
United Banking 362 Bank of Scotland 4,002 4,790 0.0
Kingdom 188 HSBC Holdings PLC 5,066 6,655 0.1
700 Lloyds TSB Group PLC 9,330 9,484 0.1
----------- ----------- ------
18,398 20,929 0.2
Beverages 457 Diageo PLC 5,621 4,770 0.0
Diversified 2,300 Billiton PLC 5,513 8,017 0.1
Drugs 149 AstraZeneca Group PLC 6,084 5,760 0.0
Leisure 2,000 Hilton Group PLC 10,530 7,924 0.1
Oil--Integrated 262 Shell Transport & Trading
Company (ADR)* 9,424 12,150 0.1
Oil--Related 350 BP Amoco PLC 5,755 6,269 0.1
Pharmaceuticals 330 Glaxo Wellcome PLC 10,650 9,166 0.1
100 Pharmacia & Upjohn, Inc. 6,320 5,681 0.1
----------- ----------- ------
16,970 14,847 0.2
Real Estate 600 The British Land Company PLC 5,350 5,015 0.0
Retail--Stores 200 Dixons Group PLC 4,606 3,734 0.0
Telecommunications 300 British Telecommunications PLC 4,951 5,024 0.0
300 ++Cable & Wireless PLC 4,925 3,821 0.0
200 ++Energis PLC 5,456 4,767 0.0
273 Vodafone Group PLC 4,951 5,376 0.1
----------- ----------- ------
20,283 18,988 0.1
Total Common Stocks in the
United Kingdom 108,534 108,403 0.9
United Aerospace & Defense 262 United Technologies Corporation 9,855 18,771 0.2
States
Application Development 100 ++Siebel Systems, Inc. 3,692 6,625 0.1
Software
Automobile Rental 140 The Hertz Corporation (Class A) 5,601 8,680 0.1
Automobiles 300 Delphi Automotive Systems Corporation 5,100 5,569 0.0
Banking 199 Bank of America Corporation 10,399 14,589 0.1
262 The Bank of New York Company, Inc. 7,088 9,612 0.1
300 Mellon Bank Corporation 9,128 10,912 0.1
2,350 Wells Fargo Company 95,965 100,463 0.8
----------- ----------- ------
122,580 135,576 1.1
Beverages 375 PepsiCo, Inc. 11,283 14,508 0.1
Broadcasting/Cable 704 ++AT&T Corp.-Liberty Media Group
(Class A) 11,118 25,872 0.2
Capital Equipment 100 Eaton Corporation 6,737 9,200 0.1
100 Hewlett-Packard Company 6,994 10,050 0.1
----------- ----------- ------
13,731 19,250 0.2
Chemicals 200 E.I. du Pont de Nemours and Company 13,133 13,662 0.1
400 Rohm and Haas Company 15,096 17,150 0.1
----------- ----------- ------
28,229 30,812 0.2
Computer 120 ++America Online, Inc. 10,419 13,260 0.1
Services 400 ++Cisco Systems, Inc. 12,250 25,775 0.2
& Software 270 International Business Machines
Corporation 16,138 34,897 0.3
450 ++Microsoft Corporation 37,175 40,556 0.3
----------- ----------- ------
75,982 114,488 0.9
Computer Software 100 ++Transaction Systems Architects, Inc.
(Class A) 4,016 3,900 0.0
Computers 150 ++EMC Corporation 5,053 8,250 0.1
524 Tandy Corporation 15,134 25,611 0.2
----------- ----------- ------
20,187 33,861 0.3
Consumer--Electronics 75 ++Dell Computer Corporation 2,300 2,770 0.0
Consumer Products 450 The Dial Corporation 10,040 16,734 0.1
Cruise Lines 100 Royal Caribbean Cruises Ltd. 2,520 4,375 0.0
Electronics 200 General Electric Company 18,625 22,600 0.2
286 Intel Corporation 17,625 16,999 0.1
100 ++Lattice Semiconductor Corporation 5,046 6,200 0.0
----------- ----------- ------
41,296 45,799 0.3
Merrill Lynch Asset Income Fund, Inc., June 30, 1999
</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 Entertainment 550 ++Premier Parks Inc. $ 8,886 $ 20,212 0.2%
States 75 The Walt Disney Company 2,619 2,311 0.0
(concluded) ----------- ----------- ------
11,505 22,523 0.2
Finance 100 ++The Goldman Sachs Group, Inc. 5,300 7,225 0.0
300 ++TD Waterhouse Group, Inc. 7,200 7,519 0.1
----------- ----------- ------
12,500 14,744 0.1
Financial Services 300 Associates First Capital Corporation
(Class A) 10,330 13,294 0.1
200 Citigroup Inc. 9,173 9,500 0.1
----------- ----------- ------
19,503 22,794 0.2
Financial Services 375 Household International, Inc. 16,366 17,766 0.1
--Consumer
Foods 450 ++Keebler Foods Company 11,349 13,669 0.1
Household Products 362 Colgate-Palmolive Company 33,143 35,747 0.3
Information 300 ++Unisys Corporation 9,668 11,681 0.1
Processing
Insurance 150 American International Group, Inc. 17,816 17,559 0.1
Laser Systems 95 ++JDS Uniphase Corporation 9,293 15,770 0.1
& Components
Machine Tools 375 Ingersoll-Rand Company 14,942 24,234 0.2
& Machinery
Machinery 110 Case Corporation 3,144 5,294 0.0
Machinery & Equipment 100 Caterpillar Inc. 5,549 6,000 0.0
Manufacturing 235 Tyco International Ltd. 13,512 22,266 0.2
Medical Technology 225 Johnson & Johnson 18,474 22,050 0.2
Metals 300 Alcoa Inc. 11,699 18,562 0.1
Natural Gas 262 Enron Corp. 11,758 21,418 0.2
Oil--Integrated 150 Mobil Corporation 11,996 14,850 0.1
Oil Services 150 Schlumberger Limited 7,884 9,553 0.1
Paper & Forest Products 200 International Paper Company 9,707 10,100 0.1
Petroleum 360 Unocal Corporation 12,079 14,265 0.1
Pharmaceutical-- 225 American Home Products Corporation 13,387 12,937 0.1
Diversified
Pharmaceuticals 450 Bristol-Myers Squibb Company 22,936 31,697 0.3
200 Cardinal Health, Inc. 14,110 12,825 0.1
100 Merck & Co., Inc. 7,006 7,400 0.1
150 Pfizer Inc. 19,539 16,462 0.1
----------- ----------- ------
63,591 68,384 0.6
Radio & Television 750 ++Capstar Broadcasting Corporation
(Class A) 13,312 20,531 0.2
Retail 100 ++Federated Department Stores, Inc. 5,306 5,294 0.0
Retail--Specialty 150 Lowe's Companies, Inc. 5,109 8,503 0.1
Retail--Stores 74 ++Best Buy Co., Inc. 3,480 4,995 0.0
150 Dayton Hudson Corporation 9,861 9,750 0.1
262 ++Safeway Inc. 11,462 12,969 0.1
----------- ----------- ------
24,803 27,714 0.2
Savings & Loan 300 GreenPoint Financial Corp. 9,153 9,844 0.1
Associations
Scientific 110 Millipore Corporation 2,219 4,462 0.0
Equipment
Semiconductors 100 ++Applied Materials, Inc. 6,731 7,387 0.1
216 Motorola, Inc. 11,267 20,466 0.2
----------- ----------- ------
17,998 27,853 0.3
Services 450 ++Quintiles Transnational Corp. 19,414 18,872 0.2
Telecommunications 423 AT&T Corp. 14,244 23,609 0.2
100 ++Clear Channel Communications, Inc. 7,063 6,894 0.1
200 GTE Corporation 10,704 15,150 0.1
250 Lucent Technologies Inc. 13,659 16,859 0.1
375 MCI WorldCom Inc. 17,163 32,250 0.3
----------- ----------- ------
62,833 94,762 0.8
Tobacco 200 Philip Morris Companies Inc. 9,369 8,038 0.1
Utilities-- 275 Ameritech Corporation 13,859 20,212 0.2
Communication
Utilities--Electric 150 PECO Energy Company 5,119 6,281 0.0
225 Public Service Enterprise Group
Incorporated 8,735 9,197 0.1
13,854 15,478 0.1
Waste Management 262 Waste Management, Inc. 12,362 14,083 0.1
Wireless 300 ++American Tower Corporation (Class A) 7,500 7,200 0.1
Communication
Equipment
Total Common Stocks in the
United States 923,486 1,192,602 9.6
Total Investments in Common Stocks 1,569,787 1,886,715 15.2
Face
Amount Fixed-Income Securities
Germany Foreign Pound 470,000 BundesObligation, 4.75% due
Government Sterling 11/20/2001 570,167 499,349 4.0
Obligations 340,307 Bundesrepublik Deutschland, 4.75%
due 7/04/2008 429,492 356,502 2.9
220,000 Deutschland Republic, 4.75% due
7/04/2028 260,034 204,916 1.6
Total Fixed-Income Securities in
Germany 1,259,693 1,060,767 8.5
United Foreign Pound 230,000 United Kingdom Treasury Gilt, 7.25%
Kingdom Government Sterling due 12/07/2007 432,665 409,069 3.3
Obligations
Total Fixed-Income Securities in the
United Kingdom 432,665 409,069 3.3
</TABLE>
Merrill Lynch Asset Income Fund, Inc., June 30, 1999
<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 US Government Federal National Mortgage Association:
States Agency US$ 915,000 5.625% due 3/15/2001 $ 917,395 $ 913,426 7.4%
Obligations 930,000 5.125% due 2/13/2004 912,209 891,638 7.2
1,510,000 5.75% due 2/15/2008 1,501,712 1,443,696 11.6
1,020,000 5.25% due 1/15/2009 954,720 931,709 7.5
2,500,000 6.375% due 6/15/2009 2,496,095 2,478,900 20.0
----------- ----------- ------
6,782,131 6,659,369 53.7
US Government 1,645,000 US Treasury Bonds, 6.625% due
Obligations 2/15/2027 1,879,816 1,737,268 14.0
Total Fixed-Income Securities in
the United States 8,661,947 8,396,637 67.7
Total Investments in Fixed-Income
Securities 10,354,305 9,866,473 79.5
Short-Term Securities
United Commercial 288,000 General Electric Capital Corp.,
States Paper** 5.75% due 7/01/1999 288,000 288,000 2.3
Total Investments in Short-Term
Securities 288,000 288,000 2.3
Total Investments $12,212,092 12,041,188 97.0
===========
Unrealized Appreciation on Forward Foreign Exchange Contracts++++ 357 0.0
Other Assets Less Liabilities 375,734 3.0
----------- ------
Net Assets $12,417,279 100.0%
=========== ======
<FN>
*American Depositary Receipts (ADR).
**Commercial Paper is traded on a discount basis; the interest rate
shown reflects the discount rate paid at the time of purchase by the
Fund.
++Non-income producing security.
++++Forward foreign exchange contracts as of June 30, 1999 were as
follows:
Unrealized
Foreign Expiration Appreciation
Currency Sold Date (Note 1c)
C$ 35,000 July 1999 $ 357
------
Total Unrealized Appreciation on Forward
Foreign Exchange Contracts--Net
(US$ Commitment--$24,048) $ 357
======
</TABLE>
<TABLE>
STATEMENT OF ASSETS AND LIABILITIES
<CAPTION>
As of June 30, 1999
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$12,212,092) (Note 1a) $12,041,188
Unrealized appreciation on forward foreign exchange contracts
(Note 1c) 357
Cash 26,591
Foreign cash (Note 1d) 34,021
Receivables:
Interest $ 154,639
Securities sold 148,167
Dividends 4,094
Capital shares sold 1,390
Forward foreign exchange contracts (Note 1c) 1,300 309,590
-----------
Deferred organization expenses (Note 1g). 14,796
Prepaid registration fees and other assets (Note 1g) 139,256
-----------
Total assets 12,565,799
-----------
Liabilities: Payables:
Securities purchased 23,815
Dividends to shareholders (Note 1h) 11,827
Capital shares redeemed 11,414
Distributor (Note 2) 6,953
Forward foreign exchange contracts (Note 1c) 641 54,650
-----------
Accrued expenses and other liabilities 93,870
-----------
Total liabilities 148,520
-----------
Net Assets: Net assets $12,417,279
===========
Net Assets Class A Shares of Common Stock, $.10 par value, 100,000,000 shares
Consist of: authorized $ 3,822
Class B Shares of Common Stock, $.10 par value, 100,000,000 shares
authorized 95,621
Class C Shares of Common Stock, $.10 par value, 100,000,000 shares
authorized 9,797
Class D Shares of Common Stock, $.10 par value, 100,000,000 shares
authorized 12,844
Paid-in capital in excess of par 11,946,709
Undistributed realized capital gains on investments and foreign
currency transactions--net 522,447
Unrealized depreciation on investments and foreign currency
transactions--net (173,961)
-----------
Net assets $12,417,279
===========
Net Asset Value: Class A--Based on net assets of $389,257 and 38,216 shares
outstanding $ 10.19
===========
Class B--Based on net assets of $9,725,596 and 956,213 shares
outstanding $ 10.17
===========
Class C--Based on net assets of $996,850 and 97,971 shares
outstanding $ 10.17
===========
Class D--Based on net assets of $1,305,576 and 128,442 shares
outstanding. $ 10.16
===========
See Notes to Financial Statements.
</TABLE>
Merrill Lynch Asset Income Fund, Inc., June 30, 1999
<TABLE>
STATEMENT OF OPERATIONS
<CAPTION>
For the Six Months Ended June 30, 1999
<S> <S> <C> <C>
Investment Interest and discount earned $ 288,735
Income Dividends (net of $1,735 foreign witholding tax) 17,446
(Notes 1e & 1f): -----------
Total income 306,181
-----------
Expenses: Investment advisory fees (Note 2) $ 47,921
Account maintenance and distribution fees--Class B (Note 2) 38,358
Accounting services (Note 2) 37,053
Printing and shareholder reports 32,026
Registration fees (Note 1g) 30,626
Professional fees 24,860
Custodian fees 12,464
Transfer agent fees--Class B (Note 2) 7,495
Amortization of organization expenses (Note 1g) 7,013
Directors' fees and expenses 6,055
Account maintenance and distribution fees--Class C (Note 2) 3,145
Account maintenance fees--Class D (Note 2) 1,629
Pricing fees 1,425
Transfer agent fees--Class D (Note 2) 872
Transfer agent fees--Class C (Note 2) 623
Transfer agent fees--Class A (Note 2) 294
Other 5,820
-----------
Total expenses before reimbursement 257,679
Reimbursement of expenses (Note 2) (181,519)
-----------
Total expenses after reimbursement 76,160
-----------
Investment income--net 230,021
-----------
Realized & Realized gain from:
Unrealized Investments--net 154,808
Gain (Loss) on Foreign currency transactions--net 58,016 212,824
Investments & -----------
Foreign Currency Change in unrealized appreciation/depreciation on:
Transactions--Net Investments--net (772,463)
(Notes 1c, 1d, Foreign currency transactions--net (5,062) (777,525)
1f & 3): ----------- -----------
Net realized and unrealized loss on investments and
foreign currency transactions (564,701)
-----------
Net Decrease in Net Assets Resulting from Operations $ (334,680)
===========
See Notes to Financial Statements.
</TABLE>
<TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
<CAPTION>
For the Six
Months For the Year
Ended Ended
June 30, December 31,
Increase (Decrease) in Net Assets: 1999 1998
<S> <S> <C> <C>
Operations: Investment income--net $ 230,021 $ 485,847
Realized gain on investments and foreign currency
transactions--net 212,824 669,989
Change in unrealized appreciation/depreciation on
investments and foreign currency transactions--net (777,525) 54,524
----------- -----------
Net increase (decrease) in net assets resulting from
operations (334,680) 1,210,360
----------- -----------
Dividends & Investment income--net:
Distributions to Class A (9,856) (160,965)
Shareholders Class B (180,083) (285,470)
(Note 1h): Class C (13,827) (18,652)
Class D (26,255) (20,760)
Realized gain on investments--net:
Class A -- (111,852)
Class B -- (230,474)
Class C -- (15,569)
Class D -- (16,614)
----------- -----------
Net decrease in net assets resulting from dividends
and distributions to shareholders (230,021) (860,356)
----------- -----------
Capital Share Net increase (decrease) in net assets derived from
Transactions capital share transactions (2,126,019) 3,599,240
(Note 4): ----------- -----------
Net Assets: Total increase (decrease) in net assets (2,690,720) 3,949,244
Beginning of period 15,107,999 11,158,755
----------- -----------
End of period $12,417,279 $15,107,999
=========== ===========
See Notes to Financial Statements.
</TABLE>
Merrill Lynch Asset Income Fund, Inc., June 30, 1999
<TABLE>
FINANCIAL HIGHLIGHTS
<CAPTION>
Class A
For the
The following per share data and ratios have Six
been derived from information provided in the Months For the Year
financial statements. Ended Ended
June 30, December 31,
Increase (Decrease) in Net Asset Value: 1999 1998 1997 1996 1995
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 10.63 $ 10.32 $ 10.53 $ 10.62 $ 9.68
Operating -------- -------- -------- -------- --------
Performance: Investment income--net .22 .43 .49 .50 .60
Realized and unrealized gain (loss) on
investments and foreign currency
transactions--net (.44) .58 .71 .23 1.04
-------- -------- -------- -------- --------
Total from investment operations (.22) 1.01 1.20 .73 1.64
-------- -------- -------- -------- --------
Less dividends and distributions:
Investment income--net (.22) (.43) (.49) (.50) (.60)
In excess of investment income--net -- -- -- (.05) --
Realized gain on investments--net -- (.27) (.92) (.27) (.01)
In excess of realized gain on
investments--net -- -- -- -- (.09)
-------- -------- -------- -------- --------
Total dividends and distributions (.22) (.70) (1.41) (.82) (.70)
-------- -------- -------- -------- --------
Net asset value, end of period $ 10.19 $ 10.63 $ 10.32 $ 10.53 $ 10.62
======== ======== ======== ======== ========
Total Investment Based on net asset value per share (2.12%)++ 10.01% 11.67% 7.11% 17.38%
Return:** ======== ======== ======== ======== ========
Ratios to Expenses, net of reimbursement .52%* .50% .50% .25% .00%
Average Net ======== ======== ======== ======== ========
Assets: Expenses 3.23%* 3.10% 3.28% 3.48% 5.12%
======== ======== ======== ======== ========
Investment income--net 4.28%* 4.03% 4.58% 4.73% 5.78%
======== ======== ======== ======== ========
Supplemental Net assets, end of period (in thousands) $ 389 $ 4,558 $ 2,188 $ 3,918 $ 3,872
Data: ======== ======== ======== ======== ========
Portfolio turnover 79.24% 155.44% 155.57% 342.71% 46.75%
======== ======== ======== ======== ========
<CAPTION>
Class B
For the
The following per share data and ratios have Six
been derived from information provided in the Months For the Year
financial statements. Ended Ended
June 30, December 31,
Increase (Decrease) in Net Asset Value: 1999 1998 1997 1996 1995
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 10.63 $ 10.32 $ 10.53 $ 10.62 $ 9.68
Operating -------- -------- -------- -------- --------
Performance: Investment income--net .18 .35 .41 .42 .51
Realized and unrealized gain (loss) on
investments and foreign currency
transactions--net (.46) .58 .71 .23 1.04
-------- -------- -------- -------- --------
Total from investment operations (.28) .93 1.12 .65 1.55
-------- -------- -------- -------- --------
Less dividends and distributions:
Investment income--net (.18) (.35) (.41) (.42) (.51)
In excess of investment income--net -- -- -- (.05) --
Realized gain on investments--net -- (.27) (.92) (.27) (.01)
In excess of realized gain on
investments--net -- -- -- -- (.09)
-------- -------- -------- -------- --------
Total dividends and distributions (.18) (.62) (1.33) (.74) (.61)
-------- -------- -------- -------- --------
Net asset value, end of period $ 10.17 $10.63 $10.32 $ 10.53 $ 10.62
======== ======== ======== ======== ========
Total Investment Based on net asset value per share (2.67%)++ 9.19% 10.84% 6.31% 16.51%
Return:** ======== ======== ======== ======== ========
Ratios to Expenses, net of reimbursement 1.27%* 1.25% 1.25% 1.00% .75%
Average Net ======== ======== ======== ======== ========
Assets: Expenses 4.11%* 3.90% 4.01% 4.24% 5.94%
======== ======== ======== ======== ========
Investment income--net 3.52%* 3.32% 3.79% 3.99% 5.06%
======== ======== ======== ======== ========
Supplemental Net assets, end of period (in thousands) $ 9,726 $ 9,230 $ 8,078 $ 8,690 $ 9,236
Data: ======== ======== ======== ======== ========
Portfolio turnover 79.24% 155.44% 155.57% 342.71% 46.75%
======== ======== ======== ======== ========
<FN>
++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, 1999
<TABLE>
FINANCIAL HIGHLIGHTS (concluded)
<CAPTION>
Class C
For the
The following per share data and ratios have Six
been derived from information provided in the Months For the Year
financial statements. Ended Ended
June 30, December 31,
Increase (Decrease) in Net Asset Value: 1999 1998 1997 1996 1995
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 10.63 $ 10.32 $ 10.53 $ 10.62 $ 9.69
Operating -------- -------- -------- -------- --------
Performance: Investment income--net .18 .35 .41 .41 .52
Realized and unrealized gain (loss) on
investments and foreign currency
transactions--net (.46) .58 .71 .23 1.03
-------- -------- -------- -------- --------
Total from investment operations (.28) .93 1.12 .64 1.55
-------- -------- -------- -------- --------
Less dividends and distributions:
Investment income--net (.18) (.35) (.41) (.42) (.52)
In excess of investment income--net -- -- -- (.04) --
Realized gain on investments--net -- (.27) (.92) (.27) (.01)
In excess of realized gain on
investments--net -- -- -- -- (.09)
-------- -------- -------- -------- --------
Total dividends and distributions (.18) (.62) (1.33) (.73) (.62)
-------- -------- -------- -------- --------
Net asset value, end of period $ 10.17 $ 10.63 $ 10.32 $ 10.53 $ 10.62
======== ======== ======== ======== ========
Total Investment Based on net asset value per share (2.69%)++ 9.14% 10.79% 6.25% 16.33%
Return:** ======== ======== ======== ======== ========
Ratios to Expenses, net of reimbursement 1.31%* 1.30% 1.30% 1.04% .80%
Average Net ======== ======== ======== ======== ========
Assets: Expenses 4.20%* 3.94% 4.12% 4.28% 6.02%
======== ======== ======== ======== ========
Investment income--net 3.52%* 3.25% 3.78% 3.95% 4.99%
======== ======== ======== ======== ========
Supplemental Net assets, end of period (in thousands) $ 997 $ 656 $ 575 $ 357 $ 418
Data: ======== ======== ======== ======== ========
Portfolio turnover 79.24% 155.44% 155.57% 342.71% 46.75%
======== ======== ======== ======== ========
<CAPTION>
Class D
For the
The following per share data and ratios have Six
been derived from information provided in Months For the Year
the financial statements. Ended Ended
June 30, December 31,
Increase (Decrease) in Net Asset Value: 1999 1998 1997 1996 1995
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 10.62 $ 10.31 $ 10.53 $ 10.62 $ 9.69
Operating -------- -------- -------- -------- --------
Performance: Investment income--net .20 .41 .47 .46 .57
Realized and unrealized gain (loss) on
investments and foreign currency
transactions--net (.46) .58 .70 .24 1.03
-------- -------- -------- -------- --------
Total from investment operations (.26) .99 1.17 .70 1.60
-------- -------- -------- -------- --------
Less dividends and distributions:
Investment income--net (.20) (.41) (.47) (.47) (.57)
In excess of investment income--net -- -- -- (.05) --
Realized gain on investments--net -- (.27) (.92) (.27) (.01)
In excess of realized gain on
investments--net -- -- -- -- (.09)
-------- -------- -------- -------- --------
Total dividends and distributions (.20) (.68) (1.39) (.79) (.67)
-------- -------- -------- -------- --------
Net asset value, end of period $ 10.16 $ 10.62 $10.31 $ 10.53 $ 10.62
======== ======== ======== ======== ========
Total Investment Based on net asset value per share (2.44%)++ 9.74% 11.29% 6.84% 16.97%
Return:** ======== ======== ======== ======== ========
Ratios to Expenses, net of reimbursement .77%* .75% .75% .50% .25%
Average Net ======== ======== ======== ======== ========
Assets: Expenses 3.60%* 3.35% 3.54% 3.70% 5.44%
======== ======== ======== ======== ========
Investment income--net 4.03%* 3.78% 4.32% 4.48% 5.53%
======== ======== ======== ======== ========
Supplemental Net assets, end of period (in thousands) $ 1,305 $ 664 $ 318 $ 633 $ 771
Data: ======== ======== ======== ======== ========
Portfolio turnover 79.24% 155.44% 155.57% 342.71% 46.75%
======== ======== ======== ======== ========
<FN>
++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, 1999
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's financial statements
are prepared in accordance with generally accepted accounting
principles, which may require the use of management accruals and
estimates. 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 that 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 that 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 or
purchased are valued at the last sale price in the case of exchange-
traded options. In the case of options traded in the over-the-
counter market, valuation is the last asked price (options written)
or the last bid price (options purchased). 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. Under such agreements,
the counterparty 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.
* Foreign currency options and futures--The Fund may also purchase
or sell listed or over-the-counter foreign currency options, foreign
currency futures and related options on foreign currency futures as
a short or long hedge against possible variations in foreign
exchange rates. Such transactions may be effected with respect to
hedges on non-US dollar denominated securities owned by the Fund,
sold by the Fund but not yet delivered, or committed or anticipated
to be purchased by the Fund.
* Options--The Fund is authorized to write and purchase call and put
options. When the Fund writes an option, an amount equal to the
premium received by the Fund is reflected as an asset and an
equivalent liability. The amount of the liability is subsequently
marked to market to reflect the current 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 amortized on a straight-line
basis over a period not exceeding five years. Prepaid registration
fees are charged to expense as the related shares are issued.
(h) Dividends and distributions--Dividends from net investment
income are declared daily and paid monthly. Distributions of capital
gains are recorded on the ex-dividend dates.
2. Investment Advisory Agreement and Transactions with
Affiliates:
The Fund has entered into an Investment Advisory Agreement with
Merrill Lynch Asset Management, L.P. ("MLAM"). The general partner
of MLAM is Princeton Services, Inc. ("PSI"), an indirect wholly-
owned subsidiary of Merrill Lynch & Co., Inc. ("ML & Co."), which is
the limited partner. The Fund has also entered into a Distribution
Agreement and Distribution Plans with Merrill Lynch Funds
Distributor ("MLFD" or the "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, 1999, MLAM earned fees of $47,921,
all of which were waived. MLAM also reimbursed the Fund for
additional expenses of $133,598.
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 Incorporated ("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, 1999, 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 $ 2 $ 33
Class D $109 $1,200
Merrill Lynch Asset Income Fund, Inc., June 30, 1999
NOTES TO FINANCIAL STATEMENTS (concluded)
For the six months ended June 30, 1999, MLPF&S received contingent
deferred sales charges of $21,000 and $356 relating to transactions
in Class B and Class C Shares, respectively.
In addition, MLPF&S received $155 in commissions on the execution of
portfolio security transactions for the Fund for the six months
ended June 30, 1999.
Financial Data Services, Inc. ("FDS"), a wholly-owned subsidiary of
ML & Co., is the Fund's transfer agent.
Accounting services are provided to the Fund by MLAM at cost.
Certain officers and/or directors of the Fund are officers and/or
directors of MLAM, PSI, FDS, PFD, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities,
for the six months ended June 30, 1999 were $9,918,735 and
$11,330,472, respectively.
Net realized gains for the six months ended June 30, 1999 and net
unrealized gains (losses) as of June 30, 1999 were as follows:
Realized Unrealized
Gains Gains (Losses)
Long-term investments $ 154,808 $ (170,904)
Forward foreign exchange contracts 47,557 357
Foreign currency transactions 10,459 (3,414)
--------- ----------
Total $ 212,824 $ (173,961)
========= ==========
As of June 30, 1999, net unrealized depreciation for Federal income
tax purposes aggregated $170,904, of which $359,387 related to
appreciated securities and $530,291 related to depreciated
securities. At June 30, 1999, the aggregate cost of investments for
Federal income tax purposes was $12,212,092.
4. Capital Share Transactions:
Net increase (decrease) in net assets derived from capital share
transactions were $(2,126,019) and $3,599,240 for the six months
ended June 30, 1999 and for the year ended December 31, 1998,
respectively.
Transactions in capital shares for each class were as follows:
Class A Shares for the Six Dollar
Months Ended June 30, 1999 Shares Amount
Shares sold 1,290 $ 13,526
Shares issued to shareholders
in reinvestment of dividends 546 5,679
----------- -----------
Total issued 1,836 19,205
Shares redeemed (392,445) (4,190,664)
----------- -----------
Net decrease (390,609) $(4,171,459)
=========== ===========
Class A Shares for the Year Dollar
Ended December 31, 1998 Shares Amount
Shares sold 376,505 $ 3,979,028
Shares issued to shareholders in
reinvestment of dividends and
distributions 6,240 66,148
----------- -----------
Total issued 382,745 4,045,176
Shares redeemed (166,015) (1,751,205)
----------- -----------
Net increase 216,730 $ 2,293,971
=========== ===========
Class B Shares for the Six Dollar
Months Ended June 30, 1999 Shares Amount
Shares sold 328,400 $ 3,462,915
Shares issued to shareholders
in reinvestment of dividends 10,121 105,265
----------- -----------
Total issued 338,521 3,568,180
Shares redeemed (250,694) (2,602,189)
----------- -----------
Net increase 87,827 $ 965,991
=========== ===========
Class B Shares for the Year Dollar
Ended December 31, 1998 Shares Amount
Shares sold 312,797 $ 3,307,756
Shares issued to shareholders
in reinvestment of dividends
and distributions 32,166 340,647
----------- -----------
Total issued 344,963 3,648,403
Shares redeemed (258,565) (2,730,775)
Automatic conversion of shares (1,062) (11,241)
----------- -----------
Net increase 85,336 $ 906,387
=========== ===========
Class C Shares for the Six Dollar
Months Ended June 30, 1999 Shares Amount
Shares sold 53,273 $ 554,568
Shares issued to shareholders
in reinvestment of dividends 978 10,139
----------- -----------
Total issued 54,251 564,707
Shares redeemed (17,944) (186,223)
----------- -----------
Net increase 36,307 $ 378,484
=========== ===========
Class C Shares for the Year Ended Dollar
December 31, 1998 Shares Amount
Shares sold 37,121 $ 393,015
Shares issued to shareholders
in reinvestment of dividends
and distributions 2,363 25,042
----------- -----------
Total issued 39,484 418,057
Shares redeemed (33,501) (353,172)
----------- -----------
Net increase 5,983 $ 64,885
=========== ===========
Class D Shares for the Six Months Dollar
Ended June 30, 1999 Shares Amount
Shares sold 82,636 $ 872,624
Shares issued to shareholders
in reinvestment of dividends 1,412 14,701
----------- -----------
Total issued 84,048 887,325
Shares redeemed (18,126) (186,360)
----------- -----------
Net increase 65,922 $ 700,965
=========== ===========
Class D Shares for the Year Ended Dollar
December 31, 1998 Shares Amount
Shares sold 33,192 $ 349,068
Automatic conversion of shares 1,062 11,241
Shares issued to shareholders
in reinvestment of dividends
and distributions 2,555 27,048
----------- -----------
Total issued 36,809 387,357
Shares redeemed (5,089) (53,360)
----------- -----------
Net decrease 31,720 $ 333,997
=========== ===========
5. Commitments:
At June 30, 1999, the Fund had entered into foreign exchange
contracts, in addition to the contracts listed on the Schedule of
Investments, under which it had agreed to sell various foreign
currencies with an approximate value of $24,000.
6. Subsequent Event:
On July 1, 1999, the Fund's Board of Directors declared a long-term
capital gains distribution to shareholders in the amount of $.180748
per share for each of the four classes, payable on July 14, 1999 to
shareholders of record as of July 6, 1999.
OFFICERS AND DIRECTORS
Terry K. Glenn, President and Director
Joe Grills, Director
Walter Mintz, Director
Robert S. Salomon Jr., Director
Melvin R. Seiden, Director
Stephen B. Swensrud, Director
Arthur Zeikel, Director
Thomas R. Robinson, Senior Vice President
and Portfolio Manager
Donald C. Burke, Vice President and Treasurer
Barbara G. Fraser, Secretary
Custodian
The Chase Manhattan Bank
4 MetroTech Center, 18th Floor
Brooklyn, NY 11245
Transfer Agent
Financial Data Services, Inc.
4800 Deer Lake Drive East
Jacksonville, FL 32246-6484
(800)637-3863
