MERRILL LYNCH
ASSET INCOME
FUND, INC.
FUND LOGO
Annual Report
December 31, 1999
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
December 31, 1999
Breakdown of
Stocks & Fixed-Income Percent of
Securities by Country Net Assets++
United States* 73.4%
Japan 5.9
Germany 4.5
United Kingdom 3.3
France 2.2
New Zealand 1.8
Netherlands 1.5
Brazil 1.1
Spain 1.0
Canada 1.0
Switzerland 0.8
Sweden 0.6
Finland 0.6
Australia 0.3
Italy 0.3
Norway 0.2
South Korea 0.2
Ireland 0.2
Singapore 0.2
Bermuda 0.1
Hong Kong 0.0++++
Austria 0.0++++
Denmark 0.0++++
*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 Holdings Percent of
(Equity Investments) Net Assets
Softbank Corporation 0.9%
Wells Fargo Company 0.9
JDS Uniphase Corporation 0.6
Nokia Oyj 0.5
Nortel Networks Corporation 0.5
Kyocera Corporation (ADR) 0.5
Mannesmann AG 0.5
Colgate-Palmolive Company 0.4
Fujitsu Limited 0.4
Siemens AG 0.4
Ten Largest Industries Percent of
(Equity Investments) Net Assets
Telecommunications 4.2%
Banking 3.0
Electronics 2.4
Pharmaceuticals 1.3
Chemicals 1.2
Internetworking 1.1
Communications Equipment 1.0
Computers 1.0
Computer Services/Software 0.9
Distribution 0.9
Merrill Lynch Asset Income Fund, Inc., December 31, 1999
DEAR SHAREHOLDER
Fiscal Year in Review
For the year ended December 31, 1999, Merrill Lynch Asset Income
Fund, Inc.'s Class A, Class B, Class C and Class D Shares had total
returns of +4.45%, +3.58%, +3.53% and +4.10%, respectively. (Fund
results shown do not reflect sales charges and would be lower if
sales charges were included. Complete performance information can be
found on pages 3--5 of this report to shareholders.) During the 12
months ended December 31, 1999, the Fund's total returns were held
down by US fixed-income securities, which provided a negative return
for 1999. This return resulted from the significant rise in US
interest rates during the year. The portfolio was also adversely
affected by weakness in the euro relative to the US dollar, which
further reduced the return on the German bond commitments we held
throughout the year. On the positive side, foreign equities provided
the highest return among the asset classes during 1999; therefore,
our decision to increase representation in this sector proved
rewarding. In the US equity sector, the concentration of the largest
proportion of assets in the technology sector enabled the portfolio
to benefit from the above-average performance of the shares of
companies in this group.
Portfolio Matters
As of December 31, 1999, the asset allocation for Merrill Lynch
Asset Income Fund, Inc. was: US bonds, 57% of net assets; foreign
bonds, 5%; US stocks, 13%; foreign stocks, 21%; and cash reserves,
4%.
We expanded our total equity representation from 25% of net assets
to 34% during the three months ended December 31, 1999. We focused
our increased commitment to the foreign stock sector, which rose
from 16% of net assets to 21%. We enlarged the Fund's representation
in European technology and business services through new positions
in Equant, Telefonaktiebolaget LM Ericsson and Tandberg Television
ASA. Overall, Europe remained the Fund's largest regional
commitment, while Japan continued to be overweighted relative to the
benchmark Morgan Stanley Capital International Europe Australasia
Far East Index. We also increased our holdings in Asia (excluding
Japan) through positions in City Developments Limited and Singapore
Airlines Limited in Singapore. In Latin America, we continued to
focus on Brazil, which we viewed as offering the most favorable
reward/risk potential.
During the December quarter, we increased our position in US
equities from 9% of net assets to 13%. Technology remained the
largest single group represented in the portfolio, accounting for
nearly one-third of the Fund's US equity assets. This commitment
reflects our continuing emphasis on the shares of companies where we
expect a consistent and above-average rate of earnings growth to be
extended over the next several years and where we believe valuations
appear reasonable relative to earnings growth potential. Consistent
with this focus are our significant commitments in the consumer
staples, communication services, financials and health care sectors.
In the fixed-income sector, we reduced our US bond position from 62%
of net assets to 57% during the three months ended December 31,
1999. Late in 1999, we took advantage of an interest rate rise to
extend the Fund's average duration to 6.7 years, after reducing
the duration earlier in the second half of 1999. In our opinion,
the Federal Reserve Board will continue to tighten monetary
policy in 2000 until the US economy slows down. Such a slowdown
is likely to ease fears of a resurgence of inflation and
enable intermediate-term--long-term US interest rates to decline. In
the interim, risk in US fixed-income securities appears limited, in
our view. In the foreign bond sector, we reduced representation from
9% of net assets to 5% during the fourth quarter of 1999. We
maintained positions in German bonds throughout the fourth quarter
of 1999. We also reestablished a position in New Zealand bonds
during the later part of 1999, taking advantage of a widening yield
differential between New Zealand and US bonds of similar maturities.
In Conclusion
On January 12, 2000, the Fund's Board of Directors approved a plan
of reorganization, subject to shareholder approval and certain other
conditions, whereby Merrill Lynch Global Allocation Fund, Inc. would
acquire substantially all of the assets and liabilities of the Fund,
Merrill Lynch Asset Growth Fund, Inc. and the Global Opportunity
Portfolio of Merrill Lynch Asset Builder Program, Inc. in exchange
for newly issued shares of Merrill Lynch Global Allocation Fund,
Inc. These Funds are registered, non-diversified, open-end
management investment companies, except the Global Opportunity
Portfolio, which is diversified. All four entities are managed by
Merrill Lynch Asset Management, L.P.
We thank you for your investment in Merrill Lynch Asset Income Fund,
Inc.
Sincerely,
(Terry K. Glenn)
Terry K. Glenn
President and Director
(Thomas R. Robinson)
Thomas R. Robinson
Senior Vice President and
Portfolio Manager
January 26, 2000
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., December 31, 1999
PERFORMANCE DATA (concluded)
Total Return Based on a $10,000 Investment
A line graph depicting the growth of an investment in the Fund's
Class A and Class B Shares compared to growth of an investment in
the ML US Corporate and Government Master Index. Beginning and
ending values are:
9/02/94** 12/99
ML Asset Income Fund, Inc.++--
Class A Shares* $ 9,600 $15,275
ML Asset Income Fund, Inc.++--
Class B Shares* $10,000 $15,277
Merrill Lynch US Corporate
And Government Master
Index++++ $10,000 $14,295
Composite Index++++++ $10,000 $17,132
A line graph depicting the growth of an investment in the Fund's
Class C and Class D Shares compared to growth of an investment in
the ML US Corporate and Government Master Index. Beginning and
ending values are:
10/21/94** 12/99
ML Asset Income Fund, Inc.++--
Class C Shares* $10,000 $15,328
ML Asset Income Fund, Inc.++--
Class D Shares* $ 9,600 $15,126
Merrill Lynch US Corporate
And Government Master
Index++++ $10,000 $14,542
Composite Index++++++ $10,000 $17,382
*Assuming maximum sales charge, transaction costs and other
operating expenses, including advisory fees.
**Commencement of operations.
++ML Asset Income Fund, Inc. invests in a portfolio of US and
foreign debt, equity and money market securities.
++++This unmanaged Index is comprised of investment-grade bonds.
++++++The Composit Index consists of: 5%--3-month US Treasury
Bills; 75%--ML Bond Index--Corporate & Government Master;
and 20%--Standard & Poor's 500 Index. The 3-month US Treasury
Bills sector is using performance data as of August 31, 1994
for the Class A & Class B Shares' graph and as of October 31,
1994 for the Class C & Class D Shares' graph.
Past performance is not predictive of future performance.
Average Annual
Total Return
% Return Without % Return With
Sales Charge Sales Charge**
Class A Shares*
Year Ended 12/31/99 + 4.45% +0.27%
Five Years Ended 12/31/99 +10.04 +9.14
Inception (9/02/94)
through 12/31/99 + 9.11 +8.28
*Maximum sales charge is 4%.
**Assuming maximum sales charge.
% Return % Return
Without CDSC With CDSC**
Class B Shares*
Year Ended 12/31/99 +3.58% -0.36%
Five Years Ended 12/31/99 +9.20 +9.20
Inception (9/02/94)
through 12/31/99 +8.28 +8.28
*Maximum contingent deferred sales charge is 4% and is reduced to 0%
after 4 years.
**Assuming payment of applicable contingent deferred sales charge.
% Return % Return
Without CDSC With CDSC**
Class C Shares*
Year Ended 12/31/99 +3.53% +2.54%
Five Years Ended 12/31/99 +9.12 +9.12
Inception (10/21/94)
through 12/31/99 +8.57 +8.57
*Maximum contingent deferred sales charge is 1% and is reduced to 0%
after 1 year.
**Assuming payment of applicable contingent deferred sales charge.
% Return Without % Return With
Sales Charge Sales Charge**
Class D Shares*
Year Ended 12/31/99 +4.10% -0.07%
Five Years Ended 12/31/99 +9.70 +8.81
Inception (10/21/94)
through 12/31/99 +9.15 +8.29
[FN]
*Maximum sales charge is 4%.
**Assuming maximum sales charge.
<TABLE>
Recent Performance
Results*
<CAPTION>
3 Month 12 Month Since Inception Standardized
As of December 31, 1999 Total Return Total Return Total Return 30-Day Yield
<S> <C> <C> <C> <C>
ML Asset Income Fund, Inc. Class A Shares +6.75% +4.45% +59.12% 4.20%
ML Asset Income Fund, Inc. Class B Shares +6.55 +3.58 +52.77 3.64
ML Asset Income Fund, Inc. Class C Shares +6.54 +3.53 +53.28 3.60
ML Asset Income Fund, Inc. Class D Shares +6.69 +4.10 +57.57 3.97
*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
since inception periods are from 9/02/94 for Class A & Class B
Shares and from 10/21/94 for Class C & Class D Shares.
</TABLE>
Merrill Lynch Asset Income Fund, Inc., December 31, 1999
<TABLE>
SCHEDULE OF INVESTMENTS (in US dollars)
<CAPTION>
Shares Percent of
COUNTRY Industries Held Common Stocks Value Net Assets
<S> <S> <C> <S> <C> <C>
Australia Broadcasting & 200 The News Corporation Limited (Preferred) (ADR)* $ 6,688 0.0%
Publishing
Diversified 2,200 Broken Hill Proprietary Company Limited 28,764 0.3
Total Common Stocks in Australia 35,452 0.3
Austria Paper Products 87 Mayr-Melnhof Karton AG 4,030 0.0
Total Common Stocks in Austria 4,030 0.0
Bermuda Telecommunications & 100 ++Global Crossing Ltd. 4,994 0.1
Equipment
Total Common Stocks in Bermuda 4,994 0.1
Brazil Forest Products 890 Aracruz Celulose SA (ADR)* 23,363 0.2
Mining 1,150 ++Companhia Vale do Rio Doce 'A' (Preferred) 31,874 0.3
Telecommunications 1,000 Embratel Participacoes SA (ADR)* 27,250 0.3
207 Telecomunicacoes Brasileiras SA-Telebras
(Preferred Block) (ADR)* 26,600 0.3
------------ ------
53,850 0.6
Total Common Stocks in Brazil 109,087 1.1
Canada Communications 522 Nortel Networks Corporation 52,722 0.5
Equipment
Oil 300 Alberta Energy Company Ltd. 9,319 0.1
Paper & Forest Products 700 Domtar, Inc. 8,263 0.1
Telecommunications 240 BCE Inc. 21,645 0.2
467 Teleglobe Inc. 10,595 0.1
------------ ------
32,240 0.3
Total Common Stocks in Canada 102,544 1.0
Denmark Commercial Services 50 ++ISS International Service System A/S 'B' 3,364 0.0
Total Common Stocks in Denmark 3,364 0.0
Finland Communications Equipment 316 Nokia Oyj 57,278 0.5
Paper & Forest Products 200 UPM-Kymmene Oyj 8,056 0.1
Total Common Stocks in Finland 65,334 0.6
France Chemicals 431 Aventis SA 25,043 0.2
Electronics 215 Thomson CSF 7,099 0.1
Foods 24 Groupe Danone 5,655 0.1
Information Processing 15 Cap Gemini SA 3,806 0.0
Insurance 174 Axa 24,250 0.2
Metals 265 Pechiney SA 'A' 18,933 0.2
Oil--Related 57 Total Fina SA 'B' 7,605 0.1
Reinsurance 170 Scor 7,498 0.1
Semiconductor Capital 279 STMicroelectronics NV (NY Registered Shares) 42,251 0.4
Equipment
Supermarkets 109 Carrefour SA 20,098 0.2
Telecommunications 293 France Telecom SA 38,740 0.4
Utilities--Water 295 Vivendi 26,632 0.2
Total Common Stocks in France 227,610 2.2
Germany Chemicals 441 BASF AG 22,648 0.2
395 Henkel KGaA (Preferred) 26,054 0.3
------------ ------
48,702 0.5
Diversified 742 RWE AG 29,066 0.3
Electronics 356 Siemens AG 45,278 0.4
Machinery & Equipment 200 Mannesmann AG 48,235 0.5
Multi-Industry 483 Veba AG 23,468 0.2
Total Common Stocks in Germany 194,749 1.9
Hong Kong Multi-Industry 300 Hutchison Whampoa Limited 4,361 0.0
Total Common Stocks in Hong Kong 4,361 0.0
Ireland Banking 2,176 Bank of Ireland 17,311 0.2
Total Common Stocks in Ireland 17,311 0.2
Italy Oil & Gas Producers 3,000 ENI SpA 16,495 0.2
Publishing 388 Mondadori (Arnoldo) Editore SpA 12,308 0.1
Total Common Stocks in Italy 28,803 0.3
Japan Automobiles 251 Honda Motor Co., Ltd. (ADR)* 19,202 0.2
Banking 1,000 The Bank of Tokyo-Mitsubishi, Ltd. 13,935 0.2
1,000 The Sanwa Bank, Ltd. 12,164 0.1
1,000 The Sumitomo Bank, Ltd. 13,690 0.1
------------ ------
39,789 0.4
Computers 1,000 NEC Corporation 23,828 0.2
Cosmetics & Toiletries 1,000 Kao Corporation 28,525 0.3
Distribution 100 Softbank Corporation 95,704 0.9
Electronic Components 195 Kyocera Corporation (ADR)* 51,090 0.5
Electronics 1,000 Fujitsu Limited 45,601 0.4
1,000 Matsushita Electric Industrial Company, Ltd. 27,694 0.3
108 Sony Corporation (ADR)* 30,753 0.3
1,000 Toshiba Corporation 7,633 0.1
------------ ------
111,681 1.1
Glass 3,000 Nippon Sheet Glass Company, Ltd. 15,559 0.1
Insurance 2,000 The Tokio Marine & Fire Insurance Co. Ltd. 23,388 0.2
Internet 100 ++Internet Initiative Japan Inc. (ADR)* 9,700 0.1
Machine Tools & 1,000 Minebea Company Ltd. 17,154 0.2
Machinery
Merchandising 1,000 Marui Co., Ltd. 14,933 0.1
</TABLE>
Merrill Lynch Asset Income Fund, Inc., December 31, 1999
<TABLE>
SCHEDULE OF INVESTMENTS (continued) (in US dollars)
<CAPTION>
Shares Percent of
COUNTRY Industries Held Common Stocks Value Net Assets
<S> <S> <C> <S> <C> <C>
Japan Retail 185 Ito-Yokado Co., Ltd. (ADR)* $ 19,356 0.2%
(concluded)
Retail--Stores 3,000 The Daimaru, Inc. 10,158 0.1
2,000 ++Mitsukoshi, Ltd. 7,046 0.1
------------ ------
17,204 0.2
Steel 5,000 Nippon Steel Corporation 11,694 0.1
Telecommunications 1 NTT Mobile Communications Network, Inc. 38,458 0.4
2 Nippon Telegraph & Telephone Corporation (NTT) 34,250 0.3
------------ ------
72,708 0.7
Tires & Rubber 1,000 Bridgestone Corp. 22,018 0.2
Transport Services 3 East Japan Railway Company 16,176 0.2
Total Common Stocks in Japan 609,709 5.9
Netherlands Banking 1,316 ABN AMRO Holding NV 32,865 0.3
Broadcasting & 256 Wolters Kluwer NV 'A' 8,662 0.1
Publishing
Chemicals 458 Akzo Nobel NV 22,968 0.2
Computer Software 200 ++Baan Company, NV 2,826 0.0
85 Getronics NV 6,779 0.1
------------ ------
9,605 0.1
Computers 100 ++Equant 11,349 0.1
Electronic Components 65 ++ASM Lithography Holding NV 7,220 0.1
Foods 200 CSM NV 4,270 0.0
884 Koninklijke Ahold NV 26,163 0.3
------------ ------
30,433 0.3
Human Resources 250 Vedior NV 'A' 2,568 0.0
Multi-Industry 147 Unilever NV 'A' 8,118 0.1
287 Unilever NV (NY Registered Shares) 15,624 0.1
------------ ------
23,742 0.2
Retail 300 Vendex KBB NV 7,975 0.1
Total Common Stocks in the Netherlands 157,387 1.5
Norway Computer Software 356 Merkantildata ASA 4,314 0.1
Telecommunications 800 ++Tandberg Television ASA 11,094 0.1
Transport Services 200 Bergesen d.y. ASA 'B' 3,423 0.0
Total Common Stocks in Norway 18,831 0.2
Singapore Airlines 1,000 Singapore Airlines Limited 11,351 0.1
Construction & Housing 1,000 City Developments Limited 5,856 0.1
Total Common Stocks in Singapore 17,207 0.2
South Korea Electronics 30 Samsung Electronics 7,031 0.1
Steel 300 Pohang Iron & Steel Company Ltd. (ADR)* 10,500 0.1
Total Common Stocks in South Korea 17,531 0.2
Spain Building Materials 710 Uralita, SA 5,012 0.0
Petroleum--Domestic 1,403 Repsol-YPF, SA 32,523 0.3
Telecommunications 1,602 ++Telefonica SA 40,008 0.4
Utilities--Electric 1,363 Endesa SA 27,053 0.3
Total Common Stocks in Spain 104,596 1.0
Sweden Auto & Truck 221 Autoliv, Inc. 6,479 0.1
Automobile Parts 424 Haldex AB 4,942 0.0
Automobiles 200 Volvo AB 'B' 5,180 0.1
Banking 750 ForeningsSparbanken AB 11,037 0.1
Investment Management 1,070 Investment AB Bure 7,306 0.1
Real Estate 354 Fastighets AB Tornet 4,918 0.0
Investment Trusts
Telecommunications & 400 Telefonaktiebolaget LM Ericsson 'B' 25,759 0.2
Equipment
Total Common Stocks in Sweden 65,621 0.6
Switzerland Banking 162 Credit Suisse Group (Registered Shares) 32,213 0.3
Banking & Financial 47 UBS AG (Registered Shares) 12,697 0.1
Drugs 6 Novartis AG (Registered Shares) 8,813 0.1
Human Resources 8 Adecco SA (Registered Shares) 6,232 0.1
Pharmaceuticals 2 Roche Holding AG 23,748 0.2
Total Common Stocks in Switzerland 83,703 0.8
United Banking 2,246 HSBC Holdings PLC 31,288 0.3
Kingdom 1,793 Lloyds TSB Group PLC 22,416 0.2
------------ ------
53,704 0.5
Beverages 2,525 Diageo PLC 20,298 0.2
Diversified 5,700 Billiton PLC 33,606 0.3
Drugs 552 AstraZeneca Group PLC 22,882 0.2
Household Products 535 Reckitt Benckiser PLC 5,013 0.1
Leisure 2,000 Hilton Group PLC 6,400 0.1
Oil--Integrated 462 Shell Transport & Trading Company (ADR)* 22,754 0.2
Oil--Related 2,222 BP Amoco PLC 22,328 0.2
Pharmaceuticals 918 Glaxo Wellcome PLC 25,932 0.2
1,400 SmithKline Beecham PLC 17,853 0.2
------------ ------
43,785 0.4
Retail--Stores 200 Dixons Group PLC 4,807 0.1
</TABLE>
Merrill Lynch Asset Income Fund, Inc., December 31, 1999
<TABLE>
SCHEDULE OF INVESTMENTS (continued) (in US dollars)
<CAPTION>
Shares Percent of
COUNTRY Industries Held Common Stocks Value Net Assets
<S> <S> <C> <S> <C> <C>
United Telecommunications 1,620 British Telecommunications PLC $ 39,565 0.4%
Kingdom 300 Cable & Wireless PLC 5,080 0.0
(concluded) 200 ++Energis PLC 9,601 0.1
6,440 Vodafone AirTouch PLC 31,888 0.3
------------ ------
86,134 0.8
Transport Services 1,300 The Peninsular and Oriental Steam
Navigation Company 21,677 0.2
Total Common Stocks in the United Kingdom 343,388 3.3
United Aerospace & Defense 261 United Technologies Corporation 16,965 0.2
States
Application Development 50 ++Siebel Systems, Inc. 4,213 0.0
Software
Banking 199 Bank of America Corporation 9,987 0.1
300 The Bank of New York Company, Inc. 12,000 0.1
100 The Chase Manhattan Corporation 7,769 0.1
2,350 Wells Fargo Company 95,028 0.9
------------ ------
124,784 1.2
Beverages 100 The Coca-Cola Company 5,825 0.1
375 PepsiCo, Inc. 13,219 0.1
------------ ------
19,044 0.2
Broadcasting 200 ++UnitedGlobalCom Inc. (Class A) 14,050 0.1
Broadcasting/Cable 700 ++AT&T Corp.-Liberty Media Group (Class A) 39,725 0.4
Business Services 100 ++Oracle Corporation 11,200 0.1
Cable 800 ++Charter Communications, Inc. (Class A) 17,500 0.2
Chemicals 200 E.I. du Pont de Nemours and Company 13,175 0.1
400 Rohm and Haas Company 16,275 0.2
------------ ------
29,450 0.3
Commercial Services 150 ++Convergys Corporation 4,612 0.0
Computer 360 ++Cisco Systems, Inc. 38,542 0.4
Services/Software 150 International Business Machines Corporation 16,200 0.1
360 ++Microsoft Corporation 42,008 0.4
200 ++Network Associates, Inc. 5,325 0.0
------------ ------
102,075 0.9
Computers 100 Compaq Computer Corporation 2,706 0.0
150 ++EMC Corporation 16,387 0.2
100 ++Gateway Inc. 7,206 0.1
360 ++Sun Microsystems, Inc. 27,855 0.3
325 Tandy Corporation 15,986 0.1
------------ ------
70,140 0.7
Conglomerates 100 Honeywell International Inc. 5,769 0.1
Consumer Products 300 The Dial Corporation 7,294 0.1
Cosmetics 100 The Gillette Company 4,119 0.0
Electric & Gas 200 ++Calpine Corporation 12,800 0.1
Electronics 285 General Electric Company 44,104 0.4
166 Intel Corporation 13,653 0.1
200 Texas Instruments Incorporated 19,375 0.2
------------ ------
77,132 0.7
Financial Services 150 Associates First Capital Corporation (Class A) 4,116 0.0
365 Citigroup Inc. 20,280 0.2
------------ ------
24,396 0.2
Financial 150 Household International, Inc. 5,587 0.1
Services--Consumer
Foods 450 ++Keebler Foods Company 12,656 0.1
Healthcare 200 Columbia/HCA Healthcare Corporation 5,862 0.1
Hotels 200 ++3Com Corporation 9,388 0.1
Household Products 724 Colgate-Palmolive Company 47,060 0.4
150 The Procter & Gamble Company 16,434 0.2
------------ ------
63,494 0.6
Information 300 ++Unisys Corporation 9,581 0.1
Processing
Insurance 206 American International Group, Inc. 22,274 0.2
150 ++Sprint Corp. (PCS Group) 15,375 0.2
------------ ------
37,649 0.4
Internetworking 100 ++i2 Technologies, Inc. 19,462 0.2
50 ++InfoSpace.com, Inc. 10,697 0.1
200 ++Inktomi Corporation 17,725 0.2
50 ++Internet Capital Group, Inc. 8,478 0.1
200 ++Symantec Corporation 11,725 0.1
100 ++Yahoo! Inc. 43,269 0.4
------------ ------
111,356 1.1
Laser Systems & 380 ++JDS Uniphase Corporation 61,275 0.6
Components
Machinery & Equipment 100 Caterpillar Inc. 4,706 0.0
Medical Technology 225 Johnson & Johnson 20,953 0.2
Metals 300 Alcoa Inc. 24,900 0.2
Natural Gas 424 Enron Corp. 18,815 0.2
Natural Resources 250 Burlington Resources Inc. 8,266 0.1
Oil--Integrated 198 Exxon Mobil Corporation 15,953 0.2
Oil Services 150 Schlumberger Limited 8,438 0.1
29 Transocean Sedco Forex Inc. 978 0.0
------------ ------
9,416 0.1
Paper & Forest 200 International Paper Company 11,287 0.1
Products
Petroleum 260 Unocal Corporation 8,726 0.1
Pharmaceutical-- 130 American Home Products Corporation 5,127 0.0
Diversified
</TABLE>
Merrill Lynch Asset Income Fund, Inc., December 31, 1999
<TABLE>
SCHEDULE OF INVESTMENTS (concluded) (in US dollars)
<CAPTION>
Shares Percent of
COUNTRY Industries Held Common Stocks Value Net Assets
<S> <S> <C> <S> <C> <C>
United Pharmaceuticals 300 Bristol-Myers Squibb Company $ 19,256 0.2%
States 100 Cardinal Health, Inc. 4,787 0.1
(concluded) 100 Eli Lilly and Company 6,650 0.1
350 Merck & Co., Inc. 23,472 0.2
350 Pfizer Inc. 11,353 0.1
100 Pharmacia & Upjohn, Inc. 4,500 0.0
------------ ------
70,018 0.7
Radio & Television 250 ++AMFM Inc. 19,562 0.2
Restaurants 300 McDonald's Corporation 12,094 0.1
Retail--Specialty 210 Lowe's Companies, Inc. 12,548 0.1
Retail--Stores 200 ++Federated Department Stores, Inc. 10,112 0.1
262 ++Safeway Inc. 9,317 0.1
------------ ------
19,429 0.2
Scientific Equipment 110 Millipore Corporation 4,249 0.0
Semiconductors 184 Motorola, Inc. 27,094 0.3
Telecommunications 523 AT&T Corp. 26,542 0.3
100 ++Adelphia Business Solutions, Inc. 4,731 0.0
150 ++Amdocs Limited 5,175 0.0
100 ++Clear Channel Communications, Inc. 8,925 0.1
200 GTE Corporation 14,112 0.1
100 ++Global TeleSystems Group, Inc. 3,462 0.0
225 Lucent Technologies Inc. 16,833 0.2
368 ++MCI WorldCom Inc. 19,478 0.2
------------ ------
99,258 0.9
Transportation-- 100 United Parcel Service, Inc. (Class B) 6,900 0.1
Services
Utilities-- 361 SBC Communications Inc. 17,599 0.2
Communication
Utilities--Electric 225 Public Service Enterprise Group Incorporated 7,833 0.1
Wireless Communication-- 100 ++Nextel Communications, Inc. (Class A) 10,306 0.1
Domestic Paging &
Cellular
Wireless Communication 200 ++American Tower Corporation (Class A) 6,112 0.1
Equipment
Total Common Stocks in the United States 1,343,267 13.0
Total Investments in Common Stocks
(Cost--$2,711,539) 3,558,879 34.4
Face
Amount Fixed-Income Securities
Germany Foreign EURO 270,000 BundesObligation, 4.75% due 11/20/2001 274,504 2.6
Government
Obligations
Total Fixed-Income Securities in Germany 274,504 2.6
New Foreign NZ$ 350,000 New Zealand Government Bond, 8% due 4/15/2004 188,914 1.8
Zealand Government
Obligations
Total Fixed-Income Securities in New Zealand 188,914 1.8
United US Government Federal National Mortgage Association:
States Agency US$ 915,000 5.625% due 3/15/2001 906,564 8.8
Obligations 930,000 5.125% due 2/13/2004 874,349 8.4
1,020,000 5.25% due 1/15/2009 899,671 8.7
2,100,000 6.375% due 6/15/2009 2,005,164 19.4
US Government US Treasury Bonds:
Obligations 80,000 5.25% due 11/15/2028 65,900 0.6
1,200,000 6.125% due 8/15/2029 1,143,936 11.1
Total Fixed-Income Securities in the
United States 5,895,584 57.0
Total Investments in Fixed-Income
Securities (Cost--$6,581,014) 6,359,002 61.4
Short-Term Securities
United Commercial US$ 352,000 General Motors Acceptance Corp., 5% due 1/03/2000 352,000 3.4
States Paper**
Total Investments in Short-Term Securities
(Cost--$352,000) 352,000 3.4
Total Investments (Cost--$9,644,553) 10,269,881 99.2
Other Assets Less Liabilities 81,874 0.8
------------ ------
Net Assets $ 10,351,755 100.0%
============ ======
*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.
See Notes to Financial Statements.
</TABLE>
Merrill Lynch Asset Income Fund, Inc., December 31, 1999
<TABLE>
STATEMENT OF ASSETS AND LIABILITIES
<CAPTION>
As of December 31, 1999
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$9,644,553) $10,269,881
Cash 166
Foreign cash 5,908
Receivables:
Securities sold $ 950,190
Interest 99,268
Capital shares sold 9,160
Dividends 3,092 1,061,710
-----------
Prepaid registration fees and other assets 23,695
-----------
Total assets 11,361,360
-----------
Liabilities: Payables:
Securities purchased 783,712
Capital shares redeemed 110,840
Dividends to shareholders 16,182
Distributor 6,021 916,755
-----------
Accrued expenses and other liabilities 92,850
-----------
Total liabilities 1,009,605
-----------
Net Assets: Net assets $10,351,755
===========
Net Assets Class A Shares of Common Stock, $.10 par value, 100,000,000
Consist of: shares authorized $ 3,235
Class B Shares of Common Stock, $.10 par value, 100,000,000
shares authorized 74,240
Class C Shares of Common Stock, $.10 par value, 100,000,000
shares authorized 5,908
Class D Shares of Common Stock, $.10 par value, 100,000,000
shares authorized 15,606
Paid-in capital in excess of par 9,667,277
Accumulated distributions in excess of realized capital gains
on investments and foreign currency transactions--net (39,511)
Unrealized appreciation on investments and foreign currency
transactions--net 625,000
-----------
Net assets $10,351,755
===========
Net Asset Value: Class A--Based on net assets of $338,786 and 32,350 shares
outstanding $ 10.47
===========
Class B--Based on net assets of $7,763,723 and 742,395 shares
outstanding $ 10.46
===========
Class C--Based on net assets of $618,157 and 59,081 shares
outstanding $ 10.46
===========
Class D--Based on net assets of $1,631,089 and 156,056
shares outstanding. $ 10.45
===========
See Notes to Financial Statements.
</TABLE>
<TABLE>
STATEMENT OF OPERATIONS
<CAPTION>
For the Year Ended December 31, 1999
<S> <S> <C> <C>
Investment Interest and discount earned $ 530,055
Income: Dividends (net of $2,632 foreign witholding tax) 29,363
-----------
Total income 559,418
-----------
Expenses: Investment advisory fees $ 90,307
Accounting services 75,250
Printing and shareholder reports 72,376
Account maintenance and distribution fees--Class B 70,532
Professional fees 70,419
Registration fees 68,637
Custodian fees 20,047
Transfer agent fees--Class B 17,438
Amortization of organization expenses 14,796
Directors' fees and expenses 13,190
Account maintenance and distribution fees--Class C 6,210
Account maintenance fees--Class D 3,625
Pricing fees 3,302
Transfer agent fees--Class D 2,594
Transfer agent fees--Class C 1,548
Transfer agent fees--Class A 687
Other 12,249
-----------
Total expenses before reimbursement 543,207
Reimbursement of expenses (401,554)
-----------
Total expenses after reimbursement 141,653
-----------
Investment income--net 417,765
-----------
Realized & Realized loss from:
Unrealized Investments--net (52,655)
Gain (Loss) on Foreign currency transactions--net (76,313) (128,968)
Investments & -----------
Foreign Currency Change in unrealized appreciation/depreciation on:
Transactions Investments--net 23,769
- --Net: Foreign currency transactions--net (2,333) 21,436
----------- -----------
Net realized and unrealized loss on investments and
foreign currency transactions (107,532)
-----------
Net Increase in Net Assets Resulting from Operations $ 310,233
===========
See Notes to Financial Statements.
</TABLE>
Merrill Lynch Asset Income Fund, Inc., December 31, 1999
<TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
<CAPTION>
For the Year Ended
December 31,
Increase (Decrease) in Net Assets: 1999 1998
<S> <S> <C> <C>
Operations: Investment income--net $ 417,765 $ 485,847
Realized gain (loss) on investments and foreign currency
transactions--net (128,968) 669,989
Change in unrealized appreciation/depreciation on investments
and foreign currency transactions--net 21,436 54,524
----------- -----------
Net increase in net assets resulting from operations 310,233 1,210,360
----------- -----------
Dividends & Investment income--net:
Distributions to Class A (17,004) (160,965)
Shareholders: Class B (318,809) (285,470)
Class C (26,154) (18,652)
Class D (55,798) (20,760)
Realized gain on investments--net:
Class A (5,656) (111,852)
Class B (141,505) (230,474)
Class C (14,422) (15,569)
Class D (19,071) (16,614)
In excess of realized gain on investments--net:
Class A (1,237) --
Class B (30,949) --
Class C (3,154) --
Class D (4,171) --
----------- -----------
Net decrease in net assets resulting from dividends and
distributions to shareholders (637,930) (860,356)
----------- -----------
Capital Share Net increase (decrease) in net assets derived from capital
Transactions: share transactions (4,428,547) 3,599,240
----------- -----------
Net Assets: Total increase (decrease) in net assets (4,756,244) 3,949,244
Beginning of year 15,107,999 11,158,755
----------- -----------
End of year $10,351,755 $15,107,999
=========== ===========
See Notes to Financial Statements.
</TABLE>
<TABLE>
FINANCIAL HIGHLIGHTS
<CAPTION>
The following per share data and ratios have been derived
from information provided in the financial statements. Class A
For the Year Ended 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 year $ 10.63 $ 10.32 $ 10.53 $ 10.62 $ 9.68
Operating --------- --------- --------- --------- ---------
Performance: Investment income--net .42 .43 .49 .50 .60
Realized and unrealized gain on
investments and foreign currency
transactions--net .02 .58 .71 .23 1.04
--------- --------- --------- --------- ---------
Total from investment operations .44 1.01 1.20 .73 1.64
--------- --------- --------- --------- ---------
Less dividends and distributions:
Investment income--net (.42) (.43) (.49) (.50) (.60)
In excess of investment income--net -- -- -- (.05) --
Realized gain on investments--net (.15) (.27) (.92) (.27) (.01)
In excess of realized gain on
investments--net (.03) -- -- -- (.09)
--------- --------- --------- --------- ---------
Total dividends and distributions (.60) (.70) (1.41) (.82) (.70)
--------- --------- --------- --------- ---------
Net asset value, end of year $ 10.47 $ 10.63 $ 10.32 $ 10.53 $ 10.62
========= ========= ========= ========= =========
Total Investment Based on net asset value per share 4.45% 10.01% 11.67% 7.11% 17.38%
Return:* ========= ========= ========= ========= =========
Ratios to Expenses, net of reimbursement .51% .50% .50% .25% .00%
Average Net ========= ========= ========= ========= =========
Assets: Expenses 3.74% 3.10% 3.28% 3.48% 5.12%
========= ========= ========= ========= =========
Investment income--net 4.14% 4.03% 4.58% 4.73% 5.78%
========= ========= ========= ========= =========
Supplemental Net assets, end of year (in thousands) $ 339 $ 4,558 $ 2,188 $ 3,918 $ 3,872
Data: ========= ========= ========= ========= =========
Portfolio turnover 156.47% 155.44% 155.57% 342.71% 46.75%
========= ========= ========= ========= =========
*Total investment returns exclude the effects of sales charges.
See Notes to Financial Statements.
</TABLE>
Merrill Lynch Asset Income Fund, Inc., December 31, 1999
<TABLE>
FINANCIAL HIGHLIGHTS (continued)
<CAPTION>
The following per share data and ratios have been derived
from information provided in the financial statements. Class B
For the Year Ended 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 year $ 10.63 $ 10.32 $ 10.53 $ 10.62 $ 9.68
Operating --------- --------- --------- --------- ---------
Performance: Investment income--net .34 .35 .41 .42 .51
Realized and unrealized gain on
investments and foreign currency
transactions--net .01 .58 .71 .23 1.04
--------- --------- --------- --------- ---------
Total from investment operations .35 .93 1.12 .65 1.55
--------- --------- --------- --------- ---------
Less dividends and distributions:
Investment income--net (.34) (.35) (.41) (.42) (.51)
In excess of investment income--net -- -- -- (.05) --
Realized gain on investments--net (.15) (.27) (.92) (.27) (.01)
In excess of realized gain on
investments--net (.03) -- -- -- (.09)
--------- --------- --------- --------- ---------
Total dividends and distributions (.52) (.62) (1.33) (.74) (.61)
--------- --------- --------- --------- ---------
Net asset value, end of year $ 10.46 $ 10.63 $ 10.32 $ 10.53 $ 10.62
========= ========= ========= ========= =========
Total Investment Based on net asset value per share 3.58% 9.19% 10.84% 6.31% 16.51%
Return:* ========= ========= ========= ========= =========
Ratios to Expenses, net of reimbursement 1.26% 1.25% 1.25% 1.00% .75%
Average Net ========= ========= ========= ========= =========
Assets: Expenses 4.58% 3.90% 4.01% 4.24% 5.94%
========= ========= ========= ========= =========
Investment income--net 3.39% 3.32% 3.79% 3.99% 5.06%
========= ========= ========= ========= =========
Supplemental Net assets, end of year (in thousands) $ 7,764 $ 9,230 $ 8,078 $ 8,690 $ 9,236
Data: ========= ========= ========= ========= =========
Portfolio turnover 156.47% 155.44% 155.57% 342.71% 46.75%
========= ========= ========= ========= =========
<CAPTION>
The following per share data and ratios have been derived
from information provided in the financial statements. Class C
For the Year Ended 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 year $ 10.63 $ 10.32 $ 10.53 $ 10.62 $ 9.69
Operating --------- --------- --------- --------- ---------
Performance: Investment income--net .34 .35 .41 .41 .52
Realized and unrealized gain on investments
and foreign currency transactions--net .01 .58 .71 .23 1.03
--------- --------- --------- --------- ---------
Total from investment operations .35 .93 1.12 .64 1.55
--------- --------- --------- --------- ---------
Less dividends and distributions:
Investment income--net (.34) (.35) (.41) (.42) (.52)
In excess of investment income--net -- -- -- (.04) --
Realized gain on investments--net (.15) (.27) (.92) (.27) (.01)
In excess of realized gain on
investments--net (.03) -- -- -- (.09)
--------- --------- --------- --------- ---------
Total dividends and distributions (.52) (.62) (1.33) (.73) (.62)
--------- --------- --------- --------- ---------
Net asset value, end of year $ 10.46 $ 10.63 $ 10.32 $ 10.53 $ 10.62
========= ========= ========= ========= =========
Total Investment Based on net asset value per share 3.53% 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 4.67% 3.94% 4.12% 4.28% 6.02%
========= ========= ========= ========= =========
Investment income--net 3.37% 3.25% 3.78% 3.95% 4.99%
========= ========= ========= ========= =========
Supplemental Net assets, end of year (in thousands) $ 618 $ 656 $ 575 $ 357 $ 418
Data: ========= ========= ========= ========= =========
Portfolio turnover 156.47% 155.44% 155.57% 342.71% 46.75%
========= ========= ========= ========= =========
*Total investment returns exclude the effects of sales charges.
See Notes to Financial Statements.
</TABLE>
Merrill Lynch Asset Income Fund, Inc., December 31, 1999
<TABLE>
FINANCIAL HIGHLIGHTS (concluded)
<CAPTION>
The following per share data and ratios have been derived
from information provided in the financial statements. Class D
For the Year Ended 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 year $ 10.62 $ 10.31 $ 10.53 $ 10.62 $ 9.69
Operating --------- --------- --------- --------- ---------
Performance: Investment income--net .39 .41 .47 .46 .57
Realized and unrealized gain on investments
and foreign currency transactions--net .01 .58 .70 .24 1.03
--------- --------- --------- --------- ---------
Total from investment operations .40 .99 1.17 .70 1.60
--------- --------- --------- --------- ---------
Less dividends and distributions:
Investment income--net (.39) (.41) (.47) (.47) (.57)
In excess of investment income--net -- -- -- (.05) --
Realized gain on investments--net (.15) (.27) (.92) (.27) (.01)
In excess of realized gain on
investments--net (.03) -- -- -- (.09)
--------- --------- --------- --------- ---------
Total dividends and distributions (.57) (.68) (1.39) (.79) (.67)
--------- --------- --------- --------- ---------
Net asset value, end of year $ 10.45 $ 10.62 $ 10.31 $ 10.53 $ 10.62
========= ========= ========= ========= =========
Total Investment Based on net asset value per share 4.10% 9.74% 11.29% 6.84% 16.97%
Return:* ========= ========= ========= ========= =========
Ratios to Expenses, net of reimbursement .76% .75% .75% .50% .25%
Average Net ========= ========= ========= ========= =========
Assets: Expenses 4.19% 3.35% 3.54% 3.70% 5.44%
========= ========= ========= ========= =========
Investment income--net 3.85% 3.78% 4.32% 4.48% 5.53%
========= ========= ========= ========= =========
Supplemental Net assets, end of year (in thousands) $ 1,631 $ 664 $ 318 $ 633 $ 771
Data: ========= ========= ========= ========= =========
Portfolio turnover 156.47% 155.44% 155.57% 342.71% 46.75%
========= ========= ========= ========= =========
*Total investment returns exclude the effects of sales charges.
See Notes to Financial Statements.
</TABLE>
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies:
Merrill Lynch Asset Income Fund, Inc. (the "Fund") is registered
under the Investment Company Act of 1940 as a non-diversified, open-
end management investment company. The Fund's financial statements
are prepared in accordance with generally accepted accounting
principles, which may require the use of management accruals and
estimates. 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. If the counterparty
defaults and the fair value of the collateral declines, liquidation
of the collateral by the Fund may be delayed or limited.
(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.
Merrill Lynch Asset Income Fund, Inc., December 31, 1999
NOTES TO FINANCIAL STATEMENTS (continued)
* 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. Distributions in excess
of realized capital gains are due primarily to differing tax
treatments for futures transactions and 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 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 .75%, on an annual basis,
of the average daily value of the Fund's net assets.
For the year ended December 31, 1999, MLAM earned fees of $90,307,
all of which were waived. MLAM also reimbursed the Fund for
additional expenses of $311,247.
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 .25% .50%
Class C .25% .55%
Class D .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 year ended December 31, 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
For the year ended December 31, 1999, MLPF&S received contingent
deferred sales charges of $30,679 and $822 relating to transactions
in Class B and Class C Shares, respectively.
During the year ended December 31, 1999, the Fund paid Merrill Lynch
Security Pricing Service, an affiliate of MLPF&S, $452 for security
price quotations to compute the net asset value of the Fund.
In addition, MLPF&S received $554 in commissions on the execution of
portfolio security transactions for the Fund for the year ended
December 31, 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 year ended December 31, 1999 were $18,108,565 and $21,816,443,
respectively.
Net realized gains (losses) for the year ended December 31, 1999 and
net unrealized gains (losses) as of December 31, 1999 were as
follows:
Realized Unrealized
Gains Gains
(Losses) (Losses)
Long-term investments $ (52,655) $ 625,328
Forward foreign exchange contracts 47,186 --
Foreign currency transactions (123,499) (328)
--------- ----------
Total $(128,968) $ 625,000
========= ==========
As of December 31, 1999, net unrealized appreciation for Federal
income tax purposes aggregated $623,238, of which $979,058 related
to appreciated securities and $355,820 related to depreciated
securities. At December 31, 1999, the aggregate cost of investments
for Federal income tax purposes was $9,646,643.
Merrill Lynch Asset Income Fund, Inc., December 31, 1999
NOTES TO FINANCIAL STATEMENTS (concluded)
4. Capital Share Transactions:
Net increase (decrease) in net assets derived from capital share
transactions were $(4,428,547) and $3,599,240 for the years ended
December 31, 1999 and December 31, 1998, respectively.
Transactions in capital shares for each class were as follows:
Class A Shares for the Year Dollar
Ended December 31, 1999 Shares Amount
Shares sold 3,453 $ 35,429
Shares issued to shareholders
in reinvestment of dividends
and distributions 1,623 16,515
----------- -----------
Total issued 5,076 51,944
Shares redeemed (401,551) (4,282,208)
----------- -----------
Net decrease (396,475) $(4,230,264)
=========== ===========
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 Year Dollar
Ended December 31, 1999 Shares Amount
Shares sold 375,072 $ 3,935,303
Shares issued to shareholders
in reinvestment of dividends
and distributions 30,635 311,122
----------- -----------
Total issued 405,707 4,246,425
Shares redeemed (531,698) (5,418,929)
----------- -----------
Net decrease (125,991) $(1,172,504)
=========== ===========
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 Year Dollar
Ended December 31, 1999 Shares Amount
Shares sold 61,795 $ 639,663
Shares issued to shareholders
in reinvestment of dividends
and distributions 3,208 32,533
----------- -----------
Total issued 65,003 672,196
Shares redeemed (67,586) (677,431)
----------- -----------
Net decrease (2,583) $ (5,235)
=========== ===========
Class C Shares for the Year Dollar
Ended 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 Year Dollar
Ended December 31, 1999 Shares Amount
Shares sold 123,226 $ 1,279,704
Shares issued to shareholders
in reinvestment of dividends
and distributions 4,888 49,572
----------- -----------
Total issued 128,114 1,329,276
Shares redeemed (34,578) (349,820)
----------- -----------
Net increase 93,536 $ 979,456
=========== ===========
Class D Shares for the Year Dollar
Ended 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 increase 31,720 $ 333,997
=========== ===========
5. Capital Loss Carryforward:
At December 31, 1999, the Fund had a net capital loss carryforward
of approximately $61,000, all of which expires in 2007. This amount
will be available to offset like amounts of any future taxable
gains.
6. Reorganization Plan:
On January 12, 2000, the Fund's Board of Directors approved a plan
of reorganization, subject to shareholder approval and certain other
conditions, whereby Merrill Lynch Global Allocation Fund, Inc. would
acquire substantially all of the assets and liabilities of the Fund,
Merrill Lynch Asset Growth Fund, Inc. and the Global Opportunity
Portfolio of Merrill Lynch Asset Builder Program, Inc. in exchange
for newly issued shares of Merrill Lynch Global Allocation Fund,
Inc. These Funds are registered, non-diversified, open-end
management investment companies, except the Global Opportunity
Portfolio, which is diversified. All four entities are managed by
MLAM.
<AUDIT-REPORT>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders,
Merrill Lynch Asset Income Fund, Inc.:
We have audited the accompanying statement of assets and
liabilities, including the schedule of investments, of Merrill Lynch
Asset Income Fund, Inc. as of December 31, 1999, the related
statements of operations for the year then ended and changes in net
assets for each of the years in the two-year period then ended, and
the financial highlights for each of the years in the five-year
period then ended. These financial statements and the financial
highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial
statements and the financial highlights based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial
statements and the financial highlights are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements.
Our procedures included confirmation of securities owned at December
31, 1999 by correspondence with the custodian and broker. An audit
also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights
present fairly, in all material respects, the financial position of
Merrill Lynch Asset Income Fund, Inc. as of December 31, 1999, the
results of its operations, the changes in its net assets, and the
financial highlights for the respective stated periods in conformity
with generally accepted accounting principles.
Deloitte & Touche LLP
Princeton, New Jersey
February 14, 2000
</AUDIT-REPORT>
Merrill Lynch Asset Income Fund, Inc., December 31, 1999
IMPORTANT TAX INFORMATION (unaudited)
Of the net investment income distributions paid monthly by Merrill
Lynch Asset Income Fund, Inc. during the fiscal year ended December
31, 1999, 2.72% qualifies for the dividends received deduction for
corporations. Additionally, the Fund paid a long-term capital gains
distribution of $.180748 per share to shareholders of record on July
6, 1999.
The law varies in each state as to whether and what percentage of
dividend income attributable to Federal obligations is exempt from
state income tax. We recommend that you consult your tax adviser to
determine if any portion of the dividends you received is exempt
from state income tax.
Listed at right are the percentages of total assets of the Fund
invested in Federal obligations as of the end of each quarter of the
fiscal year.
For the Percentage of
Quarter Ended Federal Obligations*
March 31, 1999 33.58%
June 30, 1999 13.83%
September 30, 1999 16.98%
December 31, 1999 10.64%
[FN]
*For purposes of this calculation, Federal obligations include US
Treasury notes, US Treasury bills, and US Treasury bonds. Also
included are obligations issued by the following agencies: Banks for
Cooperatives, Federal Intermediate Credit Banks, Federal Land Banks,
Federal Home Loan Banks, and the Student Loan Marketing Association.
Repurchase agreements are not included in this calculation.
Of the Fund's net investment income distributions paid monthly
during the fiscal year ended December 31, 1999, 34.19% was
attributable to Federal obligations. In calculating the foregoing
percentage, Fund expenses have been allocated on a pro rata basis.
Please retain this information for your records.
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
Robert C. Doll, Senior Vice President
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
