MERRILL
LYNCH
UTILITY
INCOME
FUND, INC.
Semi-Annual Report February 28, 1994
This report is not authorized for use as an offer of sale or
a solicitation of an offer to buy shares of the Fund unless
accompanied or preceded by the Fund's current prospectus.
Past performance results shown in this report should not be
considered a representation of future performance. Investment
return and principal value of shares will fluctuate so that
shares, when redeemed, may be worth more or less than their
original cost.
Merrill Lynch
Utility Income Fund, Inc.
Box 9011
Princeton, NJ
08543-9011
MERRILL LYNCH UTILITY INCOME FUND, INC.
DEAR SHAREHOLDER
We are pleased to provide you with this first semi-annual report
for Merrill Lynch Utility Income Fund, Inc. In this and future
reports to shareholders, we will discuss our outlook and highlight
our investment activities during the period under review.
The Environment
Inflationary expectations changed sharply during the February
quarter. Following better-than-expected economic results, Federal
Reserve Board Chairman Alan Greenspan indicated in Congressional
testimony in January that continued strong expansion of the
economy would lead the central bank to tighten monetary policy
in an effort to control inflation. On February 4, 1994, the cen-
tral bank broke with tradition and publicly announced a modest
increase in short-term interest rates.
Rather than view the Federal Reserve Board's action as a preemptive
strike against inflation, fixed-income investors focused on Chairman
Greenspan's implicit promise of further tightening should the rate
of inflation accelerate, and bond prices declined sharply. The set-
back in the bond market was also reflected in greater stock market
volatility.
<PAGE>
In the weeks ahead, investors will continue to gauge the pace of the
economic expansion and watch for signs of an overheating economy that
could prompt successive Federal Reserve Board actions to raise short-
term interest rates. At this time, there is little evidence that the
rate of inflation will increase rapidly. Job growth is sluggish, and
new claims for unemployment insurance have trended higher since the
beginning of the year. Commodity prices have risen somewhat, but in
many cases these increases are occurring from very depressed levels.
Therefore, although the secular long-term trend toward lower interest
rates may be over, it is not yet certain whether the pace of economic
activity will accelerate to the point where extensive Federal Reserve
Board tightening will be necessary to contain inflation.
Portfolio Matters
Merrill Lynch Utility Income Fund, Inc. commenced operations on
October 29, 1993, with an objective to seek high current income by
investing in a diversified portfolio of utility equity and debt
securities. US electric utility stocks appeared to have reached record
price peaks for the cycle in September, which also may have marked
interest rate lows. Credit market conditions have witnessed the
first Federal Reserve Board tightening in five years and a signifi-
cant backup in interest rates, which have deeply impacted all
interest rate-sensitive sectors of the stock market, particularly
the utility sector. The Fund became fully invested quickly to capture
as much dividend and interest income as reasonably possible, given
its high current income investment objective and monthly dividend
payout. Another driving force pushing the Fund toward full investment
has been the average yield available on utility investments, which
has been more than double the yield available on short-term invest-
ments.
Since electric utility stocks currently yield an average of 6.6%,
significantly above the yields available on either natural gas
(3.2%) or telecommunications stocks (5%), electrics were the natural
choice for the Fund's initial investments. Accordingly, we establish-
ed equity positions in 28 electric utilities. While these stocks have
a primary bias toward higher dividend yields, they also include a
few with slightly lower yields to achieve better geographic and
competitive diversity. As of February 28, 1994, these 28 companies
constituted 72.7% of net assets. We also sought to diversify across
utility sectors through investment-grade fixed-income positions in
telecommunications, natural gas and cable television, which con-
stitute the remaining investments at quarter-end, exclusive of a
1.2% position in short-term cash equivalents.
The Fund's high current income objective will continue to guide our
investment decisions as we seek to provide investors with the level
of income associated with utility investments. Therefore, as long
as short-term interest rates are significantly below the yields
available from both utility common stocks and bonds, we anticipate
that short-term investments will be kept at a minimum. At the same
time, the Fund will provide a level of diversification greater than
that obtainable by most individual investors on their own.
In Conclusion
While the recent decline in utility stock prices caused by higher
interest rates has been abrupt, we believe that the current spread
between the average yield on utility stocks and the interest rate
on long-term US Government bonds favors utility stocks, which also
have historically performed as defensive investments in overall
stock market corrections. There is no guarantee, however, that
utility stocks will continue to perform as defensive investments
in overall stock market corrections.
<PAGE>
We thank you for your investment in Merrill Lynch Utility Income
Fund, Inc., and we look forward to serving your financial needs
in the years ahead.
Sincerely,
(Arthur Zeikel)
Arthur Zeikel
President
(Walter D. Rogers)
Walter D. Rogers
Vice President and Portfolio Manager
March 30, 1994
<TABLE>
PERFORMANCE DATA
<CAPTION>
None of the past results shown should be considered a representation of future performance. Investment return
and principal value of Class A and Class B Shares will fluctuate so that shares, when redeemed, may be worth
more or less than their original cost.
Recent Performance Results*
Since Inception 3 Month
2/28/94 11/30/93 10/29/93** % Change % Change
<S> <C> <C> <C> <C> <C>
ML Utility Income Fund Class A Shares $9.20 $9.77 $10.00 -8.00% -5.83%
ML Utility Income Fund Class B Shares 9.19 9.76 10.00 -8.10 -5.84
ML Utility Income Fund Class A Shares--Total Return -7.04(1) -4.85(1)
ML Utility Income Fund Class B Shares--Total Return -7.32(2) -5.04(2)
<FN>
*Investment results shown for the 3-month and since inception periods are before the deduction of any sales charges.
**Commencement of Operations.
(1) Percent change includes reinvestment of $0.101 per share ordinary income dividends.
(2) Percent change includes reinvestment of $0.083 per share ordinary income dividends.
</TABLE>
<PAGE>
Aggregate Total Return
% Return Without % Return With
Sales Charge Sales Charge**
Class A Shares*
Inception (10/29/93)
through 12/31/93 -1.46% -7.87%
[FN]
*Maximum sales charge is 6.5%.
**Assuming maximum sales charge.
% Return % Return
Without CDSC With CDSC**
Class B Shares*
Inception (10/29/93)
through 12/31/93 -1.63% -5.63%
[FN]
*Maximum contingent deferred sales charge is 4% and is reduced to
0% after 4 years.
**Assuming payment of applicable contingent deferred sales charge.
<PAGE>
<TABLE>
SCHEDULE OF INVESTMENTS
<CAPTION>
Value Percent of
Industries Shares Held Stocks Cost (Note 1a) Net Assets
<S> <C> <S> <C> <C> <C>
Utilities--Electric 40,090 American Electric Power Company, Inc. $ 1,519,871 $ 1,354,813 4.5%
16,000 Baltimore Gas & Electric Co. 396,848 372,000 1.2
12,000 Boston Edison Co. 336,932 324,000 1.1
26,000 Carolina Power & Light Co. 774,899 708,500 2.4
26,600 Commonwealth Edison Co. 785,722 711,550 2.4
29,100 Consolidated Edison Company of New York 980,887 862,088 2.9
18,400 Detroit Edison Co. 595,472 517,500 1.7
20,800 Dominion Resources, Inc. 980,112 858,000 2.9
25,300 Duke Power Co. 1,101,816 977,213 3.3
23,500 FPL Group, Inc. 919,184 793,125 2.6
23,300 Houston Industries, Inc. 1,097,517 940,737 3.1
32,000 Long Island Lighting Co. 769,920 740,000 2.5
27,000 New York State Electric & Gas Corp. 780,994 735,750 2.4
17,900 Niagara Mohawk Power Corp. 385,366 335,625 1.1
35,700 Northeast Utilities Co. 907,836 834,487 2.8
18,900 Ohio Edison Co. 444,028 387,450 1.3
21,000 Oklahoma Gas & Electric Co. 757,886 737,625 2.5
40,800 Pacific Gas & Electric Co. 1,467,066 1,290,300 4.3
34,800 PacifiCorp. 680,714 626,400 2.1
27,400 PECO Energy Co. 845,871 736,375 2.4
30,000 Pennsylvania Power & Light Co. 778,050 716,250 2.4
30,000 Potomac Electric Power Co. 776,424 712,500 2.4
20,000 Public Service Company of Colorado 636,200 597,500 2.0
40,400 Public Service Enterprise Group Inc. 1,319,991 1,227,150 4.1
42,200 Scecorp. 887,436 759,600 2.5
30,200 Southern Co. 1,362,076 1,241,975 4.1
33,000 Texas Utilities Co. 1,412,932 1,274,625 4.2
12,600 Union Electric Co. 513,993 466,200 1.5
------------ ------------ ------
24,216,043 21,839,338 72.7
Total Stocks 24,216,043 21,839,338 72.7
<CAPTION>
Face Amount Corporate Bonds
<S> <C> <S> <C> <C> <C>
Utilities-- $ 1,000,000 Southwestern Bell Corp., 7.00% due 7/01/2015 1,034,480 973,038 3.2
Communications 1,000,000 Tele-Communications, Inc., 9.80%
due 2/01/2012 1,263,890 1,186,872 4.0
1,000,000 United Telephone of Florida, 6.875%
due 7/15/2013 1,019,950 976,631 3.2
------------ ------------ ------
3,318,320 3,136,541 10.4
Utilities-- 1,000,000 Public Service Company of Colorado, 6.375%
Electric due 11/01/2005 991,300 953,762 3.2
</TABLE>
<PAGE>
<TABLE>
SCHEDULE OF INVESTMENTS (concluded)
<CAPTION>
Value Percent of
Industries Face Amount Corporate Bonds Cost (Note 1a) Net Assets
<S> <C> <S> <C> <C> <C>
Utilities--Gas $ 1,000,000 El Paso Natural Gas Co., 7.75% due 1/15/2002 $ 1,090,950 $ 1,073,855 3.6%
1,000,000 Enron Corp., 6.75% due 7/01/2005 1,023,800 979,854 3.3
1,500,000 ENSERCH Corp., 6.375% due 2/01/2004 1,491,030 1,444,998 4.8
------------ ------------ ------
3,605,780 3,498,707 11.7
Total Corporate Bonds 7,915,400 7,589,010 25.3
<CAPTION>
Short-Term Securities
<S> <C> <S> <C> <C> <C>
Commercial Paper* 356,000 General Electric Capital Corp., 3.40% due
3/01/1994 356,000 356,000 1.2
Total Short-Term Securities 356,000 356,000 1.2
Total Investments $ 32,487,443 29,784,348 99.2
============
Other Assets Less Liabilities 231,792 0.8
------------ ------
Net Assets $ 30,016,140 100.0%
============ ======
<FN>
*Commercial Paper is traded on a discount basis; the interest rates shown are
the discount rates paid at the time of purchase by the Fund.
See Notes to Financial Statements.
</TABLE>
PORTFOLIO INFORMATION
Ten Largest Holdings Percent of
As of February 28, 1994 Net Assets
ENSERCH Corp., 6.375% due 2/01/2004 4.8%
American Electric Power Company, Inc. 4.5
Pacific Gas & Electric Co. 4.3
Texas Utilities Co. 4.2
Southern Co. 4.1
Public Service Enterprise Group Inc. 4.1
Tele-Communications, Inc., 9.80%
due 2/01/2012 4.0
El Paso Natural Gas Co., 7.75%
due 1/15/2002 3.6
Enron Corp., 6.75% due 7/01/2005 3.3
Duke Power Co. 3.3
FINANCIAL INFORMATION
<PAGE>
<TABLE>
Statement of Assets and Liabilities as of February 28, 1994
<CAPTION>
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$32,487,443) (Note 1a) $ 29,784,348
Cash 389
Receivables:
Beneficial interest sold $ 158,434
Dividends 157,097
Interest 76,591
Investment adviser (Note 2) 63,837 455,959
-----------
Deferred organization expenses (Note 1f) 60,800
------------
Total assets 30,301,496
------------
Liabilities: Payables:
Beneficial interest redeemed 226,911
Distributor (Note 2) 15,182 242,093
-----------
Accrued expenses and other liabilities 43,263
------------
Total liabilities 285,356
------------
Net Assets: Net assets $ 30,016,140
============
Net Assets Class A Shares of Common Stock, $0.10 par value, 100,000,000
Consist of: shares authorized $ 42,561
Class B Shares of Common Stock, $0.10 par value, 100,000,000
shares authorized 283,945
Paid-in capital in excess of par 32,217,615
Undistributed investment income--net 178,361
Accumulated realized capital losses--net (3,247)
Unrealized depreciation on investments--net (2,703,095)
------------
Net assets $ 30,016,140
============
Net Asset Class A--Based on net assets of $3,914,988 and 425,615 shares
Value: outstanding $ 9.20
============
Class B--Based on net assets of $26,101,152 and 2,839,446 shares
outstanding $ 9.19
============
See Notes to Financial Statements.
</TABLE>
<PAGE>
FINANCIAL INFORMATION (continued)
<TABLE>
Statement of Operations
<CAPTION>
For the Period
October 29, 1993++
to February 28, 1994
<S> <S> <C>
Investment Dividends $ 311,171
Income Interest and amortization of premium and discount earned 249,495
(Note 1e): ------------
Total income 560,666
------------
Expenses: Distribution fees--Class B (Note 2) 66,298
Investment advisory fees (Note 2) 56,629
Registration fees (Note 1f) 32,371
Printing and shareholder reports 24,372
Accounting services (Note 2) 11,130
Directors' fees and expenses 9,802
Transfer agent fees--Class B (Note 2) 9,384
Professional fees 7,565
Amortization of organization expenses (Note 1f) 5,075
Custodian fees 3,160
Transfer agent fees--Class A (Note 2) 1,300
Other 1,691
------------
Total expenses before reimbursement 228,777
Reimbursement of expenses (Note 2) (120,467)
------------
Total expenses after reimbursement 108,310
------------
Investment income--net 452,356
------------
Realized & Realized loss from investments--net (3,247)
Unrealized Unrealized depreciation on investments--net (2,703,095)
Loss on ------------
Investments-- Net realized and unrealized loss on investments (2,706,342)
Net (Notes ------------
1e & 3): Net Decrease in Net Assets Resulting from Operations $ (2,253,986)
============
<FN>
++Commencement of Operations.
See Notes to Financial Statements.
</TABLE>
<PAGE>
FINANCIAL INFORMATION (continued)
<TABLE>
Statement of Changes in Net Assets
<CAPTION>
For the Period
October 29, 1993++
to February 28, 1994
<S> <S> <C>
Operations: Investment income--net $ 452,356
Realized loss on investments (3,247)
Unrealized depreciation on investments--net (2,703,095)
------------
Net decrease in net assets resulting from operations (2,253,986)
------------
Dividends to Investment income--net:
Shareholders Class A (45,861)
(Note 1g): Class B (228,134)
------------
Net decrease in net assets resulting from dividends to shareholders (273,995)
------------
Capital Net increase in net assets derived from capital share transactions 32,444,121
Share ------------
Transactions
(Note 4):
Net Assets: Total increase in net assets 29,916,140
Beginning of period 100,000
------------
End of period* $ 30,016,140
============
<FN>
*Undistributed investment income--net $ 178,361
============
++Commencement of Operations.
See Notes to Financial Statements.
</TABLE>
<PAGE>
FINANCIAL INFORMATION (concluded)
<TABLE>
Financial Highlights
<CAPTION>
For the Period
The following per share data and ratios have been derived October 29, 1993++ to
from information provided in the financial statements. February 28, 1994
----------------------
Increase (Decrease) in Net Asset Value: Class A Class B
<S> <S> <C> <C>
Per Share Net asset value, beginning of period $ 10.00 $ 10.00
Operating ------- -------
Performance: Investment income--net .17 .13
Realized and unrealized loss on investments--net (.87) (.86)
------- -------
Total from investment operations (.70) (.73)
------- -------
Less dividends:
Investment income--net (.10) (.08)
------- -------
Net asset value, end of period $ 9.20 $ 9.19
======= =======
Total Based on net asset value per share (7.04%)+++ (7.32%)+++
Investment ======= =======
Return:**
Ratios to Expenses, net of reimbursement and excluding distribution fee .39%* .41%*
Average ======= =======
Net Assets: Expenses, net of reimbursement .39%* 1.16%*
======= =======
Expenses 1.56%* 2.33%*
======= =======
Investment income--net 5.03%* 4.29%*
======= =======
Supplemental Net assets, end of period (in thousands) $ 3,915 $26,101
Data: ======= =======
Portfolio turnover .71% .71%
======= =======
<FN>
++Commencement of Operations.
+++Aggregate total investment returns.
*Annualized.
**Total investment returns exclude the effects of sales loads.
See Notes to Financial Statements.
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies:
Merrill Lynch Utility Income Fund, Inc. (the "Fund") is registered
under the Investment Company Act of 1940 as a diversified, open-end
management investment company. Prior to commencement of operations
on October 29, 1993, the Fund had no operations other than those
relating to organizational matters and the sale of 5,000 Class A
and 5,000 Class B Shares of common stock of the Fund to Merrill
Lynch Asset Management, L.P. ("MLAM") for $100,000. The Fund offers
both Class A and Class B Shares. Class A Shares are sold with a
front-end sales charge. Class B Shares may be subject to a con-
tingent deferred sales charge. Both classes of shares have identical
voting, dividend, liquidation and other rights and the same terms
and conditions, except that Class B Shares bear certain expenses
related to the distribution of such shares and have exclusive voting
rights with respect to matters relating to such distribution
expenditures. The following is a summary of significant accounting
policies followed by the Fund.
(a) Valuation of Securities--Securities traded in the over-the-counter
market are valued at the last available bid price or yield equivalents
obtained from one or more dealers in the over-the-counter market prior
to the time of valuation. Portfolio securities which are traded on
stock exchanges are valued at the last sale price on the principal
market 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.
Options written are valued based upon the last asked price in the
case of exchange-traded options or, in the case of options traded
in the over-the-counter market, the average of the last asked price
as obtained from one or more dealers. Options purchased by the Fund
are valued at their last bid price in the case of exchange-traded
options or, in the case of options traded in the over-the-counter
market, the average of the last bid price as obtained from two or
more dealers. Other investments, including futures contracts and
related options, are stated at market value. Securities with
remaining maturities of sixty days or less are valued at amortized
cost, which approximates market value. Securities and assets for
which market quotations are not readily available are valued at
fair value as determined in good faith by or under the direction
of the Directors of the Fund.
(b) Foreign Currency Transactions--Transactions denominated in
foreign currencies are recorded at the exchange rate prevailing
when recognized. Assets and liabilities denominated in foreign
currencies are valued at the exchange rate at the end of the
period. Foreign currency transactions are the result of settling
(realized) or valuing (unrealized) receivables or payables expressed
in foreign currencies into US dollars. Realized and unrealized
gains or losses from investments include the effects of foreign
exchange rates on investments.
<PAGE>
The Fund is authorized to enter into forward foreign exchange
contracts as a hedge against either specific transactions or port-
folio positions. Such contracts are not entered on the Fund's
records. However, the effect on operations is recorded from the
date the Fund enters into such contracts. Premium or discount is
amortized over the life of the contracts.
(c) 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 is less than or exceeds the premiums paid or
received).
Written and purchased options are non-income producing investments.
(d) Income Taxes--It is the Fund's policy to comply with the require-
ments of the Internal Revenue Code applicable to regulated investment
companies and to distribute all of its taxable income to its share-
holders. Therefore, no Federal income tax provision is required. Under
the applicable foreign tax law, a withholding tax may be imposed on
interest and capital gains at various rates.
(e) Security Transactions and Investment Income--Security transactions
are recorded on the dates the transactions are entered into (the trade
dates). Interest income (including amortization of discount) is re-
cognized on the accrual basis. Realized gains and losses on security
transactions are determined on the identified cost basis. Dividend income
is recorded on the ex-dividend date, except that if the ex-dividend date
has passed, certain dividends from foreign securities are recorded as soon
as the Fund is informed of the ex-dividend date.
NOTES TO FINANCIAL STATEMENTS (concluded)
(f) Deferred Organization Expenses and Prepaid Registration Fees--
Deferred organization expenses are charged to expense over a five-year
period. Prepaid registration fees are charged to expense as the related
shares are issued.
(g) Dividends and Distributions--Dividends from net investment income,
excluding transaction gains (losses), are declared and paid monthly.
Distribution of capital gains are recorded on the ex-dividend date.
<PAGE>
(h) Financial Futures Contracts--The Fund is authorized to engage in
transactions in stock index futures and financial futures and related
options on such futures. A futures contract is an agreement between
two parties to buy and sell a security, or, in the case of an index-
based futures contract, to make and accept a cash settlement for a set
price on a future date. 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.
2. Investment Advisory Agreement and
Transactions with Affiliates:
The Fund has entered into an Investment Advisory Agreement with MLAM.
Effective January 1, 1994, the investment advisory business of MLAM re-
organized from a corporation to a limited partnership. Both prior to
and after the reorganization, ultimate control of MLAM was vested with
Merrill Lynch & Co., Inc. ("ML & Co."). The general partner of MLAM is
Princeton Services, Inc., an indirect wholly-owned subsidiary of ML & Co.
The limited partners are ML & Co. and Merrill Lynch Investment Management,
Inc. ("MLIM"), which is also an indirect wholly-owned subsidiary of ML &
Co. The Fund has also entered into a Distribution Agreement and a Dis-
tribution Plan with Merrill Lynch Funds Distributor, Inc. ("MLFD" or
"Distributor"), a wholly-owned subsidiary of MLIM.
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 operation of the Fund. For such ser-
vices, the Fund pays a monthly fee of 0.55%, on an annual basis, of
the average daily value of the Fund's net assets. The most restrictive
annual expense limitation requires that the Investment Adviser re-
imburse the Fund to the extent the Fund's expenses (excluding interest,
taxes, distribution fees, brokerage fees and commissions, and ex-
traordinary items) exceed 2.5% of the Fund's first $30 million of
average daily net assets, 2.0% of the next $70 million of average
daily net assets, and 1.5% of the average daily net assets in excess
thereof. The Investment Adviser's obligation to reimburse the Fund is
limited to the amount of the investment advisory fee. No fee payment
will be made to the Investment Adviser during any fiscal year which
will cause such expenses to exceed the most restrictive expense
limitation at the time of such payment. For the period ended February
28, 1994, MLAM earned fees of $56,629, all of which were voluntarily
waived. MLAM also voluntarily reimbursed the Fund for additional
expenses of $63,838.
<PAGE>
Pursuant to a distribution plan (the "Distribution Plan") adopted by
the Fund in accordance with Rule 12b-1 under the Investment Company Act
of 1940, the Fund pays the Distributor an ongoing account maintenance
fee and distribution fee, which are accrued daily and paid monthly
at the annual rate of 0.25% and 0.50%, respectively, of the average
daily net assets of the Fund attributable to Class B Shares. Pursuant
to a subagreement with the Distributor, Merrill Lynch provides
account maintenance and distribution services to the Fund with respect
to Class B Shares. This fee is to compensate the Distributor for the
services it provides and the expenses borne by the Distributor under
the Distribution Agreement. As authorized by the Plan, the Distributor
has entered into an agreement with Merrill Lynch, Pierce, Fenner &
Smith Inc. ("MLPF&S") which provides for the compensation of MLPF&S
for providing account maintenance distribution-related services to the
Fund. For the period October 29, 1993 to February 28, 1994, MLFD earned
$66,298 under the Plan, all of which was paid to MLPF&S pursuant to the
agreement.
For the period October 29, 1993 to February 28, 1994, MLFD earned under-
writing discounts of $912, and MLPF&S earned dealer concessions of
$238,457 on sales of Class A Shares. MLPF&S also received contingent
deferred sales charges of $9,286 relating to Class B Share transactions,
and $34,500 in commissions on the execution of portfolio security
transactions for the Fund during the period.
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 MLIM, MLPF&S, MLFD, FDS, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities, for
the period October 29, 1993 to February 28, 1994 were $32,258,683 and
$124,256, respectively.
Realized and unrealized losses as of February 28, 1994
were as follows:
Realized Unrealized
Losses Losses
Long-term investments $ (2,984) $ (2,703,095)
Short-term investments (263) --
-------- ------------
Total $ (3,247) $ (2,703,095)
======== ============
As of February 28, 1994, net unrealized depreciation for Federal income
tax purposes aggregated $2,703,095, all of which is related to depreciated
securities. At February 28, 1994, the aggregate cost of investments for
Federal income tax purposes was $32,487,443.
<PAGE>
4. Capital Share Transactions:
Net increase in net assets derived from capital share transactions was
$32,444,121 for the period October 29, 1993 to February 28, 1994.
Transactions in capital shares were as follows:
Class A Shares for the Period
October 29, 1993++ to Dollar
February 28, 1994 Shares Amount
Shares sold 481,653 $ 4,800,790
Shares issued to shareholders
in reinvestment of dividends 3,287 31,854
-------- -----------
Total issued 484,940 4,832,644
Shares redeemed (64,325) (609,195)
-------- -----------
Net increase 420,615 $ 4,223,449
======== ===========
[FN]
++Prior to October 29, 1993 (commencement of operations), the
Fund issued 5,000 Class A shares to MLAM for $50,000.
Class B Shares for the Period
October 29, 1993++ to Dollar
February 28, 1994 Shares Amount
Shares sold 3,136,409 $ 31,098,932
Shares issued to shareholders
in reinvestment of dividends 13,942 135,147
--------- ------------
Total issued 3,150,351 31,234,079
Shares redeemed (315,905) (3,013,407)
--------- ------------
Net increase 2,834,446 $ 28,220,672
========= ============
[FN]
++Prior to October 29, 1993 (commencement of operations), the
Fund issued 5,000 Class B shares to MLAM for $50,000.
5. Subsequent Event:
On March 2, 1994, the Fund's Board of Directors declared an ordinary
income dividend to Common Stock shareholders in the amount of $.059619
per Class A Share and $.053948 per Class B Share payable on March 9,
1994 to shareholders of record as of March 1, 1994.
<PAGE>
OFFICERS AND DIRECTORS
Arthur Zeikel, President and Director
Ronald W. Forbes, Director
Cynthia A. Montgomery, Director
Charles C. Reilly, Director
Kevin A. Ryan, Director
Richard R. West, Director
Terry K. Glenn, Executive Vice President
Norman R. Harvey, Senior Vice President
Donald C. Burke, Vice President
Walter D. Rogers, Vice President and Portfolio Manager
Gerald M. Richard, Treasurer
Thomas D. Jones, III, Secretary
Custodian
State Street Bank and Trust Company
P.O. Box 351
Boston, Massachusetts 02101
Transfer Agent
Financial Data Services, Inc.
4800 Deer Lake Drive East
Jacksonville, Florida 32246-6484
(800) 637-3863
