MERRILL LYNCH
UTILITY INCOME
FUND, INC.
FUND LOGO
Semi-Annual Report
February 28, 1995
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.
<PAGE>
DEAR SHAREHOLDER
The combination of heightened inflationary concerns, anticipation of
further tightening of monetary policy by the Federal Reserve Board,
the turmoil of the Mexican currency crisis and a weakening US dollar
all exerted negative influences on the US financial markets during
the February quarter. On the positive side, increasing signs that
the US economy may be losing momentum suggested that most of the
interest rate increases for this economic cycle may be behind us. As
a result of these economic crosscurrents, the US stock and bond
markets continued to be volatile during the period, but the Dow
Jones Industrial Average did close above the 4000 level for the
first time.
The manufacturing sector proved to be the driving force behind the
US economy through the final weeks of 1994, making an important
contribution to the substantial increase in corporate earnings. US
companies have been successful at containing labor costs, which are
an important component of the inflation outlook. Growth in the
economy has not been translated into higher wages and benefits for
US workers. Consumer spending is growing at a slower pace than in
previous economic recoveries, and was unchanged for the month of
January. Another encouraging sign was the January increase in the
personal savings rate to the highest level in two years, following
an all-time annual low in 1994.
In the weeks ahead, investors will continue to assess economic data
and inflationary trends in order to gauge whether inflationary
pressures have been tempered and the economy is headed for moderate
growth (a "soft landing"), or if the lagged effect of interest rate
increases will result in a curtailment of economic growth. Investors
will also focus on the progress that the new Congress makes on both
reducing spending and the Federal budget deficit and passing tax
cuts that promote savings and investment. At this time, the recent
defeat of the balanced budget amendment in the Senate does not bode
well for the passage of sweeping fiscal reforms.
Portfolio Matters
The quarter ended February 28, 1995 witnessed a pause in the
electric utilities rally that began in September. Since electric
utilities, with their superior yields, represent the largest Fund
investments, the performance of electric utilities is of paramount
importance to the Fund. Electric utilities have the highest yields
among the gas, electric and telephone sectors, and are responsible
for the Fund's attractive yield.
The strength in electric utilities' price performance during the
previous two quarters related to declining long-term interest rates.
Investor uncertainty about overseas markets may have also
contributed. There was no significant change in the fundamental
outlook for the electric utility sector during the February
quarter, and the threat of competition, which emerged as a critical
issue in 1994, still exists.
<PAGE>
The California Public Utility Commission, which was one key source
of concern in the industry, is now stalled over implementing a
proposed structure for a competitive electric utility industry. The
New York Public Utility Commission also took a step back in terms of
promoting competition. Although we have not heard the last of this
issue, at least for the near term, it is not foremost in many
investors' minds.
During the February quarter, we made several changes to the Fund's
portfolio. First, we expanded our equity investments in the
telecommunications sector from 3.8% of net assets as of November 30,
1994 to 12.1% as of February 28, 1995. We added two new securities,
NYNEX Corp. and GTE Corp., and added to our existing position in
Pacific Telesis Group. NYNEX is one of the seven regional telephone
holding companies and serves New York and New England. GTE has
telephone operations in 28 states, is the second-largest US cellular
telephone provider, and also has operations in Canada, the Dominican
Republic and Venezuela. All three telephone stocks have above-
average yields and therefore do not detract from the income
orientation of the Fund, but do offer further diversification.
The Fund's holdings in domestic electric utility stocks decreased
from 63.5% of net assets as of the end of November 1994 to 57.4% as
of the end of February 1995. This shift resulted from increasing
holdings in telephone utility stocks and new cash inflows into the
Fund. We sold Texas Utilities Company because of continued concern
over the safety of its dividend, particularly in light of
management's reduced expectation for sales growth from 3% to 2%.
Therefore, the time frame for when Texas Utilities' earnings will
cover the current dividend was extended even further.
We also added two more new names to the Fund's electric utility
portfolio, New England Electric System and Pacific Gas & Electric
Co. New England Electric System serves customers in Massachusetts,
Rhode Island and New Hampshire. Its primary fuel source is coal, and
its principal customer class is residential, which accounts for 41%
of revenues. Pacific Gas & Electric was sold in 1994 because of
concerns that the California Public Utility Commission would foster
competition. The resulting stock price weakness since that sale gave
us an attractive re-entry point. The company is one of the largest
publicly-owned US electric utilities and serves approximately 12.8
million people in northern and central California. During the
February quarter, we added to six of our existing electric utility
holdings. Our increased investment in telephone utility stocks
produced attractive returns and enhanced the Fund's overall results.
In the near term, we could see some weakness in the prices of
electric utility and telephone stocks as a result of their recent
run-ups. The performance of utility stocks will continue to be
influenced by changes in long-term interest rates and perceptions of
their strength or weakness in the overall economic climate. However,
if the environment in foreign markets remains unsettled, then we
may see continued investor interest in the domestic utility sector,
particularly since it may offer an attractive total rate of return.
<PAGE>
In Conclusion
We thank you for your investment in Merrill Lynch Utility Income
Fund, Inc., and we look forward to reviewing our investment strategy
and outlook with you in future shareholder reports.
Sincerely,
(Arthur Zeikel)
Arthur Zeikel
President
(Walter D. Rogers)
Walter D. Rogers
Vice President and Portfolio Manager
March 29, 1995
PROXY RESULTS
During the six-month period ended February 28, 1995, Merrill Lynch
Utility Income Fund, Inc. shareholders voted on four proposals.
Proposals 1, 2 and 4 were approved at a special shareholders'
meeting on September 26, 1994. Proposal 3 was approved at a special
shareholders' meeting on January 31, 1995. The description of each
proposal and number of shares voted are as follows:
<TABLE>
<CAPTON>
Shares Voted Shares Voted
For Withhold Authority
<S> <S> <C> <C>
1. To elect the Fund's Board of Directors: Ronald W. Forbes 3,520,529 69,526
Cynthia A. Montgomery 3,520,529 69,526
Charles C. Reilly 3,520,529 69,526
Kevin A. Ryan 3,520,529 69,526
Richard R. West 3,520,529 69,526
Arthur Zeikel 3,520,529 69,526
<PAGE>
<CAPTION>
Shares Voted Shares Voted Shares Voted
For Against Abstain
<S> <C> <C> <C>
2.To select Deloitte & Touche LLP as the Fund's independent auditors. 3,474,026 45,069 70,960
3.To approve certain changes to the Fund's fundamental investment
restrictions. 1,806,272 72,549 123,747
4.To amend the Fund's articles of incorporation to implement the
Merrill Lynch Select Pricing SM System. 3,189,475 147,685 252,895
</TABLE>
PERFORMANCE DATA
About Fund Performance
Since October 21, 1994, investors have been 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.
* 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).
Performance data for the Fund's Class A and Class B Shares are
presented in the "Average Annual Total Return" and "Recent
Performance Results" tables on page 4. Data for Class C and Class D
Shares are also presented in the "Recent Performance Results" and
"Aggregate Total Return" tables on page 4.
The "Recent Performance Results" table shows investment results
before the deduction of any sales charges for Class A and Class B
Shares for the 12-month and 3-month periods ended February 28, 1995
and for Class C and Class D Shares for the since inception and 3-
month periods ended February 28, 1995. All data in this table assume
imposition of the actual total expenses incurred by each class of
shares during the relevant period.
<PAGE>
None of the past results shown should be considered a representation
of future performance. Investment return and principal value of
shares will fluctuate so that shares, when redeemed, may be worth
more or less than their original cost. Dividends paid to each class
of shares will vary because of the different levels of account
maintenance, distribution and transfer agency fees applicable to
each class, which are deducted from the income available to be paid
to shareholders.
PERFORMANCE DATA (concluded)
<TABLE>
Recent Performance Results*
<CAPTION>
12 Month 3 Month
2/28/95 11/30/94 2/28/94++ % Change++ % Change
<S> <C> <C> <C> <C> <C>
ML Utility Income Fund Class A Shares $8.66 $8.27 $9.20 -5.87% +4.72%
ML Utility Income Fund Class B Shares 8.66 8.27 9.19 -5.77 +4.72
ML Utility Income Fund Class C Shares 8.65 8.27 8.17 +5.88 +4.59
ML Utility Income Fund Class D Shares 8.66 8.28 8.17 +6.00 +4.59
ML Utility Income Fund Class A Shares--Total Return +0.56(1) +6.66(2)
ML Utility Income Fund Class B Shares--Total Return -0.10(3) +6.46(4)
ML Utility Income Fund Class C Shares--Total Return +8.12(5) +6.39(6)
ML Utility Income Fund Class D Shares--Total Return +8.37(7) +6.50(8)
<FN>
*Investment results shown do not reflect sales charges; results
shown would be lower if a sales charge was included.
++Investment results shown for Class C and Class D Shares are since
inception (10/21/94).
(1)Percent change includes reinvestment of $0.559 per share ordinary
income dividends.
(2)Percent change includes reinvestment of $0.154 per share ordinary
income dividends.
(3)Percent change includes reinvestment of $0.494 per share ordinary
income dividends.
(4)Percent change includes reinvestment of $0.138 per share ordinary
income dividends.
(5)Percent change includes reinvestment of $0.175 per share ordinary
income dividends.
(6)Percent change includes reinvestment of $0.142 per share ordinary
income dividends.
(7)Percent change includes reinvestment of $0.184 per share ordinary
income dividends.
(8)Percent change includes reinvestment of $0.151 per share ordinary
income dividends.
</TABLE>
<PAGE>
Average Annual Total Return
% Return Without % Return With
Sales Charge Sales Charge**
Class A Shares*
Year Ended 12/31/94 -10.59% -14.17%
Inception (10/29/93)
through 12/31/94 -10.24 -13.31
[FN]
*Maximum sales charge is 4%.
**Assuming maximum sales charge.
% Return % Return
Without CDSC With CDSC**
Class B Shares*
Year Ended 12/31/94 -11.19% -14.56%
Inception (10/29/93)
through 12/31/94 -10.88 -13.04
[FN]
*Maximum contingent deferred sales charge is 4% and is reduced to 0%
after 4 years.
**Assuming payment of applicable contingent deferred sales charge.
Aggregate Total Return
% Return % Return
Without CDSC With CDSC**
Class C Shares*
Inception (10/21/94)
through 12/31/94 +1.99% +0.99%
[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*
Inception (10/21/94)
through 12/31/94 +2.15% -1.94%
<PAGE>
[FN]
*Maximum sales charge is 4%.
**Assuming maximum sales charge.
<TABLE>
SCHEDULE OF INVESTMENTS
<CAPTION>
Shares Value Percent of
Industries Held Stocks Cost (Note 1a) Net Assets
<S> <C> <S> <C> <C> <C>
Telecommunications 12,500 BellSouth Corp. $ 644,500 $ 737,500 1.7%
45,000 GTE Corp. 1,510,200 1,501,875 3.4
40,000 NYNEX Corp. 1,527,880 1,570,000 3.5
52,000 Pacific Telesis Group 1,548,044 1,560,000 3.5
----------- ----------- ------
5,230,624 5,369,375 12.1
Utilities--Electric 26,500 Allegheny Power System, Inc. 576,990 622,750 1.4
40,900 American Electric Power Company, Inc. 1,519,871 1,385,488 3.1
16,000 Baltimore Gas & Electric Co. 396,848 394,000 0.9
36,000 Boston Edison Co. 936,373 882,000 2.0
26,000 Carolina Power & Light Co. 774,899 715,000 1.6
43,000 Central & Southwest Corp. 986,260 1,058,875 2.4
29,100 Consolidated Edison Company of New York 980,887 803,887 1.8
18,400 Detroit Edison Co. 595,472 526,700 1.2
20,800 Dominion Resources, Inc. 980,112 790,400 1.8
25,300 Duke Power Co. 1,101,816 993,025 2.2
18,100 Entergy Corp. 466,075 404,987 0.9
23,500 FPL Group, Inc. 919,184 843,062 1.9
20,500 General Public Utilities Corp. 527,875 620,125 1.4
34,800 Houston Industries, Inc. 1,542,820 1,331,100 3.0
23,000 New England Electric System 766,360 759,000 1.7
27,000 New York State Electric & Gas Corp. 780,994 580,500 1.3
35,700 Northeast Utilities Co. 907,836 812,175 1.8
11,000 Northern States Power Co. 479,160 497,750 1.1
24,900 Ohio Edison Co. 559,888 522,900 1.2
21,000 Oklahoma Gas & Electric Co. 757,886 742,875 1.7
45,000 Pacific Gas & Electric Co. l,151,550 1,153,125 2.6
34,800 PacifiCorp 680,713 665,550 1.5
20,400 PECO Energy Co. 624,518 545,700 1.2
60,000 Pennsylvania Power & Light Co. 1,398,900 1,245,000 2.8
20,000 Public Service Company of Colorado 636,200 612,500 1.4
40,400 Public Service Enterprise Group Inc. 1,319,991 1,176,650 2.6
42,200 SCEcorp 887,436 691,025 1.6
88,400 Southern Co. 1,939,156 1,823,250 4.1
26,600 Unicom Corp. 785,722 678,300 1.5
12,600 Union Electric Co. 513,993 477,225 1.1
20,000 Western Resources Co. 562,500 635,000 1.4
18,400 Wisconsin Energy Corp. 477,204 510,600 1.2
----------- ----------- ------
27,535,489 25,500,524 57.4
Total Stocks 32,766,113 30,869,899 69.5
<PAGE>
<CAPTION>
Face
Amount Corporate Bonds
<S> <C> <S> <C> <C> <C>
Telecommunications $1,000,000 Southwestern Bell Corp., 7.00% due
7/01/2015 1,034,480 898,450 2.0
1,000,000 Tele-Communications, Inc., 9.80% due
2/01/2012 1,263,890 1,029,560 2.3
1,000,000 United Telephone of Florida, 6.875% due
7/15/2013 1,019,950 873,480 2.0
----------- ----------- ------
3,318,320 2,801,490 6.3
Utilities--Electric 1,000,000 Public Service Company of Colorado, 6.375%
due 11/01/2005 991,300 881,310 2.0
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS (concluded)
<CAPTION>
Shares Value Percent of
Industries Held 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 $ 994,700 2.2%
1,000,000 Enron Corp., 6.75% due 7/01/2005 1,023,800 909,780 2.1
1,500,000 ENSERCH Corp., 6.375% due 2/01/2004 1,491,030 1,335,210 3.0
----------- ----------- ------
3,605,780 3,239,690 7.3
Total Corporate Bonds 7,915,400 6,922,490 15.6
Short-Term Securities
Commercial Paper* 1,882,000 General Electric Capital Corp., 6.00%
due 3/01/1995 1,882,000 1,882,000 4.2
Total Commercial Paper 1,882,000 1,882,000 4.2
US Government & 1,000,000 Federal Farm Credit Banks, 5.91% due
Agency Obligations* 3/08/1995 998,851 998,851 2.2
1,000,000 Federal Home Loan Mortgage Corp., 5.86%
due 3/14/1995 997,884 997,884 2.2
Federal National Mortgage Association:
2,000,000 5.90% due 3/09/1995 1,997,378 1,997,378 4.5
2,500,000 5.85% due 3/10/1995 2,496,344 2,496,344 5.6
<PAGE>
Total US Government & Agency Obligations 6,490,457 6,490,457 14.5
Total Short-Term Securities 8,372,457 8,372,457 18.7
Total Investments $49,053,970 46,164,846 103.8
===========
Liabilities in Excess of Other Assets (1,684,555) (3.8)
----------- ------
Net Assets $44,480,291 100.0%
=========== ======
<FN>
*Commercial Paper and certain US Government & Agency Obligations are
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
For the Quarter Ended February 28, 1995
Percent of
Ten Largest Holdings Net Assets
Southern Co. 4.1%
NYNEX Corp. 3.5
Pacific Telesis Group. 3.5
GTE Corp. 3.4
American Electric Power Company, Inc. 3.1
ENSERCH Corp., 6.375% due 2/01/2004 3.0
Houston Industries, Inc. 3.0
Pennsylvania Power & Light Co. 2.8
Public Service Enterprise Group Inc. 2.6
Pacific Gas & Electric Co. 2.6
Additions
GTE Corp.
NYNEX Corp.
New England Electric System
Pacific Gas & Electric Co.
Deletions
Texas Utilities Company
<PAGE>
FINANCIAL INFORMATION
<TABLE>
Statement of Assets and Liabilities as of February 28, 1995
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$49,053,970) (Note 1a) $46,164,846
Receivables:
Capital stock sold $ 480,246
Dividends 208,312
Interest 76,454
Investment adviser (Note 2) 19,421 784,433
-----------
Deferred organization expenses (Note 1f) 75,500
Prepaid registration fees and other assets (Note 1f) 123,565
-----------
Total assets 47,148,344
-----------
Liabilities: Payables:
Securities purchased 2,366,998
Capital stock redeemed 186,819
Distributor (Note 2) 21,816 2,575,633
-----------
Accrued expenses and other liabilities 92,420
-----------
Total liabilities 2,668,053
-----------
Net Assets: Net assets $44,480,291
===========
Net Assets Class A Shares of Common Stock, $0.10 par value, 100,000,000
Consist of: shares authorized $ 53,417
Class B Shares of Common Stock, $0.10 par value, 100,000,000
shares authorized 442,941
Class C Shares of Common Stock, $0.10 par value, 100,000,000
shares authorized 7,305
Class D Shares of Common Stock, $0.10 par value, 100,000,000
shares authorized 9,914
Paid-in capital in excess of par 47,942,738
Undistributed investment income--net 223,309
Accumulated realized capital losses on investments--net (1,310,209)
Unrealized depreciation on investments--net ( 2,889,124)
-----------
Net assets $44,480,291
===========
<PAGE>
Net Asset Value: Class A--Based on net assets of $4,626,650 and 534,166 shares
outstanding $ 8.66
===========
Class B--Based on net assets of $38,362,597 and 4,429,413 shares
outstanding $ 8.66
===========
Class C--Based on net assets of $632,154 and 73,054 shares outstanding $ 8.65
===========
Class D--Based on net assets of $858,890 and 99,136 shares outstanding $ 8.66
===========
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION (continued)
<TABLE>
Statement of Operations for the Six Months Ended February 28, 1995
<S> <S> <C> <C>
Investment Dividends $ 856,362
Income Interest and amortization of premium and discount earned 374,245
(Note 1e): -----------
Total income 1,230,607
-----------
Expenses: Distribution fees--Class B (Note 2) $ 110,770
Investment advisory fees (Note 2) 93,487
Registration fees (Note 1f) 57,662
Printing and shareholder reports 54,286
Professional fees 35,471
Transfer agent fees--Class B (Note 2) 24,440
Accounting services (Note 2) 24,397
Directors' fees and expenses 11,726
Amortization of organization expenses (Note 1f) 8,755
Custodian fees 3,174
Transfer agent fees--Class A (Note 2) 2,795
Distribution fees--Class C (Note 2) 723
Account maintenance fees--Class D (Note 2) 295
Pricing fees 180
Transfer agent fees--Class D (Note 2) 148
Transfer agent fees--Class C (Note 2) 143
Other 1,891
-----------
Total expenses before reimbursement 430,343
Reimbursement of expenses (Note 2) (230,753)
-----------
Total expenses after reimbursement 199,590
-----------
Investment income--net 1,031,017
-----------
<PAGE>
Realized & Realized loss from investments--net (785,948)
Unrealized Change in unrealized depreciation--net 1,788,701
Gain (Loss) on -----------
Investments--Net Net Increase in Net Assets Resulting from Operations $ 2,033,770
(Notes 1b, 1c, ===========
1e & 3):
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION (continued)
<TABLE>
Statements of Changes in Net Assets
<CAPTION>
For the For the
Six Months Period
Ended Oct. 29, 1993++
Feb. 28, to Aug. 31,
Increase (Decrease) in Net Assets: 1995 1994
<S> <S> <C> <C>
Operations: Investment income--net $ 1,031,017 $ 1,339,757
Realized loss on investments--net (785,948) (524,261)
Change in unrealized depreciation on investments--net 1,788,701 (4,677,825)
----------- -----------
Net increase (decrease) in net assets resulting from operations 2,033,770 (3,862,329)
----------- -----------
Dividends to Investment income--net:
Shareholders Class A (133,606) (172,046)
(Note 1g): Class B (846,010) (984,610)
Class C (4,304) --
Class D (6,889) --
----------- -----------
Net decrease in net assets resulting from dividends to
shareholders (990,809) (1,156,656)
----------- -----------
Capital Share Net increase in net assets derived from capital share
Transactions transactions 11,804,651 36,551,664
(Note 4): ----------- -----------
Net Assets: Total increase in net assets 12,847,612 31,532,679
Beginning of period 31,632,679 100,000
----------- -----------
End of period* $44,480,291 $31,632,679
=========== ===========
<PAGE>
<FN>
*Undistributed investment income--net $ 223,309 $ 183,101
=========== ===========
++Commencement of Operations.
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION (continued)
<TABLE>
Financial Highlights
<CAPTION>
Class A Class B
For the For the For the For the
Six Period Six Period
The following per share data and ratios have been derived Months Oct. 29, Months Oct. 29,
from information provided in the financial statements. Ended 1993++ to Ended 1993++ to
Feb. 28, Aug. 31, Feb. 28, Aug. 31,
Increase (Decrease) in Net Asset Value: 1995 1994 1995 1994
<S> <S> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 8.44 $ 10.00 $ 8.44 $ 10.00
Operating ------- ------- ------- -------
Performance: Investment income--net .28 .40 .23 .35
Realized and unrealized gain (loss) on invest-
ments--net .21 (1.57) .23 (1.57)
------- ------- ------- -------
Total from investment operations .49 (1.17) .46 (1.22)
------- ------- ------- -------
Less dividends from investment income--net (.27) (.39) (.24) (.34)
------- ------- ------- -------
Net asset value, end of period $ 8.66 $ 8.44 $ 8.66 $ 8.44
======= ======= ======= =======
Total Investment Based on net asset value per share 6.04%+++ (11.84%)+++ 5.63%+++ (12.34%)+++
Return:** ======= ======= ======= =======
Ratios to Average Expenses, excluding distribution fees and net of
Net Assets: reimbursement .49%* .44%* .52%* .46%*
======= ======= ======= =======
Expenses, net of reimbursement .49%* .44%* 1.27%* 1.21%*
======= ======= ======= =======
Expenses 1.86%* 1.58%* 2.63%* 2.35%*
======= ======= ======= =======
Investment income--net 6.79%* 5.92%* 5.97%* 5.22%*
======= ======= ======= =======
<PAGE>
Supplemental Net assets, end of period (in thousands) $ 4,627 $ 4,238 $38,363 $27,395
Data: ======= ======= ======= =======
Portfolio turnover 5.75% 8.50% 5.75% 8.50%
======= ======= ======= =======
<FN>
*Annualized.
**Total investment returns exclude the effects of sales loads.
++Commencement of Operations.
+++Aggregate total investment return.
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION (concluded)
<TABLE>
Financial Highlights (concluded)
<CAPTION>
The following per share data and ratios have been derived For the Period
from information provided in the financial statements October 21, 1994++
to February 28, 1995
Increase (Decrease) in Net Assets: Class C Class D
<S> <S> <C> <C>
Per Share Net asset value, beginning of period $ 8.17 $ 8.17
Operating ----------- -----------
Performance: Investment income--net .18 .19
Realized and unrealized gain on investments--net .47 .48
----------- -----------
Total from investment operations .65 .67
----------- -----------
Less dividends from investment income--net (.17) (.18)
----------- -----------
Net asset value, end of period $ 8.65 $ 8.66
----------- -----------
Total Investment Based on net asset value per share 8.12%+++ 8.37%+++
Return:** =========== ===========
Ratios to Expenses, excluding account maintenance and distribution fees
Average Net and net of reimbursement .52%* .49%*
Assets: =========== ===========
Expenses, net of reimbursement 1.32%* .74%*
=========== ===========
Expenses 2.57%* 1.98%*
=========== ===========
Investment income--net 5.71%* 6.32%*
=========== ===========
<PAGE>
Supplemental Net assets, end of period (in thousands) $ 632 $ 859
Data: =========== ===========
Portfolio turnover 5.75% 5.75%
=========== ===========
*Annualized.
**Total investment returns exclude the effects of sales loads.
++Commencement of Operations.
+++Aggregate total investment return.
See Notes to Financial Statements.
</TABLE>
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. 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.
<PAGE>
(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
Board of Directors of the Fund, including valuations furnished by a
pricing service retained by the Fund.
(b) 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.
(c) 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.
* Forward Foreign Exchange Contracts--The Fund is authorized to
enter into forward foreign exchange contracts as a hedge against
either specific transactions or portfolio positions. Such contracts
are not entered on the Fund's records. However, the effect on
operations is recorded from the date the Fund enters into such
contracts. Premium or discount is amortized over the life of the
contracts.
<PAGE>
* 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 premiums paid or received).
Written and purchased options are non-income producing investments.
* 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.
(d) 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 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 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 recognized 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.
<PAGE>
(f) Deferred Organization Expenses and Prepaid Registration Fees--
Deferred organization expenses are charged to expense on a straight-
line basis over a five-year period. Prepaid registration fees are
charged to expense as the related shares are issued.
(g) Dividends and Distributions--Dividends from net investment
income, excluding transaction gains (losses), are declared and paid
monthly. Distributions of capital gains are recorded on the ex-
dividend date.
2. Investment Advisory Agreement and Transactions with Affiliates:
The Fund has entered into an Investment Advisory Agreement with
Merrill Lynch Asset Management, L.P. ("MLAM"). The general partner
of MLAM is Princeton Services, Inc. ("PSI"), an indirect wholly-
owned subsidiary of Merrill Lynch & Co., Inc. ("ML & Co."), which is
the limited partner. The Fund has also entered into a Distribution
Agreement and Distribution Plans with Merrill Lynch Funds
Distributor, Inc. ("MLFD" or "Distributor"), a wholly-owned
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 operation of the Fund. For such
services, 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 reimburse the Fund to the extent the Fund's expenses
(excluding interest, taxes, distribution fees, brokerage fees and
commissions, and extraordinary 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 applicable at the time of such
payment. For the six months ended February 28, 1995, MLAM earned
fees of $93,487, all of which were voluntarily waived. MLAM also
voluntarily reimbursed the Fund for additional expenses of $137,266.
Pursuant to the distribution plans ("the Distribution Plans")
adopted by the Fund in accordance with Rule 12b-1 under the
Investment Company Act of 1940, the Fund pays the Distributor
ongoing account maintenance and distribution fees. The fees are
accrued daily and paid monthly at annual rates based upon the
average daily net assets of the shares as follows:
Account Distribution
Maintenance Fee Fee
Class B 0.25% 0.50%
Class C 0.25% 0.55%
Class D 0.25% --
<PAGE>
Pursuant to a sub-agreement with the Distributor, 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.
NOTES TO FINANCIAL STATEMENTS (concluded)
For the six months ended February 28, 1995, 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 $ 59 $ 887
Class D $ 189 $2,934
MLPF&S received contingent deferred sales charges of $60,101
relating to transactions in Class B Shares of beneficial interest
and $750 in commissions on the execution of portfolio security
transactions for the Fund for the six months ended February 28,
1995.
During the six months ended February 28, 1995, the Fund paid Merrill
Lynch Security Pricing Service, an affiliate of Merrill Lynch,
Pierce, Fenner & Smith Inc. ("MLPF&S"), $49 for security price
quotations.
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, MLPF&S, MLFD, FDS, PSI, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities,
for the six months ended February 28, 1995 were $9,209,397 and
$1,782,269, respectively.
<PAGE>
Realized and unrealized losses as of February 28, 1995 were as
follows:
Realized Unrealized
Losses Losses
Long-term investments $ (785,948) $ (2,889,124)
------------ ------------
Total $ (785,948) $ (2,889,124)
============ ============
As of February 28, 1995, net unrealized depreciation for Federal
income tax purposes aggregated $2,889,124, of which $483,762 related
to appreciated securities and $3,372,886 related to depreciated
securities. At February 28, 1995 the aggregate cost of investments
for Federal income tax purposes was $49,053,970.
4. Capital Share Transactions:
Net increase in net assets derived from capital share transactions
was $11,804,651 and $36,551,664 for the six months ended February
28, 1995 and the period ended August 31, 1994, respectively.
Transactions in shares for each class were as follows:
Class A Shares for the
Six Months Ended Dollar
February 28, 1995 Shares Amount
Shares sold 294,726 $ 2,514,213
Shares issued to shareholders
in reinvestment of dividends 10,835 89,380
------------ ------------
Total issued 305,561 2,603,593
Shares redeemed (273,311) (2,298,470)
------------ ------------
Net increase 32,250 $ 305,123
============ ============
Class A Shares for the Period Dollar
Oct. 29, 1993++ to Aug. 31, 1994 Shares Amount
Shares sold 896,487 $ 8,334,878
Shares issued to shareholders
in reinvestment of dividends 12,806 113,825
------------ ------------
Total issued 909,293 8,448,703
Shares redeemed (412,377) (3,586,609)
------------ ------------
Net increase 496,916 $ 4,862,094
============ ============
<PAGE>
[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 Six Months Dollar
Ended February 28, 1995 Shares Amount
Shares sold 1,802,417 $ 15,198,169
Shares issued to shareholders
in reinvestment of dividends 65,108 538,047
------------ ------------
Total issued 1,867,525 15,736,216
Shares redeemed (683,028) (5,688,010)
Automatic conversion of
shares (80) (646)
------------ ------------
Net increase 1,184,417 $ 10,047,560
============ ============
Class B Shares for the Period Dollar
Oct. 29, 1993++ to Aug. 31, 1994 Shares Amount
Shares sold 4,113,267 $ 39,423,027
Shares issued to shareholders
in reinvestment of dividends 66,851 590,131
------------ ------------
Total issued 4,180,118 40,013,158
Shares redeemed (940,122) (8,323,588)
------------ ------------
Net increase 3,239,996 $ 31,689,570
============ ============
[FN]
++Prior to October 29, 1993 (commencement of operations), the
Fund issued 5,000 Class B Shares to MLAM for $50,000.
Class C Shares for the Period Dollar
Oct. 21, 1994++ to Feb. 28, 1995 Shares Amount
Shares sold 77,378 $ 651,496
Shares issued to shareholders
in reinvestment of dividends 435 3,648
------------ ------------
Total issued 77,813 655,144
Shares redeemed (4,759) (41,053)
------------ ------------
Net increase 73,054 $ 614,091
============ ============
<PAGE>
[FN]
++Commencement of Operations.
Class D Shares for the Period Dollar
Oct. 21, 1994++ to Feb. 28, 1995 Shares Amount
Shares sold 106,602 $ 901,863
Automatic conversion of
shares 80 646
Shares issued to shareholders
in reinvestment of dividends 673 5,632
------------ ------------
Total issued 107,355 908,141
Shares redeemed (8,219) (70,264)
------------ ------------
Net increase 99,136 $ 837,877
============ ============
[FN]
++Commencement of Operations.
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
One Heritage Drive, P2N
North Quincy, Massachusetts 02171
Transfer Agent
Financial Data Services, Inc.
4800 Deer Lake Drive East
Jacksonville, Florida 32246-6484
(800) 637-3863
