MERRILL LYNCH
UTILITY INCOME
FUND, INC.
[GRAPHIC OMITTED]
STRATEGIC
Performance
Semi-Annual Report
February 28, 1998
<PAGE>
MERRILL LYNCH UTILITY INCOME FUND, INC.
DEAR SHAREHOLDER
During the quarter ended February 28, 1998, investors focused on the
implications that the financial crisis in Asia would have on economic growth
worldwide. In the United States, sentiment fluctuated between a variety of
outlooks. At times, US stock and bond prices reflected expectations that the
slow-down in Asian economic growth would lead to a sharp decline in US business
activity and, ultimately, a deflationary environment. During other periods, US
investors appeared to expect that the positive trends of a moderately expanding
economy, declining unemployment, enhanced productivity and corporate profits
growth would continue, unimpeded by the developments in Asia. To date, there
have been only a few signs that Asia's troubles are influencing US economic
activity. Industrial activity is beginning to slow, but the slowdown has not
spread to other sectors of the economy.
The Federal Open Market Committee did not ease monetary policy at its meeting in
early February. Subsequently, in his Humphrey-Hawkins testimony before Congress,
Federal Reserve Board Chairman Alan Greenspan indicated that monetary policy
might remain steady for some time. This raised concerns among US bond investors
who had expected imminent monetary policy easing. As 1998 progresses, it is
likely that investor focus will remain on developments in Asia, their potential
impact on the US economy, and the Federal Reserve Board's response to them.
Portfolio Matters
For the three-month period ended February 28, 1998, total returns for Merrill
Lynch Utility Income Fund, Inc.'s Class A, Class B, Class C and Class D Shares
were +5.09%, +4.99%, +4.88% and +5.12%, respectively. (Fund results shown do not
reflect sales charges and would be lower if sales charges were included. For
complete performance results, including average annual total returns, see pages
3 and 4 of this report to shareholders.) At the same time, the Fund provided an
attractive level of current income.There were two primary factors influencing
the Fund's performance during the February quarter. First, the broad market, as
measured by the S&P 500, showed significant strength, driven principally by the
technology sector as investors ignored the impact of the Asian financial crisis
and invested in higher beta securities (securities with more price volatility).
Second, long-term interest rates, as measured by the yield on the 30-year US
Treasury bond, began to rise toward the 6% level.
The stock price performance of the domestic electric utility sector, in which
75.1% of the Fund's net assets was invested at February quarter-end, was
influenced by the events discussed above as well as industry fundamentals.
First, the unmanaged S&P Electric Index of 26 companies hit a new high on
January 5, 1998. For the three-month period ended February 28, 1998, the price
appreciation of the unmanaged Index was 3.2%. This performance partly reflected
price appreciation for Niagara Mohawk Power Corporation. The performance of the
stock was attributed to more constructive news coming from the New York
regulatory authorities. The stocks of three other investor-owned utility
companies in New York also had total returns that exceeded that of the S&P
Electric Index. The Fund held positions in two of these companies, Consolidated
Edison Company of New York and New York State Electric & Gas Corp.
There was other news about domestic electric utility companies during the
February quarter. As a result of technical problems, the opening of the
California electric power market to competition was delayed. Regulatory and
legislative agencies in Pennsylvania were in the news, resulting in lower
returns for the two principal Pennsylvania utility companies, PECO Energy Co.
and Pennsylvania Power & Light. While no significant new mergers or acquisitions
were announced during the quarter, we expect that the current situation will
reverse itself in the coming months and that more mergers and acquisitions will
be
1
<PAGE>
Merrill Lynch Utility Income Fund, Inc. February 28, 1998
announced. We further expect to see natural gas and electric mergers and, to a
lesser extent, electric-to-electric utility mergers. The sale of non-nuclear
generating assets to various parties is expected to continue at prices which are
above-recorded book value.
During the February quarter, we added to our position in PECO Energy Co. and
initiated a position in Potomac Electric Power Company. We increased our
weighting in PECO following the company's announcement of a write down of assets
and a reduction of its dividend. The stock traded down on the news, which we
used as an opportunity to increase the below-average weighting in the stock.
Potomac Electric Power presented an interesting investment opportunity following
the failure of the company to merge with Baltimore Gas & Electric Co., which
resulted in the stock underperforming the sector. The company views the current
dividend level of $1.66 per share as safe for the present time. The potential
for a future merger or acquisition still exists as does a share repurchase
program.
For the six-month period ended February 28, 1998, total returns for Merrill
Lynch Utility Income Fund, Inc.'s Class A, Class B, Class C and Class D Shares
were +18.56%, +18.24%, +18.12% and +18.51%, respectively. For the same period,
the Fund's performance exceeded the +17.60% total return of the unmanaged broad
market Index, the S&P 500. Performance for the domestic electric utility equity
sector was driven by two principal factors. First, long-term interest rates
declined. Second, the fear over competition in the electric utility market
subsided during 1997 as investors realized that the transition would be more
evolutionary than revolutionary. Furthermore, assets of companies in the
electric utility industry, most notably their generation assets, were revised
upward as they became available for public sale.
Finally, while not industry driven, the performance of the broad market, as
measured by the S&P 500, had an influence over the performance of the domestic
electric utility sector during the past six months. The first half of calendar
1997 was driven by the high beta growth sector. The second half, following the
financial crisis in Asia, was dominated by investors looking for low beta and
more defensive stocks. Domestic electric utility stocks, which were very poor
performers in the first half of calendar year 1997, became very attractive on a
market and industry fundamental basis in the second half of 1997.
In Conclusion
The composition of the Fund's portfolio will continue to support the goal of the
Fund, which is seeking to generate high current income. We thank you for your
interest in Merrill Lynch Utility Income Fund, Inc., and we look forward to
discussing our investment strategy with you in upcoming shareholder reports.
Sincerely,
/s/ Arthur Zeikel
Arthur Zeikel
President
/s/ Walter D. Rogers
Walter D. Rogers
Senior Vice President and Portfolio Manager
March 26, 1998
2
<PAGE>
Merrill Lynch Utility Income Fund, Inc. February 28, 1998
PERFORMANCE DATA
About Fund Performance
Investors are able to purchase shares of the Fund through the Merrill Lynch
Select Pricing(SM) System, which offers four pricing alternatives:
o 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.
o 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 10
years. (There is no initial sales charge for automatic share conversions.)
o 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.
o 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 "Average Annual Total Return" tables assume
reinvestment of all dividends and capital gains distributions at net asset value
on the ex-dividend 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.
Recent Performance Results*
<TABLE>
<CAPTION>
Since
12 Month 3 Month Inception
Total Return Total Return Total Return
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
ML Utility Income Fund, Inc. Class A Shares +22.02% +5.09% +39.77%
- ----------------------------------------------------------------------------------------
ML Utility Income Fund, Inc. Class B Shares +21.09 +4.99 +35.24
- ----------------------------------------------------------------------------------------
ML Utility Income Fund, Inc. Class C Shares +21.09 +4.88 +57.71
- ----------------------------------------------------------------------------------------
ML Utility Income Fund, Inc. Class D Shares +21.81 +5.12 +61.05
========================================================================================
</TABLE>
* Investment results shown do not reflect sales charges; results shown 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 ex-dividend date. The Fund's inception dates are: Class A and
Class B Shares, 10/29/93; and Class C and Class D Shares, 10/21/94.
3
<PAGE>
Merrill Lynch Utility Income Fund, Inc. February 28, 1998
PERFORMANCE DATA (concluded)
Average Annual Total Return
% Return Without % Return With
Sales Charge Sales Charge**
================================================================================
Class A Shares*
================================================================================
Year Ended 12/31/97 +24.39% +19.41%
- --------------------------------------------------------------------------------
Inception (10/29/93)
through 12/31/97 + 8.82 + 7.76
- --------------------------------------------------------------------------------
* Maximum sales charge is 4%.
** Assuming maximum sales charge.
% Return % Return
Without CDSC With CDSC**
================================================================================
Class B Shares*
================================================================================
Year Ended 12/31/97 +23.42% +19.42%
- --------------------------------------------------------------------------------
Inception (10/29/93)
through 12/31/97 + 8.00 + 8.00
- --------------------------------------------------------------------------------
* 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 12/31/97 +23.43% +22.43%
- --------------------------------------------------------------------------------
Inception (10/21/94)
through 12/31/97 +16.03 +16.03
- --------------------------------------------------------------------------------
* 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 12/31/97 +24.16% +19.20%
- --------------------------------------------------------------------------------
Inception (10/21/94)
through 12/31/97 +16.76 +15.28
- --------------------------------------------------------------------------------
* Maximum sales charge is 4%.
** Assuming maximum sales charge.
4
<PAGE>
Merrill Lynch Utility Income Fund, Inc. February 28, 1998
SCHEDULE OF INVESTMENTS
<TABLE>
<CAPTION>
Shares Value Percent of
Industries Held Stocks Cost (Note 1a) Net Assets
============================================================================================================================
<S> <C> <C> <C> <C> <C>
Utilities -- Electric 39,000 Allegheny Energy, Inc. $ 895,450 $ 1,191,938 2.9%
22,600 Ameren Corp. (a) 912,093 868,688 2.1
24,600 American Electric Power Company, Inc. 892,569 1,180,800 2.9
33,000 Baltimore Gas & Electric Co. 844,868 1,041,563 2.6
40,600 Boston Edison Co. 1,015,336 1,575,788 3.9
11,000 CINergy Corp. 284,857 382,938 0.9
18,000 Carolina Power & Light Co. 536,468 751,500 1.8
29,100 Consolidated Edison Company of New York 980,888 1,236,750 3.0
31,400 DTE Energy Co. 984,627 1,153,950 2.8
45,000 Delmarva Power & Light Co. 924,651 967,500 2.4
20,800 Dominion Resources, Inc. 980,112 829,400 2.0
48,000 Enova Corp. 1,165,493 1,224,000 3.0
22,900 Entergy Corp. 598,635 662,669 1.6
41,900 FirstEnergy Corp. 936,783 1,212,481 3.0
34,000 Florida Progress Corp. 1,105,601 1,315,375 3.2
27,500 GPU, Inc. 767,170 1,105,156 2.7
15,300 Houston Industries, Inc. 296,223 395,888 1.0
27,400 MDU Resources Group, Inc. 593,863 847,687 2.1
26,000 Nevada Power Co. 552,810 645,125 1.6
26,000 New Century Energies Corp. 841,935 1,212,250 3.0
23,000 New England Electric System 766,360 968,875 2.4
18,000 New York State Electric & Gas Corp. 520,663 676,125 1.7
14,300 Northern States Power Co. 659,908 785,606 1.9
23,200 OGE Energy Corp. 854,830 1,252,800 3.1
29,900 PECO Energy Co. 708,848 590,525 1.5
35,800 PacifiCorp 706,649 865,912 2.1
33,500 Potomac Electric Power Company (PEPCO) 835,323 841,687 2.1
29,400 Public Service Enterprise Group, Inc. 947,445 948,150 2.3
43,400 Southern Co. 923,825 1,071,437 2.6
21,000 Texas Utilities Holding Co. 715,885 849,187 2.1
32,600 Unicom Corp. 954,082 1,045,237 2.6
9,000 Washington Water Power Co. 172,013 205,875 0.5
17,000 Western Resources Co. 478,125 697,000 1.7
----------- ----------- ----
25,354,388 30,599,862 75.1
============================================================================================================================
Utilities -- Gas 40,300 AGL Resources Inc. 741,707 818,594 2.0
26,000 New Jersey Resources Corp. 750,192 949,000 2.3
----------- ----------- ----
1,491,899 1,767,594 4.3
============================================================================================================================
Total Stocks 26,846,287 32,367,456 79.4
============================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Face
Amount Corporate Bonds
============================================================================================================================
<S> <C> <C> <C> <C> <C>
Telecommunications $ 1,000,000 Southwestern Bell Corp., 7% due
7/01/20 151,034,480 1,039,660 2.6
1,000,000 United Telephone Company of Florida,
6.875% due 7/15/2013 1,019,950 1,038,870 2.5
----------- ----------- ----
2,054,430 2,078,530 5.1
============================================================================================================================
Utilities -- Electric 1,000,000 Public Service Company of Colorado,
6.375% due 11/01/2005 991,300 1,003,340 2.5
============================================================================================================================
</TABLE>
5
<PAGE>
Merrill Lynch Utility Income Fund, Inc. February 28, 1998
SCHEDULE OF INVESTMENTS (concluded)
<TABLE>
<CAPTION>
Face Value Percent of
Industries Amount Corporate Bonds Cost (Note 1a) Net Assets
============================================================================================================================
<S> <C> <C> <C> <C> <C>
Utilities -- Gas $ 1,500,000 ENSERCH Corp., 6.375% due 2/01/2004 $ 1,491,030 $ 1,492,170 3.6%
1,000,000 El Paso Natural Gas Co., 7.75% due
1/15/2002 1,090,950 1,049,940 2.6
----------- ----------- -----
============================================================================================================================
2,581,980 2,542,110 6.2
============================================================================================================================
Total Corporate Bonds 5,627,710 5,623,980 13.8
============================================================================================================================
<CAPTION>
Short-Term Securities
============================================================================================================================
Commercial Paper* 1,000,000 Falcon Asset Securitization Corp.,
5.67% due 3/05/1998 999,213 999,213 2.5
1,672,000 General Motors Acceptance Corp., 5.69%
due 3/02/1998 1,671,471 1,671,471 4.1
============================================================================================================================
Total Short-Term Securities 2,670,684 2,670,684 6.6
============================================================================================================================
Total Investments $35,144,681 40,662,1209 99.8
===========
Other Assets Less Liabilities 76,895 0.2
----------- -----
Net Assets $40,739,015 100.0%
=========== =====
============================================================================================================================
</TABLE>
* Commercial Paper is traded on a discount basis; the interest rate shown is
the discount rate paid at the time of purchase by the Fund.
(a) Union Electric Co. merged with Cipsco Inc. to become Ameren Corp.
See Notes to Financial Statements.
6
<PAGE>
Merrill Lynch Utility Income Fund, Inc. February 28, 1998
FINANCIAL INFORMATION
Statement of Assets and Liabilities as of February 28, 1998
<TABLE>
<CAPTION>
<S> <C> <C>
Assets: Investments, at value (identified cost -- $35,144,681) (Note 1a) ............. $ 40,662,120
Cash 94
Receivables:
Dividends ................................................................. $ 111,039
Capital shares sold ....................................................... 68,004
Interest .................................................................. 57,080
Investment adviser (Note 2) ............................................... 11,351 247,474
-------------
Deferred organization expenses (Note 1f) ..................................... 21,140
Prepaid registration fees and other assets (Note 1f) ......................... 51,537
------------
Total assets ................................................................. 40,982,365
------------
===================================================================================================================================
Liabilities: Payables:
Capital shares redeemed ................................................... 77,146
Distributor (Note 2) ...................................................... 21,802 98,948
-------------
Accrued expenses and other liabilities ....................................... 144,402
------------
Total liabilities ............................................................ 243,350
------------
===================================================================================================================================
Net Assets: Net assets ................................................................... $ 40,739,015
============
===================================================================================================================================
Net Assets Class A Shares of Common Stock, $0.10 par value, 100,000,000
Consist of: shares authorized ............................................................ $ 19,390
Class B Shares of Common Stock, $0.10 par value, 100,000,000
shares authorized ............................................................ 292,106
Class C Shares of Common Stock, $0.10 par value, 100,000,000
shares authorized ............................................................ 45,099
Class D Shares of Common Stock, $0.10 par value, 100,000,000
shares authorized ............................................................ 17,628
Paid-in capital in excess of par ............................................. 35,663,803
Undistributed investment income -- net ....................................... 101,482
Accumulated realized capital losses on investments -- net (Note 6) ........... (917,932)
Unrealized appreciation on investments -- net ................................ 5,517,439
------------
Net assets ................................................................... $ 40,739,015
============
===================================================================================================================================
Net Asset Value: Class A -- Based on net assets of $2,111,442 and 193,895 shares outstanding .. $ 10.89
============
Class B -- Based on net assets of $31,803,184 and 2,921,062 shares outstanding $ 10.89
============
Class C -- Based on net assets of $4,901,277 and 450,987 shares outstanding .. $ 10.87
============
Class D -- Based on net assets of $1,923,112 and 176,279 shares outstanding .. $ 10.91
============
===================================================================================================================================
</TABLE>
See Notes to Financial Statements.
7
<PAGE>
Merrill Lynch Utility Income Fund, Inc. February 28, 1998
FINANCIAL INFORMATION (continued)
Statement of Operations for the Six Months Ended February 28, 1998
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Investment Dividends $ 869,838
Income Interest and amortization of premium and discount earned 250,588
(Notes 1d & 1e): ------------
Total income 1,120,426
------------
===================================================================================================================================
Expenses: Account maintenance and distribution fees -- Class B (Note 2) $ 111,481
Investment advisory fees (Note 2) 103,876
Registration fees (Note 1f) 29,210
Professional fees 26,390
Printing and shareholder reports 25,057
Transfer agent fees -- Class B (Note 2) 21,279
Account maintenance and distribution fees -- Class C (Note 2) 18,370
Accounting services (Note 2) 16,153
Amortization of organization expenses (Note 1f) 9,040
Directors' fees and expenses 8,035
Custodian fees 3,528
Transfer agent fees -- Class C (Note 2) 3,274
Account maintenance fees -- Class D (Note 2) 2,210
Transfer agent fees -- Class D (Note 2) 1,052
Transfer agent fees -- Class A (Note 2) 998
Pricing fees 204
Other 2,055
------------
Total expenses before reimbursement 382,212
Reimbursement of expenses (Note 2) (133,903)
------------
Total expenses after reimbursement 248,309
------------
Investment income -- net 872,117
------------
===================================================================================================================================
Realized & Realized gain on investments -- net 354,732
Unrealized Gain on Change in unrealized appreciation on investments -- net 4,902,441
Investments -- Net ------------
(Notes 1b, 1c, Net Increase in Net Assets Resulting from Operations $ 6,129,290
1e & 3): ============
===================================================================================================================================
</TABLE>
See Notes to Financial Statements.
8
<PAGE>
Merrill Lynch Utility Income Fund, Inc. February 28, 1998
FINANCIAL INFORMATION (continued)
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
For the Six For the
Months Ended Year Ended
February 28, August 31,
Increase (Decrease) in Net Assets: 1998 1997
===================================================================================================================================
<S> <C> <C> <C>
Operations: Investment income -- net $ 872,117 $ 1,905,999
Realized gain (loss) on investments and foreign currency transactions -- net 354,732 (522,898)
Change in unrealized appreciation on investments and
foreign currency transactions -- net 4,902,441 1,806,214
------------ ------------
Net increase in net assets resulting from operations 6,129,290 3,189,315
------------ ------------
===================================================================================================================================
Dividends to Investment income -- net:
Shareholders Class A (49,624) (111,824)
(Note 1g): Class B (770,848) (1,638,691)
Class C (116,561) (108,910)
Class D (51,573) (93,142)
------------ ------------
Net decrease in net assets resulting from dividends to shareholders (988,606) (1,952,567)
------------ ------------
===================================================================================================================================
Capital Share Net increase (decrease) in net assets derived from capital share transactions 1,226,388 (8,197,559)
Transactions ------------ ------------
(Note 4):
===================================================================================================================================
Net Assets: Total increase (decrease) in net assets 6,367,072 (6,960,811)
Beginning of period 34,371,943 41,332,754
------------ ------------
End of period* $ 40,739,015 $ 34,371,943
============ ============
*Undistributed investment income -- net $ 101,482 $ 217,971
============ ============
===================================================================================================================================
</TABLE>
See Notes to Financial Statements.
9
<PAGE>
Merrill Lynch Utility Income Fund, Inc. February 28, 1998
FINANCIAL INFORMATION (continued)
Financial Highlights
<TABLE>
<CAPTION>
Class A
-------------------------------------------------
For the For the
Six Period
The following per share data and ratios have been derived Months For the Year Oct. 29,
from information provided in the financial statements. Ended Ended August 31, 1993+ to
Feb. 28, -------------------------- Aug. 31,
Increase (Decrease) in Net Asset Value: 1998+++ 1997+++ 1996 1995 1994
========================================================================================================================
<S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period ....... $ 9.46 $ 9.17 $ 9.15 $ 8.44 $10.00
Operating ------ ------ ------ ------ ------
Performance: Investment income -- net ................... .27 .55 .60 .60 .40
Realized and unrealized gain (loss) on
investments and foreign currency
transactions -- net ........................ 1.47 .29 .02 .59 (1.57)
------ ------ ------ ------ ------
Total from investment operations ........... 1.74 .84 .62 1.19 (1.17)
------ ------ ------ ------ ------
Less dividends from investment income -- net (.31) (.55) (.60) (.48) (.39)
------ ------ ------ ------ ------
Net asset value, end of period ............. $10.89 $ 9.46 $ 9.17 $ 9.15 $ 8.44
====== ====== ====== ====== ======
========================================================================================================================
Total Investment Based on net asset value per share ......... 18.56%+++ 9.36% 6.61% 14.68% (11.84%)+++
Return:** ====== ====== ====== ====== ======
========================================================================================================================
Ratios to Average Expenses, net of reimbursement ............. .59%* .59% .56% .49% .44%*
Net Assets: ====== ====== ====== ====== ======
Expenses ................................... 1.30%* 1.51% 1.52% 1.87% 1.58%*
====== ====== ====== ====== ======
Investment income -- net ................... 5.24%* 5.79% 5.56% 6.60% 5.92%*
====== ====== ====== ====== ======
========================================================================================================================
Supplemental Net assets, end of period (in thousands) ... $2,112 $1,376 $2,108 $3,253 $4,238
Data: ====== ====== ====== ====== ======
Portfolio turnover ......................... 3.25% 5.50% 25.98% 12.59% 8.50%
====== ====== ====== ====== ======
Average commission rate paid++++ ........... $.0600 $.0595 $.0395 -- --
====== ====== ====== ====== ======
========================================================================================================================
</TABLE>
* Annualized.
** Total investment returns exclude the effects of sales
loads.
+ Commencement of operations.
++ Based on average shares outstanding.
+++ Aggregate total investment return.
++++ For fiscal years beginning on or after September 1,
1995, the Fund is required to disclose its average
commission rate per share for purchases and sales of
equity securities. The "Average Commission Rate Paid"
includes commissions paid in foreign currencies, which
have been converted into US dollars using the
prevailing exchange rate on the date of the
transaction. Such conversions may significantly affect
the rate shown.
See Notes to Financial Statements.
10
<PAGE>
Merrill Lynch Utility Income Fund, Inc. February 28, 1998
FINANCIAL INFORMATION (continued)
Financial Highlights (continued)
<TABLE>
<CAPTION>
Class B
-------------------------------------------------
For the For the
Six Period
The following per share data and ratios have been derived Months For the Year Oct. 29,
from information provided in the financial statements. Ended Ended August 31, 1993+ to
Feb. 28, -------------------------- Aug. 31,
Increase (Decrease) in Net Asset Value: 1998+++ 1997+++ 1996 1995 1994
========================================================================================================================
<S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period ....... $ 9.45 $ 9.17 $ 9.15 $ 8.44 $ 10.00
Operating ------- ------- ------- ------- -------
Performance: Investment income -- net ................... .24 .47 .46 .49 .35
Realized and unrealized gain (loss) on
investments and foreign currency
transactions -- net ........................ 1.47 .28 .09 .63 (1.57)
------- ------- ------- ------- -------
Total from investment operations ........... 1.71 .75 .55 1.12 (1.22)
------- ------- ------- ------- -------
Less dividends from investment income -- net (.27) (.47) (.53) (.41) (.34)
------- ------- ------- ------- -------
Net asset value, end of period ............. $10.89 $ 9.45 $ 9.17 $ 9.15 $ 8.44
======= ======= ======= ======= =======
========================================================================================================================
Total Investment Based on net asset value per share ........... 18.24%+++ 8.39% 5.86% 13.72% (12.34%)+++
Return:** ======= ======= ======= ======= =======
========================================================================================================================
Ratios to Average Expenses, net of reimbursement ............. 1.37%* 1.36% 1.34% 1.27% 1.21%*
Net Assets: ======= ======= ======= ======= =======
Expenses ................................... 2.08%* 2.28% 2.29% 2.66% 2.35%*
======= ======= ======= ======= =======
Investment income -- net ................... 4.58%* 5.00% 4.79% 5.75% 5.22%*
======= ======= ======= ======= =======
========================================================================================================================
Supplemental Net assets, end of period (in thousands) ... $31,803 $27,259 $35,702 $37,498 $27,395
Data: ======= ======= ======= ======= =======
Portfolio turnover ......................... 3.25% 5.50% 25.98% 12.59% 8.50%
======= ======= ======= ======= =======
Average commission rate paid++++ ........... $.0600 $.0595 $.0395 -- --
======= ======= ======= ======= =======
========================================================================================================================
</TABLE>
* Annualized.
** Total investment returns exclude the effects of sales
loads.
+ Commencement of operations.
++ Based on average shares outstanding.
+++ Aggregate total investment return.
++++ For fiscal years beginning on or after September 1,
1995, the Fund is required to disclose its average
commission rate per share for purchases and sales of
equity securities. The "Average Commission Rate Paid"
includes commissions paid in foreign currencies, which
have been converted into US dollars using the
prevailing exchange rate on the date of the
transaction. Such conversions may significantly affect
the rate shown.
See Notes to Financial Statements.
11
<PAGE>
Merrill Lynch Utility Income Fund, Inc. February 28, 1998
FINANCIAL INFORMATION (continued)
Financial Highlights (continued)
<TABLE>
<CAPTION>
Class C
---------------------------------------
For the For the
Six Period
The following per share data and ratios have been derived Months For the Year Oct. 21,
from information provided in the financial statements. Ended Ended August 31, 1993+ to
Feb. 28, ---------------- Aug. 31,
Increase (Decrease) in Net Asset Value: 1998+++ 1997+++ 1996 1995
=================================================================================================================
<S> <C> <C> <C> <C>
Per Share Net asset value, beginning of period .......... $ 9.44 $ 9.15 $ 9.14 $ 8.17
Operating ------ ------ ------ ------
Performance: Investment income -- net ...................... .23 .47 .43 .42
Realized and unrealized gain on investments and
foreign currency transactions -- net .......... 1.47 .29 .10 .90
------ ------ ------ ------
Total from investment operations .............. 1.70 .76 .53 1.32
------ ------ ------ ------
Less dividends from investment income -- net .. (.27) (.47) (.52) (.35)
------ ------ ------ ------
Net asset value, end of period ................ $10.87 $ 9.44 $ 9.15 $ 9.14
====== ====== ====== ======
=================================================================================================================
Total Investment Based on net asset value per share ............ 18.12%+++ 8.48% 5.65% 16.50%+++
Return:** ====== ====== ====== ======
=================================================================================================================
Ratios to Average Expenses, net of reimbursement ................ 1.42%* 1.42% 1.40% 1.32%*
Net Assets: ====== ====== ====== ======
Expenses ...................................... 2.12%* 2.30% 2.34% 2.77%*
====== ====== ====== ======
Investment income -- net ..................... 4.50%* 4.79% 4.75% 5.56%*
====== ====== ====== ======
=================================================================================================================
Supplemental Net assets, end of period (in thousands) ...... $4,901 $4,104 $2,107 $1,377
Data: ====== ====== ====== ======
Portfolio turnover ............................ 3.25% 5.50% 25.98% 12.59%
====== ====== ====== ======
Average commission rate paid++++ .............. $.0600 $.0595 $.0395 --
====== ====== ====== ======
=================================================================================================================
</TABLE>
* Annualized.
** Total investment returns exclude the effects of sales
loads.
+ Commencement of operations.
++ Based on average shares outstanding.
+++ Aggregate total investment return.
++++ For fiscal years beginning on or after September 1,
1995, the Fund is required to disclose its average
commission rate per share for purchases and sales of
equity securities. The "Average Commission Rate Paid"
includes commissions paid in foreign currencies, which
have been converted into US dollars using the
prevailing exchange rate on the date of the
transaction. Such conversions may significantly affect
the rate shown.
See Notes to Financial Statements.
12
<PAGE>
Merrill Lynch Utility Income Fund, Inc. February 28, 1998
FINANCIAL INFORMATION (concluded)
Financial Highlights (concluded)
<TABLE>
<CAPTION>
Class D
----------------------------------------
For the For the
Six Period
The following per share data and ratios have been derived Months For the Year Oct. 21,
from information provided in the financial statements. Ended Ended August 31, 1994+ to
Feb. 28, ---------------- Aug. 31,
Increase (Decrease) in Net Asset Value: 1998++ 1997++ 1996 1995
==================================================================================================================
<S> <C> <C> <C> <C>
Per Share Net asset value, beginning of period .......... $ 9.47 $ 9.18 $ 9.15 $ 8.17
Operating ------ ------ ------ ------
Performance: Investment income -- net ...................... .26 .52 .47 .51
Realized and unrealized gain on investments
and foreign currency transactions -- net ...... 1.47 .29 .13 .85
------ ------ ------ ------
Total from investment operations .............. 1.73 .81 .60 1.36
------ ------ ------ ------
Less dividends from investment income -- net .. (.29) (.52) (.57) (.38)
------ ------ ------ ------
Net asset value, end of period ................ $10.91 $ 9.47 $ 9.18 $ 9.15
====== ====== ====== ======
Total Investment Based on net asset value per share ............ 18.51%+++ 9.08% 6.46% 17.03%+++
Return:** ====== ====== ====== ======
Ratios to Average Expenses, net of reimbursement ................ .84%* .84% .82% .74%*
Net Assets: ====== ====== ====== ======
Expenses ...................................... 1.55%* 1.76% 1.75% 2.10%*
====== ====== ====== ======
Investment income -- net ..................... 5.02%* 5.47% 5.37% 6.14%*
====== ====== ====== ======
Supplemental Net assets, end of period (in thousands) ...... $1,923 $1,633 $1,416 $ 558
Data: ====== ====== ====== ======
Portfolio turnover ............................ 3.25% 5.50% 25.98% 12.59%
====== ====== ====== ======
Average commission rate paid++++ .............. $.0600 $.0595 $.0395 --
====== ====== ====== ======
==================================================================================================================
</TABLE>
* Annualized.
** Total investment returns exclude the effects of sales
loads.
+ Commencement of operations.
++ Based on average shares outstanding.
+++ Aggregate total investment return.
++++ For fiscal years beginning on or after September 1,
1995, the Fund is required to disclose its average
commission rate per share for purchases and sales of
equity securities. The "Average Commission Rate Paid"
includes commissions paid in foreign currencies, which
have been converted into US dollars using the prevailing
exchange rate on the date of the transaction. Such
conversions may significantly affect the rate shown.
See Notes to Financial Statements.
13
<PAGE>
Merrill Lynch Utility Income Fund, Inc. February 28, 1998
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.
(a) Valuation of investments -- Portfolio securities which are traded on stock
exchanges are valued at the last sale price on the exchange on which such
securities are traded, as of the close of business on the day the securities are
being valued or, lacking any sales, at the last available bid price. Securities
traded in the over-the-counter market are valued at the last available bid price
prior to the time of valuation. In cases where securities are traded on more
than one exchange, the securities are valued on the exchange designated by or
under the authority of the Board of Directors as the primary market. Securities
which are traded both in the over-the-counter market and on a stock exchange are
valued according to the broadest and most representative market. Options written
are valued at the last sale price in the case of exchange-traded options or, in
the case of options traded in the over-the-counter market, the last asked price.
Options purchased are valued at the last sale price in the case of
exchange-traded options or, in the case of options traded in the
over-the-counter market, the last bid price. Short-term securities are valued at
amortized cost, which approximates market value. Other investments, including
futures contracts and related options, are stated at market value. Securities
and assets for which market value quotations are not available are valued at
their fair value as determined in good faith by or under the direction of the
Fund's Board of Directors.
(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) 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.
(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.
o 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.
o Options -- The Fund is authorized to write covered call and put options and
purchase put and call 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
14
<PAGE>
Merrill Lynch Utility Income Fund, Inc. February 28, 1998
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.
o 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.
(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
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.
(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 are declared
and paid monthly. Distribution 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.
For the six months ended February 28, 1998, MLAM earned fees of $103,876, all of
which was voluntarily waived. MLAM also voluntarily reimbursed the Fund for
additional expenses of $30,027.
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 Distribution
Maintenance Fee Fee
- --------------------------------------------------------------------------------
Class B ...................... 0.25% 0.50%
Class C ...................... 0.25% 0.55%
Class D ...................... 0.25% --
- --------------------------------------------------------------------------------
Pursuant to a sub-agreement with the Distributor, Merrill Lynch, Pierce, Fenner
& Smith Inc. ("MLPF&S"), a subsidiary of ML & Co., also provides account
maintenance and distribution services to the Trust. 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
15
<PAGE>
Merrill Lynch Utility Income Fund, Inc. February 28, 1998
NOTES TO FINANCIAL STATEMENTS (concluded)
providing shareholder and distribution-related services to Class B and Class C
shareholders.
For the six months ended February 28, 1998, MLFD earned underwriting discounts
and MLPF&S earned dealer concessions on sales of the Fund's Class A and Class D
Shares as follows:
- --------------------------------------------------------------------------------
MLFD MLPF&S
- --------------------------------------------------------------------------------
Class A ....................................... $ 79 $ 776
Class D ....................................... $425 $4,207
- --------------------------------------------------------------------------------
For the six months ended February 28, 1998, MLPF&S received contingent deferred
sales charges of $26,376and $1,145 relating to transactions in Class B and Class
C Shares, respectively.
Merrill Lynch Financial Data Services, Inc. ("MLFDS"), a wholly-owned subsidiary
of ML & Co., is the Fund's transfer agent.
During the six months ended February 28, 1998, the Fund paid Merrill Lynch
Security Pricing Service, and affiliate of MLPF&S, $327 for security price
quotations to compute the net asset value of the Fund.
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, MLFD, MLFDS, PSI, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities, for the six
months ended February 28, 1998 were $1,170,947 and $1,643,091, respectively.
Net realized gains for the six months ended February 28, 1998 and net unrealized
gains as of February 28, 1998 were as follows:
- --------------------------------------------------------------------------------
Realized Unrealized
Gains Gains
- --------------------------------------------------------------------------------
Long-term investments .................... $354,732 $5,517,439
-------- ----------
Total .................................... $354,732 $5,517,439
======== ==========
- --------------------------------------------------------------------------------
As of February 28, 1998, net unrealized appreciation for Federal income tax
purposes aggregated $5,517,439, of which $5,870,890 related to appreciated
securities and $353,451 related to depreciated securities. At February 28, 1998,
the aggregate cost of investments for Federal income tax purposes was
$35,144,681.
4. Capital Share Transactions:
Net increase (decrease) in net assets derived from capital share transactions
was $1,226,388 and $(8,197,559) for the six months ended February 28, 1998 and
for the year ended August 31, 1997, respectively.
Transactions in shares for each class were as follows:
- -------------------------------------------------------------------------
Class A Shares for the Six Months Dollar
Ended February 28, 1998 Shares Amount
- -------------------------------------------------------------------------
Shares sold ..................................... 91,842 $975,695
Shares issued to shareholders
in reinvestment of dividends .................... 3,329 34,875
------- ----------
Total issued .................................... 95,171 1,010,570
Shares redeemed ................................. (46,797) (489,728)
------- ----------
Net increase .................................... 48,374 $ 520,842
======= ==========
- -------------------------------------------------------------------------
- -------------------------------------------------------------------------
Class A Shares for the Year Dollar
Ended August 31, 1997 Shares Amount
- -------------------------------------------------------------------------
Shares sold ..................................... 20,399 $ 187,890
Shares issued to shareholders
in reinvestment of dividends .................... 8,334 77,642
-------- -----------
Total issued .................................... 28,733 265,532
Shares redeemed ................................. (113,140) (1,047,248)
-------- -----------
Net decrease .................................... (84,407) $ (781,716)
======== ===========
- -------------------------------------------------------------------------
- -------------------------------------------------------------------------
Class B Shares for the Six Months Dollar
Ended February 28, 1998 Shares Amount
- -------------------------------------------------------------------------
Shares sold ..................................... 630,286 $ 6,803,137
Shares issued to shareholders in
reinvestment of dividends ....................... 48,730 507,086
-------- -----------
Total issued .................................... 679,016 7,310,223
Automatic conversion of shares .................. (1,022) (10,290)
Shares redeemed ................................. (640,101) (6,800,447)
-------- -----------
Net increase .................................... 37,893 $ 499,486
======== ===========
- -------------------------------------------------------------------------
- -------------------------------------------------------------------------
Class B Shares for the Year Dollar
Ended August 31, 1997 Shares Amount
- --------------------------------------------------------------------------
Shares sold .................................. 442,701 $ 4,126,710
Shares issued to shareholders
in reinvestment of dividends ................. 113,728 1,060,681
---------- ------------
Total issued ................................. 556,429 5,187,391
Automatic conversion of shares ............... (10,234) (95,906)
Shares redeemed .............................. (1,557,581) (14,591,097)
---------- ------------
Net decrease ................................. (1,011,386) $ (9,499,612)
========== ============
- --------------------------------------------------------------------------
16
<PAGE>
Merrill Lynch Utility Income Fund, Inc. February 28, 1998
- --------------------------------------------------------------------------
Class C Shares for the Six Months Dollar
Ended February 28, 1998 Shares Amount
- --------------------------------------------------------------------------
Shares sold .................................... 463,462 $ 4,905,663
Shares issued to shareholders
in reinvestment of dividends ................... 8,942 92,725
-------- ------------
Total issued ................................... 472,404 4,998,388
Shares redeemed ................................ (456,249) (4,845,475)
-------- ------------
Net increase ................................... 16,155 $ 152,913
======== ============
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
Class C Shares for the Year Dollar
Ended August 31, 1997 Shares Amount
- --------------------------------------------------------------------------
Shares sold .................................... 344,100 $ 3,206,197
Shares issued to shareholders
in reinvestment of dividends ................... 8,267 77,322
-------- ------------
Total issued ................................... 352,367 3,283,519
Shares redeemed ................................ (147,723) (1,372,843)
-------- ------------
Net increase ................................... 204,644 $ 1,910,676
======== ============
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
Class D Shares for the Six Months Dollar
Ended February 28, 1998 Shares Amount
- --------------------------------------------------------------------------
Shares sold .................................... 369,748 $ 3,976,889
Automatic conversion of shares ................. 1,020 10,290
Shares issued to shareholders
in reinvestment of dividends ................... 3,555 37,176
-------- ------------
Total issued ................................... 374,323 4,024,355
Shares redeemed ................................ (370,417) (3,971,208)
-------- ------------
Net increase ................................... 3,906 $ 53,147
======== ============
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
Class D Shares for the Year Dollar
Ended August 31, 1997 Shares Amount
- --------------------------------------------------------------------------
Shares sold .................................... 124,751 $ 1,173,521
Automatic conversion of shares ................. 10,218 95,906
Shares issued to shareholders
in reinvestment of dividends ................... 3,969 37,053
-------- ------------
Total issued ................................... 138,938 1,306,480
Shares redeemed ................................ (120,738) (1,133,387)
-------- ------------
Net increase ................................... 18,200 $ 173,093
======== ============
- --------------------------------------------------------------------------
5. Subsequent Event:
On March 3, 1998, the Fund's Board of Directors declared an ordinary income
dividend in the amount of $.045111 per Class A Share, $.038619 per Class B
Share, $.038240 per Class C Share and $.042993 per Class D Share, payable on
March 10, 1998 to shareholders of record as of March 2, 1998.
6. Capital Loss Carryforward:
At August 31, 1997, the Fund had a net capital loss carryforward of
approximately $1,098,000, of which $750,000 expires in 2003 and $348,000 expires
in 2005. This amount will be available to offset like amounts of any future
taxable gains.
17
<PAGE>
Merrill Lynch Utility Income Fund, Inc. February 28, 1998
PORTFOLIO INFORMATION
For the Quarter Ended February 28, 1998
Percent of
Ten Largest Holdings Net Assets
Boston Edison Co. ....................... 3.9%
ENSERCH Corp., 6.375% due 2/01/2004 ..... 3.6
Florida Progress Corp. .................. 3.2
OGE Energy Corp. ........................ 3.1
Consolidated Edison Company of New York . 3.0
Enova Corp. ............................. 3.0
FirstEnergy Corp. ....................... 3.0
New Century Energies Corp. .............. 3.0
Allegheny Energy, Inc. .................. 2.9
American Electric Power Company, Inc. ... 2.9
Addition (Equity Investments)
Potomac Electric Power Company (PEPCO)
18
<PAGE>
Merrill Lynch Utility Income Fund, Inc. February 28, 1998
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
Walter D. Rogers, Senior Vice President and Portfolio Manager
Donald C. Burke, Vice President
Gerald M. Richard, Treasurer
Thomas D. Jones, III, Secretary
Custodian
State Street Bank and Trust Company
One Heritage Drive, P2N
North Quincy, MA 02171
Transfer Agent
Merrill Lynch Financial Data Services, Inc.
4800 Deer Lake Drive East
Jacksonville, FL 32246-6484
(800) 637-3863
19
<PAGE>
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
Utility Income Fund, Inc.
Box 9011 Princeton, NJ 08543-9011 #16856 -- 2/98
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