MERRILL LYNCH
UTILITY INCOME
FUND, INC.
FUND LOGO
Semi-Annual Report
February 28, 1999
This report is not authorized for use as an offer of sale or a
solicitation of an offer to buy shares of the Fund unless
accompanied or preceded by the Fund's current prospectus. Past
performance results shown in this report should not be considered a
representation of future performance. Investment return and
principal value of shares will fluctuate so that shares, when
redeemed, may be worth more or less than their original cost.
Statements and other information herein are as dated and are subject
to change.
Merrill Lynch
Utility Income Fund, Inc.
Box 9011
Princeton, NJ
08543-9011
Printed on post-consumer recycled paper
MERRILL LYNCH UTILITY INCOME FUND, INC.
DEAR SHAREHOLDER
Investor attitudes shifted markedly during the quarter ended
February 28, 1999. The US economy demonstrated surprising strength
as 1998 drew to a close. As 1999 began, forecasts of a possible
slowdown gave way to increasing expectations that the US economy
could overheat. As a result, US long-term bond yields backed up to
mid-summer 1998 levels as investors increasingly anticipated
monetary policy tightening by the Federal Reserve Board. However,
shortly after the February quarter's close, investor confidence
returned as weaker-than-expected US employment statistics suggested
that inflationary pressures would continue to be contained and that
the central bank would not make major adjustments to its monetary
policy.
As 1999 unfolds, investor focus is likely to remain on the prospects
for the US economy. For the health of the global economy overall,
the ongoing recession in Japan is of great concern. At the same
time, the difficulties in emerging economies such as Russia and
Brazil remain. Progress in easing strains within the global
financial system--combined with continued evidence of
noninflationary economic growth--would likely provide an important
element of stability to the financial markets.
Portfolio Matters
For the three-month period ended February 28, 1999, total returns
for Merrill Lynch Utility Income Fund, Inc.'s Class A, Class B,
Class C and Class D Shares were -4.07%, -4.25%, -4.19% and -4.12%,
respectively. (Fund results shown do not reflect sales charges and
would be lower if sales charges were included. For complete
performance information, see pages 3 and 4 of this report to
shareholders.)
As of February 28, 1999, the Fund had 59.4% of its net assets
invested in equities and 27.4% in utility bonds. Of the portion
invested in equities, 53.2% was in domestic electric utility stocks,
5.0% was in natural gas stocks, and 1.2% was in water utilities. As
for the Fund's bond holdings, 12.7% was invested in
telecommunications, 5.4% in natural gas, 6.0% in electric utilities
and 3.3% in industrial--energy. This level of diversification
allowed us to generate current income as we sought to spread the
assets of the Fund across the four principal utility sectors.
Domestic electric utility equity prices came under pressure during
the February quarter as investors sought more growth-oriented and
higher risk companies. The strong US economy supports an optimistic
stock market. Furthermore, long-term interest rates, as measured by
the 30-year US Treasury bond, rose from 5.08% at November 30, 1998
to 5.57% by February 28, 1999. The confluence of these events
resulted in the domestic electric utility sector selling at nearly a
20-year low on a relative price/earnings basis. This low valuation
is in spite of generally positive news on the sector.
In general, for the three-month period ended February 28, 1999,
utility bonds were also weak as a result of the rise in overall
interest rates. However, yields on utility bonds have been much
higher than on equities.
During the February quarter, we initiated one new position in
Western Resources, Inc. This company provides electricity and
natural gas in three states and monitored security services in 48
states. Existing utility operations serve 650,000 natural gas and
606,000 electric customers in central and southeastern Kansas.
Western Resources is currently in the process of acquiring the
publicly traded electric utility company, Kansas City Power & Light,
which has 435,000 electric customers. The company has been
undergoing a restructuring process to rid itself of non-core
businesses, and management is focused on businesses that generate a
recurring stream of revenues from customers. The stock has an above-
average yield, and its management has publicly stated that the next
review of the dividend rate would not be until at least January
2000.
In Conclusion
We thank you for your interest in Merrill Lynch Utility Income Fund,
Inc., and we look forward to assisting you with your financial needs
in the months and years ahead.
Sincerely,
(Terry K. Glenn)
Terry K. Glenn
President and Director
(Walter D. Rogers)
Walter D. Rogers
Senior Vice President and Portfolio Manager
April 6, 1999
After more than 20 years of service, Arthur Zeikel recently retired
as Chairman of Merrill Lynch Asset Management, L.P. (MLAM). Mr.
Zeikel served as President of MLAM from 1977 to 1997 and as Chairman
since December 1997. Mr. Zeikel is one of the country's most
respected leaders in asset management and presided over the growth
of Merrill Lynch's asset management business. During his tenure,
client assets under management grew from $300 million to over $500
billion. Mr. Zeikel will remain on Merrill Lynch Utility Income
Fund, Inc.'s Board of Directors. We are pleased to announce that
Terry K. Glenn has been elected President and Director of the Fund.
Mr. Glenn has held the position of Executive Vice President of MLAM
since 1983.
Mr. Zeikel's colleagues at MLAM join the Fund's Board of Directors
in wishing him well in his retirement from Merrill Lynch and are
pleased that he will continue as a member of the Fund's Board of
Directors.
Merrill Lynch Utility Income Fund, Inc.
February 28, 1999
OFFICERS AND DIRECTORS
Terry K. Glenn, President and Director
Ronald W. Forbes, Director
Cynthia A. Montgomery, Director
Charles C. Reilly, Director
Kevin A. Ryan, Director
Richard R. West, Director
Arthur Zeikel, Director
Walter D. Rogers, Senior Vice President and
Portfolio Manager
Donald C. Burke, Vice President and Treasurer
Thomas D. Jones, III, Secretary
Custodian
State Street Bank and Trust Company
One Heritage Drive, P2N
North Quincy, MA 02171
Transfer Agent
Financial Data Services, Inc.
4800 Deer Lake Drive East
Jacksonville, FL 32246-6484
(800) 637-3863
Gerald M. Richard, Treasurer and Norman R. Harvey, Senior Vice
President of Merrill Lynch Utility Income Fund, Inc. have recently
retired. Their colleagues at Merrill Lynch Asset Management, L.P.
join the Fund's Board of Directors in wishing Mr. Richard and Mr.
Harvey well in their retirements.
Merrill Lynch Utility Income Fund, Inc.
February 28, 1999
PERFORMANCE DATA
About Fund Performance
Investors are able to purchase shares of the Fund through the
Merrill Lynch Select Pricing SM System, which offers four pricing
alternatives:
* Class A Shares incur a maximum initial sales charge (front-end
load) of 4% and bear no ongoing distribution or account maintenance
fees. Class A Shares are available only to eligible investors.
* Class B Shares are subject to a maximum contingent deferred sales
charge of 4% if redeemed during the first year, decreasing 1% each
year thereafter to 0% after the fourth year. In addition, Class B
Shares are subject to a distribution fee of 0.50% and an account
maintenance fee of 0.25%. These shares automatically convert to
Class D Shares after 10 years. (There is no initial sales charge for
automatic share conversions.)
* Class C Shares are subject to a distribution fee of 0.55% and an
account maintenance fee of 0.25%. In addition, Class C Shares are
subject to a 1% contingent deferred sales charge if redeemed within
one year of purchase.
* Class D Shares incur a maximum initial sales charge of 4% and an
account maintenance fee of 0.25% (but no distribution fee).
None of the past results shown should be considered a representation
of future performance. Figures shown in the "Recent Performance
Results" and "Average Annual Total Return" tables assume
reinvestment of all dividends and capital gains distributions at net
asset value on the 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.
<TABLE>
Recent Performance Results*
<CAPTION>
12 Month 3 Month Since Inception
Total Return Total Return Total Return
<S> <C> <C> <C>
ML Utility Income Fund, Inc. Class A Shares +4.94% -4.07% +46.67%
ML Utility Income Fund, Inc. Class B Shares +4.15 -4.25 +40.86
ML Utility Income Fund, Inc. Class C Shares +4.07 -4.19 +64.13
ML Utility Income Fund, Inc. Class D Shares +4.67 -4.12 +68.57
<FN>
*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 since inception periods are Class A & Class B Shares, from
10/29/93 to 2/28/99 and Class C & Class D Shares, from 10/21/94 to
2/28/99.
</TABLE>
Merrill Lynch Utility Income Fund, Inc.
February 28, 1999
PERFORMANCE DATA (concluded)
Average Annual Total Return
% Return Without % Return With
Sales Charge Sales Charge**
Class A Shares*
Year Ended 12/31/98 +10.86% +6.42%
Five Years Ended 12/31/98 + 9.87 +8.98
Inception (10/29/93)
through 12/31/98 + 9.21 +8.36
[FN]
*Maximum sales charge is 4%.
**Assuming maximum sales charge.
% Return % Return
Without CDSC With CDSC**
Class B Shares*
Year Ended 12/31/98 +9.93% +5.93%
Five Years Ended 12/31/98 +9.03 +9.03
Inception (10/29/93)
through 12/31/98 +8.37 +8.37
[FN]
*Maximum contingent deferred sales charge is 4% and is reduced to 0%
after 4 years.
**Assuming payment of applicable contingent deferred sales charge.
% Return % Return
Without CDSC With CDSC**
Class C Shares*
Year Ended 12/31/98 + 9.85% + 8.85%
Inception (10/21/94)
through 12/31/98 +14.53 +14.53
[FN]
*Maximum contingent deferred sales charge is 1% and is reduced to 0%
after 1 year.
**Assuming payment of applicable contingent deferred sales charge.
% Return Without % Return With
Sales Charge Sales Charge**
Class D Shares*
Year Ended 12/31/98 +10.57% + 6.14%
Inception (10/21/94)
through 12/31/98 +15.25 +14.13
[FN]
*Maximum sales charge is 4%.
**Assuming maximum sales charge.
Merrill Lynch Utility Income Fund, Inc.
February 28, 1999
<TABLE>
SCHEDULE OF INVESTMENTS
<CAPTION>
Shares Value Percent of
Industries Held Stocks Cost (Note 1a) Net Assets
<S> <C> <S> <C> <C> <C>
Utilities--Electric 49,000 Allegheny Energy, Inc. $ 1,231,050 $ 1,454,687 2.2%
43,600 Ameren Corporation 1,782,353 1,626,825 2.5
24,600 American Electric Power Company, Inc. 892,569 1,023,975 1.6
47,000 Baltimore Gas and Electric Company 1,286,708 1,204,375 1.8
36,000 Central & South West Corporation 988,020 893,250 1.4
11,000 Cinergy Corp. 284,857 321,062 0.5
45,000 Conectiv, Inc. 924,651 953,437 1.4
29,100 Consolidated Edison, Inc. 980,888 1,360,425 2.1
31,400 DTE Energy Company 984,627 1,240,300 1.9
36,800 Dominion Resources, Inc. 1,737,197 1,421,400 2.2
65,000 Eastern Utilities Associates 1,671,525 1,848,437 2.8
52,900 FirstEnergy Corp. 1,280,193 1,547,325 2.4
34,000 Florida Progress Corporation 1,105,601 1,364,250 2.1
27,500 GPU, Inc. 767,170 1,096,563 1.7
52,000 Nevada Power Company 1,249,626 1,244,750 1.9
26,000 New Century Energies, Inc. 841,935 1,054,625 1.6
42,500 New England Electric System 1,588,405 2,069,219 3.2
56,600 Northern States Power Company 1,443,838 1,460,988 2.2
70,800 PacifiCorp 1,375,936 1,269,975 1.9
54,500 Potomac Electric Power Company 1,408,427 1,328,438 2.0
29,400 Public Service Enterprise Group
Incorporated 947,445 1,117,200 1.7
35,000 Puget Sound Energy, Inc. 995,169 844,375 1.3
45,300 Reliant Energy, Inc. (a) 1,274,853 1,214,606 1.8
50,000 Rochester Gas and Electric Corporation 1,571,501 1,306,250 2.0
43,400 The Southern Company 923,825 1,087,713 1.6
21,000 Texas Utilities Company 715,885 891,188 1.4
32,600 Unicom Corporation 954,082 1,159,338 1.8
20,000 WPS Resources Corporation 673,700 595,000 0.9
30,000 Western Resources, Inc. 976,800 845,625 1.3
----------- ----------- ------
32,858,836 34,845,601 53.2
Utilities--Gas 40,300 AGL Resources Inc. 741,707 768,219 1.2
44,000 KeySpan Energy 1,344,960 1,166,000 1.8
10,000 New Jersey Resources Corporation 282,913 349,375 0.5
48,000 Sempra Energy 1,165,493 1,008,000 1.5
----------- ----------- ------
3,535,073 3,291,594 5.0
Utilities--Water 9,400 E'Town Corporation 379,991 403,612 0.6
20,500 United Water Resources Inc. 380,330 394,625 0.6
----------- ----------- ------
760,321 798,237 1.2
Total Stocks 37,154,230 38,935,432 59.4
Face
Amount Corporate Bonds
Industrial-- $2,150,000 Williams Companies Inc., 6.625% due
Energy 11/15/2004 2,214,995 2,156,256 3.3
</TABLE>
Merrill Lynch Utility Income Fund, Inc.
February 28, 1999
<TABLE>
SCHEDULE OF INVESTMENTS (concluded)
<CAPTION>
Face Value Percent of
Industries Amount Corporate Bonds Cost (Note 1a) Net Assets
<S> <C> <S> <C> <C> <C>
Telecommunications $2,000,000 GTE Corp., 6.36% due 4/15/2006 $ 2,113,280 $ 2,025,460 3.1%
2,000,000 MCI WorldCom Inc., 7.75% due 4/01/2007 2,268,560 2,194,580 3.3
1,000,000 Southwestern Bell Corp., 7% due 7/01/2015 1,034,480 1,056,300 1.6
2,000,000 U.S. West Capital Funding Inc., 6.375%
due 7/15/2008 2,135,760 2,037,380 3.1
1,000,000 United Telephone of Florida, Series FF,
6.875% due 7/15/2013 1,019,950 1,026,150 1.6
----------- ----------- ------
8,572,030 8,339,870 12.7
Utilities--Electric 1,000,000 Alabama Power Co., Series G, 5.375% due
10/01/2008 985,660 949,270 1.5
2,000,000 Consumers Energy, 6.375% due 2/01/2008 2,035,100 1,973,196 3.0
1,000,000 Public Service Company of Colorado,
Series 1, 6.375% due 11/01/2005 991,300 1,013,660 1.5
----------- ----------- ------
4,012,060 3,936,126 6.0
Utilities--Gas 1,500,000 ENSERCH Corp., 6.375% due 2/01/2004 1,491,030 1,491,570 2.3
1,000,000 El Paso Natural Gas, 7.75% due 1/15/2002 1,090,950 1,042,070 1.6
1,000,000 KN Energy, Inc., 6.65% due 3/01/2005 1,019,850 1,011,200 1.5
----------- ----------- ------
3,601,830 3,544,840 5.4
Total Corporate Bonds 18,400,915 17,977,092 27.4
Short-Term Securities
Commercial Paper* 2,439,000 General Electric Capital Corp., 4.875%
due 3/01/1999 2,438,339 2,438,339 3.7
US Government 6,300,000 Federal Home Loan Mortgage Corporation,
Obligations* 4.75% due 3/15/1999 6,286,700 6,286,700 9.6
Total Short-Term Securities 8,725,039 8,725,039 13.3
Total Investments $64,280,184 65,637,563 100.1
===========
Liabilities in Excess of Other Assets (80,494) (0.1)
----------- ------
Net Assets $65,557,069 100.0%
=========== ======
<FN>
*Commercial Paper and certain US Government Agency Obligations are
traded on a discount basis; the interest rates shown reflect the
discount rates paid at the time of purchase by the Fund.
(a)Formerly Houston Industries, Inc.
See Notes to Financial Statements.
</TABLE>
Merrill Lynch Utility Income Fund, Inc.
February 28, 1999
FINANCIAL INFORMATION
<TABLE>
Statement of Assets and Liabilities as of February 28, 1999
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$64,280,184) (Note 1a) $65,637,563
Cash 249
Receivables:
Interest $ 284,675
Dividends 146,790
Capital shares sold 70,338 501,803
-----------
Deferred organization expenses (Note 1f) 2,970
Prepaid registration fees and other assets (Note 1f) 22,986
-----------
Total assets 66,165,571
-----------
Liabilities: Payables:
Capital shares redeemed 528,528
Distributor (Note 2) 34,507
Investment adviser (Note 2) 2,903 565,938
-----------
Accrued expenses and other liabilities 42,564
-----------
Total liabilities 608,502
-----------
Net Assets: Net assets $65,557,069
===========
Net Assets Class A Shares of Common Stock, $0.10 par value, 100,000,000
Consist of: shares authorized $ 38,202
Class B Shares of Common Stock, $0.10 par value, 100,000,000
shares authorized 475,444
Class C Shares of Common Stock, $0.10 par value, 100,000,000
shares authorized 55,443
Class D Shares of Common Stock, $0.10 par value, 100,000,000
shares authorized 46,118
Paid-in capital in excess of par 63,376,134
Undistributed investment income--net 213,406
Accumulated realized capital losses on investments--net (5,057)
Unrealized appreciation on investments--net 1,357,379
-----------
Net assets $65,557,069
===========
Net Asset Value: Class A--Based on net assets of $4,071,959 and 382,015 shares
outstanding $ 10.66
===========
Class B--Based on net assets of $50,663,330 and 4,754,440
shares outstanding $ 10.66
===========
Class C--Based on net assets of $5,896,417 and 554,434 shares
outstanding $ 10.64
===========
Class D--Based on net assets of $4,925,363 and 461,176 shares
outstanding $ 10.68
===========
See Notes to Financial Statements.
</TABLE>
Merrill Lynch Utility Income Fund, Inc.
February 28, 1999
FINANCIAL INFORMATION (continued)
<TABLE>
Statement of Operations for the Six Months Ended February 28, 1999
<S> <S> <C> <C>
Investment Dividends $ 1,004,278
Income Interest and discount earned 704,487
(Notes 1d & 1e): -----------
Total income 1,708,765
-----------
Expenses: Account maintenance and distribution fees--Class B (Note 2) $ 177,685
Investment advisory fees (Note 2) 165,985
Accounting services (Note 2) 34,634
Transfer agent fees--Class B (Note 2) 29,099
Registration fees (Note 1f) 26,142
Professional fees 25,874
Printing and shareholder reports 24,351
Account maintenance and distribution fees--Class C (Note 2) 20,647
Directors' fees and expenses 7,262
Account maintenance fees--Class D (Note 2) 5,370
Custodian fees 5,021
Transfer agent fees--Class C (Note 2) 3,270
Transfer agent fees--Class D (Note 2) 2,199
Transfer agent fees--Class A (Note 2) 1,799
Amortization of organization expenses (Note 1f) 1,292
Pricing fees 157
Other 2,401
-----------
Total expenses before reimbursement 533,188
Reimbursement of expenses (Note 2) (145,393)
-----------
Total expenses after reimbursement 387,795
-----------
Investment income--net 1,320,970
-----------
Realized & Realized loss on investments--net (5,055)
Unrealized Change in unrealized appreciation on investments--net (2,447,414)
Loss on -----------
Investments--Net Net Decrease in Net Assets Resulting from Operations $(1,131,499)
(Notes 1b, 1c, ===========
1e & 3):
See Notes to Financial Statements.
</TABLE>
Merrill Lynch Utility Income Fund, Inc.
February 28, 1999
FINANCIAL INFORMATION (continued)
<TABLE>
Statements of Changes in Net Assets
<CAPTION>
For the Six For the Year
Months Ended Ended
February 28, August 31,
Increase (Decrease) in Net Assets: 1999 1998
<S> <S> <C> <C>
Operations: Investment income--net $ 1,320,970 $ 1,769,453
Realized gain (loss) on investments and foreign currency
transactions--net (5,055) 2,638,989
Change in unrealized appreciation on investments and foreign
currency transactions--net (2,447,414) 3,189,795
----------- -----------
Net increase (decrease) in net assets resulting from operations (1,131,499) 7,598,237
----------- -----------
Dividends & Investment income--net:
Distributions to Class A (82,215) (103,403)
Shareholders Class B (961,288) (1,459,293)
(Note 1g): Class C (102,062) (190,662)
Class D (94,394) (101,671)
Realized gain on investments--net:
Class A (78,738) --
Class B (1,068,525) --
Class C (123,178) --
Class D (95,886) --
----------- -----------
Net decrease in net assets resulting from dividends and
distributions to shareholders (2,606,286) (1,855,029)
----------- -----------
Capital Share Net increase (decrease) in net assets derived from capital
Transactions share transactions 29,436,783 (257,080)
(Note 4): ----------- -----------
Net Assets: Total increase in net assets 25,698,998 5,486,128
Beginning of period 39,858,071 34,371,943
----------- -----------
End of period* $65,557,069 $39,858,071
=========== ===========
<FN>
*Undistributed investment income--net $ 213,406 $ 132,395
=========== ===========
See Notes to Financial Statements.
</TABLE>
Merrill Lynch Utility Income Fund, Inc.
February 28, 1999
FINANCIAL INFORMATION (continued)
<TABLE>
Financial Highlights
<CAPTION>
Class A
For the
Six
The following per share data and ratios have been derived Months
from information provided in the financial statements. Ended
Feb. 28, For the Year Ended August 31,
Increase (Decrease) in Net Asset Value: 1999++ 1998++ 1997++ 1996 1995
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 11.04 $ 9.46 $ 9.17 $ 9.15 $ 8.44
Operating -------- -------- -------- -------- --------
Performance: Investment income--net .29 .57 .55 .60 .60
Realized and unrealized gain (loss) on
investments and foreign currency
transactions--net (.16) 1.60 .29 .02 .59
-------- -------- -------- -------- --------
Total from investment operations .13 2.17 .84 .62 1.19
-------- -------- -------- -------- --------
Less dividends and distributions:
Investment income--net (.28) (.59) (.55) (.60) (.48)
Realized gain on investments--net (.23) -- -- -- --
-------- -------- -------- -------- --------
Total dividends and distributions (.51) (.59) (.55) (.60) (.48)
-------- -------- -------- -------- --------
Net asset value, end of period $ 10.66 $ 11.04 $ 9.46 $ 9.17 $ 9.15
======== ======== ======== ======== ========
Total Investment Based on net asset value per share .90%+++ 23.30% 9.36% 6.61% 14.68%
Return:** ======== ======== ======== ======== ========
Ratios to Average Expenses, net of reimbursement .59%* .59% .59% .56% .49%
Net Assets: ======== ======== ======== ======== ========
Expenses 1.07%* 1.29% 1.51% 1.52% 1.87%
======== ======== ======== ======== ========
Investment income--net 5.03%* 5.26% 5.79% 5.56% 6.60%
======== ======== ======== ======== ========
Supplemental Net assets, end of period (in thousands) $ 4,072 $ 2,110 $ 1,376 $ 2,108 $ 3,253
Data: ======== ======== ======== ======== ========
Portfolio turnover .32% 13.36% 5.50% 25.98% 12.59%
======== ======== ======== ======== ========
<FN>
*Annualized.
**Total investment returns exclude the effects of sales loads.
++Based on average shares outstanding.
+++Aggregate total investment return.
See Notes to Financial Statements.
</TABLE>
Merrill Lynch Utility Income Fund, Inc.
February 28, 1999
FINANCIAL INFORMATION (continued)
<TABLE>
Financial Highlights (continued)
<CAPTION>
Class B
For the
Six
The following per share data and ratios have been derived Months
from information provided in the financial statements. Ended
Feb. 28, For the Year Ended August 31,
Increase (Decrease) in Net Asset Value: 1999++ 1998++ 1997++ 1996 1995
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 11.03 $ 9.45 $ 9.17 $ 9.15 $ 8.44
Operating -------- -------- -------- -------- --------
Performance: Investment income--net .25 .49 .47 .46 .49
Realized and unrealized gain (loss) on
investments and foreign currency
transactions--net (.16) 1.60 .28 .09 .63
-------- -------- -------- -------- --------
Total from investment operations .09 2.09 .75 .55 1.12
-------- -------- -------- -------- --------
Less dividends and distributions:
Investment income--net (.23) (.51) (.47) (.53) (.41)
Realized gain on investments--net (.23) -- -- -- --
-------- -------- -------- -------- --------
Total dividends and distributions (.46) (.51) (.47) (.53) (.41)
-------- -------- -------- -------- --------
Net asset value, end of period $ 10.66 $ 11.03 $ 9.45 $ 9.17 $ 9.15
======== ======== ======== ======== ========
Total Investment Based on net asset value per share .62%+++ 22.38% 8.39% 5.86% 13.72%
Return:** ======== ======== ======== ======== ========
Ratios to Average Expenses, net of reimbursement 1.36%* 1.37% 1.36% 1.34% 1.27%
Net Assets: ======== ======== ======== ======== ========
Expenses 1.84%* 2.06% 2.28% 2.29% 2.66%
======== ======== ======== ======== ========
Investment income--net 4.31%* 4.52% 5.00% 4.79% 5.75%
======== ======== ======== ======== ========
Supplemental Net assets, end of period (in thousands) $ 50,663 $ 32,540 $ 27,259 $ 35,702 $ 37,498
Data: ======== ======== ======== ======== ========
Portfolio turnover .32% 13.36% 5.50% 25.98% 12.59%
======== ======== ======== ======== ========
<FN>
*Annualized.
**Total investment returns exclude the effects of sales loads.
++Based on average shares outstanding.
+++Aggregate total investment return.
See Notes to Financial Statements.
</TABLE>
Merrill Lynch Utility Income Fund, Inc.
February 28, 1999
FINANCIAL INFORMATION (continued)
<TABLE>
Financial Highlights (continued)
<CAPTION>
Class C
For the For the
Six Period
The following per share data and ratios have been derived Months Oct. 21,
from information provided in the financial statements. Ended 1994++
Feb. 28, For the Year Ended August 31, Aug. 31,
Increase (Decrease) in Net Asset Value: 1999++++ 1998++++ 1997++++ 1996 1995
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 11.01 $ 9.44 $ 9.15 $ 9.14 $ 8.17
Operating -------- -------- -------- -------- --------
Performance: Investment income--net .24 .48 .47 .43 .42
Realized and unrealized gain (loss) on
investments and foreign currency
transactions--net (.15) 1.59 .29 .10 .90
-------- -------- -------- -------- --------
Total from investment operations .09 2.07 .76 .53 1.32
-------- -------- -------- -------- --------
Less dividends and distributions:
Investment income--net (.23) (.50) (.47) (.52) (.35)
Realized gain on investments--net (.23) -- -- -- --
-------- -------- -------- -------- --------
Total from dividends and distributions (.46) (.50) (.47) (.52) (.35)
-------- -------- -------- -------- --------
Net asset value, end of period $ 10.64 $ 11.01 $ 9.44 $ 9.15 $ 9.14
======== ======== ======== ======== ========
Total Investment Based on net asset value per share .60%+++ 22.19% 8.48% 5.65% 16.50%+++
Return:** ======== ======== ======== ======== ========
Ratios to Average Expenses, net of reimbursement 1.42%* 1.40% 1.42% 1.40% 1.32%*
Net Assets: ======== ======== ======== ======== ========
Expenses 1.90%* 2.08% 2.30% 2.34% 2.77%*
======== ======== ======== ======== ========
Investment income--net 4.21%* 4.39% 4.79% 4.75% 5.56%*
======== ======== ======== ======== ========
Supplemental Net assets, end of period (in thousands) $ 5,897 $ 2,846 $ 4,104 $ 2,107 $ 1,377
Data: ======== ======== ======== ======== ========
Portfolio turnover .32% 13.36% 5.50% 25.98% 12.59%
======== ======== ======== ======== ========
<FN>
*Annualized.
**Total investment returns exclude the effects of sales loads.
++Commencement of operations.
++++Based on average shares outstanding.
+++Aggregate total investment return.
See Notes to Financial Statements.
</TABLE>
Merrill Lynch Utility Income Fund, Inc.
February 28, 1999
FINANCIAL INFORMATION (concluded)
<TABLE>
Financial Highlights (concluded)
<CAPTION>
Class D
For the For the
Six Period
The following per share data and ratios have been derived Months Oct. 21,
from information provided in the financial statements. Ended 1994++
Feb. 28, For the Year Ended August 31, Aug. 31,
Increase (Decrease) in Net Asset Value: 1999++++ 1998++++ 1997++++ 1996 1995
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 11.06 $ 9.47 $ 9.18 $ 9.15 $ 8.17
Operating -------- -------- -------- -------- --------
Performance: Investment income--net .28 .54 .52 .47 .51
Realized and unrealized gain (loss) on
investments and foreign currency
transactions--net (.17) 1.61 .29 .13 .85
-------- -------- -------- -------- --------
Total from investment operations .11 2.15 .81 .60 1.36
-------- -------- -------- -------- --------
Less dividends and distributions:
Investment income--net (.26) (.56) (.52) (.57) (.38)
Realized gain on investments--net (.23) -- -- -- --
-------- -------- -------- -------- --------
Total dividends and distributions (.49) (.56) (.52) (.57) (.38)
-------- -------- -------- -------- --------
Net asset value, end of period $ 10.68 $ 11.06 $ 9.47 $ 9.18 $ 9.15
======== ======== ======== ======== ========
Total Investment Based on net asset value per share .78%+++ 23.08% 9.08% 6.46% 17.03%+++
Return:** ======== ======== ======== ======== ========
Ratios to Average Expenses, net of reimbursement .84%* .84% .84% .82% .74%*
Net Assets: ======== ======== ======== ======== ========
Expenses 1.32%* 1.54% 1.76% 1.75% 2.10%*
======== ======== ======== ======== ========
Investment income--net 4.79%* 4.97% 5.47% 5.37% 6.14%*
======== ======== ======== ======== ========
Supplemental Net assets, end of period (in thousands) $ 4,925 $ 2,362 $ 1,633 $ 1,416 $ 558
Data: ======== ======== ======== ======== ========
Portfolio turnover .32% 13.36% 5.50% 25.98% 12.59%
======== ======== ======== ======== ========
<FN>
*Annualized.
**Total investment returns exclude the effects of sales loads.
++Commencement of operations.
++++Based on average shares outstanding.
+++Aggregate total investment return.
See Notes to Financial Statements.
</TABLE>
Merrill Lynch Utility Income Fund, Inc.
February 28, 1999
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. The Fund's financial statements are
prepared in accordance with generally accepted accounting principles
which may require the use of management accruals and estimates.
These unaudited financial statements reflect all adjustments which
are, in the opinion of management, necessary to a fair statement of
the results for the interim period presented. All such adjustments
are of a normal recurring nature. The Fund offers four classes of
shares under the Merrill Lynch Select Pricing SM System. Shares of
Class A and Class D are sold with a front-end sales charge. Shares
of Class B and Class C may be subject to a contingent deferred sales
charge. All classes of shares have identical voting, dividend,
liquidation and other rights and the same terms and conditions,
except that Class B, Class C and Class D Shares bear certain
expenses related to the account maintenance of such shares, and
Class B and Class C Shares also bear certain expenses related to the
distribution of such shares. Each class has exclusive voting rights
with respect to matters relating to its account maintenance and
distribution expenditures. The following is a summary of significant
accounting policies followed by the Fund.
(a) Valuation of investments--Portfolio securities 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 or
purchased are valued at the last sale price in the case of exchange-
traded options. In the case of options traded in the over-the-
counter market, valuation is the last asked price (options written)
or the last bid price (options purchased). Short-term securities are
valued at amortized cost, which approximates market value. Other
investments, including futures contracts and related options, are
stated at market value. Securities and assets for which market 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.
* 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.
* 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 or loss to the
extent the cost of the closing transaction exceeds the premium paid
or received).
Merrill Lynch Utility Income Fund, Inc.
February 28, 1999
Written and purchased options are non-income producing investments.
* 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 period
not exceeding five years. 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. 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 ("MLFD" or the "Distributor"), a division of Princeton
Funds Distributor, Inc. ("PFD"), 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, 1999, MLAM earned fees of $165,985, of
which $145,393 was voluntarily waived.
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 Incorporated ("MLPF&S"), a subsidiary of ML &
Co., also provides account maintenance and distribution services to
the Fund. The ongoing account maintenance fee compensates the
Distributor and MLPF&S for providing account maintenance services to
Class B, Class C and Class D shareholders. The ongoing distribution
fee compensates the Distributor and MLPF&S for providing shareholder
and distribution-related services to Class B and Class C
shareholders.
Merrill Lynch Utility Income Fund, Inc.
February 28, 1999
NOTES TO FINANCIAL STATEMENTS (concluded)
For the six months ended February 28, 1999, MLFD earned underwriting
discounts and direct commissions 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 $ 32 $ 439
Class D $1,153 $12,257
For the six months ended February 28, 1999, MLPF&S received
contingent deferred sales charges of $25,514 and $3,245 relating to
transactions in Class B and Class C Shares, respectively.
Financial Data Services, Inc. ("FDS"), a wholly-owned subsidiary of
ML & Co., is the Fund's transfer agent.
During the six months ended February 28, 1999, the Fund paid Merrill
Lynch Security Pricing Service, an affiliate of MLPF&S, $152 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, PFD, FDS, PSI, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities,
for the six months ended February 28, 1999 were $25,460,702 and
$166,232, respectively.
Net realized gains (losses) for the six months ended February 28,
1999 and net unrealized gains as of February 28, 1999 were as
follows:
Realized
Gains Unrealized
(Losses) Gains
Long-term investments $ (5,781) $ 1,357,379
Short-term investments 726 --
----------- -----------
Total $ (5,055) $ 1,357,379
=========== ===========
As of February 28, 1999, net unrealized appreciation for Federal
income tax purposes aggregated $1,357,379, of which $3,693,995
related to appreciated securities and $2,336,616 related to
depreciated securities. At February 28, 1999, the aggregate cost of
investments for Federal income tax purposes was $64,280,184.
4. Capital Share Transactions:
Net increase (decrease) in net assets derived from capital share
transactions was $29,436,783 and $(257,080) for the six months ended
February 28, 1999 and for the year ended August 31, 1998,
respectively.
Transactions in shares for each class were as follows:
Class A Shares for the Six Months Dollar
Ended February 28, 1999 Shares Amount
Shares sold 296,188 $ 3,425,813
Shares issued to share-
holders in reinvestment of
dividends and distributions 11,523 131,678
----------- ------------
Total issued 307,711 3,557,491
Shares redeemed (116,852) (1,322,252)
----------- ------------
Net increase 190,859 $ 2,235,239
=========== ============
Class A Shares for the Year Dollar
Ended August 31, 1998 Shares Amount
Shares sold 157,097 $ 1,700,920
Shares issued to share-
holders in reinvestment
of dividends 7,017 75,684
----------- ------------
Total issued 164,114 1,776,604
Shares redeemed (118,479) (1,288,076)
----------- ------------
Net increase 45,635 $ 488,528
=========== ============
Class B Shares for the Six Months Dollar
Ended February 28, 1999 Shares Amount
Shares sold 2,312,446 $ 26,593,896
Shares issued to share-
holders in reinvestment of
dividends and distributions 132,402 1,514,260
----------- ------------
Total issued 2,444,848 28,108,156
Automatic conversion
of shares (1,166) (13,449)
Shares redeemed (638,541) (7,218,323)
----------- ------------
Net increase 1,805,141 $ 20,876,384
=========== ============
Class B Shares for the Year Dollar
Ended August 31, 1998 Shares Amount
Shares sold 1,048,694 $ 11,448,291
Shares issued to share-
holders in reinvestment
of dividends 90,666 971,229
----------- ------------
Total issued 1,139,360 12,419,520
Automatic conversion
of shares (7,602) (83,415)
Shares redeemed (1,065,628) (11,501,723)
----------- ------------
Net increase 66,130 $ 834,382
=========== ============
Merrill Lynch Utility Income Fund, Inc.
February 28, 1999
Class C Shares for the Six Months Dollar
Ended February 28, 1999 Shares Amount
Shares sold 358,997 $ 4,136,013
Shares issued to share-
holders in reinvestment of
dividends and distributions 15,494 176,976
----------- ------------
Total issued 374,491 4,312,989
Shares redeemed (78,537) (884,635)
----------- ------------
Net increase 295,954 $ 3,428,354
=========== ============
Class C Shares for the Year Dollar
Ended August 31, 1998 Shares Amount
Shares sold 530,142 $ 5,643,805
Shares issued to share-
holders in reinvestment
of dividends 13,662 144,789
----------- ------------
Total issued 543,804 5,788,594
Shares redeemed (720,156) (7,839,162)
----------- ------------
Net decrease (176,352) $ (2,050,568)
=========== ============
Class D Shares for the Six Months Dollar
Ended February 28, 1999 Shares Amount
Shares sold 344,386 $ 3,998,261
Automatic conversion
of shares 1,163 13,449
Shares issued to share-
holders in reinvestment of
dividends and distributions 13,858 158,811
----------- ------------
Total issued 359,407 4,170,521
Shares redeemed (111,840) (1,273,715)
----------- ------------
Net increase 247,567 $ 2,896,806
=========== ============
Class D Shares for the Year Dollar
Ended August 31, 1998 Shares Amount
Shares sold 433,020 $ 4,680,930
Automatic conversion
of shares 7,589 83,415
Shares issued to share-
holders in reinvestment
of dividends 7,030 75,680
----------- ------------
Total issued 447,639 4,840,025
Shares redeemed (406,403) (4,369,447)
----------- ------------
Net increase 41,236 $ 470,578
=========== ============
5. Subsequent Event:
On March 1, 1999, the Fund's Board of Directors declared an ordinary
income dividend in the amount of $.040304 per Class A Share,
$.033796 per Class B Share, $.033587 per Class C Share and $.038199
per Class D Share, payable on March 9, 1999 to shareholders of
record as of March 1, 1999.
Merrill Lynch Utility Income Fund, Inc.
February 28, 1999
PORTFOLIO INFORMATION
As of February 28, 1999
Percent of
Ten Largest Holdings Net Assets
MCI WorldCom Inc., 7.75% due 4/01/2007 3.3%
Williams Companies Inc., 6.625% due
11/15/2004 3.3
New England Electric System 3.2
U.S. West Capital Funding Inc., 6.375%
due 7/15/2008 3.1
GTE Corp., 6.36% due 4/15/2006 3.1
Consumers Energy, 6.375% due 2/01/2008 3.0
Eastern Utilities Associates 2.8
Ameren Corporation 2.5
FirstEnergy Corp. 2.4
ENSERCH Corp., 6.375% due 2/01/2004 2.3
Stock Portfolio Changes
For the Quarter Ended February 28, 1999
Addition
Western Resources, Inc.