MERRILL LYNCH
UTILITY INCOME
FUND, INC.
FUND LOGO
Semi-Annual Report
February 29, 2000
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
The investment environment was unfavorable for utility investors
during the six months ended February 29, 2000. Concerns over
interest rate increases by the Federal Reserve Board and its actions
surrounding high levels of consumer spending, strong economic growth
and the potential for inflation had a negative impact on investor
sentiment toward interest rate-sensitive sectors such as utilities.
Moreover, investors continued to look toward growth sectors such as
technology in the marketplace. The net result brought about the
hardest hit for the utility sector in high-yielding domestic
electric issues for the six months ended February 29, 2000.
Merrill Lynch Utility Income Fund, Inc. continued to meet its
investment objective of seeking to generate high current income, as
we paid out a monthly dividend during the period. To achieve our
investment objective, we remained primarily invested in domestic
electric utility stocks and investment-grade utility bonds.
For the six-month period ended February 29, 2000, total returns for
Merrill Lynch Utility Income Fund, Inc.'s Class A, Class B, Class C
and Class D Shares were -10.92%, -11.27%, -11.32% and -11.01%,
respectively. (Results shown do not reflect sales charges and would
be lower if sales charges were included. For complete performance
information, see pages 2 and 3 of this report to shareholders.)
However, these returns compared favorably to the total return of
- -19.35% for the unmanaged Standard & Poor's (S&P) Electric Index for
the same period, while the S&P Utility Index, which is heavily
weighted toward the low-yielding telecommunications sector, had a
total return of -5.94%. The Fund benefited from its weighting of
35.8% of net assets in utility bonds. For the six-month period ended
February 29, 2000, utility bonds fared much better than equities as
evidenced by the +1.69% total return of the Merrill Lynch
USCorporates, Utilities &Phones (1--10 Years) Index.
It is important to note that there was no overall change in the
fundamentals of the domestic electric utility sector to warrant such
a sell-off in stock prices. The financial health of the sector is
good, in our view. The industry continues to transition from one of
a regulated monopoly to one competitive in a more open market
environment. The pace of change remains evolutionary rather than
revolutionary. Merger and acquisition activity continues between
electric companies as well as between electric and natural gas
companies.
In Conclusion
On March 31, 2000, the Fund's Board of Directors approved a plan of
reorganization, subject to shareholder approval and certain other
conditions, whereby Merrill Lynch Global Utility Fund, Inc. would
acquire substantially all of the assets and liabilities of the Fund
in exchange for newly issued shares of Merrill Lynch Global Utility
Fund, Inc. These Funds are registered, diversified, open-end
management investment companies. Both entities have a similar
investment objective and are managed by Merrill Lynch Asset
Management, L.P.
We thank you for your support of Merrill Lynch Utility Income Fund,
Inc., and we look forward to reviewing our outlook and strategy with
you in our upcoming report to shareholders.
Sincerely,
(Terry K. Glenn)
Terry K. Glenn
President and Director
(Walter D. Rogers)
Walter D. Rogers
Senior Vice President and Portfolio Manager
April 5, 2000
To reduce shareholder expenses, Merrill Lynch Utility Income Fund,
Inc. will no longer be printing and mailing quarterly reports to
shareholders. We will continue to provide you with reports on a semi-
annual and annual basis.
Merrill Lynch Utility Income Fund, Inc.
February 29, 2000
PERFORMANCE DATA
About Fund Performance
Investors are able to purchase shares of the Fund through the
Merrill Lynch Select Pricing SM System, which offers four pricing
alternatives:
* Class A Shares incur a maximum initial sales charge (front-end
load) of 4% and bear no ongoing distribution or account maintenance
fees. Class A Shares are available only to eligible investors.
* Class B Shares are subject to a maximum contingent deferred sales
charge of 4% if redeemed during the first year, decreasing 1% each
year thereafter to 0% after the fourth year. In addition, Class B
Shares are subject to a distribution fee of 0.50% and an account
maintenance fee of 0.25%. These shares automatically convert to
Class D Shares after 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. The Fund's Investment Adviser voluntarily waived a
portion of its management fee. Without such waiver, the Fund's
performance would have been lower.
<TABLE>
Recent Performance Results*
<CAPTION>
6 Month 12 Month Since Inception
As of February 29, 2000 % Change % Change Total Return
<S> <C> <C> <C>
ML Utility Income Fund, Inc. Class A Shares -10.92% -7.83% +35.19%
ML Utility Income Fund, Inc. Class B Shares -11.27 -8.56 +28.80
ML Utility Income Fund, Inc. Class C Shares -11.32 -8.62 +49.97
ML Utility Income Fund, Inc. Class D Shares -11.01 -8.05 +55.00
*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 dates are from 10/29/93 for Class A & Class B
Shares and from 10/21/94 for Class C & Class D Shares.
</TABLE>
Merrill Lynch Utility Income Fund, Inc.
February 29, 2000
PERFORMANCE DATA (concluded)
Average Annual Total Return
% Return Without % Return With
Sales Charge Sales Charge**
Class A Shares*
Year Ended 12/31/99 -11.14% -14.69%
Five Years Ended 12/31/99 + 9.74 + 8.84
Inception (10/29/93)
through 12/31/99 + 5.63 + 4.93
*Maximum sales charge is 4%.
**Assuming maximum sales charge.
% Return % Return
Without CDSC With CDSC**
Class B Shares*
Year Ended 12/31/99 -11.73% -14.97%
Five Years Ended 12/31/99 + 8.90 + 8.90
Inception (10/29/93)
through 12/31/99 + 4.83 + 4.83
*Maximum contingent deferred sales charge is 4% and is reduced to 0%
after 4 years.
**Assuming payment of applicable contingent deferred sales charge.
% Return % Return
Without CDSC With CDSC**
Class C Shares*
Year Ended 12/31/99 -11.80% -12.61%
Five Years Ended 12/31/99 + 8.84 + 8.84
Inception (10/21/94)
through 12/31/99 + 8.91 + 8.91
*Maximum contingent deferred sales charge is 1% and is reduced to 0%
after 1 year.
**Assuming payment of applicable contingent deferred sales charge.
% Return Without % Return With
Sales Charge Sales Charge**
Class D Shares*
Year Ended 12/31/99 -11.27% -14.82%
Five Years Ended 12/31/99 + 9.52 + 8.63
Inception (10/21/94)
through 12/31/99 + 9.59 + 8.73
*Maximum sales charge is 4%.
**Assuming maximum sales charge.
Merrill Lynch Utility Income Fund, Inc.
February 29, 2000
<TABLE>
SCHEDULE OF INVESTMENTS (In USdollars)
<CAPTION>
Shares Percent of
Industries Held Stocks Value Net Assets
<S> <C> <S> <C> <C>
Utilities--Electric 49,000 Allegheny Energy, Inc. $ 1,270,937 3.3%
28,600 Ameren Corporation 858,000 2.2
15,500 American Electric Power Company, Inc. 435,937 1.1
22,000 Cinergy Corp. 470,250 1.2
29,100 Consolidated Edison, Inc. 802,069 2.0
54,600 Constellation Energy Group 1,624,350 4.2
31,400 DTE Energy Company 947,887 2.4
9,037 Dominion Resources, Inc. 331,545 0.9
65,000 Eastern Utilities Associates 2,019,062 5.2
52,900 FirstEnergy Corp. 988,569 2.6
34,000 Florida Progress Corporation 1,449,250 3.7
27,500 GPU, Inc. 684,063 1.8
30,000 New Century Energies, Inc. 811,875 2.1
25,700 NiSource Inc. 332,494 0.9
56,600 Northern States Power Company 994,038 2.6
54,500 Potomac Electric Power Company 1,107,031 2.9
29,400 Public Service Enterprise Group Incorporated 852,600 2.2
50,000 RGS Energy Group Inc. 984,375 2.5
45,300 Reliant Energy, Inc. 931,481 2.4
43,400 The Southern Company 962,938 2.5
21,000 Texas Utilities Company 685,125 1.8
19,000 Unicom Corporation 718,438 1.8
20,000 WPS Resources Corporation 471,250 1.2
----------- ------
20,733,564 53.5
Utilities--Gas 40,300 AGL Resources Inc. 687,619 1.8
44,000 KeySpan Corporation 896,500 2.3
10,000 New Jersey Resources Corporation 371,250 0.9
----------- ------
1,955,369 5.0
Total Stocks (Cost--$25,700,210) 22,688,933 58.5
Face
Amount Corporate Bonds
Industrial--Energy $2,150,000 Williams Companies Inc., 6.625% due 11/15/2004 2,055,357 5.3
Telecommunications 2,000,000 GTE Corp., 6.36% due 4/15/2006 1,873,660 4.9
2,000,000 MCI WorldCom Inc., 7.75% due 4/01/2007 2,011,880 5.2
1,000,000 Southwestern Bell Corp., 7% due 7/01/2015 931,540 2.4
2,000,000 US West Capital Funding Inc., 6.375% due 7/15/2008 1,830,200 4.7
1,000,000 United Telephone of Florida, Series FF, 6.875% due 7/15/2013 934,120 2.4
----------- ------
7,581,400 19.6
</TABLE>
Merrill Lynch Utility Income Fund, Inc.
February 29, 2000
<TABLE>
SCHEDULE OF INVESTMENTS (concluded) (In USdollars)
<CAPTION>
Face Percent of
Industries Amount Corporate Bonds Value Net Assets
<S> <C> <S> <C> <C>
Utilities--Electric $1,000,000 Alabama Power Co., Series G, 5.375% due 10/01/2008 $ 854,900 2.2%
1,000,000 Public Service Company of Colorado, Series 1, 6.375%
due 11/01/2005 946,920 2.4
----------- ------
1,801,820 4.6
Utilities--Gas 1,500,000 ENSERCH Corporation, 6.375% due 2/01/2004 1,431,075 3.7
1,000,000 El Paso Natural Gas, 7.75% due 1/15/2002 1,003,110 2.6
----------- ------
2,434,185 6.3
Total Corporate Bonds (Cost--$15,345,965) 13,872,762 35.8
Short-Term Securities
Commercial Paper* 636,000 General Motors Acceptance Corp., 5.94% due 3/01/2000 636,000 1.7
US Government 1,475,000 Federal Home Loan Mortgage Corporation, 5.65% due 3/03/2000 1,474,537 3.8
Agency Obligations*
Total Short-Term Securities (Cost--$2,110,537) 2,110,537 5.5
Total Investments (Cost--$43,156,712) 38,672,232 99.8
Other Assets Less Liabilities 89,205 0.2
----------- ------
Net Assets $38,761,437 100.0%
=========== ======
*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.
See Notes to Financial Statements.
</TABLE>
Merrill Lynch Utility Income Fund, Inc.
February 29, 2000
FINANCIAL INFORMATION
<TABLE>
Statement of Assets and Liabilities as of February 29, 2000
<S> <C> <C> <C>
Assets: Investments, at value (identified cost--$43,156,712) $38,672,232
Receivables:
Interest $ 251,468
Dividends 124,647
Capital shares sold 28,981 405,096
-----------
Prepaid registration fees and other assets 19,687
-----------
Total assets 39,097,015
-----------
Liabilities: Payables:
Capital shares redeemed 220,313
Distributor 21,939
Investment adviser 15,277 257,529
-----------
Accrued expenses and other liabilities 78,049
-----------
Total liabilities 335,578
-----------
Net Assets: Net assets $38,761,437
===========
Net Assets Class A Shares of Common Stock, $.10 par value, 100,000,000
Consist of: shares authorized $ 22,698
Class B Shares of Common Stock, $.10 par value, 100,000,000
shares authorized 330,358
Class C Shares of Common Stock, $.10 par value, 100,000,000
shares authorized 35,535
Class D Shares of Common Stock, $.10 par value, 100,000,000
shares authorized 30,447
Paid-in capital in excess of par 43,212,856
Undistributed investment income--net 299,607
Accumulated realized capital losses on investments--net (685,584)
Unrealized depreciation on investments--net (4,484,480)
-----------
Net assets $38,761,437
===========
Net Asset Value: Class A--Based on net assets of $2,099,840 and 226,975 shares
outstanding $ 9.25
===========
Class B--Based on net assets of $30,558,534 and 3,303,576
shares outstanding $ 9.25
===========
Class C--Based on net assets of $3,280,309 and 355,348 shares
outstanding $ 9.23
===========
Class D--Based on net assets of $2,822,754 and 304,468 shares
outstanding $ 9.27
===========
See Notes to Financial Statements.
</TABLE>
Merrill Lynch Utility Income Fund, Inc.
February 29, 2000
FINANCIAL INFORMATION (continued)
<TABLE>
Statement of Operations for the Six Months Ended February 29, 2000
<S> <C> <C> <C>
Investment Dividends (net of $2,368 foreign withholding tax) $ 1,008,356
Income: Interest and discount earned 575,211
-----------
Total income 1,583,567
-----------
Expenses: Account maintenance and distribution fees--Class B $ 140,410
Investment advisory fees 131,332
Transfer agent fees--Class B 32,901
Registration fees 32,062
Professional fees 29,914
Printing and shareholder reports 28,398
Accounting services 24,791
Account maintenance and distribution fees--Class C 16,854
Directors' fees and expenses 8,357
Account maintenance fees--Class D 4,466
Custodian fees 4,049
Transfer agent fees--Class C 3,815
Transfer agent fees--Class D 2,698
Transfer agent fees--Class A 1,914
Pricing fees 618
Other 2,360
-----------
Total expenses 464,939
-----------
Investment income--net 1,118,628
-----------
Realized & Realized loss on investments--net (685,580)
Unrealized Loss on Change in unrealized appreciation/depreciation on investments--net (6,016,695)
Investments--Net: -----------
Net Decrease in Net Assets Resulting from Operations $(5,583,647)
===========
See Notes to Financial Statements.
</TABLE>
Merrill Lynch Utility Income Fund, Inc.
February 29, 2000
FINANCIAL INFORMATION (continued)
<TABLE>
Statements of Changes in Net Assets
<CAPTION>
For the Six For the Year
Months Ended Ended
February 29, August 31,
Increase (Decrease) in Net Assets: 2000 1999
<S> <C> <C> <C>
Operations: Investment income--net $ 1,118,628 $ 2,587,645
Realized gain (loss) on investments and foreign currency
transactions--net (685,580) 496,805
Change in unrealized appreciation/depreciation on investments
and foreign currency transactions--net (6,016,695) (2,272,578)
----------- -----------
Net increase (decrease) in net assets resulting from operations (5,583,647) 811,872
----------- -----------
Dividends & Investment income--net:
Distributions to Class A (68,286) (159,881)
Shareholders: Class B (856,846) (1,864,650)
Class C (94,887) (208,228)
Class D (91,325) (194,958)
Realized gain on investments--net:
Class A (25,543) (78,738)
Class B (391,915) (1,068,525)
Class C (42,997) (123,178)
Class D (36,352) (95,886)
----------- -----------
Net decrease in net assets resulting from dividends and
distributions to shareholders (1,608,151) (3,794,044)
----------- -----------
Capital Share Net increase (decrease) in net assets derived from capital
Transactions: share transactions (10,166,714) 19,244,050
----------- -----------
Net Assets: Total increase (decrease) in net assets (17,358,512) 16,261,878
Beginning of period 56,119,949 39,858,071
----------- -----------
End of period* $38,761,437 $56,119,949
=========== ===========
*Undistributed investment income--net $ 299,607 $ 292,323
=========== ===========
See Notes to Financial Statements.
</TABLE>
Merrill Lynch Utility Income Fund, Inc.
February 29, 2000
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. 29, For the Year Ended August 31,
Increase (Decrease) in Net Asset Value: 2000++ 1999++ 1998++ 1997++ 1996
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 10.78 $ 11.04 $ 9.46 $ 9.17 $ 9.15
Operating -------- -------- -------- -------- --------
Performance: Investment income--net .27 .56 .57 .55 .60
Realized and unrealized gain (loss) on
investments and foreign currency
transactions--net (1.42) (.07) 1.60 .29 .02
-------- -------- -------- -------- --------
Total from investment operations (1.15) .49 2.17 .84 .62
-------- -------- -------- -------- --------
Less dividends and distributions:
Investment income--net (.27) (.52) (.59) (.55) (.60)
Realized gain on investments--net (.11) (.23) -- -- --
-------- -------- -------- -------- --------
Total dividends and distributions (.38) (.75) (.59) (.55) (.60)
-------- -------- -------- -------- --------
Net asset value, end of period $ 9.25 $ 10.78 $ 11.04 $ 9.46 $ 9.17
======== ======== ======== ======== ========
Total Investment Based on net asset value per share (10.92%)+++ 4.40% 23.30% 9.36% 6.61%
Return:** ======== ======== ======== ======== ========
Ratios to Average Expenses, net of reimbursement 1.25%* .81% .59% .59% .56%
Net Assets: ======== ======== ======== ======== ========
Expenses 1.25%* 1.16% 1.29% 1.51% 1.52%
======== ======== ======== ======== ========
Investment income--net 5.36%* 4.93% 5.26% 5.79% 5.56%
======== ======== ======== ======== ========
Supplemental Net assets, end of period (in thousands) $ 2,100 $ 2,967 $ 2,110 $ 1,376 $ 2,108
Data: ======== ======== ======== ======== ========
Portfolio turnover 2.64% 7.92% 13.36% 5.50% 25.98%
======== ======== ======== ======== ========
<FN>
*Annualized.
**Total investment returns exclude the effects of sales charges.
++Based on average shares outstanding.
+++Aggregate total investment return.
See Notes to Financial Statements.
</TABLE>
Merrill Lynch Utility Income Fund, Inc.
February 29, 2000
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. 29, For the Year Ended August 31,
Increase (Decrease) in Net Asset Value: 2000++ 1999++ 1998++ 1997++ 1996
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 10.78 $ 11.03 $ 9.45 $ 9.17 $ 9.15
Operating -------- -------- -------- -------- --------
Performance: Investment income--net .23 .47 .49 .47 .46
Realized and unrealized gain (loss) on
investments and foreign currency
transactions--net (1.42) (.05) 1.60 .28 .09
-------- -------- -------- -------- --------
Total from investment operations (1.19) .42 2.09 .75 .55
-------- -------- -------- -------- --------
Less dividends and distributions:
Investment income--net (.23) (.44) (.51) (.47) (.53)
Realized gain on investments--net (.11) (.23) -- -- --
-------- -------- -------- -------- --------
Total dividends and distributions (.34) (.67) (.51) (.47) (.53)
-------- -------- -------- -------- --------
Net asset value, end of period $ 9.25 $ 10.78 $ 11.03 $ 9.45 $ 9.17
======== ======== ======== ======== ========
Total Investment Based on net asset value per share (11.27%)+++ 3.70% 22.38% 8.39% 5.86%
Return:** ======== ======== ======== ======== ========
Ratios to Average Expenses, net of reimbursement 2.02%* 1.59% 1.37% 1.36% 1.34%
Net Assets: ======== ======== ======== ======== ========
Expenses 2.02%* 1.93% 2.06% 2.28% 2.29%
======== ======== ======== ======== ========
Investment income--net 4.60%* 4.15% 4.52% 5.00% 4.79%
======== ======== ======== ======== ========
Supplemental Net assets, end of period (in thousands) $ 30,558 $ 43,903 $ 32,540 $ 27,259 $ 35,702
Data: ======== ======== ======== ======== ========
Portfolio turnover 2.64% 7.92% 13.36% 5.50% 25.98%
======== ======== ======== ======== ========
</TABLE>
Merrill Lynch Utility Income Fund, Inc.
February 29, 2000
FINANCIAL INFORMATION (continued)
<TABLE>
Financial Highlights (continued)
<CAPTION>
Class C
For the
Six
The following per share data and ratios have been derived Months
from information provided in the financial statements. Ended
Feb. 29, For the Year Ended August 31,
Increase (Decrease) in Net Asset Value: 2000++ 1999++ 1998++ 1997++ 1996
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 10.76 $ 11.01 $ 9.44 $ 9.15 $ 9.14
Operating -------- -------- -------- -------- --------
Performance: Investment income--net .23 .46 .48 .47 .43
Realized and unrealized gain (loss) on
investments and foreign currency
transactions--net (1.43) (.05) 1.59 .29 .10
-------- -------- -------- -------- --------
Total from investment operations (1.20) .41 2.07 .76 .53
-------- -------- -------- -------- --------
Less dividends and distributions:
Investment income--net (.22) (.43) (.50) (.47) (.52)
Realized gain on investments--net (.11) (.23) -- -- --
-------- -------- -------- -------- --------
Total from dividends and distributions (.33) (.66) (.50) (.47) (.52)
-------- -------- -------- -------- --------
Net asset value, end of period $ 9.23 $ 10.76 $ 11.01 $ 9.44 $ 9.15
======== ======== ======== ======== ========
Total Investment Based on net asset value per share (11.32%)+++ 3.67% 22.19% 8.48% 5.65%
Return:** ======== ======== ======== ======== ========
Ratios to Average Expenses, net of reimbursement 2.07%* 1.66% 1.40% 1.42% 1.40%
Net Assets: ======== ======== ======== ======== ========
Expenses 2.07%* 1.99% 2.08% 2.30% 2.34%
======== ======== ======== ======== ========
Investment income--net 4.55%* 4.07% 4.39% 4.79% 4.75%
======== ======== ======== ======== ========
Supplemental Net assets, end of period (in thousands) $ 3,280 $ 5,111 $ 2,846 $ 4,104 $ 2,107
Data: ======== ======== ======== ======== ========
Portfolio turnover 2.64% 7.92% 13.36% 5.50% 25.98%
======== ======== ======== ======== ========
*Annualized.
**Total investment returns exclude the effects of sales charges.
++Based on average shares outstanding.
+++Aggregate total investment return.
See Notes to Financial Statements.
</TABLE>
Merrill Lynch Utility Income Fund, Inc.
February 29, 2000
FINANCIAL INFORMATION (concluded)
<TABLE>
Financial Highlights (concluded)
<CAPTION>
Class D
For the
Six
The following per share data and ratios have been derived Months
from information provided in the financial statements. Ended
Feb. 29, For the Year Ended August 31,
Increase (Decrease) in Net Asset Value: 2000++ 1999++ 1998++ 1997++ 1996
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 10.80 $ 11.06 $ 9.47 $ 9.18 $ 9.15
Operating -------- -------- -------- -------- --------
Performance: Investment income--net .26 .53 .54 .52 .47
Realized and unrealized gain (loss) on
investments and foreign currency
transactions--net (1.43) (.06) 1.61 .29 .13
-------- -------- -------- -------- --------
Total from investment operations (1.17) .47 2.15 .81 .60
-------- -------- -------- -------- --------
Less dividends and distributions:
Investment income--net (.25) (.50) (.56) (.52) (.57)
Realized gain on investments--net (.11) (.23) -- -- --
-------- -------- -------- -------- --------
Total dividends and distributions (.36) (.73) (.56) (.52) (.57)
-------- -------- -------- -------- --------
Net asset value, end of period $ 9.27 $ 10.80 $ 11.06 $ 9.47 $ 9.18
======== ======== ======== ======== ========
Total Investment Based on net asset value per share (11.01%)+++ 4.13% 23.08% 9.08% 6.46%
Return:** ======== ======== ======== ======== ========
Ratios to Average Expenses, net of reimbursement 1.49%* 1.08% .84% .84% .82%
Net Assets: ======== ======== ======== ======== ========
Expenses 1.49%* 1.41% 1.54% 1.76% 1.75%
======== ======== ======== ======== ========
Investment income--net 5.12%* 4.66% 4.97% 5.47% 5.37%
======== ======== ======== ======== ========
Supplemental Net assets, end of period (in thousands) $ 2,823 $ 4,139 $ 2,362 $ 1,633 $ 1,416
Data: ======== ======== ======== ======== ========
Portfolio turnover 2.64% 7.92% 13.36% 5.50% 25.98%
======== ======== ======== ======== ========
*Annualized.
**Total investment returns exclude the effects of sales charges.
++Based on average shares outstanding.
+++Aggregate total investment return.
See Notes to Financial Statements.
</TABLE>
Merrill Lynch Utility Income Fund, Inc.
February 29, 2000
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 that are traded
on stock exchanges are valued at the last sale price on the exchange
on which such securities are traded, as of the close of business on
the day the securities are being valued or, lacking any sales, at
the last available bid price. Securities traded in the over-the-
counter market are valued at the last available bid price prior to
the time of valuation. In cases where securities are traded on more
than one exchange, the securities are valued on the exchange
designated by or under the authority of the Board of Directors as
the primary market. Securities that are traded both in the over-the-
counter market and on a stock exchange are valued according to the
broadest and most representative market. Options written or
purchased are valued at the last sale price in the case of exchange-
traded options. In the case of options traded in the over-the-
counter market, valuation is the last asked price (options written)
or the last bid price (options purchased). Short-term securities are
valued at amortized cost, which approximates market value. Other
investments, including futures contracts and related options, are
stated at market value. Securities and assets for which market 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 29, 2000
NOTES TO FINANCIAL STATEMENTS (continued)
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) Prepaid registration fees--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 .55%, on an annual basis,
of the average daily value of the Fund's net assets.
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 .25% .50%
Class C .25% .55%
Class D .25% --
Pursuant to a sub-agreement with the Distributor, Merrill Lynch,
Pierce, Fenner & Smith Incorporated ("MLPF&S"), a subsidiary of ML &
Co., also provides account maintenance and distribution services to
the Fund. The ongoing account maintenance fee compensates the
Distributor and MLPF&S for providing account maintenance services to
Class B, Class C and Class D shareholders. The ongoing distribution
fee compensates the Distributor and MLPF&S for providing shareholder
and distribution-related services to Class B and Class C
shareholders.
Merrill Lynch Utility Income Fund, Inc.
February 29, 2000
For the six months ended February 29, 2000, 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 $ 33 $ 542
Class D $189 $2,377
For the six months ended February 29, 2000, MLPF&S received
contingent deferred sales charges of $51,803 and $1,579 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 29, 2000, the Fund paid Merrill
Lynch Security Pricing Service, an affiliate of MLPF&S, $201 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 29, 2000 were $1,225,964 and
$12,101,184, respectively.
Net realized losses for the six months ended February 29, 2000 and
net unrealized losses as of February 29, 2000 were as follows:
Realized Unrealized
Losses Losses
Long-term investments $ (685,580) $(4,484,480)
---------- -----------
Total $ (685,580) $(4,484,480)
========== ===========
As of February 29, 2000, net unrealized depreciation for Federal
income tax purposes aggregated $4,484,480, of which $1,147,255
related to appreciated securities and $5,631,735 related to
depreciated securities. At February 29, 2000, the aggregate cost of
investments for Federal income tax purposes was $43,156,712.
4. Capital Share Transactions:
Net increase (decrease) in net assets derived from capital share
transactions was $(10,166,714) and $19,244,050 for the six months
ended February 29, 2000 and for the year ended August 31, 1999,
respectively.
Transactions in shares for each class were as follows:
Class A Shares for the Six Months Dollar
Ended February 29, 2000 Shares Amount
Shares sold 120,480 $ 1,177,700
Shares issued to share-
holders in reinvestment of
dividends and distributions 7,656 76,693
----------- ------------
Total issued 128,136 1,254,393
Shares redeemed (176,359) (1,743,879)
----------- ------------
Net decrease (48,223) $ (489,486)
=========== ============
Class A Shares for the Year Dollar
Ended August 31, 1999 Shares Amount
Shares sold 368,816 $ 4,205,077
Shares issued to share-
holders in reinvestment of
dividends and distributions 18,901 210,873
----------- ------------
Total issued 387,717 4,415,950
Shares redeemed (303,675) (3,333,708)
----------- ------------
Net increase 84,042 $ 1,082,242
=========== ============
Class B Shares for the Six Months Dollar
Ended February 29, 2000 Shares Amount
Shares sold 181,052 $ 1,822,384
Shares issued to share-
holders in reinvestment of
dividends and distributions 87,617 874,703
----------- ------------
Total issued 268,669 2,697,087
Automatic conversion
of shares (5,655) (56,289)
Shares redeemed (1,032,990) (10,341,938)
----------- ------------
Net decrease (769,976) $ (7,701,140)
=========== ============
Class B Shares for the Year Dollar
Ended August 31, 1999 Shares Amount
Shares sold 2,688,999 $ 30,673,623
Shares issued to share-
holders in reinvestment of
dividends and distributions 204,036 2,283,441
----------- ------------
Total issued 2,893,035 32,957,064
Automatic conversion
of shares (22,767) (250,516)
Shares redeemed (1,746,015) (19,187,912)
----------- ------------
Net increase 1,124,253 $ 13,518,636
=========== ============
Merrill Lynch Utility Income Fund, Inc.
February 29, 2000
NOTES TO FINANCIAL STATEMENTS (concluded)
Class C Shares for the Six Months Dollar
Ended February 29, 2000 Shares Amount
Shares sold 31,218 $ 306,399
Shares issued to share-
holders in reinvestment of
dividends and distributions 10,336 102,908
----------- ------------
Total issued 41,554 409,307
Shares redeemed (161,383) (1,607,982)
----------- ------------
Net decrease (119,829) $ (1,198,675)
=========== ============
Class C Shares for the Year Dollar
Ended August 31, 1999 Shares Amount
Shares sold 440,870 $ 5,023,521
Shares issued to share-
holders in reinvestment of
dividends and distributions 23,868 266,774
----------- ------------
Total issued 464,738 5,290,295
Shares redeemed (248,041) (2,708,286)
----------- ------------
Net increase 216,697 $ 2,582,009
=========== ============
Class D Shares for the Six Months Dollar
Ended February 29, 2000 Shares Amount
Shares sold 29,783 $ 299,858
Automatic conversion
of shares 5,644 56,289
Shares issued to share-
holders in reinvestment of
dividends and distributions 10,249 102,701
----------- ------------
Total issued 45,676 458,848
Shares redeemed (124,363) (1,236,261)
----------- ------------
Net decrease (78,687) $ (777,413)
=========== ============
Class D Shares for the Year Dollar
Ended August 31, 1999 Shares Amount
Shares sold 376,168 $ 4,344,450
Automatic conversion
of shares 22,724 250,516
Shares issued to share-
holders in reinvestment of
dividends and distributions 22,556 252,399
----------- ------------
Total issued 421,448 4,847,365
Shares redeemed (251,902) (2,786,202)
----------- ------------
Net increase 169,546 $ 2,061,163
=========== ============
5. Subsequent Event:
On March 2, 2000, the Fund's Board of Directors declared an ordinary
income dividend in the amount of $.033807 per Class A Share,
$.027792 per Class B Share, $.027301 per Class C Share and $.031849
per Class D Share, payable on March 7, 2000 to shareholders of
record as of March 1, 2000.
6. Reorganization Plan:
On March 31, 2000, the Fund's Board of Directors approved a plan of
reorganization, subject to shareholder approval and certain other
conditions, whereby Merrill Lynch Global Utility Fund, Inc. would
acquire substantially all of the assets and liabilities of the Fund
in exchange for newly issued shares of Merrill Lynch Global Utility
Fund, Inc. These Funds are registered, diversified, open-end
management investment companies. Both entities have a similar
investment objective and are managed by MLAM.
Merrill Lynch Utility Income Fund, Inc.
February 29, 2000
PORTFOLIO INFORMATION
As of February 29, 2000
Percent of
Ten Largest Holdings Net Assets
Williams Companies Inc., 6.625%
due 11/15/2004 5.3%
Eastern Utilities Associates 5.2
MCI WorldCom Inc., 7.75% due 4/01/2007 5.2
GTE Corp., 6.36% due 4/15/2006 4.9
US West Capital Funding Inc., 6.375%
due 7/15/2008 4.7
Constellation Energy Group 4.2
Florida Progress Corporation 3.7
ENSERCH Corporation, 6.375%
due 2/01/2004 3.7
Allegheny Energy, Inc. 3.3
Potomac Electric Power Company 2.9
Merrill Lynch Utility Income Fund, Inc.
February 29, 2000
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
Robert C. Doll, Senior Vice President
Walter D. Rogers, Senior Vice President and
Portfolio Manager
Donald C. Burke, Vice President and Treasurer
Ira D. Shapiro, 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
