MERRILL LYNCH
UTILITY INCOME
FUND, INC.
FUND LOGO
Quaterly Report
November 30, 1994
This report is not authorized for use as an offer of sale or a
solicitation of an offer to buy shares of the Fund unless
accompanied or preceded by the Fund's current prospectus. Past
performance results shown in this report should not be considered a
representation of future performance. Investment return and
principal value of shares will fluctuate so that shares, when
redeemed, may be worth more or less than their original cost.
Merrill Lynch
Utility Income
Fund, Inc.
Box 9011
Princeton, NJ
08543-9011
MERRILL LYNCH UTILITY INCOME FUND, INC.
<PAGE>
DEAR SHAREHOLDER
Volatility in the US financial markets continued during the November
quarter, largely prompted by concerns of increasing inflationary
pressures. The possibility of continued monetary policy tightening
by the Federal Reserve Board was predominant in the minds of
investors throughout most of the period. Therefore, there was little
surprise in mid-November when the central bank announced the sixth
increase in short-term interest rates thus far this year. Early in
the period, the weakness of the US dollar in foreign exchange
markets also prompted declines in US stock and bond prices, but some
strengthening of the US currency has occurred recently.
Despite widespread inflationary expectations, recently released data
show that the rate of inflation remains near a 30-year low, as
consumer prices barely rose in October. Other economic results show
little evidence of an overheating economy. Housing starts fell
during October, and higher interest rates will likely continue to
weaken housing demand. Although retail sales are rising, the real
strength in the economy is still in the manufacturing sector.
In the weeks ahead, investors will continue to assess economic data
and inflationary trends in order to gauge whether further increases
in short-term interest rates are likely. In addition, investor
interest will also be focused on the progress that the new Congress
makes on both reducing the Federal budget deficit and providing tax
cuts that promote savings and investment. Legislative progress,
combined with continued indications of moderate and sustainable
levels of economic growth, would be positive for the US capital
markets.
Portfolio Matters
Many electric utility stocks recently have been staging a price
comeback. We attributed most of the recent positive movement to
lower long-term interest rates as opposed to a shift in the
fundamental outlook for the sector. However, there has been some
modestly positive news. First, regulatory changes are occurring more
slowly than expected. For example, the aggressive timetable set by
the California Public Service Commission for bringing more electric
utility competition to California by opening up the retail market,
continues to slip. Second, we have not been hearing much in the way
of restructuring proposals in other states. This indicates that
other regulatory agencies are not ready to follow California's
possible lead in restructuring the electric utility sector. Third,
the recent gubernatorial elections also are expected to bring about
changes in regulation, since in many states the public utility
commission members are appointed.
<PAGE>
During the November quarter, we added one new holding to the Fund's
portfolio, BellSouth Corp., one of the regional Bell holding
companies. Based on number of access lines, BellSouth is the largest
US telephone holding company. This company provides telephone
service in nine southeastern states and serves nearly 220 million
customers. In terms of access lines in a state, Florida is
BellSouth's biggest market. The stock weakened following the release
of third-quarter results, which were below expectations and resulted
in earnings estimates being reduced for the fourth quarter and into
next year. We believed at the time of our purchase of BellSouth
stock that this news was reflected in the share price, particularly
since its dividend yield was over 5%. Moreover, in our view, even
though the company's overseas expansion is dilutive in the near
term, over the longer term we expect these investments to benefit
earnings.
During the November quarter, we eliminated two positions, Long
Island Lighting Co. (LILCO) and Niagara Mohawk Power Corp. On
September 1, 1994, the New York Public Utility Commission announced
its recommendation in the Niagara Mohawk rate case. The company was
asking for a rate increase of $250.7 million. The Commission
recommended a $142.0 million rate cut. The case has not yet been
settled, and Niagara is appealing. The net result was weakness in
the share price of Niagara and the other New York electric utility
companies. Since LILCO's proposed rate increase will be reviewed by
the same Commission, the level of uncertainty surrounding the stock
increased dramatically. We did not eliminate our other New York
electric utility holdings, Consolidated Edison Company of New York
and New York State Electric & Gas Corp., for various reasons. First,
New York State Electric & Gas already had cut its dividend, as we
discussed in our last shareholders' report. Therefore, we felt that
the stock price and its yield reflected the worst-case scenario.
Second, Consolidated Edison has the smallest proportion of its
assets in generation as compared to the other New York utilities,
and therefore does not have the same level of risk either in terms
of competition or regulation. Third, the yields on both positions
are above the utility sector average. Finally, Consolidated Edison
is still expected to increase its dividend, albeit modestly, is in
reasonable financial shape, and has few industrial customers.
Competition for industrial customers is always the most intense.
Looking ahead, we feel that the level of interest rates will
continue to be the prime determinant of utility stock prices. Other
factors in the months ahead also will be important, such as the
potential for further competition mandated by utility commissions.
The general attitude of investors regarding fears of an economic
slowdown may cause utilities to be once again regarded as
appropriate defensive investments.
<PAGE>
In Conclusion
We thank you for your investment in Merrill Lynch Utility Income
Fund, Inc., and we look forward to reviewing our investment strategy
and outlook with you in future shareholder reports.
Sincerely,
(Arthur Zeikel)
Arthur Zeikel
President
(Walter D. Rogers)
Walter D. Rogers
Vice President and Portfolio Manager
January 5, 1995
OFFICERS AND DIRECTORS
Arthur Zeikel, President and Director
Ronald W. Forbes, Director
Cynthia A. Montgomery, Director
Charles C. Reilly, Director
Kevin A. Ryan, Director
Richard R. West, Director
Terry K. Glenn, Executive Vice President
Norman R. Harvey, Senior Vice President
Donald C. Burke, Vice President
Walter D. Rogers, Vice President and Portfolio Manager
Gerald M. Richard, Treasurer
Thomas D. Jones, III, Secretary
Custodian
State Street Bank and Trust Company
One Heritage Drive, P2N
North Quincy, Massachusetts 02171
<PAGE>
Transfer Agent
Financial Data Services, Inc.
4800 Deer Lake Drive East
Jacksonville, Florida 32246-6484
(800) 637-3863
PERFORMANCE DATA
About Fund Performance
Since October 21, 1994, investors have been able to purchase shares
of the Fund through the Merrill Lynch Select Pricing SM System,
which offers four pricing alternatives:
* Class A Shares incur a maximum initial sales charge (front-end
load) of 4% and bear no ongoing distribution or account
maintenance fees. Class A Shares are available only to eligible
investors.
* Class B Shares are subject to a maximum contingent deferred sales
charge of 4% if redeemed during the first year, decreasing 1% each
year thereafter to 0% after the fourth year. In addition, Class B
Shares are subject to a distribution fee of 0.50% and an account
maintenance fee of 0.25%. These shares automatically convert to
Class D Shares after 10 years.
* Class C Shares are subject to a distribution fee of 0.55% and an
account maintenance fee of 0.25%. In addition, Class C Shares are
subject to a 1% contingent deferred sales charge if redeemed
within one year of purchase.
* Class D Shares incur a maximum initial sales charge of 4% and an
account maintenance fee of 0.25% (but no distribution fee).
Performance data for the Fund's Class A and Class B Shares are
presented in the "Aggregate Total Return" tables below. Data for all
of the Fund's shares, including Class C Shares and Class D Shares,
are presented in the "Recent Performance Results" table.
The "Recent Performance Results" table below shows investment
results before the deduction of any sales charges for Class A and
Class B Shares for the 12-month and 3-month periods ended November
30, 1994 and for Class C and Class D Shares for the period since
inception through November 30, 1994. All data in this table assume
imposition of the actual total expenses incurred by each class of
shares during the relevant period.
<PAGE>
None of the past results shown should be considered a representation
of future performance. Investment return and principal value of
shares will fluctuate so that shares, when redeemed, may be worth
more or less than their original cost.
Aggregate Total Return
% Return Without % Return With
Sales Charge Sales Charge**
Class A Shares*
Inception (10/29/93)
through 9/30/94 -14.21% -17.64%
[FN]
*Maximum sales charge is 4%.
**Assuming maximum sales charge.
% Return % Return
Without CDSC With CDSC**
Class B Shares*
Inception (10/29/93)
through 9/30/94 -14.75% -18.01%
[FN]
*Maximum contingent deferred sales charge is 4% and is reduced to
0% after 4 years.
**Assuming payment of applicable contingent deferred sales charge.
<PAGE>
<TABLE>
Recent Performance Results
<CAPTION>
12 Month 3 Month
11/30/94 8/31/94++ 11/30/93 % Change % Change++
<S> <C> <C> <C> <C> <C>
ML Utility Income Fund Class A Shares* $8.27 $8.44 $9.77 -15.35% -2.01%
ML Utility Income Fund Class B Shares* 8.27 8.44 9.76 -15.27 -2.01
ML Utility Income Fund Class C Shares* 8.27 8.17 -- -- +1.22
ML Utility Income Fund Class D Shares* 8.28 8.17 -- -- +1.35
ML Utility Income Fund Class A Shares--Total Return* -10.29(1) -0.58(2)
ML Utility Income Fund Class B Shares--Total Return* -10.88(3) -0.78(4)
ML Utility Income Fund Class C Shares--Total Return* -- +1.63(5)
ML Utility Income Fund Class D Shares--Total Return* -- +1.76(5)
<FN>
*Investment results shown do not reflect any sales charges; results shown would be lower
if a sales charge was included.
++Investment results shown for Class C and Class D Shares are since inception (10/21/94).
(1)Percent change includes reinvestment of $0.507 per share ordinary income dividends.
(2)Percent change includes reinvestment of $0.119 per share ordinary income dividends.
(3)Percent change includes reinvestment of $0.439 per share ordinary income dividends.
(4)Percent change includes reinvestment of $0.103 per share ordinary income dividends.
(5)Percent change includes reinvestment of $0.033 per share ordinary income dividends.
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS
<CAPTION>
Percent of
Industries Shares Held Stocks Cost Value Net Assets
<S> <S> <S> <C> <C> <C>
Communications 12,500 BellSouth Corp. $ 644,500 $ 648,438 2.0%
20,000 Pacific Telesis Group 623,700 580,000 1.8
1,268,200 1,228,438 3.8
<PAGE>
Utilities--Electric 22,500 Allegheny Power System, Inc. 483,750 489,375 1.5
40,900 American Electric Power Company, Inc. 1,519,871 1,349,700 4.1
16,000 Baltimore Gas & Electric Co. 396,848 362,000 1.1
18,000 Boston Edison Co. 498,793 411,750 1.3
26,000 Carolina Power & Light Co. 774,899 695,500 2.1
22,000 Central & Southwest Corp. 475,750 467,500 1.4
29,100 Consolidated Edison Company of New York 980,888 752,963 2.3
18,400 Detroit Edison Co. 595,472 492,200 1.5
20,800 Dominion Resources, Inc. 980,112 772,200 2.4
25,300 Duke Power Co. 1,101,816 1,030,975 3.2
18,100 Entergy Corp. 466,075 407,250 1.3
23,500 FPL Group, Inc. 919,184 831,313 2.6
20,500 General Public Utilities Corp. 527,875 527,875 1.6
23,300 Houston Industries, Inc. 1,097,517 792,200 2.4
27,000 New York State Electric & Gas Corp. 780,994 502,875 1.5
35,700 Northeast Utilities Co. 907,836 763,087 2.3
11,000 Northern States Power Co. 479,160 496,375 1.5
24,900 Ohio Edison Co. 559,888 460,650 1.4
21,000 Oklahoma Gas & Electric Co. 757,886 690,375 2.1
34,800 PacifiCorp 680,713 643,800 2.0
20,400 PECO Energy Co. 624,518 492,150 1.5
30,000 Pennsylvania Power & Light Co. 778,050 600,000 1.8
20,000 Public Service Company of Colorado 636,200 570,000 1.8
40,400 Public Service Enterprise Group Inc. 1,319,991 1,075,650 3.3
42,200 SCEcorp 887,436 590,800 1.8
60,400 Southern Co. 1,362,076 1,253,300 3.9
33,000 Texas Utilities Company 1,412,932 1,076,625 3.3
26,600 Unicom Corp.* 785,722 621,775 1.9
12,600 Union Electric Co. 513,993 452,025 1.4
20,000 Western Resources Co. 562,500 562,500 1.7
18,400 Wisconsin Energy Corp. 477,204 478,400 1.5
----------- ----------- ------
24,345,949 20,713,188 63.5
Total Stocks 25,614,149 21,941,626 67.3
<CAPTION>
Face Amount Corporate Bonds
<S> <C> <S> <C> <C> <C>
Telecommuni- $1,000,000 Southwestern Bell Capital Corp., 7.00% due
cations 7/01/2015 1,034,480 850,590 2.6
1,000,000 Tele-Communications, Inc., 9.80% due
2/01/2012 1,263,890 997,650 3.1
1,000,000 United Telephone of Florida, 6.875% due
7/15/2013 1,019,950 834,670 2.6
----------- ----------- ------
3,318,320 2,682,910 8.3
<PAGE>
Utilities--Electric 1,000,000 Public Service Company of Colorado,
6.375% due 11/01/2005 991,300 837,750 2.6
Utilities--Gas 1,000,000 El Paso Natural Gas Co., 7.75% due 1/15/2002 1,090,950 961,050 3.0
1,000,000 Enron Corp., 6.75% due 7/01/2005 1,023,800 859,490 2.6
1,500,000 ENSERCH Corp., 6.375% due 2/01/2004 1,491,030 1,278,660 3.9
----------- ----------- ------
3,605,780 3,099,200 9.5
Total Corporate Bonds 7,915,400 6,619,860 20.4
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS (concluded)
<CAPTION>
Percent of
Face Amount Short-Term Securities Cost Value Net Assets
<S> <C> <S> <C> <C> <C>
US Government & $1,000,000 Federal Home Loan Mortgage Corp.,
Agency Obligations** 5.68% due 1/05/1995 $ 994,507 $ 994,507 3.1%
1,000,000 Federal Home Loan Bank,
4.98% due 12/05/1994 999,446 999,446 3.0
----------- ----------- ------
1,993,953 1,993,953 6.1
Commercial Paper** 1,399,000 General Electric Co., 5.70% due 12/01/1994 1,399,000 1,399,000 4.3
Total Short-Term Securities 3,392,953 3,392,953 10.4
Total Investments $36,922,502 31,954,439 98.1
-----------
Other Assets Less Liabilities 622,248 1.9
----------- ------
Net Assets $32,576,687 100.0%
=========== ======
<PAGE>
Net Asset Value: Class A--Based on net assets of $3,855,829 and 466,064
shares outstanding $ 8.27
===========
Class B--Based on net assets of $28,498,635 and 3,444,733
shares outstanding $ 8.27
===========
Class C--Based on net assets of $105,375 and 12,741 shares
outstanding $ 8.27
===========
Class D--Based on net assets of $116,848 and 14,116 shares
outstanding $ 8.28
===========
<FN>
*Formerly Commonwealth Edison Co.
**Commercial Paper and US Government & Agency Obligations are traded
on a discount basis; the interest rates shown are the discount rates
paid at the time of purchase by the Fund.
</TABLE>
PORTFOLIO INFORMATION
For the Quarter Ended November 30, 1994
Percent of
Ten Largest Holdings Net Assets
American Electric Power Company, Inc. 4.1%
ENSERCH Corp., 6.375% due 2/01/2004 3.9
Southern Co. 3.9
Texas Utilities Company 3.3
Public Service Enterprise Group Inc. 3.3
Duke Power Co. 3.2
Tele-Communications, Inc., 9.80%
due 2/01/2012 3.1
El Paso Natural Gas Co., 7.75%
due 1/15/2002 3.0
Enron Corp., 6.75% due 7/01/2005 2.6
Southwestern Bell Capital Corp., 7.00%
due 7/01/2015 2.6
<PAGE>
Additions
BellSouth Corp.
Deletions
Long Island Lighting Co.
Niagara Mohawk Power Corp.
