MERRILL LYNCH
UTILITY INCOME
FUND, INC.
FUND LOGO
Quarterly Report
May 31, 1995
This report is not authorized for use as an offer of sale or a
solicitation of an offer to buy shares of the Fund unless
accompanied or preceded by the Fund's current prospectus. Past
performance results shown in this report should not be considered a
representation of future performance. Investment return and
principal value of shares will fluctuate so that shares, when
redeemed, may be worth more or less than their original cost.
<PAGE>
Merrill Lynch
Utility Income
Fund, Inc.
Box 9011
Princeton, NJ
08543-9011
MERRILL LYNCH UTILITY INCOME FUND, INC.
DEAR SHAREHOLDER
Increasing signs of slowing economic growth led to higher US stock
and bond prices during the May quarter. Recent declines in
indicators such as new home sales and durable goods orders were
reflected in the slight downward revision in first-quarter gross
domestic product growth to 2.7% from 2.8%. At the same time,
inventories of unsold goods grew at a slower rate than previously
estimated, while consumer, residential construction and capital
goods spending were revised upward. As a result, it appears that the
economy is losing enough momentum to keep inflation under control
and preclude further significant monetary policy tightening by the
Federal Reserve Board.
Despite some periods of strengthening, the US dollar has been
persistently weak relative to the yen and the Deutschemark. Large
trade deficits and exports of capital from the United States have
kept the US currency in a decade-long decline relative to the
Japanese and German currencies. Over the longer term, since the
United States has the highest productivity among industrialized
nations and among the lowest labor costs, demand for US dollar-
denominated assets may improve. However, a reduction of the still-
widening US trade deficit may be necessary before the US dollar
appreciates substantially relative to the yen and the Deutschemark.
Another important factor that will continue to influence currency
markets is the increasing possibility of US/Japanese trade
sanctions. Thus far in 1995, economic developments have been very
positive for the US stock and bond markets. Continued signs of a
moderating expansion and well-contained inflationary pressures would
provide further assurance that the peak in interest rates is behind
us, creating a stronger foundation for higher stock and bond prices.
On the other hand, indications of reaccelerating growth and
increasing inflationary pressures would be negative developments for
the US financial markets.
<PAGE>
Portfolio Matters
Declining long-term interest rates and little new fundamental news
led to a rally in domestic utility stocks during the quarter ended
May 31, 1995. With 67.3% of net assets invested in US utility stocks
and a reduced cash position (2.8% of net assets) at quarter-end,
Merrill Lynch Utility Income Fund, Inc.'s performance benefited
during the period with total returns for all classes of shares
approximately +6.0%. (See pages 3 and 4 of this report to
shareholders for complete performance information.)
During the May quarter, we made several changes to the Fund's
portfolio. We reduced our holdings in the telecommunications sector
by beginning to eliminate our position in Pacific Telesis Group.
This California-based telephone company, whose stock offers a
current yield that is in line with domestic electrics, reported that
it was having some fundamental problems. Its market is being opened
to intense competition, resulting in weaker-than-expected market
share and revenue results. While management is seeking some relief
on the regulatory front and over time the elasticity of the
telephone business may result in a reversal of these negative
developments, we do not expect to see much in the way of improvement
in the near term and therefore reduced our position. The management
of Pacific Telesis Group has stated that it believes that the
company's current dividend is safe, although it will now take longer
for the company to grow earnings to reduce its rather high payout
ratio. This factor, coupled with the need for substantial capital to
build out its broadband network and personal communication system,
warranted a reduction in our overweighted position in the company's
stock.
In the domestic electric equity portion of the Fund's portfolio, we
added one new position, CINergy Corp., and increased our position in
two existing holdings, Baltimore Gas & Electric Co. and Allegheny
Power System, Inc. CINergy Corp. is an electric and gas utility
holding company formed on October 24, 1994, through the merger of
Cincinnati Gas & Electric Co. and PSI Resources, Inc. The company's
service territory includes Ohio, Indiana and Kentucky. The stock
offers a current yield that is comparable to that of the domestic
electric utility sector. Two domestic utility companies in the
Fund's portfolio announced their intention to consolidate. Northern
States Power Co. and Wisconsin Energy Corp. surprised the financial
community by announcing that they would merge into a new electric
utility holding company to be named Primergy Corp. The completion of
the merger between these two relatively equal entities is expected
to take at least 18 months and result in estimated cost savings of
$2 billion. There is no acquisition premium that will have to be
recovered. This announcement from these two companies is being
viewed as the start of many acquisitions/ mergers to come in the
sector as managements prepare for increased competition.
<PAGE>
We added our first foreign company to the Fund's portfolio during
the May quarter. National Power PLC is an electric generating
company that is headquartered in the United Kingdom. The company has
a conservative management team that focuses on improving efficiency
at its UK-based operations and investing overseas to secure future
growth. The company generates significant free cash flow which it
uses to provide high dividend growth, repurchase shares and make
investments in electric facilities. We purchased the shares in a
stock offering, with the selling shareholder being the UK
government. The structure of the stock sale, coupled with a good
fundamental outlook, made this investment a unique opportunity. The
current yield on the stock is above that of the domestic electric
utility average. This high yield, coupled with expected reasonable
dividend growth, makes National Power an attractive investment.
In Conclusion
In the near term, there may be a pause in the performance of the
domestic electric utility stocks as a result of the recent run-up in
prices. However, we do not expect this to have a lasting impact
since, on a valuation basis, the group continues to look attractive,
particularly relative to long-term Treasury bonds and with the
current trend of declining interest rates. Furthermore, dividend
yields on common stocks are at historically low levels, which
further enhances the relative attraction of domestic utility stocks.
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
June 22, 1995
<PAGE>
PERFORMANCE DATA
About Fund Performance
Since October 21, 1994, investors have been able to purchase shares
of the Fund through the Merrill Lynch Select Pricing SM System,
which offers four pricing alternatives:
* Class A Shares incur a maximum initial sales charge (front-end
load) of 4% and bear no ongoing distribution or account maintenance
fees. Class A Shares are available only to eligible investors.
* Class B Shares are subject to a maximum contingent deferred sales
charge of 4% if redeemed during the first year, decreasing 1% each
year thereafter to 0% after the fourth year. In addition, Class B
Shares are subject to a distribution fee of 0.50% and an account
maintenance fee of 0.25%. These shares automatically convert to
Class D Shares after approximately 10 years.
* Class C Shares are subject to a distribution fee of 0.55% and an
account maintenance fee of 0.25%. In addition, Class C Shares are
subject to a 1% contingent deferred sales charge if redeemed within
one year of purchase.
* Class D Shares incur a maximum initial sales charge of 4% and an
account maintenance fee of 0.25% (but no distribution fee).
Performance data for the Fund's Class A and Class B Shares are
presented in the "Average Annual Total Return," "Performance
Summary" and "Recent Performance Results" tables below and on page
4. Data for Class C and Class D Shares are also presented in the
"Recent Performance Results" and "Aggregate Total Return" tables
below and on page 4.
The "Recent Performance Results" table shows investment results
before the deduction of any sales charges for Class A and Class B
Shares for the 12-month and 3-month periods ended May 31, 1995 and
for Class C and Class D Shares for the since inception and 3-month
periods ended May 31, 1995. All data in this table assume imposition
of the actual total expenses incurred by each class of shares during
the relevant period.
<PAGE>
None of the past results shown should be considered a representation
of future performance. Investment return and principal value of
shares will fluctuate so that shares, when redeemed, may be worth
more or less than their original cost. Dividends paid to each class
of shares will vary because of the different levels of account
maintenance, distribution and transfer agency fees applicable to
each class, which are deducted from the income available to be paid
to shareholders.
Average Annual Total Return
% Return Without % Return With
Sales Charge Sales Charge**
Class A Shares*
Year Ended 3/31/95 +3.37% -0.77%
Inception (10/29/93)
through 3/31/95 -5.71 -8.38
[FN]
*Maximum sales charge is 4%.
**Assuming maximum sales charge.
% Return % Return
Without CDSC With CDSC**
Class B Shares*
Year Ended 3/31/95 +2.59% -1.30%
Inception (10/29/93)
through 3/31/95 -6.38 -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.
Aggregate Total Return
% Return % Return
Without CDSC With CDSC**
Class C Shares*
Inception (10/21/94)
through 3/31/95 +6.46% +5.46%
[FN]
*Maximum contingent deferred sales charge is 1% and is reduced to 0%
after 1 year.
**Assuming payment of applicable contingent deferred sales charge.
<PAGE>
% Return Without % Return With
Sales Charge Sales Charge**
Class D Shares*
Inception (10/21/94)
through 3/31/95 +6.74% +2.47%
[FN]
*Maximum sales charge is 4%.
**Assuming maximum sales charge.
PERFORMANCE DATA (concluded)
<TABLE>
Performance Summary--Class A Shares
<CAPTION>
Net Asset Value Capital Gains Dividends
Period Covered Beginning Ending Distributed Paid* % Change**
<C> <C> <C> <C> <C> <C>
10/29/93--12/31/93 $10.00 $9.81 -- $0.043 - 1.46%
1994 9.81 8.28 -- 0.496 -10.59
1/1/95--5/31/95 8.28 9.08 -- 0.219 +12.53
------
Total $0.758
Cumulative total return as of 5/31/95: - 0.86%**
<FN>
*Figures may include short-term capital gains distributions.
**Figures assume reinvestment of all dividends and capital gains
distributions at net asset value on the ex-dividend date, and do not
include sales charge; results would be lower if sales charge was
included.
</TABLE>
<PAGE>
<TABLE>
Performance Summary--Class B Shares
<CAPTION>
Net Asset Value Capital Gains Dividends
Period Covered Beginning Ending Distributed Paid* % Change**
<C> <C> <C> <C> <C> <C>
10/29/93--12/31/93 $10.00 $9.80 -- $0.037 - 1.63%
1994 9.80 8.28 -- 0.429 -11.19
1/1/95--5/31/95 8.28 9.08 -- 0.186 +12.10
------
Total $0.652
Cumulative total return as of 5/31/95: - 2.06%**
<FN>
*Figures may include short-term capital gains distributions.
**Figures assume reinvestment of all dividends and capital gains
distributions at net asset value on the ex-dividend date, and do not
reflect deduction of any sales charge; results would be lower if
sales charge was deducted.
</TABLE>
<TABLE>
Recent Performance Results*
<CAPTION>
12 Month 3 Month
5/31/95 2/28/95 5/31/94++ % Change++ % Change
<S> <C> <C> <C> <C> <C>
ML Utility Income Fund Class A Shares $9.08 $8.66 $8.37 + 8.48% +4.85%
ML Utility Income Fund Class B Shares 9.08 8.66 8.37 + 8.48 +4.85
ML Utility Income Fund Class C Shares 9.07 8.65 8.17 +11.02 +4.86
ML Utility Income Fund Class D Shares 9.08 8.66 8.17 +11.14 +4.85
ML Utility Income Fund Class A Shares--Total Return +15.26(1) +6.05(2)
ML Utility Income Fund Class B Shares--Total Return +14.30(3) +5.78(4)
ML Utility Income Fund Class C Shares--Total Return +14.47(5) +5.87(6)
ML Utility Income Fund Class D Shares--Total Return +14.84(7) +5.97(8)
<PAGE>
<FN>
*Investment results shown do not reflect sales charges; results
shown would be lower if a sales charge was included.
++Investment results shown for Class C and Class D Shares are since
inception (10/21/94).
(1)Percent change includes reinvestment of $0.506 per share ordinary
income dividends.
(2)Percent change includes reinvestment of $0.097 per share ordinary
income dividends.
(3)Percent change includes reinvestment of $0.436 per share ordinary
income dividends.
(4)Percent change includes reinvestment of $0.076 per share ordinary
income dividends.
(5)Percent change includes reinvestment of $0.257 per share ordinary
income dividends.
(6)Percent change includes reinvestment of $0.082 per share ordinary
income dividends.
(7)Percent change includes reinvestment of $0.275 per share ordinary
income dividends.
(8)Percent change includes reinvestment of $0.092 per share ordinary
income dividends.
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS
<CAPTION>
Shares Percent of
Industries Held Stocks Cost Value Net Assets
<S> <C> <S> <C> <C> <C>
Telecommunications 12,500 BellSouth Corp. $ 644,500 $ 767,188 1.7%
45,000 GTE Corp. 1,510,200 1,501,875 3.4
40,000 NYNEX Corp. 1,527,880 1,670,000 3.7
10,000 Pacific Telesis Group 285,274 267,500 0.6
----------- ----------- ------
3,967,854 4,206,563 9.4
<PAGE>
Utilities--Electric 57,500 Allegheny Power System, Inc. 1,293,200 1,430,313 3.2
40,900 American Electric Power Company, Inc. 1,519,871 1,400,825 3.1
24,000 Baltimore Gas & Electric Co. 592,328 624,000 1.4
36,000 Boston Edison Co. 936,373 931,500 2.1
26,000 Carolina Power & Light Co. 774,899 776,750 1.7
43,000 Central & Southwest Corp. 986,260 1,107,250 2.5
26,000 CINergy Corp. 673,299 692,250 1.5
29,100 Consolidated Edison Company of New York 980,888 869,363 1.9
18,400 Detroit Edison Co. 595,472 554,300 1.2
20,800 Dominion Resources, Inc. 980,112 772,200 1.7
25,300 Duke Power Co. 1,101,816 1,056,275 2.4
18,100 Entergy Corp. 466,075 447,975 1.0
23,500 FPL Group, Inc. 919,184 922,375 2.1
20,500 General Public Utilities Corp. 527,875 615,000 1.4
34,800 Houston Industries, Inc. 1,542,820 1,500,750 3.4
325,000 National Power PLC (Foreign) (Part Pay) 942,361 1,006,205 2.3
47,500 National Power PLC (Part Pay) 564,775 605,625 1.4
23,000 New England Electric System 766,360 793,500 1.8
27,000 New York State Electric & Gas Corp. 780,994 627,750 1.4
35,700 Northeast Utilities Co. 907,836 852,337 1.9
11,000 Northern States Power Co. 479,160 521,125 1.2
24,900 Ohio Edison Co. 559,888 544,687 1.2
21,000 Oklahoma Gas & Electric Co. 757,886 740,250 1.7
20,400 PECO Energy Co. 624,518 573,750 1.3
45,000 Pacific Gas & Electric Co. 1,151,550 1,305,000 2.9
34,800 PacifiCorp 680,713 687,300 1.5
60,000 Pennsylvania Power & Light Co. 1,398,900 1,155,000 2.6
20,000 Public Service Company of Colorado 636,200 655,000 1.5
40,400 Public Service Enterprise Group, Inc. 1,319,991 1,201,900 2.7
42,200 SCEcorp 887,436 733,225 1.6
88,400 Southern Co. 1,939,156 1,955,850 4.4
26,600 Unicom Corp. 785,722 724,850 1.6
12,600 Union Electric Co. 513,993 477,225 1.1
20,000 Western Resources Co. 562,500 630,000 1.4
18,400 Wisconsin Energy Corp. 477,204 529,000 1.2
----------- ----------- ------
30,627,615 30,020,705 67.3
<PAGE>
Total Stocks 34,595,469 34,227,268 76.7
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS (concluded)
<CAPTION>
Percent of
Industries Face Amount Corporate Bonds Cost Value Net Assets
<S> <C> <S> <C> <C> <C>
Telecommunications $1,000,000 Southwestern Bell Corp., 7.00% due
7/01/2015 $ 1,034,480 $ 971,280 2.2%
1,000,000 Tele-Communications, Inc., 9.80% due
2/01/2012 1,263,890 1,085,020 2.4
1,000,000 United Telephone of Florida, 6.875%
due 7/15/2013 1,019,950 948,230 2.1
----------- ----------- ------
3,318,320 3,004,530 6.7
Utilities--Electric 1,000,000 Public Service Company of Colorado,
6.375% due 11/01/2005 991,300 960,380 2.1
Utilities--Gas 1,000,000 El Paso Natural Gas Co., 7.75% due
1/15/2002 1,090,950 1,047,520 2.3
1,000,000 Enron Corp., 6.75% due 7/01/2005 1,023,800 974,200 2.2
1,500,000 ENSERCH Corp., 6.375% due 2/01/2004 1,491,030 1,426,305 3.2
----------- ----------- ------
3,605,780 3,448,025 7.7
Total Corporate Bonds 7,915,400 7,412,935 16.5
Short-Term Securities
Commercial Paper* 571,000 General Electric Capital Corp., 6.13%
due 6/01/1995 571,000 571,000 1.3
<PAGE>
US Government & 650,000 Federal Home Loan Bank, 5.86% due
Agency Obligations* 6/08/1995 649,259 649,259 1.5
Total Short-Term Securities 1,220,259 1,220,259 2.8
Total Investments $43,731,128 42,860,462 96.0
===========
Other Assets Less Liabilities 1,790,271 4.0
----------- ------
Net Assets $44,650,733 100.0%
=========== ======
Net Asset Value: Class A--Based on net assets of $3,382,777 and 372,542
shares outstanding $ 9.08
===========
Class B--Based on net assets of $39,276,184 and 4,324,456
shares outstanding $ 9.08
===========
Class C--Based on net assets of $1,431,620 and 157,901 shares
outstanding $ 9.07
===========
Class D--Based on net assets of $560,152 and 61,704 shares
outstanding $ 9.08
===========
<FN>
*Commercial Paper and certain US Government & Agency Obligations are
traded on a discount basis; the interest rates shown are the
discount rates paid at the time of purchase by the Fund.
</TABLE>
PORTFOLIO INFORMATION
For the Quarter Ended May 31, 1995
Percent of
Ten Largest Holdings Net Assets
Southern Co. 4.4%
NYNEX Corp. 3.7
GTE Corp. 3.4
Houston Industries, Inc. 3.4
Allegheny Power System, Inc. 3.2
ENSERCH Corp., 6.375% due 2/01/2004 3.2
American Electric Power Company, Inc. 3.1
Pacific Gas & Electric Co. 2.9
Public Service Enterprise Group, Inc. 2.7
Pennsylvania Power & Light Co. 2.6
<PAGE>
Additions
CINergy Corp.
National Power PLC (Foreign) (Part Pay)
National Power PLC (Part Pay)
OFFICERS AND DIRECTORS
Arthur Zeikel, President and Director
Ronald W. Forbes, Director
Cynthia A.Montgomery, Director
Charles C. Reilly, Director
Kevin A. Ryan, Director
Richard R. West, Director
Terry K. Glenn, Executive Vice President
Norman R. Harvey, Senior Vice President
Donald C. Burke, Vice President
Walter D. Rogers, Vice President and
Portfolio Manager
Gerald M. Richard, Treasurer
Thomas D. Jones III, Secretary
Custodian
State Street Bank and Trust Company
One Heritage Drive, P2N
North Quincy, Massachusetts 02171
Transfer Agent
Merrill Lynch Financial Data Services, Inc.
4800 Deer Lake Drive East
Jacksonville, Florida 32246-6484
(800) 637-3863
