MERRILL LYNCH
UTILITY INCOME
FUND, INC.
FUND LOGO
Quarterly Report
November 30, 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, MA 02171
<PAGE>
Transfer Agent
Merrill Lynch Financial Data Services, Inc.
4800 Deer Lake Drive East
Jacksonville, FL 32246-6484
(800) 637-3863
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.
DEAR SHAREHOLDER
The pace of US economic activity apparently changed once again
during the quarter ended November 30, 1995. During the summer
months, there was strong evidence of a slowing economy, a trend that
reversed during the third calendar quarter of 1995, when gross
domestic product growth rebounded to a 4.2% pace. However, recent
economic releases suggest that this rate of expansion was not
sustained in October and November.
<PAGE>
A number of key measures of economic growth indicate that the
economy is losing momentum. Retail sales for November were soft,
reflecting continued caution on the part of debt-burdened consumers.
Home sales and housing starts both declined in October, despite
lower mortgage rates. At the same time, there was an increase in
initial unemployment claims, along with weak job and income growth.
In response to this slowing in the economy, inflationary pressures
continue to be subdued. As a result of these trends, long-term
interest rates fell, bond prices rose, and the US stock market
reached an all-time high.
The strong stock and bond market rallies suggest that investors are
not only anticipating that a lackluster economy will lead the
Federal Reserve Board to resume its easing of monetary policy, but
also that the Clinton Administration and Congress will reach an
agreement in their current Federal budget deliberations. While the
probable direction of economic activity will continue to be the
primary focus of investors in the weeks ahead, a credible plan for
reducing the Federal budget deficit will also be an important factor
in the investment outlook.
Portfolio Matters
During the quarter ended November 30, 1995, the Fund's performance
continued to be driven by its domestic electric utility stock
holdings, which currently account for approximately 61% of net
assets. The average current yield of the domestic electric stocks in
the Fund's portfolio was 6.02% at November 30, 1995. With long-term
interest rates hovering around the 6% level, and expected by many
economists to decline below 6% in the near term, the utility stocks'
yields remain relatively attractive. Moreover, we may see improved
stock price performance in this sector as more investors seek yield-
oriented and defensive investments. As a result of these factors,
and given the diversification of our electric utility equity
investments among 37 different companies, we made only minor changes
to the Fund's portfolio during the quarter ended November 30, 1995.
We eliminated our position in Texas-based Central & Southwest Corp.
because the company aggressively attempted to acquire a regional UK
electric distribution company. While the acquisition might have had
positive long-term implications for Central & Southwest's future,
the near-term outlook would not have been as positive since the
company may need large amounts of external financing to complete the
transaction.
<PAGE>
We once again took a position in Texas Utilities Co. We had
eliminated the stock from our portfolio during the February 28, 1995
quarter because of slowing sales and more importantly, the increased
risk of a dividend cut. On October 13, 1995, Texas Utilities Co. did
reduce its common stock dividend by 35%, but the company's increased
financial flexibility coupled with its low industrial customer base
led us to again believe the stock is an attractive investment.
We reduced the Fund's investment in the UK power generation sector
when we sold a portion of our holdings in National Power PLC (Part
Pay) shares. At the end of the August quarter, the stock was the
largest holding in the portfolio, accounting for 4.4% of net assets.
We used the strength of the stock early in the November quarter to
begin reducing our position. Unfortunately, the stock weakened later
in the November quarter because of concerns surrounding the
company's proposed acquisition of a UK-based electric distribution
utility and its regulatory implications. Nevertheless, we continue
to hold a position in National Power for several reasons. The
company remains in excellent financial condition, its shares offer
an above-industry average dividend yield, and prospects are good for
further dividend increases, which historically have been greater
than the average US-based electric utility.
During the quarter ended November 30, 1995, we maintained the Fund's
exposure to the domestic telecommunications sector at approximately
10% of net assets. Although the average current yield on the Fund's
telecommunications stocks was lower than on the electric stocks
during the November quarter, this sector provided greater capital
appreciation than electric stocks.
There was little change in the percentage of net assets invested in
bonds, since we find more compelling investment opportunities in
utility common stocks. The Fund holds seven different utility bonds
spread across the electric, gas and telecommunications sectors,
accounting for just over 16% of net assets. The increasing
possibility of deregulation in the electric utility industry has had
more of a negative impact on bonds than stocks. Investors are
questioning the financial integrity of electric utility companies in
a deregulated environment, as well as the possibility of further
downgrades in bond ratings. This is especially true in areas where
regulators are actively addressing issues such as "stranded
investment;" that is, no longer permitting electric utilities to
recover the cost of assets. Furthermore, deregulation of the
electric industry will create different types of companies--
generation, distribution and transmission--which may place more of
the burden on one type rather than the other. This factor would also
negatively impact the bond ratings of the electric utility industry.
<PAGE>
In Conclusion
Compared to the stock market in general, domestic electric utility
stocks outperformed during September and October, but underperformed
in November. The underperformance in November is attributed to a
slowing in the announcements of mergers/acquisitions, as well as
anticipation of regulatory news from key states such as California.
However, we believe that if long-term interest rates decline
further, domestic electric utility stocks should participate in
stock market rallies because the spread between their average
dividend yield and that of the 30-year US Treasury bond has narrowed
substantially from historic norms.
We continue to maintain a diversified approach to our investments in
an effort to limit the risk associated with adverse regulatory
actions in any one state. We believe this strategy is of critical
importance as the domestic electric utility industry begins the move
from a monopoly-based business to a more competitive environment,
and investors make adjustments in their holdings accordingly. This
transition is likely to take several years, since both Federal and
state regulators will be involved in the process. However, we expect
that a number of attractive investment opportunities will be
created.
We thank you for your investment in Merrill Lynch Utility Income
Fund, Inc., and we look forward to reviewing our future prospects
with you in upcoming shareholder reports.
Sincerely,
(Arthur Zeikel)
Arthur Zeikel
President
(Walter D. Rogers)
Walter D. Rogers
Vice President and Portfolio Manager
December 29, 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 all of the Fund's shares are presented in the
"Recent Performance Results" and "Performance Summary" tables on
pages 4 and 5. Data for Class A and Class B Shares are presented in
the "Average Annual Total Return" table below. Data for Class C and
Class D Shares are also presented in the "Aggregate Total Return"
table below.
The "Recent Performance Results" table shows investment results
before the deduction of any sales charges for all of the Fund's
shares for the 12-month and 3-month periods ended November 30, 1995.
All data in this table assume imposition of the actual total
expenses incurred by each class of shares during the relevant
period.
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.
<PAGE>
Average Annual Total Return
% Return Without % Return With
Sales Charge Sales Charge**
Class A Shares*
Year Ended 9/30/95 +23.88% +18.93%
Inception (10/29/93)
through 9/30/95 + 3.22 + 1.05
[FN]
*Maximum sales charge is 4%.
**Assuming maximum sales charge.
% Return % Return
Without CDSC With CDSC**
Class B Shares*
Year Ended 9/30/95 +22.88% +18.88%
Inception (10/29/93)
through 9/30/95 + 2.44 + 0.96
[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 9/30/95 +22.39% +21.39%
<PAGE>
[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*
Inception (10/21/94)
through 9/30/95 +23.00% +18.08%
[FN]
*Maximum sales charge is 4%.
**Assuming maximum sales charge.
PERFORMANCE DATA (continued)
<TABLE>
Performance Summary--Class A Shares
<CAPTION>
Net Asset Value Capital Gains
Period Covered Beginning Ending Distributed Dividends 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--11/30/95 8.28 9.70 -- 0.451 +23.25
------
Total $0.990
Cumulative total return as of 11/30/95: +8.59%**
<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
Period Covered Beginning Ending Distributed Dividends 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--11/30/95 8.28 9.70 -- 0.388 +22.38
------
Total $0.854
Cumulative total return as of 11/30/95: +6.93%**
<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>
Performance Summary--Class C Shares
<CAPTION>
Net Asset Value Capital Gains
Period Covered Beginning Ending Distributed Dividends Paid* % Change**
<C> <C> <C> <C> <C> <C>
10/21/94--12/31/94 $8.17 $8.27 -- $0.062 + 1.99%
1/1/95--11/30/95 8.27 9.69 -- 0.390 +22.45
------
Total $0.452
Cumulative total return as of 11/30/95: +24.88%**
<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>
<PAGE>
<TABLE>
Performance Summary--Class D Shares
<CAPTION>
Net Asset Value Capital Gains
Period Covered Beginning Ending Distributed Dividends Paid* % Change**
<C> <C> <C> <C> <C> <C>
10/21/94--12/31/94 $8.17 $8.28 -- $0.065 + 2.15%
1/1/95--11/30/95 8.28 9.71 -- 0.430 +23.09
------
Total $0.495
Cumulative total return as of 11/30/95: +25.74%**
<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>
PERFORMANCE DATA (concluded)
<TABLE>
Recent Performance Results*
<CAPTION>
12 Month 3 Month
11/30/95 8/31/95 11/30/94 % Change % Change
<S> <C> <C> <C> <C> <C>
ML Utility Income Fund Class A Shares $9.70 $9.15 $8.27 +17.29% +6.01%
ML Utility Income Fund Class B Shares 9.70 9.15 8.27 +17.29 +6.01
ML Utility Income Fund Class C Shares 9.69 9.14 8.27 +17.17 +6.02
ML Utility Income Fund Class D Shares 9.71 9.15 8.28 +17.27 +6.12
ML Utility Income Fund Class A Shares--Total Return +23.89(1) +7.40(2)
ML Utility Income Fund Class B Shares--Total Return +22.94(3) +7.26(4)
ML Utility Income Fund Class C Shares--Total Return +22.88(5) +7.20(6)
ML Utility Income Fund Class D Shares--Total Return +23.57(7) +7.44(8)
<PAGE>
<FN>
*Investment results shown do not reflect sales charges; results
shown would be lower if a sales charge was included.
(1)Percent change includes reinvestment of $0.483 per share ordinary
income dividends.
(2)Percent change includes reinvestment of $0.124 per share ordinary
income dividends.
(3)Percent change includes reinvestment of $0.415 per share ordinary
income dividends.
(4)Percent change includes reinvestment of $0.112 per share ordinary
income dividends.
(5)Percent change includes reinvestment of $0.419 per share ordinary
income dividends.
(6)Percent change includes reinvestment of $0.105 per share ordinary
income dividends.
(7)Percent change includes reinvestment of $0.462 per share ordinary
income dividends.
(8)Percent change includes reinvestment of $0.118 per share ordinary
income dividends.
</TABLE>
PORTFOLIO INFORMATION
For the Quarter Ended November 30, 1995
Percent of
Ten Largest Holdings Net Assets
Southern Co. 4.2%
NYNEX Corp. 4.1
GTE Corp. 4.0
Allegheny Power System, Inc. 3.3
Houston Industries, Inc. 3.3
American Electric Power Company, Inc. 3.2
ENSERCH Corp., 6.375% due 2/01/2004 3.1
Pacific Gas & Electric Co. 2.6
Public Service Enterprise Group, Inc. 2.5
Tele-Communications, Inc., 9.80%
due 2/01/2012 2.4
Addition
Texas Utilities Co.
Deletion
Central & Southwest Corp.
<PAGE>
<TABLE>
SCHEDULE OF INVESTMENTS
<CAPTION>
Shares Percent of
Industries Held Stocks Cost Value Net Assets
<S> <C> <S> <C> <C> <C>
Telecommunications 25,000 BellSouth Corp. $ 644,500 $ 971,875 2.0%
45,000 GTE Corp. 1,510,200 1,918,125 4.0
40,000 NYNEX Corp. 1,527,880 1,985,000 4.1
----------- ----------- ------
3,682,580 4,875,000 10.1
Utilities--Electric 57,500 Allegheny Power System, Inc. 1,293,200 1,595,625 3.3
40,900 American Electric Power Company, Inc. 1,519,871 1,538,863 3.2
24,000 Baltimore Gas & Electric Co. 592,328 639,000 1.3
36,000 Boston Edison Co. 936,373 1,003,500 2.1
6,000 CILCORP, Inc. 217,735 246,750 0.5
26,000 CINergy Corp. 673,299 767,000 1.6
26,000 Carolina Power & Light Co. 774,899 854,750 1.8
29,100 Consolidated Edison Company of
New York 980,888 840,263 1.7
20,000 Delmarva Power & Light Co. 411,288 445,000 0.9
18,400 Detroit Edison Co. 595,472 600,300 1.2
20,800 Dominion Resources, Inc. 980,112 824,200 1.7
25,300 Duke Power Co. 1,101,816 1,135,338 2.4
18,100 Entergy Corp. 466,075 504,537 1.1
23,500 FPL Group, Inc. 919,184 1,019,312 2.1
20,500 General Public Utilities Corp. 527,875 648,312 1.3
34,800 Houston Industries, Inc. 1,542,820 1,592,100 3.3
10,000 Kansas City Power & Light Co. 228,100 250,000 0.5
208,000 National Power PLC (Part Pay)(a) 603,111 547,516 1.1
47,500 National Power PLC (Part Pay)(ADR)*(b) 564,775 546,250 1.1
23,000 New England Electric System 766,360 897,000 1.9
27,000 New York State Electric & Gas Corp. 780,994 702,000 1.5
35,700 Northeast Utilities Co. 907,836 852,337 1.8
11,000 Northern States Power Co. 479,160 517,000 1.1
24,900 Ohio Edison Co. 559,888 566,475 1.2
21,000 Oklahoma Gas & Electric Co. 757,886 850,500 1.8
20,400 PECO Energy Co. 624,518 591,600 1.2
45,000 Pacific Gas & Electric Co. 1,151,550 1,237,500 2.6
34,800 PacifiCorp 680,713 682,950 1.4
135,000 PowerGen PLC (Part Pay)(c) 602,638 450,397 0.9
20,000 Public Service Company of Colorado 636,200 690,000 1.4
40,400 Public Service Enterprise Group, Inc. 1,319,991 1,196,850 2.5
42,200 SCEcorp 887,436 659,375 1.4
88,400 Southern Co. 1,939,156 2,022,150 4.2
25,000 Texas Utilities Co. 967,125 962,500 2.0
26,600 Unicom Corp. 785,722 851,200 1.8
12,600 Union Electric Co. 513,993 505,575 1.1
20,000 Western Resources Co. 562,500 662,500 1.4
18,400 Wisconsin Energy Corp. 477,204 542,800 1.1
----------- ----------- ------
30,330,091 31,039,325 64.5
Total Stocks 34,012,671 35,914,325 74.6
</TABLE>
<PAGE>
<TABLE>
SCHEDULE OF INVESTMENTS
<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 $ 1,036,480 2.2%
1,000,000 Tele-Communications, Inc., 9.80%
due 2/01/2012 1,263,890 1,172,220 2.4
1,000,000 United Telephone of Florida, 6.875%
due 7/15/2013 1,019,950 996,860 2.1
----------- ----------- ------
3,318,320 3,205,560 6.7
Utilities--Electric 1,000,000 Public Service Company of Colorado,
6.375% due 11/01/2005 991,300 999,570 2.1
Utilities--Gas 1,500,000 ENSERCH Corp., 6.375% due 2/01/2004 1,491,030 1,477,890 3.1
1,000,000 El Paso Natural Gas Co., 7.75% due
1/15/2002 1,090,950 1,074,260 2.2
1,000,000 Enron Corp., 6.75% due 7/01/2005 1,023,800 1,011,870 2.1
----------- ----------- ------
3,605,780 3,564,020 7.4
Total Corporate Bonds 7,915,400 7,769,150 16.2
Short-Term Securities
Commercial Paper** 1,777,000 General Electric Capital Corp., 5.90%
due 12/01/1995 1,777,000 1,777,000 3.7
US Government & 3,000,000 Federal Home Loan Bank, 5.60%
Agency Obligations** due 12/04/1995
2,998,600 2,998,600 6.2
Total Short-Term Securities 4,775,600 4,775,600 9.9
<PAGE>
Total Investments $46,703,671 48,459,075 100.7
===========
Liabilities in Excess of Other Assets (322,737) (0.7)
----------- ------
Net Assets $48,136,338 100.0%
=========== ======
Net Asset Class A--Based on net assets of $3,212,777
Value: and 331,181 shares outstanding $ 9.70
===========
Class B--Based on net assets of $41,971,880
and 4,327,888 shares outstanding $ 9.70
===========
Class C--Based on net assets of $1,992,561
and 205,722 shares outstanding $ 9.69
===========
Class D--Based on net assets of $959,120
and 98,744 shares outstanding $ 9.71
===========
<FN>
*American Depositary Receipts (ADR).
**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.
(a)Receipts evidence payment by the Fund of 37% of the purchase
price of common stock of National Power PLC. The Fund is obligated
to pay the remaining 63%, approximately $974,000, during the next
two years.
(b)Receipts evidence payment by the Fund of 37% of the purchase
price of common stock of National Power PLC (ADR). The Fund is
obligated to pay the remaining 63%, approximately $950,000, during
the next two years.
(c)Receipts evidence payment by the Fund of 47% of the purchase
price of common stock of Power Gen PLC. The Fund is obligated to pay
the remaining 53%, approximately $685,000, during the next two
years.
</TABLE>
