MERRILL LYNCH
UTILITY INCOME
FUND, INC.
FUND LOGO
Quarterly Report
November 30, 1996
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.
<PAGE>
Merrill Lynch
Utility Income Fund, Inc.
Box 9011
Princeton, NJ
08543-9011
Printed on post-consumer recycled paper
MERRILL LYNCH UTILITY INCOME FUND, INC.
DEAR SHAREHOLDER
Investor perceptions regarding the direction of the US economy
became increasingly positive over the course of the three-month
period ended November 30, 1996. The impetus for the shift was the
mounting evidence that inflationary pressures were still under
control. This trend was underscored when the Federal Reserve Board
did not tighten monetary policy at its September 24, 1996 meeting.
These developments, coupled with several economic data releases that
showed growth was at or below expectations, helped to assuage
investors' concerns about an overheating economy. Stock and bond
prices improved, with most broad-based stock market averages
reaching historic high levels. However, one factor potentially
overshadowing investor enthusiasm is the possibility that corporate
profits may have peaked for this economic cycle.
<PAGE>
The US economy clearly has slowed from its strong growth rate during
the first half of 1996. Gross domestic product growth is slowing,
labor-cost pressures are subsiding and commodity prices are
dropping. Investors are also anticipating that President Clinton's
re-election, combined with continued Republican majorities in the
House of Representatives and the Senate, will prove positive for
containing the nation's budget deficit. As 1996 draws to a close,
investors are likely to continue to focus on the economy. Evidence
of continued growth at a non-inflationary pace would be positive for
the US capital markets.
Portfolio Matters
For the three months ended November 30, 1996, total returns for the
Fund's Class A, Class B, Class C and Class D Shares were +5.79%,
+5.58%, +5.57% and +5.72%, respectively. (Results shown do not
reflect sales charges and would be lower if sales charges were
included. For complete performance information, including average
annual total returns, see pages 3--5 of this report to
shareholders.) These results reflect a substantial improvement in
the stock prices of the domestic electric utility sector for the
November quarter. For the three-month period ended November 30,
1996, the unmanaged S&P Electric Utility Index of 26 companies rose
by 4.71%. Most notable was the 3.94% increase in domestic electric
utility stock prices for the month of October. The Fund's highest-
yielding electric utility stocks outperformed the S&P Electric
Utility Index during the period.
The Fund, which was nearly fully invested at the end of the November
quarter, consisted of 35 equity holdings and six bond holdings. The
best-performing holding during the November quarter was Unicom
Corp., with price appreciation of 15.76%. The stock was undervalued
in the August quarter but responded favorably to recent positive
regulatory news. A proposal was made to the Illinois State
Legislative Reference Bureau with respect to allowing competition in
the retail market on a phased-in approach. The proposed plan appears
to be less onerous than investors originally expected.
The five highest-yielding equity holdings in the Fund had an average
current yield of 7.35% at the end of November and average price
appreciation of 6.80% for the November quarter. As of November 30,
1996, 12 of the Fund's equity holdings had yields in the 6.00%--
6.97% range. Of these 12 equity holdings, the average current yield
was 6.57% at the end of November, and price appreciation for the
quarter was 3.98%. The average yield on the Fund's bond holdings for
the same period was 7.45%, and price appreciation was 6.50%.
This portfolio structure and investment strategy of focusing on
higher-yielding utilities is consistent with the Fund's high current
income investment objective. Higher-yielding utility stocks tend to
do better when long-term interest rates are declining. This was
evident during the November quarter, when the yield on the 30-year
US Treasury bond declined from 7.11% on August 31, 1996 to 6.35% on
November 30, 1996.
<PAGE>
Some of the fundamental factors that hindered the performance of the
domestic electric utility group during the past year appear to be
changing. For example, proposed solutions regarding the introduction
of competition into the industry have been fairly constructive. This
is important, particularly for the higher-cost utilities (typically
those with above-average current yields) which have been perceived
as facing greater competitive risks. Moreover, in general, cash
flows continue to be strong. It also appears that cash flows are
being invested more wisely this time than had been the case several
years ago when cash flows were growing. Mergers and acquisitions
continue to be announced, particularly between electric and natural
gas companies. Managements are continuing to focus on gaining access
to a greater number of customers and providing "one-stop" shopping
for customers' energy needs. The introduction of natural gas
managements, with their greater marketing expertise, should help the
electric industry set prices in a more open market.
While the fundamental outlook has positive attributes, valuation
levels also look attractive. The yield spread of 0.6% remains
attractive between the domestic electric utility stocks and the 30-
year US Treasury bond (5.8% and 6.4%, respectively). Furthermore, as
of November 30, 1996, the average current yield on the S&P Electric
Utility Index was three times higher than the yield on the S&P 500
Composite Index of 1.97%. With the S&P 500 Index and the S&P 400
Industrial Index trading at historically high levels, the domestic
electric sector may prove to be a safe haven for investors, at least
over the near term, since it is about 13.2% lower than its 1993
peak.
During the November quarter, we reduced our positions in Western
Resources Co. and Boston Edison Co. We sold our holding in Tele-
Communications, Inc. bonds because of concerns about the company's
cash flow and the delay in the deployment of the new cable
technology. We added two new positions to the Fund's domestic
electric utility portfolio. SCANA Corporation Holding Company is a
South Carolina-based electric utility company that supplies both gas
and electricity to its customers. Its geographic region continues to
show growth. The company has no problem plants and is involved in
the telecommunications market along with other partners. Also added
was IPALCO Enterprises, Inc., an Indiana-based electric utility
company. Nearly all of the company's electricity is generated from
coal. This company could be a beneficiary of the current
consolidation theme, but in the interim, it is a quality electric
utility company with a growing dividend.
<PAGE>
We expect investment opportunities to continue to surface as
individual states and companies release their competitive proposals.
To date, it does not appear as if equity holders will bear the
entire burden of the transition cost of the industry moving from a
monopolistic environment to a competitive one. Several electric
utility companies have addressed the situation by announcing their
intentions to acquire gas companies. For example, Texas Utilities
Co. proposed to acquire Ensearch Corp.; Houston Industries, Inc.
proposed to acquire Noram Energy Corp.; and in the latest
announcement, Duke Power Co. agreed to purchase PanEnergy Corp. for
over $7 billion. So far, Enron Corp.'s takeover of Portland General
Electric Company has been the only announced takeover of an electric
utility company by a natural gas company. Mergers between and
acquisitions involving two electric companies have also been
announced, and the trend may continue as the new competitive rules
evolve.
In Conclusion
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
January 6, 1997
PERFORMANCE DATA
About Fund Performance
<PAGE>
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 approximately 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. Investment return and principal value of
shares will fluctuate so that shares, when redeemed, may be worth
more or less than their original cost. Dividends paid to each class
of shares will vary because of the different levels of account
maintenance, distribution and transfer agency fees applicable to
each class, which are deducted from the income available to be paid
to shareholders.
<TABLE>
Recent Performance Results*
<CAPTION>
12 Month 3 Month
11/30/96 8/31/96 11/30/95 % Change % Change
<S> <C> <C> <C> <C> <C>
ML Utility Income Fund Class A Shares $9.57 $9.17 $9.70 -1.34% +4.36%
ML Utility Income Fund Class B Shares 9.57 9.17 9.70 -1.34 +4.36
ML Utility Income Fund Class C Shares 9.55 9.15 9.69 -1.44 +4.37
ML Utility Income Fund Class D Shares 9.58 9.18 9.71 -1.34 +4.36
ML Utility Income Fund Class A Shares--Total Return +5.02(1) +5.79(2)
ML Utility Income Fund Class B Shares--Total Return +4.20(3) +5.58(4)
ML Utility Income Fund Class C Shares--Total Return +4.05(5) +5.57(6)
ML Utility Income Fund Class D Shares--Total Return +4.75(7) +5.72(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 $0.598 per share ordinary
income dividends.
(2)Percent change includes reinvestment of $0.126 per share ordinary
income dividends.
(3)Percent change includes reinvestment of $0.524 per share ordinary
income dividends.
(4)Percent change includes reinvestment of $0.108 per share ordinary
income dividends.
(5)Percent change includes reinvestment of $0.519 per share ordinary
income dividends.
(6)Percent change includes reinvestment of $0.106 per share ordinary
income dividends.
(7)Percent change includes reinvestment of $0.574 per share ordinary
income dividends.
(8)Percent change includes reinvestment of $0.120 per share ordinary
income dividends.
</TABLE>
PERFORMANCE DATA (continued)
<TABLE>
Performance Summary--Class A Shares
<CAPTION>
Net Asset Value Capital Gains
Period Covered Beginning Ending Distributed Dividends Paid* % Change**
<S> <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
1995 8.28 10.05 -- 0.494 +28.26
1/1/96--11/30/96 10.05 9.57 -- 0.555 + 0.91
------
Total $1.588
Cumulative total return as of 11/30/96: +14.03%**
<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**
<S> <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
1995 8.28 10.05 -- 0.425 +27.28
1/1/96--11/30/96 10.05 9.57 -- 0.487 + 0.19
------
Total $1.378
Cumulative total return as of 11/30/96: +11.42%**
<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**
<S> <C> <C> <C> <C> <C>
10/21/94--12/31/94 $ 8.17 $ 8.27 -- $0.062 + 1.99%
1995 8.27 10.04 -- 0.427 +27.35
1/1/96--11/30/96 10.04 9.55 -- 0.483 + 0.04
------
Total $0.972
Cumulative total return as of 11/30/96: +29.94%**
<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 D Shares
<CAPTION>
Net Asset Value Capital Gains
Period Covered Beginning Ending Distributed Dividends Paid* % Change**
<S> <C> <C> <C> <C> <C>
10/21/94--12/31/94 $ 8.17 $ 8.28 -- $0.065 + 2.15%
1995 8.28 10.06 -- 0.471 +28.07
1/1/96--11/30/96 10.06 9.58 -- 0.533 + 0.68
------
Total $1.069
<PAGE>
Cumulative total return as of 11/30/96: +31.71%**
<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)
Average Annual Total Return
% Return Without % Return With
Sales Charge Sales Charge**
Class A Shares*
Year Ended 9/30/96 +1.87% -2.20%
Inception (10/29/93)
through 9/30/96 +2.76 +1.33
[FN]
*Maximum sales charge is 4%.
**Assuming maximum sales charge.
% Return % Return
Without CDSC With CDSC**
Class B Shares*
Year Ended 9/30/96 +1.13% -2.69%
Inception (10/29/93)
through 9/30/96 +1.99 +1.38
[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>
% Return % Return
Without CDSC With CDSC**
Class C Shares*
Year Ended 9/30/96 + 1.05% + 0.10%
Inception (10/21/94)
through 9/30/96 +11.54 +11.54
[FN]
*Maximum contingent deferred sales charge is 1% and is reduced to 0%
after 1 year.
**Assuming payment of applicable contingent deferred sales charge.
% Return Without % Return With
Sales Charge Sales Charge**
Class D Shares*
Year Ended 9/30/96 + 1.73% -2.34%
Inception (10/21/94)
through 9/30/96 +12.21 +9.88
[FN]
*Maximum sales charge is 4%.
**Assuming maximum sales charge.
PORTFOLIO INFORMATION
For the Quarter Ended November 30, 1996
Percent of
Ten Largest Holdings Net Assets
Southern Co. 4.8%
Allegheny Power System, Inc. 4.3
American Electric Power Company, Inc. 4.1
Houston Industries, Inc. 3.7
ENSERCH Corp., 6.375% due 2/01/2004 3.6
Public Service Enterprise Group, Inc. 2.8
Edison International 2.8
Oklahoma Gas & Electric Co. 2.7
Florida Progress Corp. 2.7
Enova Corp. 2.6
<PAGE>
Additions (Equity Investments)
IPALCO Enterprises, Inc.
SCANA Corporation Holding Company
<TABLE>
SCHEDULE OF INVESTMENTS
<CAPTION>
Shares Percent of
Industries Held Stocks Cost Value Net Assets
<S> <C> <S> <C> <C> <C>
Utilities--Electric 57,500 Allegheny Power System, Inc. $ 1,293,200 $ 1,746,563 4.3%
40,900 American Electric Power Company, Inc. 1,519,871 1,697,350 4.1
33,000 Baltimore Gas & Electric Co. 844,868 919,875 2.2
34,000 Boston Edison Co. 840,040 871,250 2.1
26,000 CINergy Corp. 673,299 871,000 2.1
26,000 Carolina Power & Light Co. 774,899 952,250 2.3
29,100 Consolidated Edison Company of New York 980,888 843,900 2.1
31,400 DTE Energy Co. 984,627 1,004,800 2.4
45,000 Delmarva Power & Light Co. 924,651 905,625 2.2
20,800 Dominion Resources, Inc. 980,112 793,000 1.9
57,200 Edison International 1,132,086 1,136,850 2.8
48,000 Enova Corp. 1,165,493 1,074,000 2.6
34,100 Entergy Corp. 887,035 924,963 2.3
34,000 Florida Progress Corp. 1,136,351 1,100,750 2.7
27,500 GPU, Inc. (a) 767,170 924,687 2.3
69,600 Houston Industries, Inc. 1,542,820 1,531,200 3.7
7,500 IPALCO Enterprises, Inc. 204,700 204,375 0.5
40,000 MDU Resources Group, Inc. 852,367 895,000 2.2
23,000 New England Electric System 766,360 787,750 1.9
27,000 New York State Electric & Gas Corp. 780,994 583,875 1.4
19,000 Northern States Power Co. 864,640 895,375 2.2
41,900 Ohio Edison Co. 936,783 963,700 2.3
27,000 Oklahoma Gas & Electric Co. 991,971 1,110,375 2.7
26,900 PECO Energy Co. 810,158 685,950 1.7
44,800 PacifiCorp 883,813 940,800 2.3
27,000 Public Service Company of Colorado 873,745 1,053,000 2.6
40,400 Public Service Enterprise Group, Inc. 1,319,991 1,156,450 2.8
7,500 SCANA Corporation Holding Company 201,075 204,375 0.5
88,400 Southern Co. 1,939,156 1,966,900 4.8
32,600 Unicom Corp. 954,082 867,975 2.1
22,600 Union Electric Co. 912,093 898,350 2.2
17,000 Western Resources Co. 478,125 537,625 1.3
18,400 Wisconsin Energy Corp. 477,204 492,200 1.2
----------- ----------- ------
30,694,667 31,542,138 76.8
<PAGE>
Utilities--Gas 50,300 AGL Resources Inc. 925,172 1,062,587 2.6
32,000 New Jersey Resources Corp. 924,858 948,000 2.3
----------- ----------- ------
1,850,030 2,010,587 4.9
Total Stocks 32,544,697 33,552,725 81.7
Face
Amount Corporate Bonds
Telecommunications $1,000,000 Southwestern Bell Corp., 7% due
7/01/2015 1,034,480 1,018,630 2.5
1,000,000 United Telephone Company of Florida,
6.875% due 7/15/2013 1,019,950 975,360 2.4
----------- ----------- ------
2,054,430 1,993,990 4.9
Utilities--Electric 1,000,000 Public Service Company of Colorado,
6.375% due 11/01/2005 991,300 985,870 2.4
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS (concluded)
<CAPTION>
Face Percent of
Industries Amount Corporate Bonds Cost Value Net Assets
<S> <C> <S> <C> <C> <C>
Utilities--Gas $1,500,000 ENSERCH Corp., 6.375% due 2/01/2004 $ 1,491,030 $ 1,480,020 3.6%
1,000,000 El Paso Natural Gas Co., 7.75% due
1/15/2002 1,090,950 1,054,160 2.6
1,000,000 Enron Corp., 6.75% due 7/01/2005 1,023,800 1,006,650 2.4
----------- ----------- ------
3,605,780 3,540,830 8.6
Total Corporate Bonds 6,651,510 6,520,690 15.9
Short-Term Securities
Commercial Paper* 719,000 General Electric Capital Corp., 5.70%
due 12/02/1996 718,772 718,772 1.8
Total Short-Term Securities 718,772 718,772 1.8
Total Investments $39,914,979 40,792,187 99.4
===========
Other Assets Less Liabilities 257,407 0.6
----------- ------
Net Assets $41,049,594 100.0%
=========== ======
<PAGE>
Net Asset Class A--Based on net assets of $2,174,117 and
Value: 227,192 shares outstanding $ 9.57
===========
Class B--Based on net assets of $35,300,353 and
3,689,824 shares outstanding $ 9.57
===========
Class C--Based on net assets of $2,062,893 and
215,939 shares outstanding $ 9.55
===========
Class D--Based on net assets of $1,512,231 and
157,817 shares outstanding $ 9.58
===========
<FN>
*Commercial Paper is traded on a discount basis; the interest rate
shown is the discount rate paid at the time of purchase by the Fund.
(a)Formerly General Public Utilities Corp.
</TABLE>
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
<PAGE>
