MERRILL LYNCH
UTILITY INCOME
FUND, INC.
STRATEGIC
Performance
Quarterly Report
November 30, 1997
<PAGE>
MERRILL LYNCH UTILITY INCOME FUND, INC.
DEAR SHAREHOLDER
Volatility highlighted stock and bond markets worldwide during the quarter ended
November 30, 1997. The difficulties began in Southeast Asia. Following the
currency devaluations in several Southeast Asian countries this summer, the Hong
Kong dollar--the value of which is pegged to the US dollar--came under
speculative attack in foreign currency markets. Monetary authorities in Hong
Kong raised interest rates to support the currency, and the Hong Kong stock
market declined sharply as had stock markets throughout Southeast Asia. These
events raised investor concerns worldwide regarding the viability of continued
global economic growth, since economic growth in Asia is likely to slow markedly
in 1998.
At first, US stock market investors focused on the challenges that would face US
multinational corporations in the wake of the poorer Asian economic prospects.
The sell-off then broadened to other stocks as well. Although the decline proved
to be short-lived, investor confidence was not definitively restored, and stock
market volatility continued. Although the US bond market benefited during
periods when investors anticipated slower economic growth, the release of
stronger-than-expected economic statistics led to periods of declining bond
prices.
As 1997 draws to a close, investors are likely to continue to focus on the
prospects for the US economy. Although the Federal Reserve Board did not tighten
monetary policy at its November 12, 1997 meeting, it remains to be seen whether
US economic growth remains moderate enough and inflationary pressures
sufficiently contained to preclude an increase in short-term interest rates in
the near term.
Portfolio Matters
For the three months ended November 30, 1997, total returns for Merrill Lynch
Utility Income Fund, Inc.'s Class A, Class B, Class C and Class D Shares were
+12.82%, +12.62%, +12.62% and +12.74%, respectively. (Fund 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.) The Fund outperformed the +11.24%
total return of the Lipper Utility Funds Average for the November quarter.
During the quarter, we continued to meet our goal of providing high current
income.
Several factors influenced the Fund's performance during the November quarter.
The broad market, as measured by the performance of the unmanaged Standard &
Poor's 500 (S&P 500) Index, underperformed the unmanaged S&P Electric Utility
Index for the second quarter in a row. Long-term interest rates, as measured by
the yield on the 30-year US Treasury bond, dropped from 6.6% at the start of the
November quarter to 6.0% at quarter-end.
On a more fundamental basis, we saw a continuation of sales of non-nuclear
electric generating plants at prices exceeding book value. Importantly, the
auction prices achieved to date appear to be higher than most originally
assumed, which has improved the valuation outlook for the sector. In California,
the focus has been replacement cost of power. The situation in New England is
slightly different. Many existing non-nuclear electric generating plants have
the space for new capacity to be built. Since approximately 20% of the New
England power market is
1
<PAGE>
Merrill Lynch Utility Income Fund, Inc. November 30, 1997
fueled by oil and diesel, which are not viewed as being environmentally
friendly, the prospect of new, cleaner, gas-fired generation at existing sites
may be contemplated. In addition, in order for a company to participate in the
newly evolving competitive markets for power in the region, it must own
generating plants. With many electric utility companies and natural gas
companies getting heavily involved in the power marketing business, owning
plants in this region is crucial. To date, sales of nuclear plants have not
taken place. However, this may change in the future, as the heavy stranded
fixed costs of nuclear plants are amortized against the competitive transition
charges which many states are considering.
Investment Activities
During the November quarter, we reduced our holdings in five stocks and
eliminated one position, Edison International. The principal reason for the
reductions was that the positions had become overweighted relative to the other
holdings in the portfolio. We eliminated Edison International because its
current yield was no longer high enough to contribute to the overall income
requirements of the Fund. Overall, the Fund's holdings benefited from the rally
in the domestic electric utility sector. It appears as though investors
preferred the higher-yielding issues in the recent rally, where the Fund is
principally invested because of its high current income objective.
In Conclusion
We thank you for your investment in Merrill Lynch Utility Income Fund, Inc., and
we look forward to assisting you with your financial needs in the months and
years ahead.
Sincerely,
/s/ Arthur Zeikel
Arthur Zeikel
President
/s/ Walter D. Rogers
Walter D. Rogers
Vice President and Portfolio Manager
January 2, 1998
2
<PAGE>
Merrill Lynch Utility Income Fund, Inc. November 30, 1997
PERFORMANCE DATA
About Fund Performance
Investors are able to purchase shares of the Fund through the Merrill
Lynch Select PricingSM System, which offers four pricing alternatives:
o 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.
o 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.)
o 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.
o 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 "Average Annual Total Return"
tables as well as the total returns and cumulative total returns in the
"Performance Summary" 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.
Average Annual Total Return
==========================================================================
% Return Without % Return With
Sales Charge Sales Charge**
==========================================================================
Class A Shares*
==========================================================================
Year Ended 9/30/97 + 14.08% + 9.52%
--------------------------------------------------------------------------
Inception (10/29/93)
through 9/30/97 + 5.54 + 4.44
--------------------------------------------------------------------------
* Maximum sales charge is 4%.
** Assuming maximum sales charge.
==========================================================================
% Return % Return
Without CDSC With CDSC**
==========================================================================
Class B Shares*
==========================================================================
Year Ended 9/30/97 + 13.19% + 9.19%
--------------------------------------------------------------------------
Inception (10/29/93)
through 9/30/97 + 4.74 + 4.51
--------------------------------------------------------------------------
* 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 9/30/97 + 13.05% + 12.05%
--------------------------------------------------------------------------
Inception (10/21/94)
through 9/30/97 + 12.07 + 12.07
--------------------------------------------------------------------------
* 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 9/30/97 + 13.78% + 9.23%
--------------------------------------------------------------------------
Inception (10/21/94)
through 9/30/97 + 12.75 + 11.20
--------------------------------------------------------------------------
* Maximum sales charge is 4%.
** Assuming maximum sales charge.
3
<PAGE>
Merrill Lynch Utility Income Fund, Inc. November 30, 1997
PERFORMANCE DATA (continued)
Performance Summary--Class A Shares
<TABLE>
<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
- --------------------------------------------------------------------------------------------------------------------
1996 10.05 9.56 -- 0.596 + 1.24
- --------------------------------------------------------------------------------------------------------------------
1/1/97-11/30/97 9.56 10.53 -- 0.512 +16.26
- --------------------------------------------------------------------------------------------------------------------
Total $2.141
====================================================================================================================
Cumulative total return as of 11/30/97: +33.00%**
====================================================================================================================
</TABLE>
Performance Summary--Class B Shares
<TABLE>
<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
- --------------------------------------------------------------------------------------------------------------------
1996 10.05 9.56 -- 0.522 + 0.46
- --------------------------------------------------------------------------------------------------------------------
1/1/97-11/30/97 9.56 10.52 -- 0.443 +15.31
- --------------------------------------------------------------------------------------------------------------------
Total $1.856
====================================================================================================================
Cumulative total return as of 11/30/97: +28.82%***
====================================================================================================================
</TABLE>
Performance Summary--Class C Shares
<TABLE>
<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
- --------------------------------------------------------------------------------------------------------------------
1996 10.04 9.54 -- 0.517 + 0.31
- --------------------------------------------------------------------------------------------------------------------
1/1/97-11/30/97 9.54 10.51 -- 0.441 +15.42
- --------------------------------------------------------------------------------------------------------------------
Total $1.447
====================================================================================================================
Cumulative total return as of 11/30/97: +50.37%***
====================================================================================================================
</TABLE>
Performance Summary--Class D Shares
<TABLE>
<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
- --------------------------------------------------------------------------------------------------------------------
1996 10.06 9.57 -- 0.572 + 0.99
- --------------------------------------------------------------------------------------------------------------------
1/1/97-11/30/97 9.57 10.54 -- 0.490 +15.97
- --------------------------------------------------------------------------------------------------------------------
Total $1.598
====================================================================================================================
Cumulative total return as of 11/30/97: +53.21%**
====================================================================================================================
</TABLE>
* Figures may include short-term capital gains distributions.
** Figures do not include sales charge; results would be lower if sales
charge was included.
*** Figures do not reflect deduction of any sales charge; results would be
lower if sales charge was deducted.
4
<PAGE>
Merrill Lynch Utility Income Fund, Inc. November 30, 1997
PERFORMANCE DATA (concluded)
Recent Performance Results*
<TABLE>
<CAPTION>
12 Month 3 Month
11/30/97 8/31/97 11/30/96 %Change %Change
==================================================================================================================================
<S> <C> <C> <C> <C> <C>
ML Utility Income Fund, Inc. Class A Shares $10.53 $9.46 $9.57 +10.03% +11.31%
- ----------------------------------------------------------------------------------------------------------------------------------
ML Utility Income Fund, Inc. Class B Shares 10.52 9.45 9.57 + 9.93 +11.32
- ----------------------------------------------------------------------------------------------------------------------------------
ML Utility Income Fund, Inc. Class C Shares 10.51 9.44 9.55 +10.05 +11.33
- ----------------------------------------------------------------------------------------------------------------------------------
ML Utility Income Fund, Inc. Class D Shares 10.54 9.47 9.58 +10.02 +11.30
- ----------------------------------------------------------------------------------------------------------------------------------
ML Utility Income Fund, Inc. Class A Shares--Total Return +16.64(1) +12.82(2)
- ----------------------------------------------------------------------------------------------------------------------------------
ML Utility Income Fund, Inc. Class B Shares--Total Return +15.61(3) +12.62(4)
- ----------------------------------------------------------------------------------------------------------------------------------
ML Utility Income Fund, Inc. Class C Shares--Total Return +15.72(5) +12.62(6)
- ----------------------------------------------------------------------------------------------------------------------------------
ML Utility Income Fund, Inc. Class D Shares--Total Return +16.32(7) +12.74(8)
==================================================================================================================================
</TABLE>
* 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 $0.553 per share ordinary income
dividends.
(2) Percent change includes reinvestment of $0.133 per share ordinary income
dividends.
(3) Percent change includes reinvestment of $0.478 per share ordinary income
dividends.
(4) Percent change includes reinvestment of $0.114 per share ordinary income
dividends.
(5) Percent change includes reinvestment of $0.476 per share ordinary income
dividends.
(6) Percent change includes reinvestment of $0.113 per share ordinary income
dividends.
(7) Percent change includes reinvestment of $0.529 per share ordinary income
dividends.
(8) Percent change includes reinvestment of $0.127 per share ordinary income
dividends.
PORTFOLIO INFORMATION
For the Quarter Ended November 30, 1997
Percent of
Ten Largest Holdings Net Assets
ENSERCH Corp., 6.375% due 2/01/2004...... 4.0%
Boston Edison Co......................... 3.8
Enova Corp............................... 3.3
American Electric Power Company, Inc..... 3.3
Florida Progress Corp.................... 3.2
Allegheny Energy, Inc.................... 3.2
OGE Energy Corp.......................... 3.2
New Century Energies Corp................ 3.1
FirstEnergy Corp......................... 3.0
Consolidated Edison Company of New York.. 2.9
Deletion (Equity Investments)
Edison International
5
<PAGE>
Merrill Lynch Utility Income Fund, Inc. November 30, 1997
SCHEDULE OF INVESTMENTS
<TABLE>
<CAPTION>
Shares Percent of
Industries Held Stocks Cost Value Net Assets
====================================================================================================================================
<S> <C> <C> <C> <C>
Utilities--Electric 39,000 Allegheny Energy, Inc. $ 895,450 $1,182,188 3.2%
24,600 American Electric Power Company, Inc. 892,569 1,219,238 3.3
33,000 Baltimore Gas & Electric Co. 844,868 1,012,688 2.7
40,600 Boston Edison Co. 1,015,336 1,421,000 3.8
11,000 CINergy Corp. 284,857 391,875 1.0
18,000 Carolina Power & Light Co. 536,468 672,750 1.8
29,100 Consolidated Edison Company of New York 980,888 1,098,525 2.9
31,400 DTE Energy Co. 984,627 1,030,313 2.8
45,000 Delmarva Power & Light Co. 924,651 950,625 2.5
20,800 Dominion Resources, Inc. 980,112 808,600 2.2
48,000 Enova Corp. 1,165,493 1,248,000 3.3
22,900 Entergy Corp. 598,635 595,400 1.6
41,900 FirstEnergy Corp.(a) 936,783 1,131,300 3.0
34,000 Florida Progress Corp. 1,105,601 1,204,875 3.2
27,500 GPU, Inc. 767,170 1,086,250 2.9
15,300 Houston Industries, Inc. 296,223 362,419 1.0
27,400 MDU Resources Group, Inc. 593,864 818,575 2.2
26,000 Nevada Power Co. 552,810 602,875 1.6
26,000 New Century Energies Corp. 841,935 1,150,500 3.1
23,000 New England Electric System 766,360 948,750 2.5
18,000 New York State Electric & Gas Corp. 520,663 553,500 1.5
14,300 Northern States Power Co. 659,908 784,713 2.1
23,200 OGE Energy Corp. 854,830 1,180,300 3.2
12,900 PECO Energy Co. 373,224 313,631 0.8
35,800 PacifiCorp 706,649 834,587 2.2
29,400 Public Service Enterprise Group, Inc. 947,445 858,112 2.3
43,400 Southern Co. 923,825 1,041,600 2.8
21,000 Texas Utilities Holding Co. 715,885 840,000 2.2
32,600 Unicom Corp 954,082 949,475 2.5
22,600 Union Electric Co. 912,093 899,762 2.4
9,000 Washington Water Power Co. 172,012 192,375 0.5
17,000 Western Resources Co. 478,125 664,062 1.8
---------- ---------- ----
24,183,441 28,048,863 74.9
====================================================================================================================================
Utilities--Gas 40,300 AGL Resources Inc. 741,707 790,887 2.1
26,000 New Jersey Resources Corp. 750,192 905,125 2.4
---------- ---------- ----
1,491,899 1,696,012 4.5
====================================================================================================================================
Total Stocks 25,675,340 29,744,875 79.4
====================================================================================================================================
Face
Amount Corporate Bonds
====================================================================================================================================
Telecommunications $1,000,000 Southwestern Bell Corp., 7% due 7/01/2015 1,034,480 1,031,650 2.8
1,000,000 United Telephone Company of Florida,
6.875% due 7/15/2013 1,019,950 1,022,160 2.7
---------- ---------- ----
2,054,430 2,053,810 5.5
====================================================================================================================================
Utilities--Electric 1,000,000 Public Service Company of Colorado,
6.375% due 11/01/2005 991,300 991,740 2.6
====================================================================================================================================
</TABLE>
6
<PAGE>
Merrill Lynch Utility Income Fund, Inc. November 30, 1997
SCHEDULE OF INVESTMENTS (concluded)
<TABLE>
<CAPTION>
Face Percent of
Industries Amount Corporate Bonds Cost Value Net Assets
====================================================================================================================================
<S> <C> <C> <C> <C>
Utilities--Gas $1,500,000 ENSERCH Corp., 6.375% due 2/01/2004 $ 1,491,030 $ 1,497,300 4.0%
1,000,000 El Paso Natural Gas Co.,7.75%
due 1/15/2002 1,090,950 1,043,600 2.8
---------- ---------- ----
2,581,980 2,540,900 6.8
====================================================================================================================================
Total Corporate Bonds 5,627,710 5,586,450 14.9
Short-Term Securities
====================================================================================================================================
Commercial Paper* 737,000 General Motors Acceptance Corp.,
5.75% due 12/01/1997 736,764 736,764 2.0
====================================================================================================================================
US Government Agency 1,200,000 Federal Home Loan Mortgage Corp.,
5.45% due 12/01/1997 1,199,637 1,199,637 3.2
====================================================================================================================================
Total Short-Term Securities 1,936,401 1,936,401 5.2
====================================================================================================================================
Total Investments $33,239,451 37,267,726 99.5
===========
Other Assets Less Liabilities 168,772 0.5
----------- -----
Net Assets $37,436,498 100.0%
----------- -----
====================================================================================================================================
Net Asset Value: Class A--Based on net assets of $1,628,776 and 154,743 shares outstanding $ 10.53
==========
Class B--Based on net assets of $29,526,220 and 2,805,704 shares outstanding $ 10.52
==========
Class C--Based on net assets of $4,583,418 and 436,293 shares outstanding $ 10.51
==========
Class D--Based on net assets of $1,698,084 and 161,081 shares outstanding $ 10.54
==========
====================================================================================================================================
</TABLE>
* 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) Ohio Edison Company and Centerior Energy Corp. merged to become
FirstEnergy Corp.
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
Transfer Agent
Merrill Lynch Financial Data Services, Inc.
4800 Deer Lake Drive East
Jacksonville, FL 32246-6484
(800) 637-3863
7
<PAGE>
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 #16856--11/97
[Logo] Printed on post-consumer recycled paper
