UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES
Investment Company Act file number 811-6180
Name of Fund: Merrill Lynch Utilities and Communications Fund, Inc.
Fund Address: P.O. Box 9011
Princeton, NJ 08543-9011
Name and address of agent for service: Terry K. Glenn, President, Merrill Lynch
Utilities and Communications Fund, Inc., 800 Scudders Mill Road,
Plainsboro, NJ 08536. Mailing address: P.O. Box 9011, Princeton, NJ
08543-9011
Registrant's telephone number, including area code: (609) 282-2800
Date of fiscal year end: 11/30/03
Date of reporting period: 12/01/02 - 05/31/03
Item 1 - Attach shareholder report
[LOGO] Merrill Lynch Investment Managers
Semi-Annual Report
May 31, 2003
Merrill Lynch
Utilities and
Telecommunications
Fund, Inc.
www.mlim.ml.com
MERRILL LYNCH UTILITIES AND TELECOMMUNICATIONS FUND, INC.
A pie graph depicting Industry Classification* as a Percentage of Equities as of
May 31, 2003.
Multi-Utilities & Unregulated Power -- 7.2%
Water Utilities -- 0.9%
Diversified Telecommunication Services -- 23.3%
Oil & Gas -- 2.7%
Gas Utilities -- 7.3%
Wireless Telecommunication Services -- 3.6%
Electric Utilities -- 53.0%
Media -- 2.0%
* For Fund compliance purposes, "Industry" means any one or more of the
industry sub-classifications used by one or more widely recognized market
indexes or ratings group indexes, and/or as defined by Fund management.
This definition may not apply for purposes of this report, which may
combine such industry sub-classifications for reporting ease.
A pie graph depicting Geographical Diversification as a Percentage of Equities
as of May 31, 2003.
Japan -- 0.3%
Greece -- 0.4%
Mexico -- 0.8%
Canada -- 3.3%
Germany -- 3.9%
United States -- 80.1%
France -- 0.3%
China -- 0.6%
Italy -- 1.6%
United Kingdom -- 2.8%
Spain -- 5.9%
Merrill Lynch Utilities and Telecommunications Fund, Inc., May 31, 2003
DEAR SHAREHOLDER
Effective April 14, 2003, the share class names for the Merrill Lynch family of
mutual funds were changed to be consistent with the standard share classes of
most other mutual fund families. As of that date, all Class A Shares were
redesignated Class I Shares. At the same time, Class D Shares were redesignated
Class A Shares. There were no changes to the Class B or Class C share class
labels. Trading symbols have not been changed nor have current eligibility rules
or pricing structures. This redesignation of share classes does not impact your
investment in any way.
For the six-month period ended May 31, 2003, Merrill Lynch Utilities and
Telecommunications Fund, Inc.'s Class A, Class B, Class C and Class I Shares had
total returns of +11.17%, +10.75%, +10.84% and +11.32%, respectively.
(Investment results shown do not reflect sales charges and would be lower if
sales charges were included. For complete performance information, see pages 4
and 5 of this report to shareholders.) For the same period, the Fund's unmanaged
benchmarks, the Standard & Poor's (S&P) Utility Index and the S&P 500 Index, had
total returns of +20.95% and +3.87%, respectively. Additionally, the Lipper
Utility Fund Average had a total return of +12.28% for the six months ended May
31, 2003.
The principle reason for the Fund's relative underperformance for the six-month
period ended May 31, 2003 was our underweighted position in the independent
power producers/merchant energy companies. The companies within this sector
staged a significant rally, driven by banks agreeing to refinance
non-collateralized loans in exchange for collateralized loans. In turn, this
removed the immediate threat of bankruptcy for several of these companies and
resulted in banks not having to take significant write-offs for non-performing
loans. These refinancings are, for the most part, one year - two years in
duration. However, the excessive debt levels of these companies still exist. The
supply of electric generation still exceeds demand, and the situation is
expected to continue into 2005. Most of the assets of these companies were
pledged to banks in order to get the necessary refinancing. The remaining assets
of these companies are being put up for sale to raise needed capital to continue
running the day-to-day business. Many of the asset sales are taking place at
below cost and do not take all the associated debt with a project. Managements
admit that there are some structural problems with both the strategic and
financial way in which the business is being run and are undergoing revisions to
the business plans. Lastly, earnings visibility remains cloudy as a result of
generation prices and asset sales, which lead to the sale of earnings power.
This confluence of factors provided significant uncertainty and risk, which
accounted for our underweighted investment stance in the Fund for the six-month
period ended May 31, 2003. We continue to monitor this sector of the utility
universe of companies, in order to determine how the companies will rid
themselves of their excessive debt burdens, whether it is through bankruptcy
filings or a long-term scenario where they will earn their way out of the
problem.
Portfolio Matters
During the six-month period ended May 31, 2003, we made several transactions. We
used market rallies to reduce some of our holdings in our more defensive
electric utility positions that had done so well for the Fund's performance in
2002. The cash proceeds were redeployed primarily into telecommunications
companies in Europe. This sector suffered in the marketplace as a result of
excessive debt and managements' focus on growth and not on profitability. Many
of these companies have brought in new senior managers to focus on debt
reduction. Rating agencies tend to be more favorable to the European
telecommunication community than they are in the United States. Second line
penetration and substitution of wireless for wireline are not much of an issue
in Europe. Moreover, European companies were never subjected to the business
structure of separation of local and long distance operations like there is in
the United States. We also added to our non-U.S. based electric companies. In
our opinion, many of these companies offer competitive dividend yields, better
balance sheets and a better operating environment. These changes to the Fund's
portfolio helped to offset some of the impact of the negative performance from
the independent power/merchant energy sectors. Overall, we retained a defensive
bias during the six-month period ended May 31, 2003.
The single largest sector weighting in the Fund continued to be domestic
dividend-paying electric utilities. Companies within this sector remained
focused on reducing financial risk. They accomplished this through the sale of
additional equity. For the most part, these stock offerings have been very
favorably welcomed by the investment community. Also, recent news of a dividend
tax cut for investors brought new attention to the sector. The net result was an
increase in valuation levels for many of the companies. Low interest rates have
also driven the performance of many of the companies with their 4% - 5% dividend
yields. We believe that continued price appreciation for this particular sector
will depend on the interest rate outlook, market momentum in terms of how much
should be paid for one of these stocks relative to other stocks in the market
and lastly, regulatory activity.
Domestic telecommunication services was another area in which we made changes to
our weightings in the portfolio. The three large regional holding companies
continued to be dominant in the Fund's portfolio (Verizon Communications,
BellSouth Corporation and SBC Communications Inc.). It appears that earnings
have bottomed and the companies were able to implement new marketing plans to
help to stem further revenue loss. A pickup in employment numbers is necessary
to resume growth within this sector as well as in the long distance market. The
wireless sector continued to perform well as a result of an improving financial
outlook. The cable television companies continued to dominate the digital
subscriber line market for broadband. Lastly, many of the companies in this
sector pay above-market yields and therefore may offer a benefit with the change
in taxation rules.
The remainder of the holdings in the portfolio consists of non-U.S. based
companies, which we previously discussed and, to a lesser extent, natural gas
and water. The majority of our holdings in this grouping are natural gas local
distribution companies. These companies tend to operate in a regulated
environment and pay acceptable dividend yields, thus providing attractive total
returns. We also have a small weighting in companies that have direct exposure
to the supply/demand imbalance of natural gas. Federal Reserve Board Chairman
Alan Greenspan recently suggested that a shortage of natural gas could impede
growth in the United States. We believe this would benefit some of our holdings.
In Conclusion
We constantly re-evaluate the holdings in the Fund in search of fundamental
shifts and/or valuation considerations that could warrant a change to the
portfolio. Our focus remains on finding what we believe are attractive companies
on both fundamentals and valuation within the utility and telecommunication
sector for a given level of risk.
We appreciate your investment in Merrill Lynch Utilities and Telecommunications
Fund, Inc., and we look forward to serving your investment needs in the months
and years ahead.
Sincerely,
/s/ Terry K. Glenn
Terry K. Glenn
President and Director
/s/ Kathleen M. Anderson
Kathleen M. Anderson
Vice President and Senior Portfolio Manager
June 18, 2003
2 & 3
Merrill Lynch Utilities and Telecommunications Fund, Inc., May 31, 2003
PERFORMANCE DATA
About Fund
Performance
Effective April 14, 2003, Class A Shares were redesignated Class I Shares and
Class D Shares were redesignated Class A Shares. Investors are able to purchase
shares of the Fund through multiple pricing alternatives:
o Class A Shares incur a maximum initial sales charge of 4% and an account
maintenance fee of 0.25% (but no distribution fee).
o Effective June 1, 2001, Class B Shares are subject to a maximum contingent
deferred sales charge of 4% declining to 0% after six years. All Class B
Shares purchased prior to June 1, 2001 will maintain the four-year
schedule. 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 A Shares after approximately ten 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 I Shares incur a maximum initial sales charge (front-end load) of 4%
and bear no ongoing distribution or account maintenance fees. Class I
Shares are available only to eligible investors.
None of the past results shown should be considered a representation of future
performance. Performance results do not reflect the deduction of taxes that a
shareholder would pay on fund distributions or the redemption of fund shares.
Figures shown in each of the following 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.
Recent
Performance
Results
Ten-Year/
6-Month 12-Month Since Inception
As of May 31, 2003 Total Return Total Return Total Return
===================================================================================================================
ML Utilities and Telecommunications Fund, Inc. Class A Shares* +11.17% - 7.83% +80.70%
- -------------------------------------------------------------------------------------------------------------------
ML Utilities and Telecommunications Fund, Inc. Class B Shares* +10.75 - 8.37 +80.72
- -------------------------------------------------------------------------------------------------------------------
ML Utilities and Telecommunications Fund, Inc. Class C Shares* +10.84 - 8.42 +72.56
- -------------------------------------------------------------------------------------------------------------------
ML Utilities and Telecommunications Fund, Inc. Class I Shares* +11.32 - 7.70 +95.19
- -------------------------------------------------------------------------------------------------------------------
S&P 500 Index** + 3.87 - 8.06 +157.84/+140.33
- -------------------------------------------------------------------------------------------------------------------
S&P Utilities Index*** +20.95 - 11.99 + 46.60/+ 63.70
===================================================================================================================
* Investment results shown do not reflect sales charges; results shown would
be lower if a sales charge was included. Total investment returns are
based on changes in net asset values for the periods shown, and assume
reinvestment of all dividends and capital gains distributions at net asset
value on the ex-dividend date. The Fund's ten-year/since inception total
returns are for ten years for Class B and Class I Shares and from 10/21/94
for Class A and Class C Shares.
** The S&P 500 Index covers 500 industrial, utility, transportation and
financial companies of the U.S. markets (mostly NYSE issues). The
unmanaged Index represents about 75% of NYSE market capitalization and 30%
of NYSE issues. Ten-year/since inception total returns are for ten years
and from 10/21/94, respectively.
*** This unmanaged capitalization Index is comprised of all stocks designed to
measure the performance of all the utility sectors of the S&P 500 Index.
Ten-year/since inception total returns are for ten years and from
10/31/94, respectively.
Average Annual
Total Return
% Return Without % Return With
Sales Charge Sales Charge**
================================================================================
Class A Shares*
================================================================================
One Year Ended 5/31/03 - 7.83% - 11.52%
- --------------------------------------------------------------------------------
Five Years Ended 5/31/03 - 0.58 - 1.38
- --------------------------------------------------------------------------------
Inception (10/21/94)
through 5/31/03 + 7.11 + 6.61
- --------------------------------------------------------------------------------
* Maximum sales charge is 4%.
** Assuming maximum sales charge.
% Return % Return
Without CDSC With CDSC**
================================================================================
Class B Shares*
================================================================================
One Year Ended 5/31/03 - 8.37% - 11.94%
- --------------------------------------------------------------------------------
Five Years Ended 5/31/03 - 1.10 - 1.28
- --------------------------------------------------------------------------------
Ten Years Ended 5/31/03 + 6.10 + 6.10
- --------------------------------------------------------------------------------
* Maximum contingent deferred sales charge is 4% and is reduced to 0% after
six years.
** Assuming payment of applicable contingent deferred sales charge.
================================================================================
% Return % Return
Without CDSC With CDSC**
================================================================================
Class C Shares*
================================================================================
One Year Ended 5/31/03 - 8.42% - 9.31%
- --------------------------------------------------------------------------------
Five Years Ended 5/31/03 - 1.08 - 1.08
- --------------------------------------------------------------------------------
Inception (10/21/94)
through 5/31/03 + 6.54 + 6.54
- --------------------------------------------------------------------------------
* Maximum contingent deferred sales charge is 1% and is reduced to 0% after
one year.
** Assuming payment of applicable contingent deferred sales charge.
================================================================================
% Return Without % Return With
Sales Charge Sales Charge**
================================================================================
Class I Shares*
================================================================================
One Year Ended 5/31/03 - 7.70% - 11.39%
- --------------------------------------------------------------------------------
Five Years Ended 5/31/03 - 0.33 - 1.14
- --------------------------------------------------------------------------------
Ten Years Ended 5/31/03 + 6.92 + 6.48
- --------------------------------------------------------------------------------
* Maximum sales charge is 4%.
** Assuming maximum sales charge.
4 & 5
Merrill Lynch Utilities and Telecommunications Fund, Inc., May 31, 2003
SCHEDULE OF INVESTMENTS (in U.S. dollars)
Shares Percent of
COUNTRY Industry* Held Common Stocks Value Net Assets
====================================================================================================================================
Canada Diversified 165,200 BCE Inc. $ 3,637,704 2.6%
Telecommunication Services
-----------------------------------------------------------------------------------------------------------
Oil & Gas 23,400 EnCana Corp. 853,666 0.6
-----------------------------------------------------------------------------------------------------------
Total Common Stocks in Canada 4,491,370 3.2
====================================================================================================================================
China Electric Utilities 18,000 Huaneng Power International, Inc. (ADR) (a) 752,400 0.5
-----------------------------------------------------------------------------------------------------------
Total Common Stocks in China 752,400 0.5
====================================================================================================================================
France Multi-Utilities & 26,400 Suez SA 448,678 0.3
Unregulated Power
-----------------------------------------------------------------------------------------------------------
Total Common Stocks in France 448,678 0.3
====================================================================================================================================
Germany Diversified 198,200 +Deutsche Telekom AG (Registered Shares) 2,967,527 2.1
Telecommunication Services
-----------------------------------------------------------------------------------------------------------
Electric Utilities 38,400 E.On AG 1,977,738 1.4
-----------------------------------------------------------------------------------------------------------
Multi-Utilities & 13,300 RWE AG 386,220 0.3
Unregulated Power
-----------------------------------------------------------------------------------------------------------
Total Common Stocks in Germany 5,331,485 3.8
====================================================================================================================================
Greece Electric Utilities 30,400 +Public Power Corporation (GDR) (b) 486,982 0.3
-----------------------------------------------------------------------------------------------------------
Total Common Stocks in Greece 486,982 0.3
====================================================================================================================================
Italy Diversified 99,300 Telecom Italia SpA 917,982 0.6
Telecommunication Services 149,900 Telecom Italia SpA (Registered Non-Convertible) 837,448 0.6
----------- ----
1,755,430 1.2
-----------------------------------------------------------------------------------------------------------
Electric Utilities 56,600 Enel SpA 394,095 0.3
-----------------------------------------------------------------------------------------------------------
Total Common Stocks in Italy 2,149,525 1.5
====================================================================================================================================
Japan Wireless Telecommunication 200 NTT DoCoMo, Inc. 419,715 0.3
Services
-----------------------------------------------------------------------------------------------------------
Total Common Stocks in Japan 419,715 0.3
====================================================================================================================================
Mexico Diversified 35,000 Telefonos de Mexico SA (ADR) (a) 1,060,500 0.7
Telecommunication Services
-----------------------------------------------------------------------------------------------------------
Total Common Stocks in Mexico 1,060,500 0.7
====================================================================================================================================
Spain Diversified 204,700 Telefonica SA 2,299,237 1.6
Telecommunication Services
-----------------------------------------------------------------------------------------------------------
Electric Utilities 71,200 Endesa SA 1,138,889 0.8
260,900 Iberdrola SA 4,559,901 3.2
----------- ----
5,698,790 4.0
-----------------------------------------------------------------------------------------------------------
Total Common Stocks in Spain 7,998,027 5.6
====================================================================================================================================
United Kingdom Electric Utilities 74,400 Scottish and Southern Energy PLC 773,413 0.6
-----------------------------------------------------------------------------------------------------------
Multi-Utilities & 113,775 National Grid Group PLC 735,361 0.5
Unregulated Power 59,700 United Utilities PLC 600,551 0.4
----------- ----
1,335,912 0.9
-----------------------------------------------------------------------------------------------------------
Wireless Telecommunication 73,300 Vodafone Group PLC (ADR) (a) 1,606,003 1.1
Services
-----------------------------------------------------------------------------------------------------------
Total Common Stocks in the United Kingdom 3,715,328 2.6
====================================================================================================================================
United States Diversified 51,000 ALLTEL Corporation 2,441,880 1.7
Telecommunication Services 40,640 AT&T Corp. 792,074 0.6
193,800 BellSouth Corporation 5,137,638 3.6
42,700 CenturyTel, Inc. 1,437,709 1.0
185,000 SBC Communications Inc. 4,710,100 3.3
138,800 Verizon Communications 5,253,580 3.7
----------- ----
19,772,981 13.9
-----------------------------------------------------------------------------------------------------------
Electric Utilities 28,600 Ameren Corporation 1,301,300 0.9
103,700 American Electric Power Company, Inc. 3,011,448 2.1
74,562 Cinergy Corp. 2,828,882 2.0
96,000 Cleco Corporation 1,670,400 1.2
94,700 Constellation Energy Group 3,139,305 2.2
153,000 DPL Inc. 2,501,550 1.8
79,300 DTE Energy Company 3,436,069 2.4
77,737 Dominion Resources, Inc. 4,897,431 3.5
68,900 +Edison International 1,121,692 0.8
64,200 Entergy Corporation 3,318,498 2.3
62,500 Exelon Corporation 3,581,250 2.5
67,200 FPL Group, Inc. 4,466,784 3.1
111,300 FirstEnergy Corp. 4,096,953 2.9
60,900 NSTAR 2,839,767 2.0
72,700 PPL Corporation 2,939,988 2.1
37,100 Pepco Holdings, Inc. 758,324 0.5
49,600 Pinnacle West Capital Corporation 1,877,856 1.3
73,100 Progress Energy, Inc. 3,439,355 2.4
107,600 Public Service Enterprise Group Incorporated 4,597,748 3.2
72,000 The Southern Company 2,266,560 1.6
99,000 TXU Corp. 2,003,760 1.4
30,100 Wisconsin Energy Corporation 838,285 0.6
----------- ----
60,933,205 42.8
-----------------------------------------------------------------------------------------------------------
Gas Utilities 35,400 AGL Resources Inc. 925,002 0.7
78,600 KeySpan Corporation 2,768,292 1.9
101,700 New Jersey Resources Corporation 3,597,129 2.5
62,700 NiSource Inc. 1,229,547 0.9
56,200 Vectren Corporation 1,389,264 1.0
----------- ----
9,909,234 7.0
-----------------------------------------------------------------------------------------------------------
6 & 7
Merrill Lynch Utilities and Telecommunications Fund, Inc., May 31, 2003
SCHEDULE OF INVESTMENTS (concluded) (in U.S. dollars)
Shares Held/ Percent of
COUNTRY Industry* Beneficial Interest Common Stocks Value Net Assets
====================================================================================================================================
United States Media 26,900 +Cablevision Systems Corporation (Class A) $ 520,784 0.4%
(concluded) 29,735 +Comcast Corporation (Class A) 895,321 0.6
45,300 +Comcast Corporation (Special Class A) 1,305,546 0.9
----------- ----
2,721,651 1.9
-----------------------------------------------------------------------------------------------------------
Multi-Utilities & 44,300 Duke Energy Corporation 858,534 0.6
Unregulated Power 35,600 Energy East Corporation 757,568 0.5
18,100 Equitable Resources, Inc. 728,706 0.5
70,700 National Fuel Gas Company 1,807,799 1.3
25,600 Questar Corporation 826,368 0.6
75,200 SCANA Corporation 2,531,984 1.8
----------- ----
7,510,959 5.3
-----------------------------------------------------------------------------------------------------------
Oil & Gas 13,900 Devon Energy Corporation 722,800 0.5
47,100 EOG Resources, Inc. 2,030,010 1.4
----------- ----
2,752,810 1.9
-----------------------------------------------------------------------------------------------------------
Water Utilities 51,700 Philadelphia Suburban Corporation 1,215,984 0.8
-----------------------------------------------------------------------------------------------------------
Wireless Telecommunication 223,208 +AT&T Wireless Services Inc. 1,734,326 1.2
Services 72,400 +Nextel Communications, Inc. (Class A) 1,085,276 0.8
----------- ----
2,819,602 2.0
-----------------------------------------------------------------------------------------------------------
Total Common Stocks in the United States 107,636,426 75.6
====================================================================================================================================
Total Common Stocks (Cost--$120,953,835) 134,490,436 94.4
====================================================================================================================================
Preferred Stocks
====================================================================================================================================
United States Electric Utilities 1,092,450 Aes Trust III, 6.75% 667,977 0.5
-----------------------------------------------------------------------------------------------------------
Total Preferred Stocks in the
United States (Cost--$654,921) 667,977 0.5
====================================================================================================================================
Short-Term Securities
====================================================================================================================================
$8,521,191 Merrill Lynch Liquidity Series,
LLC Cash Sweep Series I (c) 8,521,191 6.0
$5,859,263 Merrill Lynch Liquidity Series,
LLC Money Market Series (c)(d) 5,859,263 4.1
3,154,987 Merrill Lynch Premier Institutional
Fund (c)(d) 3,154,987 2.2
-----------------------------------------------------------------------------------------------------------
Total Short-Term Securities
(Cost--$17,535,441) 17,535,441 12.3
====================================================================================================================================
Total Investments (Cost--$139,144,197) 152,693,854 107.2
Liabilities in Excess of Other Assets (10,232,827) (7.2)
------------ -----
Net Assets $142,461,027 100.0%
============ =====
====================================================================================================================================
* For Fund compliance purposes, "Industry" means any one or more of the
industry sub-classifications used by one or more widely recognized market
indexes or ratings group indexes, and/or as defined by Fund management.
This definition may not apply for purposes of this report, which may
combine such industry sub-classifications for reporting ease.
+ Non-income producing security.
(a) American Depositary Receipts (ADR).
(b) Global Depositary Receipts (GDR).
(c) Investments in companies considered to be an affiliate of the Fund (such
companies are defined as "Affiliated Companies" in Section 2(a)(3) of the
Investment Company Act of 1940) are as follows:
--------------------------------------------------------------------------
Dividend/
Net Interest
Affiliate Activity Income
--------------------------------------------------------------------------
Merrill Lynch Liquidity Series, LLC
Cash Sweep Series I $ 4,287,738 $ 27,883
Merrill Lynch Liquidity Series, LLC
Money Market Series $ (6,374,483) $ 8,969
Merrill Lynch Premier Institutional Fund (11,797,368) $ 7,112
--------------------------------------------------------------------------
(d) Security was purchased with the cash proceeds from securities loans.
See Notes to Financial Statements.
8 & 9
Merrill Lynch Utilities and Telecommunications Fund, Inc., May 31, 2003
STATEMENT OF ASSETS AND LIABILITIES
As of May 31, 2003
=================================================================================================================================
Assets: Investments, at value (including securities loaned of $8,863,390)
(identified cost--$139,144,197) ............................................ $ 152,693,854
Receivables:
Dividends ................................................................ $ 407,826
Capital shares sold ...................................................... 110,996
Interest ................................................................. 15,911
Securities lending--net .................................................. 1,424 536,157
-----------
Prepaid registration fees .................................................. 24,166
-------------
Total assets ............................................................... 153,254,177
-------------
=================================================================================================================================
Liabilities: Collateral on securities loaned, at value .................................. 9,014,250
Payables:
Securities purchased ..................................................... 1,285,018
Capital shares redeemed .................................................. 308,659
Investment adviser ....................................................... 62,921
Distributor .............................................................. 55,805
Other affiliates ......................................................... 49,220 1,761,623
-----------
Accrued expenses and other liabilities ..................................... 17,277
-------------
Total liabilities .......................................................... 10,793,150
-------------
=================================================================================================================================
Net Assets: Net assets ................................................................. $ 142,461,027
=============
=================================================================================================================================
Net Assets Class A Shares of Common Stock, $.10 par value,
Consist of: 100,000,000 shares authorized .............................................. $ 490,486
Class B Shares of Common Stock, $.10 par value,
100,000,000 shares authorized .............................................. 856,312
Class C Shares of Common Stock, $.10 par value,
100,000,000 shares authorized .............................................. 136,397
Class I Shares of Common Stock, $.10 par value,
100,000,000 shares authorized .............................................. 279,573
Paid-in capital in excess of par ........................................... 170,613,150
Undistributed investment income--net ....................................... $ 498,885
Accumulated realized capital losses on investments
and foreign currency transactions--net ..................................... (43,963,302)
Unrealized appreciation on investments and foreign
currency transactions--net ................................................. 13,549,526
-----------
Total accumulated losses--net .............................................. (29,914,891)
-------------
Net assets ................................................................. $ 142,461,027
=============
=================================================================================================================================
Net Asset Class A--Based on net assets of $39,765,568 and 4,904,861 shares outstanding $ 8.11
Value: =============
Class B--Based on net assets of $69,119,200 and 8,563,119 shares outstanding $ 8.07
=============
Class C--Based on net assets of $10,924,721 and 1,363,974 shares outstanding $ 8.01
=============
Class I--Based on net assets of $22,651,538 and 2,795,735 shares outstanding $ 8.10
=============
=================================================================================================================================
See Notes to Financial Statements.
STATEMENT OF OPERATIONS
For the Six Months Ended May 31, 2003
================================================================================================================
Investment Income: Dividends (net of $44,599 foreign withholding tax) .. $ 2,659,369
Interest ............................................ 34,052
Securities lending--net ............................. 16,081
-------------
Total income ........................................ 2,709,502
-------------
================================================================================================================
Expenses: Investment advisory fees ............................ $ 400,916
Account maintenance and distribution fees--Class B .. 258,710
Transfer agent fees--Class B ........................ 83,364
Accounting services ................................. 46,673
Account maintenance fees--Class A ................... 42,641
Account maintenance and distribution fees--Class C .. 40,869
Professional fees ................................... 35,510
Transfer agent fees--Class A ........................ 35,381
Directors' fees and expenses ........................ 29,562
Registration fees ................................... 29,512
Printing and shareholder reports .................... 22,870
Transfer agent fees--Class I ........................ 21,078
Transfer agent fees--Class C ........................ 12,461
Custodian fees ...................................... 10,024
Pricing fees ........................................ 1,590
Other ............................................... 9,047
------------
Total expenses ...................................... 1,080,208
-------------
Investment income--net .............................. 1,629,294
-------------
================================================================================================================
Realized & Realized loss on:
Unrealized Gain Investments--net .................................. (2,421,720)
(Loss) on Foreign currency transactions--net ................ (10,995) (2,432,715)
Investments & ------------
Foreign Currency Change in unrealized appreciation/depreciation on:
Transactions-- Net: Investments--net .................................. 14,716,603
Foreign currency transactions--net ................ (682) 14,715,921
------------ -------------
Total realized and unrealized gain on investments and
foreign currency transactions--net .................. 12,283,206
-------------
Net Increase in Net Assets Resulting from Operations $ 13,912,500
=============
================================================================================================================
See Notes to Financial Statements.
10 & 11
Merrill Lynch Utilities and Telecommunications Fund, Inc., May 31, 2003
STATEMENTS OF CHANGES IN NET ASSETS
For the Six For the
Months Ended Year Ended
May 31, November 30,
Increase (Decrease) in Net Assets: 2003 2002
===============================================================================================================================
Operations: Investment income--net ............................................ $ 1,629,294 $ 5,070,298
Realized loss on investments and foreign currency transactions--net (2,432,715) (41,170,515)
Change in unrealized appreciation/depreciation on investments and
foreign currency transactions--net ................................ 14,715,921 (3,926,627)
------------- -------------
Net increase (decrease) in net assets resulting from operations ... 13,912,500 (40,026,844)
------------- -------------
===============================================================================================================================
Dividends & Investment income--net:
Distributions to Class A ......................................................... (494,237) (1,167,420)
Shareholders: Class B ......................................................... (769,810) (2,889,181)
Class C ......................................................... (117,117) (310,345)
Class I ......................................................... (312,231) (832,654)
Realized gain on investments--net:
Class A ......................................................... -- (441,431)
Class B ......................................................... -- (1,716,573)
Class C ......................................................... -- (127,179)
Class I ......................................................... -- (317,830)
------------- -------------
Net decrease in net assets resulting from dividends and
distributions to shareholders ..................................... (1,693,395) (7,802,613)
------------- -------------
===============================================================================================================================
Capital Share Net decrease in net assets derived from capital share transactions (9,505,550) (33,660,519)
Transactions: ------------- -------------
===============================================================================================================================
Net Assets: Total increase (decrease) in net assets ........................... 2,713,555 (81,489,976)
Beginning of period ............................................... 139,747,472 221,237,448
------------- -------------
End of period* .................................................... $ 142,461,027 $ 139,747,472
============= =============
===============================================================================================================================
* Undistributed investment income--net .............................. $ 498,885 $ 562,986
============= =============
===============================================================================================================================
See Notes to Financial Statements.
FINANCIAL HIGHLIGHTS
Class A++
---------------------------------------------------------
The following per share data and ratios have been For the
derived from information provided in the financial Six Months
statements. Ended For the Year Ended November 30,
May 31, --------------------------------------------
Increase (Decrease) in Net Asset Value: 2003 2002 2001 2000 1999
=================================================================================================================================
Per Share Net asset value, beginning of period ............. $ 7.40 $ 9.67 $ 11.81 $ 19.17 $ 19.49
Operating -------- -------- -------- -------- --------
Performance: Investment income--net+ .......................... .10 .26 .32 .39 .30
Realized and unrealized gain (loss) on investments
and foreign currency transactions--net ........... .72 (2.14) (1.46) .68 1.15
-------- -------- -------- -------- --------
Total from investment operations ................. .82 (1.88) (1.14) 1.07 1.45
-------- -------- -------- -------- --------
Less dividends and distributions:
Investment income--net ......................... (.11) (.28) (.33) (.41) (.30)
Realized gain on investments--net .............. -- (.11) (.67) (7.80) (1.47)
In excess of realized gain on investments--net . -- -- -- (.22) --
-------- -------- -------- -------- --------
Total dividends and distributions ................ (.11) (.39) (1.00) (8.43) (1.77)
-------- -------- -------- -------- --------
Net asset value, end of period ................... $ 8.11 $ 7.40 $ 9.67 $ 11.81 $ 19.17
======== ======== ======== ======== ========
=================================================================================================================================
Total Investment Based on net asset value per share ............... 11.17%@ (19.83%) (10.67%) 4.72% 7.96%
Return:** ======== ======== ======== ======== ========
=================================================================================================================================
Ratios to Average Expenses ......................................... 1.33%* 1.26% 1.11% 1.08% 1.07%
Net Assets: ======== ======== ======== ======== ========
Investment income--net ........................... 2.70%* 3.13% 2.86% 2.34% 1.60%
======== ======== ======== ======== ========
=================================================================================================================================
Supplemental Net assets, end of period (in thousands) ......... $ 39,766 $ 34,038 $ 36,794 $ 18,383 $ 14,747
Data: ======== ======== ======== ======== ========
Portfolio turnover ............................... 11.00% 31.16% 45.66% 51.79% 7.43%
======== ======== ======== ======== ========
=================================================================================================================================
* Annualized.
** Total investment returns exclude the effects of sales charges.
+ Based on average shares outstanding.
++ Effective April 14, 2003, Class D Shares were redesignated Class A
Shares..
@ Aggregate total investment return.
See Notes to Financial Statements.
12 & 13
Merrill Lynch Utilities and Telecommunications Fund, Inc., May 31, 2003
FINANCIAL HIGHLIGHTS (concluded)
Class B
--------------------------------------------------------
The following per share data and ratios have been For the
derived from information provided in the financial Six Months
statements. Ended For the Year Ended November 30,
May 31, -------------------------------------------
Increase (Decrease) in Net Asset Value: 2003 2002 2001 2000 1999
===================================================================================================================================
Per Share Net asset value, beginning of period ................. $ 7.37 $ 9.61 $ 11.75 $ 19.10 $ 19.42
Operating -------- -------- -------- -------- --------
Performance: Investment income--net+ .............................. .08 .22 .26 .31 .20
Realized and unrealized gain (loss) on investments and
foreign currency transactions--net ................... .70 (2.13) (1.47) .67 1.15
-------- -------- -------- -------- --------
Total from investment operations ..................... .78 (1.91) (1.21) .98 1.35
-------- -------- -------- -------- --------
Less dividends and distributions:
Investment income--net ............................. (.08) (.22) (.26) (.31) (.20)
Realized gain on investments--net .................. -- (.11) (.67) (7.80) (1.47)
In excess of realized gain on investments--net ..... -- -- -- (.22) --
-------- -------- -------- -------- --------
Total dividends and distributions .................... (.08) (.33) (.93) (8.33) (1.67)
-------- -------- -------- -------- --------
Net asset value, end of period ....................... $ 8.07 $ 7.37 $ 9.61 $ 11.75 $ 19.10
======== ======== ======== ======== ========
===================================================================================================================================
Total Investment Based on net asset value per share ................... 10.75%@ (20.16%) (11.25%) 4.25% 7.41%
Return:** ======== ======== ======== ======== ========
===================================================================================================================================
Ratios to Average Expenses ............................................. 1.87%* 1.77% 1.63% 1.59% 1.59%
Net Assets: ======== ======== ======== ======== ========
Investment income--net ............................... 2.20%* 2.63% 2.40% 1.83% 1.06%
======== ======== ======== ======== ========
===================================================================================================================================
Supplemental Net assets, end of period (in thousands) ............. $ 69,119 $ 74,822 $147,549 $246,279 $299,912
Data: ======== ======== ======== ======== ========
Portfolio turnover ................................... 11.00% 31.16% 45.66% 51.79% 7.43%
======== ======== ======== ======== ========
===================================================================================================================================
Class C
--------------------------------------------------------
The following per share data and ratios have been For the
derived from information provided in the financial Six Months
statements. Ended For the Year Ended November 30,
May 31, -------------------------------------------
Increase (Decrease) in Net Asset Value: 2003 2002 2001 2000 1999
===================================================================================================================================
Per Share Net asset value, beginning of period ................. $ 7.31 $ 9.55 $ 11.68 $ 19.04 $ 19.37
Operating -------- -------- -------- -------- --------
Performance: Investment income--net+ .............................. .08 .21 .25 .28 .19
Realized and unrealized gain (loss) on investments
and foreign currency transactions--net ............... .70 (2.11) (1.45) .69 1.14
-------- -------- -------- -------- --------
Total from investment operations ..................... .78 (1.90) (1.20) .97 1.33
-------- -------- -------- -------- --------
Less dividends and distributions:
Investment income--net ............................. (.08) (.23) (.26) (.31) (.19)
Realized gain on investments--net .................. -- (.11) (.67) (7.80) (1.47)
In excess of realized gain on investments--net ..... -- -- -- (.22) --
-------- -------- -------- -------- --------
Total dividends and distributions .................... (.08) (.34) (.93) (8.33) (1.66)
-------- -------- -------- -------- --------
Net asset value, end of period ....................... $ 8.01 $ 7.31 $ 9.55 $ 11.68 $ 19.04
======== ======== ======== ======== ========
===================================================================================================================================
Total Investment Based on net asset value per share ................... 10.84%@ (20.27%) (11.24%) 4.17% 7.34%
Return:** ======== ======== ======== ======== ========
===================================================================================================================================
Ratios to Average Expenses ............................................. 1.92%* 1.84% 1.69% 1.65% 1.65%
Net Assets: ======== ======== ======== ======== ========
Investment income--net ............................... 2.13%* 2.55% 2.31% 1.75% 1.02%
======== ======== ======== ======== ========
===================================================================================================================================
Supplemental Net assets, end of period (in thousands) ............. $ 10,925 $ 10,545 $ 10,194 $ 11,416 $ 8,381
Data: ======== ======== ======== ======== ========
Portfolio turnover ................................... 11.00% 31.16% 45.66% 51.79% 7.43%
======== ======== ======== ======== ========
===================================================================================================================================
Class I++
--------------------------------------------------------
The following per share data and ratios have been For the
derived from information provided in the financial Six Months
statements. Ended For the Year Ended November 30,
May 31, -------------------------------------------
Increase (Decrease) in Net Asset Value: 2003 2002 2001 2000 1999
===================================================================================================================================
Per Share Net asset value, beginning of period ................. $ 7.39 $ 9.66 $ 11.81 $ 19.16 $ 19.49
Operating -------- -------- -------- -------- --------
Performance: Investment income--net+ .............................. .11 .29 .34 .44 .34
Realized and unrealized gain (loss) on investments and
foreign currency transactions--net ................... .71 (2.15) (1.47) .68 1.14
-------- -------- -------- -------- --------
Total from investment operations ..................... .82 (1.86) (1.13) 1.12 1.48
-------- -------- -------- -------- --------
Less dividends and distributions:
Investment income--net ............................. (.11) (.30) (.35) (.45) (.34)
Realized gain on investments--net .................. -- (.11) (.67) (7.80) (1.47)
In excess of realized gain on investments--net ..... -- -- -- (.22) --
-------- -------- -------- -------- --------
Total dividends and distributions .................... (.11) (.41) (1.02) (8.47) (1.81)
-------- -------- -------- -------- --------
Net asset value, end of period ....................... $ 8.10 $ 7.39 $ 9.66 $ 11.81 $ 19.16
======== ======== ======== ======== ========
===================================================================================================================================
Total Investment Based on net asset value per share ................... 11.32%@ (19.64%) (10.54%) 5.07% 8.17%
Return:** ======== ======== ======== ======== ========
===================================================================================================================================
Ratios to Average Expenses ............................................. 1.08%* 1.00% .86% .83% .82%
Net Assets: ======== ======== ======== ======== ========
Investment income--net ............................... 2.96%* 3.39% 3.15% 2.59% 1.82%
======== ======== ======== ======== ========
===================================================================================================================================
Supplemental Net assets, end of period (in thousands) ............. $ 22,651 $ 20,342 $ 26,700 $ 32,698 $ 38,309
Data: ======== ======== ======== ======== ========
Portfolio turnover ................................... 11.00% 31.16% 45.66% 51.79% 7.43%
======== ======== ======== ======== ========
===================================================================================================================================
* Annualized.
** Total investment returns exclude the effects of sales charges.
+ Based on average shares outstanding.
++ Effective April 14, 2003, Class A Shares were redesignated Class I Shares.
@ Aggregate total investment return.
See Notes to Financial Statements.
14 & 15
Merrill Lynch Utilities and Telecommunications Fund, Inc., May 31, 2003
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies:
Merrill Lynch Utilities and Telecommunications Fund, Inc. (the "Fund") is
registered under the Investment Company Act of 1940, as amended, as a
diversified, open-end management investment company. The Fund's financial
statements are prepared in conformity with accounting principles generally
accepted in the United States of America, which may require the use of
management accruals and estimates. These unaudited financial statements reflect
all adjustments, which are, in the opinion of management, necessary to a fair
statement of the results for the interim period presented. All such adjustments
are of a normal, recurring nature. The Fund offers multiple classes of shares.
Effective April 14, 2003, Class A Shares were redesignated Class I Shares and
Class D Shares were redesignated Class A Shares. The Fund's financial statements
and financial highlights contained within this report reflect the new share
class redesignation. Shares of Class A and Class I are sold with a front-end
sales charge. Shares of Class B and Class C may be subject to a contingent
deferred sales charge. All classes of shares have identical voting, dividend,
liquidation and other rights and the same terms and conditions, except that
Class A, Class B and Class C Shares bear certain expenses related to the account
maintenance of such shares, and Class B and Class C Shares also bear certain
expenses related to the distribution of such shares. Each class has exclusive
voting rights with respect to matters relating to its account maintenance and
distribution expenditures. Income, expenses (other than expenses attributable to
a specific class) and realized and unrealized gains and losses on investments
and foreign currency transactions are allocated daily to each class based on its
relative net assets. The following is a summary of significant accounting
policies followed by the Fund.
(a) Valuation of securities -- Portfolio securities that are traded on stock
exchanges or Nasdaq National are valued at the last sale price on the exchange
on which such securities are traded, as of the close of business on the day the
securities are being valued or, lacking any sales, at the last available bid
price for long positions, and at the last available ask price for short
positions. Securities traded in the over-the-counter market are valued at the
last available bid price prior to the time of valuation. In cases where
securities are traded on more than one exchange, the securities are valued on
the exchange designated by or under the authority of the Board of Directors as
the primary market. Securities that are traded both in the over-the-counter
market and on a stock exchange are valued according to the broadest and most
representative market. Options written or purchased are valued at the last sale
price in the case of exchange-traded options. In the case of options traded in
the over-the-counter market, valuation is the last asked price (options written)
or the last bid price (options purchased). Short-term securities are valued at
amortized cost, which approximates market value. Other investments, including
futures contracts and related options, are stated at market value. Securities
and assets for which market value quotations are not available are valued at
their fair value as determined in good faith by or under the direction of the
Fund's Board of Directors. Occasionally, events affecting the values of
securities and other assets may occur between the times at which valuations of
such securities are determined (that is, close of the market on which such
securities trade) and the close of business on the NYSE. If events (for example,
company announcement, natural disasters, market volatility) occur during such
periods that are expected to materially affect the value for such securities,
those securities may be valued at their fair market value as determined in good
faith by the Fund's Board of Directors or by the investment adviser using a
pricing service and/or procedures approved by the Board of Directors of the
Fund.
(b) Foreign currency transactions -- Transactions denominated in foreign
currencies are recorded at the exchange rate prevailing when recognized. Assets
and liabilities denominated in foreign currencies are valued at the exchange
rate at the end of the period. Foreign currency transactions are the result of
settling (realized) or valuing (unrealized) assets or liabilities expressed in
foreign currencies into U.S. dollars. Realized and unrealized gains or losses
from investments include the effects of foreign exchange rates on investments.
(c) Derivative financial instruments -- The Fund may engage in various portfolio
investment strategies both to increase the return of the Fund and to hedge, or
protect, its exposure to interest rate movement and movements in the securities
markets. Losses may arise due to changes in the value of the contract or if the
counterparty does not perform under the contract.
o Options -- The Fund is authorized to purchase and write call options and put
options. When the Fund writes an option, an amount equal to the premium received
by the Fund is reflected as an asset and an equivalent liability. The amount of
the liability is subsequently marked to market to reflect the current market
value of the option written. When a security is purchased or sold through an
exercise of an option, the related premium paid (or received) is added to (or
deducted from) the basis of the security acquired or deducted from (or added to)
the proceeds of the security sold. When an option expires (or the Fund enters
into a closing transaction), the Fund realizes a gain or loss on the option to
the extent of the premiums received or paid (or gain or loss to the extent the
cost of the closing transaction exceeds the premium paid or received).
Written and purchased options are non-income producing investments.
o Financial futures contracts -- The Fund may purchase or sell financial futures
contracts and options on such futures contracts. Futures contracts are contracts
for delayed delivery of securities at a specific future date and at a specific
price or yield. Upon entering into a contract, the Fund deposits and maintains
as collateral such initial margin as required by the exchange on which the
transaction is effected. Pursuant to the contract, the Fund agrees to receive
from or pay to the broker an amount of cash equal to the daily fluctuation in
value of the contract. Such receipts or payments are known as variation margin
and are recorded by the Fund as unrealized gains or losses. When the contract is
closed, the Fund records a realized gain or loss equal to the difference between
the value of the contract at the time it was opened and the value at the time it
was closed.
o Forward foreign exchange contracts -- The Fund is authorized to enter into
forward foreign exchange contracts as a hedge against either specific
transactions or portfolio positions. The contract is marked-to-market daily and
the change in market value is recorded by the Fund as an unrealized gain or
loss. When the contract is closed, the Fund records a realized gain or loss
equal to the difference between the value at the time it was opened and the
value at the time it was closed.
o Foreign currency options and futures -- The Fund may also purchase or sell
listed or over-the-counter foreign currency options, foreign currency futures
and related options on foreign currency futures as a short or long hedge against
possible variations in foreign exchange rates. Such transactions may be effected
with respect to hedges on non-U.S. dollar denominated securities owned by the
Fund, sold by the Fund but not yet delivered, or committed or anticipated to be
purchased by the Fund.
(d) Income taxes -- It is the Fund's policy to comply with the requirements of
the Internal Revenue Code applicable to regulated investment companies and to
distribute all of its taxable income to its shareholders. Therefore, no Federal
income tax provision is required. Under the applicable foreign tax law, a
withholding tax may be imposed on interest, dividends and capital gains at
various rates.
(e) Security transactions and investment income -- Security transactions are
recorded on the dates the transactions are entered into (the trade dates).
Realized gains and losses on security transactions are determined on the
identified cost basis. Interest income is recognized on the accrual basis.
Dividend income is recorded on the ex-dividend dates. Dividends from foreign
securities where the ex-dividend date may have
16 & 17
Merrill Lynch Utilities and Telecommunications Fund, Inc., May 31, 2003
NOTES TO FINANCIAL STATEMENTS (continued)
passed are subsequently recorded when the Fund has determined the ex-dividend
dates. Interest income is recognized on the accrual basis.
(f) Prepaid registration fees -- Prepaid registration fees are charged to
expense as the related shares are issued.
(g) Dividends and distributions -- Dividends and distributions paid by the Fund
are recorded on the ex-dividend dates.
(h) Securities lending -- The Fund may lend securities to financial institutions
that provide cash or securities issued or guaranteed by the U.S. government as
collateral, which will be maintained at all times in an amount equal to at least
100% of the current market value of the loaned securities. The market value of
the loaned securities is determined at the close of business of the Fund and any
additional required collateral is delivered to the Fund on the next business
day. Where the Fund receives securities as collateral for the loaned securities,
it collects a fee from the borrower. The Fund typically receives the income on
the loaned securities but does not receive the income on the collateral. Where
the Fund receives cash collateral, it may invest such collateral and retain the
amount earned on such investment, net of any amount rebated to the borrower.
Loans of securities are terminable at any time and the borrower, after notice,
is required to return borrowed securities within five business days. The Fund
may pay reasonable finder's, lending agent, administrative and custodial fees in
connection with its loans. In the event that the borrower defaults on its
obligation to return borrowed securities because of insolvency or for any other
reason, the Fund could experience delays and costs in gaining access to the
collateral. The Fund also could suffer a loss where the value of the collateral
falls below the market value of the borrowed securities, in the event of
borrower default or in the event of losses on investments made with cash
collateral.
2. Investment Advisory Agreement and Transactions with Affiliates:
The Fund has entered into an Investment Advisory Agreement with Merrill Lynch
Investment Managers, L.P. ("MLIM"). The general partner of MLIM is Princeton
Services, Inc. ("PSI"), an indirect, wholly-owned subsidiary of Merrill Lynch &
Co., Inc. ("ML & Co."), which is the limited partner. The Fund has also entered
into a Distribution Agreement and Distribution Plans with FAM Distributors, Inc.
("FAMD" or the "Distributor"), which is a wholly-owned subsidiary of Merrill
Lynch Group, Inc.
MLIM is responsible for the management of the Fund's portfolio and provides the
necessary personnel, facilities, equipment and certain other services necessary
to the operation of the Fund. For such services, the Fund pays a monthly fee of
..60%, on an annual basis, of the average daily value of the Fund's net assets.
MLIM has entered into a Sub-Advisory Agreement with Merrill Lynch Asset
Management U.K. Limited ("MLAM U.K."), an affiliate of MLIM, pursuant to which
MLAM U.K. provides investment advisory services to MLIM with respect to the
Fund. There is no increase in the aggregate fees paid by the Fund for these
services.
Pursuant to the Distribution Plans adopted by the Fund in accordance with Rule
12b-1 under the Investment Company Act of 1940, the Fund pays the Distributor
ongoing account maintenance and distribution fees. The fees are accrued daily
and paid monthly at annual rates based upon the average daily net assets of the
shares as follows:
- --------------------------------------------------------------------------------
Account Distribution
Maintenance Fee Fee
- --------------------------------------------------------------------------------
Class A ................................ .25% --
Class B ................................ .25% .50%
Class C ................................ .25% .55%
- --------------------------------------------------------------------------------
Pursuant to a sub-agreement with the Distributor, Merrill Lynch, Pierce, Fenner
& Smith Incorporated ("MLPF&S"), a subsidiary of ML & Co., also provides account
maintenance and distribution services to the Fund. The ongoing account
maintenance fee compensates the Distributor and MLPF&S for providing account
maintenance services to Class A, Class B and Class C shareholders. The ongoing
distribution fee compensates the Distributor and MLPF&S for providing
shareholder and distribution-related services to Class B and Class C
shareholders.
For the six months ended May 31, 2003, FAMD earned underwriting discounts and
MLPF&S earned dealer concessions on sales of the Fund's Class A and Class I
Shares as follows:
- --------------------------------------------------------------------------------
FAMD MLPF&S
- --------------------------------------------------------------------------------
Class A .............................. $ 256 $5,471
Class I .............................. $ 5 $ 51
- --------------------------------------------------------------------------------
For the six months ended May 31, 2003, MLPF&S received contingent deferred sales
charges of $21,493 and $907, relating to transactions in Class B Shares and
Class C Shares, respectively.
The Fund has received an exemptive order from the Securities and Exchange
Commission permitting it to lend portfolio securities to MLPF&S or its
affiliates. Pursuant to that order, the Fund also has retained Merrill Lynch
Investment Advisors, LLC ("MLIM, LLC"), an affiliate of MLIM, as the securities
lending agent for a fee based on a share of the returns on investment of cash
collateral. MLIM, LLC may, on behalf of the Fund, invest cash collateral
received by the Fund for such loans, among other things, in a private investment
company managed by MLIM, LLC or in registered money market funds advised by MLIM
or its affiliates. For the six months ended May 31, 2003, MLIM, LLC received
$6,772 in securities lending agent fees.
Financial Data Services, Inc. ("FDS"), a wholly-owned subsidiary of ML & Co., is
the Fund's transfer agent.
In addition, MLPF&S received $6,762 in commissions on the execution of portfolio
security transactions for the Fund for the six months ended May 31, 2003.
For the six months ended May 31, 2003, the Fund reimbursed MLIM $1,484 for
certain accounting services.
Certain officers and/or directors of the Fund are officers and/or directors of
MLIM, PSI, MLAM U.K., FDS, FAMD, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities, for the six
months ended May 31, 2003 were $14,292,595 and $26,816,677, respectively.
Net realized losses for the six months ended May 31, 2003 and net unrealized
gains (losses) as of May 31, 2003 were as follows:
- --------------------------------------------------------------------------------
Realized Unrealized
Losses Gains (Losses)
- --------------------------------------------------------------------------------
Long-term investments .................. $ (2,421,720) $ 13,549,657
Foreign currency transactions .......... (10,995) (131)
------------ ------------
Total .................................. $ (2,432,715) $ 13,549,526
============ ============
- --------------------------------------------------------------------------------
As of May 31, 2003, net unrealized appreciation for Federal income tax purposes
aggregated $13,438,069, of which $20,801,149 related to appreciated securities
and $7,363,080 related to depreciated securities. The aggregate cost of
investments at May 31, 2003 for Federal income tax purposes was $139,255,785.
18 & 19
Merrill Lynch Utilities and Telecommunications Fund, Inc., May 31, 2003
NOTES TO FINANCIAL STATEMENTS (concluded)
4. Capital Share Transactions:
Net decrease in net assets derived from capital share transactions was
$9,505,550 and $33,660,519 for the six months ended May 31, 2003 and for the
year ended November 30, 2002, respectively.
Transactions in capital shares for each class were as follows:
- --------------------------------------------------------------------------------
Class A Shares for the Six Months Dollar
Ended May 31, 2003+ Shares Amount
- --------------------------------------------------------------------------------
Shares sold ............................ 140,068 $ 1,045,616
Automatic conversion of shares ......... 786,234 5,794,002
Shares issued to shareholders
in reinvestment of dividends ........... 16,048 120,730
----------- -----------
Total issued ........................... 942,350 6,960,348
Shares redeemed ........................ (637,196) (4,679,213)
----------- -----------
Net increase ........................... 305,154 $ 2,281,135
=========== ===========
- --------------------------------------------------------------------------------
+ Effective April 14, 2003, Class D Shares were redesignated Class A Shares.
- --------------------------------------------------------------------------------
Class A Shares for the Year Dollar
Ended November 30, 2002+ Shares Amount
- --------------------------------------------------------------------------------
Shares sold ............................ 241,526 $ 2,137,205
Automatic conversion of shares ......... 1,778,706 14,893,930
Shares issued to shareholders
in reinvestment of dividends
and distributions ...................... 155,543 1,297,235
------------ ------------
Total issued ........................... 2,175,775 18,328,370
Shares redeemed ........................ (1,382,002) (11,743,315)
------------ ------------
Net increase ........................... 793,773 $ 6,585,055
============ ============
- --------------------------------------------------------------------------------
+ Effective April 14, 2003, Class D Shares were redesignated Class A Shares.
- --------------------------------------------------------------------------------
Class B Shares for the Six Months Dollar
Ended May 31, 2003 Shares Amount
- --------------------------------------------------------------------------------
Shares sold ............................ 388,684 $ 2,909,512
Shares issued to shareholders
in reinvestment of dividends ........... 27,698 207,562
------------ ------------
Total issued ........................... 416,382 3,117,074
Automatic conversion of shares ......... (789,757) (5,794,002)
Shares redeemed ........................ (1,222,057) (8,895,816)
------------ ------------
Net decrease ........................... (1,595,432) $(11,572,744)
============ ============
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class B Shares for the Year Dollar
Ended November 30, 2002 Shares Amount
- --------------------------------------------------------------------------------
Shares sold ............................ 609,287 $ 5,228,661
Shares issued to shareholders
in reinvestment of dividends
and distributions ...................... 429,372 3,664,181
------------ ------------
Total issued ........................... 1,038,659 8,892,842
Automatic conversion of shares ......... (1,788,199) (14,893,930)
Shares redeemed ........................ (4,439,634) (37,734,429)
------------ ------------
Net decrease ........................... (5,189,174) $(43,735,517)
============ ============
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class C Shares for the Six Months Dollar
Ended May 31, 2003 Shares Amount
- --------------------------------------------------------------------------------
Shares sold ............................ 127,445 $ 947,419
Shares issued to shareholders
in reinvestment of dividends ........... 3,877 28,889
----------- -----------
Total issued ........................... 131,322 976,308
Shares redeemed ........................ (209,584) (1,545,357)
----------- -----------
Net decrease ........................... (78,262) $ (569,049)
=========== ===========
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class C Shares for the Year Dollar
Ended November 30, 2002 Shares Amount
- --------------------------------------------------------------------------------
Shares sold ............................ 782,321 $ 6,863,827
Shares issued to shareholders
in reinvestment of dividends
and distributions ...................... 42,072 348,913
----------- -----------
Total issued ........................... 824,393 7,212,740
Shares redeemed ........................ (449,285) (3,647,754)
----------- -----------
Net increase ........................... 375,108 $ 3,564,986
=========== ===========
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class I Shares for the Six Months Dollar
Ended May 31, 2003+ Shares Amount
- --------------------------------------------------------------------------------
Shares sold ............................ 456,461 $ 3,403,897
Shares issued to shareholders
in reinvestment of dividends ........... 11,816 88,865
----------- -----------
Total issued ........................... 468,277 3,492,762
Shares redeemed ........................ (423,544) (3,137,654)
----------- -----------
Net increase ........................... 44,733 $ 355,108
=========== ===========
- --------------------------------------------------------------------------------
+ Effective April 14, 2003, Class A Shares were redesignated Class I Shares.
- --------------------------------------------------------------------------------
Class I Shares for the Year Dollar
Ended November 30, 2002+ Shares Amount
- --------------------------------------------------------------------------------
Shares sold ............................ 884,103 $ 7,483,008
Shares issued to shareholders
in reinvestment of dividends
and distributions ...................... 119,882 1,003,566
----------- -----------
Total issued ........................... 1,003,985 8,486,574
Shares redeemed ........................ (1,016,242) (8,561,617)
----------- -----------
Net decrease ........................... (12,257) $ (75,043)
=========== ===========
- --------------------------------------------------------------------------------
+ Effective April 14, 2003, Class A Shares were redesignated Class I Shares.
5. Short-Term Borrowings:
The Fund, along with certain other funds managed by MLIM and its affiliates, is
a party to a $500,000,000 credit agreement with Bank One, N.A. and certain other
lenders. The Fund may borrow under the credit agreement to fund shareholder
redemptions and for other lawful purposes other than for leverage. The Fund may
borrow up to the maximum amount allowable under the Fund's current prospectus
and statement of additional information, subject to various other legal,
regulatory or contractual limits. The Fund pays a commitment fee of .09% per
annum based on the Fund's pro rata share of the unused portion of the credit
agreement. Amounts borrowed under the credit agreement bear interest at a rate
equal to, at each fund's election, the Federal Funds rate plus .50% or a base
rate as determined by Bank One, N.A. On November 29, 2002, the credit agreement
was renewed for one year under the same terms, except that the commitment was
reduced from $1,000,000,000 to $500,000,000. The Fund did not borrow under the
credit agreement during the six months ended May 31, 2003.
6. Commitments:
At May 31, 2003, the Fund had entered into foreign exchange contracts under
which it had agreed to purchase various foreign currencies with an approximate
value of $812,000.
7. Capital Loss Carryforward:
On November 30, 2002, the Fund had a net capital loss carryforward of
$40,916,903, all of which expires in 2010. This amount will be available to
offset like amounts of any future taxable gains.
20 & 21
Merrill Lynch Utilities and Telecommunications Fund, Inc., May 31, 2003
PORTFOLIO INFORMATION
Worldwide
Investments
As of May 31, 2003
Ten Largest Holdings Percent of
(Equity Investments) Net Assets
Verizon Communications ............................................. 3.7%
BellSouth Corporation .............................................. 3.6
Dominion Resources, Inc. ........................................... 3.5
SBC Communications Inc. ............................................ 3.3
Public Service Enterprise Group Incorporated ....................... 3.2
Iberdrola SA ....................................................... 3.2
FPL Group, Inc. .................................................... 3.1
FirstEnergy Corp. .................................................. 2.9
BCE Inc. ........................................................... 2.6
New Jersey Resources Corporation ................................... 2.5
OFFICERS AND DIRECTORS
Terry K. Glenn, President and Director
Ronald W. Forbes, Director
Cynthia A. Montgomery, Director
Charles C. Reilly, Director
Kevin A. Ryan, Director
Roscoe S. Suddarth, Director
Richard R. West, Director
Edward D. Zinbarg, Director
Robert C. Doll, Jr., Senior Vice President
Kathleen M. Anderson, Vice President
Donald C. Burke, Vice President and Treasurer
Phillip S. Gillespie, Secretary
Custodian
J.P. Morgan Chase Bank
4 MetroTech Center, 18th Floor
Brooklyn, NY 11245
Transfer Agent
Financial Data Services, Inc.
4800 Deer Lake Drive East
Jacksonville, FL 32246-6484
800-637-3863
22 & 23
[LOGO] Merrill Lynch Investment Managers
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.
A description of the policies and procedures that the Fund uses to determine how
to vote proxies relating to portfolio securities is available (1) without
charge, upon request, by calling toll-free 1-800-MER-FUND (1-800-637-3863); (2)
on www.mutualfunds.ml.com; and (3) on the Securities and Exchange Commission's
website at http://www.sec.gov.
Merrill Lynch Utilities and
Telecommunications Fund, Inc.
Box 9011
Princeton, NJ
08543-9011
[RECYCLED LOGO] Printed on post-consumer recycled paper #11693--5/03
Item 2 - Did registrant adopt a code of ethics, as of the end of the period
covered by this report, that applies to the registrant's principal
executive officer, principal financial officer, principal accounting
officer or controller, or persons performing similar functions,
regardless of whether these individuals are employed by the registrant
or a third party? If not, why not? Briefly describe any amendments or
waivers that occurred during the period. State here if code of
ethics/amendments/waivers are on website and give website address-.
State here if fund will send code of ethics to shareholders without
charge upon request-- N/A (annual requirement only and not required to
be answered until the registrant's fiscal year-end on or after July 15,
2003)
Item 3 - Did the registrant's board of directors determine that the registrant
either: (i) has at least one audit committee financial expert serving
on its audit committee; or (ii) does not have an audit committee
financial expert serving on its audit committee? If yes, disclose name
of financial expert and whether he/she is "independent," (fund may, but
is not required, to disclose name/independence of more than one
financial expert) If no, explain why not. -N/A (annual requirement only
and not required to be answered until the registrant's fiscal year-end
on or after July 15, 2003)
Item 4 - Disclose annually only (not answered until December 15, 2003)
(a) Audit Fees - Disclose aggregate fees billed for each of the last
two fiscal years for professional services rendered by
the principal accountant for the audit of the
registrant's annual financial statements or services
that are normally provided by the accountant in
connection with statutory and regulatory filings or
engagements for those fiscal years. N/A.
(b) Audit-Related Fees - Disclose aggregate fees billed in each of the
last two fiscal years for assurance and
related services by the principal accountant
that are reasonably related to the performance
of the audit of the registrant's financial
statements and are not reported under
paragraph (a) of this Item. Registrants shall
describe the nature of the services comprising
the fees disclosed under this category. N/A.
(c) Tax Fees - Disclose aggregate fees billed in each of the last two
fiscal years for professional services rendered by the
principal accountant for tax compliance, tax advice, and
tax planning. Registrants shall describe the nature of
the services comprising the fees disclosed under this
category. N/A.
(d) All Other Fees - Disclose aggregate fees billed in each of the last
two fiscal years for products and services
provided by the principal accountant, other than
the services reported in paragraphs (a) through
(c) of this Item. Registrants shall describe the
nature of the services comprising the fees
disclosed under this category. N/A.
(e)(1) Disclose the audit committee's pre-approval policies and
procedures described in paragraph (c)(7) of Rule 2-01 of
Regulation S-X. N/A.
(e)(2) Disclose the percentage of services described in each of
paragraphs (b) through (d) of this Item that were approved by
the audit committee pursuant to paragraph (c)(7)(i)(C) of Rule
2-01 of Regulation S-X. N/A.
(f) If greater than 50%, disclose the percentage of hours expended on
the principal accountant's engagement to audit the registrant's
financial statements for the most recent fiscal year that were
attributed to work performed by persons other than the principal
accountant's full-time, permanent employees. N/A.
(g) Disclose the aggregate non-audit fees billed by the registrant's
accountant for services rendered to the registrant, and rendered to
the registrant's investment adviser (not including any sub-adviser
whose role is primarily portfolio management and is subcontracted
with or overseen by another investment adviser), and any entity
controlling, controlled by, or under common control with the
adviser that provides ongoing services to the registrant for each
of the last two fiscal years of the registrant. N/A.
(h) Disclose whether the registrant's audit committee has considered
whether the provision of non-audit services that were rendered to
the registrant's investment adviser (not including any subadviser
whose role is primarily portfolio management and is subcontracted
with or overseen by another investment adviser), and any entity
controlling, controlled by, or under common control with the
investment adviser that provides ongoing services to the registrant
that were not pre-approved pursuant to paragraph (c)(7)(ii) of Rule
2-01 of Regulation S-X is compatible with maintaining the principal
accountant's independence. N/A.
Item 5 - If the registrant is a listed issuer as defined in Rule 10A-3 under the
Exchange Act, state whether or not the registrant has a
separately-designated standing audit committee established in
accordance with Section 3(a)(58)(A) of the Exchange Act. If the
registrant has such a committee, however designated, identify each
committee member. If the entire board of directors is acting as the
registrant's audit committee in Section 3(a)(58)(B) of the Exchange
Act, so state. N/A
If applicable, provide the disclosure required by Rule 10A-3(d) under
the Exchange Act regarding an exemption from the listing standards for
audit committees. N/A
(Listed issuers must be in compliance with the new listing rules by the
earlier of their first annual shareholders meeting after January 2004,
or October 31, 2004 (annual requirement))
Item 6 - Reserved
Item 7 - For closed-end funds that contain voting securities in their portfolio,
describe the policies and procedures that it uses to determine how to
vote proxies relating to those portfolio securities. N/A
Item 8 -- Reserved
Item 9(a) - The registrant's certifying officers have reasonably designed such
disclosure controls and procedures to ensure material information
relating to the registrant is made known to us by others
particularly during the period in which this report is being
prepared. The registrant's certifying officers have determined that
the registrant's disclosure controls and procedures are effective
based on our evaluation of these controls and procedures as of a
date within 90 days prior to the filing date of this report.
Item 9(b) -- There were no significant changes in the registrant's internal
controls or in other factors that could significantly affect these
controls subsequent to the date of their evaluation, including any
corrective actions with regard to significant deficiencies and
material weaknesses.
Item 10 - Exhibits
10(a) - Attach code of ethics or amendments/waivers, unless code of ethics or
amendments/waivers is on website or offered to shareholders upon request
without charge. N/A.
10(b) - Attach certifications pursuant to Section 302 of the Sarbanes-Oxley Act.
Attached hereto.
Pursuant to the requirements of the Securities Exchange Act of 1934 and
the Investment Company Act of 1940, the registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Merrill Lynch Utilities and Communications Fund, Inc.
By: /s/ Terry K. Glenn
------------------
Terry K. Glenn,
President of
Merrill Lynch Utilities and Communications Fund, Inc.
Date: July 23, 2003
Pursuant to the requirements of the Securities Exchange Act of 1934 and
the Investment Company Act of 1940, this report has been signed below by
the following persons on behalf of the registrant and in the capacities
and on the dates indicated.
By: /s/ Terry K. Glenn
------------------
Terry K. Glenn,
President of
Merrill Lynch Utilities and Communications Fund, Inc.
Date: July 23, 2003
By: /s/ Donald C. Burke
-------------------
Donald C. Burke,
Chief Financial Officer of
Merrill Lynch Utilities and Communications Fund, Inc.
Date: July 23, 2003
Attached hereto as a furnished exhibit are the certifications pursuant
to Section 906 of the Sarbanes-Oxley Act.