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 Telecommunications 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 Telecommunications 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 - 11/30/03
Item 1 - Attach shareholder report
[LOGO] Merrill Lynch Investment Managers www.mlim.ml.com
Merrill Lynch
Utilities and
Telecommunications
Fund, Inc.
Annual Report
November 30, 2003
[LOGO] Merrill Lynch Investment Managers
Merrill Lynch Utilities and Telecommunications Fund, Inc.
Industry Classification* as a Percentage of Equities as of November 30, 2003
(unaudited)
A pie graph depicting Industry Classification* As a percentage of Equities as of
November 30, 2003. (unaudited)
Gas Utilities 6.4%
Media 2.5%
Oil & Gas 2.7%
Wireless Telecommunication Services 6.3%
Multi-Utilities & Unregulated Power 8.3%
Electric Utilities 46.6%
Diversified Telecommunication Services 26.7%
Communications Equipment 0.5%
* 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. These
industry classifications are unaudited.
Portfolio Information as of November 30, 2003 (unaudited)
Percent of
Geographic Allocation Equities
- --------------------------------------------------------------------------------
United States ......................................................... 71.7%
Spain ................................................................. 7.0
Germany ............................................................... 5.6
United Kingdom ........................................................ 4.5
Canada ................................................................ 3.5
Mexico ................................................................ 1.8
Italy ................................................................. 1.8
France ................................................................ 1.1
Portugal .............................................................. 0.7
Japan ................................................................. 0.7
Belgium ............................................................... 0.6
Greece ................................................................ 0.5
Finland ............................................................... 0.5
Ten Largest Holdings Percent of
(Equity Investments) Net Assets
- --------------------------------------------------------------------------------
BellSouth Corporation ................................................. 3.7%
Dominion Resources, Inc. .............................................. 3.5
Verizon Communications ................................................ 3.4
Iberdrola SA .......................................................... 3.3
Public Service Enterprise Group Incorporated .......................... 3.3
SBC Communications Inc. ............................................... 3.2
Deutsche Telekom AG (Registered Shares) ............................... 2.9
Exelon Corporation .................................................... 2.9
BCE Inc. .............................................................. 2.8
Constellation Energy Group ............................................ 2.6
2 MERRILL LYNCH UTILITIES AND TELECOMMUNICATIONS FUND, INC.
NOVEMBER 30, 2003
A Letter From the President
Dear Shareholder
As 2003 closes, it seems appropriate to reflect on what has been a meaningful
year in many respects. We saw all-out war begin and end in Iraq, equity market
uncertainty turned to strength and sub par gross domestic product (GDP) growth
of 1.4% in the first quarter of 2003 grew to an extraordinary 8.2% in the third
quarter.
Equity markets rebounded from one of the most dismal three-year periods in
history to make a strong showing this year. The S&P 500 Index posted
year-to-date and 12-month returns of +22.27% and +15.09%, respectively, as of
November 30, 2003. Although continued market strength cannot be assured, the
positives have begun to eclipse the negatives. In addition to the impressive GDP
growth, the positive economic news includes waning risk of deflation and
surprisingly strong business spending and corporate earnings. In fact, business
spending in the third quarter was the strongest it has been in three years, up
14%, and many company earnings reports exceeded forecasts in the first three
quarters of the year. The good news did not go unnoticed, as investors appeared
to regain confidence by returning to the equity market.
Against this backdrop, our portfolio managers continued to work diligently to
deliver on our commitment to provide superior performance within reasonable
expectations for risk and return. This included striving to outperform our peers
and the market indexes. With that said, remember that the advice and guidance of
a skilled financial advisor often can mean the difference between successful and
unsuccessful investing. A financial professional can help you choose those
investments that will best serve you as you plan for your financial future.
Finally, I am proud to premiere a new look to our shareholder communications.
Our portfolio manager commentaries have been trimmed and organized in such a way
that you can get the information you need at a glance, in plain language.
Today's markets are confusing enough. We want to help you put it all in
perspective. The report's new size also allows us certain mailing efficiencies.
Any cost savings in production or postage are passed on to the Fund and,
ultimately, to Fund shareholders.
We thank you for trusting Merrill Lynch Investment Managers with your investment
assets, and we look forward to serving you in the months and years ahead.
Sincerely,
/s/ Terry K. Glenn
Terry K. Glenn
President and Director
MERRILL LYNCH UTILITIES AND TELECOMMUNICATIONS FUND, INC. 3
NOVEMBER 30, 2003
[LOGO] Merrill Lynch Investment Managers
A Discussion With Your Fund's Portfolio Manager
In the past 12 months, we increased our investments outside the United
States, where we found several companies with attractive revenue, earnings and
cash-flow growth.
How did the Fund perform during the fiscal year in light of the existing market
conditions?
For the 12-month period ended November 30, 2003, Merrill Lynch Utilities and
Telecommunications Fund, Inc.'s Class A, Class B, Class C and Class I Shares had
total returns of +14.26%, +13.47%, +13.62% and +14.54%, respectively. (Fund
results shown do not reflect sales charges and would be lower if sales charges
were included. Complete performance information can be found on pages 6 - 8 of
this report to shareholders.) For the same period, the Fund's unmanaged
benchmarks, the Standard & Poor's (S&P) 500 Index and the S&P Utilities Index,
posted respective returns of +15.09% and +23.13%. The S&P Telecommunication
Services Index returned -9.05% for the 12 months ended November 30, 2003, while
the Lipper Utility Funds category posted an average return of +16.73%. (Funds in
this Lipper category invest 65% of their equity portfolios in utility shares.)
The Fund's underperformance of the S&P 500 Index is understandable, as the Index
measures the performance of various sectors of the broader stock market.
Although the utilities sector was the second-best performer among the Index's
ten sectors, telecommunications ranked last and was the only sector to post a
negative return for the one-year period.
The underperformance versus the S&P Utilities Index and the Lipper Utility Funds
category is attributed to a lack of investments in pure independent power
producers and merchant energy companies, as both of these subsectors rallied
sharply in early 2003. The financial picture improved for many of these
companies, even though business conditions did not change in the sector. Supply
still exceeded the demand for power, capital structures were dominated by debt
and business plans remained flawed in an environment of declining market-based
electric-generation prices. The banks that had loaned enormous amounts of
capital to the independent power producers and merchant energy companies without
collateral backing were forced to either take significant write-offs or to
renegotiate the loans and secure some collateral in exchange. As expected, the
banks chose the latter option, and most of the loans now have maturities of one
year to three years. The outlook for many of these companies remains
questionable, as the banks are in a position to seize the assets pledged as
collateral.
We believe several banks may be seeking assistance from some of the healthier
utility companies to manage these electric-generation assets until the market
improves and outright plant sales become attractive. We continue to monitor the
remaining independent power producers and merchant energy companies (two of
which have gone into bankruptcy) for potential investment opportunities.
However, in making our investment decisions, we remain committed to focusing on
each company's underlying fundamentals, earnings power, cash-flow
sustainability, valuations and total risk/return ratios.
What changes were made to the portfolio during the period?
Most significantly, we increased our investments in utility and
telecommunication services companies based outside the United States. At
November 30, 2003, about 25% of the Fund's net assets were invested outside the
U.S. This compared to approximately 14% as of May 31, 2003 and 11% at November
30, 2002. We made this change because the companies we added to the portfolio
have better revenue, earnings and cash-flow growth. Many of these companies, in
our view, are in a position to increase their returns to shareholders either
through dividends or share repurchases. In addition, the stocks carry valuations
comparable to those of similar U.S. companies.
Deutsche Telekom AG, one of the Fund's top-ten equity holdings as of November
30, 2003, is representative of the type of foreign companies we were seeking.
Deutsche Telekom is a fully integrated telecommunication services company whose
primary service territory is Germany. The company also has a significant
wireless operation in the United States and, to a lesser extent, in the United
Kingdom and other European countries. Under its former chief executive officer,
Deutsche Telekom purchased Voicestream, a U.S.-based cellular telephone company,
and subsequently assumed a significant amount of debt. At the time, European
telecommunications companies were actively acquiring other similar companies in
the sector, using debt to pay for the acquisitions. Within the last year or two,
we have seen new management come in and focus on fixing balance sheets, with the
goal of returning value to shareholders. Deutsche Telekom is one of these
companies, and we believe
4 MERRILL LYNCH UTILITIES AND TELECOMMUNICATIONS FUND, INC.
NOVEMBER 30, 2003
it offers the best investment opportunity. In our opinion, the company has the
ability to increase revenue through its wireless business in the United States,
and should benefit from a turnaround in the German economy. Additionally, the
company's earnings should improve given the reduced interest expenses as it pays
down debt.
Other changes made to the portfolio during the 12-month period were based on
valuation analyses or company-specific issues. Notably, the changes in the
federal law regarding the taxation of dividends resulted in what we believed
were overvaluations for some stocks as investors bid up share prices in a short
time. Nevertheless, these companies remained strong, in our opinion, and the
stocks provided relatively high yields. With this in mind, we maintained our
positions in the companies, but reduced our portfolio weightings. We reinvested
the proceeds in stocks that offered more attractive valuations and which we felt
could enhance the portfolio's diversification.
A major company-specific issue arose this year as some Internal Revenue Service
field staff questioned the validity of the favorable tax treatment afforded to
synthetic fuel plants. This issue mainly affected our holdings in Progress
Energy, Inc. and DTE Energy Company. We reduced our positions in these stocks,
given the potential negative impact the elimination of favorable tax treatment
could have on the companies' earnings and the uncertain timing of a resolution
of this issue.
How would you characterize the portfolio's position at the close of the period?
The portfolio was well diversified as of November 30, 2003, with more than 70
positions. We believe this, in combination with various holdings that reflect
our risk/reward analyses across the subsectors of the utility and
telecommunications sectors, provides a fairly balanced portfolio. The Fund's
largest allocation at period-end was in the electric sector, based on what we
consider to be these stocks' attractive dividend yields and lower relative risk.
Moreover, we believe the performance of some of these stocks, particularly those
in the United States, could stabilize further in the future as investors become
familiar with the holding period required to trigger the lower federal income
tax rate on dividends. We believe this will help alleviate some of the price
fluctuations we normally see during the dividend period when some investors
purchase a stock in order to receive the dividend, then sell soon after the
payable date.
The telecommunication services sector is the second-largest weighting in the
portfolio. In our opinion, the U.S.-based companies offer attractive dividend
yields and the potential for growth as the economy continues to improve and
service employment begins to accelerate. We also believe European
telecommunications stocks offer more value for shareholders as these companies
improve their balance sheets and initiate share buybacks and dividend payments.
As the telecommunications sector has become more sensitive to customer usage
over the past several years, an improving economic environment has become more
of a factor than we have seen historically.
The remaining holdings in the portfolio are primarily in natural gas and cable
television. We believe the natural gas sector should benefit from continued
concerns over the new supply of resources, which has led to higher prices and a
continued emphasis on the environment. Cable television companies are
interesting investments because they are competing with the more traditional
telecommunication services companies. Additionally, they have been paying down
debt and, in our opinion, probably are in the best financial shape that we have
seen in some time.
Overall, as noted, the Fund has a substantial position in the electric sector,
which we believe offers some growth but is primarily a source of more stable
current income. The portfolio's remaining sector allocations are more focused on
growth rather than yield, as our holdings represent companies that are likely to
benefit from potential cost-cutting initiatives and an improving economy.
Kathleen M. Anderson
Vice President and Portfolio Manager
December 12, 2003
MERRILL LYNCH UTILITIES AND TELECOMMUNICATIONS FUND, INC. 5
NOVEMBER 30, 2003
[LOGO] Merrill Lynch Investment Managers
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 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 November 30, 2003 Total Return Total Return Total Return
=========================================================================================================================
ML Utilities and Telecommunications Fund, Inc. Class A Shares* + 2.78% +14.26% +85.72%
- -------------------------------------------------------------------------------------------------------------------------
ML Utilities and Telecommunications Fund, Inc. Class B Shares* + 2.46 +13.47 +71.00
- -------------------------------------------------------------------------------------------------------------------------
ML Utilities and Telecommunications Fund, Inc. Class C Shares* + 2.50 +13.62 +76.88
- -------------------------------------------------------------------------------------------------------------------------
ML Utilities and Telecommunications Fund, Inc. Class I Shares* + 2.90 +14.54 +84.82
- -------------------------------------------------------------------------------------------------------------------------
S&P 500 Index** +10.80 +15.09 +174.68/+166.29
- -------------------------------------------------------------------------------------------------------------------------
S&P Utilities Index*** + 1.80 +23.13 + 47.53/+ 66.64
- -------------------------------------------------------------------------------------------------------------------------
* 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.
*** This unmanaged capitalization Index is comprised of all stocks designed to
measure the performance of electric and natural gas utilities within the
S&P 500 Index. Ten-year/since inception total returns are for ten years
and from 10/31/94.
6 MERRILL LYNCH UTILITIES AND TELECOMMUNICATIONS FUND, INC.
NOVEMBER 30, 2003
Performance Data (continued)
Total Return Based on a $10,000 Investment--Class A & Class C Shares.
A line graph depicting the growth of an investment in the Fund's Class A & Class
C Shares compared to growth of an investment in the S&P Utilities Index and S&P
500 Index. Values are from October 21, 1994 to November 2003.
10/21/94** 11/94 11/95 11/96 11/97 11/98
ML Utilities and
Telecommunications
Fund, Inc.+--Class A Shares* $ 9,600 $9,383 $10,904 $12,806 $15,283 $19,271
ML Utilities and
Telecommunications
Fund, Inc.+--Class C Shares* $10,000 $9,765 $11,267 $13,186 $15,646 $19,611
11/99 11/00 11/01 11/02 11/03
ML Utilities and
Telecommunications
Fund, Inc.+--Class A Shares* $20,806 $21,787 $19,463 $15,604 $17,829
ML Utilities and
Telecommunications
Fund, Inc.+--Class C Shares* $21,050 $21,999 $19,526 $15,568 $17,688
10/31/94 11/94 11/95 11/96 11/97 11/98
S&P Utilities Index ++ $10,000 $10,030 $12,656 $14,247 $16,401 $19,659
11/99 11/00 11/01 11/02 11/03
S&P Utilities Index ++ $18,220 $26,433 $19,606 $13,533 $16,663
10/31/94 11/94 11/95 11/96 11/97 11/98
S&P 500 Index +++ $10,000 $ 9,796 $13,419 $17,157 $22,050 $27,267
11/99 11/00 11/01 11/02 11/03
S&P 500 Index +++ $32,965 $31,574 $27,714 $23,138 $26,629
* Assuming maximum sales charge, transaction costs and other operating
expenses, including advisory fees.
** Commencement of operations.
+ ML Utilities and Telecommunications Fund, Inc. invests at least 80% of its
total assets in equity and debt securities issued by domestic and foreign
companies that are, in the opinion of the Investment Adviser, primarily
engaged in the ownership or operation of facilities used to generate,
transmit or distribute electricity, telecommunications, gas or water.
++ This unmanaged capitalization Index is comprised of all stocks designed to
measure the performance of electric and natural gas utilities within the
S&P 500 Index. The starting date for the Index in the graph is from
10/31/94.
+++ 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. The starting date for the Index in the graph is from
10/31/94.
Average Annual Total Return
% Return Without % Return With
Sales Charge Sales Charge**
================================================================================
Class A Shares*
================================================================================
One Year Ended 11/30/03 +14.26% +9.69%
- --------------------------------------------------------------------------------
Five Years Ended 11/30/03 - 1.54 -2.34
- --------------------------------------------------------------------------------
Inception (10/21/94)
through 11/30/03 + 7.03 +6.55
- --------------------------------------------------------------------------------
* Maximum sales charge is 4%.
** Assuming maximum sales charge.
% Return % Return
Without CDSC With CDSC**
================================================================================
Class C Shares*
================================================================================
One Year Ended 11/30/03 +13.62% +12.62%
- --------------------------------------------------------------------------------
Five Years Ended 11/30/03 - 2.04 - 2.04
- --------------------------------------------------------------------------------
Inception (10/21/94)
through 11/30/03 + 6.46 + 6.46
- --------------------------------------------------------------------------------
* Maximum contingent deferred sales charge is 1% and is reduced to 0% after
one year.
** Assuming payment of applicable contingent deferred sales charge.
MERRILL LYNCH UTILITIES AND TELECOMMUNICATIONS FUND, INC. 7
NOVEMBER 30, 2003
[LOGO] Merrill Lynch Investment Managers
Performance Data (concluded)
Total Return Based on a $10,000 Investment--Class B & Class I Shares.
A line graph depicting the growth of an investment in the Fund's Class B & Class
I Shares compared to growth of an investment in the S&P Utilities Index and S&P
500 Index. Values are from November 1993 to November 2003.
11/93 11/94 11/95 11/96 11/97
ML Utilities and
Telecommunications
Fund, Inc.+--Class B Shares* $10,000 $ 9,440 $10,892 $12,752 $15,145
ML Utilities and
Telecommunications
Fund, Inc.+--Class I Shares* $ 9,600 $10,000 $10,622 $12,528 $14,991
S&P Utilities Index ++ $10,000 $ 8,879 $11,204 $12,612 $14,519
S&P 500 Index +++ $10,000 $11,125 $13,841 $17,698 $22,744
11/98 11/99 11/00 11/01 11/02 11/03
ML Utilities and
Telecommunications
Fund, Inc.+--Class B Shares* $18,991 $20,399 $21,266 $18,874 $15,070 $17,100
ML Utilities and
Telecommunications
Fund, Inc.+--Class I Shares* $18,958 $20,507 $21,546 $19,275 $15,490 $17,742
S&P Utilities Index ++ $17,403 $16,130 $23,401 $17,358 $11,982 $14,753
S&P 500 Index +++ $28,126 $34,003 $32,568 $28,587 $23,866 $27,468
* Assuming maximum sales charge, transaction costs and other operating
expenses, including advisory fees.
+ ML Utilities and Telecommunications Fund, Inc. invests at least 80% of its
total assets in equity and debt securities issued by domestic and foreign
companies that are, in the opinion of the Investment Adviser, primarily
engaged in the ownership or operation of facilities used to generate,
transmit or distribute electricity, telecommunications, gas or water.
++ This unmanaged capitalization Index is comprised of all stocks designed to
measure the performance of electric and natural gas utilities within the
S&P 500 Index.
+++ 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.
Average Annual Total Return
% Return % Return
Without CDSC With CDSC**
================================================================================
Class B Shares*
================================================================================
One Year Ended 11/30/03 +13.47% +9.47%
- --------------------------------------------------------------------------------
Five Years Ended 11/30/03 - 2.08 -2.26
- --------------------------------------------------------------------------------
Ten Years Ended 11/30/03 + 5.51 +5.51
- --------------------------------------------------------------------------------
* Maximum contingent deferred sales charge is 4% and is reduced to 0% after
six years.
** Assuming payment of applicable contingent deferred sales charge.
% Return Without % Return With
Sales Charge Sales Charge**
================================================================================
Class I Shares*
================================================================================
One Year Ended 11/30/03 +14.54% +9.96%
- --------------------------------------------------------------------------------
Five Years Ended 11/30/03 - 1.32 -2.12
- --------------------------------------------------------------------------------
Ten Years Ended 11/30/03 + 6.33 +5.90
- --------------------------------------------------------------------------------
* Maximum sales charge is 4%.
** Assuming maximum sales charge.
8 MERRILL LYNCH UTILITIES AND TELECOMMUNICATIONS FUND, INC.
NOVEMBER 30, 2003
Schedule of Investments
Value Percent of
Country Industry* Shares Held Common Stocks (in U.S. dollars) Net Assets
====================================================================================================================================
Belgium Wireless Telecommunication Services 14,300 + Mobistar SA $ 747,366 0.5%
--------------------------------------------------------------------------------------------------------------------------
Total Common Stocks in Belgium 747,366 0.5
====================================================================================================================================
Canada Diversified Telecommunication 165,200 BCE Inc. 3,695,524 2.8
Services
--------------------------------------------------------------------------------------------------------------------------
Oil & Gas 23,400 EnCana Corp. 856,866 0.6
--------------------------------------------------------------------------------------------------------------------------
Total Common Stocks in Canada 4,552,390 3.4
====================================================================================================================================
Finland Communications Equipment 34,400 Nokia Oyj 'A' (ADR) (a) 618,512 0.5
--------------------------------------------------------------------------------------------------------------------------
Total Common Stocks in Finland 618,512 0.5
====================================================================================================================================
France Diversified Telecommunication 28,400 + France Telecom SA 726,479 0.5
Services
--------------------------------------------------------------------------------------------------------------------------
Multi-Utilities & Unregulated Power 37,500 Suez SA 654,490 0.5
--------------------------------------------------------------------------------------------------------------------------
Total Common Stocks in France 1,380,969 1.0
====================================================================================================================================
Germany Diversified Telecommunication 234,000 + Deutsche Telekom AG (Registered Shares) 3,884,867 2.9
Services
--------------------------------------------------------------------------------------------------------------------------
Electric Utilities 45,100 E.On AG 2,557,103 1.9
--------------------------------------------------------------------------------------------------------------------------
Multi-Utilities & Unregulated Power 21,800 RWE AG 702,942 0.5
--------------------------------------------------------------------------------------------------------------------------
Total Common Stocks in Germany 7,144,912 5.3
====================================================================================================================================
Greece Electric Utilities 30,400 + Public Power Corporation (GDR)(b) 690,183 0.5
--------------------------------------------------------------------------------------------------------------------------
Total Common Stocks in Greece 690,183 0.5
====================================================================================================================================
Italy Diversified Telecommunication 494,800 + Telecom Italia RNC 946,021 0.7
Services 327,776 + Telecom Italia SpA 948,866 0.7
-------------------------
1,894,887 1.4
--------------------------------------------------------------------------------------------------------------------------
Electric Utilities 56,600 Enel SpA 361,621 0.3
--------------------------------------------------------------------------------------------------------------------------
Total Common Stocks in Italy 2,256,508 1.7
====================================================================================================================================
Japan Wireless Telecommunication Services 400 NTT DoCoMo, Inc. 861,943 0.6
--------------------------------------------------------------------------------------------------------------------------
Total Common Stocks in Japan 861,943 0.6
====================================================================================================================================
Mexico Diversified Telecommunication 35,000 Telefonos de Mexico SA (ADR)(a) 1,158,150 0.8
Services
--------------------------------------------------------------------------------------------------------------------------
Wireless Telecommunication Services 47,000 America Movil SA de CV 'L' (ADR)(a) 1,205,080 0.9
--------------------------------------------------------------------------------------------------------------------------
Total Common Stocks in Mexico 2,363,230 1.7
====================================================================================================================================
Portugal Diversified Telecommunication 95,000 Portugal Telecom SA (Registered Shares) 893,931 0.7
Services
--------------------------------------------------------------------------------------------------------------------------
Total Common Stocks in Portugal 893,931 0.7
====================================================================================================================================
Spain Diversified Telecommunication 204,700 Telefonica SA 2,650,038 2.0
Services
--------------------------------------------------------------------------------------------------------------------------
Electric Utilities 71,200 Endesa SA 1,169,260 0.9
260,900 Iberdrola SA 4,500,341 3.3
-------------------------
5,669,601 4.2
--------------------------------------------------------------------------------------------------------------------------
Gas Utilities 72,800 Enagas 720,812 0.5
--------------------------------------------------------------------------------------------------------------------------
Media 1 + Antena 3 Television, SA 20 0.0
--------------------------------------------------------------------------------------------------------------------------
Total Common Stocks in Spain 9,040,471 6.7
====================================================================================================================================
United Electric Utilities 74,400 Scottish and Southern Energy PLC 834,919 0.6
Kingdom 287,400 Scottish Power PLC 1,776,954 1.3
-------------------------
2,611,873 1.9
--------------------------------------------------------------------------------------------------------------------------
Multi-Utilities & Unregulated Power 113,775 National Grid Group PLC 769,007 0.6
--------------------------------------------------------------------------------------------------------------------------
Wireless Telecommunication Services 105,700 Vodafone Group PLC (ADR)(a) 2,468,095 1.8
--------------------------------------------------------------------------------------------------------------------------
Total Common Stocks in the United Kingdom 5,848,975 4.3
====================================================================================================================================
MERRILL LYNCH UTILITIES AND TELECOMMUNICATIONS FUND, INC. 9
NOVEMBER 30, 2003
[LOGO] Merrill Lynch Investment Managers
Schedule of Investments (continued)
Value Percent of
Country Industry* Shares Held Common Stocks (in U.S. dollars) Net Assets
====================================================================================================================================
United Diversified Telecommunication 62,000 ALLTEL Corporation $ 2,815,420 2.1%
States Services 69,340 AT&T Corp. 1,375,012 1.0
193,800 BellSouth Corporation 5,044,614 3.7
42,700 CenturyTel, Inc. 1,396,290 1.0
185,000 SBC Communications Inc. 4,306,800 3.2
138,800 Verizon Communications 4,548,476 3.4
-------------------------
19,486,612 14.4
--------------------------------------------------------------------------------------------------------------------------
Electric Utilities 28,600 Ameren Corporation 1,262,118 0.9
72,700 American Electric Power Company, Inc. 2,013,063 1.5
74,562 Cinergy Corp. 2,725,241 2.0
96,000 Cleco Corporation 1,706,880 1.3
126,200 DPL Inc. 2,440,708 1.8
18,400 DTE Energy Company 693,864 0.5
77,737 Dominion Resources, Inc. 4,685,209 3.5
68,900 + Edison International 1,406,938 1.0
64,200 Entergy Corporation 3,393,612 2.5
62,500 Exelon Corporation 3,863,750 2.9
17,800 FPL Group, Inc. 1,131,190 0.8
74,200 FirstEnergy Corp. 2,571,030 1.9
60,900 NSTAR 2,901,885 2.2
12,100 OGE Energy Corp. 288,222 0.2
72,700 PPL Corporation 2,971,976 2.2
37,100 Pepco Holdings, Inc. 681,156 0.5
49,600 Pinnacle West Capital Corporation 1,952,752 1.5
31,400 Progress Energy, Inc. 1,375,948 1.0
107,600 Public Service Enterprise Group Incorporated 4,413,752 3.3
72,000 The Southern Company 2,107,440 1.6
116,300 TXU Corporation 2,574,882 1.9
30,100 Wisconsin Energy Corporation 984,270 0.7
-------------------------
48,145,886 35.7
--------------------------------------------------------------------------------------------------------------------------
Gas Utilities 35,400 AGL Resources Inc. 1,005,360 0.7
78,600 KeySpan Corporation 2,769,078 2.1
11,800 Kinder Morgan, Inc. 643,100 0.5
80,800 New Jersey Resources Corporation 3,102,720 2.3
-------------------------
7,520,258 5.6
--------------------------------------------------------------------------------------------------------------------------
Media 43,400 + Cablevision Systems Corporation (Class A) 899,248 0.7
29,735 + Comcast Corporation (Class A) 933,084 0.7
45,300 + Comcast Corporation (Special Class A) 1,365,795 1.0
-------------------------
3,198,127 2.4
--------------------------------------------------------------------------------------------------------------------------
Multi-Utilities & Unregulated 94,700 Constellation Energy Group 3,564,508 2.6
Power 35,600 Energy East Corporation 819,156 0.6
18,100 Equitable Resources, Inc. 745,720 0.6
29,100 National Fuel Gas Company 672,210 0.5
25,600 Questar Corporation 873,472 0.7
57,900 SCANA Corporation 1,944,282 1.4
-------------------------
8,619,348 6.4
--------------------------------------------------------------------------------------------------------------------------
Oil & Gas 13,900 Devon Energy Corporation 686,104 0.5
47,100 EOG Resources, Inc. 1,975,374 1.5
-------------------------
2,661,478 2.0
--------------------------------------------------------------------------------------------------------------------------
Wireless Telecommunication 193,208 + AT&T Wireless Services Inc. 1,449,060 1.0
Services 10,700 + NII Holdings Inc. (Class B) 812,665 0.6
113,000 + Sprint Corp. (PCS Group) 518,670 0.4
-------------------------
2,780,395 2.0
--------------------------------------------------------------------------------------------------------------------------
Total Common Stocks in the United States 92,412,104 68.5
==========================================================================================================================
Total Common Stocks (Cost--$113,944,256) 128,811,494 95.4
==========================================================================================================================
10 MERRILL LYNCH UTILITIES AND TELECOMMUNICATIONS FUND, INC.
NOVEMBER 30, 2003
Schedule of Investments (concluded)
Value Percent of
Country Industry* Face Amount Trust Preferred (in U.S. dollars) Net Assets
====================================================================================================================================
United Electric Utilities $ 1,092,450 AES Trust III, 6.75% due 10/15/2029 $ 893,983 0.7%
States --------------------------------------------------------------------------------------------------------------------------
Total Trust Preferred in the United States
(Cost--$656,222) 893,983 0.7
==========================================================================================================================
Beneficial Interest/
Shares Held Short-Term Securities
====================================================================================================================================
$ 5,141,055 Merrill Lynch Liquidity Series, LLC Cash
Sweep Series I (c) 5,141,055 3.8
$10,479,376 Merrill Lynch Liquidity Series, LLC
Money Market Series (c)(d) 10,479,376 7.7
4,007,912 Merrill Lynch Premier Institutional
Fund (c)(d) 4,007,912 3.0
--------------------------------------------------------------------------------------------------------------------------
Total Short-Term Securities
(Cost--$19,628,343) 19,628,343 14.5
====================================================================================================================================
Total Investments (Cost--$134,228,821) 149,333,820 110.6
Liabilities in Excess of Other Assets (14,367,028) (10.6)
--------------------------
Net Assets $134,966,792 100.0%
==========================
* 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. These
industry classifications are unaudited.
+ 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 $ 907,602 $70,504
Merrill Lynch Liquidity Series, LLC
Money Market Series $ (1,754,370) $17,673
Merrill Lynch Premier Institutional Fund (10,944,443) $11,695
--------------------------------------------------------------------------
(d) Security was purchased with the cash proceeds from securities loans.
See Notes to Financial Statements.
MERRILL LYNCH UTILITIES AND TELECOMMUNICATIONS FUND, INC. 11
NOVEMBER 30, 2003
[LOGO] Merrill Lynch Investment Managers
Statement of Assets and Liabilities
As of November 30, 2003
========================================================================================================================
Assets
- ------------------------------------------------------------------------------------------------------------------------
Investments, at value (including securities loaned
of $13,966,877) (identified cost--$134,228,821) ............ $ 149,333,820
Foreign cash (cost--$77,758) ................................. 80,343
Receivables:
Dividends ................................................. $ 369,509
Capital shares sold ....................................... 19,064
Interest .................................................. 14,944
Securities lending--net ................................... 1,117 404,634
-------------
Prepaid registration fees .................................... 12,599
-------------
Total assets ................................................. 149,831,396
-------------
========================================================================================================================
Liabilities
- ------------------------------------------------------------------------------------------------------------------------
Collateral on securities loaned, at value .................... 14,487,288
Payables:
Capital shares redeemed ................................... 199,452
Investment adviser ........................................ 61,641
Other affiliates .......................................... 47,409
Distributor ............................................... 42,074 350,576
-------------
Accrued expenses and other liabilities ....................... 26,740
-------------
Total liabilities ............................................ 14,864,604
-------------
========================================================================================================================
Net Assets
- ------------------------------------------------------------------------------------------------------------------------
Net assets ................................................... $ 134,966,792
=============
========================================================================================================================
Net Assets Consist of
- ------------------------------------------------------------------------------------------------------------------------
Class A Shares of Common Stock, $.10 par value,
100,000,000 shares authorized .............................. $ 731,132
Class B Shares of Common Stock, $.10 par value,
100,000,000 shares authorized .............................. 504,243
Class C Shares of Common Stock, $.10 par value,
100,000,000 shares authorized .............................. 135,293
Class I Shares of Common Stock, $.10 par value,
100,000,000 shares authorized .............................. 273,869
Paid-in capital in excess of par ............................. 161,359,651
Undistributed investment income--net ......................... $ 389,773
Accumulated realized capital losses on investments
and foreign currency transactions--net ..................... (43,537,356)
Unrealized appreciation on investments and foreign
currency transactions--net ................................. 15,110,187
-------------
Total accumulated losses--net ................................ (28,037,396)
-------------
Net Assets ................................................... $ 134,966,792
=============
========================================================================================================================
Net Asset Value
- ------------------------------------------------------------------------------------------------------------------------
Class A--Based on net assets of $60,142,188 and
7,311,325 shares outstanding ............................... $ 8.23
=============
Class B--Based on net assets of $41,316,587 and
5,042,433 shares outstanding ............................... $ 8.19
=============
Class C--Based on net assets of $10,993,535 and
1,352,929 shares outstanding ............................... $ 8.13
=============
Class I--Based on net assets of $22,514,482 and
2,738,689 shares outstanding ............................... $ 8.22
=============
See Notes to Financial Statements.
12 MERRILL LYNCH UTILITIES AND TELECOMMUNICATIONS FUND, INC.
NOVEMBER 30, 2003
Statement of Operations
For the Year Ended November 30, 2003
========================================================================================================================
Investment Income
- ------------------------------------------------------------------------------------------------------------------------
Dividends (net of $100,861 foreign withholding tax) .......... $ 5,075,760
Interest ..................................................... 116,678
Securities lending--net ...................................... 29,368
-------------
Total income ................................................. 5,221,806
-------------
========================================================================================================================
Expenses
- ------------------------------------------------------------------------------------------------------------------------
Investment advisory fees ..................................... $ 812,772
Account maintenance and distribution fees--Class B ........... 467,395
Transfer agent fees--Class B ................................. 144,294
Account maintenance fees--Class A ............................ 102,836
Accounting services .......................................... 93,344
Account maintenance and distribution fees--Class C ........... 84,155
Transfer agent fees--Class A ................................. 81,789
Professional fees ............................................ 70,062
Registration fees ............................................ 60,266
Directors' fees and expenses ................................. 58,289
Transfer agent fees--Class I ................................. 42,570
Printing and shareholder reports ............................. 40,861
Custodian fees ............................................... 31,520
Transfer agent fees--Class C ................................. 24,455
Pricing fees ................................................. 4,287
Other ........................................................ 16,700
-------------
Total expenses ............................................... 2,135,595
-------------
Investment income--net ....................................... 3,086,211
-------------
========================================================================================================================
Realized & Unrealized Gain (Loss) on Investments & Foreign Currency Transactions--Net
- ------------------------------------------------------------------------------------------------------------------------
Realized loss on:
Investments--net .......................................... (2,006,768)
Foreign currency transactions--net ........................ (19,235) (2,026,003)
-------------
Change in unrealized appreciation/depreciation on:
Investments--net .......................................... 16,271,945
Foreign currency transactions--net ........................ 4,637 16,276,582
-------------------------------
Total realized and unrealized gain on investments and
foreign currency transactions--net ......................... 14,250,579
-------------
Net Increase in Net Assets Resulting from Operations ......... $ 17,336,790
=============
See Notes to Financial Statements.
MERRILL LYNCH UTILITIES AND TELECOMMUNICATIONS FUND, INC. 13
NOVEMBER 30, 2003
[LOGO] Merrill Lynch Investment Managers
Statements of Changes in Net Assets
For the Year Ended
November 30,
-------------------------------
Increase (Decrease) in Net Assets: 2003 2002
========================================================================================================================
Operations
- ------------------------------------------------------------------------------------------------------------------------
Investment income--net ....................................... $ 3,086,211 $ 5,070,298
Realized loss on investments and foreign currency
transactions--net .......................................... (2,026,003) (41,170,515)
Change in unrealized appreciation/depreciation on
investments and foreign currency transactions--net ......... 16,276,582 (3,926,627)
-------------------------------
Net increase (decrease) in net assets resulting from
operations ................................................. 17,336,790 (40,026,844)
-------------------------------
========================================================================================================================
Dividends & Distributions to Shareholders
- ------------------------------------------------------------------------------------------------------------------------
Investment income--net:
Class A ................................................... (1,089,101) (1,167,420)
Class B ................................................... (1,305,449) (2,889,181)
Class C ................................................... (222,843) (310,345)
Class I ................................................... (622,798) (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 .............................. (3,240,191) (7,802,613)
-------------------------------
========================================================================================================================
Capital Share Transactions
- ------------------------------------------------------------------------------------------------------------------------
Net decrease in net assets derived from capital share
transactions ............................................... (18,877,279) (33,660,519)
-------------------------------
========================================================================================================================
Net Assets
- ------------------------------------------------------------------------------------------------------------------------
Total decrease in net assets ................................. (4,780,680) (81,489,976)
Beginning of year ............................................ 139,747,472 221,237,448
-------------------------------
End of year* ................................................. $ 134,966,792 $ 139,747,472
===============================
* Undistributed investment income--net .................... $ 389,773 $ 562,986
===============================
See Notes to Financial Statements.
14 MERRILL LYNCH UTILITIES AND TELECOMMUNICATIONS FUND, INC.
NOVEMBER 30, 2003
Financial Highlights
Class A+
The following per share data and ratios have been derived -------------------------------------------------------------------
from information provided in the financial statements. For the Year Ended November 30,
-------------------------------------------------------------------
Increase (Decrease) in Net Asset Value: 2003 2002 2001 2000 1999
===================================================================================================================================
Per Share Operating Performance
- -----------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of year ... $ 7.40 $ 9.67 $ 11.81 $ 19.17 $ 19.49
-------------------------------------------------------------------
Investment income--net** ............. .19 .26 .32 .39 .30
Realized and unrealized gain (loss) on
investments and foreign currency
transactions--net .................. .85 (2.14) (1.46) .68 1.15
-------------------------------------------------------------------
Total from investment operations ..... 1.04 (1.88) (1.14) 1.07 1.45
-------------------------------------------------------------------
Less dividends and distributions:
Investment income--net ............ (.21) (.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 .... (.21) (.39) (1.00) (8.43) (1.77)
-------------------------------------------------------------------
Net asset value, end of year ......... $ 8.23 $ 7.40 $ 9.67 $ 11.81 $ 19.17
===================================================================
===================================================================================================================================
Total Investment Return*
- -----------------------------------------------------------------------------------------------------------------------------------
Based on net asset value per share ... 14.26% (19.83%) (10.67%) 4.72% 7.96%
===================================================================
===================================================================================================================================
Ratios to Average Net Assets
- -----------------------------------------------------------------------------------------------------------------------------------
Expenses ............................. 1.33% 1.26% 1.11% 1.08% 1.07%
===================================================================
Investment income--net ............... 2.42% 3.13% 2.86% 2.34% 1.60%
===================================================================
===================================================================================================================================
Supplemental Data
- -----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of year (in thousands) $ 60,142 $ 34,038 $ 36,794 $ 18,383 $ 14,747
===================================================================
Portfolio turnover ................... 21.20% 31.16% 45.66% 51.79% 7.43%
===================================================================
* 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.
See Notes to Financial Statements.
MERRILL LYNCH UTILITIES AND TELECOMMUNICATIONS FUND, INC. 15
NOVEMBER 30, 2003
[LOGO] Merrill Lynch Investment Managers
Financial Highlights (continued)
Class B
The following per share data and ratios have been derived ------------------------------------------------------------------
from information provided in the financial statements. For the Year Ended November 30,
------------------------------------------------------------------
Increase (Decrease) in Net Asset Value: 2003 2002 2001 2000 1999
==================================================================================================================================
Per Share Operating Performance
- ----------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of year ... $ 7.37 $ 9.61 $ 11.75 $ 19.10 $ 19.42
------------------------------------------------------------------
Investment income--net** ............. .16 .22 .26 .31 .20
Realized and unrealized gain (loss) on
investments and foreign currency
transactions--net .................. .82 (2.13) (1.47) .67 1.15
------------------------------------------------------------------
Total from investment operations ..... .98 (1.91) (1.21) .98 1.35
------------------------------------------------------------------
Less dividends and distributions:
Investment income--net ............ (.16) (.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 .... (.16) (.33) (.93) (8.33) (1.67)
------------------------------------------------------------------
Net asset value, end of year ......... $ 8.19 $ 7.37 $ 9.61 $ 11.75 $ 19.10
==================================================================
==================================================================================================================================
Total Investment Return*
- ----------------------------------------------------------------------------------------------------------------------------------
Based on net asset value per share ... 13.47% (20.16%) (11.25%) 4.25% 7.41%
==================================================================
==================================================================================================================================
Ratios to Average Net Assets
- ----------------------------------------------------------------------------------------------------------------------------------
Expenses ............................. 1.86% 1.77% 1.63% 1.59% 1.59%
==================================================================
Investment income--net ............... 2.08% 2.63% 2.40% 1.83% 1.06%
==================================================================
==================================================================================================================================
Supplemental Data
- ----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of year (in thousands) $ 41,317 $ 74,822 $147,549 $246,279 $299,912
==================================================================
Portfolio turnover ................... 21.20% 31.16% 45.66% 51.79% 7.43%
==================================================================
* Total investment returns exclude the effects of sales charges.
** Based on average shares outstanding.
See Notes to Financial Statements.
16 MERRILL LYNCH UTILITIES AND TELECOMMUNICATIONS FUND, INC.
NOVEMBER 30, 2003
Financial Highlights (continued)
Class C
The following per share data and ratios have been derived ------------------------------------------------------------------
from information provided in the financial statements. For the Year Ended November 30,
------------------------------------------------------------------
Increase (Decrease) in Net Asset Value: 2003 2002 2001 2000 1999
==================================================================================================================================
Per Share Operating Performance
- ----------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of year ... $ 7.31 $ 9.55 $ 11.68 $ 19.04 $ 19.37
------------------------------------------------------------------
Investment income--net** ............. .15 .21 .25 .28 .19
Realized and unrealized gain (loss) on
investments and foreign currency
transactions--net .................. .83 (2.11) (1.45) .69 1.14
------------------------------------------------------------------
Total from investment operations ..... .98 (1.90) (1.20) .97 1.33
------------------------------------------------------------------
Less dividends and distributions:
Investment income--net ............ (.16) (.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 .... (.16) (.34) (.93) (8.33) (1.66)
------------------------------------------------------------------
Net asset value, end of year ......... $ 8.13 $ 7.31 $ 9.55 $ 11.68 $ 19.04
==================================================================
==================================================================================================================================
Total Investment Return*
- ----------------------------------------------------------------------------------------------------------------------------------
Based on net asset value per share ... 13.62% (20.27%) (11.24%) 4.17% 7.34%
==================================================================
==================================================================================================================================
Ratios to Average Net Assets
- ----------------------------------------------------------------------------------------------------------------------------------
Expenses ............................. 1.91% 1.84% 1.69% 1.65% 1.65%
==================================================================
Investment income--net ............... 1.93% 2.55% 2.31% 1.75% 1.02%
==================================================================
==================================================================================================================================
Supplemental Data
- ----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of year (in thousands) $ 10,994 $ 10,545 $ 10,194 $ 11,416 $ 8,381
==================================================================
Portfolio turnover ................... 21.20% 31.16% 45.66% 51.79% 7.43%
==================================================================
* Total investment returns exclude the effects of sales charges.
** Based on average shares outstanding.
See Notes to Financial Statements.
MERRILL LYNCH UTILITIES AND TELECOMMUNICATIONS FUND, INC. 17
NOVEMBER 30, 2003
[LOGO] Merrill Lynch Investment Managers
Financial Highlights (concluded)
Class I+
The following per share data and ratios have been derived ------------------------------------------------------------------
from information provided in the financial statements. For the Year Ended November 30,
------------------------------------------------------------------
Increase (Decrease) in Net Asset Value: 2003 2002 2001 2000 1999
==================================================================================================================================
Per Share Operating Performance
- ----------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of year ... $ 7.39 $ 9.66 $ 11.81 $ 19.16 $ 19.49
------------------------------------------------------------------
Investment income--net** ............. .21 .29 .34 .44 .34
Realized and unrealized gain (loss) on
investments and foreign currency
transactions--net .................. .84 (2.15) (1.47) .68 1.14
------------------------------------------------------------------
Total from investment operations ..... 1.05 (1.86) (1.13) 1.12 1.48
------------------------------------------------------------------
Less dividends and distributions:
Investment income--net ............ (.22) (.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 .... (.22) (.41) (1.02) (8.47) (1.81)
------------------------------------------------------------------
Net asset value, end of year ......... $ 8.22 $ 7.39 $ 9.66 $ 11.81 $ 19.16
==================================================================
==================================================================================================================================
Total Investment Return*
- ----------------------------------------------------------------------------------------------------------------------------------
Based on net asset value per share ... 14.54% (19.64%) (10.54%) 5.07% 8.17%
==================================================================
==================================================================================================================================
Ratios to Average Net Assets
- ----------------------------------------------------------------------------------------------------------------------------------
Expenses ............................. 1.07% 1.00% .86% .83% .82%
==================================================================
Investment income--net ............... 2.77% 3.39% 3.15% 2.59% 1.82%
==================================================================
==================================================================================================================================
Supplemental Data
- ----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of year (in thousands) $ 22,514 $ 20,342 $ 26,700 $ 32,698 $ 38,309
==================================================================
Portfolio turnover ................... 21.20% 31.16% 45.66% 51.79% 7.43%
==================================================================
* 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.
See Notes to Financial Statements.
18 MERRILL LYNCH UTILITIES AND TELECOMMUNICATIONS FUND, INC.
NOVEMBER 30, 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. The Fund offers multiple classes of shares.
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 -- Equity securities that are held by the Fund that
are traded on stock exchanges or the Nasdaq National Market are valued at the
last sale price or official close price on the exchange, 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. In cases where equity securities are traded on more
than one exchange, the securities are valued on the exchange designated as the
primary market by or under the authority of the Board of Directors of the Fund.
Long positions traded in the over-the-counter ("OTC") market, Nasdaq Small Cap
or Bulletin Board are valued at the last available bid price or yield equivalent
obtained from one or more dealers or pricing services approved by the Board of
Directors of the Fund. Short positions traded in the OTC market are valued at
the last available ask price. Portfolio securities that are traded both in the
OTC market and on a stock exchange are valued according to the broadest and most
representative market.
Options written are valued at the last sale price in the case of exchange-traded
options or, in the case of options traded in the OTC market, the last ask price.
Options purchased are valued at their last sale price in the case of
exchange-traded options or, in the case of options traded in the OTC market, the
last bid price. Swap agreements are valued daily based upon quotations from
market makers. Financial futures contracts and options thereon, which are traded
on exchanges, are valued at their last sale price as of the close of such
exchanges. Obligations with remaining maturities of 60 days or less are valued
at amortized cost unless the Investment Adviser believes that this method no
longer produces fair valuations.
Repurchase agreements are valued at cost plus accrued interest. The Fund employs
pricing services to provide certain securities prices for the Fund. Securities
and assets for which market quotations are not readily available are valued at
fair value as determined in good faith by or under the direction of the Board of
Directors of the Fund, including valuations furnished by the pricing services
retained by the Fund, which may use a matrix system for valuations. The
procedures of a pricing service and its valuations are reviewed by the officers
of the Fund under the general supervision of the Fund's Board of Directors. Such
valuations and procedures will be reviewed periodically by the Board of
Directors of the Fund.
Generally, trading in foreign securities, as well as U.S. government securities
and money market instruments, is substantially completed each day at various
times prior to the close of business on the New York Stock Exchange ("NYSE").
The values of such securities used in computing the net asset value of the
Fund's shares are determined as of such times. Foreign currency exchange rates
also are generally determined prior to the close of business on the NYSE.
Occasionally, events affecting the values of such securities and such exchange
rates may occur between the times at which they are determined and the close of
business on the NYSE that may not be reflected in the computation of the Fund's
net asset value. If events (for example, a company announcement, market
volatility or a natural disaster) occur during such periods that are expected to
materially affect the value of such securities, those securities may be valued
at their fair 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 Fund's Board of Directors.
(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
MERRILL LYNCH UTILITIES AND TELECOMMUNICATIONS FUND, INC. 19
NOVEMBER 30, 2003
[LOGO] Merrill Lynch Investment Managers
Notes to Financial Statements (continued)
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 movements 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 may 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 may 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 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.
20 MERRILL LYNCH UTILITIES AND TELECOMMUNICATIONS FUND, INC.
NOVEMBER 30, 2003
Notes to Financial Statements (continued)
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.
(i) Reclassification -- Accounting principles generally accepted in the United
States of America require that certain components of net assets be adjusted to
reflect permanent differences between financial and tax reporting. Accordingly,
the current year's permanent book/tax difference of $19,235 has been
reclassified between undistributed net investment income and accumulated net
realized capital losses. This reclassification has no effect on net assets or
net asset values per share.
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 year ended November 30, 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 ............................ $ 837 $13,938
Class I ............................ $ 9 $ 92
- --------------------------------------------------------------------------------
For the year ended November 30, 2003, MLPF&S received contingent deferred sales
charges of $39,030 and $1,248, 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
MERRILL LYNCH UTILITIES AND TELECOMMUNICATIONS FUND, INC. 21
NOVEMBER 30, 2003
[LOGO] Merrill Lynch Investment Managers
Notes to Financial Statements (continued)
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 year ended November 30, 2003, MLIM,
LLC received $12,543 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 $12,642 in commissions on the execution of
portfolio security transactions for the Fund for the year ended November 30,
2003.
For the year ended November 30, 2003, the Fund reimbursed MLIM $2,976 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
year ended November 30, 2003 were $27,449,151 and $47,397,572, respectively.
Net realized losses for the year ended November 30, 2003 and net unrealized
gains as of November 30, 2003 were as follows:
- --------------------------------------------------------------------------------
Realized Unrealized
Losses Gains
- --------------------------------------------------------------------------------
Long-term investments ................... $(2,006,768) $15,104,999
Foreign currency transactions ........... (19,235) 5,188
-------------------------------
Total ................................... $(2,026,003) $15,110,187
===============================
As of November 30, 2003, net unrealized appreciation for Federal income tax
purposes aggregated $14,993,411, of which $20,796,371 related to appreciated
securities and $5,802,960 related to depreciated securities. The aggregate cost
of investments at November 30, 2003 for Federal income tax purposes was
$134,340,409.
4. Capital Share Transactions:
Net decrease in net assets derived from capital share transactions was
$18,877,279 and $33,660,519 for the years ended November 30, 2003 and November
30, 2002, respectively.
Transactions in capital shares for each class were as follows:
- -------------------------------------------------------------------------------
Class A Shares for the Year Dollar
Ended November 30, 2003+ Shares Amount
- -------------------------------------------------------------------------------
Shares sold ............................ 216,661 $ 1,692,130
Automatic conversion of shares ......... 3,693,671 29,072,360
Shares issued to shareholders
in reinvestment of dividends ......... 113,083 864,551
-------------------------------
Total issued ........................... 4,023,415 31,629,041
Shares redeemed ........................ (1,311,797) (10,107,680)
-------------------------------
Net increase ........................... 2,711,618 $ 21,521,361
===============================
+ 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 Year Dollar
Ended November 30, 2003 Shares Amount
- -------------------------------------------------------------------------------
Shares sold ............................ 621,416 $ 4,832,497
Shares issued to shareholders
in reinvestment of dividends ......... 133,494 1,004,361
-------------------------------
Total issued ........................... 754,910 5,836,858
Automatic conversion of shares ......... (3,709,417) (29,072,360)
Shares redeemed ........................ (2,161,611) (16,426,853)
-------------------------------
Net decrease ........................... (5,116,118) $(39,662,355)
===============================
- -------------------------------------------------------------------------------
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 Year Dollar
Ended November 30, 2003 Shares Amount
- -------------------------------------------------------------------------------
Shares sold ............................ 266,906 $ 2,061,541
Shares issued to shareholders
in reinvestment of dividends ......... 23,270 174,883
-------------------------------
Total issued ........................... 290,176 2,236,424
Shares redeemed ........................ (379,483) (2,892,318)
-------------------------------
Net decrease ........................... (89,307) $ (655,894)
===============================
22 MERRILL LYNCH UTILITIES AND TELECOMMUNICATIONS FUND, INC.
NOVEMBER 30, 2003
Notes to Financial Statements (concluded)
- -------------------------------------------------------------------------------
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 Year Dollar
Ended November 30, 2003+ Shares Amount
- -------------------------------------------------------------------------------
Shares sold ............................ 833,742 $ 6,478,377
Shares issued to shareholders
in reinvestment of dividends ......... 72,642 552,101
-------------------------------
Total issued ........................... 906,384 7,030,478
Shares redeemed ........................ (918,697) (7,110,869)
-------------------------------
Net decrease ........................... (12,313) $ (80,391)
===============================
+ 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 28, 2003, 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 year ended November 30, 2003.
6. Distributions to Shareholders:
On December 2, 2003, an ordinary income dividend was declared payable on
December 22, 2003 to shareholders of record on December 16, 2003 in an amount
per share as follows:
- --------------------------------------------------------------------------------
Class A ............................................. $.026741
Class B ............................................. $.017738
Class C ............................................. $.019004
Class I ............................................. $.029813
- --------------------------------------------------------------------------------
The tax character of distributions paid during the fiscal years ended November
30, 2003 and November 30, 2002 was as follows:
- --------------------------------------------------------------------------------
11/30/2003 11/30/2002
- --------------------------------------------------------------------------------
Distributions paid from:
Ordinary income .......................... $3,240,191 $5,199,619
Net long-term capital gains .............. -- 2,602,994
----------------------------
Total taxable distributions ................ $3,240,191 $7,802,613
============================
As of November 30, 2003, the components of accumulated losses on a tax basis
were as follows:
- -----------------------------------------------------------------------------
Undistributed ordinary income--net ...................... $ 389,773
Undistributed long-term capital gains--net .............. --
------------
Total undistributed earnings--net ....................... 389,773
Capital loss carryforward ............................... (43,425,768)*
Unrealized gains--net ................................... 14,998,599**
------------
Total accumulated losses--net ........................... $(28,037,396)
============
* On November 30, 2003, the Fund had a net capital loss carryforward of
$43,425,768, of which $40,916,903 expires in 2010 and $2,508,865 expires
in 2011. This amount will be available to offset like amounts of any
future taxable gains.
** The difference between book-basis and tax-basis net unrealized gains is
attributable primarily to the tax deferral of losses on wash sales.
MERRILL LYNCH UTILITIES AND TELECOMMUNICATIONS FUND, INC. 23
NOVEMBER 30, 2003
[LOGO] Merrill Lynch Investment Managers
Independent Auditors' Report
To the Shareholders and Board of Directors of
Merrill Lynch Utilities and Telecommunications
Fund, Inc.:
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments, of Merrill Lynch Utilities and Telecommunications
Fund, Inc. as of November 30, 2003, and the related statement of operations for
the year then ended, the statements of changes in net assets for each of the two
years in the period then ended, and the financial highlights for each of the
five years in the period then ended. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned as of November 30, 2003, by correspondence with the custodian.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Merrill Lynch Utilities and Telecommunications Fund, Inc. as of November 30,
2003, the results of its operations for the year then ended, the changes in its
net assets for each of the two years in the period then ended, and its financial
highlights for each of the five years in the period then ended, in conformity
with accounting principles generally accepted in the United States of America.
Deloitte & Touche LLP
Princeton, New Jersey
January 9, 2004
Important Tax Information (unaudited)
The following information is provided with respect to the quarterly
distributions paid by Merrill Lynch Utilities and Telecommunications Fund, Inc.
during the fiscal year ended November 30, 2003:
- --------------------------------------------------------------------------------
Dividends Qualifying for
Qualified Dividend the Dividends Received
Record Date Payable Date Income for Individuals Deduction for Corporations
- --------------------------------------------------------------------------------
12/16/2002 12/20/2002 -- 88.58%
- --------------------------------------------------------------------------------
4/15/2003 4/22/2003 100% 100%
- --------------------------------------------------------------------------------
7/16/2003 7/22/2003 100% 100%
- --------------------------------------------------------------------------------
10/06/2003 10/10/2003 100% 100%
- --------------------------------------------------------------------------------
Please retain this information for your records.
24 MERRILL LYNCH UTILITIES AND TELECOMMUNICATIONS FUND, INC.
NOVEMBER 30, 2003
Officers and Directors (unaudited)
Number of
Portfolios in Other Public
Position(s) Length Fund Complex Directorships
Held of Time Overseen by Held by
Name Address & Age with Fund Served Principal Occupation(s) During Past 5 Years Director Director
====================================================================================================================================
Interested Director
- ------------------------------------------------------------------------------------------------------------------------------------
Terry K. P.O. Box 9011 President 1999 to President and Chairman of the Merrill Lynch 123 Funds None
Glenn* Princeton, NJ and present Investment Managers, L.P. ("MLIM")/Fund Asset 160 Portfolios
08543-9011 Director and Management, L.P. ("FAM")--Advised Funds since
Age: 63 1993 to 1999; Chairman (Americas Region) of MLIM from
present 2000 to 2002; Executive Vice President of FAM
and MLIM (which terms as used herein include
their corporate predecessors) from 1983 to 2002;
President of FAM Distributors, Inc. ("FAMD")
from 1986 to 2002 and Director thereof from 1991
to 2002; Executive Vice President and Director
of Princeton Services, Inc. ("Princeton
Services") from 1993 to 2002; President of
Princeton Administrators, L.P. from 1989 to
2002; Director of Financial Data Services, Inc.
since 1985.
------------------------------------------------------------------------------------------------------------------------
* Mr. Glenn is a director, trustee or member of an advisory board of certain other investment companies for which FAM or
MLIM acts as investment adviser. Mr. Glenn is an "interested person," as described in the Investment Company Act, of
the Fund based on his former positions with FAM, MLIM, FAMD, Princeton Services and Princeton Administrators, L.P. The
Director's term is unlimited. Directors serve until their resignation, removal, or death, or until December 31 of the
year in which they turn 72. As Fund President, Mr. Glenn serves at the pleasure of the Board of Directors.
====================================================================================================================================
Independent Directors*
- ------------------------------------------------------------------------------------------------------------------------------------
Ronald W. P.O. Box 9095 Director 1990 to Professor Emeritus of Finance, School of 51 Funds None
Forbes Princeton, NJ present Business, State University of New York at Albany 50 Portfolios
08543-9095 since 2000 and Professor thereof from 1989 to
Age: 63 2000; International Consultant at the Urban
Institute from 1995 to 1999.
- ------------------------------------------------------------------------------------------------------------------------------------
Cynthia A. P.O. Box 9095 Director 1994 to Professor, Harvard Business School since 1989. 51 Funds Unum
Montgomery Princeton, NJ present 50 Portfolios Provident
08543-9095 Corporation
Age: 51 and Newell
Rubbermaid,
Inc.
- ------------------------------------------------------------------------------------------------------------------------------------
Charles C. P.O. Box 9095 Director 1990 to Self-employed financial consultant since 1990. 51 Funds None
Reilly Princeton, NJ present 50 Portfolios
08543-9095
Age: 72
- ------------------------------------------------------------------------------------------------------------------------------------
Kevin A. P.O. Box 9095 Director 1992 to Founder and Director Emeritus of The Boston 51 Funds None
Ryan Princeton, NJ present University Center for the Advancement of Ethics 50 Portfolios
08543-9095 and Character; Professor of Education at Boston
Age: 71 University from 1982 to 1999 and Professor
Emeritus since 1999.
- ------------------------------------------------------------------------------------------------------------------------------------
Roscoe S. P.O. Box 9095 Director 2000 to President, Middle East Institute from 1995 to 51 Funds None
Suddarth Princeton, NJ present 2001; Foreign Service Officer, United States 50 Portfolios
08543-9095 Foreign Service, from 1961 to 1995; Career
Age: 68 Minister, from 1989 to 1995; Deputy Inspector
General, U.S. Department of State, from 1991 to
1994; U.S. Ambassador to the Hashemite Kingdom
of Jordan from 1987 to 1990.
- ------------------------------------------------------------------------------------------------------------------------------------
MERRILL LYNCH UTILITIES AND TELECOMMUNICATIONS FUND, INC. 25
NOVEMBER 30, 2003
[LOGO] Merrill Lynch Investment Managers
Officers and Directors (unaudited) (concluded)
Number of
Portfolios in Other Public
Position(s) Length Fund Complex Directorships
Held of Time Overseen by Held by
Name Address & Age with Fund Served Principal Occupation(s) During Past 5 Years Director Director
====================================================================================================================================
Independent Directors* (concluded)
- ------------------------------------------------------------------------------------------------------------------------------------
Richard R. P.O. Box 9095 Director 1990 to Dean Emeritus of New York University, Leonard N. 51 Funds Bowne & Co.,
West Princeton, NJ present Stern School of Business Administration since 50 Portfolios Inc.; Vornado
08543-9095 1994. Realty Trust;
Age: 65 Vornado
Operating
Company and
Alexander's,
Inc.
- ------------------------------------------------------------------------------------------------------------------------------------
Edward D. P.O. Box 9095 Director 2000 to Self-employed financial consultant since 1994; 51 Funds None
Zinbarg Princeton, NJ present Executive Vice President of The Prudential 50 Portfolios
08543-9095 Insurance Company of America from 1988 to
Age: 69 1994; Former Director of Prudential Reinsurance
Company and former Trustee of the Prudential
Foundation
------------------------------------------------------------------------------------------------------------------------
* The Director's term is unlimited. Directors serve until their resignation, removal or death, or until December 31 of
the year in which they turn 72.
- ------------------------------------------------------------------------------------------------------------------------------------
Position(s) Length
Held of Time
Name Address & Age with Fund Served* Principal Occupation(s) During Past 5 Years
====================================================================================================================================
Fund Officers
- ------------------------------------------------------------------------------------------------------------------------------------
Donald C. P.O. Box 9011 Vice 1993 to First Vice President of FAM and MLIM since 1997 and Treasurer thereof since
Burke Princeton, NJ President present 1999; Senior Vice President and Treasurer of Princeton Services since 1999;
08543-9011 and and 1999 Vice President of FAMD since 1999; Director of MLIM Taxation since 1990.
Age: 43 Treasurer to present
- ------------------------------------------------------------------------------------------------------------------------------------
Robert C. P.O. Box 9011 Senior Vice 1999 to President of MLIM and member of the Executive Management Committee of ML & Co.,
Doll, Jr. Princeton, NJ President present Inc. since 2001; Global Chief Investment Officer and Senior Portfolio Manager
08543-9011 of MLIM since 1999; Chief Investment Officer of Equities at Oppenheimer Funds,
Age: 49 Inc. from 1990 to 1999 and Chief Investment Officer thereof from 1998 to 1999;
Executive Vice President of Oppenheimer Funds, Inc. from 1991 to 1999.
- ------------------------------------------------------------------------------------------------------------------------------------
Kathleen P.O. Box 9011 Vice 2002 to Director (Equities) of MLIM since 2000; Vice President of MLIM from 1994 to
Anderson Princeton, NJ President present 2000.
08543-9011
Age: 45
- ------------------------------------------------------------------------------------------------------------------------------------
Phillip S. P.O. Box 9011 Secretary 2003 to First Vice President of MLIM since 2001; Director of MLIM from 2000 to 2001;
Gillespie Princeton, NJ present Vice President (Legal Advisory) of MLIM from 1999 to 2000 and Attorney
08543-9011 associated with MLIM since 1998; Assistant General Counsel of Chancellor LGT
Age: 39 Asset Management, Inc. from 1997 to 1998.
------------------------------------------------------------------------------------------------------------------------
* Officers of the Fund serve at the pleasure of the Board of Directors.
- ------------------------------------------------------------------------------------------------------------------------------------
Further information about the Fund's Officers and Directors is available in the Fund's Statement of Additional
Information, which can be obtained without charge by calling 1-800-MER-FUND.
- ------------------------------------------------------------------------------------------------------------------------------------
Custodian
J.P. Morgan Chase Manhattan 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
- --------------------------------------------------------------------------------
Effective January 1, 2004, Charles C. Reilly, Director of Merrill Lynch
Utilities and Telecommunications Fund, Inc., retired.
The Fund's Board of Directors wishes Mr. Reilly well in his retirement.
- --------------------------------------------------------------------------------
26 MERRILL LYNCH UTILITIES AND TELECOMMUNICATIONS FUND, INC.
NOVEMBER 30, 2003
Electronic Delivery
The Fund is now offering electronic delivery of communications to its
shareholders. In order to receive this service, you must register your account
and provide us with e-mail information. To sign up for this service, simply
access this website http://www.icsdelivery.com/live and follow the instructions.
When you visit this site, you will obtain a personal identification number
(PIN). You will need this PIN should you wish to update your e-mail address,
choose to discontinue this service and/or make any other changes to the service.
This service is not available for certain retirement accounts at this time.
MERRILL LYNCH UTILITIES AND TELECOMMUNICATIONS FUND, INC. 27
NOVEMBER 30, 2003
[LOGO] Merrill Lynch Investment Managers www.mlim.ml.com
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
#11693 -- 11/03
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--
The registrant has adopted 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 and principal
accounting officer, or persons performing similar functions. A copy of
the code of ethics is available without charge upon request by calling
toll-free 1-800-MER-FUND (1-800-637-3863).
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. -
The registrant's board of directors has determined that (i) the
registrant has the following audit committee financial experts serving
on its audit committee and (ii) each audit committee financial expert
is independent: (1) Ronald W. Forbes, (2) Richard R. West, and (3)
Edward D. Zinbarg.
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.
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 Telecommunications Fund, Inc.
By: /s/ Terry K. Glenn
------------------------------
Terry K. Glenn,
President of
Merrill Lynch Utilities and Telecommunications Fund, Inc.
Date: January 21, 2004
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 Telecommunications Fund, Inc.
Date: January 21, 2004
By: /s/ Donald C. Burke
------------------------------
Donald C. Burke,
Chief Financial Officer of
Merrill Lynch Utilities and Telecommunications Fund, Inc.
Date: January 21, 2004
Attached hereto as a furnished exhibit are the certifications pursuant
to Section 906 of the Sarbanes-Oxley Act.