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 811-06180
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: Robert C. Doll, Jr., 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: 11/30/04
Date of reporting period: 12/01/03 - 11/30/04
Item 1 - Report to Stockholders
[LOGO] Merrill Lynch Investment Managers www.mlim.ml.com
Merrill Lynch
Utilities and
Telecommunications
Fund, Inc.
Annual Report
November 30, 2004
[LOGO] Merrill Lynch Investment Managers
Merrill Lynch Utilities and Telecommunications Fund, Inc.
Industry Classification* as a Percentage of Total Investments as of November 30,
2004
A pie graph depicting Industry Classification* as a percentage of Total
Investments as of November 30, 2004
Gas Utilities 5.6%
Media 0.6%
Oil & Gas 5.1%
Wireless Telecommunication Services 4.9%
Multi-Utilities & Unregulated Power 14.2%
Electric Utilities 39.5%
Diversified Telecommunication Services 25.6%
Metals & Mining 1.3%
Other** 3.2%
* 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.
** Includes portfolio holdings in short-term securities.
Portfolio Information as of November 30, 2004
Percent of
Geographical Diversification Equities
- --------------------------------------------------------------------------------
United States ........................................... 70.8%
Canada .................................................. 6.0
Spain ................................................... 5.8
United Kingdom .......................................... 5.3
Germany ................................................. 4.6
Italy ................................................... 3.0
Mexico .................................................. 1.5
France .................................................. 0.9
Belgium ................................................. 0.7
Portugal ................................................ 0.6
Japan ................................................... 0.5
Hong Kong ............................................... 0.3
Ten Largest Holdings Percent of
(Equity Investments) Net Assets
- --------------------------------------------------------------------------------
TXU Corporation ......................................... 4.4%
Verizon Communications .................................. 3.9
Exelon Corporation ...................................... 3.1
Dominion Resources, Inc. ................................ 3.1
BCE Inc. ................................................ 2.7
BellSouth Corporation ................................... 2.7
SBC Communications Inc. ................................. 2.6
PPL Corporation ......................................... 2.5
Entergy Corporation ..................................... 2.4
Telefonica SA ........................................... 2.4
2 MERRILL LYNCH UTILITIES AND TELECOMMUNICATIONS FUND, INC. NOVEMBER 30, 2004
A Letter From the President
Dear Shareholder
As we ended the current reporting period, several topics weighed heavily on
investors' minds. Among them were questions about economic growth, corporate
earnings, interest rates and inflation, politics, the price of oil and terrorism
- -- all issues that are worth addressing here.
While the pace of economic expansion slowed somewhat between the first and
second quarters of 2004, gross domestic product reaccelerated in the third
quarter and is expected to approach 4% for the year. The generally favorable
economic environment has benefited American corporations, which continued to
post strong earnings. Although the extraordinary results seen in 2004 are likely
to moderate in 2005, solid productivity, improved revenue growth and cost
discipline all point to a vital corporate sector.
In terms of inflation and interest rates, the Federal Reserve Board has signaled
its confidence in the economic recovery by increasing the Federal Funds target
rate five times since June 2004, from 1% to 2.25% as of the December 14 Federal
Open Market Committee meeting. Inflation, for its part, has remained fairly
subdued.
While the re-election of President Bush was generally viewed as
business-friendly, the rising price of oil continued to be a concern for
consumers and corporations. Although the price of oil has exceeded $50 per
barrel recently, the situation is far from the crisis proportions we saw in the
1980s. Lastly, but importantly, terrorism and geopolitical tensions are
unwelcome realities we are forced to live with today. Historically, however, the
financial effects of any single event tend to be short-lived.
Amid the ambiguities, the Standard & Poor's 500 Index returned +12.86% for the
12-month period and +5.68% for the six-month period ended November 30, 2004. As
always, our investment professionals are closely monitoring the markets, the
economy and the overall environment in an effort to make well-informed decisions
for the portfolios they manage. For the individual investor, the key during
uncertain times is to remain focused on the big picture. While tracking current
events is important, investment success comes from maintaining a long-term
perspective and adhering to the disciplines of asset allocation, diversification
and rebalancing. We encourage you to work with your financial advisor to ensure
these time-tested techniques are incorporated into your investment plan.
Finally, after 35 years in the asset management business, it is with great
satisfaction and some nostalgia that I embark on my retirement, effective
January 1, 2005. The industry has evolved significantly over the past three and
a half decades, and I am privileged to have been a part of it. I wish you
continued success as you pursue your investment goals and, as always, I thank
you for allowing Merrill Lynch Investment Managers to be a part of your
financial life.
Sincerely,
/s/ Terry K. Glenn
Terry K. Glenn
President and Director
MERRILL LYNCH UTILITIES AND TELECOMMUNICATIONS FUND, INC. NOVEMBER 30, 2004 3
[LOGO] Merrill Lynch Investment Managers
A Discussion With Your Fund's Portfolio Manager
The Fund's return for the fiscal year was in line with that of the S&P
Utility Index and outpaced the broad-market S&P 500 Index and the Lipper Utility
Funds average.
How did the Fund perform during the fiscal year in light of the existing market
conditions?
The utility sector clearly outperformed the broad U.S. equity market, as
measured by the Standard & Poor's (S&P) 500 Index, for the past 12-month and
six-month periods. For the 12-month period ended November 30, 2004, Merrill
Lynch Utilities and Telecommunications Fund, Inc.'s Class A, Class B, Class C
and Class I Shares had total returns of +28.82%, +28.30%, +28.03% and +29.16%,
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 benchmarks, the S&P 500 Index and the S&P Utility Index, posted
respective returns of +12.86% and +29.21%, while its comparable Lipper category
of Utility Funds returned +27.06%. (Funds in this Lipper category invest at
least 65% of their equity portfolios in utility shares.)
For the six-month period ended November 30, 2004, the Fund's Class A, Class B,
Class C and Class I Shares recorded total returns of +18.70%, +18.44%, +18.37%
and +18.87%, respectively. For the same period, the S&P 500 Index and the S&P
Utility Index returned +5.68% and +18.46%, respectively, and the Lipper Utility
Funds category had an average return of +17.43%.
As mentioned in the semi-annual report to shareholders dated May 31, 2004, we
have seen significant new money come into dividend-paying securities in the form
of several new closed-end funds. It is estimated that those funds added $9
billion of new capital, and many of them have minimum yield requirements. One of
the largest net beneficiaries of this trend has been the domestic electric
utility sector and, secondarily, the telecommunication services sector. Early in
the fiscal year, this phenomenon raised valuation levels for many stocks in the
domestic electric sector to historic highs. This is evidenced by the significant
rise of the S&P Utility Index, as electric utility stocks comprise more than 50%
of the representative holdings in the Index.
The performance of the domestic telecommunications sector was more mixed.
Investors focused more on companies that have substantial wireless versus
wireline assets. Verizon Corp. was the clear performance winner over both
BellSouth Corporation and SBC Communications Inc. Moreover, the acquisition of
AT&T Wireless by Cingular (the wireless joint venture between BellSouth and SBC)
also negatively affected the performance of the two stocks. Sprint Corp.
benefited from strong buying activity in its wireless tracking stock, Sprint
PCS.
What changes were made to the portfolio during the year?
Portfolio diversification remained relatively stable throughout the fiscal year,
although we added approximately 19 new holdings across various sectors. These
were mainly stocks of companies located in North America. In telecommunications,
the underlying investment theme was increasing the Fund's exposure to the
wireless sector.
We added several new holdings in the gas utility sector. We believe these stocks
offer the potential for strong total returns, given their current valuations and
secondary share offerings, which increased the companies' liquidity and reduced
the risk of further secondary offerings in the near term. On the electric
utility side, we added two positions in the United States, PG&E Corporation and
Aquila Inc., as the outlook for these companies was improving and, in our view,
was not fully reflected in their share prices. We increased our exposure to the
water sector with the addition of relatively small positions in two French-based
companies, Veolia Environment and Suez SA.
On the sell side, we reduced a number of holdings that had reached our price
targets, using the proceeds to fund our purchases of other stocks that we
believed were more attractive.
4 MERRILL LYNCH UTILITIES AND TELECOMMUNICATIONS FUND, INC. NOVEMBER 30, 2004
How would you characterize the Fund's position at the close of the period?
The Fund remains well diversified across the various utility sectors and
geographic regions. The United States is still the dominant market for this
sector, but Spain, Germany, the United Kingdom and Italy are also important
markets. In fact, as of November 30, 2004, nearly 21% of the Fund's net assets
was invested in Europe and the United Kingdom. Canada also remains an attractive
market, particularly on the telecommunications side. The level of
diversification reduces industry-specific risk, such as regulation, and
macroeconomic risk, such as interest rate movement.
The Fund's sector weightings continue to be driven by our outlook for valuations
and fundamentals on a stock-by-stock basis. The U.S. electric utility sector
remains the portfolio's largest investment allocation, given the number of
companies listed within the sector and their relative market-capitalization
weighting. Telecommunication services companies are more globally diversified
and, for the most part, have large market capitalizations. However, the number
of listed companies in telecommunications is smaller than that of the electric
sector. These two factors also have an impact on the composition of the
portfolio.
The Fund continues to seek capital appreciation and total return. The more
recent theme within the utility sector, both in the United States and in Europe,
is focused on returning cash to shareholders. This is being accomplished mainly
through increases in dividends. In some cases, companies have the financial
flexibility to increase dividends as well as buy back their shares. Fundamentals
also are improving, particularly for electric utility stocks. Balance sheets are
in good shape, demand for electricity continues to grow and the regulatory
environment has remained constructive. Thus, we have seen some significant price
appreciation in several of our holdings, including TXU Corp. and Exelon Corp.
Within the telecommunications segment of the portfolio, there is more of a mixed
picture, as several companies need to continue spending for next-generation
technology (particularly on the wireless side) and, therefore, must take this
into account when deciding on the level of dividend growth. Overall, the theme
of returning cash to shareholders and creating shareholder value is one that is
expected to continue. Many companies in the utility sector have made mistakes in
the past on new investments and acquisitions in non-core businesses, but it
seems the industry has moved past that for the time being.
We believe the Fund is appropriately positioned for the current environment,
balancing stocks that should show better-than-average price appreciation within
their industries as a result of improving fundamentals, and stocks that have
dividend yields above the group average and offer modest growth.
We thank you for your continued investment and look forward to discussing the
Fund's results in future reports to shareholders.
Kathleen M. Anderson
Vice President and Portfolio Manager
December 15, 2004
MERRILL LYNCH UTILITIES AND TELECOMMUNICATIONS FUND, INC. NOVEMBER 30, 2004 5
[LOGO] Merrill Lynch Investment Managers
Performance Data
About Fund Performance
Investors are able to purchase shares of the Fund through multiple pricing
alternatives:
o Class A Shares incur a maximum initial sales charge (front-end load) of 4%
and an account maintenance fee of 0.25% per year (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% per year and an account
maintenance fee of 0.25% per year. 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% per year and an
account maintenance fee of 0.25% per year. 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. Current performance may be lower or higher than the performance
data quoted. Refer to www.mlim.ml.com to obtain performance data current to the
most recent month-end. 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 gain distributions, if any, 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
6-Month 12-Month 10-Year
As of November 30, 2004 Total Return Total Return Total Return
====================================================================================================================
ML Utilities and Telecommunications Fund, Inc. Class A Shares* +18.70% +28.82% +144.77%
- --------------------------------------------------------------------------------------------------------------------
ML Utilities and Telecommunications Fund, Inc. Class B Shares* +18.44 +28.30 +132.41
- --------------------------------------------------------------------------------------------------------------------
ML Utilities and Telecommunications Fund, Inc. Class C Shares* +18.37 +28.03 +131.91
- --------------------------------------------------------------------------------------------------------------------
ML Utilities and Telecommunications Fund, Inc. Class I Shares* +18.87 +29.16 +150.99
- --------------------------------------------------------------------------------------------------------------------
S&P 500(R) Index** + 5.68 +12.86 +206.78
- --------------------------------------------------------------------------------------------------------------------
S&P Utilities Index*** +18.46 +29.21 +114.69
- --------------------------------------------------------------------------------------------------------------------
* 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 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.
*** 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.
S&P 500 is a registered trademark of the McGraw-Hill Companies.
6 MERRILL LYNCH UTILITIES AND TELECOMMUNICATIONS FUND, INC. NOVEMBER 30, 2004
Performance Data (continued)
Total Return Based on a $10,000 Investment--Class A & Class B Shares.
A line graph depicting the growth of an investment in the Fund's Class A & Class
B Shares compared to growth of an investment in the S&P Utilities Index and S&P
500 Index. Values are from November 1994 to November 2004.
11/94 11/95 11/96 11/97 11/98
ML Utilities and
Telecommunications
Fund, Inc.+--Class A Shares* $ 9,600 $11,156 $13,102 $15,637 $19,717
ML Utilities and
Telecommunications
Fund, Inc.+--Class B Shares* $10,000 $11,538 $13,508 $16,043 $20,118
11/99 11/00 11/01 11/02 11/03 11/04
ML Utilities and
Telecommunications
Fund, Inc.+--Class A Shares* $21,288 $22,292 $19,914 $15,965 $18,242 $23,498
ML Utilities and
Telecommunications
Fund, Inc.+--Class B Shares* $21,609 $22,528 $19,994 $15,964 $18,114 $23,241
11/94 11/95 11/96 11/97 11/98
S&P 500 Index ++ $10,000 $13,698 $17,515 $22,509 $27,835
11/99 11/00 11/01 11/02 11/03 11/04
S&P 500 Index ++ $33,651 $32,231 $28,291 $23,619 $27,183 $30,678
11/94 11/95 11/96 11/97 11/98
S&P Utilities Index +++ $10,000 $12,619 $14,204 $16,352 $19,600
11/99 11/00 11/01 11/02 11/03 11/04
S&P Utilities Index +++ $18,166 $26,355 $19,549 $13,494 $16,615 $21,469
* 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.
++ 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.
+++ 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.
Average Annual Total Return
Return Without Return With
Sales Charge Sales Charge**
================================================================================
Class A Shares*
================================================================================
One Year Ended 11/30/04 +28.82% +23.66%
- --------------------------------------------------------------------------------
Five Years Ended 11/30/04 + 2.00 + 1.17
- --------------------------------------------------------------------------------
Ten Years Ended 11/30/04 + 9.36 + 8.92
- --------------------------------------------------------------------------------
* Maximum sales charge is 4%.
** Assuming maximum sales charge.
Return Return
Without CDSC With CDSC**
================================================================================
Class B Shares*
================================================================================
One Year Ended 11/30/04 +28.30% +24.30%
- --------------------------------------------------------------------------------
Five Years Ended 11/30/04 + 1.47 + 1.26
- --------------------------------------------------------------------------------
Ten Years Ended 11/30/04 + 8.80 + 8.80
- --------------------------------------------------------------------------------
* Maximum contingent deferred sales charge is 4% and is reduced to 0% after
six years.
** Assuming payment of applicable contingent deferred sales charge.
MERRILL LYNCH UTILITIES AND TELECOMMUNICATIONS FUND, INC. NOVEMBER 30, 2004 7
[LOGO] Merrill Lynch Investment Managers
Performance Data (concluded)
Total Return Based on a $10,000 Investment--Class C & Class I Shares.
A line graph depicting the growth of an investment in the Fund's Class C & Class
I Shares compared to growth of an investment in the S&P Utilities Index and S&P
500 Index. Values are from November 1994 to November 2004.
11/94 11/95 11/96 11/97 11/98
ML Utilities and
Telecommunications
Fund, Inc.+--Class C Shares* $10,000 $11,538 $13,503 $16,022 $20,083
ML Utilities and
Telecommunications
Fund, Inc.+--Class I Shares* $96,000 $11,169 $13,173 $15,761 $19,933
S&P 500 Index ++ $10,000 $13,698 $17,515 $22,509 $27,835
S&P Utilities Index +++ $10,000 $12,619 $14,204 $16,352 $19,600
11/99 11/00 11/01 11/02 11/03 11/04
ML Utilities and
Telecommunications
Fund, Inc.+--Class C Shares* $21,556 $22,528 $19,996 $15,942 $18,113 $23,191
ML Utilities and
Telecommunications
Fund, Inc.+--Class I Shares* $21,562 $22,655 $20,266 $16,286 $18,655 $24,095
S&P 500 Index ++ $33,651 $32,231 $28,291 $23,619 $27,183 $30,678
S&P Utilities Index +++ $18,166 $26,355 $19,549 $13,494 $16,615 $21,469
* 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.
++ 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.
+++ 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.
Average Annual Total Return
Return Return
Without CDSC With CDSC**
================================================================================
Class C Shares*
================================================================================
One Year Ended 11/30/04 +28.03% +27.03%
- --------------------------------------------------------------------------------
Five Years Ended 11/30/04 + 1.47 + 1.47
- --------------------------------------------------------------------------------
Ten Years Ended 11/30/04 + 8.78 + 8.78
- --------------------------------------------------------------------------------
* Maximum contingent deferred sales charge is 1% and is reduced to 0% after
one year.
** Assuming payment of applicable contingent deferred sales charge.
Return Without Return With
Sales Charge Sales Charge**
================================================================================
Class I Shares*
================================================================================
One Year Ended 11/30/04 +29.16% +24.00%
- --------------------------------------------------------------------------------
Five Years Ended 11/30/04 + 2.25 + 1.42
- --------------------------------------------------------------------------------
Ten Years Ended 11/30/04 + 9.64 + 9.19
- --------------------------------------------------------------------------------
* Maximum sales charge is 4%.
** Assuming maximum sales charge.
8 MERRILL LYNCH UTILITIES AND TELECOMMUNICATIONS FUND, INC. NOVEMBER 30, 2004
Disclosure of Expenses
Shareholders of this Fund may incur the following charges: (a) expenses related
to transactions, including sales charges, redemption fees and exchange fees; and
(b) operating expenses including advisory fees, distribution fees including
12(b)-1 fees, and other Fund expenses. The following example (which is based on
a hypothetical investment of $1,000 invested on June 1, 2004 and held through
November 30, 2004) is intended to assist shareholders both in calculating
expenses based on an investment in the Fund and in comparing these expenses with
similar costs of investing in other mutual funds:
The first table below provides information about actual account values and
actual expenses. In order to estimate the expenses a shareholder paid during the
period covered by this report, shareholders can divide their account value by
$1,000 and then multiply the result by the number in the first line under the
heading entitled "Expenses Paid During the Period."
The second table below provides information about hypothetical account values
and hypothetical expenses based on the Fund's actual expense ratio and an
assumed rate of return of 5% per year before expenses. In order to assist
shareholders in comparing the ongoing expenses of investing in this Fund and
other funds, compare the 5% hypothetical example with the 5% hypothetical
examples that appear in other funds' shareholder reports.
The expenses shown in the table are intended to highlight shareholders ongoing
costs only and do not reflect any transactional expenses, such as sales charges,
redemption fees or exchange fees. Therefore, the second table is useful in
comparing ongoing expenses only, and will not help shareholders determine the
relative total expenses of owning different funds. If these transactional
expenses were included, shareholder expenses would have been higher.
Expenses Paid
Beginning Ending During the Period*
Account Value Account Value June 1, 2004 to
June 1, 2004 November 30, 2004 November 30, 2004
=========================================================================================================
Actual
=========================================================================================================
Class A $1,000 $1,187.00 $ 7.02
- ---------------------------------------------------------------------------------------------------------
Class B $1,000 $1,184.40 $ 9.96
- ---------------------------------------------------------------------------------------------------------
Class C $1,000 $1,183.70 $10.18
- ---------------------------------------------------------------------------------------------------------
Class I $1,000 $1,188.70 $ 5.63
=========================================================================================================
Hypothetical (5% annual return before expenses)**
=========================================================================================================
Class A $1,000 $1,019.06 $ 6.48
- ---------------------------------------------------------------------------------------------------------
Class B $1,000 $1,016.36 $ 9.20
- ---------------------------------------------------------------------------------------------------------
Class C $1,000 $1,016.15 $ 9.40
- ---------------------------------------------------------------------------------------------------------
Class I $1,000 $1,020.33 $ 5.20
- ---------------------------------------------------------------------------------------------------------
* For each class of the Fund, expenses are equal to the annualized expense
ratio for the class (1.26% for Class A, 1.79% for Class B, 1.83% for Class
C and 1.01% for Class I), multiplied by the average account value over the
period, multiplied by 186/365 (to reflect the one-half year period shown).
** Hypothetical 5% annual return before expenses is calculated by pro-rating
the number of days in the most recent fiscal half-year divided by 365.
MERRILL LYNCH UTILITIES AND TELECOMMUNICATIONS FUND, INC. NOVEMBER 30, 2004 9
[LOGO] Merrill Lynch Investment Managers
Schedule of Investments
Value
Country Industry* Shares Held Common Stocks (in U.S. dollars)
===================================================================================================================================
Belgium--0.7% Wireless Telecommunication 11,100 +Mobistar SA $ 929,405
Services--0.7%
--------------------------------------------------------------------------------------------------------------
Total Common Stocks in Belgium 929,405
===================================================================================================================================
Brazil--0.9% Electric Utilities--0.9% 70,000 +CPFL Energia SA (ADR) (a) 1,256,500
--------------------------------------------------------------------------------------------------------------
Total Common Stocks in Brazil 1,256,500
===================================================================================================================================
Canada--5.7% Diversified Telecommunication 156,900 BCE Inc. 3,804,825
Services--3.7% 50,500 BCT.Telus Communications Inc. 1,382,427
224 BCT.Telus Communications Inc. (A Shares) 5,733
------------
5,192,985
--------------------------------------------------------------------------------------------------------------
Oil & Gas--1.7% 22,300 EnCana Corp. 1,271,553
42,000 Talisman Energy Inc. 1,183,560
------------
2,455,113
--------------------------------------------------------------------------------------------------------------
Wireless Telecommunication 43,500 Stratos Global Corporation 400,593
Services--0.3%
--------------------------------------------------------------------------------------------------------------
Total Common Stocks in Canada 8,048,691
===================================================================================================================================
France--0.9% Diversified Telecommunication 2,700 France Telecom SA 84,795
Services--0.1%
--------------------------------------------------------------------------------------------------------------
Multi-Utilities & Unregulated 31,000 Suez SA 728,838
Power--0.8% 14,200 Veolia Environment 447,845
------------
1,176,683
--------------------------------------------------------------------------------------------------------------
Total Common Stocks in France 1,261,478
===================================================================================================================================
Germany--4.4% Diversified Telecommunication 150,000 +Deutsche Telekom AG (Registered Shares) 3,185,733
Services--2.3%
--------------------------------------------------------------------------------------------------------------
Electric Utilities--1.8% 29,700 E.On AG 2,499,812
--------------------------------------------------------------------------------------------------------------
Multi-Utilities & Unregulated 9,000 RWE AG 478,338
Power--0.3%
--------------------------------------------------------------------------------------------------------------
Total Common Stocks in Germany 6,163,883
===================================================================================================================================
Hong Kong--0.2% Electric Utilities--0.2% 620,000 +China Resources Power Holdings Company Limited 346,839
--------------------------------------------------------------------------------------------------------------
Total Common Stocks in Hong Kong 346,839
===================================================================================================================================
Italy--2.9% Diversified Telecommunication 327,776 Telecom Italia SpA 1,256,795
Services--1.9% 494,800 Telecom Italia SpA--RNC 1,365,207
------------
2,622,002
--------------------------------------------------------------------------------------------------------------
Electric Utilities--1.0% 166,600 Enel SpA 1,483,070
--------------------------------------------------------------------------------------------------------------
Total Common Stocks in Italy 4,105,072
===================================================================================================================================
Japan--0.5% Wireless Telecommunication 400 NTT DoCoMo, Inc. 696,532
Services--0.5%
--------------------------------------------------------------------------------------------------------------
Total Common Stocks in Japan 696,532
===================================================================================================================================
Mexico--1.5% Diversified Telecommunication 35,000 Telefonos de Mexico SA 'L' (ADR) (a) 1,225,350
Services--0.9%
--------------------------------------------------------------------------------------------------------------
Wireless Telecommunication 17,700 America Movil, SA de CV 'L' (ADR) (a) 826,767
Services--0.6%
--------------------------------------------------------------------------------------------------------------
Total Common Stocks in Mexico 2,052,117
===================================================================================================================================
Portugal--0.5% Diversified Telecommunication 61,800 Portugal Telecom SA (Registered Shares) 731,004
Services--0.5%
--------------------------------------------------------------------------------------------------------------
Total Common Stocks in Portugal 731,004
===================================================================================================================================
10 MERRILL LYNCH UTILITIES AND TELECOMMUNICATIONS FUND, INC. NOVEMBER 30, 2004
Schedule of Investments (continued)
Value
Country Industry* Shares Held Common Stocks (in U.S. dollars)
===================================================================================================================================
Spain--5.6% Diversified Telecommunication 192,200 Telefonica SA $ 3,376,962
Services--2.4%
--------------------------------------------------------------------------------------------------------------
Electric Utilities--3.2% 67,900 Endesa SA 1,461,929
128,200 Iberdrola SA 3,012,393
------------
4,474,322
--------------------------------------------------------------------------------------------------------------
Total Common Stocks in Spain 7,851,284
===================================================================================================================================
United Kingdom-- Electric Utilities--2.2% 70,800 Scottish and Southern Energy PLC 1,113,801
5.1% 264,600 ScottishPower PLC 1,954,852
------------
3,068,653
--------------------------------------------------------------------------------------------------------------
Gas Utilities--0.3% 81,000 Centrica PLC 383,595
--------------------------------------------------------------------------------------------------------------
Multi-Utilities & Unregulated 113,775 National Grid Group PLC 1,041,191
Power--0.7%
--------------------------------------------------------------------------------------------------------------
Wireless Telecommunication 97,900 Vodafone Group PLC (ADR) (a) 2,669,733
Services--1.9%
--------------------------------------------------------------------------------------------------------------
Total Common Stocks in the United Kingdom 7,163,172
===================================================================================================================================
United States-- Diversified Telecommunication 46,900 ALLTEL Corporation 2,658,761
66.9% Services--13.8% 139,900 BellSouth Corporation 3,752,118
29,400 CenturyTel, Inc. 967,848
50,900 Citizens Communications Company 727,870
144,900 SBC Communications Inc. 3,647,133
96,500 Sprint Corporation 2,201,165
133,900 Verizon Communications 5,520,697
------------
19,475,592
--------------------------------------------------------------------------------------------------------------
Electric Utilities--29.3% 26,700 Ameren Corporation 1,292,814
52,700 American Electric Power Company, Inc. 1,800,759
50,662 Cinergy Corp. 2,096,900
69,200 Cleco Corporation 1,370,160
16,700 DTE Energy Company 732,796
67,100 Edison International 2,140,490
52,800 Entergy Corporation 3,422,496
106,000 Exelon Corporation 4,421,260
16,400 FPL Group, Inc. 1,153,412
70,500 FirstEnergy Corp. 2,977,215
56,700 NSTAR 2,871,855
12,100 OGE Energy Corp. 312,785
32,000 +PG&E Corporation 1,064,320
68,600 PPL Corporation 3,563,770
31,800 Pinnacle West Capital Corporation 1,405,560
28,900 Progress Energy, Inc. 1,268,999
72,000 The Southern Company 2,360,880
97,500 TXU Corporation 6,124,950
28,600 Wisconsin Energy Corporation 951,522
------------
41,332,943
--------------------------------------------------------------------------------------------------------------
Gas Utilities--5.3% 33,100 AGL Resources Inc. 1,098,589
63,300 KeySpan Corporation 2,501,616
60,400 New Jersey Resources Corporation 2,627,400
19,900 NiSource Inc. 433,621
21,000 UGI Corporation 852,180
------------
7,513,406
--------------------------------------------------------------------------------------------------------------
Media--0.6% 39,200 +Cablevision Systems Corporation (Class A) 836,920
--------------------------------------------------------------------------------------------------------------
Metals & Mining--1.3% 21,300 Peabody Energy Corporation 1,767,900
--------------------------------------------------------------------------------------------------------------
MERRILL LYNCH UTILITIES AND TELECOMMUNICATIONS FUND, INC. NOVEMBER 30, 2004 11
[LOGO] Merrill Lynch Investment Managers
Schedule of Investments (concluded)
Value
Country Industry* Shares Held Common Stocks (in U.S. dollars)
===================================================================================================================================
United States Multi-Utilities & Unregulated 66,300 Constellation Energy Group $ 2,897,310
(concluded) Power--12.3% 66,837 Dominion Resources, Inc. 4,375,818
15,800 Energy East Corporation 397,686
17,100 Equitable Resources, Inc. 1,017,450
27,100 National Fuel Gas Company 764,220
32,000 ONEOK, Inc. 893,440
31,000 Ormat Technologies Inc. 528,550
64,700 Public Service Enterprise Group Incorporated 2,846,153
24,300 Questar Corporation 1,234,683
41,400 SCANA Corporation 1,586,448
19,500 Sempra Energy 721,110
------------
17,262,868
--------------------------------------------------------------------------------------------------------------
Oil & Gas--3.3% 13,800 Devon Energy Corporation 571,596
44,400 EOG Resources, Inc. 3,333,108
11,000 Kinder Morgan, Inc. 762,300
------------
4,667,004
--------------------------------------------------------------------------------------------------------------
Wireless Telecommunication 30,000 +Nextel Communications, Inc. (Class A) 853,800
Services--1.0% 18,700 +Western Wireless Corporation (Class A) 504,900
------------
1,358,700
--------------------------------------------------------------------------------------------------------------
Total Common Stocks in the United States 94,215,333
==============================================================================================================
Total Investments in Common Stocks
(Cost--$94,807,744)--95.8% 134,821,310
==============================================================================================================
Face Amount Trust Preferred
===================================================================================================================================
Electric Utilities--0.7% $1,092,450 AES Trust III, 6.75% due 10/15/2029 1,019,815
--------------------------------------------------------------------------------------------------------------
Total Investments in Trust Preferred
(Cost--$659,100)--0.7% 1,019,815
==============================================================================================================
Beneficial Interest Short-Term Securities
===================================================================================================================================
$4,546,952 Merrill Lynch Liquidity Series, LLC Cash Sweep
Series I (b) 4,546,952
--------------------------------------------------------------------------------------------------------------
Total Investments in Short-Term Securities
(Cost--$4,546,952)--3.2% 4,546,952
===================================================================================================================================
Total Investments (Cost--$100,013,796**)--99.7% 140,388,077
Other Assets Less Liabilities--0.3% 408,293
------------
Net Assets--100.0% $140,796,370
============
* 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.
** The cost and unrealized appreciation/depreciation of investments as of
November 30, 2004, as computed for federal income tax purposes, were as
follows:
-------------------------------------------------------------------------
Aggregate cost .............................. $ 100,125,384
=============
Gross unrealized appreciation ............... $ 40,628,973
Gross unrealized depreciation ............... (366,280)
-------------
Net unrealized appreciation ................. $ 40,262,693
=============
+ Non-income producing security.
(a) American Depositary Receipts (ADR).
(b) 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) were as follows:
--------------------------------------------------------------------------
Interest/
Net Dividend
Affiliate Activity Income
--------------------------------------------------------------------------
Merrill Lynch Liquidity Series, LLC
Cash Sweep Series I $ (594,103) $ 49,377
Merrill Lynch Liquidity Series, LLC
Money Market Series $(10,479,376) $ 2,652
Merrill Lynch Premier Institutional Fund (4,007,912) $ 854
--------------------------------------------------------------------------
See Notes to Financial Statements.
12 MERRILL LYNCH UTILITIES AND TELECOMMUNICATIONS FUND, INC. NOVEMBER 30, 2004
Statement of Assets and Liabilities
As of November 30, 2004
=============================================================================================================================
Assets
- -----------------------------------------------------------------------------------------------------------------------------
Investments in unaffiliated securities, at value (identified
cost--$95,466,844) ............................................... $ 135,841,125
Investments in affiliated securities, at value (identified
cost--$4,546,952) ................................................ 4,546,952
Foreign cash (cost--$29,406) ...................................... 30,202
Receivables:
Securities sold ................................................ $ 414,711
Dividends ...................................................... 315,372
Capital shares sold ............................................ 47,201
Interest (including $9,083 from affiliates) .................... 19,503 796,787
-------------
Prepaid expenses .................................................. 22,201
-------------
Total assets ...................................................... 141,237,267
-------------
=============================================================================================================================
Liabilities
- -----------------------------------------------------------------------------------------------------------------------------
Payables:
Capital shares redeemed ........................................ 299,524
Distributor .................................................... 44,942
Other affiliates ............................................... 38,814
Investment adviser ............................................. 9,348 392,628
-------------
Accrued expenses and other liabilities ............................ 48,269
-------------
Total liabilities ................................................. 440,897
-------------
=============================================================================================================================
Net Assets
- -----------------------------------------------------------------------------------------------------------------------------
Net assets ........................................................ $ 140,796,370
=============
=============================================================================================================================
Net Assets Consist of
- -----------------------------------------------------------------------------------------------------------------------------
Class A Shares of Common Stock, $.10 par value, 100,000,000
shares authorized ................................................ $ 706,062
Class B Shares of Common Stock, $.10 par value, 100,000,000
shares authorized ................................................ 308,689
Class C Shares of Common Stock, $.10 par value, 100,000,000
shares authorized ................................................ 116,046
Class I Shares of Common Stock, $.10 par value, 100,000,000
shares authorized ................................................ 228,234
Paid-in capital in excess of par .................................. 135,884,730
Undistributed investment income--net .............................. $ 470,313
Accumulated realized capital losses --net ......................... (37,294,458)
Unrealized appreciation--net ...................................... 40,376,754
-------------
Total accumulated earnings--net ................................... 3,552,609
-------------
Net Assets ........................................................ $ 140,796,370
=============
=============================================================================================================================
Net Asset Value
- -----------------------------------------------------------------------------------------------------------------------------
Class A--Based on net assets of $73,286,037 and 7,060,623
shares outstanding ............................................... $ 10.38
=============
Class B--Based on net assets of $31,935,495 and 3,086,891
shares outstanding ............................................... $ 10.35
=============
Class C--Based on net assets of $11,897,604 and 1,160,465
shares outstanding ............................................... $ 10.25
=============
Class I--Based on net assets of $23,677,234 and 2,282,342
shares outstanding ............................................... $ 10.37
=============
See Notes to Financial Statements.
MERRILL LYNCH UTILITIES AND TELECOMMUNICATIONS FUND, INC. NOVEMBER 30, 2004 13
[LOGO] Merrill Lynch Investment Managers
Statement of Operations
For the Year Ended November 30, 2004
=============================================================================================================================
Investment Income
- -----------------------------------------------------------------------------------------------------------------------------
Dividends (net of $151,018 foreign withholding tax) ............... $ 4,461,416
Interest (including $49,377 from affiliates) ...................... 126,397
Securities lending ................................................ 3,506
-------------
Total income ...................................................... 4,591,319
-------------
=============================================================================================================================
Expenses
- -----------------------------------------------------------------------------------------------------------------------------
Investment advisory fees .......................................... $ 810,552
Account maintenance and distribution fees--Class B ................ 255,406
Account maintenance fees--Class A ................................. 168,777
Transfer agent fees--Class A ...................................... 110,020
Accounting services ............................................... 93,606
Account maintenance and distribution fees--Class C ................ 88,442
Transfer agent fees--Class B ...................................... 66,568
Professional fees ................................................. 59,711
Printing and shareholder reports .................................. 46,821
Directors' fees and expenses ...................................... 45,560
Registration fees ................................................. 40,877
Transfer agent fees--Class I ...................................... 36,727
Custodian fees .................................................... 32,375
Transfer agent fees--Class C ...................................... 21,219
Pricing fees ...................................................... 4,344
Other ............................................................. 37,217
-------------
Total expenses .................................................... 1,918,222
-------------
Investment income--net ............................................ 2,673,097
-------------
=============================================================================================================================
Realized & Unrealized Gain (Loss)--Net
- -----------------------------------------------------------------------------------------------------------------------------
Realized gain (loss) on:
Investments--net ............................................... 6,242,898
Foreign currency transactions--net ............................. (13,897) 6,229,001
-------------
Change in unrealized appreciation on:
Investments--net ............................................... 25,269,282
Foreign currency transactions--net ............................. (2,715) 25,266,567
-------------------------------
Total realized and unrealized gain--net ........................... 31,495,568
-------------
Net Increase in Net Assets Resulting from Operations .............. $ 34,168,665
=============
See Notes to Financial Statements.
14 MERRILL LYNCH UTILITIES AND TELECOMMUNICATIONS FUND, INC. NOVEMBER 30, 2004
Statements of Changes in Net Assets
For the Year Ended
November 30,
-------------------------------
Increase (Decrease) in Net Assets: 2004 2003
=============================================================================================================================
Operations
- -----------------------------------------------------------------------------------------------------------------------------
Investment income--net ............................................ $ 2,673,097 $ 3,086,211
Realized gain (loss)--net ......................................... 6,229,001 (2,026,003)
Change in unrealized appreciation--net ............................ 25,266,567 16,276,582
-------------------------------
Net increase in net assets resulting from operations .............. 34,168,665 17,336,790
-------------------------------
=============================================================================================================================
Dividends to Shareholders
- -----------------------------------------------------------------------------------------------------------------------------
Investment income--net:
Class A ........................................................ (1,400,106) (1,089,101)
Class B ........................................................ (493,529) (1,305,449)
Class C ........................................................ (164,643) (222,843)
Class I ........................................................ (520,382) (622,798)
-------------------------------
Net decrease in net assets resulting from dividends to shareholders (2,578,660) (3,240,191)
-------------------------------
=============================================================================================================================
Capital Share Transactions
- -----------------------------------------------------------------------------------------------------------------------------
Net decrease in net assets derived from capital share transactions (25,760,427) (18,877,279)
=============================================================================================================================
Net Assets
- -----------------------------------------------------------------------------------------------------------------------------
Total increase (decrease) in net assets ........................... 5,829,578 (4,780,680)
Beginning of year ................................................. 134,966,792 139,747,472
-------------------------------
End of year* ...................................................... $ 140,796,370 $ 134,966,792
===============================
* Undistributed investment income--net ......................... $ 470,313 $ 389,773
===============================
See Notes to Financial Statements.
MERRILL LYNCH UTILITIES AND TELECOMMUNICATIONS FUND, INC. NOVEMBER 30, 2004 15
[LOGO] Merrill Lynch Investment Managers
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: 2004 2003 2002 2001 2000
===================================================================================================================================
Per Share Operating Performance
- -----------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of year ..... $ 8.23 $ 7.40 $ 9.67 $ 11.81 $ 19.17
----------------------------------------------------------------------
Investment income--net** ............... .20 .19 .26 .32 .39
Realized and unrealized gain (loss)--net 2.14 .85 (2.14) (1.46) .68
----------------------------------------------------------------------
Total from investment operations ....... 2.34 1.04 (1.88) (1.14) 1.07
----------------------------------------------------------------------
Less dividends and distributions:
Investment income--net .............. (.19) (.21) (.28) (.33) (.41)
Realized gain--net .................. -- -- (.11) (.67) (7.80)
In excess of realized gain--net ..... -- -- -- -- (.22)
----------------------------------------------------------------------
Total dividends and distributions ...... (.19) (.21) (.39) (1.00) (8.43)
----------------------------------------------------------------------
Net asset value, end of year ........... $ 10.38 $ 8.23 $ 7.40 $ 9.67 $ 11.81
======================================================================
===================================================================================================================================
Total Investment Return*
- -----------------------------------------------------------------------------------------------------------------------------------
Based on net asset value per share ..... 28.82% 14.26% (19.83%) (10.67%) 4.72%
======================================================================
===================================================================================================================================
Ratios to Average Net Assets
- -----------------------------------------------------------------------------------------------------------------------------------
Expenses ............................... 1.28% 1.33% 1.26% 1.11% 1.08%
======================================================================
Investment income--net ................. 2.11% 2.42% 3.13% 2.86% 2.34%
======================================================================
===================================================================================================================================
Supplemental Data
- -----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of year (in thousands) . $ 73,286 $ 60,142 $ 34,038 $ 36,794 $ 18,383
======================================================================
Portfolio turnover ..................... 10.89% 21.20% 31.16% 45.66% 51.79%
======================================================================
* 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, 2004
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: 2004 2003 2002 2001 2000
===================================================================================================================================
Per Share Operating Performance
- -----------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of year ..... $ 8.19 $ 7.37 $ 9.61 $ 11.75 $ 19.10
----------------------------------------------------------------------
Investment income--net** ............... .14 .16 .22 .26 .31
Realized and unrealized gain (loss)--net 2.16 .82 (2.13) (1.47) .67
----------------------------------------------------------------------
Total from investment operations ....... 2.30 .98 (1.91) (1.21) .98
----------------------------------------------------------------------
Less dividends and distributions:
Investment income--net .............. (.14) (.16) (.22) (.26) (.31)
Realized gain--net .................. -- -- (.11) (.67) (7.80)
In excess of realized gain--net ..... -- -- -- -- (.22)
----------------------------------------------------------------------
Total dividends and distributions ...... (.14) (.16) (.33) (.93) (8.33)
----------------------------------------------------------------------
Net asset value, end of year ........... $ 10.35 $ 8.19 $ 7.37 $ 9.61 $ 11.75
======================================================================
===================================================================================================================================
Total Investment Return*
- -----------------------------------------------------------------------------------------------------------------------------------
Based on net asset value per share ..... 28.30% 13.47% (20.16%) (11.25%) 4.25%
======================================================================
===================================================================================================================================
Ratios to Average Net Assets
- -----------------------------------------------------------------------------------------------------------------------------------
Expenses ............................... 1.81% 1.86% 1.77% 1.63% 1.59%
======================================================================
Investment income--net ................. 1.58% 2.08% 2.63% 2.40% 1.83%
======================================================================
===================================================================================================================================
Supplemental Data
- -----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of year (in thousands) . $ 31,935 $ 41,317 $ 74,822 $ 147,549 $ 246,279
======================================================================
Portfolio turnover ..................... 10.89% 21.20% 31.16% 45.66% 51.79%
======================================================================
* 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. NOVEMBER 30, 2004 17
[LOGO] Merrill Lynch Investment Managers
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: 2004 2003 2002 2001 2000
===================================================================================================================================
Per Share Operating Performance
- -----------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of year ..... $ 8.13 $ 7.31 $ 9.55 $ 11.68 $ 19.04
----------------------------------------------------------------------
Investment income--net** ............... .14 .15 .21 .25 .28
Realized and unrealized gain (loss)--net 2.12 .83 (2.11) (1.45) .69
----------------------------------------------------------------------
Total from investment operations ....... 2.26 .98 (1.90) (1.20) .97
----------------------------------------------------------------------
Less dividends and distributions:
Investment income--net .............. (.14) (.16) (.23) (.26) (.31)
Realized gain--net .................. -- -- (.11) (.67) (7.80)
In excess of realized gain--net ..... -- -- -- -- (.22)
----------------------------------------------------------------------
Total dividends and distributions ...... (.14) (.16) (.34) (.93) (8.33)
----------------------------------------------------------------------
Net asset value, end of year ........... $ 10.25 $ 8.13 $ 7.31 $ 9.55 $ 11.68
======================================================================
===================================================================================================================================
Total Investment Return*
- -----------------------------------------------------------------------------------------------------------------------------------
Based on net asset value per share ..... 28.03% 13.62% (20.27%) (11.24%) 4.17%
======================================================================
===================================================================================================================================
Ratios to Average Net Assets
- -----------------------------------------------------------------------------------------------------------------------------------
Expenses ............................... 1.85% 1.91% 1.84% 1.69% 1.65%
======================================================================
Investment income--net ................. 1.53% 1.93% 2.55% 2.31% 1.75%
======================================================================
===================================================================================================================================
Supplemental Data
- -----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of year (in thousands) . $ 11,898 $ 10,994 $ 10,545 $ 10,194 $ 11,416
======================================================================
Portfolio turnover ..................... 10.89% 21.20% 31.16% 45.66% 51.79%
======================================================================
* Total investment returns exclude the effects of sales charges.
** Based on average shares outstanding.
See Notes to Financial Statements.
18 MERRILL LYNCH UTILITIES AND TELECOMMUNICATIONS FUND, INC. NOVEMBER 30, 2004
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: 2004 2003 2002 2001 2000
===================================================================================================================================
Per Share Operating Performance
- -----------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of year ..... $ 8.22 $ 7.39 $ 9.66 $ 11.81 $ 19.16
----------------------------------------------------------------------
Investment income--net** ............... .22 .21 .29 .34 .44
Realized and unrealized gain (loss) --net 2.14 .84 (2.15) (1.47) .68
----------------------------------------------------------------------
Total from investment operations ....... 2.36 1.05 (1.86) (1.13) 1.12
----------------------------------------------------------------------
Less dividends and distributions:
Investment income--net .............. (.21) (.22) (.30) (.35) (.45)
Realized gain--net .................. -- -- (.11) (.67) (7.80)
In excess of realized gain--net ..... -- -- -- -- (.22)
----------------------------------------------------------------------
Total dividends and distributions ...... (.21) (.22) (.41) (1.02) (8.47)
----------------------------------------------------------------------
Net asset value, end of year ........... $ 10.37 $ 8.22 $ 7.39 $ 9.66 $ 11.81
======================================================================
===================================================================================================================================
Total Investment Return*
- -----------------------------------------------------------------------------------------------------------------------------------
Based on net asset value per share ..... 29.16% 14.54% (19.64%) (10.54%) 5.07%
======================================================================
===================================================================================================================================
Ratios to Average Net Assets
- -----------------------------------------------------------------------------------------------------------------------------------
Expenses ............................... 1.03% 1.07% 1.00% .86% .83%
======================================================================
Investment income--net ................. 2.36% 2.77% 3.39% 3.15% 2.59%
======================================================================
===================================================================================================================================
Supplemental Data
- -----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of year (in thousands) . $ 23,677 $ 22,514 $ 20,342 $ 26,700 $ 32,698
======================================================================
Portfolio turnover ..................... 10.89% 21.20% 31.16% 45.66% 51.79%
======================================================================
* 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. NOVEMBER 30, 2004 19
[LOGO] Merrill Lynch Investment Managers
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 U.S. generally accepted accounting
principles, which may require the use of management accruals and estimates.
Actual results may differ from these 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
(except that Class B Shareholders may vote on certain changes to the Class A
distribution plan). 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 the
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.
20 MERRILL LYNCH UTILITIES AND TELECOMMUNICATIONS FUND, INC. NOVEMBER 30, 2004
Notes to Financial Statements (continued)
(b) Foreign currency transactions -- Transactions denominated in foreign
currencies are recorded at the exchange rate prevailing when recognized. Assets
and liabilities denominated in foreign currencies are valued at the exchange
rate at the end of the period. Foreign currency transactions are the result of
settling (realized) or valuing (unrealized) assets or liabilities expressed in
foreign currencies into U.S. dollars. Realized and unrealized gains or losses
from investments include the effects of foreign exchange rates on investments.
(c) Derivative financial instruments -- The Fund may engage in various portfolio
investment strategies both to increase the return of the Fund and to hedge, or
protect, its exposure to interest rate 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.
MERRILL LYNCH UTILITIES AND TELECOMMUNICATIONS FUND, INC. NOVEMBER 30, 2004 21
[LOGO] Merrill Lynch Investment Managers
Notes to Financial Statements (continued)
(h) Securities lending -- The Fund may lend securities to financial institutions
that provide cash or securities issued or guaranteed by the U.S. government as
collateral, which will be maintained at all times in an amount equal to at least
100% of the current market value of the loaned securities. The market value of
the loaned securities is determined at the close of business of the Fund and any
additional required collateral is delivered to the Fund on the next business
day. Where the Fund receives securities as collateral for the loaned securities,
it collects a fee from the borrower. The Fund typically receives the income on
the loaned securities but does not receive the income on the collateral. Where
the Fund receives cash collateral, it may invest such collateral and retain the
amount earned on such investment, net of any amount rebated to the borrower.
Loans of securities are terminable at any time and the borrower, after notice,
is required to return borrowed securities within five business days. The Fund
may pay reasonable finder's, lending agent, administrative and custodial fees in
connection with its loans. In the event that the borrower defaults on its
obligation to return borrowed securities because of insolvency or for any other
reason, the Fund could experience delays and costs in gaining access to the
collateral. The Fund also could suffer a loss where the value of the collateral
falls below the market value of the borrowed securities, in the event of
borrower default or in the event of losses on investments made with cash
collateral.
(i) Reclassification -- U.S. generally accepted accounting principles require
that certain components of net assets be adjusted to reflect permanent
differences between financial and tax reporting. Accordingly, during the current
year, $13,897 has been reclassified between undistributed net investment income
and accumulated realized net capital losses on investments as a result of
permanent differences attributable to foreign currency transactions. 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, 2004, 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 ............................ $ 1,904 $24,239
Class I ............................ $ 11 $ 233
- --------------------------------------------------------------------------------
For the year ended November 30, 2004, MLPF&S received contingent deferred sales
charges of $31,362 and $1,761, relating to transactions in Class B Shares and
Class C Shares, respectively.
22 MERRILL LYNCH UTILITIES AND TELECOMMUNICATIONS FUND, INC. NOVEMBER 30, 2004
Notes to Financial Statements (continued)
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 Managers, LLC ("MLIM, LLC"), an affiliate of MLIM, as the securities
lending agent for a fee based on a share of the returns on investment of cash
collateral. MLIM, LLC may, on behalf of the Fund, invest cash collateral
received by the Fund for such loans, among other things, in a private investment
company managed by MLIM, LLC or in registered money market funds advised by MLIM
or its affiliates. For the year ended November 30, 2004, MLIM, LLC received
$1,506 in securities lending agent fees.
In addition, MLPF&S received $9,324 in commissions on the execution of portfolio
security transactions for the Fund for the year ended November 30, 2004.
For the year ended November 30, 2004 the Fund reimbursed MLIM $2,770 for certain
accounting services.
Financial Data Services, Inc. ("FDS"), a wholly-owned subsidiary of ML & Co., is
the Fund's transfer agent.
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, 2004 were $14,210,733 and $39,589,939, respectively.
4. Capital Share Transactions:
Net decrease in net assets derived from capital share transactions was
$25,760,427 and $18,877,279 for the years ended November 30, 2004 and November
30, 2003, respectively.
Transactions in capital shares for each class were as follows:
- --------------------------------------------------------------------------------
Class A Shares for the Year Dollar
Ended November 30, 2004 Shares Amount
- --------------------------------------------------------------------------------
Shares sold ............................ 282,359 $ 2,555,395
Automatic conversion of shares ......... 1,250,628 11,120,589
Shares issued to shareholders
in reinvestment of dividends ........ 120,893 1,091,475
------------------------------
Total issued ........................... 1,653,880 14,767,459
Shares redeemed ........................ (1,904,582) (17,277,664)
------------------------------
Net decrease ........................... (250,702) $ (2,510,205)
==============================
- --------------------------------------------------------------------------------
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
==============================
- --------------------------------------------------------------------------------
Class B Shares for the Year Dollar
Ended November 30, 2004 Shares Amount
- --------------------------------------------------------------------------------
Shares sold ............................ 304,248 $ 2,789,140
Shares issued to shareholders
in reinvestment of dividends ........ 40,756 365,876
------------------------------
Total issued ........................... 345,004 3,155,016
Automatic conversion of shares ......... (1,045,446) (11,120,589)
Shares redeemed ........................ (1,255,100) (9,438,326)
------------------------------
Net decrease ........................... (1,955,542) $(17,403,899)
==============================
- --------------------------------------------------------------------------------
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 C Shares for the Year Dollar
Ended November 30, 2004 Shares Amount
- --------------------------------------------------------------------------------
Shares sold ............................ 145,974 $ 1,325,472
Shares issued to shareholders
in reinvestment of dividends ........ 15,000 133,902
------------------------------
Total issued ........................... 160,974 1,459,374
Shares redeemed ........................ (353,438) (3,148,439)
------------------------------
Net decrease ........................... (192,464) $ (1,689,065)
==============================
- --------------------------------------------------------------------------------
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)
==============================
MERRILL LYNCH UTILITIES AND TELECOMMUNICATIONS FUND, INC. NOVEMBER 30, 2004 23
[LOGO] Merrill Lynch Investment Managers
Notes to Financial Statements (concluded)
- --------------------------------------------------------------------------------
Class I Shares for the Year Dollar
Ended November 30, 2004 Shares Amount
- --------------------------------------------------------------------------------
Shares sold ............................ 190,762 $ 1,705,184
Shares issued to shareholders
in reinvestment of dividends ........ 49,587 446,639
------------------------------
Total issued ........................... 240,349 2,151,823
Shares redeemed ........................ (696,696) (6,309,081)
------------------------------
Net decrease ........................... (456,347) $ (4,157,258)
==============================
- --------------------------------------------------------------------------------
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)
==============================
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 a group of 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 .07% 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 defined in the credit agreement.
The Fund did not borrow under the credit agreement during the year ended
November 30, 2004. On November 26, 2004, the credit agreement was renewed for
one year under substantially the same terms.
6. Distributions to Shareholders:
The Fund paid an ordinary income dividend in the amount of $.037018 per Class A
Share, $.027925 per Class B Share, $.027830 per Class C Share and $.041263 per
Class I Share on December 21, 2004 to shareholders of record on December 15,
2004.
The tax character of distributions paid during the fiscal years ended November
30, 2004 and November 30, 2003 was as follows:
- --------------------------------------------------------------------------------
11/30/2004 11/30/2003
- --------------------------------------------------------------------------------
Distributions paid from:
Ordinary income ....................... $2,578,660 $3,240,191
-----------------------------
Total taxable distributions .............. $2,578,660 $3,240,191
=============================
As of November 30, 2004, the components of accumulated earnings on a tax basis
were as follows:
- --------------------------------------------------------------------------------
Undistributed ordinary income--net ...................... $ 470,313
Undistributed long-term capital gains--net .............. --
------------
Total undistributed earnings--net ....................... 470,313
Capital loss carryforward ............................... (37,182,869)*
Unrealized gains--net ................................... 40,265,165**
------------
Total accumulated earnings--net ......................... $ 3,552,609
============
* On November 30, 2004, the Fund had a net capital loss carryforward of
$37,182,869 of which $34,674,004 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.
24 MERRILL LYNCH UTILITIES AND TELECOMMUNICATIONS FUND, INC. NOVEMBER 30, 2004
Report of Independent Registered Public Accounting Firm
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, 2004, 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 the standards of the Public Company
Accounting Oversight Board (United States). 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, 2004, 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,
2004, 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 U.S. generally accepted accounting principles.
Deloitte & Touche LLP
Princeton, New Jersey
January 7, 2005
MERRILL LYNCH UTILITIES AND TELECOMMUNICATIONS FUND, INC. NOVEMBER 30, 2004 25
[LOGO] Merrill Lynch Investment Managers
Officers and Directors
Number of
Portfolios in Other Public
Position(s) Length of Fund Complex Directorships
Held with Time Overseen by Held by
Name Address & Age 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 124 Funds None
Glenn* Princeton, NJ and present Investment Managers, L.P. ("MLIM")/Fund Asset 157 Portfolios
08543-9011 Director Management, L.P. ("FAM")-advised funds since
Age: 64 1999; Chairman (Americas Region) of MLIM from
2000 to 2002; Executive Vice President of MLIM
and FAM (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 MLIM
or FAM acts as investment adviser. Mr. Glenn is an "interested person," as described in the Investment Company Act, of
the Fund based on his present and former positions with MLIM, FAM, 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 Business, 48 Funds None
Forbes Princeton, NJ present State University of New York at Albany since 2000 48 Portfolios
08543-9095 and Professor thereof from 1989 to 2000; International
Age: 64 Consultant, Urban Institute, Washington, DC from
1995 to 1999.
- ------------------------------------------------------------------------------------------------------------------------------------
Cynthia A. P.O. Box 9095 Director 1994 to Professor, Harvard Business School since 1989; 48 Funds Newell
Montgomery Princeton, NJ present Associate Professor, J.L. Kellogg Graduate School 48 Portfolios Rubbermaid,
08543-9095 of Management, Northwestern University from Inc.
Age: 52 1985 to 1989; Associate Professor, Graduate
School of Business Administration, University of
Michigan from 1979 to 1985.
- ------------------------------------------------------------------------------------------------------------------------------------
Jean Margo P.O. Box 9095 Director 2004 to Self-employed consultant since 2001; Counsel of 48 Funds None
Reid Princeton, NJ present Alliance Capital Management (investment 48 Portfolios
08543-9095 adviser) in 2000; General Counsel, Director and
Age: 59 Secretary of Sanford C. Bernstein & Co., Inc.
(investment adviser/broker-dealer) from 1997 to
2000; Secretary, Sanford C. Bernstein Fund, Inc.
from 1994 to 2000; Director and Secretary of
SCB, Inc. since 1998; Director and Secretary of SCB
Partners, Inc. since 2000; Director of Covenant
House from 2001 to 2004.
- ------------------------------------------------------------------------------------------------------------------------------------
26 MERRILL LYNCH UTILITIES AND TELECOMMUNICATIONS FUND, INC. NOVEMBER 30, 2004
Officers and Directors (continued)
Number of
Portfolios in Other Public
Position(s) Length of Fund Complex Directorships
Held with Time Overseen by Held by
Name Address & Age Fund Served Principal Occupation(s) During Past 5 Years Director Director
====================================================================================================================================
Independent Directors* (concluded)
- ------------------------------------------------------------------------------------------------------------------------------------
Kevin A. P.O. Box 9095 Director 1992 to Founder and currently Director Emeritus of Boston 48 Funds None
Ryan Princeton, NJ present University Center for the Advancement of Ethics 48 Portfolios
08543-9095 and Character and Director thereof from 1989 to
Age: 72 1999; Professor from 1982 to 1999 and currently
Professor Emeritus of Education at Boston University;
formerly taught on the faculties of The University of
Chicago, Stanford University and Ohio State University.
- ------------------------------------------------------------------------------------------------------------------------------------
Roscoe S. P.O. Box 9095 Director 2000 to President, Middle East Institute from 1995 to 2001; 48 Funds None
Suddarth Princeton, NJ present Foreign Service Officer, United States Foreign 48 Portfolios
08543-9095 Service, from 1961 to 1995; Career Minister from
Age: 69 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.
- ------------------------------------------------------------------------------------------------------------------------------------
Richard R. P.O. Box 9095 Director 1990 to Professor of Finance from 1984 to 1995, Dean from 48 Funds Bowne & Co.,
West Princeton, NJ present 1984 to 1993 and currently Dean Emeritus of New 48 Portfolios Inc.; Vornado
08543-9095 York University Leonard N. Stern School of Business Realty Trust;
Age: 66 Administration, New York University from 1995 Vornado Oper-
to present. ating Company
and Alex-
ander's, Inc.
- ------------------------------------------------------------------------------------------------------------------------------------
Edward D. P.O. Box 9095 Director 2000 to Self-employed financial consultant since 1994; 48 Funds None
Zinbarg Princeton, NJ present Executive Vice President of The Prudential Insurance 48 Portfolios
08543-9095 Company of America from 1988 to 1994; former
Age: 70 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.
- ------------------------------------------------------------------------------------------------------------------------------------
MERRILL LYNCH UTILITIES AND TELECOMMUNICATIONS FUND, INC. NOVEMBER 30, 2004 27
[LOGO] Merrill Lynch Investment Managers
Officers and Directors (concluded)
Position(s) Length of
Held with Time
Name Address & Age Fund Served Principal Occupation(s) During Past 5 Years
====================================================================================================================================
Fund Officers*
- ------------------------------------------------------------------------------------------------------------------------------------
Donald C. P.O. Box 9011 Vice 1993 to First Vice President of MLIM and FAM since 1997 and Treasurer thereof since 1999;
Burke Princeton, NJ President present Senior Vice President and Treasurer of Princeton Services since 1999 and Director
08543-9011 and and since 2004; Vice President of FAMD since 1999; Vice President of MLIM and FAM from
Age: 44 Treasurer 1999 to 1990 to 1997; Director of MLIM Taxation since 1990.
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 of
08543-9011 MLIM since 1999; Chief Investment Officer of Equities at Oppenheimer Funds, Inc.
Age: 50 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 2000.
Anderson Princeton, NJ President present
08543-9011
Age: 46
- ------------------------------------------------------------------------------------------------------------------------------------
Jeffrey P.O. Box 9011 Chief 2004 to Chief Compliance Officer of the MLIM/FAM-advised funds and First Vice President and
Hiller Princeton, NJ Compliance present Chief Compliance Officer of MLIM since 2004; Global Director of Compliance at
08543-9011 Officer Morgan Stanley Investment Management from 2002 to 2004; Managing Director and
Age: 53 Global Director of Compliance at Citigroup Asset Management from 2000 to 2002;
Chief Compliance Officer at Soros Fund Management in 2000; Chief Compliance Officer
at Prudential Financial from 1995 to 2000.
- ------------------------------------------------------------------------------------------------------------------------------------
Alice A. P.O. Box 9011 Secretary 2004 to Director (Legal Advisory) of MLIM since 2002; Vice President of MLIM from 1999 to
Pellegrino Princeton, NJ present 2002; Attorney associated with MLIM since 1997.
08543-9011
Age: 44
------------------------------------------------------------------------------------------------------------------------
* 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 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, 2005, Terry K. Glenn, President and Director and Kevin A.
Ryan, Director of Merrill Lynch Utilities and Telecommunications Fund, Inc. will
retire. The Fund's Board of Directors wishes Messrs. Glenn and Ryan well in
their retirements.
Effective January 1, 2005, Robert C. Doll, Jr. will become President and
Director of the Fund.
- --------------------------------------------------------------------------------
28 MERRILL LYNCH UTILITIES AND TELECOMMUNICATIONS FUND, INC. NOVEMBER 30, 2004
Important Tax Information
The following information is provided with respect to the quarterly
distributions paid by the Merrill Lynch Utilities and Telecommunications Fund,
Inc. during the fiscal year ended November 30, 2004:
- ------------------------------------------------------------------------------------
Qualified Dividend Income for Individuals ................................ 100%
Dividends Qualifying for the Dividends Received Deduction for Corporations 100%
- ------------------------------------------------------------------------------------
Please retain this information for your records.
MERRILL LYNCH UTILITIES AND TELECOMMUNICATIONS FUND, INC. NOVEMBER 30, 2004 29
[LOGO] Merrill Lynch Investment Managers
Availability of Quarterly Schedule of Investments
The Fund files its complete schedule of portfolio holdings with the Securities
and Exchange Commission ("SEC") for the first and third quarters of each fiscal
year on Form N-Q. The Fund's Forms N-Q are available on the SEC's Web site at
http://www.sec.gov. The Fund's Forms N-Q may also be reviewed and copied at the
SEC's Public Reference Room in Washington, DC. Information on the operation of
the Public Reference Room may be obtained by calling 1-800-SEC-0330.
30 MERRILL LYNCH UTILITIES AND TELECOMMUNICATIONS FUND, INC. NOVEMBER 30, 2004
Electronic Delivery
The Fund offers 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 Web
site at 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. NOVEMBER 30, 2004 31
[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)
at www.mutualfunds.ml.com; and (3) on the Securities and Exchange Commission's
Web site at http://www.sec.gov. Information about how the Fund voted proxies
relating to securities held in the Fund's portfolio during the most recent
12-month period ended June 30 is available (1) at www.mutualfunds.ml.com and (2)
on the Securities and Exchange Commission's Web site at http://www.sec.gov.
Merrill Lynch Utilities and
Telecommunications Fund, Inc.
Box 9011
Princeton, NJ
08543-9011
#11693 -- 11/04
Item 2 - Code of Ethics - 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 - Audit Committee Financial Expert - 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 - Principal Accountant Fees and Services
(a) Audit Fees - Fiscal Year Ending November 30, 2004 - $30,500
Fiscal Year Ending November 30, 2003 - $30,000
(b) Audit-Related Fees - Fiscal Year Ending November 30, 2004 - $0
Fiscal Year Ending November 30, 2003 - $0
(c) Tax Fees - Fiscal Year Ending November 30, 2004 - $5,800
Fiscal Year Ending November 30, 2003 - $5,400
The nature of the services include tax compliance, tax advice and tax
planning.
(d) All Other Fees - Fiscal Year Ending November 30, 2004 - $0
Fiscal Year Ending November 30, 2003 - $0
(e)(1) The registrant's audit committee (the "Committee") has adopted
policies and procedures with regard to the pre-approval of services.
Audit, audit-related and tax compliance services provided to the
registrant on an annual basis require specific pre-approval by the
Committee. The Committee also must approve other non-audit services
provided to the registrant and those non-audit services provided to the
registrant's affiliated service providers that relate directly to the
operations and the financial reporting of the registrant. Certain of
these non-audit services that the Committee believes are a) consistent
with the SEC's auditor independence rules and b) routine and recurring
services that will not impair the independence of the independent
accountants may be approved by the Committee without consideration on a
specific case-by-case basis ("general pre-approval"). However, such
services will only be deemed pre-approved provided that any individual
project does not exceed $5,000 attributable to the registrant or
$50,000 for all of the registrants the Committee oversees. Any proposed
services exceeding the pre-approved cost levels will require specific
pre-approval by the Committee, as will any other services not subject
to general pre-approval (e.g., unanticipated but permissible services).
The Committee is informed of each service approved subject to general
pre-approval at the next regularly scheduled in-person board meeting.
(e)(2) 0%
(f) Not Applicable
(g) Fiscal Year Ending November 30, 2004 - $12,448,225
Fiscal Year Ending November 30, 2003 - $18,947,106
(h) The registrant's audit committee has considered and determined that
the provision of non-audit services that were rendered to the
registrant's 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.
Regulation S-X Rule 2-01(c)(7)(ii) - $945,000, 0%
Item 5 - Audit Committee of Listed Registrants - Not Applicable
Item 6 - Schedule of Investments - Not Applicable
Item 7 - Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies - Not Applicable
Item 8 - Purchases of Equity Securities by Closed-End Management Investment
Company and Affiliated Purchasers - Not Applicable
Item 9 - Submission of Matters to a Vote of Security Holders - Not Applicable
Item 10 - Controls and Procedures
10(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.
10(b) - There were no changes in the registrant's internal control over
financial reporting (as defined in Rule 30a-3(d) under the Act (17 CFR
270.30a-3(d)) that occurred during the second fiscal half-year of the
period covered by this report that has materially affected, or is
reasonably likely to materially affect, the registrant's internal
control over financial reporting.
Item 11 - Exhibits attached hereto
11(a)(1) - Code of Ethics - See Item 2
11(a)(2) - Certifications - Attached hereto
11(a)(3) - Not Applicable
11(b) - Certifications - 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/ Robert C. Doll, Jr.
------------------------------------
Robert C. Doll, Jr.,
President of
Merrill Lynch Utilities and Telecommunications Fund, Inc.
Date: January 13, 2005
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/ Robert C. Doll, Jr.
------------------------------------
Robert C. Doll, Jr.,
President of
Merrill Lynch Utilities and Telecommunications Fund, Inc.
Date: January 13, 2005
By: /s/ Donald C. Burke
------------------------------------
Donald C. Burke,
Chief Financial Officer of
Merrill Lynch Utilities and Telecommunications Fund, Inc.
Date: January 13, 2005