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., Chief Executive
Officer, 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: 11/30/05
Date of reporting period: 12/01/04 - 11/30/05
Item 1 - Report to Stockholders
Merrill Lynch Utilities and
Telecommunications
Fund, Inc.
Annual Report
November 30, 2005
Merrill Lynch Utilities and Telecommunications Fund, Inc.
Industry Classification as a Percentage of Total Investments as of November 30,
2005
Below is a pie chart showing the Industry Classification as a Percentage of
Total Investments as of November 30, 2005
Electric Utilities ...................................................... 26.8%
Multi-Utilities ......................................................... 16.3%
Diversified Telecommunication Services .................................. 15.8%
Independent Power Producers & Energy Traders ............................ 13.5%
Wireless Telecommunication Services ..................................... 8.3%
Gas Utilities ........................................................... 5.7%
Oil, Gas & Consumable Fuels ............................................. 5.5%
Media ................................................................... 2.2%
Energy Equipment & Services ............................................. 1.1%
Commercial Services & Supplies .......................................... 0.4%
Other* .................................................................. 4.4%
* Includes portfolio holdings in short-term investments.
For Fund purposes, the Fund's industry classifications refer to any one or
more of the industry sub-classifications used by one or more widely
recognized market indexes or rating group indexes, and/or as defined by
Fund management. This definition may not apply for purposes of this
report, which may combine industry sub-classifications for reporting ease.
Portfolio Information as of November 30, 2005
Percent of
Geographic Allocation Equities
- --------------------------------------------------------------------------------
United States ......................................................... 74.7%
Canada ................................................................ 7.1
United Kingdom ........................................................ 4.9
Spain ................................................................. 2.6
Germany ............................................................... 2.1
Brazil ................................................................ 2.0
France ................................................................ 1.9
Mexico ................................................................ 1.6
Italy ................................................................. 1.3
Czech Republic ........................................................ 0.6
Austria ............................................................... 0.4
Belgium ............................................................... 0.4
Norway ................................................................ 0.4
- --------------------------------------------------------------------------------
Ten Largest Holdings Percent of
(Equity Investments) Net Assets
- --------------------------------------------------------------------------------
TXU Corporation ........................................................ 6.8%
Exelon Corp. ........................................................... 3.5
Dominion Resources, Inc. ............................................... 3.4
TELUS .................................................................. 2.8
PPL Corp. .............................................................. 2.7
Verizon Communications, Inc. ........................................... 2.5
Alltel Corp. ........................................................... 2.4
Spring Nextel Corp. .................................................... 2.3
Constellation Energy Group, Inc. ....................................... 2.1
Edison International ................................................... 2.1
- --------------------------------------------------------------------------------
2 MERRILL LYNCH UTILITIES AND
TELECOMMUNICATIONS FUND, INC. NOVEMBER 30, 2005
A Letter From the President
Dear Shareholder
As the financial markets continued to muddle their way through 2005, the Federal
Reserve Board (the Fed) advanced its monetary tightening campaign full steam
ahead. The 13th consecutive interest rate hike since June 2004 came on December
13, bringing the target federal funds rate to 4.25%. Oil prices, after reaching
record highs on more than one occasion over the past several months, moderated
somewhat by period-end, as did inflation expectations. Against this backdrop,
most major market indexes managed to post positive results for the current
reporting period:
Total Returns as of November 30, 2005 6-month 12-month
=======================================================================================
U.S. equities (Standard & Poor's 500 Index) ........................ + 5.88% + 8.44%
- ---------------------------------------------------------------------------------------
Small-cap U.S. equities (Russell 2000 Index) ....................... +10.47 + 8.14
- ---------------------------------------------------------------------------------------
International equities (MSCI Europe Australasia Far East Index)..... +11.23 +13.25
- ---------------------------------------------------------------------------------------
Fixed income (Lehman Brothers Aggregate Bond Index) ................ - 0.48 + 2.40
- ---------------------------------------------------------------------------------------
Tax-exempt fixed income (Lehman Brothers Municipal Bond Index)...... + 0.36 + 3.88
- ---------------------------------------------------------------------------------------
High yield bonds (Credit Suisse First Boston High Yield Index)...... + 2.33 + 2.94
- ---------------------------------------------------------------------------------------
With the kick-off of the holiday shopping season, attention turned to the
consumer, who has remained resilient even amid high energy prices and rising
interest rates. Some observers surmise that a slowdown in residential real
estate may ultimately contribute to a weakening in consumer spending. At this
juncture, the outlook remains unclear.
Equity markets moved sideways for much of 2005, notwithstanding a strong rally
in the middle of the fourth quarter. Corporate earnings have continued to
surprise on the upside and company profit margins remain high, as does
productivity. On the other hand, high energy prices, more Fed interest rate
hikes, a consumer slowdown and/or the potential for slower earnings growth pose
the greatest risks to U.S. stocks. Internationally, many markets have benefited
from strong economic statistics, trade surpluses and solid finances. Emerging
markets have had a particularly strong year, partly reflecting high economic
growth rates and positive financial reforms.
The bond market continued to be characterized by a flattening yield curve. The
difference between the two-year and 10-year Treasury yield was just seven basis
points (.07%) at period-end, compared to 40 basis points six months ago and 134
basis points 12 months ago.
Navigating the financial markets can be a challenge, particularly during
uncertain times. With that in mind, we invite you to visit our online magazine
at www.mlim.ml.com/shareholdermagazine. Shareholder is a publication designed to
provide insights on investing and timely "food for thought" for investors. We
are pleased to make the magazine available online, where we are able to expand
our reach in terms of content and readership.
As always, we thank you for trusting Merrill Lynch Investment Managers with your
investment assets, and we look forward to serving you in the months and years
ahead.
Sincerely,
/s/ Robert C. Doll, Jr.
Robert C. Doll, Jr.
President and Director
MERRILL LYNCH UTILITIES AND
TELECOMMUNICATIONS FUND, INC. NOVEMBER 30, 2005 3
A Discussion With Your Fund's Portfolio Manager
The Fund provided strong positive returns for the fiscal year, benefiting
from favorable stock selection in the domestic electric utility sector and in
several utility companies in Europe and Brazil.
How did the Fund perform during the fiscal year in light of the existing market
conditions?
For the 12-month period ended November 30, 2005, Merrill Lynch Utilities and
Telecommunications Fund, Inc.'s Class A, Class B, Class C and Class I Shares had
total returns of +16.95%, +16.26%, +16.34% and +17.25%, 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 and 7 of
this report to shareholders.) For the same period, the Fund's benchmarks, the
Standard & Poor's (S&P) 500 Index and the S&P Utility Index, posted respective
returns of +8.44% and +18.60%, while the Lipper Utility Funds category recorded
an average return of +15.91%. (Funds in this Lipper category invest at least 65%
of their equity portfolios in utility shares.)
Stock selection in the domestic electric utility sector contributed
significantly to the Fund's strong performance for the fiscal year. This sector
continued to benefit from favorable dividend yields relative to the broader
equity market, improving company fundamentals, and a mixed outlook for equity
markets and U.S. interest rates. Moreover, several companies have the ability to
pass rising fuel costs directly through to the end consumer and, therefore, were
not affected by the higher input costs that many other industries have had to
deal with following the hurricanes in the summer of 2005. Electric utility
companies with above-average levels of electricity generation coming from
nuclear plants also did well as their relatively lower generation costs enabled
them to become extremely competitive.
Several of our utility holdings in Europe and Brazil also added to the Fund's
performance during the period. The managements of several of these companies are
focused on future growth, selling non-core assets and exercising discipline in
evaluating new opportunities. Moreover, rising electricity prices in unregulated
markets also benefited several of these companies.
Fund performance slightly lagged that of the S&P Utility Index, as utility
stocks outperformed shares of telecommunications companies, which are not
represented in the benchmark. The telecommunication services sector both in the
United States and abroad continued to be challenged by declining wireline access
lines and pricing pressures on some of the more competitive products. The need
to increase capital expenditures in order to deploy new technologies also had a
negative effect on the sector, as this reduced many companies' free cash flow.
The net performance of this sector was negative during the period. The few
exceptions have been those companies that have more wireless than wireline
business, including TELUS Corp. of Canada, or that are involved in potential
merger-and-acquisition deals, such as Nextel Partners Inc.
Higher natural gas prices hindered the performance of our holdings in the
relatively small natural gas utility sector. Although many of these companies
have the ability to pass higher fuel costs through to consumers, investors
became concerned about customers' ability to pay bills that could be about 20%
higher than last year and the potential for higher allowances for bad debt. The
net results will most likely not be seen until early 2006. Stock price
performance from this group generally has been positive, albeit mainly in the
single-digit percentage range.
For the six-month period ended November 30, 2005, the Fund's Class A, Class B,
Class C and Class I Shares had total returns of +8.06%, +7.70%, +7.78% and
+8.11%, respectively. For the same period, the S&P 500 Index returned +5.88%,
the S&P Utility Index had a return of +6.11% and the Lipper Utility Funds
category posted an average return of +7.15%.
What changes were made to the portfolio during the period?
Most notably, we reduced the Fund's exposure to the telecommunication services
sector, trimming our commitment from 30% of net assets to 25% by period-end. The
portfolio's weighting in diversified telecommunications companies declined from
22% of net assets to approximately 16% during the 12-month period. The wireless
telecommunications sector allocation rose slightly from 8% of net assets at the
beginning of the fiscal year to 9% at November 30, 2005.
Some of the reductions in our weightings resulted from merger-and-acquisition
activity, as Sprint Corp. purchased Nextel Communications Inc., and Alltel Corp.
completed its purchase of Western Wireless Corp. We also trimmed some of our
European telecommunications holdings given their strong relative outperformance
in 2004. We believe fundamentals in that sector are coming under pressure from
increased
4 MERRILL LYNCH UTILITIES AND
TELECOMMUNICATIONS FUND, INC. NOVEMBER 30, 2005
competition and higher capital spending. In addition, merger-and-acquisition
activity has accelerated, thereby increasing investors' uncertainty,
particularly in the short term.
The Fund's position in the energy sector increased modestly from 6.3% of net
assets to 6.6% year over year, but reached as high as 11% during the 12-month
period. Concerns that the demand for natural gas and coal would outstrip supply
presented investment opportunities. We reinvested the capital raised from our
sales of telecommunications company shares into the energy sector. Consequently,
the Fund posted strong performance in the third quarter of 2005, when many of
the stocks we purchased hit new 52-week highs. As valuations became more
expensive, we took profits in the energy sector, mainly through the sale of coal
mining and production company stocks after their share prices had risen
significantly. In addition, our discussions with many utility customers led us
to believe that there most likely would not be a supply problem in coal for the
next several months. While it appears that we may have been a bit premature in
reducing our exposure to coal companies, we believed that their valuation levels
were high.
Our weighting in the utility sector rose from approximately 58% of net assets at
the start of the fiscal year to 61% at period-end. While reducing our positions
in companies that we believed would experience relatively low growth going
forward, we added to holdings that we deemed to have solid underlying
fundamentals and visible earnings outlooks.
How would you characterize the Fund's position at the close of the period?
At November 30, 2005, the portfolio consisted of 99 holdings across 13
countries. The Fund's two largest sector exposures were in electric utilities
(27% of net assets) and diversified telecommunication services (16%), and the
largest country weighting was in the United States, at 70.8% of net assets. We
continue to seek capital appreciation and total return for our shareholders, and
the majority of the stocks in the portfolio pay dividends.
Our focus in the utility sector is on companies with the most visible earnings
outlooks. We believe these companies have the potential to provide relatively
high dividend payouts and maintain attractive valuations. Discussion of
merger-and-acquisition activity within the sector continues. We also have a
number of holdings that have unregulated energy generation, which may enable
them to profit from rising electricity prices as current service contracts end
and customers re-sign with the companies.
Within the telecommunication services sector, we maintain our emphasis on
companies with greater exposure to the wireless business, where we continue to
see an increase in subscribers and more services available for customers.
Looking ahead, we will monitor the integration and progress of the new AT&T,
Inc. following its acquisition by SBC Communications. Similarly, we are watching
the unfolding of the Verizon Communications, Inc./MCI Inc. merger to see if the
companies can find greater synergies (i.e., arrangements that are mutually
beneficial to the parties involved). In addition, we will see new stocks enter
the market as Sprint splits into separate wireline and wireless companies.
Alltel also recently announced a split of its wireline and wireless businesses.
We believe these types of restructurings could prompt some of the larger
telecommunications carriers, such as Verizon, to spin off some of their access
lines if the companies' valuation levels become very attractive.
We believe the Fund is appropriately positioned with stocks that we believe will
show better-than-average price appreciation. We also have some holdings that
offer dividend yields that exceed their respective group averages. However, we
have underweighted these stocks given the potential that their returns could lag
those of U.S. Treasury securities in the current environment of rising interest
rates.
Kathleen M. Anderson
Vice President and Portfolio Manager
December 15, 2005
MERRILL LYNCH UTILITIES AND
TELECOMMUNICATIONS FUND, INC. NOVEMBER 30, 2005 5
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. 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 Standardized
As of November 30, 2005 Total Return Total Return Total Return 30-day Yield
============================================================================================================================
ML Utilities and Telecommunications Fund, Inc. Class A Shares* +8.06% +16.95% +146.33% 1.55%
- ----------------------------------------------------------------------------------------------------------------------------
ML Utilities and Telecommunications Fund, Inc. Class B Shares* +7.70 +16.26 +134.19 1.10
- ----------------------------------------------------------------------------------------------------------------------------
ML Utilities and Telecommunications Fund, Inc. Class C Shares* +7.78 +16.34 +133.83 1.05
- ----------------------------------------------------------------------------------------------------------------------------
ML Utilities and Telecommunications Fund, Inc. Class I Shares* +8.11 +17.25 +152.96 1.79
- ----------------------------------------------------------------------------------------------------------------------------
S&P 500(R) Index** +5.88 + 8.44 +142.87 --
- ----------------------------------------------------------------------------------------------------------------------------
S&P Utilities Index*** +6.11 +18.60 +101.78 --
- ----------------------------------------------------------------------------------------------------------------------------
* Investment results shown do not reflect sales charges; results shown would
be lower if a sales charge was included. Cumulative 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, 2005
Performance Data (concluded)
Below is a line graph depicting the growth of an investment in the Fund's Class
A, Class B, Class C and Class I Shares compared to growth of an investment in
the S&P 500 Index and the S&P Utilities Index. Values are from November 1995 to
November 2005:
Total Return Based on a $10,000 Investment
ML Utilities and ML Utilities and ML Utilities and ML Utilities and S&P 500
Telecommunications Fund, Telecommunications Fund, Telecommunications Fund, Telecommunications Fund, Utilities S&P 500
Inc.+--Class A Shares* Inc.+--Class B Shares* Inc.+--Class C Shares* Inc.+--Class I Shares* Index+++ Index++
11/95 $9,600 $10,000 $10,000 $9,600 $10,000 $10,000
11/96 $11,275 $11,707 $11,703 $11,323 $11,257 $12,786
11/97 $13,456 $13,905 $13,886 $13,548 $12,959 $16,432
11/98 $16,967 $17,436 $17,405 $17,134 $15,533 $20,320
11/99 $18,318 $18,728 $18,682 $18,534 $14,396 $24,566
11/00 $19,183 $19,524 $19,525 $19,473 $20,886 $23,529
11/01 $17,136 $17,328 $17,330 $17,420 $15,492 $20,653
11/02 $13,738 $13,836 $13,817 $13,999 $10,694 $17,243
11/03 $15,697 $15,700 $15,699 $16,035 $13,167 $19,845
11/04 $20,221 $20,143 $20,099 $20,711 $17,014 $22,396
11/05 $23,647 $23,419 $23,383 $24,284 $20,178 $24,287
* 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 11/30/05 +16.95% +12.27%
- --------------------------------------------------------------------------------
Five Years Ended 11/30/05 + 4.27 + 3.43
- --------------------------------------------------------------------------------
Ten Years Ended 11/30/05 + 9.43 + 8.99
- --------------------------------------------------------------------------------
Return Return
Without CDSC With CDSC++
================================================================================
Class B Shares+
================================================================================
One Year Ended 11/30/05 +16.26% +12.26%
- --------------------------------------------------------------------------------
Five Years Ended 11/30/05 + 3.70 + 3.36
- --------------------------------------------------------------------------------
Ten Years Ended 11/30/05 + 8.88 + 8.88
- --------------------------------------------------------------------------------
Return Return
Without CDSC With CDSC++
================================================================================
Class C Shares+++
================================================================================
One Year Ended 11/30/05 +16.34% +15.34%
- --------------------------------------------------------------------------------
Five Years Ended 11/30/05 + 3.67 + 3.67
- --------------------------------------------------------------------------------
Ten Years Ended 11/30/05 + 8.87 + 8.87
- --------------------------------------------------------------------------------
Return Without Return With
Sales Charge Sales Charge**
================================================================================
Class I Shares*
================================================================================
One Year Ended 11/30/05 +17.25% +12.56%
- --------------------------------------------------------------------------------
Five Years Ended 11/30/05 + 4.51 + 3.66
- --------------------------------------------------------------------------------
Ten Years Ended 11/30/05 + 9.72 + 9.28
- --------------------------------------------------------------------------------
* Maximum sales charge is 4%.
** Assuming maximum sales charge.
+ Maximum contingent deferred sales charge is 4% and is reduced to 0% after
six years.
++ Assuming payment of applicable contingent deferred sales charge.
+++ Maximum contingent deferred sales charge is 1% and is reduced to 0% after
one year.
MERRILL LYNCH UTILITIES AND
TELECOMMUNICATIONS FUND, INC. NOVEMBER 30, 2005 7
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, 2005 and held through
November 30, 2005) 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, 2005 to
June 1, 2005 November 30, 2005 November 30, 2005
========================================================================================================
Actual
========================================================================================================
Class A $1,000 $1,080.60 $ 6.31
- --------------------------------------------------------------------------------------------------------
Class B $1,000 $1,077.00 $ 9.06
- --------------------------------------------------------------------------------------------------------
Class C $1,000 $1,077.80 $ 9.32
- --------------------------------------------------------------------------------------------------------
Class I $1,000 $1,081.10 $ 5.01
========================================================================================================
Hypothetical (5% annual return before expenses)**
========================================================================================================
Class A $1,000 $1,019.03 $ 6.12
- --------------------------------------------------------------------------------------------------------
Class B $1,000 $1,016.38 $ 8.80
- --------------------------------------------------------------------------------------------------------
Class C $1,000 $1,016.13 $ 9.05
- --------------------------------------------------------------------------------------------------------
Class I $1,000 $1,020.29 $ 4.86
- --------------------------------------------------------------------------------------------------------
* For each class of the Fund, expenses are equal to the annualized expense
ratio for the class (1.21% for Class A, 1.74% for Class B, 1.79% for Class
C and .96% for Class I), multiplied by the average account value over the
period, multiplied by 183/365 (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.
8 MERRILL LYNCH UTILITIES AND
TELECOMMUNICATIONS FUND, INC. NOVEMBER 30, 2005
Schedule of Investments (in U.S. dollars)
Shares
Country Industry Common Stocks Held Value
====================================================================================================
Austria--0.4%
Diversified Telecommunication
Services--0.4%
Telekom Austria AG 14,000 $ 633,500
-------------------------------------------------------------------------------------
Total Common Stocks in Austria 633,500
====================================================================================================
Belgium--0.4%
Wireless Telecommunication
Services--0.4%
Telenet Group Holding NV (a) 30,000 580,045
-------------------------------------------------------------------------------------
Total Common Stocks in Belgium 580,045
====================================================================================================
Brazil--1.9%
Diversified Telecommunication
Services--0.5%
Brasil Telecom Participacoes SA (b) 18,000 698,400
-------------------------------------------------------------------------------------
Electric Utilities--1.4%
CPFL Energia SA (b) 29,200 1,000,684
EDP--Energias do Brasil SA (a) 88,400 1,064,431
------------
2,065,115
-------------------------------------------------------------------------------------
Total Common Stocks in Brazil 2,763,515
====================================================================================================
Canada--6.8%
Diversified Telecommunication
Services--4.4%
BCE, Inc. 101,700 2,412,324
TELUS Corp. 106,724 4,137,103
------------
6,549,427
-------------------------------------------------------------------------------------
Media--1.1%
Rogers Communications, Inc. Class B 41,300 1,578,073
-------------------------------------------------------------------------------------
Oil, Gas & Consumable Fuels--1.3%
EnCana Corp. 17,300 766,438
Husky Energy, Inc. 11,000 527,996
Talisman Energy, Inc. 11,800 563,804
------------
1,858,238
-------------------------------------------------------------------------------------
Total Common Stocks in Canada 9,985,738
====================================================================================================
Czech Republic--0.6%
Electric Utilities--0.6%
CEZ 29,700 830,204
-------------------------------------------------------------------------------------
Total Common Stocks in the Czech Republic 830,204
====================================================================================================
France--1.8%
Diversified Telecommunication
Services--0.4%
France Telecom SA 24,700 619,094
-------------------------------------------------------------------------------------
Gas Utilities--0.2%
Gaz de France 10,200 309,051
-------------------------------------------------------------------------------------
Multi-Utilities--1.2%
Suez SA 31,000 887,375
Veolia Environnement 18,800 805,673
------------
1,693,048
-------------------------------------------------------------------------------------
Total Common Stocks in France 2,621,193
====================================================================================================
Germany--1.9%
Diversified Telecommunication
Services--0.4%
Deutsche Telekom AG 37,300 620,047
-------------------------------------------------------------------------------------
Electric Utilities--1.1%
E.On AG 17,500 1,667,246
-------------------------------------------------------------------------------------
Multi-Utilities--0.4%
RWE AG 9,000 622,841
-------------------------------------------------------------------------------------
Total Common Stocks in Germany 2,910,134
====================================================================================================
Italy--1.3%
Diversified Telecommunication
Services--1.3%
FastWeb SpA (a) 14,000 656,748
Telecom Italia SpA 171,776 481,583
Telecom Italia SpA (RNC) 306,800 731,725
-------------------------------------------------------------------------------------
Total Common Stocks in Italy 1,870,056
====================================================================================================
Mexico--1.5%
Diversified Telecommunication
Services--0.5%
Telefonos de Mexico, SA de CV (b) 32,600 731,218
-------------------------------------------------------------------------------------
Wireless Telecommunication
Services--1.0%
America Movil, SA de CV (b) 53,100 1,525,032
-------------------------------------------------------------------------------------
Total Common Stocks in Mexico 2,256,250
====================================================================================================
Norway--0.4%
Diversified Telecommunication
Services--0.4%
Telenor ASA 56,700 532,645
-------------------------------------------------------------------------------------
Total Common Stocks in Norway 532,645
====================================================================================================
Spain--2.4%
Diversified Telecommunication
Services--0.5%
Telefonica SA 56,388 834,974
-------------------------------------------------------------------------------------
Electric Utilities--1.9%
Endesa SA 33,600 876,632
Iberdrola SA 72,200 1,902,442
------------
2,779,074
-------------------------------------------------------------------------------------
Total Common Stocks in Spain 3,614,048
====================================================================================================
United Kingdom--4.6%
Electric Utilities--1.8%
Scottish & Southern Energy Plc 41,400 702,775
Scottish Power Plc 208,900 1,919,465
------------
2,622,240
-------------------------------------------------------------------------------------
Independent Power Producers &
Energy Traders--0.9%
International Power Plc 311,500 1,321,948
-------------------------------------------------------------------------------------
Multi-Utilities--0.6%
Centrica Plc 81,000 322,374
National Grid Plc 69,918 648,487
------------
970,861
-------------------------------------------------------------------------------------
Wireless Telecommunication
Services--1.3%
Vodafone Group Plc (b) 86,900 1,872,695
-------------------------------------------------------------------------------------
Total Common Stocks in the United Kingdom 6,787,744
=====================================================================================
MERRILL LYNCH UTILITIES AND
TELECOMMUNICATIONS FUND, INC. NOVEMBER 30, 2005 9
Schedule of Investments (continued) (in U.S. dollars)
Shares
Country Industry Common Stocks Held Value
====================================================================================================
United States--70.8%
Commercial Services &
Supplies--0.3%
Synagro Technologies, Inc. 126,000 $ 504,000
-------------------------------------------------------------------------------------
Diversified Telecommunication
Services--7.0%
AT&T, Inc. 118,300 2,946,853
BellSouth Corp. 108,600 2,960,436
Citizens Communications Co. 50,900 664,245
Verizon Communications, Inc. 115,300 3,687,294
------------
10,258,828
-------------------------------------------------------------------------------------
Electric Utilities--20.0%
American Electric Power Co., Inc. 52,700 1,925,658
Cinergy Corp. 50,662 2,081,195
DPL, Inc. 23,200 592,760
Edison International 67,100 3,027,552
Entergy Corp. 36,900 2,583,000
Exelon Corp. 100,000 5,204,000
FPL Group, Inc. 44,600 1,890,594
FirstEnergy Corp. 60,000 2,817,600
ITC Holdings Corp. 17,100 472,302
Northeast Utilities 31,400 583,412
PPL Corp. 137,200 4,033,680
Pinnacle West Capital Corp. 31,800 1,319,382
Reliant Energy, Inc. (a) 41,300 378,308
The Southern Co. 72,000 2,499,120
------------
29,408,563
-------------------------------------------------------------------------------------
Energy Equipment & Services--1.1%
GlobalSantaFe Corp. 11,100 503,496
Halliburton Co. 9,200 585,580
Noble Corp. 7,700 554,939
------------
1,644,015
-------------------------------------------------------------------------------------
Gas Utilities--5.5%
AGL Resources, Inc. 33,100 1,170,747
Energen Corp. 17,200 631,240
Equitable Resources, Inc. 34,200 1,278,738
National Fuel Gas Co. 27,100 873,975
New Jersey Resources Corp. 25,000 1,062,750
Oneok, Inc. 18,600 510,198
Questar Corp. 21,500 1,603,040
UGI Corp. 42,000 924,000
------------
8,054,688
-------------------------------------------------------------------------------------
Independent Power Producers &
Energy Traders--11.9%
The AES Corp. (a) 32,500 512,525
Constellation Energy Group, Inc. 59,300 3,142,307
Duke Energy Corp. 73,400 1,971,524
NRG Energy, Inc. (a) 26,400 1,152,888
Ormat Technologies, Inc. 31,000 776,550
TXU Corp. 97,500 10,006,425
------------
17,562,219
-------------------------------------------------------------------------------------
Media--1.1%
Cablevision Systems Corp. Class A (a) 19,700 466,102
Comcast Corp. Special Class A (a) 41,200 1,072,848
------------
1,538,950
-------------------------------------------------------------------------------------
Multi-Utilities--14.1%
Alliant Energy Corp. 16,000 453,600
Ameren Corp. 26,700 1,400,682
CMS Energy Corp. (a) 47,800 668,244
Consolidated Edison, Inc. 8,000 364,320
Dominion Resources, Inc. 66,837 5,076,270
Energy East Corp. 15,800 370,510
NSTAR 84,400 2,370,796
NiSource, Inc. 19,900 428,447
OGE Energy Corp. 12,100 323,796
PG&E Corp. 63,500 2,335,530
Public Service Enterprise Group, Inc. 42,900 2,690,688
SCANA Corp. 41,400 1,640,268
Sempra Energy 35,500 1,560,225
Wisconsin Energy Corp. 28,600 1,085,370
------------
20,768,746
-------------------------------------------------------------------------------------
Oil, Gas & Consumable Fuels--4.2%
Chesapeake Energy Corp. 20,500 593,475
ConocoPhillips 11,000 665,610
EOG Resources, Inc. 26,000 1,865,500
Kinder Morgan, Inc. 11,000 996,600
Southwestern Energy Co. (a) 16,000 545,120
Williams Cos., Inc. 71,800 1,543,700
------------
6,210,005
-------------------------------------------------------------------------------------
Wireless Telecommunication
Services--5.6%
Alltel Corp. 52,945 3,538,314
American Tower Corp. Class A (a) 23,000 627,670
Nextel Partners, Inc. Class A (a) 28,400 752,600
Sprint Nextel Corp. 134,525 3,368,506
------------
8,287,090
-------------------------------------------------------------------------------------
Total Common Stocks in the United States 104,237,104
=====================================================================================
Total Common Stocks
(Cost--$93,737,934)--94.8% 139,622,176
====================================================================================================
Face
Trust Preferred Amount
====================================================================================================
United States--0.7%
Independent Power Producers &
Energy Traders--0.7%
AES Trust III, 6.75% due 10/15/2029 $1,092,450 992,705
-------------------------------------------------------------------------------------
Total Trust Preferred (Cost--$662,313)--0.7% 992,705
====================================================================================================
Short-Term Beneficial
Securities Interest
====================================================================================================
United States--4.4%
Merrill Lynch Liquidity Series, LLC
Cash Sweep Series I (c) $6,476,013 6,476,013
-------------------------------------------------------------------------------------
Total Short-Term Securities
(Cost--$6,476,013)--4.4% 6,476,013
====================================================================================================
Total Investments
(Cost--$100,876,260*)--99.9% 147,090,894
Other Assets Less Liabilities--0.1% 128,112
------------
Net Assets--100.0% $147,219,006
============
10 MERRILL LYNCH UTILITIES AND
TELECOMMUNICATIONS FUND, INC. NOVEMBER 30, 2005
Schedule of Investments (concluded) (in U.S. dollars)
For Fund compliance purposes, the Fund's industry classifications refer to 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 industry sub-classifications for reporting ease. Industries are shown as
a percent of net assets. These industry classifications are unaudited.
* The cost and unrealized appreciation (depreciation) of investments as of
November 30, 2005, as computed for federal income tax purposes, were as
follows:
Aggregate cost ........................................ $ 100,876,260
=============
Gross unrealized appreciation ......................... $ 47,172,130
Gross unrealized depreciation ......................... (957,496)
-------------
Net unrealized appreciation ........................... $ 46,214,634
=============
(a) Non-income producing security.
(b) Depositary receipts.
(c) Investments in companies considered to be an affiliate of the Fund, for
purposes of Section 2(a)(3) of the Investment Company Act of 1940, were as
follows:
--------------------------------------------------------------------------
Net Interest
Affiliate Activity Income
--------------------------------------------------------------------------
Merrill Lynch Liquidity Series, LLC
Cash Sweep Series I $1,929,061 $135,204
--------------------------------------------------------------------------
See Notes to Financial Statements.
MERRILL LYNCH UTILITIES AND
TELECOMMUNICATIONS FUND, INC. NOVEMBER 30, 2005 11
Statement of Assets and Liabilities
As of November 30, 2005
===================================================================================================================================
Assets
- -----------------------------------------------------------------------------------------------------------------------------------
Investments in unaffiliated securities, at value (identified cost--$94,400,247) $140,614,881
Investments in affiliated securities, at value (identified cost--$6,476,013) .. 6,476,013
Foreign cash (cost--$26,636) .................................................. 26,752
Cash .......................................................................... 25,200
Receivables:
Securities sold ............................................................ $ 720,710
Dividends .................................................................. 355,737
Capital shares sold ........................................................ 86,082
Interest ................................................................... 10,420 1,172,949
------------
Prepaid expenses and other assets ............................................. 33,227
------------
Total assets .................................................................. 148,349,022
------------
===================================================================================================================================
Liabilities
- -----------------------------------------------------------------------------------------------------------------------------------
Payables:
Capital shares redeemed .................................................... 607,482
Securities purchased ....................................................... 319,990
Investment adviser ......................................................... 62,937
Distributor ................................................................ 43,387
Other affiliates ........................................................... 35,034 1,068,830
------------
Accrued expenses and other liabilities ........................................ 61,186
------------
Total liabilities ............................................................. 1,130,016
------------
===================================================================================================================================
Net Assets
- -----------------------------------------------------------------------------------------------------------------------------------
Net assets .................................................................... $147,219,006
============
===================================================================================================================================
Net Assets Consist of
- -----------------------------------------------------------------------------------------------------------------------------------
Class A Shares of Common Stock, $.10 par value, 100,000,000 shares authorized . $ 665,008
Class B Shares of Common Stock, $.10 par value, 100,000,000 shares authorized . 238,942
Class C Shares of Common Stock, $.10 par value, 100,000,000 shares authorized . 126,096
Class I Shares of Common Stock, $.10 par value, 100,000,000 shares authorized . 211,580
Paid-in capital in excess of par .............................................. 122,630,002
Undistributed investment income--net .......................................... $ 305,281
Accumulated realized capital losses--net ...................................... (23,172,617)
Unrealized appreciation--net .................................................. 46,214,714
------------
Total accumulated earnings--net ............................................... 23,347,378
------------
Net Assets .................................................................... $147,219,006
============
===================================================================================================================================
Net Asset Value
- -----------------------------------------------------------------------------------------------------------------------------------
Class A--Based on net assets of $79,007,559 and 6,650,077 shares outstanding .. $ 11.88
============
Class B--Based on net assets of $28,298,233 and 2,389,415 shares outstanding .. $ 11.84
============
Class C--Based on net assets of $14,788,663 and 1,260,961 shares outstanding .. $ 11.73
============
Class I--Based on net assets of $25,124,551 and 2,115,801 shares outstanding .. $ 11.87
============
See Notes to Financial Statements.
12 MERRILL LYNCH UTILITIES AND
TELECOMMUNICATIONS FUND, INC. NOVEMBER 30, 2005
Statement of Operations
For the Year Ended November 30, 2005
===================================================================================================================================
Investment Income
- -----------------------------------------------------------------------------------------------------------------------------------
Dividends (net of $159,995 foreign withholding tax) ........................... $ 4,683,286
Interest (including $135,204 from affiliates) ................................. 212,156
------------
Total income .................................................................. 4,895,442
------------
===================================================================================================================================
Expenses
- -----------------------------------------------------------------------------------------------------------------------------------
Investment advisory fees ...................................................... $ 889,003
Account maintenance and distribution fees--Class B ............................ 231,684
Account maintenance fees--Class A ............................................. 195,452
Account maintenance and distribution fees--Class C ............................ 111,102
Transfer agent fees--Class A .................................................. 107,631
Accounting services ........................................................... 100,507
Professional fees ............................................................. 54,872
Printing and shareholder reports .............................................. 51,054
Transfer agent fees--Class B .................................................. 50,189
Directors' fees and expenses .................................................. 44,387
Custodian fees ................................................................ 40,094
Registration fees ............................................................. 37,484
Transfer agent fees--Class I .................................................. 34,711
Transfer agent fees--Class C .................................................. 22,134
Pricing fees .................................................................. 3,753
Other ......................................................................... 25,798
------------
Total expenses ................................................................ 1,999,855
------------
Investment income--net ........................................................ 2,895,587
------------
===================================================================================================================================
Realized & Unrealized Gain (Loss)--Net
- -----------------------------------------------------------------------------------------------------------------------------------
Realized gain (loss) on:
Investments--net ........................................................... 14,121,841
Foreign currency transactions--net ......................................... (35,147) 14,086,694
------------
Change in unrealized appreciation on:
Investments--net ........................................................... 5,840,353
Foreign currency transactions--net ......................................... (2,393) 5,837,960
----------------------------
Total realized and unrealized gain--net ....................................... 19,924,654
------------
Net Increase in Net Assets Resulting from Operations .......................... $ 22,820,241
============
See Notes to Financial Statements.
MERRILL LYNCH UTILITIES AND
TELECOMMUNICATIONS FUND, INC. NOVEMBER 30, 2005 13
Statements of Changes in Net Assets
For the Year Ended
November 30,
---------------------------
Increase (Decrease) in Net Assets: 2005 2004
===================================================================================================================================
Operations
- -----------------------------------------------------------------------------------------------------------------------------------
Investment income--net ........................................................ $ 2,895,587 $ 2,673,097
Realized gain--net ............................................................ 14,086,694 6,229,001
Change in unrealized appreciation--net ........................................ 5,837,960 25,266,567
---------------------------
Net increase in net assets resulting from operations .......................... 22,820,241 34,168,665
---------------------------
===================================================================================================================================
Dividends to Shareholders
- -----------------------------------------------------------------------------------------------------------------------------------
Investment income--net:
Class A .................................................................... (1,690,691) (1,400,106)
Class B .................................................................... (498,453) (493,529)
Class C .................................................................... (231,125) (164,643)
Class I .................................................................... (605,203) (520,382)
---------------------------
Net decrease in net assets resulting from dividends to shareholders ........... (3,025,472) (2,578,660)
---------------------------
===================================================================================================================================
Capital Share Transactions
- -----------------------------------------------------------------------------------------------------------------------------------
Net decrease in net assets derived from capital share transactions ............ (13,372,133) (25,760,427)
---------------------------
===================================================================================================================================
Net Assets
- -----------------------------------------------------------------------------------------------------------------------------------
Total increase in net assets .................................................. 6,422,636 5,829,578
Beginning of year ............................................................. 140,796,370 134,966,792
---------------------------
End of year* .................................................................. $147,219,006 $140,796,370
===========================
* Undistributed investment income--net ..................................... $ 305,281 $ 470,313
===========================
See Notes to Financial Statements.
14 MERRILL LYNCH UTILITIES AND
TELECOMMUNICATIONS FUND, INC. NOVEMBER 30, 2005
Financial Highlights
Class A
------------------------------------------------------------------
For the Year Ended November 30,
The following per share data and ratios have been derived ------------------------------------------------------------------
from information provided in the financial statements. 2005 2004 2003 2002 2001
==================================================================================================================================
Per Share Operating Performance
- ----------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of year ..... $ 10.38 $ 8.23 $ 7.40 $ 9.67 $ 11.81
------------------------------------------------------------------
Investment income--net** ............... .24 .20 .19 .26 .32
Realized and unrealized gain (loss)--net 1.51 2.14 .85 (2.14) (1.46)
------------------------------------------------------------------
Total from investment operations ....... 1.75 2.34 1.04 (1.88) (1.14)
------------------------------------------------------------------
Less dividends and distributions:
Investment income--net .............. (.25) (.19) (.21) (.28) (.33)
Realized gain--net .................. -- -- -- (.11) (.67)
------------------------------------------------------------------
Total dividends and distributions ...... (.25) (.19) (.21) (.39) (1.00)
------------------------------------------------------------------
Net asset value, end of year ........... $ 11.88 $ 10.38 $ 8.23 $ 7.40 $ 9.67
==================================================================
==================================================================================================================================
Total Investment Return*
- ----------------------------------------------------------------------------------------------------------------------------------
Based on net asset value per share ..... 16.95% 28.82% 14.26% (19.83%) (10.67%)
==================================================================
==================================================================================================================================
Ratios to Average Net Assets
- ----------------------------------------------------------------------------------------------------------------------------------
Expenses ............................... 1.23% 1.28% 1.33% 1.26% 1.11%
==================================================================
Investment income--net ................. 2.07% 2.11% 2.42% 3.13% 2.86%
==================================================================
==================================================================================================================================
Supplemental Data
- ----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of year (in thousands) . $ 79,008 $ 73,286 $ 60,142 $ 34,038 $ 36,794
==================================================================
Portfolio turnover ..................... 25.48% 10.89% 21.20% 31.16% 45.66%
==================================================================
* 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, 2005 15
Financial Highlights (continued)
Class B
------------------------------------------------------------------
For the Year Ended November 30,
The following per share data and ratios have been derived ------------------------------------------------------------------
from information provided in the financial statements. 2005 2004 2003 2002 2001
==================================================================================================================================
Per Share Operating Performance
- ----------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of year ..... $ 10.35 $ 8.19 $ 7.37 $ 9.61 $ 11.75
------------------------------------------------------------------
Investment income--net** ............... .18 .14 .16 .22 .26
Realized and unrealized gain (loss)--net 1.49 2.16 .82 (2.13) (1.47)
------------------------------------------------------------------
Total from investment operations ....... 1.67 2.30 .98 (1.91) (1.21)
------------------------------------------------------------------
Less dividends and distributions:
Investment income--net .............. (.18) (.14) (.16) (.22) (.26)
Realized gain--net .................. -- -- -- (.11) (.67)
------------------------------------------------------------------
Total dividends and distributions ...... (.18) (.14) (.16) (.33) (.93)
Net asset value, end of year ........... $ 11.84 $ 10.35 $ 8.19 $ 7.37 $ 9.61
==================================================================
==================================================================================================================================
Total Investment Return*
- ----------------------------------------------------------------------------------------------------------------------------------
Based on net asset value per share ..... 16.26% 28.30% 13.47% (20.16%) (11.25%)
==================================================================
==================================================================================================================================
Ratios to Average Net Assets
- ----------------------------------------------------------------------------------------------------------------------------------
Expenses ............................... 1.75% 1.81% 1.86% 1.77% 1.63%
==================================================================
Investment income--net ................. 1.56% 1.58% 2.08% 2.63% 2.40%
==================================================================
==================================================================================================================================
Supplemental Data
- ----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of year (in thousands) . $ 28,298 $ 31,935 $ 41,317 $ 74,822 $ 147,549
==================================================================
Portfolio turnover ..................... 25.48% 10.89% 21.20% 31.16% 45.66%
==================================================================
* 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, 2005
Financial Highlights (continued)
Class C
------------------------------------------------------------------
For the Year Ended November 30,
The following per share data and ratios have been derived ------------------------------------------------------------------
from information provided in the financial statements. 2005 2004 2003 2002 2001
==================================================================================================================================
Per Share Operating Performance
- ----------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of year ..... $ 10.25 $ 8.13 $ 7.31 $ 9.55 $ 11.68
------------------------------------------------------------------
Investment income--net** ............... .17 .14 .15 .21 .25
Realized and unrealized gain (loss)--net 1.50 2.12 .83 (2.11) (1.45)
------------------------------------------------------------------
Total from investment operations ....... 1.67 2.26 .98 (1.90) (1.20)
------------------------------------------------------------------
Less dividends and distributions:
Investment income--net .............. (.19) (.14) (.16) (.23) (.26)
Realized gain--net .................. -- -- -- (.11) (.67)
------------------------------------------------------------------
Total dividends and distributions ...... (.19) (.14) (.16) (.34) (.93)
------------------------------------------------------------------
Net asset value, end of year ........... $ 11.73 $ 10.25 $ 8.13 $ 7.31 $ 9.55
==================================================================
==================================================================================================================================
Total Investment Return*
- ----------------------------------------------------------------------------------------------------------------------------------
Based on net asset value per share ..... 16.34% 28.03% 13.62% (20.27%) (11.24%)
==================================================================
==================================================================================================================================
Ratios to Average Net Assets
- ----------------------------------------------------------------------------------------------------------------------------------
Expenses ............................... 1.80% 1.85% 1.91% 1.84% 1.69%
==================================================================
Investment income--net ................. 1.49% 1.53% 1.93% 2.55% 2.31%
==================================================================
==================================================================================================================================
Supplemental Data
- ----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of year (in thousands) . $ 14,789 $ 11,898 $ 10,994 $ 10,545 $ 10,194
==================================================================
Portfolio turnover ..................... 25.48% 10.89% 21.20% 31.16% 45.66%
==================================================================
* 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, 2005 17
Financial Highlights (concluded)
Class I
------------------------------------------------------------------
For the Year Ended November 30,
The following per share data and ratios have been derived ------------------------------------------------------------------
from information provided in the financial statements. 2005 2004 2003 2002 2001
==================================================================================================================================
Per Share Operating Performance
- ----------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of year ..... $ 10.37 $ 8.22 $ 7.39 $ 9.66 $ 11.81
------------------------------------------------------------------
Investment income--net** ............... .26 .22 .21 .29 .34
Realized and unrealized gain (loss)--net 1.51 2.14 .84 (2.15) (1.47)
------------------------------------------------------------------
Total from investment operations ....... 1.77 2.36 1.05 (1.86) (1.13)
------------------------------------------------------------------
Less dividends and distributions:
Investment income--net .............. (.27) (.21) (.22) (.30) (.35)
Realized gain--net .................. -- -- -- (.11) (.67)
------------------------------------------------------------------
Total dividends and distributions ...... (.27) (.21) (.22) (.41) (1.02)
------------------------------------------------------------------
Net asset value, end of year ........... $ 11.87 $ 10.37 $ 8.22 $ 7.39 $ 9.66
==================================================================
==================================================================================================================================
Total Investment Return*
- ----------------------------------------------------------------------------------------------------------------------------------
Based on net asset value per share ..... 17.25% 29.16% 14.54% (19.64%) (10.54%)
==================================================================
==================================================================================================================================
Ratios to Average Net Assets
- ----------------------------------------------------------------------------------------------------------------------------------
Expenses ............................... .98% 1.03% 1.07% 1.00% .86%
==================================================================
Investment income--net ................. 2.32% 2.36% 2.77% 3.39% 3.15%
==================================================================
==================================================================================================================================
Supplemental Data
- ----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of year (in thousands) . $ 25,125 $ 23,677 $ 22,514 $ 20,342 $ 26,700
==================================================================
Portfolio turnover ..................... 25.48% 10.89% 21.20% 31.16% 45.66%
==================================================================
* 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, 2005
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 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 asked
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 asked 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 asked
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 based upon quoted fair valuations
received daily by the Fund from a pricing service or counterparty. 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,
money market instruments and certain fixed income securities, 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.
MERRILL LYNCH UTILITIES AND
TELECOMMUNICATIONS FUND, INC. NOVEMBER 30, 2005 19
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.
The Fund invests in foreign securities, which may involve a number of risk
factors and special considerations not present with investments in securities of
U.S. corporations.
(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 substantially 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. 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.
20 MERRILL LYNCH UTILITIES AND
TELECOMMUNICATIONS FUND, INC. NOVEMBER 30, 2005
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, $35,147 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 Plan 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 Plan 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"), an affiliate of MLIM, 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, 2005, 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 ............................ $ 2,219 $41,546
Class I ............................ $ 21 $ 246
- --------------------------------------------------------------------------------
For the year ended November 30, 2005, MLPF&S received contingent deferred sales
charges of $36,304 and $2,001, relating to transactions in Class B Shares and
Class C Shares, respectively.
The Fund has received an exemptive order from the Securities and Exchange
Commission permitting it to lend portfolio securities to MLPF&S or its
affiliates. Pursuant to that order, the Fund also has retained Merrill Lynch
Investment Managers, LLC
MERRILL LYNCH UTILITIES AND
TELECOMMUNICATIONS FUND, INC. NOVEMBER 30, 2005 21
Notes to Financial Statements (continued)
("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.
In addition, MLPF&S received $10,390 in commissions on the execution of
portfolio security transactions for the Fund for the year ended November 30,
2005.
For the year ended November 30, 2005 the Fund reimbursed MLIM $3,675 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, ML & Co., and/or MLIM, LLC.
3. Investments:
Purchases and sales of investments, excluding short-term securities, for the
year ended November 30, 2005 were $36,829,490 and $51,687,902, respectively.
4. Capital Share Transactions:
Net decrease in net assets derived from capital share transactions was
$13,372,133 and $25,760,427 for the years ended November 30, 2005 and November
30, 2004, respectively.
Transactions in capital shares for each class were as follows:
- -------------------------------------------------------------------------------
Class A Shares for the Year Dollar
Ended November 30, 2005 Shares Amount
- -------------------------------------------------------------------------------
Shares sold ................................ 465,190 $ 5,276,033
Automatic conversion of shares ............. 283,666 3,199,572
Shares issued to shareholders
in reinvestment of dividends ............ 116,214 1,322,524
------------------------------
Total issued ............................... 865,070 9,798,129
Shares redeemed ............................ (1,275,616) (14,475,156)
------------------------------
Net decrease ............................... (410,546) $ (4,677,027)
==============================
- -------------------------------------------------------------------------------
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 B Shares for the Year Dollar
Ended November 30, 2005 Shares Amount
- -------------------------------------------------------------------------------
Shares sold ................................ 309,576 $ 3,457,354
Shares issued to shareholders
in reinvestment of dividends ............ 31,715 359,265
------------------------------
Total issued ............................... 341,291 3,816,619
------------------------------
Automatic conversion of shares ............. (284,614) (3,199,572)
Shares redeemed ............................ (754,153) (8,527,451)
------------------------------
Total redeemed ............................. (1,038,767) (11,727,023)
------------------------------
Net decrease ............................... (697,476) $ (7,910,404)
==============================
- -------------------------------------------------------------------------------
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)
------------------------------
Total redeemed ............................. (2,300,546) (20,558,915)
------------------------------
Net decrease ............................... (1,955,542) $(17,403,899)
==============================
- -------------------------------------------------------------------------------
Class C Shares for the Year Dollar
Ended November 30, 2005 Shares Amount
- -------------------------------------------------------------------------------
Shares sold ................................ 372,824 $ 4,174,489
Shares issued to shareholders
in reinvestment of dividends ............ 16,623 187,409
------------------------------
Total issued ............................... 389,447 4,361,898
Shares redeemed ............................ (288,951) (3,263,839)
------------------------------
Net increase ............................... 100,496 $ 1,098,059
==============================
- -------------------------------------------------------------------------------
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 I Shares for the Year Dollar
Ended November 30, 2005 Shares Amount
- -------------------------------------------------------------------------------
Shares sold ................................ 260,026 $ 2,946,308
Shares issued to shareholders
in reinvestment of dividends ............ 45,445 516,186
------------------------------
Total issued ............................... 305,471 3,462,494
Shares redeemed ............................ (472,012) (5,345,255)
------------------------------
Net decrease ............................... (166,541) $ (1,882,761)
==============================
22 MERRILL LYNCH UTILITIES AND
TELECOMMUNICATIONS FUND, INC. NOVEMBER 30, 2005
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)
==============================
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, 2005. On November 23, 2005, 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 $.027056 per Class A
Share, $.016204 per Class B Share, $.015937 per Class C Share, and $.032120 per
Class I Share on December 20, 2005 to shareholders of record on December 14,
2005.
The tax character of distributions paid during the fiscal years ended November
30, 2005 and November 30, 2004 was as follows:
- --------------------------------------------------------------------------------
11/30/2005 11/30/2004
- --------------------------------------------------------------------------------
Distributions paid from:
Ordinary income ......................... $ 3,025,472 $ 2,578,660
------------------------------
Total taxable distributions ................ $ 3,025,472 $ 2,578,660
==============================
As of November 30, 2005, the components of accumulated earnings on a tax basis
were as follows:
- --------------------------------------------------------------------------------
Undistributed ordinary income--net .................... $305,281
Undistributed long-term capital gains--net ............ --
-----------
Total undistributed earnings--net ..................... 305,281
Capital loss carryforward ............................. (23,172,617)*
Unrealized gains--net ................................. 46,214,714
-----------
Total accumulated earnings--net ....................... $23,347,378
===========
* On November 30, 2005, the Fund had a net capital loss carryforward
of $23,172,617, of which $20,663,752 expires in 2010 and $2,508,865
expires in 2011. This amount will be available to offset like
amounts of any future taxable gains.
MERRILL LYNCH UTILITIES AND
TELECOMMUNICATIONS FUND, INC. NOVEMBER 30, 2005 23
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, 2005, 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. The Fund
is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. Our audits included consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Fund's internal control over
financial reporting. Accordingly, we express no such opinion. An audit also
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. Our procedures included confirmation
of securities owned as of November 30, 2005, by correspondence with the
custodian and brokers; where replies were not received from brokers, we
performed other auditing procedures. 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,
2005, 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 18, 2006
Important Tax Information (unaudited)
The following information is provided with respect to the quarterly
distributions paid by Merrill Lynch Utilities and Telecommunications Fund, Inc.
during the fiscal year ended November 30, 2005:
- --------------------------------------------------------------------------------------------
Qualified Dividend Income for Individuals ......................................... 100%
Dividends Qualifying for the Dividends Received Deduction for Corporations ........ 100%
- --------------------------------------------------------------------------------------------
24 MERRILL LYNCH UTILITIES AND
TELECOMMUNICATIONS FUND, INC. NOVEMBER 30, 2005
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
- ------------------------------------------------------------------------------------------------------------------------------------
Robert C. P.O. Box 9011 President 2005 to President of the MLIM/FAM-advised funds since 2005; 131 Funds None
Doll, Jr.* Princeton, NJ and present President of MLIM and FAM since 2001; Co-Head 177 Portfolios
08543-9011 Director (Americas Region) thereof from 2000 to 2001 and
Age: 51 Senior Vice President from 1999 to 2001; President
and Director of Princeton Services, Inc. ("Princeton
Services") since 2001; President of Princeton
Administrators, L.P. ("Princeton Administrators")
2001; Chief Investment Officer of Oppenheimer-
Funds, Inc. in 1999 and Executive Vice President
thereof from 1991 to 1999.
------------------------------------------------------------------------------------------------------------------------
* Mr. Doll 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. Doll is an "interested person," as described in the Investment Company
Act, of the Fund based on his current positions with MLIM, FAM, Princeton Services and Princeton Administrators.
Directors serve until their resignation, removal or death, or until December 31 of the year in which they turn 72.
As Fund President, Mr. Doll 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, 49 Funds None
Forbes** Princeton, NJ present State University of New York at Albany since 2000 50 Portfolios
08543-9095 and Professor thereof from 1989 to 2000; International
Age: 65 Consultant, Urban Institute, Washington, DC from
1995 to 1999.
- ------------------------------------------------------------------------------------------------------------------------------------
Cynthia A. P.O. Box 9095 Director 1994 to Professor, Harvard Business School since 1989; 49 Funds Newell
Montgomery Princeton, NJ present Associate Professor, J.L. Kellogg Graduate School 50 Portfolios Rubbermaid,
08543-9095 of Management, Northwestern University from Inc.
Age: 53 1985 to 1989; Associate Professor, Graduate (manufactur-
School of Business Administration, University of ing)
Michigan from 1979 to 1985; Director, Harvard
School of Publishing since 2005.
- ------------------------------------------------------------------------------------------------------------------------------------
Jean Margo P.O. Box 9095 Director 2004 to Self-employed consultant since 2001; Counsel of 49 Funds None
Reid Princeton, NJ present Alliance Capital Management (investment 50 Portfolios
08543-9095 adviser) in 2000; General Counsel, Director and
Age: 60 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; and Director of Covenant
House from 2001 to 2004.
- ------------------------------------------------------------------------------------------------------------------------------------
Roscoe S. P.O. Box 9095 Director 2000 to President, Middle East Institute from 1995 to 2001; 49 Funds None
Suddarth Princeton, NJ present Foreign Service Officer, United States Foreign 50 Portfolios
08543-9095 Service,from 1961 to 1995 and Career Minister from
Age: 70 1989 to 1995; Deputy Inspector General, U.S.
Department of State from 1991 to 1994; U.S. Ambassador
to the Hashemite Kingdom of Jordan from 1987 to 1990.
- ------------------------------------------------------------------------------------------------------------------------------------
MERRILL LYNCH UTILITIES AND
TELECOMMUNICATIONS FUND, INC. NOVEMBER 30, 2005 25
Officers and Directors (concluded)
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)
- ------------------------------------------------------------------------------------------------------------------------------------
Richard R. P.O. Box 9095 Director 1990 to Professor of Finance from 1984 to 1995, Dean from 49 Funds Bowne &
West Princeton, NJ present 1984 to 1993 and since 1995 Dean Emeritus of 50 Portfolios Co., Inc.
08543-9095 New York University's Leonard N. Stern School of (financial
Age: 67 Business Administration. printers);
Vornado
Realty Trust
(real estate
company);
Alexander's,
Inc. (real
estate
company)
- ------------------------------------------------------------------------------------------------------------------------------------
Edward D. P.O. Box 9095 Director 2000 to Self-employed financial consultant since 1994; 49 Funds None
Zinbarg Princeton, NJ present Executive Vice President of the Prudential Insurance 50 Portfolios
08543-9095 Company of America from 1988 to 1994; Former
Age: 71 Director of Prudential Reinsurance Company and
former Trustee of the Prudential Foundation.
------------------------------------------------------------------------------------------------------------------------
* Directors serve until their resignation, removal or death, or until December 31 of the year in which they turn 72.
** Chairman of the Board and the Audit Committee.
- ------------------------------------------------------------------------------------------------------------------------------------
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 1999 since 2004; Vice President of FAM Distributors, Inc. ("FAMD") since 1999 and
Age: 45 Treasurer to Director since 2004; Vice President of MLIM and FAM from 1990 to 1997; Director of
present Taxation of MLIM from 1990 to 2001; Vice President, Treasurer and Secretary of the
IQ Funds since 2004.
- ------------------------------------------------------------------------------------------------------------------------------------
Kathleen M. P.O. Box 9011 Vice 2002 to Director of MLIM since 2000; Vice President of MLIM from 1994 to 2000.
Anderson Princeton, NJ President present
08543-9011
Age: 47
- ------------------------------------------------------------------------------------------------------------------------------------
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 (Americas Region) since 2004; Chief Compliance
08543-9011 Officer Officer of the IQ Funds since 2004; Global Director of Compliance at Morgan Stanley
Age: 54 Investment Management from 2002 to 2004; Managing Director and 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; Senior Counsel in the Commission's Division of
Enforcement in Washington, D.C. from 1990 to 1995.
- ------------------------------------------------------------------------------------------------------------------------------------
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. Secretary of MLIM, FAM, FAMD and
08543-9011 Princeton Services since 2004.
Age: 45
------------------------------------------------------------------------------------------------------------------------
* 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
JPMorgan Chase Bank, N.A.
3 Chase MetroTech Center
Brooklyn, NY 11245
Transfer Agent
Financial Data Services, Inc.
4800 Deer Lake Drive East
Jacksonville, FL 32246-6484
800-637-3863
26 MERRILL LYNCH UTILITIES AND
TELECOMMUNICATIONS FUND, INC. NOVEMBER 30, 2005
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.
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, 2005 27
[LOGO] Merrill Lynch Investment Managers
www.mlim.ml.com
- --------------------------------------------------------------------------------
Mercury Advisors
A Division of Merrill Lynch Investment Managers
www.mercury.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 -- 11/05
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, 2005 - $31,000
Fiscal Year Ending November 30, 2004 - $30,500
(b) Audit-Related Fees - Fiscal Year Ending November 30, 2005 - $0
Fiscal Year Ending November 30, 2004 - $0
(c) Tax Fees - Fiscal Year Ending November 30, 2005 - $5,700
Fiscal Year Ending November 30, 2004 - $5,800
The nature of the services include tax compliance, tax advice and tax
planning.
(d) All Other Fees - Fiscal Year Ending November 30, 2005 - $0
Fiscal Year Ending November 30, 2004 - $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, 2005 - $5,738,110
Fiscal Year Ending November 30, 2004 - $12,448,225
(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) - $1,227,000, 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 - Portfolio Managers of Closed-End Management Investment Companies - Not
Applicable
Item 9 - Purchases of Equity Securities by Closed-End Management Investment
Company and Affiliated Purchasers - Not Applicable
Item 10 - Submission of Matters to a Vote of Security Holders - Not Applicable
Item 11 - Controls and Procedures
11(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.
11(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 12 - Exhibits attached hereto
12(a)(1) - Code of Ethics - See Item 2
12(a)(2) - Certifications - Attached hereto
12(a)(3) - Not Applicable
12(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.,
Chief Executive Officer of
Merrill Lynch Utilities and Telecommunications Fund, Inc.
Date: January 25, 2006
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.,
Chief Executive Officer of
Merrill Lynch Utilities and Telecommunications Fund, Inc.
Date: January 25, 2006
By: /s/ Donald C. Burke
-----------------------
Donald C. Burke,
Chief Financial Officer of
Merrill Lynch Utilities and Telecommunications Fund, Inc.
Date: January 25, 2006