N-CSR/A 1 e500370_ncsr-mlutiltelefund.txt AMENDMENT TO ANNUAL REPORT UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM N-CSR CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES Investment Company Act file number 811-06180 Name of Fund: Merrill Lynch Utilities and Telecommunications Fund, Inc. Fund Address: P.O. Box 9011 Princeton, NJ 08543-9011 Name and address of agent for service: Robert C. Doll, Jr., President, Merrill Lynch Utilities and Telecommunications Fund, Inc., 800 Scudders Mill Road, Plainsboro, NJ 08536. Mailing address: P.O. Box 9011, Princeton, NJ 08543-9011 Registrant's telephone number, including area code: (609) 282-2800 Date of fiscal year end: 11/30/04 Date of reporting period: 12/01/03 - 11/30/04 Item 1 - Report to Stockholders [LOGO] Merrill Lynch Investment Managers www.mlim.ml.com Merrill Lynch Utilities and Telecommunications Fund, Inc. Annual Report November 30, 2004 [LOGO] Merrill Lynch Investment Managers Merrill Lynch Utilities and Telecommunications Fund, Inc. Industry Classification* as a Percentage of Total Investments as of November 30, 2004 A pie graph depicting Industry Classification* as a percentage of Total Investments as of November 30, 2004 Gas Utilities 5.6% Media 0.6% Oil & Gas 5.1% Wireless Telecommunication Services 4.9% Multi-Utilities & Unregulated Power 14.2% Electric Utilities 39.5% Diversified Telecommunication Services 25.6% Metals & Mining 1.3% Other** 3.2% * For Fund compliance purposes, "Industry" means any one or more of the industry sub-classifications used by one or more widely recognized market indexes or ratings group indexes, and/or as defined by Fund management. This definition may not apply for purposes of this report, which may combine such industry sub-classifications for reporting ease. ** Includes portfolio holdings in short-term securities. Portfolio Information as of November 30, 2004 Percent of Geographical Diversification Equities -------------------------------------------------------------------------------- United States ........................................... 70.8% Canada .................................................. 6.0 Spain ................................................... 5.8 United Kingdom .......................................... 5.3 Germany ................................................. 4.6 Italy ................................................... 3.0 Mexico .................................................. 1.5 France .................................................. 0.9 Belgium ................................................. 0.7 Portugal ................................................ 0.6 Japan ................................................... 0.5 Hong Kong ............................................... 0.3 Ten Largest Holdings Percent of (Equity Investments) Net Assets -------------------------------------------------------------------------------- TXU Corporation ......................................... 4.4% Verizon Communications .................................. 3.9 Exelon Corporation ...................................... 3.1 Dominion Resources, Inc. ................................ 3.1 BCE Inc. ................................................ 2.7 BellSouth Corporation ................................... 2.7 SBC Communications Inc. ................................. 2.6 PPL Corporation ......................................... 2.5 Entergy Corporation ..................................... 2.4 Telefonica SA ........................................... 2.4 2 MERRILL LYNCH UTILITIES AND TELECOMMUNICATIONS FUND, INC. NOVEMBER 30, 2004 A Letter From the President Dear Shareholder As we ended the current reporting period, several topics weighed heavily on investors' minds. Among them were questions about economic growth, corporate earnings, interest rates and inflation, politics, the price of oil and terrorism -- all issues that are worth addressing here. While the pace of economic expansion slowed somewhat between the first and second quarters of 2004, gross domestic product reaccelerated in the third quarter and is expected to approach 4% for the year. The generally favorable economic environment has benefited American corporations, which continued to post strong earnings. Although the extraordinary results seen in 2004 are likely to moderate in 2005, solid productivity, improved revenue growth and cost discipline all point to a vital corporate sector. In terms of inflation and interest rates, the Federal Reserve Board has signaled its confidence in the economic recovery by increasing the Federal Funds target rate five times since June 2004, from 1% to 2.25% as of the December 14 Federal Open Market Committee meeting. Inflation, for its part, has remained fairly subdued. While the re-election of President Bush was generally viewed as business-friendly, the rising price of oil continued to be a concern for consumers and corporations. Although the price of oil has exceeded $50 per barrel recently, the situation is far from the crisis proportions we saw in the 1980s. Lastly, but importantly, terrorism and geopolitical tensions are unwelcome realities we are forced to live with today. Historically, however, the financial effects of any single event tend to be short-lived. Amid the ambiguities, the Standard & Poor's 500 Index returned +12.86% for the 12-month period and +5.68% for the six-month period ended November 30, 2004. As always, our investment professionals are closely monitoring the markets, the economy and the overall environment in an effort to make well-informed decisions for the portfolios they manage. For the individual investor, the key during uncertain times is to remain focused on the big picture. While tracking current events is important, investment success comes from maintaining a long-term perspective and adhering to the disciplines of asset allocation, diversification and rebalancing. We encourage you to work with your financial advisor to ensure these time-tested techniques are incorporated into your investment plan. Finally, after 35 years in the asset management business, it is with great satisfaction and some nostalgia that I embark on my retirement, effective January 1, 2005. The industry has evolved significantly over the past three and a half decades, and I am privileged to have been a part of it. I wish you continued success as you pursue your investment goals and, as always, I thank you for allowing Merrill Lynch Investment Managers to be a part of your financial life. Sincerely, /s/ Terry K. Glenn Terry K. Glenn President and Director MERRILL LYNCH UTILITIES AND TELECOMMUNICATIONS FUND, INC. NOVEMBER 30, 2004 3 [LOGO] Merrill Lynch Investment Managers A Discussion With Your Fund's Portfolio Manager The Fund's return for the fiscal year was in line with that of the S&P Utility Index and outpaced the broad-market S&P 500 Index and the Lipper Utility Funds average. How did the Fund perform during the fiscal year in light of the existing market conditions? The utility sector clearly outperformed the broad U.S. equity market, as measured by the Standard & Poor's (S&P) 500 Index, for the past 12-month and six-month periods. For the 12-month period ended November 30, 2004, Merrill Lynch Utilities and Telecommunications Fund, Inc.'s Class A, Class B, Class C and Class I Shares had total returns of +28.82%, +28.30%, +28.03% and +29.16%, respectively. (Fund results shown do not reflect sales charges and would be lower if sales charges were included. Complete performance information can be found on pages 6 - 8 of this report to shareholders.) For the same period, the Fund's benchmarks, the S&P 500 Index and the S&P Utility Index, posted respective returns of +12.86% and +29.21%, while its comparable Lipper category of Utility Funds returned +27.06%. (Funds in this Lipper category invest at least 65% of their equity portfolios in utility shares.) For the six-month period ended November 30, 2004, the Fund's Class A, Class B, Class C and Class I Shares recorded total returns of +18.70%, +18.44%, +18.37% and +18.87%, respectively. For the same period, the S&P 500 Index and the S&P Utility Index returned +5.68% and +18.46%, respectively, and the Lipper Utility Funds category had an average return of +17.43%. As mentioned in the semi-annual report to shareholders dated May 31, 2004, we have seen significant new money come into dividend-paying securities in the form of several new closed-end funds. It is estimated that those funds added $9 billion of new capital, and many of them have minimum yield requirements. One of the largest net beneficiaries of this trend has been the domestic electric utility sector and, secondarily, the telecommunication services sector. Early in the fiscal year, this phenomenon raised valuation levels for many stocks in the domestic electric sector to historic highs. This is evidenced by the significant rise of the S&P Utility Index, as electric utility stocks comprise more than 50% of the representative holdings in the Index. The performance of the domestic telecommunications sector was more mixed. Investors focused more on companies that have substantial wireless versus wireline assets. Verizon Corp. was the clear performance winner over both BellSouth Corporation and SBC Communications Inc. Moreover, the acquisition of AT&T Wireless by Cingular (the wireless joint venture between BellSouth and SBC) also negatively affected the performance of the two stocks. Sprint Corp. benefited from strong buying activity in its wireless tracking stock, Sprint PCS. What changes were made to the portfolio during the year? Portfolio diversification remained relatively stable throughout the fiscal year, although we added approximately 19 new holdings across various sectors. These were mainly stocks of companies located in North America. In telecommunications, the underlying investment theme was increasing the Fund's exposure to the wireless sector. We added several new holdings in the gas utility sector. We believe these stocks offer the potential for strong total returns, given their current valuations and secondary share offerings, which increased the companies' liquidity and reduced the risk of further secondary offerings in the near term. On the electric utility side, we added two positions in the United States, PG&E Corporation and Aquila Inc., as the outlook for these companies was improving and, in our view, was not fully reflected in their share prices. We increased our exposure to the water sector with the addition of relatively small positions in two French-based companies, Veolia Environment and Suez SA. On the sell side, we reduced a number of holdings that had reached our price targets, using the proceeds to fund our purchases of other stocks that we believed were more attractive. 4 MERRILL LYNCH UTILITIES AND TELECOMMUNICATIONS FUND, INC. NOVEMBER 30, 2004 How would you characterize the Fund's position at the close of the period? The Fund remains well diversified across the various utility sectors and geographic regions. The United States is still the dominant market for this sector, but Spain, Germany, the United Kingdom and Italy are also important markets. In fact, as of November 30, 2004, nearly 21% of the Fund's net assets was invested in Europe and the United Kingdom. Canada also remains an attractive market, particularly on the telecommunications side. The level of diversification reduces industry-specific risk, such as regulation, and macroeconomic risk, such as interest rate movement. The Fund's sector weightings continue to be driven by our outlook for valuations and fundamentals on a stock-by-stock basis. The U.S. electric utility sector remains the portfolio's largest investment allocation, given the number of companies listed within the sector and their relative market-capitalization weighting. Telecommunication services companies are more globally diversified and, for the most part, have large market capitalizations. However, the number of listed companies in telecommunications is smaller than that of the electric sector. These two factors also have an impact on the composition of the portfolio. The Fund continues to seek capital appreciation and total return. The more recent theme within the utility sector, both in the United States and in Europe, is focused on returning cash to shareholders. This is being accomplished mainly through increases in dividends. In some cases, companies have the financial flexibility to increase dividends as well as buy back their shares. Fundamentals also are improving, particularly for electric utility stocks. Balance sheets are in good shape, demand for electricity continues to grow and the regulatory environment has remained constructive. Thus, we have seen some significant price appreciation in several of our holdings, including TXU Corp. and Exelon Corp. Within the telecommunications segment of the portfolio, there is more of a mixed picture, as several companies need to continue spending for next-generation technology (particularly on the wireless side) and, therefore, must take this into account when deciding on the level of dividend growth. Overall, the theme of returning cash to shareholders and creating shareholder value is one that is expected to continue. Many companies in the utility sector have made mistakes in the past on new investments and acquisitions in non-core businesses, but it seems the industry has moved past that for the time being. We believe the Fund is appropriately positioned for the current environment, balancing stocks that should show better-than-average price appreciation within their industries as a result of improving fundamentals, and stocks that have dividend yields above the group average and offer modest growth. We thank you for your continued investment and look forward to discussing the Fund's results in future reports to shareholders. Kathleen M. Anderson Vice President and Portfolio Manager December 15, 2004 MERRILL LYNCH UTILITIES AND TELECOMMUNICATIONS FUND, INC. NOVEMBER 30, 2004 5 [LOGO] Merrill Lynch Investment Managers Performance Data About Fund Performance Investors are able to purchase shares of the Fund through multiple pricing alternatives: o Class A Shares incur a maximum initial sales charge (front-end load) of 4% and an account maintenance fee of 0.25% per year (but no distribution fee). o Class B Shares are subject to a maximum contingent deferred sales charge of 4% declining to 0% after six years. All Class B Shares purchased prior to June 1, 2001 will maintain the four-year schedule. In addition, Class B Shares are subject to a distribution fee of 0.50% per year and an account maintenance fee of 0.25% per year. These shares automatically convert to Class A Shares after approximately ten years. (There is no initial sales charge for automatic share conversions.) o Class C Shares are subject to a distribution fee of 0.55% per year and an account maintenance fee of 0.25% per year. In addition, Class C Shares are subject to a 1% contingent deferred sales charge if redeemed within one year of purchase. o Class I Shares incur a maximum initial sales charge (front-end load) of 4% and bear no ongoing distribution or account maintenance fees. Class I Shares are available only to eligible investors. None of the past results shown should be considered a representation of future performance. Current performance may be lower or higher than the performance data quoted. Refer to www.mlim.ml.com to obtain performance data current to the most recent month-end. Performance results do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. Figures shown in each of the following tables assume reinvestment of all dividends and capital gain distributions, if any, at net asset value on the ex-dividend date. Investment return and principal value of shares will fluctuate so that shares, when redeemed, may be worth more or less than their original cost. Dividends paid to each class of shares will vary because of the different levels of account maintenance, distribution and transfer agency fees applicable to each class, which are deducted from the income available to be paid to shareholders. Recent Performance Results
6-Month 12-Month 10-Year As of November 30, 2004 Total Return Total Return Total Return ==================================================================================================================== ML Utilities and Telecommunications Fund, Inc. Class A Shares* +18.70% +28.82% +144.77% -------------------------------------------------------------------------------------------------------------------- ML Utilities and Telecommunications Fund, Inc. Class B Shares* +18.44 +28.30 +132.41 -------------------------------------------------------------------------------------------------------------------- ML Utilities and Telecommunications Fund, Inc. Class C Shares* +18.37 +28.03 +131.91 -------------------------------------------------------------------------------------------------------------------- ML Utilities and Telecommunications Fund, Inc. Class I Shares* +18.87 +29.16 +150.99 -------------------------------------------------------------------------------------------------------------------- S&P 500(R) Index** + 5.68 +12.86 +206.78 -------------------------------------------------------------------------------------------------------------------- S&P Utilities Index*** +18.46 +29.21 +114.69 --------------------------------------------------------------------------------------------------------------------
* Investment results shown do not reflect sales charges; results shown would be lower if a sales charge was included. Total investment returns are based on changes in net asset values for the periods shown, and assume reinvestment of all dividends and capital gains distributions at net asset value on the ex-dividend date. ** The S&P 500 Index covers 500 industrial, utility, transportation and financial companies of the U.S. markets (mostly NYSE issues). The unmanaged Index represents about 75% of NYSE market capitalization and 30% of NYSE issues. *** This unmanaged capitalization Index is comprised of all stocks designed to measure the performance of electric and natural gas utilities within the S&P 500 Index. S&P 500 is a registered trademark of the McGraw-Hill Companies. 6 MERRILL LYNCH UTILITIES AND TELECOMMUNICATIONS FUND, INC. NOVEMBER 30, 2004 Performance Data (continued) Total Return Based on a $10,000 Investment--Class A & Class B Shares. A line graph depicting the growth of an investment in the Fund's Class A & Class B Shares compared to growth of an investment in the S&P Utilities Index and S&P 500 Index. Values are from November 1994 to November 2004.
11/94 11/95 11/96 11/97 11/98 ML Utilities and Telecommunications Fund, Inc.+--Class A Shares* $ 9,600 $11,156 $13,102 $15,637 $19,717 ML Utilities and Telecommunications Fund, Inc.+--Class B Shares* $10,000 $11,538 $13,508 $16,043 $20,118 11/99 11/00 11/01 11/02 11/03 11/04 ML Utilities and Telecommunications Fund, Inc.+--Class A Shares* $21,288 $22,292 $19,914 $15,965 $18,242 $23,498 ML Utilities and Telecommunications Fund, Inc.+--Class B Shares* $21,609 $22,528 $19,994 $15,964 $18,114 $23,241 11/94 11/95 11/96 11/97 11/98 S&P 500 Index ++ $10,000 $13,698 $17,515 $22,509 $27,835 11/99 11/00 11/01 11/02 11/03 11/04 S&P 500 Index ++ $33,651 $32,231 $28,291 $23,619 $27,183 $30,678 11/94 11/95 11/96 11/97 11/98 S&P Utilities Index +++ $10,000 $12,619 $14,204 $16,352 $19,600 11/99 11/00 11/01 11/02 11/03 11/04 S&P Utilities Index +++ $18,166 $26,355 $19,549 $13,494 $16,615 $21,469
* Assuming maximum sales charge, transaction costs and other operating expenses, including advisory fees. + ML Utilities and Telecommunications Fund, Inc. invests at least 80% of its total assets in equity and debt securities issued by domestic and foreign companies that are, in the opinion of the Investment Adviser, primarily engaged in the ownership or operation of facilities used to generate, transmit or distribute electricity, telecommunications, gas or water. ++ The S&P 500 Index covers 500 industrial, utility, transportation and financial companies of the U.S. markets (mostly NYSE issues). The unmanaged Index represents about 75% of NYSE market capitalization and 30% of NYSE issues. +++ This unmanaged capitalization Index is comprised of all stocks designed to measure the performance of electric and natural gas utilities within the S&P 500 Index. Average Annual Total Return Return Without Return With Sales Charge Sales Charge** ================================================================================ Class A Shares* ================================================================================ One Year Ended 11/30/04 +28.82% +23.66% -------------------------------------------------------------------------------- Five Years Ended 11/30/04 + 2.00 + 1.17 -------------------------------------------------------------------------------- Ten Years Ended 11/30/04 + 9.36 + 8.92 -------------------------------------------------------------------------------- * Maximum sales charge is 4%. ** Assuming maximum sales charge. Return Return Without CDSC With CDSC** ================================================================================ Class B Shares* ================================================================================ One Year Ended 11/30/04 +28.30% +24.30% -------------------------------------------------------------------------------- Five Years Ended 11/30/04 + 1.47 + 1.26 -------------------------------------------------------------------------------- Ten Years Ended 11/30/04 + 8.80 + 8.80 -------------------------------------------------------------------------------- * Maximum contingent deferred sales charge is 4% and is reduced to 0% after six years. ** Assuming payment of applicable contingent deferred sales charge. MERRILL LYNCH UTILITIES AND TELECOMMUNICATIONS FUND, INC. NOVEMBER 30, 2004 7 [LOGO] Merrill Lynch Investment Managers Performance Data (concluded) Total Return Based on a $10,000 Investment--Class C & Class I Shares. A line graph depicting the growth of an investment in the Fund's Class C & Class I Shares compared to growth of an investment in the S&P Utilities Index and S&P 500 Index. Values are from November 1994 to November 2004.
11/94 11/95 11/96 11/97 11/98 ML Utilities and Telecommunications Fund, Inc.+--Class C Shares* $10,000 $11,538 $13,503 $16,022 $20,083 ML Utilities and Telecommunications Fund, Inc.+--Class I Shares* $96,000 $11,169 $13,173 $15,761 $19,933 S&P 500 Index ++ $10,000 $13,698 $17,515 $22,509 $27,835 S&P Utilities Index +++ $10,000 $12,619 $14,204 $16,352 $19,600 11/99 11/00 11/01 11/02 11/03 11/04 ML Utilities and Telecommunications Fund, Inc.+--Class C Shares* $21,556 $22,528 $19,996 $15,942 $18,113 $23,191 ML Utilities and Telecommunications Fund, Inc.+--Class I Shares* $21,562 $22,655 $20,266 $16,286 $18,655 $24,095 S&P 500 Index ++ $33,651 $32,231 $28,291 $23,619 $27,183 $30,678 S&P Utilities Index +++ $18,166 $26,355 $19,549 $13,494 $16,615 $21,469
* Assuming maximum sales charge, transaction costs and other operating expenses, including advisory fees. + ML Utilities and Telecommunications Fund, Inc. invests at least 80% of its total assets in equity and debt securities issued by domestic and foreign companies that are, in the opinion of the Investment Adviser, primarily engaged in the ownership or operation of facilities used to generate, transmit or distribute electricity, telecommunications, gas or water. ++ The S&P 500 Index covers 500 industrial, utility, transportation and financial companies of the U.S. markets (mostly NYSE issues). The unmanaged Index represents about 75% of NYSE market capitalization and 30% of NYSE issues. +++ This unmanaged capitalization Index is comprised of all stocks designed to measure the performance of electric and natural gas utilities within the S&P 500 Index. Average Annual Total Return Return Return Without CDSC With CDSC** ================================================================================ Class C Shares* ================================================================================ One Year Ended 11/30/04 +28.03% +27.03% -------------------------------------------------------------------------------- Five Years Ended 11/30/04 + 1.47 + 1.47 -------------------------------------------------------------------------------- Ten Years Ended 11/30/04 + 8.78 + 8.78 -------------------------------------------------------------------------------- * Maximum contingent deferred sales charge is 1% and is reduced to 0% after one year. ** Assuming payment of applicable contingent deferred sales charge. Return Without Return With Sales Charge Sales Charge** ================================================================================ Class I Shares* ================================================================================ One Year Ended 11/30/04 +29.16% +24.00% -------------------------------------------------------------------------------- Five Years Ended 11/30/04 + 2.25 + 1.42 -------------------------------------------------------------------------------- Ten Years Ended 11/30/04 + 9.64 + 9.19 -------------------------------------------------------------------------------- * Maximum sales charge is 4%. ** Assuming maximum sales charge. 8 MERRILL LYNCH UTILITIES AND TELECOMMUNICATIONS FUND, INC. NOVEMBER 30, 2004 Disclosure of Expenses Shareholders of this Fund may incur the following charges: (a) expenses related to transactions, including sales charges, redemption fees and exchange fees; and (b) operating expenses including advisory fees, distribution fees including 12(b)-1 fees, and other Fund expenses. The following example (which is based on a hypothetical investment of $1,000 invested on June 1, 2004 and held through November 30, 2004) is intended to assist shareholders both in calculating expenses based on an investment in the Fund and in comparing these expenses with similar costs of investing in other mutual funds: The first table below provides information about actual account values and actual expenses. In order to estimate the expenses a shareholder paid during the period covered by this report, shareholders can divide their account value by $1,000 and then multiply the result by the number in the first line under the heading entitled "Expenses Paid During the Period." The second table below provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses. In order to assist shareholders in comparing the ongoing expenses of investing in this Fund and other funds, compare the 5% hypothetical example with the 5% hypothetical examples that appear in other funds' shareholder reports. The expenses shown in the table are intended to highlight shareholders ongoing costs only and do not reflect any transactional expenses, such as sales charges, redemption fees or exchange fees. Therefore, the second table is useful in comparing ongoing expenses only, and will not help shareholders determine the relative total expenses of owning different funds. If these transactional expenses were included, shareholder expenses would have been higher.
Expenses Paid Beginning Ending During the Period* Account Value Account Value June 1, 2004 to June 1, 2004 November 30, 2004 November 30, 2004 ========================================================================================================= Actual ========================================================================================================= Class A $1,000 $1,187.00 $ 7.02 --------------------------------------------------------------------------------------------------------- Class B $1,000 $1,184.40 $ 9.96 --------------------------------------------------------------------------------------------------------- Class C $1,000 $1,183.70 $10.18 --------------------------------------------------------------------------------------------------------- Class I $1,000 $1,188.70 $ 5.63 ========================================================================================================= Hypothetical (5% annual return before expenses)** ========================================================================================================= Class A $1,000 $1,019.06 $ 6.48 --------------------------------------------------------------------------------------------------------- Class B $1,000 $1,016.36 $ 9.20 --------------------------------------------------------------------------------------------------------- Class C $1,000 $1,016.15 $ 9.40 --------------------------------------------------------------------------------------------------------- Class I $1,000 $1,020.33 $ 5.20 ---------------------------------------------------------------------------------------------------------
* For each class of the Fund, expenses are equal to the annualized expense ratio for the class (1.26% for Class A, 1.79% for Class B, 1.83% for Class C and 1.01% for Class I), multiplied by the average account value over the period, multiplied by 186/365 (to reflect the one-half year period shown). ** Hypothetical 5% annual return before expenses is calculated by pro-rating the number of days in the most recent fiscal half-year divided by 365. MERRILL LYNCH UTILITIES AND TELECOMMUNICATIONS FUND, INC. NOVEMBER 30, 2004 9 [LOGO] Merrill Lynch Investment Managers Schedule of Investments
Value Country Industry* Shares Held Common Stocks (in U.S. dollars) =================================================================================================================================== Belgium--0.7% Wireless Telecommunication 11,100 +Mobistar SA $ 929,405 Services--0.7% -------------------------------------------------------------------------------------------------------------- Total Common Stocks in Belgium 929,405 =================================================================================================================================== Brazil--0.9% Electric Utilities--0.9% 70,000 +CPFL Energia SA (ADR) (a) 1,256,500 -------------------------------------------------------------------------------------------------------------- Total Common Stocks in Brazil 1,256,500 =================================================================================================================================== Canada--5.7% Diversified Telecommunication 156,900 BCE Inc. 3,804,825 Services--3.7% 50,500 BCT.Telus Communications Inc. 1,382,427 224 BCT.Telus Communications Inc. (A Shares) 5,733 ------------ 5,192,985 -------------------------------------------------------------------------------------------------------------- Oil & Gas--1.7% 22,300 EnCana Corp. 1,271,553 42,000 Talisman Energy Inc. 1,183,560 ------------ 2,455,113 -------------------------------------------------------------------------------------------------------------- Wireless Telecommunication 43,500 Stratos Global Corporation 400,593 Services--0.3% -------------------------------------------------------------------------------------------------------------- Total Common Stocks in Canada 8,048,691 =================================================================================================================================== France--0.9% Diversified Telecommunication 2,700 France Telecom SA 84,795 Services--0.1% -------------------------------------------------------------------------------------------------------------- Multi-Utilities & Unregulated 31,000 Suez SA 728,838 Power--0.8% 14,200 Veolia Environment 447,845 ------------ 1,176,683 -------------------------------------------------------------------------------------------------------------- Total Common Stocks in France 1,261,478 =================================================================================================================================== Germany--4.4% Diversified Telecommunication 150,000 +Deutsche Telekom AG (Registered Shares) 3,185,733 Services--2.3% -------------------------------------------------------------------------------------------------------------- Electric Utilities--1.8% 29,700 E.On AG 2,499,812 -------------------------------------------------------------------------------------------------------------- Multi-Utilities & Unregulated 9,000 RWE AG 478,338 Power--0.3% -------------------------------------------------------------------------------------------------------------- Total Common Stocks in Germany 6,163,883 =================================================================================================================================== Hong Kong--0.2% Electric Utilities--0.2% 620,000 +China Resources Power Holdings Company Limited 346,839 -------------------------------------------------------------------------------------------------------------- Total Common Stocks in Hong Kong 346,839 =================================================================================================================================== Italy--2.9% Diversified Telecommunication 327,776 Telecom Italia SpA 1,256,795 Services--1.9% 494,800 Telecom Italia SpA--RNC 1,365,207 ------------ 2,622,002 -------------------------------------------------------------------------------------------------------------- Electric Utilities--1.0% 166,600 Enel SpA 1,483,070 -------------------------------------------------------------------------------------------------------------- Total Common Stocks in Italy 4,105,072 =================================================================================================================================== Japan--0.5% Wireless Telecommunication 400 NTT DoCoMo, Inc. 696,532 Services--0.5% -------------------------------------------------------------------------------------------------------------- Total Common Stocks in Japan 696,532 =================================================================================================================================== Mexico--1.5% Diversified Telecommunication 35,000 Telefonos de Mexico SA 'L' (ADR) (a) 1,225,350 Services--0.9% -------------------------------------------------------------------------------------------------------------- Wireless Telecommunication 17,700 America Movil, SA de CV 'L' (ADR) (a) 826,767 Services--0.6% -------------------------------------------------------------------------------------------------------------- Total Common Stocks in Mexico 2,052,117 =================================================================================================================================== Portugal--0.5% Diversified Telecommunication 61,800 Portugal Telecom SA (Registered Shares) 731,004 Services--0.5% -------------------------------------------------------------------------------------------------------------- Total Common Stocks in Portugal 731,004 ===================================================================================================================================
10 MERRILL LYNCH UTILITIES AND TELECOMMUNICATIONS FUND, INC. NOVEMBER 30, 2004 Schedule of Investments (continued)
Value Country Industry* Shares Held Common Stocks (in U.S. dollars) =================================================================================================================================== Spain--5.6% Diversified Telecommunication 192,200 Telefonica SA $ 3,376,962 Services--2.4% -------------------------------------------------------------------------------------------------------------- Electric Utilities--3.2% 67,900 Endesa SA 1,461,929 128,200 Iberdrola SA 3,012,393 ------------ 4,474,322 -------------------------------------------------------------------------------------------------------------- Total Common Stocks in Spain 7,851,284 =================================================================================================================================== United Kingdom-- Electric Utilities--2.2% 70,800 Scottish and Southern Energy PLC 1,113,801 5.1% 264,600 ScottishPower PLC 1,954,852 ------------ 3,068,653 -------------------------------------------------------------------------------------------------------------- Gas Utilities--0.3% 81,000 Centrica PLC 383,595 -------------------------------------------------------------------------------------------------------------- Multi-Utilities & Unregulated 113,775 National Grid Group PLC 1,041,191 Power--0.7% -------------------------------------------------------------------------------------------------------------- Wireless Telecommunication 97,900 Vodafone Group PLC (ADR) (a) 2,669,733 Services--1.9% -------------------------------------------------------------------------------------------------------------- Total Common Stocks in the United Kingdom 7,163,172 =================================================================================================================================== United States-- Diversified Telecommunication 46,900 ALLTEL Corporation 2,658,761 66.9% Services--13.8% 139,900 BellSouth Corporation 3,752,118 29,400 CenturyTel, Inc. 967,848 50,900 Citizens Communications Company 727,870 144,900 SBC Communications Inc. 3,647,133 96,500 Sprint Corporation 2,201,165 133,900 Verizon Communications 5,520,697 ------------ 19,475,592 -------------------------------------------------------------------------------------------------------------- Electric Utilities--29.3% 26,700 Ameren Corporation 1,292,814 52,700 American Electric Power Company, Inc. 1,800,759 50,662 Cinergy Corp. 2,096,900 69,200 Cleco Corporation 1,370,160 16,700 DTE Energy Company 732,796 67,100 Edison International 2,140,490 52,800 Entergy Corporation 3,422,496 106,000 Exelon Corporation 4,421,260 16,400 FPL Group, Inc. 1,153,412 70,500 FirstEnergy Corp. 2,977,215 56,700 NSTAR 2,871,855 12,100 OGE Energy Corp. 312,785 32,000 +PG&E Corporation 1,064,320 68,600 PPL Corporation 3,563,770 31,800 Pinnacle West Capital Corporation 1,405,560 28,900 Progress Energy, Inc. 1,268,999 72,000 The Southern Company 2,360,880 97,500 TXU Corporation 6,124,950 28,600 Wisconsin Energy Corporation 951,522 ------------ 41,332,943 -------------------------------------------------------------------------------------------------------------- Gas Utilities--5.3% 33,100 AGL Resources Inc. 1,098,589 63,300 KeySpan Corporation 2,501,616 60,400 New Jersey Resources Corporation 2,627,400 19,900 NiSource Inc. 433,621 21,000 UGI Corporation 852,180 ------------ 7,513,406 -------------------------------------------------------------------------------------------------------------- Media--0.6% 39,200 +Cablevision Systems Corporation (Class A) 836,920 -------------------------------------------------------------------------------------------------------------- Metals & Mining--1.3% 21,300 Peabody Energy Corporation 1,767,900 --------------------------------------------------------------------------------------------------------------
MERRILL LYNCH UTILITIES AND TELECOMMUNICATIONS FUND, INC. NOVEMBER 30, 2004 11 [LOGO] Merrill Lynch Investment Managers Schedule of Investments (concluded)
Value Country Industry* Shares Held Common Stocks (in U.S. dollars) =================================================================================================================================== United States Multi-Utilities & Unregulated 66,300 Constellation Energy Group $ 2,897,310 (concluded) Power--12.3% 66,837 Dominion Resources, Inc. 4,375,818 15,800 Energy East Corporation 397,686 17,100 Equitable Resources, Inc. 1,017,450 27,100 National Fuel Gas Company 764,220 32,000 ONEOK, Inc. 893,440 31,000 Ormat Technologies Inc. 528,550 64,700 Public Service Enterprise Group Incorporated 2,846,153 24,300 Questar Corporation 1,234,683 41,400 SCANA Corporation 1,586,448 19,500 Sempra Energy 721,110 ------------ 17,262,868 -------------------------------------------------------------------------------------------------------------- Oil & Gas--3.3% 13,800 Devon Energy Corporation 571,596 44,400 EOG Resources, Inc. 3,333,108 11,000 Kinder Morgan, Inc. 762,300 ------------ 4,667,004 -------------------------------------------------------------------------------------------------------------- Wireless Telecommunication 30,000 +Nextel Communications, Inc. (Class A) 853,800 Services--1.0% 18,700 +Western Wireless Corporation (Class A) 504,900 ------------ 1,358,700 -------------------------------------------------------------------------------------------------------------- Total Common Stocks in the United States 94,215,333 ============================================================================================================== Total Investments in Common Stocks (Cost--$94,807,744)--95.8% 134,821,310 ============================================================================================================== Face Amount Trust Preferred =================================================================================================================================== Electric Utilities--0.7% $1,092,450 AES Trust III, 6.75% due 10/15/2029 1,019,815 -------------------------------------------------------------------------------------------------------------- Total Investments in Trust Preferred (Cost--$659,100)--0.7% 1,019,815 ============================================================================================================== Beneficial Interest Short-Term Securities =================================================================================================================================== $4,546,952 Merrill Lynch Liquidity Series, LLC Cash Sweep Series I (b) 4,546,952 -------------------------------------------------------------------------------------------------------------- Total Investments in Short-Term Securities (Cost--$4,546,952)--3.2% 4,546,952 =================================================================================================================================== Total Investments (Cost--$100,013,796**)--99.7% 140,388,077 Other Assets Less Liabilities--0.3% 408,293 ------------ Net Assets--100.0% $140,796,370 ============
* For Fund compliance purposes, "Industry" means any one or more of the industry sub-classifications used by one or more widely recognized market indexes or ratings group indexes, and/or as defined by Fund management. This definition may not apply for purposes of this report, which may combine such industry sub-classifications for reporting ease. These industry classifications are unaudited. ** The cost and unrealized appreciation/depreciation of investments as of November 30, 2004, as computed for federal income tax purposes, were as follows: ------------------------------------------------------------------------- Aggregate cost .............................. $ 100,125,384 ============= Gross unrealized appreciation ............... $ 40,628,973 Gross unrealized depreciation ............... (366,280) ------------- Net unrealized appreciation ................. $ 40,262,693 ============= + Non-income producing security. (a) American Depositary Receipts (ADR). (b) Investments in companies considered to be an affiliate of the Fund (such companies are defined as "Affiliated Companies" in Section 2(a)(3) of the Investment Company Act of 1940) were as follows: -------------------------------------------------------------------------- Interest/ Net Dividend Affiliate Activity Income -------------------------------------------------------------------------- Merrill Lynch Liquidity Series, LLC Cash Sweep Series I $ (594,103) $ 49,377 Merrill Lynch Liquidity Series, LLC Money Market Series $(10,479,376) $ 2,652 Merrill Lynch Premier Institutional Fund (4,007,912) $ 854 -------------------------------------------------------------------------- See Notes to Financial Statements. 12 MERRILL LYNCH UTILITIES AND TELECOMMUNICATIONS FUND, INC. NOVEMBER 30, 2004 Statement of Assets and Liabilities As of November 30, 2004 ============================================================================================================================= Assets ----------------------------------------------------------------------------------------------------------------------------- Investments in unaffiliated securities, at value (identified cost--$95,466,844) ............................................... $ 135,841,125 Investments in affiliated securities, at value (identified cost--$4,546,952) ................................................ 4,546,952 Foreign cash (cost--$29,406) ...................................... 30,202 Receivables: Securities sold ................................................ $ 414,711 Dividends ...................................................... 315,372 Capital shares sold ............................................ 47,201 Interest (including $9,083 from affiliates) .................... 19,503 796,787 ------------- Prepaid expenses .................................................. 22,201 ------------- Total assets ...................................................... 141,237,267 ------------- ============================================================================================================================= Liabilities ----------------------------------------------------------------------------------------------------------------------------- Payables: Capital shares redeemed ........................................ 299,524 Distributor .................................................... 44,942 Other affiliates ............................................... 38,814 Investment adviser ............................................. 9,348 392,628 ------------- Accrued expenses and other liabilities ............................ 48,269 ------------- Total liabilities ................................................. 440,897 ------------- ============================================================================================================================= Net Assets ----------------------------------------------------------------------------------------------------------------------------- Net assets ........................................................ $ 140,796,370 ============= ============================================================================================================================= Net Assets Consist of ----------------------------------------------------------------------------------------------------------------------------- Class A Shares of Common Stock, $.10 par value, 100,000,000 shares authorized ................................................ $ 706,062 Class B Shares of Common Stock, $.10 par value, 100,000,000 shares authorized ................................................ 308,689 Class C Shares of Common Stock, $.10 par value, 100,000,000 shares authorized ................................................ 116,046 Class I Shares of Common Stock, $.10 par value, 100,000,000 shares authorized ................................................ 228,234 Paid-in capital in excess of par .................................. 135,884,730 Undistributed investment income--net .............................. $ 470,313 Accumulated realized capital losses --net ......................... (37,294,458) Unrealized appreciation--net ...................................... 40,376,754 ------------- Total accumulated earnings--net ................................... 3,552,609 ------------- Net Assets ........................................................ $ 140,796,370 ============= ============================================================================================================================= Net Asset Value ----------------------------------------------------------------------------------------------------------------------------- Class A--Based on net assets of $73,286,037 and 7,060,623 shares outstanding ............................................... $ 10.38 ============= Class B--Based on net assets of $31,935,495 and 3,086,891 shares outstanding ............................................... $ 10.35 ============= Class C--Based on net assets of $11,897,604 and 1,160,465 shares outstanding ............................................... $ 10.25 ============= Class I--Based on net assets of $23,677,234 and 2,282,342 shares outstanding ............................................... $ 10.37 =============
See Notes to Financial Statements. MERRILL LYNCH UTILITIES AND TELECOMMUNICATIONS FUND, INC. NOVEMBER 30, 2004 13 [LOGO] Merrill Lynch Investment Managers Statement of Operations For the Year Ended November 30, 2004 ============================================================================================================================= Investment Income ----------------------------------------------------------------------------------------------------------------------------- Dividends (net of $151,018 foreign withholding tax) ............... $ 4,461,416 Interest (including $49,377 from affiliates) ...................... 126,397 Securities lending ................................................ 3,506 ------------- Total income ...................................................... 4,591,319 ------------- ============================================================================================================================= Expenses ----------------------------------------------------------------------------------------------------------------------------- Investment advisory fees .......................................... $ 810,552 Account maintenance and distribution fees--Class B ................ 255,406 Account maintenance fees--Class A ................................. 168,777 Transfer agent fees--Class A ...................................... 110,020 Accounting services ............................................... 93,606 Account maintenance and distribution fees--Class C ................ 88,442 Transfer agent fees--Class B ...................................... 66,568 Professional fees ................................................. 59,711 Printing and shareholder reports .................................. 46,821 Directors' fees and expenses ...................................... 45,560 Registration fees ................................................. 40,877 Transfer agent fees--Class I ...................................... 36,727 Custodian fees .................................................... 32,375 Transfer agent fees--Class C ...................................... 21,219 Pricing fees ...................................................... 4,344 Other ............................................................. 37,217 ------------- Total expenses .................................................... 1,918,222 ------------- Investment income--net ............................................ 2,673,097 ------------- ============================================================================================================================= Realized & Unrealized Gain (Loss)--Net ----------------------------------------------------------------------------------------------------------------------------- Realized gain (loss) on: Investments--net ............................................... 6,242,898 Foreign currency transactions--net ............................. (13,897) 6,229,001 ------------- Change in unrealized appreciation on: Investments--net ............................................... 25,269,282 Foreign currency transactions--net ............................. (2,715) 25,266,567 ------------------------------- Total realized and unrealized gain--net ........................... 31,495,568 ------------- Net Increase in Net Assets Resulting from Operations .............. $ 34,168,665 =============
See Notes to Financial Statements. 14 MERRILL LYNCH UTILITIES AND TELECOMMUNICATIONS FUND, INC. NOVEMBER 30, 2004 Statements of Changes in Net Assets
For the Year Ended November 30, ------------------------------- Increase (Decrease) in Net Assets: 2004 2003 ============================================================================================================================= Operations ----------------------------------------------------------------------------------------------------------------------------- Investment income--net ............................................ $ 2,673,097 $ 3,086,211 Realized gain (loss)--net ......................................... 6,229,001 (2,026,003) Change in unrealized appreciation--net ............................ 25,266,567 16,276,582 ------------------------------- Net increase in net assets resulting from operations .............. 34,168,665 17,336,790 ------------------------------- ============================================================================================================================= Dividends to Shareholders ----------------------------------------------------------------------------------------------------------------------------- Investment income--net: Class A ........................................................ (1,400,106) (1,089,101) Class B ........................................................ (493,529) (1,305,449) Class C ........................................................ (164,643) (222,843) Class I ........................................................ (520,382) (622,798) ------------------------------- Net decrease in net assets resulting from dividends to shareholders (2,578,660) (3,240,191) ------------------------------- ============================================================================================================================= Capital Share Transactions ----------------------------------------------------------------------------------------------------------------------------- Net decrease in net assets derived from capital share transactions (25,760,427) (18,877,279) ============================================================================================================================= Net Assets ----------------------------------------------------------------------------------------------------------------------------- Total increase (decrease) in net assets ........................... 5,829,578 (4,780,680) Beginning of year ................................................. 134,966,792 139,747,472 ------------------------------- End of year* ...................................................... $ 140,796,370 $ 134,966,792 =============================== * Undistributed investment income--net ......................... $ 470,313 $ 389,773 ===============================
See Notes to Financial Statements. MERRILL LYNCH UTILITIES AND TELECOMMUNICATIONS FUND, INC. NOVEMBER 30, 2004 15 [LOGO] Merrill Lynch Investment Managers Financial Highlights
Class A The following per share data and ratios have been derived ---------------------------------------------------------------------- from information provided in the financial statements. For the Year Ended November 30, ---------------------------------------------------------------------- Increase (Decrease) in Net Asset Value: 2004 2003 2002 2001 2000 =================================================================================================================================== Per Share Operating Performance ----------------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of year ..... $ 8.23 $ 7.40 $ 9.67 $ 11.81 $ 19.17 ---------------------------------------------------------------------- Investment income--net** ............... .20 .19 .26 .32 .39 Realized and unrealized gain (loss)--net 2.14 .85 (2.14) (1.46) .68 ---------------------------------------------------------------------- Total from investment operations ....... 2.34 1.04 (1.88) (1.14) 1.07 ---------------------------------------------------------------------- Less dividends and distributions: Investment income--net .............. (.19) (.21) (.28) (.33) (.41) Realized gain--net .................. -- -- (.11) (.67) (7.80) In excess of realized gain--net ..... -- -- -- -- (.22) ---------------------------------------------------------------------- Total dividends and distributions ...... (.19) (.21) (.39) (1.00) (8.43) ---------------------------------------------------------------------- Net asset value, end of year ........... $ 10.38 $ 8.23 $ 7.40 $ 9.67 $ 11.81 ====================================================================== =================================================================================================================================== Total Investment Return* ----------------------------------------------------------------------------------------------------------------------------------- Based on net asset value per share ..... 28.82% 14.26% (19.83%) (10.67%) 4.72% ====================================================================== =================================================================================================================================== Ratios to Average Net Assets ----------------------------------------------------------------------------------------------------------------------------------- Expenses ............................... 1.28% 1.33% 1.26% 1.11% 1.08% ====================================================================== Investment income--net ................. 2.11% 2.42% 3.13% 2.86% 2.34% ====================================================================== =================================================================================================================================== Supplemental Data ----------------------------------------------------------------------------------------------------------------------------------- Net assets, end of year (in thousands) . $ 73,286 $ 60,142 $ 34,038 $ 36,794 $ 18,383 ====================================================================== Portfolio turnover ..................... 10.89% 21.20% 31.16% 45.66% 51.79% ======================================================================
* Total investment returns exclude the effects of sales charges. ** Based on average shares outstanding. See Notes to Financial Statements. 16 MERRILL LYNCH UTILITIES AND TELECOMMUNICATIONS FUND, INC. NOVEMBER 30, 2004 Financial Highlights (continued)
Class B The following per share data and ratios have been derived ---------------------------------------------------------------------- from information provided in the financial statements. For the Year Ended November 30, ---------------------------------------------------------------------- Increase (Decrease) in Net Asset Value: 2004 2003 2002 2001 2000 =================================================================================================================================== Per Share Operating Performance ----------------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of year ..... $ 8.19 $ 7.37 $ 9.61 $ 11.75 $ 19.10 ---------------------------------------------------------------------- Investment income--net** ............... .14 .16 .22 .26 .31 Realized and unrealized gain (loss)--net 2.16 .82 (2.13) (1.47) .67 ---------------------------------------------------------------------- Total from investment operations ....... 2.30 .98 (1.91) (1.21) .98 ---------------------------------------------------------------------- Less dividends and distributions: Investment income--net .............. (.14) (.16) (.22) (.26) (.31) Realized gain--net .................. -- -- (.11) (.67) (7.80) In excess of realized gain--net ..... -- -- -- -- (.22) ---------------------------------------------------------------------- Total dividends and distributions ...... (.14) (.16) (.33) (.93) (8.33) ---------------------------------------------------------------------- Net asset value, end of year ........... $ 10.35 $ 8.19 $ 7.37 $ 9.61 $ 11.75 ====================================================================== =================================================================================================================================== Total Investment Return* ----------------------------------------------------------------------------------------------------------------------------------- Based on net asset value per share ..... 28.30% 13.47% (20.16%) (11.25%) 4.25% ====================================================================== =================================================================================================================================== Ratios to Average Net Assets ----------------------------------------------------------------------------------------------------------------------------------- Expenses ............................... 1.81% 1.86% 1.77% 1.63% 1.59% ====================================================================== Investment income--net ................. 1.58% 2.08% 2.63% 2.40% 1.83% ====================================================================== =================================================================================================================================== Supplemental Data ----------------------------------------------------------------------------------------------------------------------------------- Net assets, end of year (in thousands) . $ 31,935 $ 41,317 $ 74,822 $ 147,549 $ 246,279 ====================================================================== Portfolio turnover ..................... 10.89% 21.20% 31.16% 45.66% 51.79% ======================================================================
* Total investment returns exclude the effects of sales charges. ** Based on average shares outstanding. See Notes to Financial Statements. MERRILL LYNCH UTILITIES AND TELECOMMUNICATIONS FUND, INC. NOVEMBER 30, 2004 17 [LOGO] Merrill Lynch Investment Managers Financial Highlights (continued)
Class C The following per share data and ratios have been derived ---------------------------------------------------------------------- from information provided in the financial statements. For the Year Ended November 30, ---------------------------------------------------------------------- Increase (Decrease) in Net Asset Value: 2004 2003 2002 2001 2000 =================================================================================================================================== Per Share Operating Performance ----------------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of year ..... $ 8.13 $ 7.31 $ 9.55 $ 11.68 $ 19.04 ---------------------------------------------------------------------- Investment income--net** ............... .14 .15 .21 .25 .28 Realized and unrealized gain (loss)--net 2.12 .83 (2.11) (1.45) .69 ---------------------------------------------------------------------- Total from investment operations ....... 2.26 .98 (1.90) (1.20) .97 ---------------------------------------------------------------------- Less dividends and distributions: Investment income--net .............. (.14) (.16) (.23) (.26) (.31) Realized gain--net .................. -- -- (.11) (.67) (7.80) In excess of realized gain--net ..... -- -- -- -- (.22) ---------------------------------------------------------------------- Total dividends and distributions ...... (.14) (.16) (.34) (.93) (8.33) ---------------------------------------------------------------------- Net asset value, end of year ........... $ 10.25 $ 8.13 $ 7.31 $ 9.55 $ 11.68 ====================================================================== =================================================================================================================================== Total Investment Return* ----------------------------------------------------------------------------------------------------------------------------------- Based on net asset value per share ..... 28.03% 13.62% (20.27%) (11.24%) 4.17% ====================================================================== =================================================================================================================================== Ratios to Average Net Assets ----------------------------------------------------------------------------------------------------------------------------------- Expenses ............................... 1.85% 1.91% 1.84% 1.69% 1.65% ====================================================================== Investment income--net ................. 1.53% 1.93% 2.55% 2.31% 1.75% ====================================================================== =================================================================================================================================== Supplemental Data ----------------------------------------------------------------------------------------------------------------------------------- Net assets, end of year (in thousands) . $ 11,898 $ 10,994 $ 10,545 $ 10,194 $ 11,416 ====================================================================== Portfolio turnover ..................... 10.89% 21.20% 31.16% 45.66% 51.79% ======================================================================
* Total investment returns exclude the effects of sales charges. ** Based on average shares outstanding. See Notes to Financial Statements. 18 MERRILL LYNCH UTILITIES AND TELECOMMUNICATIONS FUND, INC. NOVEMBER 30, 2004 Financial Highlights (concluded)
Class I The following per share data and ratios have been derived ---------------------------------------------------------------------- from information provided in the financial statements. For the Year Ended November 30, ---------------------------------------------------------------------- Increase (Decrease) in Net Asset Value: 2004 2003 2002 2001 2000 =================================================================================================================================== Per Share Operating Performance ----------------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of year ..... $ 8.22 $ 7.39 $ 9.66 $ 11.81 $ 19.16 ---------------------------------------------------------------------- Investment income--net** ............... .22 .21 .29 .34 .44 Realized and unrealized gain (loss) --net 2.14 .84 (2.15) (1.47) .68 ---------------------------------------------------------------------- Total from investment operations ....... 2.36 1.05 (1.86) (1.13) 1.12 ---------------------------------------------------------------------- Less dividends and distributions: Investment income--net .............. (.21) (.22) (.30) (.35) (.45) Realized gain--net .................. -- -- (.11) (.67) (7.80) In excess of realized gain--net ..... -- -- -- -- (.22) ---------------------------------------------------------------------- Total dividends and distributions ...... (.21) (.22) (.41) (1.02) (8.47) ---------------------------------------------------------------------- Net asset value, end of year ........... $ 10.37 $ 8.22 $ 7.39 $ 9.66 $ 11.81 ====================================================================== =================================================================================================================================== Total Investment Return* ----------------------------------------------------------------------------------------------------------------------------------- Based on net asset value per share ..... 29.16% 14.54% (19.64%) (10.54%) 5.07% ====================================================================== =================================================================================================================================== Ratios to Average Net Assets ----------------------------------------------------------------------------------------------------------------------------------- Expenses ............................... 1.03% 1.07% 1.00% .86% .83% ====================================================================== Investment income--net ................. 2.36% 2.77% 3.39% 3.15% 2.59% ====================================================================== =================================================================================================================================== Supplemental Data ----------------------------------------------------------------------------------------------------------------------------------- Net assets, end of year (in thousands) . $ 23,677 $ 22,514 $ 20,342 $ 26,700 $ 32,698 ====================================================================== Portfolio turnover ..................... 10.89% 21.20% 31.16% 45.66% 51.79% ======================================================================
* Total investment returns exclude the effects of sales charges. ** Based on average shares outstanding. See Notes to Financial Statements. MERRILL LYNCH UTILITIES AND TELECOMMUNICATIONS FUND, INC. NOVEMBER 30, 2004 19 [LOGO] Merrill Lynch Investment Managers Notes to Financial Statements 1. Significant Accounting Policies: Merrill Lynch Utilities and Telecommunications Fund, Inc. (the "Fund") is registered under the Investment Company Act of 1940, as amended, as a diversified, open-end management investment company. The Fund's financial statements are prepared in conformity with U.S. generally accepted accounting principles, which may require the use of management accruals and estimates. Actual results may differ from these estimates. The Fund offers multiple classes of shares. Shares of Class A and Class I are sold with a front-end sales charge. Shares of Class B and Class C may be subject to a contingent deferred sales charge. All classes of shares have identical voting, dividend, liquidation and other rights and the same terms and conditions, except that Class A, Class B and Class C Shares bear certain expenses related to the account maintenance of such shares, and Class B and Class C Shares also bear certain expenses related to the distribution of such shares. Each class has exclusive voting rights with respect to matters relating to its account maintenance and distribution expenditures (except that Class B Shareholders may vote on certain changes to the Class A distribution plan). Income, expenses (other than expenses attributable to a specific class) and realized and unrealized gains and losses on investments and foreign currency transactions are allocated daily to each class based on its relative net assets. The following is a summary of significant accounting policies followed by the Fund. (a) Valuation of securities -- Equity securities that are held by the Fund that are traded on stock exchanges or the Nasdaq National Market are valued at the last sale price or official close price on the exchange, as of the close of business on the day the securities are being valued or, lacking any sales, at the last available bid price for long positions, and at the last available ask price for short positions. In cases where equity securities are traded on more than one exchange, the securities are valued on the exchange designated as the primary market by or under the authority of the Board of Directors of the Fund. Long positions traded in the over-the-counter ("OTC") market, Nasdaq Small Cap or Bulletin Board are valued at the last available bid price or yield equivalent obtained from one or more dealers or pricing services approved by the Board of Directors of the Fund. Short positions traded in the OTC market are valued at the last available ask price. Portfolio securities that are traded both in the OTC market and on a stock exchange are valued according to the broadest and most representative market. Options written are valued at the last sale price in the case of exchange-traded options or, in the case of options traded in the OTC market, the last ask price. Options purchased are valued at their last sale price in the case of exchange-traded options or, in the case of options traded in the OTC market, the last bid price. Swap agreements are valued daily based upon quotations from the market makers. Financial futures contracts and options thereon, which are traded on exchanges, are valued at their last sale price as of the close of such exchanges. Obligations with remaining maturities of 60 days or less are valued at amortized cost unless the Investment Adviser believes that this method no longer produces fair valuations. Repurchase agreements are valued at cost plus accrued interest. The Fund employs pricing services to provide certain securities prices for the Fund. Securities and assets for which market quotations are not readily available are valued at fair value as determined in good faith by or under the direction of the Board of Directors of the Fund, including valuations furnished by the pricing services retained by the Fund, which may use a matrix system for valuations. The procedures of a pricing service and its valuations are reviewed by the officers of the Fund under the general supervision of the Fund's Board of Directors. Such valuations and procedures will be reviewed periodically by the Board of Directors of the Fund. Generally, trading in foreign securities, as well as U.S. government securities and money market instruments, is substantially completed each day at various times prior to the close of business on the New York Stock Exchange ("NYSE"). The values of such securities used in computing the net asset value of the Fund's shares are determined as of such times. Foreign currency exchange rates also are generally determined prior to the close of business on the NYSE. Occasionally, events affecting the values of such securities and such exchange rates may occur between the times at which they are determined and the close of business on the NYSE that may not be reflected in the computation of the Fund's net asset value. If events (for example, a company announcement, market volatility or a natural disaster) occur during such periods that are expected to materially affect the value of such securities, those securities may be valued at their fair value as determined in good faith by the Fund's Board of Directors or by the Investment Adviser using a pricing service and/or procedures approved by the Fund's Board of Directors. 20 MERRILL LYNCH UTILITIES AND TELECOMMUNICATIONS FUND, INC. NOVEMBER 30, 2004 Notes to Financial Statements (continued) (b) Foreign currency transactions -- Transactions denominated in foreign currencies are recorded at the exchange rate prevailing when recognized. Assets and liabilities denominated in foreign currencies are valued at the exchange rate at the end of the period. Foreign currency transactions are the result of settling (realized) or valuing (unrealized) assets or liabilities expressed in foreign currencies into U.S. dollars. Realized and unrealized gains or losses from investments include the effects of foreign exchange rates on investments. (c) Derivative financial instruments -- The Fund may engage in various portfolio investment strategies both to increase the return of the Fund and to hedge, or protect, its exposure to interest rate movements and movements in the securities markets. Losses may arise due to changes in the value of the contract or if the counterparty does not perform under the contract. o Options -- The Fund may purchase and write call options and put options. When the Fund writes an option, an amount equal to the premium received by the Fund is reflected as an asset and an equivalent liability. The amount of the liability is subsequently marked-to-market to reflect the current market value of the option written. When a security is purchased or sold through an exercise of an option, the related premium paid (or received) is added to (or deducted from) the basis of the security acquired or deducted from (or added to) the proceeds of the security sold. When an option expires (or the Fund enters into a closing transaction), the Fund realizes a gain or loss on the option to the extent of the premiums received or paid (or gain or loss to the extent the cost of the closing transaction exceeds the premium paid or received). Written and purchased options are non-income producing investments. o Financial futures contracts -- The Fund may purchase or sell financial futures contracts and options on such futures contracts. Futures contracts are contracts for delayed delivery of securities at a specific future date and at a specific price or yield. Upon entering into a contract, the Fund deposits and maintains as collateral such initial margin as required by the exchange on which the transaction is effected. Pursuant to the contract, the Fund agrees to receive from or pay to the broker an amount of cash equal to the daily fluctuation in value of the contract. Such receipts or payments are known as variation margin and are recorded by the Fund as unrealized gains or losses. When the contract is closed, the Fund records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed. o Forward foreign exchange contracts -- The Fund may enter into forward foreign exchange contracts as a hedge against either specific transactions or portfolio positions. The contract is marked-to-market daily and the change in market value is recorded by the Fund as an unrealized gain or loss. When the contract is closed, the Fund records a realized gain or loss equal to the difference between the value at the time it was opened and the value at the time it was closed. o Foreign currency options and futures -- The Fund may also purchase or sell listed or over-the-counter foreign currency options, foreign currency futures and related options on foreign currency futures as a short or long hedge against possible variations in foreign exchange rates. Such transactions may be effected with respect to hedges on non-U.S. dollar denominated securities owned by the Fund, sold by the Fund but not yet delivered, or committed or anticipated to be purchased by the Fund. (d) Income taxes -- It is the Fund's policy to comply with the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute all of its taxable income to its shareholders. Therefore, no federal income tax provision is required. Under the applicable foreign tax law, a withholding tax may be imposed on interest, dividends and capital gains at various rates. (e) Security transactions and investment income -- Security transactions are recorded on the dates the transactions are entered into (the trade dates). Realized gains and losses on security transactions are determined on the identified cost basis. Interest income is recognized on the accrual basis. Dividend income is recorded on the ex-dividend dates. Dividends from foreign securities where the ex-dividend date may have passed are subsequently recorded when the Fund has determined the ex-dividend dates. Interest income is recognized on the accrual basis. (f) Prepaid registration fees -- Prepaid registration fees are charged to expense as the related shares are issued. (g) Dividends and distributions -- Dividends and distributions paid by the Fund are recorded on the ex-dividend dates. MERRILL LYNCH UTILITIES AND TELECOMMUNICATIONS FUND, INC. NOVEMBER 30, 2004 21 [LOGO] Merrill Lynch Investment Managers Notes to Financial Statements (continued) (h) Securities lending -- The Fund may lend securities to financial institutions that provide cash or securities issued or guaranteed by the U.S. government as collateral, which will be maintained at all times in an amount equal to at least 100% of the current market value of the loaned securities. The market value of the loaned securities is determined at the close of business of the Fund and any additional required collateral is delivered to the Fund on the next business day. Where the Fund receives securities as collateral for the loaned securities, it collects a fee from the borrower. The Fund typically receives the income on the loaned securities but does not receive the income on the collateral. Where the Fund receives cash collateral, it may invest such collateral and retain the amount earned on such investment, net of any amount rebated to the borrower. Loans of securities are terminable at any time and the borrower, after notice, is required to return borrowed securities within five business days. The Fund may pay reasonable finder's, lending agent, administrative and custodial fees in connection with its loans. In the event that the borrower defaults on its obligation to return borrowed securities because of insolvency or for any other reason, the Fund could experience delays and costs in gaining access to the collateral. The Fund also could suffer a loss where the value of the collateral falls below the market value of the borrowed securities, in the event of borrower default or in the event of losses on investments made with cash collateral. (i) Reclassification -- U.S. generally accepted accounting principles require that certain components of net assets be adjusted to reflect permanent differences between financial and tax reporting. Accordingly, during the current year, $13,897 has been reclassified between undistributed net investment income and accumulated realized net capital losses on investments as a result of permanent differences attributable to foreign currency transactions. This reclassification has no effect on net assets or net asset values per share. 2. Investment Advisory Agreement and Transactions with Affiliates: The Fund has entered into an Investment Advisory Agreement with Merrill Lynch Investment Managers, L.P. ("MLIM"). The general partner of MLIM is Princeton Services, Inc. ("PSI"), an indirect, wholly-owned subsidiary of Merrill Lynch & Co., Inc. ("ML & Co."), which is the limited partner. The Fund has also entered into a Distribution Agreement and Distribution Plans with FAM Distributors, Inc. ("FAMD" or the "Distributor"), which is a wholly-owned subsidiary of Merrill Lynch Group, Inc. MLIM is responsible for the management of the Fund's portfolio and provides the necessary personnel, facilities, equipment and certain other services necessary to the operation of the Fund. For such services, the Fund pays a monthly fee of .60%, on an annual basis, of the average daily value of the Fund's net assets. MLIM has entered into a Sub-Advisory Agreement with Merrill Lynch Asset Management U.K. Limited ("MLAM U.K."), an affiliate of MLIM, pursuant to which MLAM U.K. provides investment advisory services to MLIM with respect to the Fund. There is no increase in the aggregate fees paid by the Fund for these services. Pursuant to the Distribution Plans adopted by the Fund in accordance with Rule 12b-1 under the Investment Company Act of 1940, the Fund pays the Distributor ongoing account maintenance and distribution fees. The fees are accrued daily and paid monthly at annual rates based upon the average daily net assets of the shares as follows: -------------------------------------------------------------------------------- Account Distribution Maintenance Fee Fee -------------------------------------------------------------------------------- Class A ................................ .25% -- Class B ................................ .25% .50% Class C ................................ .25% .55% -------------------------------------------------------------------------------- Pursuant to a sub-agreement with the Distributor, Merrill Lynch, Pierce, Fenner & Smith Incorporated ("MLPF&S"), a subsidiary of ML & Co., also provides account maintenance and distribution services to the Fund. The ongoing account maintenance fee compensates the Distributor and MLPF&S for providing account maintenance services to Class A, Class B and Class C shareholders. The ongoing distribution fee compensates the Distributor and MLPF&S for providing shareholder and distribution-related services to Class B and Class C shareholders. For the year ended November 30, 2004, FAMD earned underwriting discounts and MLPF&S earned dealer concessions on sales of the Fund's Class A and Class I Shares as follows: -------------------------------------------------------------------------------- FAMD MLPF&S -------------------------------------------------------------------------------- Class A ............................ $ 1,904 $24,239 Class I ............................ $ 11 $ 233 -------------------------------------------------------------------------------- For the year ended November 30, 2004, MLPF&S received contingent deferred sales charges of $31,362 and $1,761, relating to transactions in Class B Shares and Class C Shares, respectively. 22 MERRILL LYNCH UTILITIES AND TELECOMMUNICATIONS FUND, INC. NOVEMBER 30, 2004 Notes to Financial Statements (continued) The Fund has received an exemptive order from the Securities and Exchange Commission permitting it to lend portfolio securities to MLPF&S or its affiliates. Pursuant to that order, the Fund also has retained Merrill Lynch Investment Managers, LLC ("MLIM, LLC"), an affiliate of MLIM, as the securities lending agent for a fee based on a share of the returns on investment of cash collateral. MLIM, LLC may, on behalf of the Fund, invest cash collateral received by the Fund for such loans, among other things, in a private investment company managed by MLIM, LLC or in registered money market funds advised by MLIM or its affiliates. For the year ended November 30, 2004, MLIM, LLC received $1,506 in securities lending agent fees. In addition, MLPF&S received $9,324 in commissions on the execution of portfolio security transactions for the Fund for the year ended November 30, 2004. For the year ended November 30, 2004 the Fund reimbursed MLIM $2,770 for certain accounting services. Financial Data Services, Inc. ("FDS"), a wholly-owned subsidiary of ML & Co., is the Fund's transfer agent. Certain officers and/or directors of the Fund are officers and/or directors of MLIM, PSI, MLAM U.K., FDS, FAMD, and/or ML & Co. 3. Investments: Purchases and sales of investments, excluding short-term securities, for the year ended November 30, 2004 were $14,210,733 and $39,589,939, respectively. 4. Capital Share Transactions: Net decrease in net assets derived from capital share transactions was $25,760,427 and $18,877,279 for the years ended November 30, 2004 and November 30, 2003, respectively. Transactions in capital shares for each class were as follows: -------------------------------------------------------------------------------- Class A Shares for the Year Dollar Ended November 30, 2004 Shares Amount -------------------------------------------------------------------------------- Shares sold ............................ 282,359 $ 2,555,395 Automatic conversion of shares ......... 1,250,628 11,120,589 Shares issued to shareholders in reinvestment of dividends ........ 120,893 1,091,475 ------------------------------ Total issued ........................... 1,653,880 14,767,459 Shares redeemed ........................ (1,904,582) (17,277,664) ------------------------------ Net decrease ........................... (250,702) $ (2,510,205) ============================== -------------------------------------------------------------------------------- Class A Shares for the Year Dollar Ended November 30, 2003 Shares Amount -------------------------------------------------------------------------------- Shares sold ............................ 216,661 $ 1,692,130 Automatic conversion of shares ......... 3,693,671 29,072,360 Shares issued to shareholders in reinvestment of dividends ........ 113,083 864,551 ------------------------------ Total issued ........................... 4,023,415 31,629,041 Shares redeemed ........................ (1,311,797) (10,107,680) ------------------------------ Net increase ........................... 2,711,618 $ 21,521,361 ============================== -------------------------------------------------------------------------------- Class B Shares for the Year Dollar Ended November 30, 2004 Shares Amount -------------------------------------------------------------------------------- Shares sold ............................ 304,248 $ 2,789,140 Shares issued to shareholders in reinvestment of dividends ........ 40,756 365,876 ------------------------------ Total issued ........................... 345,004 3,155,016 Automatic conversion of shares ......... (1,045,446) (11,120,589) Shares redeemed ........................ (1,255,100) (9,438,326) ------------------------------ Net decrease ........................... (1,955,542) $(17,403,899) ============================== -------------------------------------------------------------------------------- Class B Shares for the Year Dollar Ended November 30, 2003 Shares Amount -------------------------------------------------------------------------------- Shares sold ............................ 621,416 $ 4,832,497 Shares issued to shareholders in reinvestment of dividends ........ 133,494 1,004,361 ------------------------------ Total issued ........................... 754,910 5,836,858 Automatic conversion of shares ......... (3,709,417) (29,072,360) Shares redeemed ........................ (2,161,611) (16,426,853) ------------------------------ Net decrease ........................... (5,116,118) $(39,662,355) ============================== -------------------------------------------------------------------------------- Class C Shares for the Year Dollar Ended November 30, 2004 Shares Amount -------------------------------------------------------------------------------- Shares sold ............................ 145,974 $ 1,325,472 Shares issued to shareholders in reinvestment of dividends ........ 15,000 133,902 ------------------------------ Total issued ........................... 160,974 1,459,374 Shares redeemed ........................ (353,438) (3,148,439) ------------------------------ Net decrease ........................... (192,464) $ (1,689,065) ============================== -------------------------------------------------------------------------------- Class C Shares for the Year Dollar Ended November 30, 2003 Shares Amount -------------------------------------------------------------------------------- Shares sold ............................ 266,906 $ 2,061,541 Shares issued to shareholders in reinvestment of dividends ........ 23,270 174,883 ------------------------------ Total issued ........................... 290,176 2,236,424 Shares redeemed ........................ (379,483) (2,892,318) ------------------------------ Net decrease ........................... (89,307) $ (655,894) ============================== MERRILL LYNCH UTILITIES AND TELECOMMUNICATIONS FUND, INC. NOVEMBER 30, 2004 23 [LOGO] Merrill Lynch Investment Managers Notes to Financial Statements (concluded) -------------------------------------------------------------------------------- Class I Shares for the Year Dollar Ended November 30, 2004 Shares Amount -------------------------------------------------------------------------------- Shares sold ............................ 190,762 $ 1,705,184 Shares issued to shareholders in reinvestment of dividends ........ 49,587 446,639 ------------------------------ Total issued ........................... 240,349 2,151,823 Shares redeemed ........................ (696,696) (6,309,081) ------------------------------ Net decrease ........................... (456,347) $ (4,157,258) ============================== -------------------------------------------------------------------------------- Class I Shares for the Year Dollar Ended November 30, 2003 Shares Amount -------------------------------------------------------------------------------- Shares sold ............................ 833,742 $ 6,478,377 Shares issued to shareholders in reinvestment of dividends ........ 72,642 552,101 ------------------------------ Total issued ........................... 906,384 7,030,478 Shares redeemed ........................ (918,697) (7,110,869) ------------------------------ Net decrease ........................... (12,313) $ (80,391) ============================== 5. Short-Term Borrowings: The Fund, along with certain other funds managed by MLIM and its affiliates, is a party to a $500,000,000 credit agreement with a group of lenders. The Fund may borrow under the credit agreement to fund shareholder redemptions and for other lawful purposes other than for leverage. The Fund may borrow up to the maximum amount allowable under the Fund's current prospectus and statement of additional information, subject to various other legal, regulatory or contractual limits. The Fund pays a commitment fee of .07% per annum based on the Fund's pro rata share of the unused portion of the credit agreement. Amounts borrowed under the credit agreement bear interest at a rate equal to, at each fund's election, the federal funds rate plus .50% or a base rate as defined in the credit agreement. The Fund did not borrow under the credit agreement during the year ended November 30, 2004. On November 26, 2004, the credit agreement was renewed for one year under substantially the same terms. 6. Distributions to Shareholders: The Fund paid an ordinary income dividend in the amount of $.037018 per Class A Share, $.027925 per Class B Share, $.027830 per Class C Share and $.041263 per Class I Share on December 21, 2004 to shareholders of record on December 15, 2004. The tax character of distributions paid during the fiscal years ended November 30, 2004 and November 30, 2003 was as follows: -------------------------------------------------------------------------------- 11/30/2004 11/30/2003 -------------------------------------------------------------------------------- Distributions paid from: Ordinary income ....................... $2,578,660 $3,240,191 ----------------------------- Total taxable distributions .............. $2,578,660 $3,240,191 ============================= As of November 30, 2004, the components of accumulated earnings on a tax basis were as follows: -------------------------------------------------------------------------------- Undistributed ordinary income--net ...................... $ 470,313 Undistributed long-term capital gains--net .............. -- ------------ Total undistributed earnings--net ....................... 470,313 Capital loss carryforward ............................... (37,182,869)* Unrealized gains--net ................................... 40,265,165** ------------ Total accumulated earnings--net ......................... $ 3,552,609 ============ * On November 30, 2004, the Fund had a net capital loss carryforward of $37,182,869 of which $34,674,004 expires in 2010 and $2,508,865 expires in 2011. This amount will be available to offset like amounts of any future taxable gains. ** The difference between book-basis and tax-basis net unrealized gains is attributable primarily to the tax deferral of losses on wash sales. 24 MERRILL LYNCH UTILITIES AND TELECOMMUNICATIONS FUND, INC. NOVEMBER 30, 2004 Report of Independent Registered Public Accounting Firm To the Shareholders and Board of Directors of Merrill Lynch Utilities and Telecommunications Fund, Inc.: We have audited the accompanying statement of assets and liabilities, including the schedule of investments, of Merrill Lynch Utilities and Telecommunications Fund, Inc. as of November 30, 2004, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of November 30, 2004, by correspondence with the custodian. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Merrill Lynch Utilities and Telecommunications Fund, Inc. as of November 30, 2004, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and its financial highlights for each of the five years in the period then ended, in conformity with U.S. generally accepted accounting principles. Deloitte & Touche LLP Princeton, New Jersey January 7, 2005 MERRILL LYNCH UTILITIES AND TELECOMMUNICATIONS FUND, INC. NOVEMBER 30, 2004 25 [LOGO] Merrill Lynch Investment Managers Officers and Directors
Number of Portfolios in Other Public Position(s) Length of Fund Complex Directorships Held with Time Overseen by Held by Name Address & Age Fund Served Principal Occupation(s) During Past 5 Years Director Director ==================================================================================================================================== Interested Director ------------------------------------------------------------------------------------------------------------------------------------ Terry K. P.O. Box 9011 President 1999 to President and Chairman of the Merrill Lynch 124 Funds None Glenn* Princeton, NJ and present Investment Managers, L.P. ("MLIM")/Fund Asset 157 Portfolios 08543-9011 Director Management, L.P. ("FAM")-advised funds since Age: 64 1999; Chairman (Americas Region) of MLIM from 2000 to 2002; Executive Vice President of MLIM and FAM (which terms as used herein include their corporate predecessors) from 1983 to 2002; President of FAM Distributors, Inc. ("FAMD") from 1986 to 2002 and Director thereof from 1991 to 2002; Executive Vice President and Director of Princeton Services, Inc. ("Princeton Services") from 1993 to 2002; President of Princeton Administrators, L.P. from 1989 to 2002; Director of Financial Data Services, Inc. since 1985. ------------------------------------------------------------------------------------------------------------------------ * Mr. Glenn is a director, trustee or member of an advisory board of certain other investment companies for which MLIM or FAM acts as investment adviser. Mr. Glenn is an "interested person," as described in the Investment Company Act, of the Fund based on his present and former positions with MLIM, FAM, FAMD, Princeton Services and Princeton Administrators, L.P. The Director's term is unlimited. Directors serve until their resignation, removal, or death, or until December 31 of the year in which they turn 72. As Fund President, Mr. Glenn serves at the pleasure of the Board of Directors. ==================================================================================================================================== Independent Directors* ------------------------------------------------------------------------------------------------------------------------------------ Ronald W. P.O. Box 9095 Director 1990 to Professor Emeritus of Finance, School of Business, 48 Funds None Forbes Princeton, NJ present State University of New York at Albany since 2000 48 Portfolios 08543-9095 and Professor thereof from 1989 to 2000; International Age: 64 Consultant, Urban Institute, Washington, DC from 1995 to 1999. ------------------------------------------------------------------------------------------------------------------------------------ Cynthia A. P.O. Box 9095 Director 1994 to Professor, Harvard Business School since 1989; 48 Funds Newell Montgomery Princeton, NJ present Associate Professor, J.L. Kellogg Graduate School 48 Portfolios Rubbermaid, 08543-9095 of Management, Northwestern University from Inc. Age: 52 1985 to 1989; Associate Professor, Graduate School of Business Administration, University of Michigan from 1979 to 1985. ------------------------------------------------------------------------------------------------------------------------------------ Jean Margo P.O. Box 9095 Director 2004 to Self-employed consultant since 2001; Counsel of 48 Funds None Reid Princeton, NJ present Alliance Capital Management (investment 48 Portfolios 08543-9095 adviser) in 2000; General Counsel, Director and Age: 59 Secretary of Sanford C. Bernstein & Co., Inc. (investment adviser/broker-dealer) from 1997 to 2000; Secretary, Sanford C. Bernstein Fund, Inc. from 1994 to 2000; Director and Secretary of SCB, Inc. since 1998; Director and Secretary of SCB Partners, Inc. since 2000; Director of Covenant House from 2001 to 2004. ------------------------------------------------------------------------------------------------------------------------------------
26 MERRILL LYNCH UTILITIES AND TELECOMMUNICATIONS FUND, INC. NOVEMBER 30, 2004 Officers and Directors (continued)
Number of Portfolios in Other Public Position(s) Length of Fund Complex Directorships Held with Time Overseen by Held by Name Address & Age Fund Served Principal Occupation(s) During Past 5 Years Director Director ==================================================================================================================================== Independent Directors* (concluded) ------------------------------------------------------------------------------------------------------------------------------------ Kevin A. P.O. Box 9095 Director 1992 to Founder and currently Director Emeritus of Boston 48 Funds None Ryan Princeton, NJ present University Center for the Advancement of Ethics 48 Portfolios 08543-9095 and Character and Director thereof from 1989 to Age: 72 1999; Professor from 1982 to 1999 and currently Professor Emeritus of Education at Boston University; formerly taught on the faculties of The University of Chicago, Stanford University and Ohio State University. ------------------------------------------------------------------------------------------------------------------------------------ Roscoe S. P.O. Box 9095 Director 2000 to President, Middle East Institute from 1995 to 2001; 48 Funds None Suddarth Princeton, NJ present Foreign Service Officer, United States Foreign 48 Portfolios 08543-9095 Service, from 1961 to 1995; Career Minister from Age: 69 1989 to 1995; Deputy Inspector General, U.S. Department of State from 1991 to 1994; U.S. Ambassador to The Hashemite Kingdom of Jordan from 1987 to 1990. ------------------------------------------------------------------------------------------------------------------------------------ Richard R. P.O. Box 9095 Director 1990 to Professor of Finance from 1984 to 1995, Dean from 48 Funds Bowne & Co., West Princeton, NJ present 1984 to 1993 and currently Dean Emeritus of New 48 Portfolios Inc.; Vornado 08543-9095 York University Leonard N. Stern School of Business Realty Trust; Age: 66 Administration, New York University from 1995 Vornado Oper- to present. ating Company and Alex- ander's, Inc. ------------------------------------------------------------------------------------------------------------------------------------ Edward D. P.O. Box 9095 Director 2000 to Self-employed financial consultant since 1994; 48 Funds None Zinbarg Princeton, NJ present Executive Vice President of The Prudential Insurance 48 Portfolios 08543-9095 Company of America from 1988 to 1994; former Age: 70 Director of Prudential Reinsurance Company and former Trustee of the Prudential Foundation. ------------------------------------------------------------------------------------------------------------------------ * The Director's term is unlimited. Directors serve until their resignation, removal or death, or until December 31 of the year in which they turn 72. ------------------------------------------------------------------------------------------------------------------------------------
MERRILL LYNCH UTILITIES AND TELECOMMUNICATIONS FUND, INC. NOVEMBER 30, 2004 27 [LOGO] Merrill Lynch Investment Managers Officers and Directors (concluded)
Position(s) Length of Held with Time Name Address & Age Fund Served Principal Occupation(s) During Past 5 Years ==================================================================================================================================== Fund Officers* ------------------------------------------------------------------------------------------------------------------------------------ Donald C. P.O. Box 9011 Vice 1993 to First Vice President of MLIM and FAM since 1997 and Treasurer thereof since 1999; Burke Princeton, NJ President present Senior Vice President and Treasurer of Princeton Services since 1999 and Director 08543-9011 and and since 2004; Vice President of FAMD since 1999; Vice President of MLIM and FAM from Age: 44 Treasurer 1999 to 1990 to 1997; Director of MLIM Taxation since 1990. present ------------------------------------------------------------------------------------------------------------------------------------ Robert C. P.O. Box 9011 Senior Vice 1999 to President of MLIM and member of the Executive Management Committee of ML & Co., Doll, Jr. Princeton, NJ President present Inc. since 2001; Global Chief Investment Officer and Senior Portfolio Manager of 08543-9011 MLIM since 1999; Chief Investment Officer of Equities at Oppenheimer Funds, Inc. Age: 50 from 1990 to 1999 and Chief Investment Officer thereof from 1998 to 1999; Executive Vice President of Oppenheimer Funds, Inc. from 1991 to 1999. ------------------------------------------------------------------------------------------------------------------------------------ Kathleen P.O. Box 9011 Vice 2002 to Director (Equities) of MLIM since 2000; Vice President of MLIM from 1994 to 2000. Anderson Princeton, NJ President present 08543-9011 Age: 46 ------------------------------------------------------------------------------------------------------------------------------------ Jeffrey P.O. Box 9011 Chief 2004 to Chief Compliance Officer of the MLIM/FAM-advised funds and First Vice President and Hiller Princeton, NJ Compliance present Chief Compliance Officer of MLIM since 2004; Global Director of Compliance at 08543-9011 Officer Morgan Stanley Investment Management from 2002 to 2004; Managing Director and Age: 53 Global Director of Compliance at Citigroup Asset Management from 2000 to 2002; Chief Compliance Officer at Soros Fund Management in 2000; Chief Compliance Officer at Prudential Financial from 1995 to 2000. ------------------------------------------------------------------------------------------------------------------------------------ Alice A. P.O. Box 9011 Secretary 2004 to Director (Legal Advisory) of MLIM since 2002; Vice President of MLIM from 1999 to Pellegrino Princeton, NJ present 2002; Attorney associated with MLIM since 1997. 08543-9011 Age: 44 ------------------------------------------------------------------------------------------------------------------------ * Officers of the Fund serve at the pleasure of the Board of Directors. ------------------------------------------------------------------------------------------------------------------------------------ Further information about the Fund's Officers and Directors is available in the Fund's Statement of Additional Information, which can be obtained without charge by calling 1-800-MER-FUND. ------------------------------------------------------------------------------------------------------------------------------------
Custodian J.P. Morgan Chase Bank 4 MetroTech Center, 18th Floor Brooklyn, NY 11245 Transfer Agent Financial Data Services, Inc. 4800 Deer Lake Drive East Jacksonville, FL 32246-6484 800-637-3863 -------------------------------------------------------------------------------- Effective January 1, 2005, Terry K. Glenn, President and Director and Kevin A. Ryan, Director of Merrill Lynch Utilities and Telecommunications Fund, Inc. will retire. The Fund's Board of Directors wishes Messrs. Glenn and Ryan well in their retirements. Effective January 1, 2005, Robert C. Doll, Jr. will become President and Director of the Fund. -------------------------------------------------------------------------------- 28 MERRILL LYNCH UTILITIES AND TELECOMMUNICATIONS FUND, INC. NOVEMBER 30, 2004 Important Tax Information The following information is provided with respect to the quarterly distributions paid by the Merrill Lynch Utilities and Telecommunications Fund, Inc. during the fiscal year ended November 30, 2004: ------------------------------------------------------------------------------------ Qualified Dividend Income for Individuals ................................ 100% Dividends Qualifying for the Dividends Received Deduction for Corporations 100% ------------------------------------------------------------------------------------
Please retain this information for your records. MERRILL LYNCH UTILITIES AND TELECOMMUNICATIONS FUND, INC. NOVEMBER 30, 2004 29 [LOGO] Merrill Lynch Investment Managers Availability of Quarterly Schedule of Investments The Fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission ("SEC") for the first and third quarters of each fiscal year on Form N-Q. The Fund's Forms N-Q are available on the SEC's Web site at http://www.sec.gov. The Fund's Forms N-Q may also be reviewed and copied at the SEC's Public Reference Room in Washington, DC. Information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330. 30 MERRILL LYNCH UTILITIES AND TELECOMMUNICATIONS FUND, INC. NOVEMBER 30, 2004 Electronic Delivery The Fund offers electronic delivery of communications to its shareholders. In order to receive this service, you must register your account and provide us with e-mail information. To sign up for this service, simply access this Web site at http://www.icsdelivery.com/live and follow the instructions. When you visit this site, you will obtain a personal identification number (PIN). You will need this PIN should you wish to update your e-mail address, choose to discontinue this service and/or make any other changes to the service. This service is not available for certain retirement accounts at this time. MERRILL LYNCH UTILITIES AND TELECOMMUNICATIONS FUND, INC. NOVEMBER 30, 2004 31 [LOGO] Merrill Lynch Investment Managers www.mlim.ml.com This report is not authorized for use as an offer of sale or a solicitation of an offer to buy shares of the Fund unless accompanied or preceded by the Fund's current prospectus. Past performance results shown in this report should not be considered a representation of future performance. Investment return and principal value of shares will fluctuate so that shares, when redeemed, may be worth more or less than their original cost. Statements and other information herein are as dated and are subject to change. A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available (1) without charge, upon request, by calling toll-free 1-800-MER-FUND (1-800-637-3863); (2) at www.mutualfunds.ml.com; and (3) on the Securities and Exchange Commission's Web site at http://www.sec.gov. Information about how the Fund voted proxies relating to securities held in the Fund's portfolio during the most recent 12-month period ended June 30 is available (1) at www.mutualfunds.ml.com and (2) on the Securities and Exchange Commission's Web site at http://www.sec.gov. Merrill Lynch Utilities and Telecommunications Fund, Inc. Box 9011 Princeton, NJ 08543-9011 #11693 -- 11/04 Item 2 - Code of Ethics - The registrant has adopted a code of ethics, as of the end of the period covered by this report, that applies to the registrant's principal executive officer, principal financial officer and principal accounting officer, or persons performing similar functions. A copy of the code of ethics is available without charge upon request by calling toll-free 1-800-MER-FUND (1-800-637-3863). Item 3 - Audit Committee Financial Expert - The registrant's board of directors has determined that (i) the registrant has the following audit committee financial experts serving on its audit committee and (ii) each audit committee financial expert is independent: (1) Ronald W. Forbes, (2) Richard R. West, and (3) Edward D. Zinbarg. Item 4 - Principal Accountant Fees and Services (a) Audit Fees - Fiscal Year Ending November 30, 2004 - $30,500 Fiscal Year Ending November 30, 2003 - $30,000 (b) Audit-Related Fees - Fiscal Year Ending November 30, 2004 - $0 Fiscal Year Ending November 30, 2003 - $0 (c) Tax Fees - Fiscal Year Ending November 30, 2004 - $5,800 Fiscal Year Ending November 30, 2003 - $5,400 The nature of the services include tax compliance, tax advice and tax planning. (d) All Other Fees - Fiscal Year Ending November 30, 2004 - $0 Fiscal Year Ending November 30, 2003 - $0 (e)(1) The registrant's audit committee (the "Committee") has adopted policies and procedures with regard to the pre-approval of services. Audit, audit-related and tax compliance services provided to the registrant on an annual basis require specific pre-approval by the Committee. The Committee also must approve other non-audit services provided to the registrant and those non-audit services provided to the registrant's affiliated service providers that relate directly to the operations and the financial reporting of the registrant. Certain of these non-audit services that the Committee believes are a) consistent with the SEC's auditor independence rules and b) routine and recurring services that will not impair the independence of the independent accountants may be approved by the Committee without consideration on a specific case-by-case basis ("general pre-approval"). However, such services will only be deemed pre-approved provided that any individual project does not exceed $5,000 attributable to the registrant or $50,000 for all of the registrants the Committee oversees. Any proposed services exceeding the pre-approved cost levels will require specific pre-approval by the Committee, as will any other services not subject to general pre-approval (e.g., unanticipated but permissible services). The Committee is informed of each service approved subject to general pre-approval at the next regularly scheduled in-person board meeting. (e)(2) 0% (f) Not Applicable (g) Fiscal Year Ending November 30, 2004 - $12,448,225 Fiscal Year Ending November 30, 2003 - $18,947,106 (h) The registrant's audit committee has considered and determined that the provision of non-audit services that were rendered to the registrant's investment adviser and any entity controlling, controlled by, or under common control with the investment adviser that provides ongoing services to the registrant that were not pre-approved pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X is compatible with maintaining the principal accountant's independence. Regulation S-X Rule 2-01(c)(7)(ii) - $945,000, 0% Item 5 - Audit Committee of Listed Registrants - Not Applicable Item 6 - Schedule of Investments - Not Applicable Item 7 - Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies - Not Applicable Item 8 - Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers - Not Applicable Item 9 - Submission of Matters to a Vote of Security Holders - Not Applicable Item 10 - Controls and Procedures 10(a) - The registrant's certifying officers have reasonably designed such disclosure controls and procedures to ensure material information relating to the registrant is made known to us by others particularly during the period in which this report is being prepared. The registrant's certifying officers have determined that the registrant's disclosure controls and procedures are effective based on our evaluation of these controls and procedures as of a date within 90 days prior to the filing date of this report. 10(b) - There were no changes in the registrant's internal control over financial reporting (as defined in Rule 30a-3(d) under the Act (17 CFR 270.30a-3(d)) that occurred during the second fiscal half-year of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting. Item 11 - Exhibits attached hereto 11(a)(1) - Code of Ethics - See Item 2 11(a)(2) - Certifications - Attached hereto 11(a)(3) - Not Applicable 11(b) - Certifications - Attached hereto Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Merrill Lynch Utilities and Telecommunications Fund, Inc. By: /s/ Robert C. Doll, Jr. ------------------------------------ Robert C. Doll, Jr., President of Merrill Lynch Utilities and Telecommunications Fund, Inc. Date: January 13, 2005 Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. By: /s/ Robert C. Doll, Jr. ------------------------------------ Robert C. Doll, Jr., President of Merrill Lynch Utilities and Telecommunications Fund, Inc. Date: January 13, 2005 By: /s/ Donald C. Burke ------------------------------------ Donald C. Burke, Chief Financial Officer of Merrill Lynch Utilities and Telecommunications Fund, Inc. Date: January 13, 2005