MERRILL
LYNCH
TECHNOLOGY
FUND, INC.
FUND LOGO
Annual Report March 31, 1994
This report is not authorized for use as an offer
of sale or solicitation of an offer to buy shares
of the Company unless accompanied or preceded by
the Company's current prospectus. Past performance
results shown in this report should not be con-
sidered 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.
Merrill Lynch
Technology Fund, Inc.
Box 9011
Princeton, NJ
08543-9011
MERRILL LYNCH TECHNOLOGY FUND, INC.
Officers and Directors
Arthur Zeikel, President and Director
Donald Cecil, Director
Edward H. Meyer, Director
Charles C. Reilly, Director
Richard R. West, Director
Terry K. Glenn, Executive Vice President
Norman R. Harvey, Senior Vice President
James K. Renck, Vice President and Porfolio Manager
Donald C. Burke, Vice President
Gerald M. Richard, Treasurer
Robert Harris, Secretary
<PAGE>
Custodian
The Chase Manhattan Bank, N.A.
Chase MetroTech Center
Global Securities Services
Brooklyn, New York 11245
Transfer Agent
Financial Data Services, Inc.
4800 Deer Lake Drive East
Jacksonville, Florida 32246-6484
(800) 637-3863
Worldwide Investments As of 3/31/94
Industries Represented Percent of
In the Portfolio Net Assets
Semiconductors-Memory 24.6%
Microcomputer Software 12.0
Wireless Communications 6.1
Educational/Entertainment Software 5.5
Systems Integration 4.0
Application Development Software 4.0
Semiconductors-Microprocessors 3.9
Applied Technology 0.8
Liquid Crystal Display Capital Equipment 0.2
Systems Sofware 0.2
Ten Largest Holdings Percent of
Represented in the Portfolio Net Assets
Micron Technology, Inc. 24.6%
Creative Technology Ltd. 9.9
Motorola, Inc. 6.1
General Motors Corporation (Class E) 4.0
Oracle Systems Corp. 4.0
Advanced Micro Devices, Inc. 3.5
Acclaim Entertainment, Inc. 2.5
Sega Enterprises, Ltd. 2.3
Microsoft Corporation 2.1
Quick Response Services, Inc. 0.8
DEAR SHAREHOLDER
<PAGE>
Merrill Lynch Technology Fund, Inc. made money in the March
quarter. Class A and Class B Shares provided total investment
returns of +14.89% and +14.67%, respectively. The Fund also
made money in the fiscal year ending March 31, 1994. Class A
and Class B Shares provided total investment returns of +35.68%
and +34.22%, respectively. The Fund generated $69 million in
realized and unrealized gains, up from $32 million in fiscal 1993.
Dividend distributions for Class A Shares amounted to $1.41 per
share in fiscal 1994 compared to $.34 per share in fiscal 1993.
Dividend distributions for Class B Shares amounted to $1.38 per
share in fiscal 1994 compared to $.34 per share in fiscal 1993.
Finally, since the Fund's inception less than two years ago,
Class A and Class B Shares have provided total investment returns
of +92.79% and +88.95%, respectively. (Complete performance in-
formation can be found on pages 4 and 5 of this report to share-
holders.)
As a reminder, our investment strategy continues to be unconventional.
Simply stated, generating positive returns for shareholders is our
objective, not outperforming a stock market index. The Fund is categorized
as nondiversified and invests both in the United States and abroad in
a sector whose stocks are inherently volatile. Volatility, from our
perspective, creates investment opportunities and is normal for a dynamic
industry. However, volatility does entail risk. We attempt to manage risk
and optimize returns by concentrating investments in a limited number of
companies, primarily in the semiconductor, communications and software
industries. We focus on company-specific issues and conduct primary
research rather than make "top-down" generalizations and settle for
secondary research. In other words, "we get out and kick the tires." Most
"unconventional" is our willingness to sell stocks and hold a large cash
position. Core equity holdings are not part of our strategy. Every stock
is bought to be sold. Portfolio turnover is high: 554% in fiscal 1994 and
483% in fiscal 1993.
<PAGE>
1994 Fiscal Year in Review
During the first calendar quarter of 1993 (the last quarter of fiscal
1993), the Fund's cash position was as high as 83% of assets. We sold
stocks largely because we felt the broad-based appreciation of technology
stocks at the end of 1992 discounted much of the good fundamental news on
a short-term basis. Early in the second calendar quarter of 1993 (the
Fund's first fiscal 1994 quarter), the Fund became fully invested, with the
top five equity positions representing 67% of net assets. Semiconductor
and related stocks represented 66% of net assets. By the end of August we
began liquidating our semiconductor holdings because we were uncertain about
a possible inflection in demand. By the end of September, the cash position
was nearly 80% of net assets. During late October, the Semiconductor
Industry Association sharply revised downward growth projections for 1994.
However, in November we began reinvesting cash after much of the decline
in semiconductor stocks had occurred, because specific companies were seeing
a resurgence in orders. This decision to reinvest caused a modest loss in
the fourth calendar quarter, but resulted in very positive returns in the
first calendar quarter of 1994.
The Fund's cash position, which has been approximately 40% since late
February, is providing a cushion in the current stock market decline. It
also gives us flexibility in buying stocks should fully invested funds be
forced to sell, or if selected stocks become compelling buys.
Portfolio Matters
Valuations are becoming increasingly attractive for semiconductor, software
and communication stocks. Demand is generally strong. Many companies are
meeting or exceeding earnings estimates and commenting positively about
their outlooks. We could envision a scenario which would cause us to get
the Fund fully invested. However, at this time, we are willing to be patient
and maintain a large cash position.
Micron Technology, Inc. (24.6% of net assets) and Creative Technology Ltd.
(9.9% of net assets) are the Fund's two largest holdings. Each company has
an outstanding short-term and long-term outlook, and both stocks are signi-
ficantly undervalued, in our opinion.
<PAGE>
Micron Technology, Inc. is a leading supplier of dynamic random access
memory (DRAM) used in the computer and communications industries. The
dramatic worldwide growth of personal computers plus new "memory hungry"
operating systems and applications has created an insatiable demand for
4 megabit (Mb) DRAM, the current mainstream product. This has strained
production capacities of all DRAM suppliers and resulted in increased
prices. Micron Technology's management has been focused on being the
low-cost producer and continually increasing manufacturing efficiency of
silicon wafers. Its ability to "shrink" its product and dramatically
increase the number of parts per 6 inch silicon wafer is unparalleled.
For example, the company is currently increasing by 50% its number of 4Mb
parts per wafer and reducing its manufacturing costs at the same time.
Micron Technology is successfully ramping its 16Mb DRAM parts, the next
generation for the industry. Unlike past generational changes, the company
is on schedule to be one of the leading suppliers early in the product life
cycle. In fact, Micron Technology may well be the first volume supplier of
116Mb memory for use in 300 millimeter packaging, the industry standard for
"single in-line memory modules" (SIMMs). At this juncture, we believe the
financial impact of Micron Technology's production efficiencies and its
leading position in the 16Mb DRAM race are extraordinary. More importantly,
this impact is yet to be broadly recognized by the investment community.
Creative Technology, Ltd. is the dominant supplier of multimedia peripherals
for personal computers. The company's primary product, the Sound Blaster, is
the world leader (60%--70% market share) and the de facto standard in bringing
sound to personal computers. Creative Technology has recently segmented its
sound card line into high-end, mid-range, and entry level with the intro-
duction of a new high-end product called the AWE32. These cards offer new
features and capabilities a generation or two ahead of the competition.
The company is also well along in making sound-enhanced business applications
a reality in the commercial personal computer market. The company's technology
for text-to-speech and speech recognition has developed to the point where
practical business applications are possible. It is our understanding that
such applications are under development at major software firms for intro-
duction in late 1994. The potential for such applications is extraordinary
given the current level of personal computers sold each year (more than 40
million) versus the level of sound card/multimedia penetration (less than 10%).
Finally, we believe the company's internal outlook for 1994 and beyond is
probably much stronger than investor expectations, given a recent decision to
double both its internal production capacity as well as search for additional
contract manufacturers.
We thank you for your continued investment in Merrill Lynch Technology Fund,
Inc., and we look forward to discussing new developments with you in the next
quarterly report to shareholders.
<PAGE>
Sincerely,
(Arthur Zeikel)
Arthur Zeikel
President
(James K. Renck)
James K. Renck
Vice President and Portfolio Manager
April 13, 1994
PERFORMANCE DATA
None of the past results shown should be considered a representation of
future performance. Investment return and principal value of Class A and
Class B Shares will fluctuate so that shares, when redeemed, may be worth
more or less than their original cost.
Total Return Based on a $10,000 Investment
GRAPHIC MATERIAL APPEARS HERE. SEE APPENDIX: ITEM 1.
<TABLE>
Performance Summary--Class A Shares
<CAPTION>
Net Asset Value Capital Gains
Period Covered Beginning Ending Distributed Dividends Paid* % Change**
<C> <C> <C> <C> <C> <C>
4/27/92--12/31/92 $3.83 $4.90 -- $0.337 +37.05%
1993 4.90 4.50 $0.002 1.411 +22.44
1/1/94--3/31/94 4.50 5.17 -- -- +14.89
------ ------
Total $0.002 Total $1.748
Cumulative total return as of 3/31/94: +92.79%**
<PAGE>
<FN>
*Figures may include short-term capital gains distributions.
**Figures assume reinvestment of all dividends and capital gains distributions
at net asset value on the ex-dividend date, and do not include sales charge;
results would be lower if sales charge was included.
</TABLE>
<TABLE>
Performance Summary--Class B Shares
<CAPTION>
Net Asset Value Capital Gains
Period Covered Beginning Ending Distributed Dividends Paid* % Change**
<C> <C> <C> <C> <C> <C>
4/27/92--12/31/92 $3.83 $4.87 -- $0.337 +36.29%
1993 4.87 4.43 $0.002 1.374 +20.89
1/1/94--3/31/94 4.43 5.08 -- -- +14.67
------ ------
Total $0.002 Total $l.711
Cumulative total return as of 3/31/94: +88.95%**
<FN>
*Figures may include short-term capital gains distributions.
**Figures assume reinvestment of all dividends and capital gains distributions
at net asset value on the ex-dividend date, and do not reflect deduction of any
sales charge; results would be lower if sales charge was deducted.
</TABLE>
<TABLE>
Recent Performance Results*
<CAPTION>
12 Month 3 Month
3/31/94 12/31/93 3/31/93 % Change % Change
<S> <C> <C> <C> <C> <C>
Class A Shares** $5.17 $4.50 $5.08 + 1.81%(1) +14.89%
Class B Shares** 5.08 4.43 5.03 + 1.03(1) +14.67
Class A Shares--Total Return +35.68(2) +14.89
Class B Shares--Total Return +34.22(3) +14.67
<FN>
*Investment results shown for the 3-month and 12-month periods are before
the deduction of any sales charges.
**These results do not include reinvestment of ordinary income dividends.
(1)Percent change includes reinvestment of $0.002 per share capital gains
distributions.
(2)Percent change includes reinvestment of $1.411 per share ordinary income
dividends and $0.002 per share capital gains distributions.
(3)Percent change includes reinvestment of $1.374 per share ordinary income
dividends and $0.002 per share capital gains distributions.
</TABLE>
<PAGE>
Average Annual Total Return
% Return Without % Return With
Class A Shares* Sales Charge Sales Charge**
Year Ended 3/31/94 +35.68% +26.86%
Inception (4/27/92) through 3/31/94 +40.61 +35.79
[FN]
*Maximum sales charge is 6.5%.
**Assuming maximum sales charge.
% Return % Return
Class B Shares* Without CDSC With CDSC**
Year Ended 3/31/94 +34.22% +30.22%
Inception (4/27/92) through 3/31/94 +39.15 +38.00
[FN]
*Maximum contingent deferred sales charge is 4% and is reduced to 0%
after 4 years.
**Assuming payment of applicable contingent deferred sales charge.
<TABLE>
SCHEDULE OF INVESTMENTS
<CAPTION>
Value Percent of
Industries Shares Held Stocks Cost (Note 1a) Net Assets
<S> <C> <S> <C> <C> <C>
Japan
Educational/ 125,000 Sega Enterprises, Ltd. $ 9,119,758 $ 9,307,992 2.3%
Entertainment Software
Total Investments in Japanese Stocks 9,119,758 9,307,992 2.3
<PAGE>
Singapore
Microcomputer Software 1,535,000 ++Creative Technology Ltd. 47,079,710 39,526,250 9.9
Total Investments in Singaporean Stocks 47,079,710 39,526,250 9.9
United States
Application Development 500,000 Oracle Systems Corp. 17,482,190 16,000,000 4.0
Software
Applied Technology 152,500 ++Quick Response Services, Inc. 3,584,375 3,202,500 0.8
Educational/ 640,000 Acclaim Entertainment, Inc. 14,524,694 9,920,000 2.5
Entertainment Software 53,000 ++Iwerks Entertainment Inc. 1,759,000 1,099,750 0.3
100,000 ++Software Toolworks, Inc. 1,234,375 1,437,500 0.4
------------ ------------ ------
17,518,069 12,457,250 3.2
Liquid Crystal Display 85,000 ++MRS Technology Inc. 1,126,251 807,500 0.2
Capital Equipment
Microcomputer Software 100,000 Microsoft Corporation 8,432,500 8,475,000 2.1
Semiconductors--Memory 1,175,000 Micron Technology, Inc. 60,212,755 98,112,500 24.6
Semiconductors-- 450,000 ++Advanced Micro Devices, Inc. 13,951,250 13,893,750 3.5
Microprocessors 60,000 ++Cyrix Corporation 1,897,500 1,665,000 0.4
------------ ------------ ------
15,848,750 15,558,750 3.9
Systems Integration 475,000 General Motors Corporation (Class E) 15,969,625 16,268,750 4.0
Systems Software 31,500 ++Veritas Software Inc. 610,250 614,250 0.2
Wireless 240,200 Motorola, Inc. 3,638,026 24,320,250 6.1
Communications
Total Investments in US Stocks 164,422,791 195,816,750 49.1
Total Investments in Stocks 220,622,259 244,650,992 61.3
<PAGE>
<CAPTION>
SHORT-TERM
SECURITIES Face Amount Commercial Paper*
<S> <C> <S> <C> <C> <C>
$10,000,000 Bank One Diversified, 3.50% due 4/06/1994 9,995,139 9,995,139 2.5
Ciesco L.P.:
10,000,000 3.40% due 4/05/1994 9,996,222 9,996,222 2.5
10,000,000 3.72% due 5/18/1994 9,951,433 9,951,433 2.5
4,000,000 Delaware Funding Corp., 3.54% due 4/15/1994 3,994,493 3,994,493 1.0
14,000,000 du Pont (E.I.) de Nemours & Co., 3.42%
due 4/12/1994 13,985,370 13,985,370 3.5
18,390,000 Ford Motor Credit Co., 3.40% due 4/04/1994 18,384,790 18,384,790 4.6
10,000,000 Hewlett-Packard Co., 3.57% due 5/06/1994 9,965,486 9,965,486 2.5
Matterhorn Capital Corp.:
5,000,000 3.50% due 4/07/1994 4,997,083 4,997,083 1.3
10,000,000 3.57% due 4/07/1994 9,994,067 9,994,067 2.5
National Australia Funding Corp.:
8,000,000 3.42% due 4/22/1994 7,984,040 7,984,040 2.0
2,000,000 3.72% due 5/18/1994 1,990,287 1,990,287 0.5
15,000,000 PHH Corporation, Inc., 3.63% due 5/11/1994 14,939,500 14,939,500 3.7
10,000,000 Sanwa Business Credit Corp., 3.40% due 4/04/1994 9,997,167 9,997,167 2.5
3,000,000 Sheffield Receivables Corp., 3.45% due 4/08/1994 2,997,998 2,997,998 0.8
10,000,000 Southern California Edison Co., 3.52%
due 4/22/1994 9,979,583 9,979,583 2.5
Total Investments in Short-Term Securities 139,152,648 139,152,648 34.9
Total Investments $359,774,907 383,803,640 96.2
============
Other Assets Less Liabilities 15,335,881 3.8
------------ ------
Net Assets $399,139,521 100.0%
============ ======
<FN>
*Commercial Paper is traded on a discount basis; the interest rates shown are
the discount rates paid at the time of purchase by the Fund.
++Non-income producing security.
See Notes to Financial Statements.
</TABLE>
<PAGE>
PORTFOLIO CHANGES
For the Quarter Ended March 31, 1994
Additions
Advanced Micro Devices, Inc.
Cyrix Corporation
General Motors Corporation (Class E)
Microsoft Corporation
Sega Enterprises, Ltd.
Deletions
Adobe Systems Inc.
BroadBand Technologies Inc.
Cabletron Systems, Inc.
cisco Systems Inc.
DSC Communications Corp.
FTP Software Inc.
Integrated Device Technology, Inc.
KLA Instruments Corp.
Lam Research Corp.
Mercury Interactive Corp.
Newbridge Networks Corp.
Sybase Inc.
Texas Instruments Inc.
<PAGE>
<TABLE>
STATEMENT OF ASSETS AND LIABILITIES
<CAPTION>
As of March 31,1994
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$359,774,907) (Note 1a) $383,803,640
Cash 19,616,555
Receivables:
Capital shares sold $ 6,567,988
Securities sold 1,137,500
Dividends 72,191 7,777,679
-----------
Deferred organization expenses (Note 1e) 78,089
Prepaid registration fees and other assets (Note 1e) 41,605
------------
Total assets 411,317,568
------------
Liabilities: Payables:
Securities purchased 7,444,250
Capital shares redeemed 4,046,364
Investment adviser (Note 2) 334,177
Distributor (Note 2) 183,497 12,008,288
-----------
Accrued expenses and other liabilities 169,759
------------
Total liabilities 12,178,047
------------
Net Assets: Net assets $399,139,521
============
Net Assets Class A Shares of Common Stock, $0.10 par value, 100,000,000
shares authorized $ 3,379,906
Consist of: Class B Shares of Common Stock, $0.10 par value, 100,000,000
shares authorized 4,413,134
Paid-in capital in excess of par 360,897,435
Undistributed realized capital gains on investments and foreign
currency transactions--net 6,420,096
Unrealized appreciation on investments and foreign currency
transactions--net 24,028,950
------------
Net assets $399,139,521
============
Net Asset Value: Class A--Based on net assets of $174,809,495 and 33,799,065 shares outstanding $ 5.17
============
Class B--Based on net assets of $224,330,026 and 44,131,337 shares outstanding $ 5.08
============
<PAGE>
See Notes to Financial Statements.
</TABLE>
<TABLE>
STATEMENT OF OPERATIONS
<CAPTION>
For the
Year Ended
March 31, l994
<S> <S> <C> <C>
Investment Interest and discount earned $ 2,832,712
Income Dividends (net of $3,126 foreign withholding tax) 274,021
(Notes 1c & 1d): ------------
Total income 3,106,733
------------
Expenses: Investment advisory fees (Note 2) 2,476,639
Distribution fees (Note 2) 1,173,695
Transfer agent fees--Class A (Note 2) 207,716
Transfer agent fees--Class B (Note 2) 207,167
Registration fees (Note 1e) 132,259
Printing and shareholder reports 125,048
Professional fees 69,084
Custodian fees 42,063
Accounting services (Note 2) 41,958
Amortization of organization expenses (Note 1e) 25,326
Directors' fees and expenses 15,364
Other 8,896
------------
Total expenses 4,525,215
------------
Investment loss--net (1,418,482)
------------
Realized & Realized gain (loss) from:
Unrealized Gain Investments--net $46,757,179
(Loss) on Foreign currency transactions (130,293) 46,626,886
Investments & -----------
Foreign Currency Change in unrealized appreciation on:
Transactions--Net Investments--net 22,855,920
(Notes 1b, 1d & 3): Foreign currency transactions 130 22,856,050
----------- ------------
Net realized and unrealized gain on investments and foreign
currency transactions 69,482,936
------------
Net Increase in Net Assets Resulting from Operations $ 68,064,454
============
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
<CAPTION>
For the For the Period
Year Ended April 27,1992++
March 31, to March 31,
Increase (Decrease) in Net Assets: 1994 1993
<S> <S> <C> <C>
Operations: Investment loss--net $ (1,418,482) $ (208,574)
Realized gain on investments and foreign currency transactions--net 46,626,886 30,968,710
Change in unrealized appreciation on investments and foreign currency
transactions--net 22,856,050 1,172,900
------------ ------------
Net increase in net assets resulting from operations 68,064,454 31,933,036
------------ ------------
Distributions to Realized gain on investments--net:
Shareholders Class A (32,432,279) (6,075,613)
(Note 1f): Class B (28,396,274) (2,644,278)
------------ ------------
Net decrease in net assets resulting from distributions to shareholders (60,828,553) (8,719,891)
------------ ------------
Capital Share Net increase in net assets derived from capital share transactions 233,481,245 135,109,230
Transactions ------------ ------------
(Note 4):
Net Assets: Total increase in net assets 240,717,146 158,322,375
Beginning of period 158,422,375 100,000
------------ ------------
End of period $399,139,521 $158,422,375
============ ============
<FN>
++Commencement of Operations.
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
FINANCIAL HIGHLIGHTS
<CAPTION>
Class A Class B
--------------------------- ----------------------------
The following per share data and ratios have been derived For the For the Period For the Year For the Period
from information provided in the financial statements. Year Ended April 27,1992++ Ended April 27,1992++
March 31, to March 31, March 31, to March 31,
Increase (Decrease) in Net Asset Value: 1994* 1993* 1994* 1993*
<S> <S> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 5.08 $ 3.83 $ 5.03 $ 3.83
Operating -------- -------- -------- --------
Performance: Investment loss--net (.01) -- (.05) (.04)
Realized and unrealized gain on investments
and foreign currency transactions--net 1.51 1.59 1.48 1.58
-------- -------- -------- --------
Total from investment operations 1.50 1.59 1.43 1.54
-------- -------- -------- --------
Less distributions:
Realized gain on investments--net (1.41) (.34) (1.38) (.34)
-------- -------- -------- --------
Net asset value, end of period $ 5.17 $ 5.08 $ 5.08 $ 5.03
======== ======== ======== ========
Total Investment Based on net asset value per share 35.68% 42.09%+++ 34.22% 40.77%+++
Return:*** ======== ======== ======== ========
Ratios to Average Expenses, excluding distribution fees 1.35% 1.59%** 1.36% 1.53%**
Net Assets: ======== ======== ======== ========
Expenses 1.35% 1.59%** 2.36% 2.53%**
======== ======== ======== ========
Investment income (loss)--net (.11%) .04%** (1.08%) .93%**
======== ======== ======== ========
Supplemental Net assets, end of period (in thousands) $174,809 $100,830 $224,330 $ 57,592
Data: ======== ======== ======== ========
Portfolio turnover 553.69% 482.79% 553.69% 482.79%
======== ======== ======== ========
<FN>
*Based on average shares outstanding during the period.
**Annualized.
***Total investment returns exclude the effects of sales loads.
++Commencement of Operations.
+++Aggregate total investment return.
See Notes to Financial Statements.
</TABLE>
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies:
Merrill Lynch Technology Fund, Inc. (the "Company") is registered
under the Investment Company Act of 1940 as a non-diversified,
open-end investment management company. The Company commenced
operations on April 27, 1992 (see Note 5). The Company offers both
Class A and Class B Shares. Class A Shares are sold with a front-end
sales charge. Class B Shares may be subject to a contingent deferred
sales charge. Both classes of shares have identical voting, dividend,
liquidation and other rights and the same terms and conditions, except
that Class B Shares bear certain expenses related to the distribution
of such shares and have exclusive voting rights with respect to matters
relating to such distribution expenditures. The following is a summary
of significant accounting policies followed by the Company.
(a) Valuation of securities--Portfolio securities which are traded on
stock exchanges are valued at the last sale price on the exchange on
which such securities are traded, as of the close of business on the
day the securities are being valued or, lacking any sales, at the last
available bid price. In cases where securities are traded on more
than one exchange, the securities are valued on the exchange desig-
nated by or under the authority of the Board of Directors as the
primary market. Securities traded in the over-the-counter market
are valued at the last available bid price in the over-the-counter
market prior to the time of valuation. Short-term investments are
valued at amortized cost, which approximates market. Securities
and assets for which market quotations are not readily available,
including venture capital investments, are valued at fair value as
determined in good faith by or under the direction of the Board of
Directors of the Company.
(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 US dollars. Realized and
unrealized gains or losses from investments include the effects of foreign
exchange rates on investments.
<PAGE>
The Company is authorized to enter into forward foreign exchange
contracts as a hedge against either specific transactions or portfolio
positions. Such contracts are not entered on the Company's records.
However, the effect on operations is recorded from the date the Company
enters into such contracts. Premium or discount is amortized over the
life of the contracts.
NOTES TO FINANCIAL STATEMENTS (concluded)
(c) Income taxes--It is the Company's policy to comply with the requirements
of the Internal Revenue Code applicable to regulated investment companies
and to distribute substantially all of its taxable income to its shareholders.
Therefore, no Federal income tax provision is required. Under the applicable
foreign tax law, a withholding tax may be imposed on interest, dividends,
and capital gains at various rates.
(d) Security transactions and investment income--Security transactions are
recorded on the dates the transactions are entered into (the trade dates).
Dividend income is recorded on the ex-dividend date, except that if the
ex-dividend date has passed, certain dividends from foreign securities
are recorded as soon as the Company is informed of the ex-dividend date.
Interest income (including amortization of discount) is recognized on
the accrual basis. Realized gains and losses on security transactions are
determined on the identified cost basis.
(e) Deferred organization expenses and prepaid registration fees--Deferred
organization expenses are charged to expense on a straight-line basis over
a five-year period. Prepaid registration fees are charged to expense as the
related shares are issued.
(f) Dividends and distributions to shareholders--Dividends and distributions
paid by the Company are recorded on the ex-dividend dates.
(g) Reclassification--Certain 1993 amounts have been reclassified to conform
to the 1994 presentation. Accumulated investment loss--net, in the amount of
$1,626,669, has been reclassified to undistributed realized capital gains--net.
<PAGE>
2. Investment Advisory Agreement and Transactions
with Affiliates:
The Company has entered into an Investment Advisory Agreement with Merrill
Lynch Asset Management, L.P. ("MLAM"). Effective January 1, 1994, the
investment advisory business of MLAM was reorganized from a corporation to
a limited partnership. Both prior to and after the reorganization, ultimate
control of MLAM was vested with Merrill Lynch & Co., Inc. ("ML & Co.").
The general partner of MLAM is Princeton Services, Inc., an indirect wholly-
owned subsidiary of ML & Co. The limited partners are ML & Co. and Merrill
Lynch Investment Management, Inc. ("MLIM"), which is also an indirect wholly-
owned subsidiary of ML"& Co. The Company has also entered into a Distribution
Agreement and a Distribution Plan with Merrill Lynch Funds Distributor, Inc.
("MLFD" or "Distributor"), a wholly-owned subsidiary of MLIM.
MLAM is responsible for the management of the Company's portfolio and
provides the administrative services necessary for the operation of the
Company. As compensation for its services to the Company, the Investment
Advisor receives monthly compensation at the annual rate of 1.0% of the
average daily net assets of the Company.
Certain states in which shares of the Company are qualified for sale
impose limitations on the expenses of the Company. The most restrictive
annual expense limitation requires that the Investmenet Adviser reimburse
the Company to the extent that expenses (excluding interest, taxes,
distribution fees, brokerage fees and commissions, and extraordinary items)
exceed 2.5% of the Company's first $30 million of average daily net assets,
2.0% of the Company's next $70 million of average daily net assets, and 1.5%
of the average daily net assets in excess thereof. MLAM's obligation to
reimburse the Company is limited to the amount of the Investment Advisory fee.
No fee payment will be made to MLAM during any fiscal year which will cause
such expenses to exceed the most restrictive expense limitation applicable at
the time of such payment. For the year ended March 31, 1994, MLAM earned fees
of $2,476,639.
Pursuant to a distribution plan (the "Distribution Plan") adopted by the
Company in accordance with Rule 12b-1 under the Investment Company Act of
1940, the Company pays the Distributor an ongoing account maintenance fee
and distribution fee which are accrued daily and paid monthly at the annual
rates of 0.25% and 0.75%, respectively, of the average daily net assets of
Class B Shares of the Company to compensate the Distributor for services
provided and the expenses borne by it under the Plan. As authorized by the
Plan, the Distributor has entered into an agreement with Merrill Lynch,
Pierce, Fenner & Smith Inc. ("MLPF&S"), an affiliate of MLIM, which provides
for the compensation of MLPF&S for providing distribution-related services
to the Company. For the year ended March 31, 1994, MLFD earned $1,173,695
under the Plan, all of which was paid to MLPF&S pursuant to the agreement.
<PAGE>
For the year ended March 31, 1994, MLFD earned underwriting discounts of
$44,459, and MLPF&S earned dealer concessions of $690,731 on the sales of
the Company's Class A Shares.
MLPF&S also received contingent deferred sales charges of $315,184 from
the redemption of Class B Shares.
Financial Data Services, Inc. ("FDS"), a wholly-owned subsidiary of
ML & Co., is the Company's transfer agent.
Accounting services are provided to the Company by MLAM at cost.
Certain officers and/or directors of the Company are officers and/or
directors of MLIM, MLPF&S, FDS, MLFD, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities,
for the year ended March 31, 1994 were $652,584,257 and $533,518,539,
respectively.
Net realized and unrealized gains (losses) as of March 31, 1994 were
as follows:
Realized
Gains Unrealized
(Losses) Gains
Long-term investments $46,756,782 $24,028,733
Short-term investments 397 --
Foreign currency transactions (130,293) 217
----------- -----------
Total $46,626,886 $24,028,950
=========== ===========
As of March 31, 1994, net unrealized appreciation for Federal
income tax purposes aggregated $24,028,733, of which $39,318,953
related to appreciated securities and $15,290,220 related to
depreciated securities. The aggregate cost of investments at
March 31, 1994 for Federal income tax purposes was $359,744,907.
4. Capital Share Transactions:
Net increase in net assets derived from capital share transactions
was $233,481,245 and $ 135,109,230 for the year ended March 31, 1994
and the period ended March 31, 1993.
Transactions in capital shares for Class A and Class B Shares were
as follows:
<PAGE>
Class A Shares for the Year Dollar
Ended March 31, 1994 Shares Amount
Shares sold 12,878,911 $ 66,764,420
Shares issued to shareholders in reinvest-
ment of distributions 6,189,048 28,065,518
---------- ------------
Total issued 19,067,959 94,829,938
Shares redeemed (5,113,371) (26,393,833)
---------- ------------
Net increase 13,954,588 $ 68,436,105
========== ============
Class A Shares for the Period Dollar
April 27, 1992++ to March 31, 1993 Shares Amount
Shares acquired (Note 5) 16,847,112 $ 64,589,199
Shares sold 5,334,065 29,685,648
Shares issued to shareholders in reinvest-
ment of distributions 1,156,221 5,468,924
---------- ------------
Total issued 23,337,398 99,743,771
Shares redeemed (3,505,976) (16,556,366)
---------- ------------
Net increase 19,831,422 $ 83,187,405
========== ============
[FN]
++Prior to April 27, 1992 (commencement of
operations), the Company issued 13,055
shares to MLAM for $50,000.00
<PAGE>
Class B Shares for the Year Dollar
Ended March 31, 1994 Shares Amount
Shares sold 35,463,009 $182,856,653
Shares issued to shareholders in reinvest-
ment of distributions 5,684,052 25,162,897
---------- ------------
Total issued 41,147,061 208,019,550
Shares redeemed (8,465,704) (42,974,410)
---------- ------------
Net increase 32,681,357 $165,045,140
========== ============
Class B Shares for the Period Dollar
April 27, 1992++ to March 31, 1993 Shares Amount
Shares acquired (Note 5) 1,405,111 $ 5,387,023
Shares sold 11,830,447 55,401,762
Shares issued to shareholders in reinvest-
ment of distributions 496,857 2,330,260
---------- ------------
Total issued 13,732,415 63,119,045
Shares redeemed (2,295,490) (11,197,220)
---------- ------------
Net increase 11,436,925 $ 51,921,825
========== ============
<PAGE>
[FN]
++Prior to April 27, 1992 (commencement of
operations), the Company issued 13,055
shares to MLAM for $50,000.00
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders,
Merrill Lynch Technology Fund, Inc.:
We have audited the accompanying statement of assets and liabilities,
including the schedule of investments, of Merrill Lynch Technology
Fund, Inc. as of March 31,1994, the related statements of operations
for the year then ended and changes in net assets and the financial
highlights for the year then ended and for the period April 27, 1992
(commencement of operations) to March 31, 1993. These financial
statements and the financial highlights are the responsibility of
the Company's management. Our responsibility is to express an opinion
on these financial statements and the financial highlights based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements
and the 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 at March 31, 1994 by correspondence with the custodian
and brokers. 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, such financial statements and financial highlights present
fairly, in all material respects, the financial position of Merrill Lynch
Technology Fund, Inc. as of March 31, 1994, the results of its operations,
the changes in its net assets, and the financial highlights for the repective
stated periods in conformity with generally accepted accounting principles.
Deloitte & Touche
Princeton, New Jersey
April 29, 1994
<PAGE>
<TABLE>
IMPORTANT TAX INFORMATION (unaudited)
The following information summarizes all per share distributions paid by Merrill
Lynch Technology Fund, Inc. during the fiscal year ended March 31, 1994:
<CAPTION>
Domestic Interest From Domestic Total Long-Term
Record Payable Qualifying Federal Non-Qualifying Ordinary Capital
Date Date Ordinary Income Obligations Ordinary Income Income Gains
<C> <C> <C> <C> <C> <C> <C>
Class A Shares:
07/06/93 07/14/93 $.002356 -- $.651298 $.653654 $.001578
12/20/93 12/29/93 $.004295 $.002392 $.750872 $.757559 --
Class B Shares:
07/06/93 07/14/93 $.002356 -- $.651298 $.653654 $.001578
12/20/93 12/29/93 $.004086 $.002276 $.714390 $.720752 --
</TABLE>
The qualifying domestic ordinary income qualifies for the dividends
received deduction for corporations.
The law varies in each state as to whether and what percentage of
dividend income attributable of Federal obligations is exempt from
state income tax. We recommend that you consult your tax advisor to
determine if any portion of the dividends you received is exempt from
state income tax.
Listed below are the percentages of total assets of the Fund invested
in Federal obligations as of the end of each quarter of the fiscal year:
Percentage of
Quarter Ended Federal Obligations*
June 30, 1993 0.00%
September 30, 1993 0.00%
December 31, 1993 5.29%
March 31, 1994 0.00%
Please retain this information for your records.
[FN]
*For purposes of this calculation, Federal obligations include US Treasury
Notes, US Treasury Bills, and US Treasury Bonds. Also included are
obligations issued by the following agencies: Banks for Cooperatives,
Federal Intermediate Credit Banks, Federal Land Banks, Federal Home Loan
Banks, and the Student Loan Marketing Association. Repurchase agreements
are not included in this calculation.
<PAGE>
APPENDIX: GRAPHIC AND IMAGE MATERIAL.
Item 1:
Total Return Based on a $10,000 Investment
A line graph depicting the growth of an investment in the Fund's
Class A Shares and Class B Shares compared to growth of an
investment in the S&P 500 Index. Bebinning and Ending values are:
4/27/92** 3/94
ML Technology Fund, Inc.++--
Class A Shares* $ 9,350 $18,026
ML Technology Fund, Inc.++--
Class B Shares* $10,000 $18,595
S&P 500 Index++++ $10,000 $11,343
[FN]
*Assuming maximum sales charge, transaction costs and other operating
expenses, including advisory fees.
**Commencement of Operations.
++ML Technology Fund, Inc. invests primarily in companies offering products
and services in such areas as computers (including software and hardware),
communications, electronics, factory automation, office automation and other
companies substantially involved in the field of technology.
++++This unmanaged broad-based Index is comprised of common stocks.
