MERRILL
LYNCH
TECHNOLOGY
FUND, INC.
FUND LOGO
Semi-Annual Report September 30, 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 considered a representation of future per-
formance. 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
<PAGE>
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 Portfolio Manager
Donald C. Burke, Vice President
Gerald M. Richard, Treasurer
Robert Harris, Secretary
Custodian
The Chase Manhattan Bank, N.A.
Chase MetroTech Center
Global Securities Services
Brooklyn, New York 11245
Transfer Agent
Financial Data Services, Inc.
Transfer Agency Mutual Fund Operations
4800 Deer Lake Drive East
Jacksonville, Florida 32246-6484
(800) 637-3863
Worldwide
Investments
As of 9/30/94
Industries Represented Percent of
In the Portfolio Net Assets
Application Development Software 16.5%
Educational/Entertainment Software 13.2
Microcomputer Software 12.7
Applied Technology 0.3
Liquid Crystal Display Capital Equipment 0.1
<PAGE>
DEAR SHAREHOLDER
Merrill Lynch Technology Fund, Inc. continued to make money in
the September quarter. The Fund's total returns for Class A and
Class B Shares were +6.47% and +6.26%, respectively. Year-to-date,
Class A and Class B Shares' total returns were +29.90% and +29.05%,
respectively. (Complete performance information can be found on
pages 3 and 4 of this report to shareholders.)
Undoubtedly, the Fund's performance could have been better during
the summer's "feeding frenzy" for technology stocks. We
believe, however, that a cautious approach is warranted given our
concerns about incremental profitability. Stock prices anticipate
changes in a company's fundamentals at the margin. As a result,
we decided to eliminate the Fund's exposure to semiconductor and
semiconductor capital equipment companies for the time being. We
are also continuing to monitor personal computer demand, which
most semiconductor and personal computer companies, and
especially investors, expect to be strong in the December
quarter. A negative surprise, if one were to occur, would be
devastating for stock prices. Few will actually know about
"sell-through" until late December.
Some technology companies and their investors also are making
what we consider extraordinary projections to rationalize higher
stock prices. One such company is actually claiming earnings
visibility two years from now and projecting gross profit margins
then of 55%. While we may miss a terrific investment opportunity,
we know this company is also five quarters behind plan reaching
45% gross margins. Such behavior is typically a warning sign. We
believe we acted opportunistically by selling in August and
September and by shifting our investment focus primarily to
software stocks.
Portfolio Matters
As the December quarter begins, technology stocks, especially
semiconductor and semiconductor capital equipment stocks, have
come under intense selling pressure. In many cases, stocks have
declined 15%--25% so far. Fortunately, the Fund ended the
September quarter with a 58% cash position and no investment
exposure to semiconductor and semiconductor capital equipment
stocks. We sold Micron Technology, Inc., the Fund's largest
position at 20.5% of net assets on June 30, at prices ranging
from $40--$44.50 per share. (The stock recently traded under
$31 per share.)
<PAGE>
As of September 30, 1994, the Fund's largest holding was Oracle
Systems Corp., representing 16.5% of net assets. Oracle clearly
has become the dominant supplier of relational database management
systems and development tools in the worldwide movement to client-
server computing. Several years ago the company made a series of
decisions which separated it from its competitors and, we believe,
are paying significant dividends today. As the corporate computing
model began to change from mainframes to client-server computing,
Oracle correctly anticipated that consulting and support would be
just as important as technology. The company was prepared to
provide all the necessary "hand holding" and guidance as corporate
America ventured into the uncharted waters of client-server
computing. We believe this approach has been and will continue
to be a major competitive advantage. That advantage translated
into a 33% revenue growth rate in fiscal 1994 (ending May 31,
1994) and, we believe, sets the stage for a near 50% growth rate
in fiscal 1995.
Acclaim Entertainment, Inc. and Creative Technology Ltd., both of
which have been discussed in prior reports to shareholders,
continue to be large positions in the Fund as well. We maintain
our view that both securities are significantly undervalued.
In Conclusion
We thank you for your investment in Merrill Lynch Technology
Fund, Inc., and we look forward to discussing new developments
with you in the next quarterly report to shareholders.
Sincerely,
(Arthur Zeikel)
Arthur Zeikel
President
(James K. Renck)
James K. Renck
Vice President and Portfolio Manager
October 6, 1994
<PAGE>
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.
<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--9/30/94 4.50 5.77 -- 0.071 + 29.90
------ ------
Total $0.002 Total $1.819
Cumulative total return as of 9/30/94: +117.97%**
<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--9/30/94 4.43 5.65 -- 0.063 + 29.05
------ ------
Total $0.002 Total $1.774
Cumulative total return as of 9/30/94: +112.64%**
<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 reflect deduction of any sales charge; results would be lower
if sales charge was deducted.
</TABLE>
Average Annual
Total Return
% Return Without % Return With
Class A Shares* Sales Charge Sales Charge**
Year Ended 9/30/94 +22.92% +14.93%
Inception (4/27/92)
through 9/30/94 +37.85 +34.09
[FN]
*Maximum sales charge is 6.5%.
**Assuming maximum sales charge.
% Return % Return
Class B Shares* Without CDSC With CDSC**
Year Ended 9/30/94 +21.81% +17.81%
Inception (4/27/92)
through 9/30/94 +36.45 +35.92
[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>
Recent
Performance
Results
<CAPTION>
12 Month 3 Month
9/30/94 6/30/94 9/30/93 % Change % Change
<S> <C> <C> <C> <C> <C>
Class A Shares* $5.77 $5.49 $5.58 + 3.41% +5.10%
Class B Shares* 5.65 5.38 5.48 + 3.10 +5.02
Class A Shares--Total Return* +22.92(1) +6.47(2)
Class B Shares--Total Return* +21.81(3) +6.26(4)
<PAGE>
<FN>
*Investment results shown do not reflect any sales charges;
results shown would be lower if a sales charge was included.
(1)Percent change includes reinvestment of $0.828 per share
ordinary income dividends.
(2)Percent change includes reinvestment of $0.071 per share
ordinary income dividends.
(3)Percent change includes reinvestment of $0.784 per share
ordinary income dividends.
(4)Percent change includes reinvestment of $0.063 per share
ordinary income dividends.
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS
<CAPTION>
COUNTRIES Value Percent of
Industries Shares Held Stocks Cost (Note 1a) Net Assets
<S> <C> <S> <C> <C> <C>
Japan
Educational/
Entertainment Software 250,000 Sega Enterprises, Ltd. $ 18,343,664 $ 15,561,741 2.0%
Total Investments in Japanese Stocks 18,343,664 15,561,741 2.0
Singapore
Microcomputer Software 535,000 ++Creative Technology Ltd. 7,299,387 9,458,165 1.2
Total Investments in Singaporean Stocks 7,299,387 9,458,165 1.2
United States
Application Development 2,967,500 ++Oracle Systems Corp. 115,314,412 127,602,500 16.5
Software
Applied Technology 152,500 ++Quick Response Services, Inc. 3,584,375 2,287,500 0.3
Educational/ 4,490,000 ++Acclaim Entertainment, Inc.++++ 74,029,355 76,330,000 9.9
Entertainment Software 555,000 ++Electronic Arts, Inc. 10,099,747 10,128,750 1.3
53,000 ++Iwerks Entertainment Inc. 1,759,000 251,750 0.0
------------ ------------ ------
85,888,102 86,710,500 11.2
Liquid Crystal Display 85,000 ++MRS Technology Inc. 1,126,251 637,500 0.1
Capital Equipment
Microcomputer Software 4,970,000 ++Creative Technology Ltd. 72,882,182 88,838,750 11.5
Total Investments in United States Stocks 278,795,322 306,076,750 39.6
Total Investments in Stocks 304,438,373 331,096,656 42.8
<PAGE>
<CAPTION>
SHORT-TERM
SECURITIES Face Amount Commercial Paper*
$30,000,000 ANZ (Delaware), Inc., 4.82% due 11/14/1994 29,823,267 29,823,267 3.9
35,000,000 American Telephone & Telegraph Co., 4.90% due
11/15/1994 34,785,625 34,785,625 4.5
26,656,000 Associates Corp. of North America, 4.95% due
10/03/1994 26,648,670 26,648,670 3.5
35,000,000 Corporate Asset Funding, Inc., 4.95% due
11/17/1994 34,773,813 34,773,813 4.5
30,000,000 Creditanstalt Finance, Inc., 4.75% due 10/07/1994 29,976,250 29,976,250 3.9
35,000,000 Daimler-Benz AG, 4.73% due 10/07/1994 34,972,408 34,972,408 4.5
10,000,000 Emerson Electric Co., 4.75% due 10/27/1994 9,965,694 9,965,694 1.3
5,000,000 Matterhorn Capital Corp., 4.86% due 10/25/1994 4,983,800 4,983,800 0.6
35,000,000 MetLife Funding Corp., 4.87% due 10/24/1994 34,891,101 34,891,101 4.5
30,000,000 Penney (J.C.) Funding Corp., 4.73% due 10/21/1994 29,921,167 29,921,167 3.9
15,000,000 Wal-Mart Stores, Inc., 4.73% due 10/14/1994 14,974,379 14,974,379 1.9
35,000,000 Xerox Credit Corp., 4.79% due 11/04/1994 34,841,664 34,841,664 4.5
------------ ------------ ------
320,557,838 320,557,838 41.5
US Government Obligations*
50,000,000 Federal Home Loan Bank, 4.85% due 10/27/1994 49,824,861 49,824,861 6.4
Federal National Mortgage Association:
50,000,000 4.70% due 10/03/1994 49,986,944 49,986,944 6.5
25,000,000 4.75% due 10/24/1994 24,924,132 24,924,132 3.2
------------ ------------ ------
124,735,937 124,735,937 16.1
Total Investments in Short-Term Securities 445,293,775 445,293,775 57.6
Total Investments $749,732,148 776,390,431 100.4
============
Liabilities in Excess of Other Assets (3,267,077) (0.4)
------------ ------
Net Assets $773,123,354 100.0%
============ ======
<FN>
*Commercial Paper and US Government Obligations are traded on
a discount basis; the interest rates shown are the discount rates
paid at the time of purchase by the Company.
++Non-income producing security.
++++Investment in companies 5% or more of whose outstanding securities
are held by the Company (such companies are defined as "Affiliated
Companies" in Section 2(a) (3) of the Investment Company Act of 1940)
is as follows:
<PAGE>
Net Share Dividend
Industry Affiliate Activity Net Cost Income
Educational/ Acclaim
Entertainment Entertainment, Inc. 3,850,000 $59,504,661 (1)
Software
Total $59,504,661
===========
Realized loss from affiliated transactions--$337,226
(1)Non-income producing security.
See Notes to Financial Statements.
</TABLE>
PORTFOLIO CHANGES
For the Quarter Ended September 30, 1994
Addition
Electronic Arts, Inc.
Deletions
Applied Materials, Inc.
Fore Systems, Inc.
General Motors Corporation (Class E)
Integrated Device Technology, Inc.
Micron Technology, Inc.
Microsoft Corporation
Newbridge Networks Corp.
Nextel Communications Inc.
3Com Corporation
<PAGE>
<TABLE>
STATEMENT OF ASSETS AND LIABILITIES
<CAPTION>
As of September 30, 1994
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$749,732,148) (Note 1a) $776,390,431
Cash 10,715,389
Receivables:
Capital shares sold $ 11,003,780
Securities sold 214,001
Dividends 32,262 11,250,043
------------
Deferred organization expenses (Note 1e) 78,089
Prepaid registration fees and other assets (Note 1e) 41,605
------------
Total assets 798,475,557
------------
Liabilities: Payables:
Securities purchased 22,462,816
Capital shares redeemed 1,799,124
Investment adviser (Note 2) 615,719
Distributor (Note 2) 402,461 25,280,120
------------
Accrued expenses and other liabilities 72,083
------------
Total liabilities 25,352,203
------------
Net Assets: Net assets $773,123,354
============
Net Assets Class A Shares of Common Stock, $0.10 par value, 100,000,000 shares authorized $ 4,526,982
Consist of: Class B Shares of Common Stock, $0.10 par value, 100,000,000 shares authorized 9,054,949
Paid-in capital in excess of par 675,476,502
Accumulated investment loss--net (847,227)
Undistributed realized capital gains on investments and foreign currency transactions--net 58,254,197
Unrealized appreciation on investments and foreign currency transactions--net 26,657,951
------------
Net assets $773,123,354
============
Net Asset Value: Class A--Based on net assets of $261,322,820 and 45,269,824 shares outstanding $ 5.77
============
Class B--Based on net assets of $511,800,534 and 90,549,494 shares outstanding $ 5.65
============
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
STATEMENT OF OPERATIONS
<CAPTION>
For the Six Months Ended September 30, 1994
<S> <S> <C> <C>
Investment Interest and discount earned $ 3,761,497
Income Dividends (net of $8,555 foreign withholding tax) 482,317
(Notes 1c & 1d): ------------
Total income 4,243,814
------------
Expenses: Investment advisory fees (Note 2) 2,790,756
Distribution fees--Class B (Note 2) 1,716,775
Transfer agent fees--Class B (Note 2) 258,806
Transfer agent fees--Class A (Note 2) 138,331
Printing and shareholder reports 61,852
Registration fees (Note 1e) 42,480
Accounting services (Note 2) 37,520
Custodian fees 29,000
Professional fees 11,495
Directors' fees and expenses 2,334
Other 1,692
------------
Total expenses 5,091,041
------------
Investment loss--net (847,227)
------------
Realized & Realized gain from:
Unrealized Gain Investments--net $ 58,252,232
(Loss) on Foreign currency transactions--net 1,986 58,254,218
Investments & ------------
Foreign Currency Change in unrealized appreciation/depreciation on:
Transactions--Net Investments--net 2,629,550
(Notes 1b, 1d & 3): Foreign currency transactions--net (549) 2,629,001
------------ ------------
Net realized and unrealized gain on investments and foreign currency
transactions 60,883,219
------------
Net Increase in Net Assets Resulting from Operations $ 60,035,992
============
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
<CAPTION>
For the Six For the
Months Ended Year Ended
September 30, March 31,
Increase (Decrease) in Net Assets: 1994 1994
<S> <S> <C> <C>
Operations: Investment loss--net $ (847,227) $ (1,418,482)
Realized gain on investments and foreign currency transactions--net 58,254,218 46,626,886
Change in unrealized appreciation/depreciation on investments and
foreign currency transactions--net 2,629,001 22,856,050
------------ ------------
Net increase in net assets resulting from operations 60,035,992 68,064,454
------------ ------------
Distributions to Realized gain on investments--net:
Shareholders Class A (2,658,336) (32,432,279)
(Note 1f): Class B (3,761,781) (28,396,274)
------------ ------------
Net decrease in net assets resulting from distributions to shareholders (6,420,117) (60,828,553)
------------ ------------
Capital Share Net increase in net assets derived from capital share transactions 320,367,958 233,481,245
Transactions ------------ ------------
(Note 4):
Net Assets: Total increase in net assets 373,983,833 240,717,146
Beginning of period 399,139,521 158,422,375
------------ ------------
End of period* $773,123,354 $399,139,521
============ ============
<FN>
*Accumulated investment loss--net $ (847,227) $ 0
============ ============
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
FINANCIAL HIGHLIGHTS
<CAPTION>
Class A Class B
--------------------------------- ----------------------------------
The following per share data and ratios For the For the For the For the For the For the
have been derived from information Six Months Year Period Six Months Year Period
provided in the financial statements. Ended Ended Apr. 27, 1992++ Ended Ended Apr. 27, 1992++
Sept. 30, March 31, to March 31, Sept. 30, March 31, to March 31,
Increase (Decrease) in Net Asset Value: 1994 1994** 1993** 1994** 1994** 1993**
<S> <S> <C> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 5.17 $ 5.08 $ 3.83 $ 5.08 $ 5.03 $ 3.83
Operating -------- -------- -------- -------- -------- --------
Performance: Investment income (loss)--net .01 (.01) .00 (.02) (.05) (.04)
Realized and unrealized gain on
investments and foreign currency
transactions--net .66 1.51 1.59 .65 1.48 1.58
-------- -------- -------- -------- -------- --------
Total from investment operations .67 1.50 1.59 .63 1.43 1.54
-------- -------- -------- -------- -------- --------
Less distributions:
Realized gain on investments--net (.07) (1.41) (.34) (.06) (1.38) (.34)
-------- -------- -------- -------- -------- --------
Net asset value, end of period $ 5.77 $ 5.17 $ 5.08 $ 5.65 $ 5.08 $ 5.03
======== ======== ======== ======== ======== ========
Total Investment Based on net asset value per share 13.06%+++ 35.68% 42.09%+++ 12.54%+++ 34.22% 40.77%+++
Return:*** ======== ======== ======== ======== ======== ========
Ratios to Average Expenses, excluding distribution fees 1.20%* 1.35% 1.59%* 1.22%* 1.36% 1.53%**
Net Assets: ======== ======== ======== ======== ======== ========
Expenses 1.20%* 1.35% 1.59%* 2.22%* 2.36% 2.53%*
======== ======== ======== ======== ======== ========
Investment income (loss)--net .33%* (.11)% .04%* (.70)%* (1.08)% .93%*
======== ======== ======== ======== ======== ========
Supplemental Net assets, end of period (in thousands) $261,323 $174,809 $100,830 $511,800 $224,330 $ 57,592
Data: ======== ======== ======== ======== ======== ========
Portfolio turnover 118.44% 553.69% 482.79% 118.44% 553.69% 482.79%
======== ======== ======== ======== ======== ========
<FN>
*Annualized.
**Based on average shares outstanding during the period.
***Total investment returns exclude the effects of sales loads.
++Commencement of Operations.
+++Aggregate total investment return.
See Notes to Financial Statements.
</TABLE>
<PAGE>
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 management investment company. 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. On September 27, 1994,
shareholders approved the implementation of the Merrill Lynch
Select Pricing System SM, which will offer two new classes of
shares, Class C and Class D. 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 designated 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 value. 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.
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.
<PAGE>
(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.
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"). The general
partner of MLAM is Princeton Services, Inc. ("PSI"), an
indirect wholly-owned subsidiary of Merrill Lynch & Co. ("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 Adviser receives monthly compensation at
the annual rate of 1.0% of the average daily net assets of the
Company.
<PAGE>
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
Investment 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.
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 a 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 the
Class B Shares of the Company. Pursuant to a sub-agreement with the
Distributor, Merrill Lynch, Pierce, Fenner & Smith Inc. ("MLPF&S"),
a subsidiary of ML & Co., also provides account maintenance and
distribution services to the Company. The ongoing account maintenance
fee compensates the Distributor and MLPF&S for providing account
maintenance services to Class B shareholders. The ongoing
distribution fee compensates the Distributor and MLPF&S for
providing shareholder and distribution services and bearing certain
distribution-related expenses of the Company. For the six months
ended September 30, 1994, MLFD earned $1,716,775 under the Plan,
all of which was paid to MLPF&S pursuant to the agreement.
For the six months ended September 30, 1994, MLFD earned
underwriting discounts of $69,461, and MLPF&S earned dealer
concessions of $1,080,632 on the sales of the Company's Class A
Shares.
MLPF&S also received contingent deferred sales charges of $268,879
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 MLAM, MLIM, PSI, MLPF&S, FDS, MLFD, and/or
ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term
securities, for the six months ended September 30, 1994 were
$442,742,133 and $417,179,341, respectively.
<PAGE>
Net realized and unrealized gains (losses) as of September 30,
1994 were as follows:
Realized Unrealized
Class A Shares Gains (Losses) Gains (Losses)
Long-term investments $58,253,321 $26,658,283
Short-term investments (1,089) --
Foreign currency transactions 1,986 (332)
----------- -----------
Total $58,254,218 $26,657,951
=========== ===========
As of September 30, 1994, net unrealized appreciation for Federal
income tax purposes aggregated $26,658,283, of which $32,733,082
related to appreciated securities and $6,074,799 related to
depreciated securities. The aggregate cost of investments at
September 30, 1994 for Federal income tax purposes was
$749,732,148.
4. Capital Share Transactions:
Net increase in net assets derived from capital share transactions
was $320,367,958 and $233,481,245 for the six months ended
September 30, 1994 and the year ended March 31, 1994, respectively.
Transactions in capital shares for Class A and Class B Shares
were as follows:
Class A Shares for the Six Months Dollar
Ended September 30, 1994 Shares Amount
Shares sold 20,206,531 $112,966,543
Shares issued to shareholders in reinvest-
ment of distributions 440,248 2,377,340
----------- ------------
Total issued 20,646,779 115,343,883
Shares redeemed (9,176,020) (51,286,225)
----------- ------------
Net increase 11,470,759 $ 64,057,658
=========== ============
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
=========== ============
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Class B Shares for the Six Months Dollar
Ended September 30, 1994 Shares Amount
Shares sold 56,831,895 $312,652,133
Shares issued to shareholders in reinvest-
ment of distributions 638,565 3,384,396
----------- ------------
Total issued 57,470,460 316,036,529
Shares redeemed (11,052,303) (59,726,229)
----------- ------------
Net increase 46,418,157 $256,310,300
=========== ============
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
=========== ============
5. Commitments:
At September 30, 1994, the Company entered into forward foreign
exchange contracts under which it had agreed to sell various
foreign currencies with a value of approximately $215,000.
