MERRILL LYNCH
TECHNOLOGY
FUND, INC.
FUND LOGO
Annual Report
March 31, 1995
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 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
<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
Edward D. Zinbarg, 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.
Global Securities Services
4 Chase MetroTech Center, 18th Floor
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
<PAGE>
Worldwide
Investments
As of 3/31/95
Ten Largest Holdings Percent of
Represented in the Portfolio Net Assets
Creative Technology Ltd*. 11.4%
Acclaim Entertainment, Inc. 11.0
Informix Corp. 7.5
3Com Corporation 7.0
LSI Logic Corp. 5.1
Omron Corp. 4.9
INTEL Corporation 4.6
Nippondenso Co., Ltd. 4.2
Ushio Inc. 3.7
Electronic Arts, Inc. 3.5
[FN]
*Includes holdings in Singapore and the United States.
Industries Represented Percent of
in the Portfolio Net Assets
Educational/Entertainment Software 14.6%
Microcomputer Software 12.7
Components 10.1
Machinery 9.0
Internetworking 8.2
Application Development Software 7.9
Application Specific Integrated Circuits 5.1
Semiconductors--Microprocessors 4.6
Computer Peripherals 3.4
Telecommunications 1.2
Consumer Electronics 1.1
<PAGE>
DEAR SHAREHOLDER
Merrill Lynch Technology Fund, Inc. lost money in the March quarter.
The Fund's total returns for Class A, B, C and D Shares were -6.7%,
-7.0%, -7.0% and -6.7%, respectively. The loss is attributable
predominantly to the Fund's investments in Japan (42% of net assets
on December 31, 1994), which declined in value along with the
Japanese stock market, following the Kobe earthquake. Investor
confidence in the Japanese market (which declined about 20% during
the quarter ended March 31, 1995) was shaken further by the Barings
Securities trading scandal and the persistent strength of the yen.
Even the secular outlook has been questioned, absent fiscal reforms.
Such events are impossible to anticipate. We eliminated several
positions in an effort to stem the Fund's losses, but remain
positive about company-specific issues related to Japanese companies
we still hold. The Fund currently has 23.6% of net assets in
Japanese stocks. Although we do not know how long it will take for
investor confidence to improve, the tone of business remains
generally good. Patience may be rewarded as the year progresses.
The Fund has missed opportunities in US technology stocks,
particularly semiconductor and semiconductor capital equipment
stocks, which have had impressive gains since last fall. We were
wrong for being too cautious.
At the end of the March quarter, the Fund's portfolio held 24 stocks
and had 25.7% of net assets in short-term investments. We do see
investment opportunities based on company-specific issues. However,
the broad-based move in US technology stocks in the last six months
has to discount some, or much, of the good news on a short-term
basis.
1995 Fiscal Year in Review
The Fund performed well in the first half of the fiscal year. We
protected profits generated in the first half of the fiscal year by
raising the cash position to 58% of net assets by the end of
September. During the December quarter, the cash position was as
high as 75%. This cautious investment strategy, combined with our
decision to overweight Japanese stocks in the March quarter,
resulted in relatively disappointing total returns for the Fund's
fiscal year. (See pages 5 through 7 of this report to shareholders
for complete performance information.)
<PAGE>
Our investment style has been described to shareholders many times.
Our investment strategy differs from that of many other mutual
funds. The focus is on generating positive returns (making money),
not on outperforming a stock market index. The Fund is non-
diversified. We invest in volatile stocks both in the United States
and abroad, and volatility entails risk. We attempt to manage risk
and optimize returns by concentrating investments in a limited
number of companies and by conducting primary research. Company-
specific issues are our primary focus, not "top-down"
generalizations. Most "unconventional" is our willingness to sell
stocks and hold a large cash position.
Portfolio Matters
Here is an update on three of the Fund's largest holdings.
Creative Technology Ltd. (11.4% of net assets) publicly announced
that improved profitability and enhanced shareholder value will be
primary objectives in 1995. Creative Technology demonstrated its
resolve in the December quarter with a positive earnings surprise,
and we believe that several new product areas should contribute
significantly to earnings over the next two years. First, the audio
business will begin to migrate from an after-market board business
to that of being designed into the personal computer on its
"motherboard."
In addition, the company's high-margin desktop video conferencing
product, ShareVision, continues to sell as fast as it can be
manufactured. More importantly, management has been able to
eliminate several manufacturing constraints, and they are ramping
production more aggressively. Creative Technology has also entered
the software market in the People's Republic of China with a Chinese-
English document processing suite targeted at Chinese businesses.
Typically, margins on software are dramatically above the company's
existing product lines, so even limited success in this market will
have a positive impact. Finally, Creative Technology has entered the
market for low-cost, three-dimensional graphics boards targeted at
the video game community. Current personal computers lack the
graphics capabilities of dedicated video game machines. However, a
number of companies have announced intentions to close the gap;
Creative Technology is an early entrant into this market.
Acclaim Entertainment, Inc. (11.0% of net assets) has become the
largest independent developer of video games. As such, the company
is very well-positioned to leverage the new suite of game platforms
and help define the interactive entertainment experience for the
future.
<PAGE>
The pessimistic outlook for the video game industry continued
throughout the Christmas period and into early 1995. However, for
its second fiscal quarter ended February 28, 1995, the company again
reported outstanding results led by the industry's number one
seller, NBA Jam Tournament Edition. Management has tempered
expectations for the second half of the fiscal year (ending August)
as a result of the maturing of the 16-bit cartridge market. Despite
this, the company has a very strong lineup of game titles, and has
accelerated its entry into the PC CD-ROM game market along with new
video game platforms.
Acclaim Entertainment's first PC CD-ROM product, Mortal Kombat II,
has become a surprising success with more than 100,000 copies sold
to date. More importantly, PC CD's are inherently more profitable
(no royalty to the hardware manufacturer).
Early 1995 feedback appears very positive for the new dedicated
video game platforms introduced in Japan just before Christmas. Both
Sony Corp. and Sega Enterprises, Ltd. have indicated that current
sales are well ahead of schedule and have increased forecast sales
in 1995 to more than two million units each. The machines should be
introduced in the United States in late summer/early fall of this
year. The industry pessimists have long downplayed the impact of
these next generation machines in 1995. However, given the
surprising demand in Japan, coupled with the potential for more
aggressive US pricing, these new platforms could easily ignite a
demand surge from consumers this holiday season. Here again, we
believe Acclaim Entertainment is well-positioned to leverage the
opportunity.
Informix Corporation (7.5% of net assets) is a leading supplier of
relational database management systems (DBMS) and tools for the
development of computer applications. Until very recently, the
company was viewed as having excellent technology but lacking the
marketing muscle of its two primary competitors, Oracle Systems
Corp. and Sybase, Inc. Throughout 1994, Informix bolstered its
domestic sales force and, coupled with a new release of the
company's DBMS, surprised investors in the December quarter with
revenues and earnings above expectations. More importantly, the
company's server growth rate (+66%), a critical market share
statistic monitored by investors and analysts, leap-frogged ahead of
both Oracle and Sybase. In addition, Informix began to discuss a
number of strategic competitive "wins" outside its traditional
strongholds, which demonstrated the scalability of their new DBMS,
the importance of that scalability to customers, and the expanded
market coverage of their sales force.
<PAGE>
Informix is expected to report results for the March quarter that
will again demonstrate exceptional server growth. At the same time,
management is augmenting its international sales force, as was done
domestically in 1994. We believe the impact will likely be positive.
The company is also expected to introduce a new version of the DBMS
at mid-year which will enable an Informix customer to run its
applications unchanged on an inexpensive, massively parallel
computer. The effects of this will be to significantly change the
economics of computing for large systems users as well as to open up
a dramatic new area of growth for the company.
In Conclusion
We thank you for your continued investment in Merrill Lynch
Technology Fund, Inc. Although the Fund is off to a poor start this
year, we are determined to make money. We cannot know now whether
our determination will translate into success, but we look forward
to discussing new, and hopefully, positive developments with you in
our next quarterly report to shareholders.
Sincerely,
Arthur Zeikel
(Arthur Zeikel)
President
James K. Renck
(James K. Renck)
Vice President and Portfolio Manager
April 18, 1995
<PAGE>
PROXY RESULTS
During the six-month period ended March 31, 1995, Merrill Lynch
Technology Fund, Inc. shareholders voted on the following proposals.
Proposals 1, 2 and 4 were approved at a special shareholders'
meeting on September 28, 1994. Proposal 3 was passed at a special
shareholders' meeting on January 31, 1995. The description of each
proposal and number of shares voted are as follows:
<TABLE>
<CAPTION>
Shares Voted Shares Voted
For Without Authority
<S> <S> <C> <C>
1. To elect the Fund's Board of Directors: Donald Cecil 105,611,596 1,790,313
Edward H. Meyer 105,606,637 1,795,272
Charles C. Reilly 105,624,910 1,776,999
Richard R. West 105,624,910 1,776,999
Arthur Zeikel 105,623,658 1,778,251
<CAPTION>
Shares Voted Shares Voted Shares Voted
For Against Abstain
<S> <C> <C> <C>
2. To select Deloitte & Touche LLP as the Fund's independent auditors. 104,008,753 934,550 2,458,606
3. To approve certain changes to the Fund's fundamental investment restrictions. 51,726,307 2,537,448 3,177,674
4. To amend the Fund's articles of incorporation to implement the Merrill
Lynch Select Pricing SM System. 96,319,162 5,305,100 5,777,647
</TABLE>
PERFORMANCE DATA
About Fund Performance
Since October 21, 1994, investors have been able to purchase shares
of the Fund through the Merrill Lynch Select Pricing SM System,
which offers four pricing alternatives:
* Class A Shares incur a maximum initial sales charge (front-end
load) of 5.25% and bear no ongoing distribution or account
maintenance fees. Class A Shares are available only to eligible
investors.
* Class B Shares are subject to a maximum contingent deferred sales
charge of 4% if redeemed during the first year, decreasing 1% each
year thereafter to 0% after the fourth year. In addition, Class B
Shares are subject to a distribution fee of 0.75% and an account
maintenance fee of 0.25%. These shares automatically convert to
Class D Shares after 8 years.
<PAGE>
* Class C Shares are subject to a distribution fee of 0.75% and an
account maintenance fee of 0.25%. In addition, Class C Shares are
subject to a 1% contingent deferred sales charge if redeemed within
one year of purchase.
* Class D Shares incur a maximum initial sales charge of 5.25% and
an account maintenance fee of 0.25% (but no distribution fee).
Performance data for the Fund's Class A and Class B Shares are
presented in the "Total Return Based on a $10,000 Investment,"
"Performance Summary" and "Average Annual Total Return" tables on
pages 6 and 7. "Aggregate Total Return" tables for Class C and Class
D Shares are also presented on page 6. Data for all of the Fund's
shares, including Class C and Class D Shares, are presented in the
"Recent Performance Results" table on page 7.
The "Recent Performance Results" table shows investment results
before the deduction of any sales charges for Class A and Class B
Shares for the 12-month and 3-month periods ended March 31, 1995 and
for Class C and Class D Shares for the since inception and 3-month
periods ended March 31, 1995. All data in this table assume
imposition of the actual total expenses incurred by each class of
shares during the relevant period.
None of the past results shown should 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. 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.
PERFORMANCE DATA (concluded)
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. Beginning and ending values are:
4/27/92** 3/95
ML Technology Fund, Inc.++--
Class A Shares* $ 9,475 $18,789
ML Technology Fund, Inc.++--
Class B Shares* $10,000 $19,030
S&P 500 Index++++ $10,000 $13,113
<PAGE>
[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.
Past performance is not predictive of future performance.
Average Annual
Total Return
% Return Without % Return With
Class A Shares* Sales Charge Sales Charge**
Year Ended 3/31/95 + 2.86% - 2.54%
Inception (4/27/92) through 3/31/95 +26.36% +24.05%
[FN]
*Maximum sales charge is 5.25%.
**Assuming maximum sales charge.
% Return % Return
Class B Shares* Without CDSC With CDSC**
Year Ended 3/31/95 + 1.78% - 1.97%
Inception (4/27/92) through 3/31/95 +25.04 +24.60
[FN]
*Maximum contingent deferred sales charge is 4% and is reduced to 0%
after 4 years.
**Assuming payment of applicable contingent deferred sales charge.
<PAGE>
Aggregate
Total Return
% Return % Return
Class C Shares* Without CDSC With CDSC**
Inception (10/21/94) through 3/31/95 -11.11% -11.94%
[FN]
*Maximum contingent deferred sales charge is 1% and reduced to 0%
after 1 year.
**Assuming payment of applicable contingent deferred sales charge.
% Return Without % Return With
Class D Shares* Sales Charge Sales Charge**
Inception (10/21/94) through 3/31/95 -10.76% -15.44%
[FN]
*Maximum sales charge is 5.25%.
**Assuming maximum sales charge.
<TABLE>
Recent
Performance
Results*
<CAPTION>
12 Month 3 Month
3/31/95 12/31/94 3/31/94++ % Change++ % Change
<S> <C> <C> <C> <C> <C>
Class A Shares $4.89 $5.24 $5.17 - 5.42% -6.68%
Class B Shares 4.78 5.14 5.08 - 5.91 -7.00
Class C Shares 4.76 5.12 5.75 -17.22 -7.03
Class D Shares 4.89 5.24 5.88 -16.84 -6.68
Class A Shares--Total Return + 2.86(1) -6.68
Class B Shares--Total Return + 1.78(2) -7.00
Class C Shares--Total Return -11.11(3) -7.03
Class D Shares--Total Return -10.76(4) -6.68
<FN>
*Investment results shown do not reflect sales charges; results
shown would be lower if a sales charge was included.
++Investment results shown for Class C and Class D Shares are since
inception (10/21/94).
(1)Percent change includes reinvestment of $0.442 per share ordinary
income dividends.
(2)Percent change includes reinvestment of $0.405 per share ordinary
income dividends.
(3)Percent change includes reinvestment of $0.364 per share ordinary
income dividends.
(4)Percent change includes reinvestment of $0.370 per share ordinary
income dividends.
</TABLE>
<PAGE>
<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
1994 4.50 5.24 -- 0.442 +26.63
1/1/95--3/31/95 5.24 4.89 -- -- - 6.68
------ ------
Total $0.002 Total $2.190
Cumulative total return as of 3/31/95: +98.30%**
<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
1994 4.43 5.14 -- 0.405 +25.50
1/1/95--3/31/95 5.14 4.78 -- -- - 7.00
------ ------
Total $0.002 Total $2.116
Cumulative total return as of 3/31/95: +92.30%**
<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>
<PAGE>
<TABLE>
SCHEDULE OF INVESTMENTS (in US dollars)
<CAPTION>
Value Percent of
COUNTRY Industries Shares Held Stocks Cost (Note 1a) Net Assets
<S> <S> <C> <S> <C> <C> <C>
Japan Components 150,000 Koyo Seiko Co., Ltd. $ 1,473,132 $ 1,289,897 0.2%
2,020,000 Nippondenso Co., Ltd. 41,882,433 39,194,030 4.2
2,300,000 Omron Corp. 41,590,378 45,154,994 4.9
200,000 SMK Corp. 1,432,563 1,320,322 0.1
489,000 Tamura Corp. 3,759,508 3,542,583 0.4
200,000 Tokin Corp. 2,834,543 2,296,211 0.3
------------ ------------ ------
92,972,557 92,798,037 10.1
Computer Peripherals 3,378,000 Ricoh Co., Ltd. 32,707,737 31,569,369 3.4
Consumer Electronics 1,345,000 Kenwood Corp. 11,727,737 10,052,755 1.1
Machinery 2,016,000 Daifuku Co., Ltd. 32,140,494 26,849,139 2.9
1,921,000 NSK Ltd. 14,648,691 13,630,057 1.5
1,384,000 NTN Corp. 10,118,145 8,739,380 0.9
3,419,000 Ushio Inc. 37,465,179 34,307,761 3.7
------------ ------------ ------
94,372,509 83,526,337 9.0
Total Investments in Japanese
Stocks 231,780,540 217,946,498 23.6
Singapore Microcomputer Software 727,150 ++Creative Technology Ltd. ++++ 9,807,063 9,070,050 1.0
Total Investments in Singaporean
Stocks 9,807,063 9,070,050 1.0
United States Application Development 2,047,500 ++Informix Corp. 69,553,267 69,870,938 7.5
Software 101,000 ++Tivoli Systems, Inc. 3,654,750 3,737,000 0.4
------------ ------------ ------
73,208,017 73,607,938 7.9
Application Specific 912,800 ++LSI Logic Corp. 43,257,670 47,922,000 5.1
Integrated Circuits 155,600 ++Peoplesoft Inc. 6,052,916 6,768,600 0.7
Communications
Educational/Entertainment 5,875,000 ++Acclaim Entertainment, Inc. ++++ 93,834,640 102,078,125 11.0
Software 1,458,000 ++Electronic Arts, Inc. 28,949,158 32,805,000 3.6
------------ ------------ ------
122,783,798 134,883,125 14.6
<PAGE>
Internetworking 1,150,000 ++3Com Corporation 57,354,512 64,831,250 7.0
330,000 ++Qualcomm, Inc. 10,612,818 10,807,500 1.2
------------ ------------ ------
67,967,330 75,638,750 8.2
Liquid Crystal Display 85,000 ++MRS Technology Inc. 1,126,251 552,500 0.1
Capital Equipment
Microcomputer 250,000 Adobe Systems Inc. 8,914,880 12,375,000 1.3
Software 7,831,200 ++Creative Technology Ltd. ++++ 110,137,963 95,932,200 10.4
------------ ------------ ------
119,052,843 108,307,200 11.7
Semiconductors- 500,000 ++INTEL Corporation 39,995,452 42,375,000 4.6
Microprocessors
Total Investments in United
States Stocks 473,444,277 490,055,113 52.9
Total Investments in Stocks 715,031,880 717,071,661 77.5
SHORT-TERM
SECURITIES Face Amount Commercial Paper*
$18,675,000 Associates Corp. of North
America, 6.35% due 4/03/1995 18,668,412 18,668,412 2.0
40,000,000 du Pont (E.I.) de Nemours &
Co., 5.96% due 5/09/1995 39,748,356 39,748,356 4.3
50,000,000 IBM Credit Corp., 5.96% due
4/28/1995 49,776,500 49,776,500 5.4
10,000,000 Matterhorn Capital Corp., 5.95%
due 4/12/1995 9,981,819 9,981,819 1.1
40,000,000 National Australia Funding
(Delaware), Inc., 5.92% due
4/11/1995 39,934,222 39,934,222 4.3
------------ ------------ ------
158,109,309 158,109,309 17.1
US Government & Agency Obligations*
40,000,000 Federal Home Loan Mortgage
Corp., 5.91% due 4/13/1995 39,921,200 39,921,200 4.3
40,000,000 Federal National Mortgage
Association, 5.90% due 4/24/1995 39,849,222 39,849,222 4.3
------------ ------------ ------
79,770,422 79,770,422 8.6
<PAGE>
Total Investments in Short-Term
Securities 237,879,731 237,879,731 25.7
Total Investments $952,911,611 954,951,392 103.2
============
Unrealized Depreciation on Forward Foreign Exchange Contracts** (7,669,463) (0.8)
Liabilities in Excess of Other Assets (22,253,410) (2.4)
------------ ------
Net Assets $925,028,519 100.0%
============ ======
<FN>
*Commercial Paper and certain US Government & Agency Obligations are
traded on a discount basis; the interest rates shown are the
discount rates paid at the time of purchase by the Company.
**Forward foreign exchange contracts as of March 31, 1995 are as
follows:
<CAPTION>
Unrealized
Expiration Depreciation
Foreign Currency Sold Date (Note 1c)
<S> <S> <C>
YEN 3,872,000,000 April 1995 $ (1,884,739)
YEN 17,567,017,517 May 1995 (5,784,724)
Total Unrealized Depreciation on
Forward Foreign Exchange Contracts
(US Commitment--$239,321,252) $ (7,669,463)
=============
++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:
<CAPTION>
Net Share Net Dividend
Industry Affiliate Activity Cost Income
<S> <S> <C> <C> <C>
Educational/ Acclaim
Entertainment Entertainment,
Software Inc. 5,235,000 $ 79,309,946 --
Microcomputer Creative
Software Technology Ltd. 7,023,350 72,865,316 --
Total $152,175,262
============
<PAGE>
Realized loss from affiliated transactions--$337,226
See Notes to Financial Statements.
</TABLE>
<TABLE>
STATEMENT OF ASSETS AND LIABILITIES
<CAPTION>
As of March 31, 1995
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$952,911,611)(Note 1a) $ 954,951,392
Receivables:
Capital shares sold $ 5,555,490
Dividends 1,148,962 6,704,452
-------------
Deferred organization expenses (Note 1f) 52,762
Prepaid registration fees and other assets (Note 1f) 40,380
--------------
Total assets 961,748,986
--------------
Liabilities: Unrealized depreciation on forward foreign exchange
contracts (Note 1b) 7,669,463
Payables:
Forward foreign exchange contracts (Note 1b) 13,777,116
Securities purchased 8,209,190
Capital shares redeemed 4,053,377
Investment adviser (Note 2) 780,310
Distributor (Note 2) 545,300 27,365,293
-------------
Accrued expenses and other liabilities 1,685,711
--------------
Total liabilities 36,720,467
--------------
Net Assets: Net assets $ 925,028,519
==============
<PAGE>
Net Assets: Class A Shares of Common Stock, $0.10 par value, 100,000,000
Consist of: shares authorized $ 5,199,740
Class B Shares of Common Stock, $0.10 par value, 300,000,000
shares authorized 12,860,198
Class C Shares of Common Stock, $0.10 par value, 100,000,000
shares authorized 488,640
Class D Shares of Common Stock, $0.10 par value, 300,000,000
shares authorized 667,959
Paid-in capital in excess of par 964,719,060
Distributions in excess of realized capital gains on
investments and foreign currency transactions--net (53,313,062)
Unrealized depreciation on investments and foreign
currency transactions--net (5,594,016)
--------------
Net assets $ 925,028,519
==============
Net Asset Class A--Based on net assets of $254,187,902 and
Value: 51,997,403 shares outstanding $ 4.89
==============
Class B--Based on net assets of $614,935,478 and
128,601,982 shares outstanding $ 4.78
==============
Class C--Based on net assets of $23,259,465 and
4,886,402 shares outstanding $ 4.76
==============
Class D--Based on net assets of $32,645,674 and
6,679,596 shares outstanding $ 4.89
==============
See Notes to Financial Statements.
</TABLE>
<TABLE>
STATEMENTS OF OPERATIONS
<CAPTION>
For the Year Ended March 31, 1995
<S> <S> <C>
Investment Interest and discount earned $ 14,555,332
Income Dividends (net of $202,813 foreign withholding tax) 1,608,114
(Notes 1d --------------
& 1e): Total income 16,163,446
--------------
<PAGE>
Expenses: Investment advisory fees (Note 2) 7,146,254
Distribution fees--Class B (Note 2) 4,635,444
Transfer agent fees--Class B (Note 2) 1,121,442
Transfer agent fees--Class A (Note 2) 462,063
Registration fees (Note 1f) 353,620
Printing and shareholder reports 326,003
Professional fees 113,859
Accounting services (Note 2) 78,659
Custodian fees 76,012
Distribution fees--Class C (Note 2) 61,520
Transfer agent fees--Class D (Note 2) 28,225
Amortization of organization expenses (Note 1f) 25,326
Transfer agent fees--Class C (Note 2) 22,836
Account maintenance fees--Class D (Note 2) 21,277
Directors' fees and expenses 19,176
Other 10,298
--------------
Total expenses 14,502,014
--------------
Investment income--net 1,661,432
--------------
Realized & Realized gain (loss) from:
Unrealized Gain Investments--net $ 26,054,248
(Loss) on Foreign currency transactions--net (25,183,420) 870,828
Investments & -------------
Foreign Currency Change in unrealized appreciation/depreciation on:
Transactions Investments--net (21,988,952)
--Net Foreign currency transactions--net (7,634,014) (29,622,966)
(Notes 1b, 1c, ------------- --------------
1e & 3): Net realized and unrealized loss on investments and
foreign currency transactions (28,752,138)
--------------
Net Decrease in Net Assets Resulting from Operations $ (27,090,706)
==============
See Notes to Financial Statements.
</TABLE>
<TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
<CAPTION>
For the Year Ended March 31,
Increase (Decrease) in Net Assets: 1995 1994
<S> <S> <C> <C>
Operations: Investment income (loss)--net $ 1,661,432 $ (1,418,482)
Realized gain on investments and foreign currency
transactions--net 870,828 46,626,886
Change in unrealized appreciation/depreciation on
investments and foreign currency transactions--net (29,622,966) 22,856,050
<PAGE> -------------- --------------
Net increase (decrease) in net assets resulting from
operations (27,090,706) 68,064,454
-------------- --------------
Dividends & Investment income--net:
Distributions to Class A (1,262,702) --
Shareholders Class B (287,745) --
(Note 1g): Class C (41,855) --
Class D (69,130) --
In excess of investment income--net:
Class A (280,276) --
Class B (63,869) --
Class C (9,290) --
Class D (15,345) --
Realized gain on investments--net:
Class A (2,232,025) (32,432,279)
Class B (4,866,620) (28,396,274)
Class C (81,670) --
Class D (110,609) --
In excess of realized gain on investments--net:
Class A (16,321,125) --
Class B (35,585,943) --
Class C (597,190) --
Class D (808,804) --
-------------- --------------
Net decrease in net assets resulting from dividends
and distributions to shareholders (62,634,198) (60,828,553)
-------------- --------------
Capital Share Net increase in net assets derived from capital share
Transactions transactions 615,613,902 233,481,245
(Note 4): -------------- --------------
Net Assets: Total increase in net assets 525,888,998 240,717,146
Beginning of year 399,139,521 158,422,375
-------------- --------------
End of year $ 925,028,519 $ 399,139,521
============== ==============
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
FINANCIAL HIGHLIGHTS
<CAPTION>
Class A Class B
For the For the
The following per share data and ratios Period Period
have been derived from information April 27, April 27,
provided in the financial statements. For the Year 1992++ to For the Year 1992++ to
Ended March 31, March 31, Ended March 31, March 31,
Increase (Decrease) in Net Asset Value: 1995** 1994** 1993** 1995** 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 .05 (.01) -- (.01) (.05) (.04)
Realized and unrealized gain on
investments and foreign currency
transactions--net .11 1.51 1.59 .11 1.48 1.58
-------- -------- -------- -------- -------- --------
Total from investment operations .16 1.50 1.59 .10 1.43 1.54
-------- -------- -------- -------- -------- --------
Less dividends and distributions:
Investment income--net (.02) -- -- --++++ -- --
In excess of investment
Income--net (.01) -- -- --++++ -- --
Realized gain on investments--net (.05) (1.41) (.34) (.05) (1.38) (.34)
In excess of realized gain on
investments--net (.36) -- -- (.35) -- --
-------- -------- -------- -------- -------- --------
Total dividends and distributions (.44) (1.41) (.34) (.40) (1.38) (.34)
-------- -------- -------- -------- -------- --------
Net asset value, end of period $ 4.89 $ 5.17 $ 5.08 $ 4.78 $ 5.08 $ 5.03
======== ======== ======== ========= ======== ========
Total Investment Based on net asset value per share 2.86% 35.68% 42.09%+++ 1.78% 34.22% 40.77%+++
Return:*** ======== ======== ======== ========= ======== ========
Ratios to Expenses, excluding distribution
Average fees 1.33% 1.35% 1.59%* 1.38% 1.36% 1.53%*
Net Assets: ======== ======== ======== ========= ======== ========
Expenses 1.33% 1.35% 1.59%* 2.38% 2.36% 2.53%*
======== ======== ======== ========= ======== ========
Investment income (loss)--net .87% (.11%) .04%* (.10%) (1.08%) .93%*
======== ======== ======== ========= ======== ========
Supplemental Net assets, end of period (in
Data: thousands) $254,188 $174,809 $100,830 $614,935 $224,330 $ 57,592
======== ======== ======== ========= ======== ========
Portfolio turnover 175.57% 350.64% 482.79% 175.57% 350.64% 482.79%
======== ======== ======== ========= ======== ========
<PAGE>
<FN>
*Annualized.
**Based on average shares outstanding during the period.
***Total investment returns exclude the effect of sales loads.
++Commencement of Operations.
++++Amount is less than $.01 per share.
+++Aggregate total investment return.
See Notes to Financial Statements.
</TABLE>
<TABLE>
FINANCIAL HIGHLIGHTS (concluded)
<CAPTION>
The following per share data and ratios have been derived For the Period
from information provided in the financial statements. October 21, 1994++ to
March 31, 1995**
Increase (Decrease) in Net Asset Value: Class C Class D
<S> <S> <C> <C>
Per Share Net asset value, beginning of period $ 5.75 $ 5.88
Operating --------- ---------
Performance: Investment income (loss)--net -- (.02)
Realized and unrealized loss on investments and foreign
currency transactions--net (.62) (.60)
--------- ---------
Total from investment operations (.62) (.62)
--------- ---------
Less dividends and distributions:
Investment income--net (.02) (.02)
In excess of investment income--net (.01) (.01)
Realized gain on investments--net (.04) (.04)
In excess of realized gain on investments--net (.30) (.30)
--------- ---------
Total dividends and distributions (.37) (.37)
--------- ---------
Net asset value, end of period $ 4.76 $ 4.89
========= =========
Total Investment Based on net asset value per share (11.11%)+++ (10.76%)+++
Return:*** ========= =========
<PAGE>
Ratios to Expenses, excluding account maintenance and distribution
Average fees 1.59%* 1.55%*
Net Assets: ========= =========
Expenses 2.59%* 1.80%*
========= =========
Investment loss--net (.02%)* (.81%)*
========= =========
Supplemental Net assets, end of period (in thousands) $ 23,259 $ 32,646
Data: ========= =========
Portfolio turnover 175.57% 175.57%
========= =========
<FN>
++Commencement of Operations.
+++Aggregate total investment return.
*Annualized.
**Based on average shares outstanding during the period.
***Total investment returns exclude the effect of sales loads.
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 management investment company. The Company offers four classes
of shares under the Merrill Lynch Select PricingSM System. Shares of
Class A and Class D 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 B, Class C and Class D 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. The following is a summary of
significant accounting policies followed by the Company.
<PAGE>
(a) Valuation of investments--Portfolio securities which are traded
on stock exchanges are valued at the last sale price on exchanges 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. Securities traded in the over-the-counter
market are valued at the last available bid price prior to the time
of valuation. 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 which are traded both in the over-the-counter 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 over-the-counter market, the last asked price.
Options purchased are valued at the last sale price in the case of
exchange-traded options or, in the case of options traded in the
over-the-counter market, the last bid price. Short-term securities
are valued at amortized cost, which approximates market value. Other
investments, including futures contracts and related options, are
stated at market value. Securities and assets for which market value
quotations are not available are valued at their fair value as
determined in good faith by or under the direction of the Company's
Board of Directors.
(b) Derivative financial instruments--The Company may engage in
various portfolio strategies to seek to increase its return by
hedging its portfolio against adverse movements in the equity, debt
and currency markets. Losses may arise due to changes in the value
of the contract or if the counterparty does not perform under the
contract.
* Financial futures contracts--The Company may purchase or sell
futures contracts and options on such futures contracts for the
purpose of hedging the market risk on existing securities or the
intended purchase of securities. 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 Company
deposits and maintains as collateral such initial margin as required
by the exchange on which the transaction is effected. Pursuant to
the contract, the Company 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
marginand are recorded by the Company as unrealized gains or losses.
When the contract is closed, the Company 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.
* Options--The Company is authorized to write and purchase call and
put options. When the Company writes an option, an amount
equal to the premium received by the Company 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 Company enters into a closing
transaction), the Company realized 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).
<PAGE>
Written and purchased options are non-income producing investments.
* Forward foreign exchange contracts--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.
* Foreign currency options and futures--The Company 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-US dollar denominated securities owned by the Company,
sold by the Company but not yet delivered, or committed or
anticipated to be purchase by the Company.
(c) 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.
(d) 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.
NOTES TO FINANCIAL STATEMENTS (concluded)
(e) 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 if the ex-dividend 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.
<PAGE>
(f) 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.
(g) Dividends and distributions to shareholders--Dividends and
distributions paid by the Company are recorded on the ex-dividend
dates. Distributions in excess of net investment income and realized
capital gains are due primarily to differing tax treatments for
futures transactions and post-October losses.
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., Inc. ("ML & Co."), which is
the limited partner. The Company has also entered into a
Distribution Agreement and Distribution Plans with Merrill Lynch
Funds Distributor, Inc. ("MLFD" or "Distributor"), a wholly-owned
subsidiary of Merrill Lynch Group, Inc.
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. 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 the distribution plans (the "Distribution Plans")
adopted by the Company, pursuant to Rule 12b-1 under the Investment
Company Act of 1940, the Company pays the Distributor an ongoing
account maintenance fee 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:
<PAGE>
Account Distribution
Maintenance Fee Fee
Class B 0.25% 0.75%
Class C 0.25% 0.75%
Class D 0.25% --
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, Class C and Class D 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 March 31, 1995, MLFD earned underwriting
discounts and MLPF&S earned dealer concessions on sales of the
Fund's Class A and Class D Shares as follows:
MLFD MLPF&S
Class A $93,391 $1,474,578
Class D $41,924 $ 605,730
For the year ended March 31, 1995, MLPF&S received contingent
deferred sales charges of $1,118,846 and $4,037 relating to
transactions in Class B and C Shares, respectively. In addition,
MLPF&S received $9,753 in commissions on the execution of portfolio
security transactions for the Company for the year ended March 31,
1995.
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, PSI, MLPF&S, FDS, MLFD, and/or ML & Co.
<PAGE>
3. Investments:
Purchases and sales of investments, excluding short-term securities,
for the year ended March 31, 1995 were $1,231,456,326 and
$763,001,917, respectively.
Net realized and unrealized gains (losses) as of March 31, 1995 were
as follows:
Realized Unrealized
Gains Gains
(Losses) (Losses)
Long-term investments $26,049,976 $ 2,039,781
Short-term investments 4,272 --
Forward foreign exchange
contracts (25,016,767) (7,669,463)
Foreign currency transactions (166,653) 35,666
----------- ------------
Total $ 870,828 $ (5,594,016)
=========== ============
As of March 31, 1995, net unrealized appreciation for Federal income
tax purposes aggregated $2,039,781, of which $34,954,966 related to
appreciated securities and $32,915,185 related to depreciated
securities. The aggregate cost of investments at March 31, 1995 for
Federal income tax purposes was $952,911,611.
4. Capital Share Transactions:
Net increase in net assets derived from capital share transactions
was $615,613,902 and $233,481,245 for the years ended March 31, 1995
and March 31, 1994, respectively.
Transactions in capital shares for each class were as follows:
Class A Shares for the Year Dollar
Ended March 31, 1995 Shares Amount
Shares sold 31,862,508 $174,435,046
Shares issued to shareholders
in reinvestment of dividends
and distributions 3,494,000 17,829,324
----------- ------------
Total issued 35,356,508 192,264,370
Shares redeemed (17,158,170) (92,814,537)
----------- ------------
Net increase 18,198,338 $ 99,449,833
=========== ============
<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 reinvestment 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 B Shares for the Year Dollar
Ended March 31, 1995 Shares Amount
Shares sold 110,181,775 $589,755,859
Shares issued to shareholders
in reinvestment of dividends
and distributions 7,328,692 36,567,423
Total issued 117,510,467 626,323,282
Shares redeemed (31,692,920) (163,195,508)
Automatic conversion of shares (1,346,902) (7,153,389)
----------- ------------
Net increase 84,470,645 $455,974,385
=========== ============
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 reinvestment 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
=========== ============
<PAGE>
Class C Shares for the Period Dollar
October 21, 1994++ to March 31, 1995 Shares Amount
Shares sold 5,309,942 $ 27,166,187
Shares issued to shareholders
in reinvestment of dividends and
distributions 128,715 635,854
----------- ------------
Total issued 5,438,657 27,802,041
Shares redeemed (552,255) (2,727,441)
----------- ------------
Net increase 4,886,402 $ 25,074,600
=========== ============
[FN]
++Commencement of Operations.
Class D Shares for the Period Dollar
October 21, 1994++ to March 31, 1995 Shares Amount
Shares sold 8,332,225 $ 43,660,136
Automatic conversion of shares 1,316,991 7,153,389
Shares issued to shareholders
in reinvestment of dividends and
distributions 174,684 883,900
----------- ------------
Total issued 9,823,900 51,697,425
Shares redeemed (3,144,304) (16,582,341)
----------- ------------
Net increase 6,679,596 $ 35,115,084
=========== ============
[FN]
++Commencement of Operations.
<AUDIT-REPORT>
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, 1995, the related statements
of operations for the year then ended, and changes in net assets for
each of the years in the two-year period then ended and the
financial highlights for each of the years in the two-year period
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.
<PAGE>
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, 1995 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, 1995, the
results of its operations, the changes in its net assets, and the
financial highlights for the respective stated periods in conformity
with generally accepted accounting principles.
Deloitte & Touche LLP
Princeton, New Jersey
April 28, 1995
</AUDIT-REPORT>
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, 1995:
<TABLE>
<CAPTION>
Domestic Interest From Domestic Total
Record Payable Qualifying Federal Non-Qualifying Ordinary
Date Date Ordinary Income Obligations Ordinary Income Income
<S> <C> <C> <C> <C> <C> <C>
Class A Shares:
07/05/94 07/13/94 $.000400 $.000223 $.069964 $.070587
12/19/94 12/28/94 $.003116 -- $.368598 $.371714
Class B Shares:
07/05/94 07/13/94 $.000356 $.000198 $.062291 $.062845
12/19/94 12/28/94 $.002867 -- $.339203 $.342070
Class C Shares:
12/19/94 12/28/94 $.003054 -- $.361296 $.364350
Class D Shares:
12/19/94 12/28/94 $.003101 -- $.366853 $.369954
</TABLE>
<PAGE>
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 to Federal obligations is exempt from
state income tax. We recommend that you consult your tax adviser 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 Company
invested in Federal obligations as of the end of each quarter of the
fiscal year:
Percentage of
Quarter Ended Federal Obligations*
June 30, 1994 0.00%
September 30, 1994 5.58%
December 31, 1994 0.00%
March 31, 1995 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>
PORTFOLIO CHANGES (unaudited)
For the Quarter Ended March 31, 1995
Additions
3Com Corporation
INTEL Corporation
LSI Logic Corp.
Peoplesoft Inc.
Qualcomm, Inc.
Tivoli Systems, Inc.
Deletions
Lotus Development Corp.
Matsushita Electric Industrial Co., Ltd.
Quick Response Services, Inc.
Sharp Corp.
Sony Corp.
