MERRILL LYNCH
TECHNOLOGY
FUND, INC.
FUND LOGO
Quarterly Report
December 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 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
Worldwide
Investments as
of 12/31/94
<PAGE>
Ten Largest Holdings Percent of
Represented in the Portfolio Net Assets
Creative Technology Ltd.* 11.7%
Sony Corp. 10.7
Acclaim Entertainment, Inc. 9.0
Sharp Corp. 4.7
Nippondenso Co., Ltd. 4.3
Omron Corp. 3.9
Electronic Arts, Inc. 3.9
Ushio Inc. 3.8
Matsushita Electric Industrial Co., Ltd. 3.6
Lotus Development Corp. 3.5
[FN]
*Includes holdings in Singapore and the United States.
Industries Represented Percent of
in the Portfolio Net Assets
Consumer Electronics 20.1%
Educational/Entertainment Software 12.9
Microcomputer Software 12.5
Components 9.3
Machinery 9.3
Application Development Software 6.1
Computer Peripherals 3.3
Applied Technology 0.2
Liquid Crystal Display Capital Equipment 0.1
DEAR SHAREHOLDER
Merrill Lynch Technology Fund, Inc. made money in 1994. The Fund's
total returns for Class A and Class B Shares were +26.63% and
+25.50%, respectively. The December quarter, however, was
disappointing in two respects. First, the Fund lost money. Total
returns for Class A and Class B Shares were -2.51% and -2.75%,
respectively. Second, the "feeding frenzy" for US technology stocks,
which began in the September quarter, gathered even more momentum
after a brief, but painful setback in late September--early
October. We clearly underestimated how much money those desperate
for performance would be willing to invest in technology stocks. Had
it not been for the performance contribution from US technology
stocks in the December quarter, many investors would have had far
worse results for 1994. From our perspective, the best risk/reward
opportunities are in stocks where skepticism is high and business
is improving. Unfortunately, investors seem to be enamored with US
technology stocks now. The reasons to own many of the stocks have
been recycled numerous times. Those of us who are concerned about
eroding incremental profitability, especially at semiconductor and
semiconductor capital equipment companies, or who believe recent
stock price gains discount much of the good news on a short-term
basis, have probably sold stocks already or are waiting for the
"greater fool" to buy on the earnings reports.
<PAGE>
During 1995, we anticipate that most of the Fund's investments will
be in US-based software and communications stocks, as well as in
Japanese technology stocks. The latter accounted for more than 40%
of the Fund's assets at year-end. Operating leverage at many
Japanese companies is substantial. For example, one of the Fund's
investments recently reported a 144% increase in consolidated net
income on a 4% revenue increase. Such gains are only beginning to
emerge for a growing list of companies, yet investors remain
skeptical about further gains, the Japanese stock market in general,
and the domestic economic recovery. (Complete performance informa-
tion, including average annual total returns, can be found on pages
4 and 5 of this report to shareholders.)
Portfolio Matters
Over the course of the last year, Acclaim Entertainment, Inc., one
of the Fund's ten-largest holdings, has established itself as the
premier independent software developer in the video game arena and
has strategically positioned itself to become a dominant factor on
the new entertainment platforms later this year.
Despite widespread pessimism as to the outlook for the video game
industry entering the recent Christmas season, Acclaim Entertainment
once again proved the nay-sayers wrong with a very strong first
quarter (ended November 30, 1994), above analysts' expectations. For
the remainder of the current fiscal year ending August 31, 1995, the
company has identified a very strong line-up of game titles which
should continue to maintain the company's growth at a rate above
expectations, as well as gain market share from less well-positioned
competitors.
We believe Acclaim Entertainment has distanced itself, by a wide
margin, from its competitors. Borrowing aggressively from the
business model of the music and film industries, the company has
developed the best mass-distribution channel in the industry. This
has enabled Acclaim Entertainment to benefit not only from its own
titles, but also from the efforts of smaller independent
developers. The company has built the only dedicated motion capture
studio in the world, which will give its interactive software a
realism as yet unseen in the industry. The first games utilizing
this technology will debut in early summer 1995. Acclaim
Entertainment's initial work in this area has proven so successful
the company has been deluged with inquiries from the film,
television and video industries, all of which present substantial
profit potential not yet factored into this year's growth rates. The
company has also become highly sought after as a critical developer
for all of the new dedicated game platforms and, as such, we believe
has elicited preferential licensing arrangements.
<PAGE>
Acclaim Entertainment's aggressive approach, vision and creativity
have not gone completely unnoticed. Telecommunications, Inc. (TCI),
generally considered to be a major player in the interactive, on-
line world of tomorrow, has proposed to take a 10% equity position
in Acclaim Entertainment and form a joint venture with the company
for the development of new interactive hardware and software over
networks. We believe TCI evaluated virtually every interactive
software developer of any significance and selected Acclaim
Entertainment. We also believe Acclaim Entertainment will benefit
significantly, not only from the activities of the joint venture,
but more importantly also from the contacts in the TCI sphere of
influence.
Creative Technology, Ltd., another of the Fund's largest holdings,
has long dominated the personal computer peripheral industry as the
creator of the de facto industry standard for audio support, the
Sound Blaster. On the strength of the Sound Blaster standard, the
company's revenues have grown to an estimated $987 million in the
year ended December 31, 1994. While the Sound Blaster and CD-ROM
drives have helped facilitate the current "multimedia PC" phenomena,
we believe Creative Technology is in the early stages of
establishing a second industry standard: ShareVision.
Creative Technology has quietly acquired and refined the necessary
proprietary technology that enables low-cost point-to-point video
conferencing and collaboration over existing telephone lines using
personal computers. Today, an existing personal computer can be
equipped with ShareVision (software, add-on board, and a camera) for
as little as $1,500. Although alternative technologies are
available, they suffer twin curses: much higher prices and
specialized telephone lines (ISDN). Initial reaction to ShareVision
has been so strong from the business and government sectors that
Creative Technology has had to scramble to accelerate shipments from
suppliers, which it did successfully. We also believe
telecommunications companies have expressed an interest in marketing
ShareVision to corporate customers. As volumes grow, we expect the
company to introduce versions for the home and small office markets
which will utilize personal camcorders as the camera at a much
reduced "consumer-level" price. We can easily envision many parents
wanting to "see" their children at college or grandparents wanting
to "see" their grandchildren rather than relying on telephone calls.
In the very early stages of this market, we believe Creative
Technology is again establishing standards while others are still
talking about them.
In terms of recent financial performance, Creative Technology has
been fairly criticized for creating substantial revenue growth
without similar or better gains in profitability. At an analysts'
meeting in Singapore last October, Creative Technology acknowledged
it had made a mistake focusing exclusively on market share.
Effective January 1, 1995, Creative Technology has implemented a new
salesforce incentive compensation plan which emphasizes revenue and
profit growth. We compliment Creative Technology for recognizing the
problem quickly and taking concrete steps to improve profitability.
<PAGE>
In Conclusion
We thank you for your continued investment in Merrill Lynch
Technology Fund, Inc., and we look forward to discussing new
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
January 8, 1995
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 "Performance Summary" and "Average Annual Total
Return" tables below. "Aggregate Total Return" tables for Class C
and Class D Shares are also presented below. Data for all of the
Fund's shares, including Class C and Class D Shares, are presented
in the "Recent Performance Results" table.
The "Recent Performance Results" table on page 5 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 December
31, 1994 and for Class C and Class D Shares for the period since
inception through December 31, 1994. 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.
<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
------ ------
Total $0.002 Total $2.190
Cumulative total return as of 12/31/94: +112.49%**
<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>
<PAGE>
<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
------ ------
Total $0.002 Total $2.116
Cumulative total return as of 12/31/94: +106.78%**
<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 12/31/94 +26.63% +19.98%
Inception (4/27/92) through 12/31/94 +32.49 +29.85
[FN]
*Maximum sales charge is 5.25%.
**Assuming maximum sales charge.
% Return % Return
Class B Shares* Without CDSC With CDSC**
Year Ended 12/31/94 +25.50% +21.50%
Inception (4/27/92) through 12/31/94 +31.15 +30.67
[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 12/31/94 -4.39% -5.28%
[FN]
*Maximum contingent deferred sales charge is 1% and reduced to 0%
after one 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 12/31/94 -4.37% -9.39%
[FN]
*Maximum sales charge is 5.25%.
**Assuming maximum sales charge.
<TABLE>
Recent
Performance
Results
<CAPTION>
12 Month 3 Month
12/31/94 9/30/94++ 12/31/93 % Change % Change++
<S> <C> <C> <C> <C> <C>
Class A Shares* $5.24 $5.77 $4.50 +16.44% - 9.19%
Class B Shares* 5.14 5.65 4.43 +16.03 - 9.03
Class C Shares* 5.12 5.75 -- -- -10.96
Class D Shares* 5.24 5.88 -- -- -10.88
Class A Shares--Total Return* +26.63(1) - 2.51(2)
Class B Shares--Total Return* +25.50(3) - 2.75(4)
Class C Shares--Total Return* -- - 4.39(5)
Class D Shares--Total Return* -- - 4.37(6)
<PAGE>
<FN>
*Investment results shown do not reflect any 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
$0.372 per share ordinary income dividends.
(3)Percent change includes reinvestment of
$0.405 per share ordinary income dividends.
(4)Percent change includes reinvestment of
$0.342 per share ordinary income dividends.
(5)Percent change includes reinvestment of
$0.364 per share ordinary income dividends.
(6)Percent change includes reinvestment of
$0.370 per share ordinary income dividends.
</TABLE>
PORTFOLIO CHANGES
For the Quarter Ended December 31, 1994
Additions
Adobe Systems Inc.
Daifuku Co., Ltd.
Informix Corp.
*Intuit Inc.
Kenwood Corp.
Koyo Seiko Co., Ltd.
Lotus Development Corp.
Matsushita Electric Industrial Co., Ltd.
NSK Ltd.
NTN Corp.
Nippondenso Co., Ltd.
Omron Corp.
Ricoh Co., Ltd.
SMK Corp.
Sharp Corp.
*Shiva Corp.
Sony Corp.
Tamura Corp.
Tokin Corp.
Ushio Inc.
<PAGE>
Deletions
*Intuit Inc.
Iwerks Entertainment Inc.
Oracle Systems Corp.
Sega Enterprises, Ltd.
*Shiva Corp.
[FN]
*Added and deleted in the same quarter.
<TABLE>
SCHEDULE OF INVESTMENTS (in US dollars)
<CAPTION>
Percent of
COUNTRY Industries Shares Held Stocks Cost Value Net Assets
<S> <S> <C> <S> <C> <C> <C>
Japan Components 150,000 Koyo Seiko Co., Ltd. $ 1,473,133 $ 1,504,523 0.2%
1,850,000 Nippondenso Co., Ltd. 38,360,919 39,045,226 4.3
1,950,000 Omron Corp. 35,219,163 35,864,322 3.9
200,000 SMK Corp. 1,432,563 1,413,065 0.2
489,000 Tamura Corp. 3,759,507 3,794,050 0.4
200,000 Tokin Corp. 2,834,543 2,834,171 0.3
-------------- -------------- ------
83,079,828 84,455,357 9.3
Computer 3,058,000 Ricoh Co., Ltd. 29,644,571 30,426,332 3.3
Peripherals
Consumer 1,125,000 Kenwood Corp. 9,868,491 10,288,945 1.1
Electronics 2,000,000 Matsushita Electric
Industrial Co., Ltd. 31,939,858 32,964,824 3.6
2,343,000 Sharp Corp. 41,700,787 42,385,930 4.7
1,709,700 Sony Corp. 95,427,130 97,083,467 10.7
-------------- -------------- ------
178,936,266 182,723,166 20.1
Machinery 1,541,000 Daifuku Co., Ltd. 24,929,861 26,018,894 2.9
1,721,000 NSK Ltd. 13,149,744 13,664,221 1.5
1,334,000 NTN Corp. 9,748,582 10,015,055 1.1
3,000,000 Ushio Inc. 33,062,145 34,673,367 3.8
-------------- -------------- ------
80,890,332 84,371,537 9.3
Total Investments in
Japanese Stocks 372,550,997 381,976,392 42.0
<PAGE>
Singapore Microcomputer 727,150 Creative Technology Ltd. 9,807,063 9,835,122 1.1
Software
Total Investments in
Singaporean Stocks 9,807,063 9,835,122 1.1
United States Application 745,000 Informix Corp. 20,456,737 23,840,000 2.6
Development 785,000 Lotus Development Corp. 33,939,690 32,185,000 3.5
Software -------------- -------------- ------
54,396,427 56,025,000 6.1
Applied Technology 152,500 Quick Response Services, Inc. 3,584,375 1,830,000 0.2
Educational/ 5,690,000 Acclaim Entertainment, Inc. 91,183,389 81,793,750 9.0
Entertainment 1,858,000 Electronic Arts, Inc. 36,227,029 35,534,250 3.9
Software -------------- -------------- ------
127,410,418 117,328,000 12.9
Liquid Crystal 85,000 MRS Technology Inc. 1,126,251 595,000 0.1
Display
Capital Equipment
Microcomputer 250,000 Adobe Systems Inc. 8,914,880 7,437,500 0.8
Software 6,825,000 Creative Technology Ltd. 97,422,062 96,403,125 10.6
-------------- -------------- ------
106,336,942 103,840,625 11.4
Total Investments in
United States Stocks 292,854,413 279,618,625 30.7
Total Investments in Stocks 675,212,473 671,430,139 73.8
<CAPTION>
Face Amount Commercial Paper*
<S> <S> <C> <S> <C> <C> <C>
SHORT-TERM $35,000,000 ANZ (Delaware), Inc.,
SECURITIES 5.77% due 1/19/1995 34,894,339 34,894,339 3.8
2,679,000 Associates Corp. of North
America, 5.90% due 1/03/1995 2,677,683 2,677,683 0.3
40,000,000 Bear Stearns Cos., Inc. (The),
5.65% due 1/11/1995 39,931,555 39,931,555 4.4
40,000,000 CXC Inc., 6.03% due 1/17/1995 39,886,100 39,886,100 4.4
20,000,000 Ciesco L.P., 5.65% due 1/13/1995 19,959,556 19,959,556 2.2
40,000,000 Daimler-Benz AG, 6.00% due
1/24/1995 39,840,000 39,840,000 4.4
30,000,000 First Boston Inc., 5.05% due
<PAGE> 1/13/1995 29,939,333 29,939,333 3.3
40,000,000 IBM Credit Corp., 5.91% due
1/24/1995 39,842,400 39,842,400 4.4
19,158,000 Matterhorn Capital Corp.,
5.62% due 1/05/1995 19,143,179 19,143,179 2.1
30,000,000 National Australia Funding
(Delaware), Inc., 5.73%
due 1/23/1995 29,891,133 29,891,133 3.3
40,000,000 PHH Corp., 6.00% due
1/04/1995 39,973,467 39,973,467 4.4
30,000,000 Penney (J.C.) Funding Corp.,
5.85% due 1/20/1995 29,903,333 29,903,333 3.3
-------------- -------------- ------
365,882,078 365,882,078 40.3
US Government Obligations*
15,000,000 Federal National Mortgage
Association, 5.61% due
1/11/1995 14,974,471 14,974,471 1.6
Total Investments in
Short-Term Securities 380,856,549 380,856,549 41.9
Total Investments $1,056,069,022 1,052,286,688 115.7
==============
Liabilities in Excess of Other Assets (142,696,209) (15.7)
-------------- ------
Net Assets $ 909,590,479 100.0%
============== ======
Net Asset Value: Class A--Based on net assets of $265,372,450
and 50,637,447 shares outstanding $ 5.24
==============
Class B--Based on net assets of $613,087,771
and 119,289,284 shares outstanding $ 5.14
==============
Class C--Based on net assets of $12,844,860
and 2,510,927 shares outstanding $ 5.12
==============
Class D--Based on net assets of $18,285,398
and 3,487,658 shares outstanding $ 5.24
==============
<PAGE>
<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.
</TABLE>
