MERRILL LYNCH
TECHNOLOGY
FUND, INC.
FUND LOGO
Quarterly Report
December 31, 1996
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.
Statements and other information herein are as dated and are
subject to change.
<PAGE>
Merrill Lynch
Technology Fund, Inc.
Box 9011
Princeton, NJ
08543-9011
Printed on post-consumer recycled paper
MERRILL LYNCH TECHNOLOGY FUND, INC.
Worldwide
Investments
As of 12/31/96
Ten Largest Holdings Percent of
Represented in the Portfolio Net Assets
Creative Technology Ltd. 14.2%
National Semiconductor Corporation 9.3
Seagate Technology, Inc. 7.4
C-Cube Microsystems, Inc. 5.7
Analog Devices, Inc. 5.3
Linear Technology Corporation 4.8
Texas Instruments, Inc. 4.8
Altera Corporation 4.7
Micron Technology, Inc. 4.6
BMC Software, Inc. 4.6
<PAGE>
Ten Largest Industries Percent of
Represented in the Portfolio Net Assets
Microcomputer Peripherals 26.1%
Semiconductors--Logic 19.7
Semiconductors--Analog 19.4
Semiconductors--Memory 14.0
Systems Software 4.6
Semiconductors--Microprocessors 4.5
Educational/Entertainment Software 4.0
Internetworking 3.8
Communications Equipment 3.6
Computer Systems 2.6
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
Global Securities Services
4 Chase MetroTech Center, 18th Floor
Brooklyn, New York 11245
Transfer Agent
Merrill Lynch Financial Data Services, Inc.
4800 Deer Lake Drive East
Jacksonville, Florida 32246-6484
(800) 637-3863
<PAGE>
DEAR SHAREHOLDER
Merrill Lynch Technology Fund, Inc. made a modest amount of money in
the December quarter. For the three months ended December 31, 1996,
total returns for the Fund's Class A, Class B, Class C and Class D
Shares were +1.04%, +0.77%, +0.71% and +0.95%, respectively. Total
returns for the year ended December 31, 1996 for the Fund's Class A,
Class B, Class C and Class D Shares were +4.34%, +3.17%, +3.12% and
+4.06%, respectively. (Complete performance results, including
average annual total returns, can be found on pages 3--5 of this
report to shareholders.) Clearly, we believe 1996 was a
disappointment. After the June/July decline in the overall stock
market (particularly for technology stocks), the Fund was down 16.5%
through July 23, 1996. We redeployed cash in late July into stocks
such as Intel Corporation, Dell Computer Corp., BMC Software, Inc.,
Computer Associates International, Inc., cisco Systems, Inc., and
Seagate Technology, Inc., which helped fuel a rebound in Fund
performance of 29 percentage points through mid-December. These
stocks appreciated 30%--105% from July to year-end. We sold most of
the Fund's investment in Computer Associates International, Inc.
prior to the company's announcement in December of lower-than-expected
revenues for the quarter. Unfortunately, the bottom line is that
our strategy was not enough to generate respectable investment returns
for the year.
Some may question two of the Fund's technology stocks, Creative
Technology, Ltd. and Acclaim Entertainment Inc., because of negative
publicity. We know Acclaim hurt Fund performance. However,
Creative's stock actually appreciated 36% for the year. Creative's
decision several years ago to diversify its product line was a
distraction from its core competency in audio and resulted in a
series of write-offs. The write-offs obscured a fast-growing and
very profitable core business. The turnaround, however, started in
the September quarter of 1996, as Creative refocused its efforts on
what it does best. The audio division grew from 51% of revenues in
the June fiscal year to 63% of revenues in the September quarter.
Audio revenues are growing about 45%--50% and exceed $750 million.
We believe gross profit margins on audio range from 35%--45%,
compared to a corporate average near 20%. The company's cash flow is
strong, and the balance sheet is in good shape. Investors are just
starting to realize the earnings potential, given the stock's recent
appreciation from $3.50 in September to $12.50. As for Acclaim, we
think the worst may be discounted, providing the company gets a cash
infusion, cuts expenses further, and is successful with the
forthcoming product launch for the Nintendo 64 platform.
<PAGE>
Looking ahead, we believe 1997 is off to a good start. Our outlook
is based on our strategy of aggressively restructuring the portfolio
in the September and December quarters and concentrating investments
in semiconductor, computer peripheral, and personal computer stocks.
Business at the margin continues to improve for these companies.
Some are significantly exceeding consensus estimates as they report
earnings during January. More importantly, most are optimistic about
the business outlook. Many semiconductor companies are seeing an
improvement in orders and, in some cases, even an acceleration.
Although "turns" business is high (short order lead times), lead
times are lengthening. In addition, capacity utilization is
generally low. Customer inventories are said to be at historically
low levels, but end-demand is strong. At this time, operating
leverage is substantial. Therefore, we anticipate improvements in
incremental profitability and returns on equity.
In Conclusion
We thank you for your patience and continued investment in Merrill
Lynch Technology Fund, Inc. and we look forward to reporting to you
again in our upcoming annual report to shareholders.
Sincerely,
(Arthur Zeikel)
Arthur Zeikel
President
(James K. Renck)
James K. Renck
Vice President and
Portfolio Manager
January 27, 1997
<PAGE>
PERFORMANCE DATA
About Fund
Performance
Investors are 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 approximately 8 years. (There is no initial
sales charge for automatic share conversions.)
* 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).
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)
<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
1995 5.24 5.20 -- 0.320 + 5.86
1996 5.20 4.98 0.197 0.246 + 4.34
------ ------
Total $0.199 Total $2.756
Cumulative total return as of 12/31/96: +134.71%**
<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
1995 5.14 5.04 -- 0.320 + 4.81
1996 5.04 4.82 0.197 0.181 + 3.17
------ ------
Total $0.199 Total $2.617
Cumulative total return as of 12/31/96: +123.59%**
<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>
Performance
Summary--
Class C Shares
<CAPTION>
Net Asset Value Capital Gains
Period Covered Beginning Ending Distributed Dividends Paid* % Change**
<C> <C> <C> <C> <C> <C>
10/21/94--12/31/94 $5.75 $5.12 -- $0.364 -4.39%
1995 5.12 5.02 -- 0.320 +4.83
1996 5.02 4.80 $0.197 0.177 +3.12
------ ------
Total $0.197 Total $0.861
Cumulative total return as of 12/31/96: +3.35%**
<FN>
*Figures may include short-term capital gains distributions.
**Figures assume reinvestment of all dividends and capital gains
distributions at net asset value on the ex-dividend date, and do not
reflect deduction of any sales charge; results would be lower if
sales charge was deducted.
</TABLE>
<TABLE>
Performance
Summary--
Class D Shares
<CAPTION>
Net Asset Value Capital Gains
Period Covered Beginning Ending Distributed Dividends Paid* % Change**
<C> <C> <C> <C> <C> <C>
10/21/94--12/31/94 $5.88 $5.24 -- $0.370 -4.37%
1995 5.24 5.19 -- 0.320 +5.67
1996 5.19 4.97 $0.197 0.231 +4.06
------ ------
Total $0.197 Total $0.921
Cumulative total return as of 12/31/96: +5.15%**
<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>
Recent
Performance
Results*
<CAPTION>
12 Month 3 Month
12/31/96 9/30/96 12/31/95 % Change % Change
<S> <C> <C> <C> <C> <C>
Class A Shares $4.98 $5.37 $5.20 -0.42%(1) -3.57%(1)
Class B Shares 4.82 5.16 5.04 -0.44(1) -2.75(1)
Class C Shares 4.80 5.14 5.02 -0.43(1) -2.76(1)
Class D Shares 4.97 5.35 5.19 -0.42(1) -3.40(1)
Class A Shares--Total Return +4.34(2) +1.04(2)
Class B Shares--Total Return +3.17(3) +0.77(3)
Class C Shares--Total Return +3.12(4) +0.71(4)
Class D Shares--Total Return +4.06(5) +0.95(5)
<FN>
*Investment results shown do not reflect sales charges; results
shown would be lower if a sales charge was included.
(1)Percent change includes reinvestment of $0.197 per share capital
gains distributions.
(2)Percent change includes reinvestment of $0.246 per share ordinary
income dividends and $0.197 per share capital gains distributions.
(3)Percent change includes reinvestment of $0.181 per share ordinary
income dividends and $0.197 per share capital gains distributions.
(4)Percent change includes reinvestment of $0.177 per share ordinary
income dividends and $0.197 per share capital gains distributions.
(5)Percent change includes reinvestment of $0.231 per share ordinary
income dividends and $0.197 per share capital gains distributions.
</TABLE>
<PAGE>
Average Annual
Total Return
% Return Without % Return With
Class A Shares* Sales Charge Sales Charge**
Year Ended 12/31/96 + 4.34% - 1.14%
Inception (4/27/92) through 12/31/96 +20.00 +18.63
[FN]
*Maximum sales charge is 5.25%.
**Assuming maximum sales charge.
% Return % Return
Class B Shares* Without CDSC With CDSC**
Year Ended 12/31/96 + 3.17% - 0.66%
Inception (4/27/92) through 12/31/96 +18.76 +18.76
[FN]
*Maximum contingent deferred sales charge is 4% and is reduced to 0%
after 4 years.
**Assuming payment of applicable contingent deferred sales charge.
% Return % Return
Class C Shares* Without CDSC With CDSC**
Year Ended 12/31/96 +3.12% +2.16%
Inception (10/21/94) through 12/31/96 +1.51 +1.51
[FN]
*Maximum contingent deferred sales charge is 1% and is 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**
Year Ended 12/31/96 +4.06% -1.40%
Inception (10/21/94) through 12/31/96 +2.32 -0.17
[FN]
*Maximum sales charge is 5.25%.
**Assuming maximum sales charge.
<PAGE>
<TABLE>
SCHEDULE OF INVESTMENTS
<CAPTION>
Shares Percent of
COUNTRY Industries Held Stocks Cost Value Net Assets
<S> <S> <C> <S> <C> <C> <C>
United States Communications 145,000 Cascade Communications Corp. $ 10,054,170 $ 7,993,125 1.1%
Equipment 609,600 PairGain Technologies, Inc. 21,656,843 18,516,600 2.5
------------ ------------ ------
31,711,013 26,509,725 3.6
Computer Systems 271,600 Micron Electronics, Inc. 4,689,166 5,262,250 0.7
258,800 Dell Computer Corp. 7,395,949 13,748,750 1.9
------------ ------------ ------
12,085,115 19,011,000 2.6
Educational/ 6,480,000 Acclaim Entertainment, Inc. 103,211,387 21,060,000 2.9
Entertainment 272,800 Broderbund Software, Inc. 7,478,701 8,081,700 1.1
Software ------------ ------------ ------
110,690,088 29,141,700 4.0
Internet Software 695,000 Cybercash, Inc. 36,437,228 15,985,000 2.2
Internetworking 830,400 FORE Systems, Inc. 30,260,515 27,299,400 3.8
Microcomputer 600,000 Adaptec, Inc. 20,554,690 24,000,000 3.3
Peripherals 8,833,850 Creative Technology Ltd. (a) 122,956,666 102,693,506 14.2
300,000 Quantum Corporation 7,418,760 8,512,500 1.2
1,363,600 Seagate Technology, Inc. 34,026,475 53,862,200 7.4
------------ ------------ ------
184,956,591 189,068,206 26.1
Semiconductors-- 1,129,900 Analog Devices, Inc. 33,940,739 38,275,363 5.3
Analog 800,000 Linear Technology Corporation 34,689,755 35,000,000 4.8
2,762,500 National Semiconductor
Corporation 61,876,199 67,335,938 9.3
------------ ------------ ------
130,506,693 140,611,301 19.4
Semiconductors-- 475,000 Altera Corporation 33,260,680 34,496,875 4.7
Logic 1,115,000 C-Cube Microsystems, Inc. 59,092,061 41,115,625 5.7
------------ ------------ ------
92,352,741 75,612,500 10.4
<PAGE>
Semiconductors-- 2,441,700 Integrated Device
Memory Technology, Inc. 32,359,863 33,268,162 4.6
1,150,000 Micron Technology, Inc. 35,984,832 33,493,750 4.6
543,000 Texas Instruments, Inc. 29,762,352 34,616,250 4.8
------------ ------------ ------
98,107,047 101,378,162 14.0
Semiconductors-- 250,000 Intel Corporation 18,527,775 32,718,750 4.5
Microprocessors
Semiconductor 200,000 Lam Research Corporation 7,505,025 5,600,000 0.8
Capital
Equipment
Systems Software 809,200 BMC Software, Inc. 23,984,670 33,480,650 4.6
Total Investments in Stocks 777,124,501 696,416,394 96.0
Total Investments $777,124,501 696,416,394 96.0
============
Other Assets Less Liabilities 28,702,047 4.0
------------ ------
Net Assets $725,118,441 100.0%
============ ------
Net Asset Value: Class A--Based on net assets of $230,538,355 and
46,280,697 shares outstanding $ 4.98
============
Class B--Based on net assets of $434,294,959 and
90,047,062 shares outstanding $ 4.82
============
Class C--Based on net assets of $22,762,896 and
4,744,468 shares outstanding $ 4.80
============
Class D--Based on net assets of $37,522,231 and
7,548,335 shares outstanding $ 4.97
============
<FN>
(a)Shares of Creative Technology Ltd. (Singapore Holdings) were
combined with the US holdings of Creative Technology Ltd.
</TABLE>
<PAGE>
PORTFOLIO CHANGES
For the Quarter Ended December 31, 1996
Additions
Adaptec, Inc.
Altera Corporation
Analog Devices, Inc.
Broderbund Software, Inc.
Integrated Device Technology, Inc.
Lam Research Corporation
Linear Technology Corporation
Micron Electronics, Inc.
Micron Technology, Inc.
Quantum Corporation
Texas Instruments, Inc.
Deletions
Aware, Inc.
Cirrus Logic, Inc.
cisco Systems, Inc.
Computer Associates International, Inc.
E* TRADE Group, Inc.
Electronic Arts, Inc.
Forte Software, Inc.
Infonautics, Inc. (Class A)
Informix Corporation
Interlink Computer Sciences, Inc.
Netscape Communications Corp.
Oracle Corporation
Polaroid Corporation
Sun Microsystems, Inc.
