MERRILL LYNCH
TECHNOLOGY
FUND, INC.
[GRAPHIC OMITTED]
STRATEGIC
Performance
Quarterly Report
December 31, 1998
<PAGE>
MERRILL LYNCH TECHNOLOGY FUND, INC.
Portfolio Information As of 12/31/98
Ten Largest Industries Percent of
Represented in the Portfolio Net Assets
Semiconductors .................................................... 18.6%
Software .......................................................... 16.4
Telecommunications Equipment ...................................... 11.9
Contract Manufacturers ............................................ 11.4
Technology Services ............................................... 8.8
Personal Computers ................................................ 7.3
Data Communications ............................................... 6.0
Computer Systems .................................................. 4.1
Electronic Design Automation ...................................... 3.2
Distribution ...................................................... 3.0
Ten Largest Holdings Percent of
Represented in the Portfolio Net Assets
Keane, Inc. ....................................................... 6.4%
Lucent Technologies Inc. .......................................... 5.2
Compaq Computer Corporation ....................................... 4.8
Microsoft Corporation ............................................. 4.3
Compuware Corporation ............................................. 4.2
Xilinx, Inc. ...................................................... 4.1
Sanmina Corporation ............................................... 3.9
SCI Systems, Inc. ................................................. 3.6
Texas Instruments Incorporated .................................... 3.4
Cisco Systems, Inc. ............................................... 3.2
Officers and Directors
Arthur Zeikel, President and Director
Donald Cecil, Director
Roland M. Machold, 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
Donald C. Burke, Vice President
Gerald M. Richard, Treasurer
Philip M. Mandel, Secretary
Custodian
The Chase Manhattan Bank
Global Securities Services
4 Chase MetroTech Center, 18th Floor
Brooklyn, NY 11245
Transfer Agent
Financial Data Services, Inc.
4800 Deer Lake Drive East
Jacksonville, FL 32246-6484
(800) 637-3863
<PAGE>
Merrill Lynch Technology Fund, Inc., December 31, 1998
DEAR SHAREHOLDER
The quarter ended December 31, 1998 featured a reversal of fortunes for the
stock market and technology investors. Merrill Lynch Technology Fund, Inc., and
technology holdings in general, performed admirably during the period. For the
quarter ended December 31, 1998, the Fund's total returns for Class A, Class B,
Class C and Class D Shares were +52.84%, +52.55%, +52.27% and +52.86%,
respectively, compared to the +48.32% return for the unmanaged Merrill Lynch 100
Technology Index (MLO), an equally weighted index of the world's largest
technology companies in terms of market capitalization. For the three months
ended December 31, 1998, the Fund's Class A Shares outperformed the total
returns of the unmanaged Standard & Poor's 500 Index and the Dow Jones
Industrial Average by +31.54 and +32.25 percentage points, respectively,
underscoring the exceptional success of technology stocks compared to the
broader market. Although such strong absolute and relative performance in a
single quarter is welcomed by all of us, this was an extraordinary quarter for
the Fund and for technology stocks. Consequently, we would not expect this
performance to repeat often.
During the three-month period ended December 31, 1998, the Fund's performance
was enhanced by its overweighted position in contract manufacturers (11.4% of
the Fund's net assets compared to 3% for the MLO). These companies outsource the
production of the world's leading original equipment manufacturers' (OEMs)
electronic goods. Increasingly, OEMs have decided that their value added is in
the design, and not in the manufacture, of their products. Outsourced
manufacturing allows these companies to cut costs and avoid inventory risk. With
this in mind, we invested in leaders of this industry, which are those companies
that have the critical global capabilities to assist their OEM customers
worldwide. Despite the powerful performance of the contract manufacturing
stocks, we believe that this may be among the most compelling investment
opportunities in technology.
During the quarter ended December 31, 1998, the Fund's underweighted position in
semiconductor capital equipment and Internet stocks were detrimental to
performance. Semiconductor equipment companies, probably the most cyclical in
all of technology, rebounded during the quarter after performing poorly
throughout most of 1998. It is our opinion that investors may be discounting an
improvement in fundamentals that may be short-lived past the seasonally strong
December quarter. We established a position in Teradyne, Inc., the industry
leader.
Throughout the three-month period ended December 31, 1998, the exceptional
performance of Internet stocks continues to confound us. Our investment in the
undisputed leader, America Online, Inc., has greatly benefited the Fund. We will
continue to track those companies we believe could be the current and future
Internet leaders to retain the ability to quickly buy them on significant
corrections. It is our opinion that the typical small-capitalization Internet
firm may not be around in the future and is not an attractive investment. We
believe that when these Internet stocks tumble, they will not drop a bear
market-defined 20%, but that several may decline as much as 90%. Technology
funds are inherently volatile, and we are not compelled to unnecessarily
increase the Fund's risk by allocating shareholder capital to such highly
speculative situations.
Throughout the December quarter, we continued to invest in the data
communications equipment and telecommunications equipment industries. During the
period, we purchased 3Com Corporation, Telefonaktiebolaget LM Ericsson and
Northern Telecom Limited. We also added to our positions in contract
manufacturing leaders Flextronics International Ltd. and SCI Systems, Inc.
During the quarter ended December 31, 1998, we purchased and eliminated
positions in Boston Scientific Corporation and HBO & Company. We became
frustrated with accounting irregularities at Boston Scientific and with HBO's
proposed merger with a drug distributor, McKesson Corporation. It should be
noted that we deployed the cash from these sales to new investments that have
significantly outperformed our original investments, which have either fallen
further or have not moved in a strong technology market. We also eliminated the
prior two largest holdings, Creative Technology Limited and Micron Technology,
Inc. We believe that, although Creative is a viable company, it participates in
one of technology's most fiercely competitive, commodity-oriented industries.
Although we respect Micron's execution, we prefer not to invest in commodity
(that is, dynamic random access memory chips) semiconductor vendors. We also
trimmed several inherited semiconductor positions in order to diversify the
Fund.
We continued to have minor exposure to the shares of companies not domiciled in
the United States, with 6.0% of equities in companies headquartered abroad. We
continue to be wary of the macroeconomic trends abroad, and how they may further
negatively impact foreign technology firms. Our focus remains on current and
future technology leaders, and the United States continues to dominate most
technology industries.
At the end of the December quarter, our cash position was 1.0% of net assets.
The Fund's large-capitalization leadership portfolio has a $44 billion weighted
average market capitalization and holds the "who's who" of almost all technology
industries.
Investment Outlook
Looking ahead, we do not anticipate any significant changes to our outlook. Our
two-year horizon focuses on large-capitalization leadership companies whose
fortunes typically improve over time according to our "the strong get stronger"
theme.
We continue to be relatively bearish on the macroeconomic variables that have
negatively impacted technology companies around the world. Despite a recovery in
several of the cyclical industries within the technology sector, we are wary
that the stocks may have discounted an improvement in fundamentals that may be
short-lived after the seasonally strong fourth quarter. For example, after the
run-up in the stocks, we intend to wait for fundamentals to improve before we
become convinced that the semiconductor capital equipment industry is
attractive. Therefore, we expect to remain underweighted in this area, but we
will maintain our holding in the industry leader that we believe will continue
to outperform under difficult conditions. Furthermore, on a global basis, we
intend to continue to focus on Europe's leading technology companies in the near
term.
In Conclusion
The performance of the Fund, and technology stocks in general, was exceptional
during the December quarter. Merrill Lynch Technology Fund, Inc.'s Class A
Shares ended 1998 with a total return of +38.30%, and its net asset value per
share rebounded 79.33% from its October 8, 1998 low. However, the world has not
changed that much from the trough of this fall to the current peak. We believe
that some of the buying in these stocks was by relatively unsophisticated
investors who were entranced by the Internet hype or the seasonally strong
Christmas season for technology products. Therefore, in our opinion, a
correction could be ahead.
We believe that our current portfolio possesses the best companies in
technology. For the Fund's portfolio holdings, we project a weighted average
earnings per share increase for calendar 1999 of 36% versus +4% for the Standard
& Poor's 500 Index. However, the portfolio trades at only a four-point
price/earnings premium (30 times versus 26 times calendar 1999 earnings,
respectively) to the market. Therefore, we believe that Merrill Lynch Technology
Fund, Inc. is well-positioned, regardless of whether the market moves up, down
or sideways in 1999.
We thank you for your investment in Merrill Lynch Technology Fund, Inc., and we
look forward to discussing our investment outlook and strategy with you again in
our next report to shareholders.
Sincerely,
/s/ Arthur Zeikel
Arthur Zeikel
President
/s/ Paul G. Meeks
Paul G. Meeks
Portfolio Manager
February 9, 1999
2 & 3
<PAGE>
Merrill Lynch Technology Fund, Inc., December 31, 1998
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:
o 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.
o 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.)
o 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.
o 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. Figures shown in the "Recent Performance Results" and
"Average Annual Total Return" tables assume reinvestment of all dividends
and capital gains distributions at net asset value on the ex-dividend
date. 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.
Recent Performance Results*
<TABLE>
<CAPTION>
12 Month 3 Month Since Inception
Total Return Total Return Total Return
=======================================================================================================
<S> <C> <C> <C>
ML Technology Fund, Inc. Class A Shares +38.30% +52.84% +212.98%
- -------------------------------------------------------------------------------------------------------
ML Technology Fund, Inc. Class B Shares +36.93 +52.55 +192.59
- -------------------------------------------------------------------------------------------------------
ML Technology Fund, Inc. Class C Shares +36.96 +52.27 +34.90
- -------------------------------------------------------------------------------------------------------
ML Technology Fund, Inc. Class D Shares +38.24 +52.86 + 39.75
=======================================================================================================
</TABLE>
* Investment results shown do not reflect sales charges; results shown would
be lower if a sales charge was included. Total investment returns are
based on changes in net asset values for the periods shown, and assume
reinvestment of all dividends and capital gains distributions at net asset
value on the ex-dividend date. The Fund's since inception periods are
Class A & Class B Shares, from 4/27/92 to 12/31/98 and Class C & Class D
Shares, from 10/21/94 to 12/31/98.
Average Annual Total Return
% Return Without % Return With
Class A Shares* Sales Charge Sales Charge**
================================================================================
Year Ended 12/31/98 +38.30% +31.04%
- --------------------------------------------------------------------------------
Five Years Ended 12/31/98 +13.28 +12.06
- --------------------------------------------------------------------------------
Inception (4/27/92)
through 12/31/98 +18.63 +17.67
- --------------------------------------------------------------------------------
* Maximum sales charge is 5.25%.
** Assuming maximum sales charge.
% Return % Return
Class B Shares* Without CDSC With CDSC**
================================================================================
Year Ended 12/31/98 +36.93% +32.93%
- --------------------------------------------------------------------------------
Five Years Ended 12/31/98 +12.17 +12.17
- --------------------------------------------------------------------------------
Inception (4/27/92)
through 12/31/98 +17.44 +17.44
- --------------------------------------------------------------------------------
* 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 12/31/98 +36.96% +35.96%
- --------------------------------------------------------------------------------
Inception (10/21/94)
through 12/31/98 + 7.40 + 7.40
- --------------------------------------------------------------------------------
* 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 12/31/98 +38.24% +30.99%
- --------------------------------------------------------------------------------
Inception (10/21/94)
through 12/31/98 + 8.31 + 6.92
- --------------------------------------------------------------------------------
* Maximum sales charge is 5.25%.
** Assuming maximum sales charge.
SCHEDULE OF INVESTMENTS (in US dollars)
<TABLE>
<CAPTION>
Shares Percent of
COUNTRY Industries Held Stocks Cost Value Net Assets
===================================================================================================================================
<C> <S> <C> <C> <C> <C> <C>
Canada Telecommunications 91,000 Northern Telecom Limited $ 3,307,777 $ 4,561,375 1.0%
Equipment
--------------------------------------------------------------------------------------------------------------------------
Total Investments in Canada 3,307,777 4,561,375 1.0
===================================================================================================================================
Israel Telecommunications 141,000 ECI Telecommunications Limited 3,551,437 4,961,437 1.0
Equipment
--------------------------------------------------------------------------------------------------------------------------
Total Investments in Israel 3,551,437 4,961,437 1.0
===================================================================================================================================
Singa- Contract 130,000 Flextronics International Ltd. 5,518,404 11,115,000 2.3
pore Manufacturers
--------------------------------------------------------------------------------------------------------------------------
Total Investments in Singapore 5,518,404 11,115,000 2.3
===================================================================================================================================
Sweden Telecommunications 345,000 Telefonaktiebolaget LM Ericsson (ADR)* 7,905,899 8,236,875 1.7
Equipment
--------------------------------------------------------------------------------------------------------------------------
Total Investments in Sweden 7,905,899 8,236,875 1.7
===================================================================================================================================
United Components 251,800 General Cable Corporation 3,890,072 5,161,900 1.1
States ----------------------------------------------------------------------------------------------------------------
Computer Systems 71,000 EMC Corporation 3,274,350 6,035,000 1.3
170,300 Electronics for Imaging, Inc. 3,253,956 6,801,356 1.4
79,000 Sun Microsystems, Inc. 3,219,250 6,759,437 1.4
------------ ------------ -----
9,747,556 19,595,793 4.1
--------------------------------------------------------------------------------------------------------------------------
Contract Manufacturers 102,000 Jabil Circuit, Inc. 3,711,358 7,611,750 1.6
300,000 SCI Systems, Inc. 12,192,157 17,325,000 3.6
300,000 Sanmina Corporation 6,722,982 18,675,000 3.9
------------ ------------ -----
22,626,497 43,611,750 9.1
--------------------------------------------------------------------------------------------------------------------------
Data Communications 114,000 3Com Corporation 3,009,372 5,108,625 1.1
125,700 Ascend Communications, Inc. 5,075,929 8,264,775 1.7
166,000 Cisco Systems, Inc. 8,590,500 15,406,875 3.2
------------ ------------ -----
16,675,801 28,780,275 6.0
--------------------------------------------------------------------------------------------------------------------------
</TABLE>
4 & 5
<PAGE>
Merrill Lynch Technology Fund, Inc., December 31, 1998
SCHEDULE OF INVESTMENTS (concluded) (in US dollars)
<TABLE>
<CAPTION>
Shares Percent of
COUNTRY Industries Held Stocks Cost Value Net Assets
===================================================================================================================================
<C> <S> <C> <C> <C> <C> <C>
United Distribution 294,000 Ingram Micro Inc. $ 12,212,655 $ 10,253,250 2.1%
States 107,000 Tech Data Corporation 4,432,583 4,293,375 0.9
(concluded) ------------ ------------ -----
16,645,238 14,546,625 3.0
-----------------------------------------------------------------------------------------------------------------------
Electronic Design 322,000 Cadence Design Systems, Inc. 7,655,267 9,579,500 2.0
Automation 111,000 Synopsys, Inc. 4,072,312 6,007,875 1.2
------------ ------------ -----
11,727,579 15,587,375 3.2
-----------------------------------------------------------------------------------------------------------------------
Internet 67,000 America Online, Inc. 3,000,260 9,698,250 2.0
-----------------------------------------------------------------------------------------------------------------------
Peripherals 210,000 Seagate Technology, Inc. 5,275,330 6,352,500 1.3
-----------------------------------------------------------------------------------------------------------------------
Personal Computers 550,000 Compaq Computer Corporation 17,627,775 23,065,625 4.8
60,000 Dell Computer Corporation 3,086,250 4,391,250 0.9
154,400 Gateway 2000, Inc. 7,201,451 7,903,350 1.6
------------ ------------ -----
27,915,476 35,360,225 7.3
-----------------------------------------------------------------------------------------------------------------------
Semiconductor 117,100 Teradyne, Inc. 4,699,139 4,962,113 1.0
Equipment
-----------------------------------------------------------------------------------------------------------------------
Semiconductors 235,000 Altera Corporation 9,718,024 14,276,250 3.0
42,500 Intel Corporation 3,675,510 5,036,250 1.0
55,000 Linear Technology Corporation 3,624,500 4,922,500 1.0
310,200 Maxim Integrated Products, Inc. 11,140,713 13,532,475 2.8
76,800 PMC-Sierra, Inc. 2,977,073 4,838,400 1.0
191,000 Texas Instruments Incorporated 10,113,512 16,342,438 3.4
238,000 Vitesse Semiconductor Corporation 5,862,075 10,829,000 2.3
305,000 Xilinx, Inc. 13,430,162 19,844,063 4.1
------------ ------------ -----
60,541,569 89,621,376 18.6
-----------------------------------------------------------------------------------------------------------------------
Software 155,000 Autodesk, Inc. 4,194,284 6,606,875 1.4
210,700 BMC Software, Inc. 9,975,592 9,389,319 1.9
53,500 Citrix Systems, Inc. 2,988,875 5,189,500 1.1
260,000 Compuware Corporation 12,485,830 20,296,250 4.2
155,000 J.D. Edwards & Company 4,322,082 4,398,125 0.9
149,000 Microsoft Corporation 12,821,035 20,645,812 4.3
92,000 Network Associates, Inc. 3,602,499 6,100,750 1.3
176,000 Symantec Corporation 4,131,002 3,806,000 0.8
39,600 VERITAS Software Corporation 2,178,000 2,368,575 0.5
------------ ------------ -----
56,699,199 78,801,206 16.4
-----------------------------------------------------------------------------------------------------------------------
Technology Services 106,800 DST Systems, Inc. 5,618,776 6,094,275 1.3
773,000 Keane, Inc. 25,797,651 30,871,687 6.4
147,000 Unisys Corporation 4,248,875 5,062,313 1.1
------------ ------------ -----
35,665,302 42,028,275 8.8
-----------------------------------------------------------------------------------------------------------------------
Telecommunications 83,000 MCI WorldCom Inc. 4,144,250 5,955,250 1.2
-----------------------------------------------------------------------------------------------------------------------
Telecommunications 125,000 ADC Telecommunications, Inc. 3,550,625 4,312,500 0.9
Equipment 227,000 Lucent Technologies Inc. 16,336,253 24,970,000 5.2
77,000 Tellabs, Inc. 3,613,810 5,279,313 1.1
71,000 Uniphase Corporation 2,840,000 4,925,625 1.0
------------ ------------ -----
26,340,688 39,487,438 8.2
-----------------------------------------------------------------------------------------------------------------------
Total Investments in the United States 305,593,956 439,550,351 91.3
===================================================================================================================================
Total Investments in Stocks 325,877,473 468,425,038 97.3
===================================================================================================================================
<CAPTION>
SHORT-TERM Face
SECURITIES Amount Issue
===================================================================================================================================
<S> <C> <C> <C> <C> <C>
Commercial Paper** $ 5,038,000 General Motors Acceptance Corp., 5.13%
due 1/04/1999 5,035,846 5,035,846 1.0
-----------------------------------------------------------------------------------------------------------------------
Total Investments in Short-Term Securities 5,035,846 5,035,846 1.0
===================================================================================================================================
Total Investments $330,913,319 473,460,884 98.3
============
Other Assets Less Liabilities 7,990,871 1.7
------------ -----
Net Assets $481,451,755 100.0%
============ =====
===================================================================================================================================
Net Asset Value: Class A--Based on net assets of $216,163,320 and 40,148,731 shares outstanding $ 5.38
============
Class B--Based on net assets of $221,478,974 and 43,636,962 shares outstanding $ 5.08
============
Class C--Based on net assets of $12,434,872 and 2,467,533 shares outstanding $ 5.04
============
Class D--Based on net assets of $31,374,589 and 5,869,575 shares outstanding $ 5.35
============
===================================================================================================================================
</TABLE>
* American Depositary Receipts.
** Commercial Paper is traded on a discount basis; the interest rate shown
reflects the discount rate paid at the time of purchase by the Fund.
PORTFOLIO CHANGES
For the Quarter Ended December 31, 1998
Additions
3Com Corporation
America Online, Inc.
*American Power Conversion Corporation
*Boston Scientific Corporation
Citrix Systems, Inc.
Compuware Corporation
Dell Computer Corporation
EMC Corporation
Electronics for Imaging, Inc.
*Etek dynamics Inc.
*HBO & Company
Ingram Micro Inc.
J.D. Edwards & Company
*NTT Mobile Communication Network, Inc.
Northern Telecom Limited
Tech Data Corporation
Telefonaktiebolaget LM Ericsson (ADR)
Teradyne, Inc.
Unisys Corporation
VERITAS Software Corporation
*Xoom. Com Inc.
Deletions
*American Power Conversion Corporation
*Boston Scientific Corporation
Creative Technology Limited
*Etek dynamics Inc.
*HBO & Company
Micron Technology, Inc.
*NTT Mobile Communication Network, Inc.
SAP AG (Systeme, Anwendungen, Produkte in der Datenverarbeitung) (ADR)
*Xoom. Com Inc.
*Added and deleted in the same quarter.
<PAGE>
This report is not authorized for use as an offer of sale or a 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.
Merrill Lynch
Technology Fund, Inc.
Box 9011
Princeton, NJ
08543-9011 #16091--12/98
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