MERRILL LYNCH
FUND FOR
TOMORROW, INC.
FUND LOGO
Annual Report
January 31, 1996
This report is not authorized for use as an offer of sale or a
solicitation of an offer to buy shares of the Fund unless
accompanied or preceded by the Fund'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
Fund For Tomorrow, Inc.
Box 9011
Princeton, NJ
08543-9011
MERRILL LYNCH FUND FOR TOMORROW, INC.
Concept Sectors
A pie chart depicting Concept Sectors as a Percentage of Net Assets
As of January 31, 1996
Computer Technologies 4.0%
Demographic Trends 5.1%
Developing Foreign Economies 4.6%
Future Retailing 1.8%
Global Market Expansion 11.3%
Healthcare Cost Containment 14.0%
Industrial Outsourcing 2.9%
Industrial Renaissance 8.1%
Multimedia 5.7%
Next Generation Technology 13.1%
Strategic Growth Opportunities 3.7%
Telecommunications 15.6%
Cash* 10.1%
<PAGE>
[FN]
*Net of other assets less liabilities.
Growth Stock Characteristics as of January 31, 1996
Bar Graph depicting Growth Stock Characteristics as of January 31, 1996
% of
Equity
Holdings
Emerging Growth 12.1% 14.2%
Established Growth 19.7% 14.4%
Stable Growth 22.0% 17.6%
DEAR SHAREHOLDER
Although the partial shutdown of the US Government curtailed the
release of most economic data for the January quarter, it was
nonetheless apparent that gross domestic product (GDP) growth
continued to be lackluster. Consumer spending is barely growing, the
industrial sector is at a virtual standstill and, despite lower
mortgage rates, there is little or no pick-up in housing activity.
With inflationary pressures subdued, the Federal Reserve Board
responded to the slowing economy by modestly lowering short-term
interest rates in both December and January. Historically, it has
taken some time for shifts in monetary policy to have an impact on
economic growth. Therefore, the Federal Reserve Board's gradual
shift to lowering interest rates, which began early last year, may
not be reflected in a pick-up in real economic growth until later
this year.
The impasse between the Clinton Administration and Congress over the
Federal budget continues, although both sides have made concessions
since the debate began. It appears that investors are currently
focusing on the progress that has been made rather than on the
differences that remain. Initially, President Clinton proposed
deficits of about $190 billion annually through fiscal year 2002,
but now proposes balanced budgets, as do the Republicans. Current
indications are that a piecemeal budget accord is the most likely
outcome. Even without the proposed policy changes, it appears that
the US Federal budget deficit would remain stable at about 2% of GDP
for the rest of the decade. This would be far better than is the
case for most Group of Seven industrial nations, and for the United
States would represent a great improvement over the last 15 years.
Although this may fall short of investors' best expectations, it
appears that the Federal budget debate over the past year has
resulted in a trend toward a more conservative fiscal policy.
<PAGE>
Portfolio Matters
During the quarter ended January 31, 1996, there was a major
divergence of total returns between the broadly based unmanaged
Standard and Poor's 500 Composite Index and the smaller
capitalization unmanaged NASDAQ Industrial Index, which returned
+10.01% and +3.06%, respectively. Merrill Lynch Fund For Tomorrow,
Inc.'s investment performance during the January quarter closely
followed the pattern of the NASDAQ Industrial with total returns for
Class A, Class B, Class C and Class D Shares of +3.62%, +3.33%,
+3.28% and +3.57%, respectively. (Results shown do not reflect sales
charges, and would be lower if sales charges were included. Complete
performance information, including average annual total returns, can
be found on pages 5--8 of this report to shareholders.)
Many factors influenced the US stock market during the quarter ended
January 31, 1996 ranging from severe weather conditions and sector
rotation to political uncertainties. The technology sector
experienced an investor sentiment shift which led to a major
correction in this group. Politically, it was an unexpectedly
turbulent time, with Government shutdowns caused by a Federal budget
standstill and major pending legislative changes affecting both the
healthcare and the telecommunications industries. The recently
passed legislation in telecommunications addresses the convergence
of wire and wireless telephony, cable, and personal computers.
Overall, economic conditions were extremely favorable, with low
inflation, declining interest rates and strong reported earnings
growth. Although economic trends were positive, we were concerned
that earnings growth would not continue at the same pace. Therefore,
we adopted a more defensive posture during the quarter ended January
31, 1996, eliminating some of the portfolio's higher price/earnings
multiple stocks and stocks with lower earnings visibility. In
addition to acknowledging that it is unlikely that the US stock
market will repeat its exceptionally strong 1995 performance, we
believed it was an opportunistic time to move into some of the
international equity markets which had previously underperformed,
despite strong fundamentals and earnings growth. Therefore, we added
positions in Japan, Hong Kong, South Korea, Belgium and Peru to the
Fund's portfolio.
In the US section of the portfolio, the best-performing sector was
drug stocks, where most positions outperformed the US equity market.
Certain foreign stocks were the best-performing overall, including a
99.3% price rise for Videologic Group PLC (UK), +35.4% for the
recently new issue of Gucci Group N.V. (Italy), and a 146% increase
by Lernout & Hauspie Speech Products N.V. (Belgium). Two of our new
Peruvian positions had strong upward moves, with CPT Telefonica Del
Peru Pacifico S.A. advancing 24.6% during the quarter ended January
31, 1996, and Consorcio Alimentos Fabril Pacifico S.A., Peru's
largest food distributor, moving ahead 36.0%. Select US small-cap
issues continued to perform well, including Corrections Corp. of
America, up 56.4%, Neuromedical Systems Inc., ahead 59.2%, and
ThermoLase Corp., which advanced 46.6%.
<PAGE>
Sales during the January quarter were mostly guided by a combination
of profit-taking and an effort to eliminate positions which no
longer met our long-term growth objectives. We eliminated some of
the Fund's positions in the weak retail sector and stocks where
earnings visibility receded. We also took profits in some technology
stocks as well. The Fund's remaining technology positions
underperformed stocks in general, in line with the sector as a
whole, although we remain confident of their strong earnings as well
as future appreciation potential. This is particularly true of the
Thermo companies, a major position in the Fund, which rose
significantly during the January quarter.
During the quarter ended January 31, 1996, we added 22 new positions
to the Fund's portfolio, including nine initial public offerings
(IPOs), following the Fund's strategy of investing in emerging new
trends. Four of the IPOs were eliminated during the January quarter
because of rapid stock price appreciation. As mentioned earlier, we
decided to broaden the Fund's foreign holdings by adding positions
in Japan's Makita Corp., a global leader in electric power tools,
and Kubota Corporation, the largest Japanese agricultural equipment
manufacturer. Both of these companies should benefit substantially
from infrastructure enhancement in China and the Far East. In Hong
Kong, we added National Mutual Asia Ltd., a key player in the
rapidly growing demand cycle for life insurance and new retirement
funds, which are relatively new concepts in Asia. Korea Mobile
Telecommunication Corp., a wireless telephony company, was added and
is expected to increase cellular subscriber growth by more than 50%
in 1996. In Peru, we added three new positions, Consorcio Alimentos
Fabril Pacifico S.A.; Cementos Norte Pacasmayo S.A., Peru's second
largest cement producer which is benefiting from extremely strong
construction demand; and, Minsur Sociedad Limitada S.A., the second
largest tin producer in the world with 15 years of untapped
reserves. Our new holding in Belgium, Lernout & Hauspie Speech
Products N.V., has a proprietary technology in voice recognition
that enables the conversion of voice to text and translation into
virtually any language.
In the United States, we continue to believe outsourcing by
companies will remain a major trend throughout this decade. We added
FlightSafety International Inc., which offers airline pilot and
marine training, and Greenwich Air Services Inc., which provides
equipment and maintenance services to the airline industry. To
participate in the major regulatory and technology changes in
telephony, television and personal computer industries, we added US
Satellite Broadcasting, which uses an alternative choice of
satellite transmission compared to the traditional cable service. We
also added Omnipoint Corp., a personal communications services
provider that offers a more economical wireless telephone service
competing with cellular services primarily in highly populated
regions.
<PAGE>
More stable, defensive names added during the quarter ended January
31, 1996 were the pharmaceutical company Bristol-Myers Squibb Co.,
Galoob (Lewis) Toys, Inc., and World Color Press Inc., one of the
largest providers of outsourcing in the highly fragmented and
consolidating printing industry. An exciting company with promising
health-related technology is Neuromedical Systems Inc. which
provides digital photography for the detection of cancerous cells.
Finally, the Fund added Thermo Ecotek Corp. (a spin-off from Thermo
Electron Corp.), which is a cogeneration company that uses a new,
clean coal technology.
Fiscal Year in Review
The year ended January 31, 1996 was an extraordinary period for the
US stock market. Performance of the S&P 500 was the best in 37 years
and the third-best year in history. Record highs were established
with increasing frequency, the largest interim correction was a
historical low of 3.3%; and we have gone the longest period ever
without a 10% correction.
This was also a dynamic time for our thematic approach of investing
in long-term trends. During this period, there were important
pending regulatory changes which will affect the future of
healthcare and communications. Rapid technological advances resulted
in lower prices and higher penetration rates for cellular services
and personal computers. Globally, the ability to rapidly and
inexpensively access detailed information, from any location, is
beginning to change consumer patterns, political viewpoints and
economic progress. The Internet, a new information vehicle, is
experiencing explosive growth and a great deal of media attention.
The market size of the Internet is currently estimated at $300
million and is expected to reach $5 billion by the year 2000. During
the Fund's fiscal year, we invested in many industries including
hardware, software, access providers, information services and
equipment suppliers that are either direct or indirect beneficiaries
of the Internet. However, we eventually sold many of these stocks
because of rapid stock appreciation resulting in market valuations
which, we believed, were not sustainable over the short term. We
will continue to invest in these areas but with a disciplined
approach of evaluating market valuations and long-term growth
prospects.
<PAGE>
Other notable areas showing strong performance during the fiscal
year were in telecommunications such as the paging stocks,
Competitive Access Providers, long-distance and some small niche
players providing a full range of services. Weaker telecommunications
stocks were equipment manufacturers and producers of cellular handsets.
While the demand will likely remain strong for cellular, the equipment
is going through a transition from analog to digital technology.
Other strong-performing stocks can be categorized as small-sized to
mid-sized companies that either have a proprietary technology or
offer unique products or services such as Royal Plastic Group Limited (+103%),
Gucci Group N. V. (+85%), Corrections Corp. of America (+89%) and
Molten Metal Technology, Inc. (+114%).
As mentioned before, the pharmaceutical industry had an exceptional
year and contributed to the Fund's performance since the weighting
in this group on average was more than two times the S&P 500's
weighting. Although technology stocks corrected during the January
quarter, for the entire year they experienced strong gains, with two
of our larger holdings, International Business Machines Corp. up
over 50% and COMPAQ Computer Corp. up 38%. For the fiscal year ended
January 31, 1996, the Fund reported total returns for Class A, Class
B, Class C and Class D Shares of +31.82%, +30.43%, +30.32% and
+31.47%, respectively. This compares with a +38.63% total return for
the unmanaged S&P 500 and +29.30% for the unmanaged NASDAQ
Industrial Index.
We will continue to identify important investment concepts of the
future and review existing concepts to confirm their continued
validity in meeting our objectives. As seen in the chart on page 1,
the Fund balances the portfolio by investing in individual stocks
ranging from small-cap to large-cap companies at various phases of
growth. The heaviest weighting in the Fund will likely remain in the
stable sector with companies that have above-average growth and are
mid-sized in market capitalizations. Weightings on this growth
continuum will change depending on our investment strategy.
In Conclusion
We appreciate your ongoing interest in Merrill Lynch Fund For
Tomorrow, Inc., and we look forward to assisting you with your
financial needs in the months and years ahead.
Sincerely,
(Arthur Zeikel)
Arthur Zeikel
President
(Vincent P. Dileo)
Vincent P. Dileo
Vice President and Portfolio Manager
<PAGE>
March 6, 1996
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.
* 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.
<PAGE>
<TABLE>
Recent Performance Results
<CAPTION>
12 Month 3 Month
1/31/96 10/31/95 1/31/95 % Change % Change
<S> <C> <C> <C> <C> <C>
ML Fund For Tomorrow, Inc. Class A Shares* $16.26 $16.65 $13.55 +30.32%(1) + 2.44%(2)
ML Fund For Tomorrow, Inc. Class B Shares* 15.79 16.24 13.33 +28.91(1) + 2.12(2)
ML Fund For Tomorrow, Inc. Class C Shares* 15.71 16.17 13.28 +28.79(1) + 2.07(2)
ML Fund For Tomorrow, Inc. Class D Shares* 16.20 16.60 13.54 +29.97(1) + 2.39(2)
Standard & Poor's 500 Index** 636.02 581.50 470.42 +35.20 + 9.38
NASDAQ Industrial Index** 969.55 940.80 749.87 +29.30 + 3.06
ML Fund For Tomorrow, Inc. Class A Shares--Total Return* +31.82(3) + 3.62(4)
ML Fund For Tomorrow, Inc. Class B Shares--Total Return* +30.43(3) + 3.33(4)
ML Fund For Tomorrow, Inc. Class C Shares--Total Return* +30.32(3) + 3.28(4)
ML Fund For Tomorrow, Inc. Class D Shares--Total Return* +31.47(3) + 3.57(4)
Standard & Poor's 500 Index--Total Return** +38.63 +10.01
<FN>
*Investment results do not reflect sales charges; results shown
would be lower if a sales charge was included.
**An unmanaged broad-based Index comprised of common stocks. Total
investment returns for unmanaged indexes are based on estimates.
(1)Percent change includes reinvestment of $1.354 per share capital
gains distributions.
(2)Percent change includes reinvestment of $0.788 per share capital
gains distributions.
(3)Percent change includes reinvestment of $0.195 per share ordinary
income dividends and $1.354 per share capital gains distributions.
(4)Percent change includes reinvestment of $0.195 per share ordinary
income dividends and $0.788 per share capital gains distributions.
</TABLE>
PERFORMANCE DATA (continued)
Total Return Based on a $10,000 Investment--Class A Shares and Class B Shares
<PAGE>
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:
10/26/88** 1/96
ML Fund For Tomorrow, Inc.++--
Class A Shares* $ 9,600 $21,216
S&P 500 Index++++ $10,000 $28,445
1/86** 1/96
Ml Fund For Tomorrow, Inc.++--
Class B Shares* $10,000 $28,385
S&P 500 Index++++ $10,000 $41,243
[FN]
**Assuming maximum sales charge, transaction costs and other
operating expenses including advisory fees.
**Commencement of Operations.
++ML Fund For Tomorrow, Inc. invests in a quality-oriented portfolio
of securities of companies that the Fund's management believes are
well positioned to benefit from demographic and cultural changes and
thus are believed by the Fund's management to represent attractive
investment opportunities. The Fund invests primarily in common
stocks but may invest in convertible securities, prferred stocks and
bonds.
++++This unmanaged broad-based Index is comprised of common stocks.
Past performance is not predictive of future performance.
Average Annual Total Return--Class A Shares and Class B Shares
% Return Without % Return With
Sales Charge Sales Charge**
Class A Shares*
Year Ended 12/31/95 +27.39% +20.70%
Five Years Ended 12/31/95 +13.01 +11.79
Inception (10/26/88)
through 12/31/95 +11.47 +10.63
[FN]
*Maximum sales charge is 5.25%.
**Assuming maximum sales charge.
<PAGE>
% Return % Return
Without CDSC With CDSC**
Class B Shares*
Year Ended 12/31/95 +26.08% +22.08%
Five Years Ended 12/31/95 +11.83 +11.83
Ten Years Ended 12/31/95 +10.69 +10.69
[FN]
*Maximum contingent deferred sales charge is 4% and is reduced to 0%
after 4 years.
**Assuming payment of applicable contingent deferred sales charge.
PERFORMANCE DATA (continued)
Total Return Based on a $10,000 Investment--Class C Shares and Class D Shares
A line graph depicting the growth of an investment in the Fund's
Class C Shares and Class D Shares compared to growth of an
investment in the S&P 500 Index. Beginning and ending values are:
10/21/94** 1/96
ML Fund For Tomorrow, Inc.++--
Class C Shares* $10,000 $12,496
Ml Fund For Tomorrow, Inc.++--
Class D Shares* $ 9,600 $12,021
S&P 500 Index++++ $10,000 $13,903
[FN]
**Assuming maximum sales charge, transaction costs and other
operating expenses including advisory fees.
**Commencement of Operations.
++ML Fund For Tomorrow, Inc. invests in a quality-oriented portfolio
of securities of companies that the Fund's management believes are
well positioned to benefit from demographic and cultural changes and
thus are believed by the Fund's management to represent attractive
investment opportunities. The Fund invests primarily in common
stocks but may invest in convertible securities, prferred stocks and
bonds.
++++This unmanaged broad-based Index is comprised of common stocks.
<PAGE>
Past performance is not predictive of future performance.
Average Annual Total Return--Class C Shares and Class D Shares
% Return % Return
Without CDSC With CDSC**
Class C Shares*
Year Ended 12/31/95 +26.12% +25.12%
Inception (10/21/94)
through 12/31/95 +18.06 +18.06
[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
Sales Charge Sales Charge**
Class D Shares*
Year Ended 12/31/95 +27.11% +20.44%
Inception (10/21/94)
through 12/31/95 +19.46 +14.18
[FN]
*Maximum sales charge is 5.25%.
**Assuming maximum sales charge.
<PAGE>
<TABLE>
Performance Summary--Class A Shares
<CAPTION>
Net Asset Value Capital Gains Dividends
Period Covered Beginning Ending Distributed Paid* % Change**
<S> <C> <C> <C> <C> <C>
10/26/88--12/31/88 $16.05 $14.08 $1.471 $0.134 - 2.21%
1989 14.08 16.85 1.035 0.409 +30.13
1990 16.85 14.92 0.371 0.401 - 6.98
1991 14.92 16.71 2.199 0.553 +32.23
1992 16.71 16.37 0.679 0.612 + 6.12
1993 16.37 15.85 1.920 0.308 +11.42
1994 15.85 13.66 0.705 0.258 - 7.47
1995 13.66 15.84 1.354 0.195 +27.39
1/1/96--1/31/96 15.84 16.26 -- -- + 2.65
------ ------
Total $9.734 Total $2.870
Cumulative total return as of 1/31/96: +123.92%**
<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>
PERFORMANCE DATA (concluded)
<TABLE>
Performance Summary--Class B Shares
<CAPTION>
Net Asset Value Capital Gains Dividends
Period Covered Beginning Ending Distributed Paid* % Change**
<S> <C> <C> <C> <C> <C>
3/5/84--12/31/84 $10.00 $10.98 -- $0.130 +11.12%
1985 10.98 13.37 $0.250 0.130 +25.75
1986 13.37 15.18 0.080 0.100 +14.90
1987 15.18 12.98 1.441 0.163 - 5.09
1988 12.98 14.07 1.555 0.201 +22.09
1989 14.07 16.85 1.035 0.227 +28.88
1990 16.85 14.92 0.371 0.235 - 7.96
1991 14.92 16.70 2.199 0.374 +30.79
1992 16.70 16.37 0.679 0.438 + 5.07
1993 16.37 15.77 1.920 0.217 +10.27
1994 15.77 13.45 0.705 0.243 - 8.45
1995 13.45 15.40 1.354 0.195 +26.08
1/1/96--1/31/96 15.40 15.79 -- -- + 2.53
------- ------
Total $11.589 Total $2.653
Cumulative total return as of 1/31/96: +295.74%**
<PAGE>
<FN>
*Figures may include short-term capital gains distributions.
**Figures assume reinvestment of all dividends and capital gains
distributions at net asset value on the ex-dividend date, and do not
reflect deduction of any sales charge; results would be lower if
sales charge was deducted.
</TABLE>
<TABLE>
Performance Summary--Class C Shares
<CAPTION>
Net Asset Value Capital Gains Dividends
Period Covered Beginning Ending Distributed Paid* % Change**
<S> <C> <C> <C> <C> <C>
10/21/94--12/31/94 $14.08 $13.39 $0.157 $0.059 - 3.32%
1995 13.39 15.33 1.354 0.195 +26.12
1/1/96--1/31/96 15.33 15.71 -- -- + 2.48
------ ------
Total $1.511 Total $0.254
Cumulative total return as of 1/31/96: +24.96%**
<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 Dividends
Period Covered Beginning Ending Distributed Paid* % Change**
<S> <C> <C> <C> <C> <C>
10/21/94--12/31/94 $14.26 $13.65 $0.157 $0.059 - 2.71%
1995 13.65 15.79 1.354 0.195 +27.11
1/1/96--1/31/96 15.79 16.20 -- -- + 2.60
------ ------
Total $1.511 Total $0.254
Cumulative total return as of 1/31/96: +26.87%**
<PAGE>
<FN>
*Figures may include short-term capital gains distributions.
**Figures assume reinvestment of all dividends and capital gains
distributions at net asset value on the ex-dividend date, and do not
include sales charge; results would be lower if sales charge was
included.
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS
<CAPTION>
Shares Value Percent of
Concept Tomorrow Held Stocks Cost (Note 1a) Net Assets
<S> <C> <S> <C> <C> <C>
Computer Technologies
Personal Computers 100,000 ++COMPAQ Computer Corp. $ 3,428,748 $ 4,712,500 1.2%
Components 50,000 ++Continental Circuits Corp. 687,500 687,500 0.2
Systems 300,000 ++Silicon Graphics, Inc. 11,151,240 8,437,500 2.2
Components 1,400,000 ++Videologic Group PLC 971,040 1,500,940 0.4
------------ ------------ ------
16,238,528 15,338,440 4.0
Demographic Trends
Medical Devices 25,000 ++Biomet, Inc. 446,875 465,625 0.1
Specialty Services 54,000 ++Corrections Corp. of America 1,219,866 2,301,750 0.6
Leisure & Entertainment 50,000 ++Harrah's Entertainment, Inc. (b) 1,235,976 1,375,000 0.4
Healthcare 50,000 ++Living Centers of America, Inc. 1,676,340 1,775,000 0.5
Healthcare 110,000 ++Patterson Dental Co. 2,815,625 2,832,500 0.7
Leisure & Entertainment 125,000 ++Promus Hotel Corporation 2,569,899 3,125,000 0.8
Insurance 100,000 Torchmark Corp. 4,054,900 4,737,500 1.2
Education Products 200,000 ++Westcott Communications, Inc. 2,823,662 2,875,000 0.8
------------ ------------ ------
16,843,143 19,487,375 5.1
Developing Foreign Economies
Telecommunications 3,000,000 CPT Telefonica Del Peru Pacifico S.A. 5,895,366 6,677,995 1.8
Building Materials 473,000 Cementos Norte Pacasmayo S.A. (Common) 983,929 984,579 0.3
Building Materials 19,000 Cementos Norte Pacasmayo S.A. (New Shares) 34,886 34,465 0.0
Telecommunications 3,068,354 Champion Technology Holdings Ltd. 1,005,477 365,120 0.1
Food & Beverage 500,000 Consorcio Alimentos Fabril Pacifico S.A. 617,247 747,664 0.2
Telecommunications 450 Korea Mobile Telecommunication Corp. 533,107 610,904 0.2
Mining 23,000 Minsur Sociedad Limitada S.A. 161,354 195,412 0.0
Specialty Services 500,000 National Mutual Asia Ltd. 482,897 504,436 0.1
Building Materials 300,000 ++Royal Plastic Group Limited 2,686,550 4,660,925 1.2
Electronics 25,750 ++Samsung Electronics Company (GDR)** (d) 3,280,000 2,549,250 0.7
------------ ------------ ------
15,680,813 17,330,750 4.6
Future Retailing
<PAGE>
Specialty Retail 85,000 ++Daisytek International Corp. 1,808,875 2,486,250 0.6
Specialty Retail 192,600 ++OfficeMax, Inc. 2,872,100 4,429,800 1.2
------------ ------------ ------
4,680,975 6,916,050 1.8
Global Market Expansion
Food & Beverage 100,000 Anheuser-Busch Companies, Inc. 5,679,438 6,950,000 1.8
Cosmetics 87,200 Avon Products, Inc. 6,259,222 6,888,800 1.8
Household Products 74,600 Colgate-Palmolive Co. 1,548,920 5,520,400 1.5
Food & Beverage 100,000 ConAgra Inc. 3,826,115 4,587,500 1.2
Specialty Retail 100,000 ++Gucci Group N.V. (ADR)* 2,200,000 4,062,500 1.1
Machinery 10,000 Kubota Corporation (ADR)* 1,285,600 1,240,000 0.3
Machinery 50,000 Makita Corp. (ADR)* 796,875 800,000 0.2
Food & Beverage 80,000 PepsiCo, Inc. 2,644,800 4,770,000 1.3
Electronics 200,000 Philips Electronics N.V. (ADR)* 8,214,486 8,025,000 2.1
------------ ------------ ------
32,455,456 42,844,200 11.3
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS (continued)
<CAPTION>
Shares Value Percent of
Concept Tomorrow Held Stocks Cost (Note 1a) Net Assets
<S> <C> <S> <C> <C> <C>
Healthcare Cost Containment
Health Services 200,000 Apria Healthcare Group, Inc. (a) $ 5,071,250 $ 5,175,000 1.4%
Pharmaceuticals 50,000 Astra AB (ADR)* 1,781,250 2,031,250 0.5
Medical Devices 100,000 ++Boston Scientific Corp. 4,133,851 5,125,000 1.3
Pharmaceuticals 100,000 Bristol-Myers Squibb Co. 7,907,000 8,850,000 2.3
Pharmaceuticals 100,000 Lilly (Eli) and Company 4,572,100 5,750,000 1.5
Pharmaceuticals 100,900 Merck & Co., Inc. 4,001,062 7,088,225 1.9
Pharmaceuticals 50,000 Sandoz, AG (ADR)* 1,942,188 2,168,750 0.6
Pharmaceuticals 274,400 Schering-Plough Corp. 3,180,566 14,851,900 3.9
Medical Devices 100,000 United States Surgical Corp. 6,799,013 2,362,500 0.6
------------ ------------ ------
39,388,280 53,402,625 14.0
Industrial Outsourcing
<PAGE>
Information Services 400,000 ++CIS Technologies, Inc. 1,634,593 975,000 0.2
Specialty Services 50,000 FlightSafety International, Inc. 2,566,000 2,493,750 0.7
Specialty Services 100,000 Greenwich Air Services Inc. 2,278,626 2,200,000 0.6
Office Systems 100,000 ++Indigo N.V. (ADR)* 1,963,750 1,400,000 0.4
Specialty Services 100,000 Olsten Corp. 3,190,200 3,975,000 1.0
------------ ------------ ------
11,633,169 11,043,750 2.9
Industrial Renaissance
Automotive 141,090 Chrysler Corp. 5,598,043 8,147,947 2.1
Transportation 50,000 Delta Air Lines, Inc. 3,734,750 3,418,750 0.9
Automotive 100,000 Ford Motor Co. 2,295,190 2,962,500 0.8
Automotive 100,000 General Motors Corp. 4,190,900 5,262,500 1.4
Information Systems 100,000 International Business Machines Corp. 5,658,500 10,875,000 2.9
------------ ------------ ------
21,477,383 30,666,697 8.1
Multimedia
Broadcasting Services 35,000 ++Accom, Inc. 315,000 218,750 0.1
Wireless Cable Television 202,000 ++CAI Wireless Systems, Inc. 2,168,561 1,969,500 0.5
Broadcasting Services 100,000 Carlton Communications PLC (ADR)* 3,260,625 3,175,000 0.8
Broadcasting & Publishing 200,000 The News Corp. Ltd. (ADR)* 3,095,848 4,275,000 1.1
Broadcasting & Publishing 70,500 The News Corp. Ltd. (Conv. Pfd.) (ADR)* 669,036 1,339,500 0.3
Software 170,000 ++Sierra On Line, Inc. 5,961,381 4,207,500 1.1
Wireless Cable Television 21,000 ++US Satellite Broadcasting 567,000 567,000 0.2
Publishing Services 300,000 ++World Color Press Inc. 5,906,000 5,962,500 1.6
------------ ------------ ------
21,943,451 21,714,750 5.7
Next Generation Technology
Leisure & Entertainment 75,000 ++3DO Co. 971,204 703,125 0.2
Semiconductors 182,600 ++Gasonics International Corp. 2,303,368 1,940,125 0.5
Telecommunications 200,000 ++Geotek Communications, Inc. 1,816,468 1,650,000 0.4
Building Materials 50,000 ++ICC Technologies, Inc. 655,250 406,250 0.1
Software 100,000 ++Lernout & Hauspie Speech Products N.V. 1,100,000 2,700,000 0.7
Pollution Technology 300,000 ++Molten Metal Technology, Inc. 5,221,520 11,175,000 2.9
Medical Devices 70,000 ++Neuromedical Systems Inc. 1,050,000 1,671,250 0.4
Environmental Equipment 79,600 ++Thermo Ecotek Corp. 1,281,614 1,582,050 0.4
Multi-Industry 270,000 ++Thermo Electron Corp. 6,840,000 14,715,000 3.9
Medical Devices 100,000 ++ThermoLase Corp. 2,525,000 2,987,500 0.8
Medical Equipment 100,000 ++Thermospectra Corp. 1,547,300 1,862,500 0.5
Medical Equipment 100,000 ++Thermotrex Corp. 1,586,723 4,862,500 1.3
Electronics 150,000 ++Whittaker Corp. 2,966,998 3,768,750 1.0
------------ ------------ ------
29,865,445 50,024,050 13.1
</TABLE>
<PAGE>
<TABLE>
SCHEDULE OF INVESTMENTS (concluded)
<CAPTION>
Shares Value Percent of
Concept Tomorrow Held Stocks Cost (Note 1a) Net Assets
<S> <C> <S> <C> <C> <C>
Strategic Growth Opportunities
Pharmaceuticals 50,000 American Home Products Corp. $ 3,875,049 $ 5,100,000 1.4%
Leisure & Entertainment 100,000 ++Galoob (Lewis) Toys, Inc. 1,385,890 1,450,000 0.4
Leisure & Entertainment 100,000 Mattel, Inc. 2,232,740 3,225,000 0.8
Restaurant 200,000 Wendy's International, Inc. 3,683,453 4,125,000 1.1
------------ ------------ ------
11,177,132 13,900,000 3.7
Telecommunications
Components 100,000 ++ANTEC Corp. 2,411,474 1,487,500 0.4
Components 100,000 ++Andrew Corp. 4,677,375 4,400,000 1.1
Telecommunications 200,000 ++Boston Technology, Inc. 2,967,630 2,725,000 0.7
Telecommunications 281,400 Frontier Corp. (c) 2,157,975 8,371,650 2.2
Telecommunications 300,000 ++Inter-Tel, Inc. 3,537,612 4,012,500 1.1
Telecommunications 150,000 MCI Communications Corp. 3,895,310 4,275,000 1.1
Telecommunications 100,000 ++MFS Communications Co., Inc. 2,536,850 6,000,000 1.6
Paging Services 305,000 ++Metrocall, Inc. 4,988,845 6,023,750 1.6
Components 100,000 Motorola, Inc. 5,778,000 5,375,000 1.4
Components 349,400 Nokia Corp. AB (ADR)* 12,108,398 13,058,825 3.4
Wireless Communications 16,800 ++Omnipoint Corp. 268,800 344,400 0.1
Wireless Communication 200,000 ++Palmer Wireless, Inc. 2,984,487 3,400,000 0.9
------------ ------------ ------
48,312,756 59,473,625 15.6
Total Stocks 269,696,531 342,142,312 89.9
Face
Amount Short-Term Securities
Commercial $ 7,000,000 BAT Capital Corp., 5.48% due 2/14/1996 6,986,148 6,986,148 1.8
Paper*** 3,450,000 General Electric Capital Corp., 5.90%
due 2/01/1996 3,450,000 3,450,000 0.9
10,000,000 Matterhorn Capital Corp., 5.47% due
2/14/1996 9,980,247 9,980,247 2.6
<PAGE>
US Government & 13,000,000 Federal National Mortgage Association,
Agency Obligations*** 5.38% due 2/21/1996 12,961,144 12,961,144 3.4
Total Short-Term Securities 33,377,539 33,377,539 8.7
Total Investments $303,074,070 375,519,851 98.6
============
Other Assets Less Liabilities 5,242,864 1.4
------------ ------
Net Assets $380,762,715 100.0%
============ ======
<FN>
*American Depositary Receipts (ADR).
**Global Depositary Receipts (GDR).
***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 Fund.
(a)Formerly known as Homedco Group, Inc.
(b)Formerly known as The Promus Companies, Inc.
(c)Formerly known as ALC Communications, Corp.
(d)Restricted securities as to resale. The value of the Fund's
investment in restricted securities was approximately $2,549,000,
representing 0.7% of net assets.
Acquisition Value
Issue Date Cost (Note 1a)
Samsung Electronics
Company (GDR) 7/26/1995 $3,280,000 $2,549,250
Total $3,280,000 $2,549,250
========== ==========
++Non-income producing security.
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION
<PAGE>
<TABLE>
Statement of Assets and Liabilities as of January 31, 1996
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$303,074,070) (Note 1a) $375,519,851
Receivables:
Securities sold $ 6,708,854
Capital shares sold 470,542
Dividends 351,512 7,530,908
------------
Prepaid registration fees and other assets (Note 1f) 30,479
------------
Total assets 383,081,238
------------
Liabilities: Payables:
Capital shares redeemed 683,558
Securities purchased 567,000
Investment adviser (Note 2) 215,308
Distributor (Note 2) 152,850 1,618,716
------------
Accrued expenses and other liabilities 699,807
------------
Total liabilities 2,318,523
------------
Net Assets: Net assets $380,762,715
============
Net Assets Class A Shares of Common Stock, $0.10 par value, 100,000,000
Consist of: shares authorized $ 210,566
Class B Shares of Common Stock, $0.10 par value, 100,000,000
shares authorized 710,722
Class C Shares of Common Stock, $0.10 par value, 100,000,000
shares authorized 40,631
Class D Shares of Common Stock, $0.10 par value, 100,000,000
shares authorized 1,407,004
Paid-in capital in excess of par 303,643,919
Undistributed realized capital gains on investments
and foreign currency transactions--net 2,304,092
Unrealized appreciation on investments and foreign
currency transactions--net 72,445,781
------------
Net assets $380,762,715
============
Net Asset Value: Class A--Based on net assets of $34,230,676 and
2,105,657 shares outstanding $ 16.26
============
Class B--Based on net assets of $112,239,520 and
7,107,222 shares outstanding $ 15.79
============
Class C--Based on net assets of $6,384,959 and
406,307 shares outstanding $ 15.71
============
Class D--Based on net assets of $227,907,560 and
14,070,041 shares outstanding $ 16.20
============
See Notes to Financial Statements.
</TABLE>
<PAGE>
FINANCIAL INFORMATION (continued)
<TABLE>
Statement of Operations for the Year Ended January 31, 1996
<S> <S> <C> <C>
Investment Dividends (net of $68,750 foreign withholding tax) $ 3,021,507
Income Interest and discount earned 2,088,188
(Notes 1d & 1e): Other income 27,209
------------
Total income 5,136,904
------------
Expenses: Investment advisory fees (Note 2) $ 2,147,843
Account maintenance and distribution fees--Class B (Note 2) 1,025,343
Transfer agent fees--Class D (Note 2) 553,090
Account maintenance fees--Class D (Note 2) 516,491
Transfer agent fees--Class B (Note 2) 331,932
Printing and shareholder reports 189,530
Professional fees 88,187
Registration fees (Note 1f) 85,306
Custodian fees 67,116
Accounting services (Note 2) 62,434
Transfer agent fees--Class A (Note 2) 49,984
Account maintenance and distribution fees--Class C (Note 2) 24,598
Directors' fees and expenses 19,580
Transfer agent fees--Class C (Note 2) 8,261
Pricing fees 263
Other 13,054
------------
Total expenses 5,183,012
------------
Investment loss--net (46,108)
------------
Realized & Realized gain (loss) from:
Unrealized Gain Investments--net 24,571,179
(Loss) on Foreign currency transactions--net (31,001) 24,540,178
Investments & ------------
Foreign Currency Change in unrealized appreciation/depreciation on:
Transactions--Net Investments--net 57,217,936
(Notes 1b, 1c, Foreign currency transactions--net 123 57,218,059
1e & 3): ------------ ------------
Net realized and unrealized gain on investments and
foreign currency transactions 81,758,237
------------
Net Increase in Net Assets Resulting from Operations $ 81,712,129
============
See Notes to Financial Statements.
</TABLE>
<PAGE>
FINANCIAL INFORMATION (continued)
<TABLE>
Statements of Changes in Net Assets
<CAPTION>
For the Year Ended January 31,
Increase (Decrease) in Net Assets: 1996 1995
<S> <S> <C> <C>
Operations: Investment loss--net $ (46,108) $ (1,130,434)
Realized gain on investments and foreign currency
transactions--net 24,540,178 16,333,259
Change in unrealized appreciation/depreciation on investments
and foreign currency transactions--net 57,218,059 (62,912,398)
------------ ------------
Net increase (decrease) in net assets resulting from operations 81,712,129 (47,709,573)
------------ ------------
Distributions to Realized gain on investments--net:
Shareholders Class A (2,188,438) (629,067)
(Note 1g): Class B (9,550,391) (18,732,811)
Class C (338,854) (311)
Class D (20,640,116) (2,376,409)
------------ ------------
Net decrease in net assets resulting from distributions
to shareholders (32,717,799) (21,738,598)
------------ ------------
Capital Share Net increase (decrease) in net assets derived from capital
Transactions share transactions 46,890,051 (53,039,480)
(Note 4): ------------ ------------
Net Assets: Total increase (decrease) in net assets 95,884,381 (122,487,651)
Beginning of year 284,878,334 407,365,985
------------ ------------
End of year $380,762,715 $284,878,334
============ ============
See Notes to Financial Statements.
</TABLE>
<PAGE>
FINANCIAL INFORMATION (continued)
<TABLE>
Financial Highlights
<CAPTION>
The following per share data and ratios have been derived
from information provided in the financial statements. Class A
For the Year Ended January 31,
Increase (Decrease) in Net Asset Value: 1996++ 1995++ 1994 1993 1992
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of year $ 13.55 $ 16.39 $ 16.29 $ 16.84 $ 15.49
Operating -------- -------- -------- -------- --------
Performance: Investment income--net .07 .09 .15 .25 .36
Realized and unrealized gain (loss) on
investments and foreign currency
transactions--net 4.19 (1.97) 2.18 .49 3.74
-------- -------- -------- -------- --------
Total from investment operations 4.26 (1.88) 2.33 .74 4.10
-------- -------- -------- -------- --------
Less dividends and distributions:
Investment income--net -- -- -- (.23) (.35)
Realized gain on investments--net (1.55) (.96) (2.23) (1.06) (2.40)
-------- -------- -------- -------- --------
Total dividends and distributions (1.55) (.96) (2.23) (1.29) (2.75)
-------- -------- -------- -------- --------
Net asset value, end of year $ 16.26 $ 13.55 $ 16.39 $ 16.29 $ 16.84
======== ======== ======== ======== ========
Total Investment Based on net asset value per share 31.82% (11.23%) 15.78% 4.79% 28.35%
Return:* ======== ======== ======== ======== ========
Ratios to Average Expenses 1.07% .98% .88% .90% .95%
Net Assets: ======== ======== ======== ======== ========
Investment income--net .44% .59% .95% 1.35% 1.81%
======== ======== ======== ======== ========
Supplemental Net assets, end of year (in thousands) $ 34,231 $ 8,665 $ 10,942 $ 11,394 $ 8,846
Data: ======== ======== ======== ======== ========
Portfolio turnover 67.38% 45.86% 48.63% 40.58% 48.28%
======== ======== ======== ======== ========
<FN>
*Total investment returns exclude the effects of sales loads.
++Based on average shares outstanding during the year.
See Notes to Financial Statements.
</TABLE>
<PAGE>
FINANCIAL INFORMATION (continued)
<TABLE>
Financial Highlights (continued)
<CAPTION>
The following per share data and ratios have been derived
from information provided in the financial statements. Class B
For the Year Ended January 31,
Increase (Decrease) in Net Asset Value: 1996++ 1995++ 1994 1993 1992
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of year $ 13.33 $ 16.30 $ 16.28 $ 16.82 $ 15.48
Operating -------- -------- -------- -------- --------
Performance: Investment income (loss)--net (.08) (.06) (.01) .06 .14
Realized and unrealized gain (loss) on
investments and foreign currency
transactions--net 4.09 (1.96) 2.17 .52 3.77
-------- -------- -------- -------- --------
Total from investment operations 4.01 (2.02) 2.16 .58 3.91
-------- -------- -------- -------- --------
Less dividends and distributions:
Investment income--net -- -- -- (.06) (.17)
Realized gain on investments--net (1.55) (.95) (2.14) (1.06) (2.40)
-------- -------- -------- -------- --------
Total dividends and distributions (1.55) (.95) (2.14) (1.12) (2.57)
-------- -------- -------- -------- --------
Net asset value, end of year $ 15.79 $ 13.33 $ 16.30 $ 16.28 $ 16.82
======== ======== ======== ======== ========
Total Investment Based on net asset value per share 30.43% (12.22%) 14.60% 3.75% 26.96%
Return:* ======== ======== ======== ======== ========
Ratios to Average Expenses 2.13% 1.99% 1.91% 1.92% 1.98%
Net Assets: ======== ======== ======== ======== ========
Investment income(loss)--net (.55%) (.38%) (.07%) .36% .83%
======== ======== ======== ======== ========
Supplemental Net assets, end of year (in thousands) $112,239 $119,186 $396,424 $447,186 $476,106
Data: ======== ======== ======== ======== ========
Portfolio turnover 67.38% 45.86% 48.63% 40.58% 48.28%
======== ======== ======== ======== ========
<FN>
*Total investment returns exclude the effect of sales loads.
++Based on average shares outstanding during the year.
See Notes to Financial Statements.
</TABLE>
<PAGE>
FINANCIAL INFORMATION (concluded)
<TABLE>
Financial Highlights (concluded)
<CAPTION>
Class C++++ Class D++++
For the For the
Period Period
The following per share data and ratios have been derived For the Oct. 21, For the Oct. 21,
from information provided in the financial statements. Year Ended 1994++ to Year Ended 1994++ to
Jan. 31, Jan. 31, Jan. 31, Jan. 31,
Increase (Decrease) in Net Asset Value: 1996 1995 1996 1995
<S> <S> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 13.28 $ 14.08 $ 13.54 $ 14.26
Operating -------- -------- -------- --------
Performance: Investment income(loss)--net (.10) (.04) .03 (.01)
Realized and unrealized gain (loss) on investments
and foreign currency transactions--net 4.08 (.54) 4.18 (.49)
-------- -------- -------- --------
Total from investment operations 3.98 (.58) 4.21 (.50)
-------- -------- -------- --------
Less distributions from realized gain on
investments--net (1.55) (.22) (1.55) (.22)
-------- -------- -------- --------
Net asset value, end of period $ 15.71 $ 13.28 $ 16.20 $ 13.54
======== ======== ======== ========
Total Investment Based on net asset value per share 30.32% (4.12%)+++ 31.47% (3.50%)+++
Return:** ======== ======== ======== ========
Ratios to Average Expenses 2.14% 2.26%* 1.33% 1.43%*
Net Assets: ======== ======== ======== ========
Investment income (loss)--net (.67%) (.87%)* .22% (.23%)*
======== ======== ======== ========
Supplemental Net assets, end of period (in thousands) $ 6,385 $ 80 $227,908 $156,947
Data: ======== ======== ======== ========
Portfolio turnover 67.38% 45.86% 67.38% 45.86%
======== ======== ======== ========
<FN>
*Annualized.
**Total investment returns exclude the effect of sales loads.
++Commencement of Operations.
++++Based on average shares outstanding during the period.
+++Aggregate total investment return.
See Notes to Financial Statements.
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies:
Merrill Lynch Fund For Tomorrow, Inc. (the "Fund") is registered
under the Investment Company Act of 1940 as a diversified, open-end
management investment company. The Fund offers four classes of
shares under the Merrill Lynch Select Pricing SM 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
distri-bution expenditures. The following is a summary of
significant accounting policies followed by the Fund.
(a) Valuation of investments--Portfolio securities which are traded
on stock exchanges are valued at the last sale price on the exchange
on which such securities are traded, as of the close of business on
the day the securities are being valued or, lacking any sales, at
the last available bid price. 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. 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 Fund's Board of Directors.
<PAGE>
(b) Derivative financial instruments--The Fund 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.
* Options--The Fund is authorized to write covered call options.
When the Fund writes an option, an amount equal to the premium
received by the Fund 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 sold through an exercise of an option, the
related premium received is deducted from the basis of the security
sold. When an option expires (or the Fund enters into a closing
transaction), the Fund realizes a gain or loss on the option to the
extent of the premium received (or gain or loss to the extent of the
cost of the closing transaction exceeds the premium received).
Written options are non-income producing investments.
(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 Fund'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.
(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 that if the ex-dividend date has passed,
certain dividends from foreign securities are recorded as soon as
the Fund 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) Prepaid registration fees--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 Fund are recorded on the ex-dividend
dates.
(h) Reclassification--Generally accepted accounting principles
require that certain components of net assets be reclassified to
reflect permanent differences between financial reporting and tax
purposes. Accordingly, current year's permanent book/tax differences
of $558,463 have been reclassified from accumulated net investment
loss to undistributed net realized capital gains. These
reclassifications have no effect on net assets or net asset values
per share.
2. Investment Advisory Agreement and
Transactions with Affiliates:
The Fund 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
a general partner. The Fund 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 Fund's portfolio and
provides the necessary personnel, facilities, equipment and certain
other services necessary to the operations of the Fund. For such
services, the Fund pays a monthly fee based upon the average daily
value of the Fund's net assets at the following annual rates: 0.65%
of the average daily net assets not exceeding $750 million; 0.60% of
the aver-age daily net assets exceeding $750 million but not
exceeding $1 billion; and 0.55% of the average daily net assets
exceeding $1 billion. The Investment Advisory Agreement obligates
MLAM to reimburse the Fund to the extent the Fund's expenses
(excluding interest, taxes, distribution fees, brokerage fees and
commissions, and extraordinary items) exceed 2.5% of the Fund's
first $30 million of average daily net assets, 2.0% of the next $70
million of average daily net assets, and 1.5% of the average daily
net assets in excess thereof. No fee payment will be made to MLAM
which would result in Fund expenses exceeding, on a cumulative
annualized basis, the most restrictive applicable expense limitation
in effect at the time of such payment.
Pursuant to the distribution plans (the "Distribution Plans")
adopted by the Fund in accordance with Rule 12b-1 under the
Investment Company Act of 1940, the Fund pays the Distributor
ongoing account maintenance 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 Maintenance Distribution
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
Fund.
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 January 31, 1996, 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 $ 546 $ 8,126
Class D $1,825 $27,770
For the year ended January 31, 1996, MLPF&S also received contingent
deferred sales charges of $108,712 and $1,548 relating to
transactions in Class B and C Shares, respectively.
In addition, MLPF&S received $36,666 in commissions on the execution
of portfolio security transactions for the Fund for the year ended
January 31, 1996.
Merrill Lynch Financial Data Services, Inc. ("MLFDS"), a wholly-
owned subsidiary of ML & Co., is the Fund's transfer agent.
Accounting services are provided to the Fund by MLAM at cost.
Certain officers and/or directors of the Fund are officers and/or
directors of MLAM, PSI, MLPF&S, MLFDS, MLFD, and/or ML & Co.
<PAGE>
3. Investments:
Purchases and sales of investments, excluding short-term securities,
for the year ended January 31, 1996 were $205,311,533 and
$199,202,391, respectively.
NOTES TO FINANCIAL STATEMENTS (concluded)
Net realized and unrealized gains (losses) as of January 31, 1996
were as follows:
Realized
Gains Unrealized
(Losses) Gains
Long-term investments $24,571,483 $ 72,445,781
Short-term investments (304) --
Foreign currency transactions (31,001) --
----------- -------------
Total $24,540,178 $ 72,445,781
=========== =============
As of January 31, 1996, net unrealized appreciation for Federal
income tax purposes aggregated $72,445,781, of which $87,921,454
related to appreciated securities and $15,475,673 related to
depreciated securities. The aggregate cost of investments at January
31, 1996 for Federal income tax purposes was $303,074,070.
4. Capital Share Transactions:
Net increase (decrease) in net assets derived from capital share
transactions was $46,890,051 and $(53,039,480) for the years ended
January 31, 1996 and January 31, 1995, respectively.
Transactions in capital shares for each class were as follows:
Class A Shares for the Year Dollar
Ended January 31, 1996 Shares Amount
Shares sold 1,393,621 $ 32,505,390
Shares issued to shareholders
in reinvestment of
distributions 575,732 279,194
----------- -------------
Total issued 1,969,353 32,784,584
Shares redeemed (503,356) (8,076,845)
----------- -------------
Net increase 1,465,997 $ 24,707,739
=========== =============
<PAGE>
Class A Shares for the
Year Ended Dollar
January 31, 1995 Shares Amount
Shares sold 140,801 $ 2,045,990
Shares issued to shareholders
in reinvestment of
distributions 42,701 565,182
----------- -------------
Total issued 183,502 2,611,172
Shares redeemed (211,252) (3,023,836)
----------- -------------
Net decrease (27,750) $ (412,664)
=========== =============
Class B Shares for the
Year Ended Dollar
January 31, 1996 Shares Amount
Shares sold 4,089,726 $ 66,223,229
Shares issued to shareholders
in reinvestment of
distributions 158,829 2,492,023
----------- -------------
Total issued 4,248,555 68,715,252
Automatic conversion of
shares (3,949,127) (58,686,533)
Shares redeemed (2,131,722) (32,142,062)
----------- -------------
Net decrease (1,832,294) $ (22,113,343)
=========== =============
Class B Shares for the
Year Ended Dollar
January 31, 1995 Shares Amount
Shares sold 1,037,837 $ 15,121,525
Shares issued to shareholders
in reinvestment of
distributions 1,252,531 16,408,961
----------- -------------
Total issued 2,290,368 31,530,486
Shares redeemed (5,496,974) (78,448,291)
Automatic conversion of
shares (12,176,864) (169,494,498)
----------- -------------
Net decrease (15,383,470) $(216,412,303)
=========== =============
<PAGE>
Class C Shares for the
Year Ended Dollar
January 31, 1996 Shares Amount
Shares sold 491,734 $ 7,944,948
Shares issued to shareholders
in reinvestment of
distributions 441 6,884
----------- -------------
Total issued 492,175 7,951,832
Shares redeemed (91,881) (1,480,882)
----------- -------------
Net increase 400,294 $ 6,470,950
=========== =============
Class C Shares for the
Period October 21, 1994++ to Dollar
January 31, 1995 Shares Amount
Shares sold 6,002 $ 80,820
Shares issued to shareholders
in reinvestment of
distributions 12 157
----------- -------------
Total issued 6,014 80,977
Shares redeemed (1) (14)
----------- -------------
Net increase 6,013 $ 80,963
=========== =============
[FN]
++Commencement of Operations.
Class D Shares for the
Year Ended Dollar
January 31, 1996 Shares Amount
Shares sold 998,100 $ 16,043,134
Automatic conversion of
shares 3,879,032 58,686,533
Shares issued to shareholders
in reinvestment of
distributions 399,482 6,391,707
----------- -------------
Total issued 5,276,614 81,121,374
Shares redeemed (2,800,501) (43,296,669)
----------- -------------
Net increase 2,476,113 $ 37,824,705
=========== =============
<PAGE>
Class D Shares for the
Period October 21, 1994++ to Dollar
January 31, 1995 Shares Amount
Shares sold 70,886 $ 970,143
Automatic conversion of shares 12,012,646 169,494,498
Shares issued to shareholders
in reinvestment of dividends
and distributions 157,005 2,075,598
----------- -------------
Total issued 12,240,537 172,540,239
Shares redeemed (646,609) (8,835,715)
----------- -------------
Net increase 11,593,928 $ 163,704,524
=========== =============
[FN]
++Commencement of Operations.
<AUDIT-REPORT>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders,
Merrill Lynch Fund For Tomorrow, Inc.:
We have audited the accompanying statement of assets and
liabilities, including the schedule of investments, of Merrill Lynch
Fund For Tomorrow, Inc. as of January 31, 1996, 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 five-year
period then ended. These financial statements and the financial
highlights are the responsibility of the Fund'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 January
31, 1996, by correspondence with the custodian and broker. 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 Fund For Tomorrow, Inc. as of January 31, 1996, 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
March 6, 1996
</AUDIT-REPORT>
IMPORTANT TAX INFORMATION (unaudited)
The following information summarizes all per share distributions
paid by Merrill Lynch Fund For Tomorrow, Inc. during the taxable
year ended January 31, 1996:
<TABLE>
<CAPTION>
Record Payable Domestic Qualifying Domestic Non-Qualifying Total Long-Term
Date Date Ordinary Income Ordinary Income Ordinary Income Capital Gains
<S> <C> <C> <C> <C> <C>
Class A Shares:
07/05/95 07/13/95 -- -- -- $0.566336
12/11/95 12/19/95 $0.072684 $0.122010 $0.194694 $0.787581
Class B Shares:
07/05/95 07/13/95 -- -- -- $0.566336
12/11/95 12/19/95 $0.072684 $0.122010 $0.194694 $0.787581
Class C Shares:
07/05/95 07/13/95 -- -- -- $0.566336
12/11/95 12/19/95 $0.072684 $0.122010 $0.194694 $0.787581
Class D Shares:
07/05/95 07/13/95 -- -- -- $0.566336
12/11/95 12/19/95 $0.072684 $0.122010 $0.194694 $0.787581
</TABLE>
<PAGE>
The domestic qualifying ordinary income qualifies for the dividends-
received deduction for corporations.
Please retain this information for your records.
PORTFOLIO INFORMATION (unaudited)
For the Quarter Ended January 31, 1996
Percent of
Ten Largest Equity Holdings Net Assets
Schering-Plough Corp. 3.9%
Thermo Electron Corp. 3.9
Nokia Corp. AB (ADR) 3.4
Molten Metal Technology, Inc. 2.9
International Business Machines Corp. 2.9
Bristol-Myers Squibb Co. 2.3
Silicon Graphics, Inc. 2.2
Frontier Corp. 2.2
Chrysler Corp. 2.1
Philips Electronics N.V. (ADR) 2.1
<PAGE>
Additions
Bristol-Myers Squibb Co.
*CORE Staff Inc.
Cementos Norte Pacasmayo S.A. (Common and New Shares)
*Citrix Systems, Inc.
Consorcio Alimentos Fabril Pacifico S.A.
Delta Air Lines, Inc.
FlightSafety International, Inc.
Galoob (Lewis) Toys, Inc.
Greenwich Air Services Inc.
Korea Mobile Telecommunication Corp.
Kubota Corporation (ADR)
Lernout & Hauspie Speech Products N.V.
Makita Corp. (ADR)
*Meta Group, Inc.
Minsur Sociedad Limitada S.A.
National Mutual Asia Ltd.
Neuromedical Systems Inc.
Omnipoint Corp.
Thermo Ecotek Corp.
US Satellite Broadcasting
*Westell Technologies, Inc.
World Color Press Inc.
Deletions
ASEA AB
ASM Lithography N.V. (ADR)
American Telecasting, Inc.
CML Group, Inc.
*CORE Staff Inc.
Cannondale Corp.
Chic by H.I.S., Inc.
*Citrix Systems, Inc.
Comcast UK Cable Partners, Ltd.
Cordis Corporation
DST Systems, Inc.
Digital Equipment Corp.
Eastbay, Inc.
Keravision, Inc.
*Meta Group, Inc.
Mylan Laboratories, Inc.
Peoples Choice TV Corp.
Sensormatic Electronics Corp.
Vantive Corporation
The Walt Disney Co.
*Westell Technologies, Inc.
[FN]
*Added and deleted in the same quarter.
<PAGE>
OFFICERS AND DIRECTORS
Arthur Zeikel, President and Director
Ronald W. Forbes, Director
Cynthia A.Montgomery, Director
Charles C. Reilly, Director
Kevin A. Ryan, Director
Richard R. West, Director
Terry K. Glenn, Executive Vice President
Norman R. Harvey, Senior Vice President
Donald C. Burke, Vice President
Vincent P. Dileo, Vice President and Portfolio Manager
Gerald M. Richard, Treasurer
Susan B. Baker, Secretary
Custodian
The Bank of New York
90 Washington Street, 12th Floor
New York, New York 10286
Transfer Agent
Merrill Lynch Financial Data Services, Inc.
4800 Deer Lake Drive East
Jacksonville, Florida 32246-6484
(800) 637-3863
