MERRILL LYNCH
FUND FOR
TOMORROW, INC.
FUND LOGO
Semi-Annual Report
July 31, 1996
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
<PAGE>
Custodian
The Bank of New York
90 Washington Street, 12th Floor
New York, NY 10286
Transfer Agent
Merrill Lynch Financial Data Services, Inc.
4800 Deer Lake Drive East
Jacksonville, FL 32246-6484
(800) 637-3863
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.
Merrill Lynch
Fund For Tomorrow, Inc.
Box 9011
Princeton, NJ
08543-9011
MERRILL LYNCH FUND FOR TOMORROW, INC.
Concept Sectors
<PAGE>
As a Percentage of Net Assets
As of July 31, 1996
A pie chart depicting Concept Sectors as a Percentage of Net Assets
As of July 31, 1996:
Computer Technologies 4.2%
Demographic Trends 5.8%
Developing Foreign Economies 4.2%
Future Retailing 3.9%
Global Market Expansion 9.4%
Healthcare Cost Containment 15.4%
Industrial Outsourcing 3.2%
Industrial Renaissance 9.0%
Multimedia 5.5%
Next Generation Technology 8.3%
Strategic Growth Opportunities 5.2%
Telecommunications 14.0%
Cash* 11.9%
[FN]
*Includes other assets less liabilities.
Growth Stock Characteristics as of July 31, 1996
Bar graph depicting Growth Stock Characteristics as of July 31, 1996
% of Equity Holdings:
Emerging Growth 10.8% 12.5%
Established Growth 19.0% 13.8%
Stable Growth 26.0% 17.9%
<PAGE>
DEAR SHAREHOLDER
The US economy demonstrated surprising strength during the first
half of 1996. As a result, during the quarter ended July 31, 1996,
investors focused on prospects for an overheating economy,
increasing inflationary pressures, and the potential for monetary
policy tightening by the Federal Reserve Board. With more robust
economic growth, a sharp rise in prices for crude oil and
agricultural commodities, and expectations of escalating wage
pressures, long-term interest rates (as measured by the yield on the
30-year US Treasury bond) rose to in excess of 7%.
Inflationary concerns were heightened further with a stronger-than-
expected employment report for June. Unemployment fell to a six-year
low, and hourly wages rose sharply. This mounting evidence of a
tighter labor market and rising labor costs suggested to many
investors that the US central bank would be forced to raise short-
term interest rates in the coming months. However, shortly after the
close of the July quarter, more subdued job growth and decelerating
hourly wage gains were reported for the month of July. It remains to
be seen whether this employment report is the first sign that the
economy is slowing from its rapid rate of growth in the second
quarter.
Portfolio Strategy
During the first part of the quarter ended July 31, 1996, equity
markets continued their upward trend. However, by the middle of the
July quarter, there was a high degree of volatility in the stock
market and a major divergence developed between the Standard &
Poor's 500 Composite Index (S&P 500) and the NASDAQ Industrials. By
the close of the quarter, the total return for the unmanaged S&P 500
was -1.61%, while the unmanaged NASDAQ Industrial Index declined
more sharply, closing down 11.78%. These comparisons were a mirror
image of the April 30, 1996 quarter when the NASDAQ Industrials
sharply outperformed the S&P 500.
Generally, when the overall market becomes volatile and there is
downward pressure on stock prices, it is not uncommon to experience
a shift toward more defensive and liquid investments. This occurred
during the July quarter as smaller-capitalization stocks, which are
typically more volatile and less defensive, underperformed the
market, while more predictable, large-capitalization stocks held up
better under the downward pressure. In general, foreign markets
during this time period were also negatively impacted, with the
unmanaged Morgan Stanley Capital International Europe, Australia,
Far East Index down 4.17%.
<PAGE>
Total returns for the Fund's Class A, Class B, Class C and Class D
Shares for the July quarter were -7.26%, -7.50%, -7.53% and -7.30%,
respectively. (Results shown do not reflect sales charges and would
be lower if sales charges were included. For complete performance
information, see pages 4--6 of this report to shareholders.)
The downward pressure on the stock market is difficult to attribute
to recent economic developments, since US gross domestic product has
been growing at a healthy rate, consumer spending has remained firm,
and corporate profits generally have been strong. However, during
the July quarter there was speculation that the Federal Reserve
Board would increase the discount rate to prevent the economy from
overheating. This concern, coupled with one of the longest periods
of strong upward stock market performance with minimal pullbacks,
caused the equity market to give up much of its earlier gains.
As with the overall market, the relatively better-performing
industries and stocks among the Fund's holdings were in the larger-
capitalization, more defensive growth sectors. The Fund's stocks in
the pharmaceutical, food, beverage and household products industries
generally showed a positive return for the July quarter. The Fund's
holdings in the more cyclical and economically sensitive sectors,
along with smaller-capitalization stocks in general, showed negative
returns for the three-month period ended July 31, 1996. The notably
weak stock sectors were in industries such as automotive, technology
and telecommunications.
As mentioned in prior shareholder reports, the thematic approach of
investing in macro-trends requires a longer time horizon to achieve
capital appreciation objectives. Generally, the newer concepts that
are in the early stages of development, such as our "Next Generation
Technology" theme, have above-average stock price volatility on a
quarter-to-quarter basis. However, the Fund's strategy is to
maintain a strategic balance of companies in various growth phases.
This is represented graphically by the bar chart on page 1 of this
report. This chart shows a continuum of weightings of companies
within the Fund according to their respective stages of development.
This is a dynamic classification of stocks which illustrates the
shifting from the left bar charts to the right bar charts as
companies progress along their growth paths. In addition, this
strategy gives us the flexibility to add or eliminate positions in
the portfolio in order to adjust for current stock market conditions
and changes in investment strategy. As a result, during the July
quarter, we adjusted our investments to emphasize more stable and
predictable growth stocks. Accordingly, we increased the Fund's
weighting in the healthcare cost containment area and, simultaneously,
lowered the Fund's position in the next generation technology concept.
<PAGE>
During the July quarter, we added 21 new stocks and eliminated 20
positions, realizing gains of more than $20 million. One of the more
exciting, new investment areas has supplemented our existing
holdings in the "Healthcare Cost Containment" concept. We added
Physician Computer Network, Inc. and Phamis, Inc. because we believe
there is a developing trend that will change the industry from a
paper-based healthcare system to an electronic data processing-based
system. As a result, it is likely that there will be greater cost
efficiencies, better diagnostic procedures and superior historical
patient record-keeping. It is estimated that by the year 2000, the
market for healthcare information systems will double from $10
billion currently to $20 billion. These two purchases were in
addition to our holding in National Data Corporation which we
invested in prior to the July quarter.
We also added 19 other stocks during the July quarter, but
eliminated five of these positions as a result of rapid stock
appreciation. As stated in the April 30, 1996 quarterly shareholder
letter, in response to our concern about possible above-average
stock market volatility, our strategy is to increase the Fund's
focus on stock-specific investments to take advantage of individual
market opportunities. Therefore, given this stock-specific approach,
the Fund's new holdings are diverse both on an industry and global
basis.
We added six foreign stocks during the July quarter: ADIA S.A., a
temporary employment service company in Switzerland; Portugal
Telecom S.A., the dominant telephone company in Portugal; OzEmail,
Ltd., the leading Internet service provider in Australia; Tranz Rail
Holdings, Ltd., which provides the major rail service in New Zealand
and is a play on global privatization; Toolex-Alpha N.V., a
Netherlands-based company which manufactures equipment for compact
discs; and Vodafone Group PLC, the largest mobile telecommunications
service provider in Great Britain. Three stocks added in the
healthcare area were: HEALTHSOUTH Corp., the largest US provider of
comprehensive healthcare services; Sequus Pharmaceuticals, Inc., a
biotech company; and Vencor, Inc., which provides acute, long-term
hospital care. Larger, more defensive stocks added were: The Procter
& Gamble Company, in household products, and Tosco Corp., an
independent refiner and distributor of petroleum products. Tosco is
a play on the firming of refining profit margins and growing global
demand for gasoline. Three other companies also were added: Oakley,
Inc., the leading sunglass manufacturer; Viacom, Inc., a multimedia
company; and Western Wireless Corp., a personal communications
service provider which will compete with the cellular and wireline
telephone services.
<PAGE>
In Conclusion
We believe that there will continue to be a strong, long-term trend
which will favor common stock investments, as the fastest-growing
population segments accumulate financial assets and plan for
retirement. However, the lack of consensus as to whether the economy
will go into a slowdown or what level of growth the economy can
maintain without creating excessive inflation will likely continue
to cause above-average stock market volatility. Therefore, during
the upcoming October quarter we expect to focus on a stock-specific
investment strategy based on companies with strong fundamentals and
market price/earnings multiples which are reasonably in line with
their expected growth rates. We believe this approach will better
control the Fund's volatility while enhancing its overall return
potential for the long term.
Sincerely,
(Arthur Zeikel)
Arthur Zeikel
President
(Vincent P. Dileo)
Vincent P. Dileo
Vice President and Portfolio Manager
September 5, 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.
<PAGE>
* 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.
Average Annual Total Return
% Return Without % Return With
Sales Charge Sales Charge**
Class A Shares*
Year Ended 6/30/96 +19.45% +13.18%
Five Years Ended 6/30/96 +13.05 +11.84
Inception (10/26/88)
through 6/30/96 +12.29 +11.50
[FN]
*Maximum sales charge is 5.25%.
**Assuming maximum sales charge.
% Return % Return
Without CDSC With CDSC**
Class B Shares*
<PAGE>
Year Ended 6/30/96 +18.13% +14.13%
Five Years Ended 6/30/96 +11.88 +11.88
Ten Years Ended 6/30/96 + 9.32 + 9.32
[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
Without CDSC With CDSC**
Class C Shares*
Year Ended 6/30/96 +18.15% +17.15%
Inception (10/21/94)
through 6/30/96 +19.59 +19.59
[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 6/30/96 +19.09% +12.83%
Inception (10/21/94)
through 6/30/96 +20.87 +17.08
[FN]
*Maximum sales charge is 5.25%.
**Assuming maximum sales charge.
PERFORMANCE DATA (continued)
<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--7/31/96 15.84 16.22 -- 0.109 + 3.04
------ ------
Total $9.734 Total $2.979
<PAGE>
Cumulative total return as of 7/31/96: +124.77%**
<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 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--7/31/96 15.40 15.67 -- 0.109 + 2.41
------ ------
Total $11.589 Total $2.762
Cumulative total return as of 7/31/96: +295.28%**
<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 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--7/31/96 15.33 15.59 -- 0.109 + 2.36
------ ------
Total $1.511 Total $0.363
Cumulative total return as of 7/31/96: +24.81%**
<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>
PERFORMANCE DATA (concluded)
<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 - 2.72%
1995 13.65 15.79 1.354 0.195 +27.11
1/1/96--7/31/96 15.79 16.14 -- 0.109 + 2.86
------ ------
Total $1.511 Total $0.363
Cumulative total return as of 7/31/96: +27.20%**
<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
7/31/96 4/30/96 7/31/95 % Change % Change
<S> <C> <C> <C> <C> <C>
ML Fund For Tomorrow, Inc. Class A Shares* $16.22 $17.60 $16.82 + 1.15%(1) - 7.84%
ML Fund For Tomorrow, Inc. Class B Shares* 15.67 17.05 16.45 + 0.05(1) - 8.09
ML Fund For Tomorrow, Inc. Class C Shares* 15.59 16.97 16.38 - 0.01(1) - 8.13
ML Fund For Tomorrow, Inc. Class D Shares* 16.14 17.52 16.78 + 0.91(1) - 7.88
Standard & Poor's 500 Index** 639.95 654.17 562.06 +13.86 - 2.17
NASDAQ Industrial Index** 987.06 1,118.84 953.23 + 3.55 -11.78
ML Fund For Tomorrow, Inc. Class A Shares--Total Return* + 2.96(2) - 7.26(3)
ML Fund For Tomorrow, Inc. Class B Shares--Total Return* + 1.89(2) - 7.50(3)
ML Fund For Tomorrow, Inc. Class C Shares--Total Return* + 1.84(2) - 7.53(3)
ML Fund For Tomorrow, Inc. Class D Shares--Total Return* + 2.72(2) - 7.30(3)
Standard & Poor's 500 Index--Total Return** +16.53 - 1.61
<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 $0.788 per share capital
gains distributions.
(2)Percent change includes reinvestment of $0.304 per share ordinary
income dividends and $0.788 per share capital gains distributions.
(3)Percent change includes reinvestment of $0.109 per share ordinary
income dividends.
</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 150,000 ++COMPAQ Computer Corp. $ 5,445,438 $ 8,212,500 2.3%
Systems 300,000 ++Silicon Graphics, Inc. 11,151,240 7,050,000 1.9
------------ ------------ ------
16,596,678 15,262,500 4.2
Demographic Trends
<PAGE>
Medical Devices 100,000 ++Biomet, Inc. 1,534,375 1,525,000 0.4
Healthcare 100,000 ++HEALTHSOUTH Corp. 3,537,000 3,037,500 0.8
Leisure & Entertainment 50,000 ++Harrah's Entertainment, Inc. 1,235,976 1,100,000 0.3
Healthcare 100,000 ++Living Centers of America, Inc. 3,353,090 2,437,500 0.7
Healthcare 110,000 ++Patterson Dental Co., Inc. 2,815,625 3,162,500 0.9
Pollution Technology 450,000 ++Philip Environmental Inc. (ADR)* 3,514,252 3,487,500 1.0
Insurance 150,000 Torchmark Corp. 6,152,112 6,393,750 1.7
------------ ------------ ------
22,142,430 21,143,750 5.8
Developing Foreign Economics
Telecommunications 3,000,000 CPT Telefonica Del Peru Pacifico S.A. 5,895,366 6,519,090 1.8
Building Materials 225,065 Cementos Norte Pacasmayo S.A. 472,072 396,743 0.1
Telecommunications 3,116,412 Champion Technology Holdings Ltd. 1,011,255 358,681 0.1
Food & Beverage 500,000 ++Consorcio Alimentos Fabril Pacifico S.A. 617,247 647,847 0.2
Telecommunications 450 Korea Mobile Telecommunication Corp. 533,107 609,282 0.2
Specialty Services 1,000,000 National Mutual Asia Ltd. 940,132 801,780 0.2
Building Materials 300,000 ++Royal Plastic Group Ltd. 2,686,550 4,366,812 1.2
Electronics 25,384 Samsung Electronics Company (GDR)** (a) 2,600,629 1,297,757 0.3
Electronics 7,650 Samsung Electronics Company (New
Shares) (GDR)** (a) 679,371 306,000 0.1
------------ ------------ ------
15,435,729 15,303,992 4.2
Future Retailing
Specialty Retail 134,750 ++CUC International, Inc. (b) 3,694,503 4,682,563 1.3
Specialty Retail 73,000 ++Harvey Nichols PLC 297,621 359,773 0.1
Specialty Retail 100,000 ++Oakley, Inc. 4,725,175 3,387,500 0.9
Specialty Retail 288,900 ++OfficeMax, Inc. 2,872,100 3,827,925 1.1
Specialty Retail 94,500 ++Party City Corporation 1,415,500 1,937,250 0.5
------------ ------------ ------
13,004,899 14,195,011 3.9
Global Market Expansion
Cosmetics 174,400 Avon Products, Inc. 6,259,222 7,673,600 2.1
Food & Beverage 100,000 ConAgra Inc. 3,826,115 4,250,000 1.2
Machinery 10,000 Kubota Corp. (ADR)* 1,285,600 1,280,000 0.4
Machinery 50,000 Makita Corp. (ADR)* 796,875 762,500 0.2
Food & Beverage 160,000 PepsiCo, Inc. 2,644,800 5,060,000 1.4
Electronics 200,000 Philips Electronics N.V. (ADR)* 8,214,486 6,625,000 1.8
Household Products 50,000 The Procter & Gamble Company 4,593,926 4,468,750 1.2
Transportation 300,000 ++Tranz Rail Holdings, Ltd. (ADR)* 4,071,663 4,012,500 1.1
------------ ------------ ------
31,692,687 34,132,350 9.4
Healthcare Cost Containment
Pharmaceuticals 50,000 Astra AB (ADR)* 1,781,250 2,112,500 0.6
Medical Devices 100,000 ++Boston Scientific Corp. 4,133,851 4,775,000 1.3
Pharmaceuticals 100,000 Bristol-Myers Squibb Co. 7,907,000 8,662,500 2.4
Pharmaceuticals 100,000 Lilly (Eli) and Company 4,572,100 5,600,000 1.5
Pharmaceuticals 100,900 Merck & Co., Inc. 4,001,062 6,482,825 1.8
</TABLE>
<PAGE>
<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 (concluded)
Information Services 108,500 ++Phamis, Inc. $ 2,050,565 $ 1,993,688 0.5%
Information Services 100,000 ++Physician Computer Network, Inc. 1,020,500 1,000,000 0.3
Pharmaceuticals 50,000 Sandoz AG (ADR)* 1,942,188 2,800,000 0.8
Pharmaceuticals 274,400 Schering-Plough Corp. 3,180,566 15,126,300 4.2
Pharmaceuticals 100,000 ++Sequus Pharmaceuticals, Inc. 1,734,998 1,450,000 0.4
Medical Devices 100,000 United States Surgical Corp. 6,799,013 3,425,000 0.9
Medical Services 100,000 ++Vencor, Inc. 3,194,630 2,737,500 0.7
------------ ------------ ------
42,317,723 56,165,313 15.4
Industrial Outsourcing
Specialty Services 5,000 ADIA S.A. 1,159,631 1,227,455 0.3
Specialty Services 100,000 Greenwich Air Services Inc. (Class A) 1,113,428 2,375,000 0.7
Specialty Services 100,000 Greenwich Air Services Inc. (Class B) 1,165,198 1,675,000 0.5
Office Systems 100,000 ++Indigo N.V. (ADR)* 1,963,750 787,500 0.2
Specialty Services 39,228 National Data Corporation (c) 1,813,138 1,559,313 0.4
Specialty Services 150,000 Olsten Corp. 3,190,200 3,975,000 1.1
------------ ------------ ------
10,405,345 11,599,268 3.2
Industrial Renaissance
Automotive 129,580 Chrysler Corp. 2,560,540 3,676,833 1.0
Transportation 75,000 Delta Air Lines, Inc. 5,782,613 5,240,625 1.5
Automotive 100,000 Ford Motor Co. 2,295,190 3,250,000 0.9
Automotive 100,000 General Motors Corp. 4,190,900 4,875,000 1.3
Information Systems 100,000 International Business Machines Corp. 5,658,500 10,787,500 3.0
Oil Refining 100,000 Tosco Corp. 5,003,903 4,887,500 1.3
------------ ------------ ------
25,491,646 32,717,458 9.0
Multimedia
Wireless Cable Television 50,000 ++CAI Wireless Systems, Inc. 499,166 350,000 0.1
Broadcasting Services 150,000 Carlton Communications PLC (ADR)* 5,123,125 5,418,750 1.5
Information Services 400,000 ++OzEmail, Ltd. (ADR)* 4,632,341 3,000,000 0.8
Components 50,000 ++Toolex-Alpha N.V. (NY Registered Shares) 1,050,000 1,112,500 0.3
Broadcasting Services 97,900 ++Viacom, Inc. (Class B) 3,795,924 3,426,500 1.0
Publishing Services 300,000 ++World Color Press Inc. 5,906,000 6,600,000 1.8
------------ ------------ ------
21,006,556 19,907,750 5.5
Next Generation Technology
<PAGE>
Electronics 204,000 ++Affinity Technology Group, Inc. 2,105,625 1,377,000 0.4
Semiconductors 182,600 ++Gasonics International Corp. 2,303,368 1,323,850 0.4
Telecommunications 150,000 ++Geotek Communications, Inc. 1,366,468 1,462,500 0.4
Pollution Technology 300,000 ++Molten Metal Technology, Inc. 5,221,520 8,250,000 2.3
Medical Devices 70,000 ++Neuromedical Systems Inc. 1,050,000 997,500 0.3
Environmental Equipment 79,600 ++Thermo Ecotek Corp. 1,281,614 1,651,700 0.4
Multi-Industry 155,000 Thermo Electron Corp. 2,617,778 5,793,125 1.6
Medical Devices 100,000 ++ThermoLase Corp. 2,525,000 2,225,000 0.6
Medical Devices 100,000 ++ThermoSpectra Corp. 1,547,300 1,450,000 0.4
Medical Devices 100,000 ++Thermotrex Corp. 1,586,723 3,500,000 0.9
Electronics 150,000 ++Whittaker Corp. 2,966,998 2,156,250 0.6
------------ ------------ ------
24,572,394 30,186,925 8.3
</TABLE>
<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 100,000 American Home Products Corp. $ 3,875,049 $ 5,675,000 1.6%
Leisure & Entertainment 100,000 ++Galoob (Lewis) Toys, Inc. 1,385,890 2,537,500 0.7
Specialty Services 100,000 Household International, Inc. 6,712,565 7,450,000 2.0
Leisure & Entertainment 125,000 Mattel, Inc. 2,232,740 3,093,750 0.9
------------ ------------ ------
14,206,244 18,756,250 5.2
Telecommunications
Components 100,000 ++Andrew Corp. 2,973,417 4,050,000 1.1
Telecommunications 200,000 ++Boston Technology, Inc. 2,967,630 2,700,000 0.7
Wireless Cable Television 150,000 ++CellularVision USA, Inc. 2,270,000 1,481,250 0.4
Telecommunications 250,000 ++Inter-Tel Inc. 3,075,112 4,250,000 1.2
Wireless Communication 110,000 ++InterCel, Inc. 1,815,000 1,925,000 0.5
Telecommunications 150,000 MCI Communications Corp. 3,895,310 3,675,000 1.0
Telecommunications 200,000 ++MFS Communications Co., Inc. 2,536,850 6,300,000 1.7
Paging Services 305,000 ++Metrocall, Inc. 4,988,845 2,745,000 0.8
Components 349,400 Nokia Corp. AB (ADR)* 12,108,398 12,316,350 3.4
Wireless Communication 200,000 ++Palmer Wireless, Inc. 2,984,487 3,425,000 0.9
Telecommunications 150,000 Portugal Telecom S.A. (ADR)* 3,514,576 3,843,750 1.1
Telecommunications 100,000 Vodafone Group PLC (ADR)* 3,643,500 3,575,000 1.0
Wireless Communication 45,000 ++Western Wireless Corp. (Class A) 1,057,500 697,500 0.2
------------ ------------ ------
47,830,625 50,983,850 14.0
Total Stocks 284,702,956 320,354,417 88.1
<PAGE>
Face
Amount Short-Term Securities
Commercial $ 10,000,000 CSW Credit, Inc., 5.40% due 9/04/1996 9,949,000 9,949,000 2.8
Paper*** 8,500,000 Ciesco L.P., 5.32% due 9/12/1996 8,447,243 8,447,243 2.3
12,070,000 General Electric Capital Corp., 5.72%
due 8/01/1996 12,070,000 12,070,000 3.3
7,000,000 Southwestern Bell Capital Corp., 5.42%
due 9/06/1996 6,962,060 6,962,060 1.9
Total Short-Term Securities 37,428,303 37,428,303 10.3
Total Investments $322,131,259 357,782,720 98.4
============
Other Assets Less Liabilities 5,919,817 1.6
------------ ------
Net Assets $363,702,537 100.0%
============ ======
<FN>
*American Depositary Receipts (ADR).
**Global Depositary Receipts (GDR).
***Commercial Paper is traded on a discount basis; the interest
rates shown are the discount rates paid at the time of purchase by
the Fund.
++Non-income producing security.
(a)Restricted securities as to resale. The value of the Fund's
investment in restricted securities was approximately $1,604,000,
representing 0.4% of net assets.
Acquisition Value
Issue Dates Cost (Note 1a)
Samsung Electronics 7/26/1995-
Company (GDR) 7/27/1995 $2,600,629 $1,297,757
Samsung Electronics Company 7/26/1995-
(New Shares) (GDR) 7/27/1995 679,371 306,000
Total $3,280,000 $1,603,757
========== ==========
(b)Formerly Sierra On-Line, Inc.
(c)Formerly CIS Technologies, Inc.
See Notes to Financial Statements.
</TABLE>
<PAGE>
FINANCIAL INFORMATION
<TABLE>
Statement of Assets and Liabilities as of July 31, 1996
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$322,131,259) (Note 1a) $357,782,720
Cash 78
Receivables:
Securities sold $ 7,911,006
Dividends 502,380
Capital shares sold 231,698 8,645,084
------------
Prepaid registration fees and other assets (Note 1f) 30,541
------------
Total assets 366,458,423
------------
Liabilities: Payables:
Securities purchased 1,563,421
Capital shares redeemed 552,631
Investment adviser (Note 2) 219,089
Distributor (Note 2) 151,958 2,487,099
------------
Accrued expenses and other liabilities 268,787
------------
Total liabilities 2,755,886
------------
Net Assets: Net assets $363,702,537
============
Net Assets Class A Shares of Common Stock, $0.10 par value, 100,000,000
Consist of: shares authorized $ 231,487
Class B Shares of Common Stock, $0.10 par value, 100,000,000
shares authorized 654,599
Class C Shares of Common Stock, $0.10 par value, 100,000,000
shares authorized 45,949
Class D Shares of Common Stock, $0.10 par value, 100,000,000
shares authorized 1,340,960
Paid-in capital in excess of par 288,344,330
Undistributed investment income--net 305,510
Undistributed realized capital gains on investments and foreign
currency transactions--net 37,129,284
Unrealized appreciation on investments and foreign currency
transactions--net 35,650,418
------------
Net assets $363,702,537
============
<PAGE>
Net Asset Value: Class A--Based on net assets of $37,542,592 and 2,314,867
shares outstanding $ 16.22
============
Class B--Based on net assets of $102,570,961 and 6,545,991
shares outstanding $ 15.67
============
Class C--Based on net assets of $7,163,436 and 459,489
shares outstanding $ 15.59
============
Class D--Based on net assets of $216,425,548 and 13,409,601
shares outstanding $ 16.14
============
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION (continued)
<TABLE>
Statement of Operations for the Six Months Ended July 31, 1996
<S> <S> <C> <C>
Investment Dividends (net of $74,784 foreign withholding tax) $ 2,158,376
Income Interest and discount earned 992,040
(Notes 1d & 1e): Other income 659
------------
Total income 3,151,075
------------
Expenses: Investment advisory fees (Note 2) $ 1,241,618
Account maintenance and distribution fees--Class B (Note 2) 541,551
Account maintenance fees--Class D (Note 2) 288,856
Transfer agent fees--Class D (Note 2) 275,913
Transfer agent fees--Class B (Note 2) 159,163
Printing and shareholder reports 84,289
Custodian fees 59,118
Transfer agent fees--Class A (Note 2) 42,693
Account maintenance and distribution fees--Class C (Note 2) 34,720
Registration fees (Note 1f) 33,663
Professional fees 31,928
Accounting services (Note 2) 28,757
Transfer agent fees--Class C (Note 2) 10,803
Directors' fees and expenses 4,153
Pricing fees 738
Other 7,602
------------
Total expenses 2,845,565
------------
Investment income--net 305,510
------------
<PAGE>
Realized & Realized gain (loss) from:
Unrealized Gain Investments--net 37,315,860
(Loss) on Foreign currency transactions--net (4,466) 37,311,394
Investments & ------------
Foreign Currency Change in unrealized appreciation/depreciation on:
Transactions--Net Investments--net (36,794,320)
(Notes 1b, 1c, Foreign currency transactions--net (1,043) (36,795,363)
1e & 3): ------------ ------------
Net realized and unrealized gain on investments and foreign
currency transactions 516,031
------------
Net Increase in Net Assets Resulting from Operations $ 821,541
============
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION (continued)
<TABLE>
Statements of Changes in Net Assets
<CAPTION>
For the Six For the
Months Ended Year Ended
Increase (Decrease) in Net Assets: July 31, 1996 Jan. 31, 1996
<S> <S> <C> <C>
Operations: Investment gain (loss)--net $ 305,510 $ (46,108)
Realized gain on investments and foreign currency transactions
--net 37,311,394 24,540,178
Change in unrealized appreciation/depreciation on investments
and foreign currency transactions--net (36,795,363) 57,218,059
------------ ------------
Net increase in net assets resulting from operations 821,541 81,712,129
------------ ------------
Distributions to Realized gain on investments--net:
Shareholders Class A (246,479) (2,188,438)
(Note 1g): Class B (715,349) (9,550,391)
Class C (51,103) (338,854)
Class D (1,473,271) (20,640,116)
------------ ------------
Net decrease in net assets resulting from distributions to
shareholders (2,486,202) (32,717,799)
------------ ------------
Capital Share Net increase (decrease) in net assets derived from capital
Transactions share transactions (15,395,517) 46,890,051
(Note 4): ------------ ------------
<PAGE>
Net Assets: Total increase (decrease) in net assets (17,060,178) 95,884,381
Beginning of period 380,762,715 284,878,334
------------ ------------
End of period* $363,702,537 $380,762,715
============ ============
<FN>
*Undistributed investment income--net $ 305,510 --
============ ============
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION (continued)
<TABLE>
Financial Highlights
<CAPTION>
Class A
For the
The following per share data and ratios have been derived Six Months
from information provided in the financial statements. Ended
July 31, For the Year Ended January 31,
Increase (Decrease) in Net Asset Value: 1996++ 1996++ 1995++ 1994 1993
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 16.26 $ 13.55 $ 16.39 $ 16.29 $ 16.84
Operating ------- ------- ------- ------- -------
Performance: Investment income--net .05 .07 .09 .15 .25
Realized and unrealized gain (loss) on
investments and foreign currency
transactions--net .02 4.19 (1.97) 2.18 .49
------- ------- ------- ------- -------
Total from investment operations .07 4.26 (1.88) 2.33 .74
------- ------- ------- ------- -------
Less dividends and distributions:
Investment income--net -- -- -- -- (.23)
Realized gain on investments--net (.11) (1.55) (.96) (2.23) (1.06)
------- ------- ------- ------- -------
Total dividends and distributions (.11) (1.55) (.96) (2.23) (1.29)
------- ------- ------- ------- -------
Net asset value, end of period $ 16.22 $ 16.26 $ 13.55 $ 16.39 $ 16.29
======= ======= ======= ======= =======
Total Investment Based on net asset value per share .38%+++ 31.82% (11.23%) 15.78% 4.79%
Return:** ======= ======= ======= ======= =======
<PAGE>
Ratios to Average Expenses 1.02%* 1.07% .98% .88% .90%
Net Assets: ======= ======= ======= ======= =======
Investment income--net .63%* .44% .59% .95% 1.35%
======= ======= ======= ======= =======
Supplemental Net assets, end of period (in thousands) $37,543 $34,231 $ 8,665 $10,942 $11,394
Data: ======= ======= ======= ======= =======
Portfolio turnover 25.26% 67.38% 45.86% 48.63% 40.58%
======= ======= ======= ======= =======
Average commission rate paid+++++ $ .0383 -- -- -- --
======= ======= ======= ======= =======
<FN>
*Annualized.
**Total investment returns exclude the effects of sales loads.
++Based on average shares outstanding during the period.
+++Aggregate total investment return.
+++++For fiscal years beginning on or after September 30, 1995, the
Fund is required to disclose its average commission
rate per share for purchases and sales of equity securities.
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION (continued)
<TABLE>
Financial Highlights (continued)
<CAPTION>
Class B
For the
The following per share data and ratios have been derived Six Months
from information provided in the financial statements. Ended
July 31, For the Year Ended January 31,
Increase (Decrease) in Net Asset Value: 1996++ 1996++ 1995++ 1994 1993
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 15.79 $ 13.33 $ 16.30 $ 16.28 $ 16.82
Operating -------- -------- -------- -------- --------
Performance: Investment income (loss)--net (.03) (.08) (.06) (.01) .06
Realized and unrealized gain (loss) o
investments and foreign currency
transactions--net .02 4.09 (1.96) 2.17 .52
-------- -------- -------- -------- --------
Total from investment operations (.01) 4.01 (2.02) 2.16 .58
-------- -------- -------- -------- --------
Less dividends and distributions:
Investment income--net -- -- -- -- (.06)
Realized gain on investments--net (.11) (1.55) (.95) (2.14) (1.06)
-------- -------- -------- -------- --------
Total dividends and distributions (.11) (1.55) (.95) (2.14) (1.12)
-------- -------- -------- -------- --------
Net asset value, end of period $ 15.67 $ 15.79 $ 13.33 $ 16.30 $ 16.28
======== ======== ======== ======== ========
<PAGE>
Total Investment Based on net asset value per share (.12%)+++ 30.43% (12.22%) 14.60% 3.75%
Return:** ======== ======== ======== ======== ========
Ratios to Average Expenses 2.07%* 2.13% 1.99% 1.91% 1.92%
Net Assets: ======== ======== ======== ======== ========
Investment income(loss)--net (.42%)* (.55%) (.38%) (.07%) .36%
======== ======== ======== ======== ========
Supplemental Net assets, end of period (in thousands) $102,571 $112,239 $119,186 $396,424 $447,186
Data: ======== ======== ======== ======== ========
Portfolio turnover 25.26% 67.38% 45.86% 48.63% 40.58%
======== ======== ======== ======== ========
Average commission rate paid+++++ $ .0383 -- -- -- --
======== ======== ======== ======== ========
<FN>
*Annualized.
**Total investment returns exclude the effects of sales loads.
++Based on average shares outstanding during the period.
+++Aggregate total investment return.
+++++For fiscal years beginning on or after September 30, 1995, the
Fund is required to disclose its average commission
rate per share for purchases and sales of equity securities.
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION (concluded)
<TABLE>
Financial Highlights (concluded)
<CAPTION>
Class C++++ Class D++++
For the For the For the For the
Six Period Six Period
The following per share data and ratios have been derived Months For the Oct. 21, Months For the Oct. 21,
from information provided in the financial statements. Ended Year Ended 1994++ to Ended Year Ended 1994++ to
July 31, Jan. 31, Jan. 31, July 31, Jan. 31, Jan. 31,
Increase (Decrease) in Net Asset Value: 1996 1996 1995 1996 1996 1995
<S> <S> <C> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 15.71 $ 13.28 $ 14.08 $ 16.20 $ 13.54 $ 14.26
Operating -------- -------- -------- -------- -------- --------
Performance: Investment income(loss)--net (.04) (.10) (.04) .03 .03 (.01)
Realized and unrealized gain (loss)
on investments and foreign
currency transactions--net .03 4.08 (.54) .02 4.18 (.49)
-------- -------- -------- -------- -------- --------
Total from investment operations (.01) 3.98 (.58) .05 4.21 (.50)
-------- -------- -------- -------- -------- --------
Less distributions from realized
gain on investments--net (.11) (1.55) (.22) (.11) (1.55) (.22)
-------- -------- -------- -------- -------- --------
Net asset value, end of period $ 15.59 $ 15.71 $ 13.28 $ 16.14 $ 16.20 $ 13.54
======== ======== ======== ======== ======== ========
<PAGE>
Total Investment Based on net asset value per share (.12%)+++ 30.32% (4.12%)+++ .26%+++ 31.47% (3.50%)+++
Return:** ======== ======== ======== ======== ======== ========
Ratios to Average Expenses 2.09%* 2.14% 2.26%* 1.27%* 1.33% 1.43%*
Net Assets: ======== ======== ======== ======== ======== ========
Investment income (loss)--net (.44%)* (.67%) (.87%)* .38%* .22% (.23%)*
======== ======== ======== ======== ======== ========
Supplemental Net assets, end of period
Data: (in thousands) $ 7,163 $ 6,385 $ 80 $216,426 $227,908 $156,947
======== ======== ======== ======== ======== ========
Portfolio turnover 25.26% 67.38% 45.86% 25.26% 67.38% 45.86%
======== ======== ======== ======== ======== ========
Average commissions rate paid+++++ $ .0383 -- -- $ .0383 -- --
======== ======== ======== ======== ======== ========
<FN>
*Annualized.
**Total investment returns exclude the effects of sales loads.
++Commencement of Operations.
++++Based on average shares outstanding during the period.
+++Aggregate total investment return.
+++++For fiscal years beginning on or after September 1, 1995, the
Fund is required to disclose its average commission rate per share
for purchases and sales of equity securities.
See Notes to Financial Statements.
</TABLE>
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. These unaudited financial statements
reflect all adjustments which are, in the opinion of management,
necessary to a fair statement of the results for the interim period
presented. All such adjustments are of a normal recurring nature.
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 distri-bution of such shares. Each
class has exclusive voting rights with respect to matters relating
to its account maintenance and distribution expenditures. The
following is a summary of significant accounting policies followed
by the Fund.
<PAGE>
(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.
(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.
<PAGE>
(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.
(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.
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
the 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.
<PAGE>
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 average 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:
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.
<PAGE>
For the six months ended July 31, 1996, MLFD earned underwriting
discounts and direct commissions 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 $ 513 $ 6,119
Class D $1,756 $26,302
For the six months ended July 31, 1996, MLPF&S also received
contingent deferred sales charges of $59,112 and $2,882 relating to
transactions in Class B and C Shares, respectively.
In addition, MLPF&S received $1,578 in commissions on the execution
of portfolio security transactions for the Fund for the six months
ended July 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.
NOTES TO FINANCIAL STATEMENTS (concluded)
3. Investments:
Purchases and sales of investments, excluding short-term securities,
for the six months ended July 31, 1996 were $87,410,817 and
$109,261,620, respectively.
Net realized and unrealized gains (losses) as of July 31, 1996 were
as follows:
Realized Unrealized
Gains (Losses) Gains (Losses)
Long-term investments $37,314,885 $ 35,651,461
Short-term investments 975 --
Foreign currency transactions (4,466) (1,043)
----------- ------------
Total $37,311,394 $ 35,650,418
=========== ============
<PAGE>
As of July 31, 1996, net unrealized appreciation for Federal income
tax purposes aggregated $35,651,461, of which $62,612,974 related to
appreciated securities and $26,961,513 related to depreciated
securities. The aggregate cost of investments at July 31, 1996 for
Federal income tax purposes was $322,131,259.
4. Capital Share Transactions:
Net increase (decrease) in net assets derived from capital share
transactions was $(15,395,517) and $46,890,051 for the six months
ended July 31, 1996 and the year ended January 31, 1996,
respectively.
Transactions in capital shares for each class were as follows:
Class A Shares for the Six Dollar
Months Ended July 31, 1996 Shares Amount
Shares sold 644,174 $ 10,997,572
Shares issued to shareholders
in reinvestment of
distributions 13,632 237,606
------------- -------------
Total issued 657,806 11,235,178
Shares redeemed (448,596) (7,501,620)
------------- -------------
Net increase 209,210 $ 3,733,558
============= =============
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
============= =============
Class B Shares for the
Six Months Ended Dollar
July 31, 1996 Shares Amount
<PAGE>
Shares sold 910,692 $ 15,089,459
Shares issued to shareholders
in reinvestment of
distributions 37,271 628,390
------------- -------------
Total issued 947,963 15,717,849
Automatic conversion of
shares (321,833) (5,294,447)
Shares redeemed (1,187,361) (19,394,040)
------------- -------------
Net decrease (561,231) $ (8,970,638)
============= =============
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 C Shares for the
Six Months Ended Dollar
July 31, 1996 Shares Amount
Shares sold 220,414 $ 3,626,595
Shares issued to shareholders
in reinvestment of
distributions 2,689 45,094
------------- -------------
Total issued 223,103 3,671,689
Shares redeemed (169,921) (2,739,924)
------------- -------------
Net increase 53,182 $ 931,765
============= =============
Class C Shares for the
Year Ended Dollar
January 31, 1996 Shares Amount
<PAGE>
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 D Shares for the Six Months Dollar
Ended July 31, 1996 Shares Amount
Shares sold 188,915 $ 3,207,550
Automatic conversion of
shares 313,198 5,294,447
Shares issued to shareholders
in reinvestment of
distributions 74,664 1,295,424
------------- -------------
Total issued 576,777 9,797,421
Shares redeemed (1,237,217) (20,887,623)
------------- -------------
Net decrease (660,440) $ (11,090,202)
============= =============
Class D Shares for the Year Dollar
Ended 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>
5. Loaned Securities:
At July 31, 1996, the Fund held US Treasury Notes having an
aggregate value of approximately $3,813,000 as collateral for
portfolio securities loaned having a market value of approximately
$3,388,000.
PORTFOLIO INFORMATION
For the Quarter Ended July 31, 1996
Percent of
Ten Largest Equity Holdings Net Assets
Schering-Plough Corp. 4.2%
Nokia Corp. AB (ADR) 3.4
International Business Machines Corp. 3.0
Bristol-Myers Squibb Co. 2.4
Molten Metal Technology, Inc. 2.3
COMPAQ Computer Corp. 2.3
Avon Products, Inc. 2.1
Household International, Inc. 2.0
Silicon Graphics, Inc. 1.9
Philips Electronics N.V. (ADR) 1.8
Additions
ADIA S.A.
*Edify Corp.
*Excel Communications, Inc.
HEALTHSOUTH Corp.
Oakley, Inc.
*Open Market, Inc.
OzEmail, Ltd. (ADR)
Phamis, Inc.
Physician Computer Network, Inc.
Portugal Telecom S.A. (ADR)
The Procter & Gamble Company
Sequus Pharmaceuticals, Inc.
*Suburban Lodges of America, Inc.
Toolex-Alpha N.V. (NY Registered Shares)
Tosco Corp.
Tranz Rail Holdings, Ltd. (ADR)
*Trex Medical Corp.
Vencor, Inc.
Viacom, Inc. (Class B)
Vodafone Group PLC (ADR)
Western Wireless Corp.
<PAGE>
Deletions
Apria Healthcare Group, Inc.
Cementos Norte Pacasmayo S.A. (Labor Shares)
Continental Circuits Corp.
DSP Communications, Inc.
Daisytek International Corp.
*Edify Corp.
*Excel Communications, Inc.
FlightSafety International, Inc.
Frontier Corp.
Gucci Group N.V. (ADR)
Minsur Sociedad Limitada S.A.
The News Corp. Ltd. (ADR)
*Open Market, Inc.
Pacific Telesis Group, Inc.
Penske Motorsports, Inc.
Promus Hotel Corporation
*Suburban Lodges of America, Inc.
Thermo Sentron Inc.
ThermoQuest Corp.
*Trex Medical Corp.
[FN]
*Added and deleted in the same quarter.
