MERRILL LYNCH
FUND FOR
TOMORROW, INC.
FUND LOGO
Semi-Annual Report
July 31, 1997
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
Printed on post-consumer recycled paper
MERRILL LYNCH FUND FOR TOMORROW, INC.
<PAGE>
Concept Sectors
Pie graph depicting Concept Sectors As a Percentage of Net Assets
As of July 31, 1997
Computer Technologies 9.9%
Demographic Trends 8.0%
Developing Foreign Economies 5.6%
Future Retailing 1.8%
Global Market Expansion 9.8%
Healthcare Cost Containment 14.0%
Industrial Outsourcing 5.1%
Industrial Renaissance 8.9%
Multimedia 8.2%
Next Generation Technology 5.0%
Strategic Growth Opportunities 10.1%
Telecommunications 7.4%
Cash* 6.2%
[FN]
*Net liabilities in excess of other assets.
Growth Stock Characteristics as of July 31, 1997
Bar graph depicting Growth Stock Characteristics as of July 31, 1997
as a % of Equity Holdings:
Emerging Growth 4.8% 9.8%
Established Growth 22.4% 20.4%
Stable Growth 25.0% 17.6%
DEAR SHAREHOLDER
<PAGE>
During the quarter ended July 31, 1997, increasing evidence of
noninflationary economic growth boosted investor confidence. This
growing confidence was confirmed further when, as widely expected,
the Federal Reserve Board (FRB) chose to leave monetary policy
unchanged at its July 1 meeting. This confluence of positive
indicators helped produce a significant rally in the US stock
market. The unmanaged Standard & Poor's 500 Composite Average (S&P
500), led by its 50 largest issues (in terms of stock market
capitalization), generated a +19.58% total return for the July
quarter. A slight decline in interest rates during the quarter
resulted in a modest positive total return for US fixed-income
investments.
Current consensus expectations are for the US economy's rate of
growth to lose some momentum over the balance of 1997. Although real
(inflation-adjusted) gross domestic product (GDP) growth for the
first quarter of the year was revised slightly upward to 5.9%, the
rate of real growth for the second quarter was announced at a more
sustainable 2.2% rate. At the same time, inflationary pressures
remain contained. It remains to be seen whether economic activity
remains moderate enough to rule out future FRB monetary policy
tightenings later this year.
As the July quarter drew to a close, Congress approved tax-cut and
five-year balanced budget bills. Although considered positive to
encourage savings and investment, it remains to be seen how
successful the new legislation will be in reducing the Federal
budget deficit in the years ahead.
At present, it appears that the US economy is perceived favorably by
global investors for its ongoing growth and limited inflationary
pressures, as supported by the US dollar's continued strength
relative to other currencies. If economic data releases continue to
support this point of view, the outlook for the US capital markets
will remain positive.
Portfolio Matters
Unlike the quarter ended April 30, 1997, which was characterized by
relatively benign market movements, during the quarter ended July
31, 1997 equity markets witnessed substantial gains. Economic
indicators continue to show favorable results with strong corporate
profits, a high level of consumer confidence and the lowest
unemployment rate since 1989. Many economists state that this
extended bull market is primarily the result of productivity gains
created by the evolution of technology. This, coupled with one of
the strongest cash flows into the market historically, has created
exceptional returns for equities. Internationally, most markets also
have been strong with the continuation of worldwide privatization
leading to greater efficiencies and a global consumer demand for a
better quality of living.
<PAGE>
As we mentioned, domestic markets posted exceptional gains during
the quarter ended July 31, 1997. In general, foreign markets were
also strong with the unmanaged Morgan Stanley Capital International
Europe, Australia, Far East Index reporting a gain of +14.20%. For
the July quarter, Merrill Lynch Fund For Tomorrow, Inc.'s Class A,
Class B, Class C and Class D Shares reported total returns of
+21.56%, +21.25%, +21.21% and +21.46%, respectively. (Results shown
do not reflect sales charges and would be lower if sales charges
were included. For complete performance information, including
average annual total returns, see pages 4--6 of this report to
shareholders.)
Given our thematic investment approach, we emphasize and overweight
sectors which we believe will have much higher secular growth rates
relative to the overall market going forward. Relative to the S&P
500, the Fund currently has a greater than double weighting in the
pharmaceutical sector, five times the weighting in the
telecommunications sector and a 50% greater weighting in the
computer technology sector. This proved to be extremely beneficial
during the July quarter since both the Fund's stocks and the overall
industries substantially outperformed the market. However, in light
of the substantial capital gains achieved by many of the Fund's
holdings, primarily those in the pharmaceutical, telecommunications
and computer technology sectors, coupled with a significant level of
share redemptions within the Fund, much of our portfolio activity
during the July quarter involved the sale or reduction of existing
positions. Some examples of profit-taking included partial sales of
International Business Machines Corp., Bristol-Myers Squibb Co.,
Schering-Plough Corp., Lilly (Eli) and Company, COMPAQ Computer
Corp., Nokia Corp. and The Procter & Gamble Company, all of which
have shown price appreciation of more than 40%, double that of the
S&P 500. Other sales during the July quarter primarily involved
elimination of holdings that no longer met our expected appreciation
potential.
New positions added to the Fund during the July quarter were
predominately focused on increasing the Fund's weighting in foreign
investments, primarily in emerging markets. In general, long-term
characteristics of foreign markets show higher economic growth rates
relative to the United States, relatively underdeveloped and
underpenetrated markets, as well as privatization and global
partnerships where a high capital requirement is needed to meet the
pent-up demand and to improve the overall standard of living. We
added the following three Brazilian companies to our portfolio:
Petroleo Brasileiro S.A.--Petrobras in the oil sector;
Telecomunicacoes do Rio de Janeiro S.A.--Telerj in the telecom-
munications area; and Avipal S.A.--Avicultura e Agropecuaria in the
food industry. While Brazil has been the slowest country in Latin
America to participate in the privatization of its industries, the
country is now on track with an established regulatory structure. We
also added a company in Chile, which is recognized as the most
stable country in South America. The new investment, Quinenco S.A.,
is a diversified company with exceptional management that will give
the Fund exposure to sectors such as banking, beverage, telephony
and cable. Another addition, Alcatel Alsthom Cie Generale
d'Electricite S.A., a French company, is the world's largest
telecommunications equipment manufacturer and one that we believe
will benefit from explosive global demand.
<PAGE>
We also added shares of three domestic companies to the Fund. Under
the concept Industrial Outsourcing, we added Sitel Corporation, the
largest public telemarketing company in an industry which is a prime
beneficiary of the strong trend by which companies outsource parts
of their business to achieve greater efficiencies and cost controls.
We also added Toys 'R' Us, Inc., where management is implementing a
strong long-term growth strategy after many years of difficulty. We
also added Polo `Ralph' Lauren Corp., the clothing manufacturer, but
sold the stock during the July quarter in response to a sharp price
run-up after the initial public offering.
In managing the Fund, we will continue to evaluate new long-term
trends as they unfold while being cognizant of the need for
reasonable valuations within the stock selection process. We
continue to believe our 12 concept sectors have outstanding long-
term growth potential. However, given the exceptional extended bull
market, we believe future stock gains over the near term could
moderate.
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>
August 29, 1997
PERFORMANCE DATA
About Fund Performance
Investors are able to purchase shares of the Fund through the
Merrill Lynch Select Pricing SM System, which offers four pricing
alternatives:
* Class A Shares incur a maximum initial sales charge (front-end
load) of 5.25% and bear no ongoing distribution or account
maintenance fees. Class A Shares are available only to eligible
investors.
* Class B Shares are subject to a maximum contingent deferred sales
charge of 4% if redeemed during the first year, decreasing 1% each
year thereafter to 0% after the fourth year. In addition, Class B
Shares are subject to a distribution fee of 0.75% and an account
maintenance fee of 0.25%. These shares automatically convert to
Class D Shares after approximately 8 years. (There is no initial
sales charge for automatic share conversions.)
* Class C Shares are subject to a distribution fee of 0.75% and an
account maintenance fee of 0.25%. In addition, Class C Shares are
subject to a 1% contingent deferred sales charge if redeemed within
one year of purchase.
* Class D Shares incur a maximum initial sales charge of 5.25% and
an account maintenance fee of 0.25% (but no distribution fee).
None of the past results shown should be considered a representation
of future performance. Figures shown in the "Average Annual Total
Return" tables as well as the total returns and cumulative total
returns in the "Performance Summary" tables assume reinvestment of
all dividends and capital gains distributions at net asset value on
the ex-dividend date. Investment return and principal value of
shares will fluctuate so that shares, when redeemed, may be worth
more or less than their original cost. Dividends paid to each class
of shares will vary because of the different levels of account
maintenance, distribution and transfer agency fees applicable to
each class, which are deducted from the income available to be paid
to shareholders.
<PAGE>
<TABLE>
Recent Performance Results
<CAPTION>
12 Month 3 Month
7/31/97 4/30/97 7/31/96 % Change % Change
<S> <C> <C> <C> <C> <C>
ML Fund For Tomorrow, Inc. Class A Shares* $19.82 $16.65 $16.22 +34.80%(1) +20.93%(2)
ML Fund For Tomorrow, Inc. Class B Shares* 19.06 16.05 15.67 +34.62(1) +20.72(2)
ML Fund For Tomorrow, Inc. Class C Shares* 18.91 15.93 15.59 +34.34(1) +20.68(2)
ML Fund For Tomorrow, Inc. Class D Shares* 19.71 16.57 16.14 +34.77(1) +20.85(2)
Standard & Poor's 500 Index** 954.29 801.34 639.95 +49.12 +19.09
NASDAQ Industrial Index** 1,260.56 996.92 987.06 +27.71 +26.45
ML Fund For Tomorrow, Inc. Class A Shares--Total Return* +40.99(3) +21.56(4)
ML Fund For Tomorrow, Inc. Class B Shares--Total Return* +39.52(5) +21.25(6)
ML Fund For Tomorrow, Inc. Class C Shares--Total Return* +39.44(7) +21.21(8)
ML Fund For Tomorrow, Inc. Class D Shares--Total Return* +40.64(9) +21.46(10)
Standard & Poor's 500 Index--Total Return** +52.02 +19.58
<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 $1.696 per share capital
gains distributions.
(2)Percent change includes reinvestment of $0.298 per share capital
gains distributions.
(3)Percent change includes reinvestment of $0.814 per share ordinary
income dividends and $1.696 per share capital gains distributions.
(4)Percent change includes reinvestment of $0.099 per share ordinary
income dividends and $0.298 per share capital gains distributions.
(5)Percent change includes reinvestment of $0.627 per share ordinary
income dividends and $1.696 per share capital gains distributions.
(6)Percent change includes reinvestment of $0.081 per share ordinary
income dividends and $0.298 per share capital gains distributions.
(7)Percent change includes reinvestment of $0.649 per share ordinary
income dividends and $1.696 per share capital gains distributions.
(8)Percent change includes reinvestment of $0.079 per share ordinary
income dividends and $0.298 per share capital gains distributions.
(9)Percent change includes reinvestment of $0.769 per share ordinary
income dividends and $1.696 per share capital gains distributions.
(10)Percent change includes reinvestment of $0.095 per share
ordinary income dividends and $0.298 per share capital gains
distributions.
</TABLE>
<PAGE>
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
1996 15.84 15.88 1.397 0.825 +13.98
1/1/97--7/31/97 15.88 19.82 0.298 0.099 +27.45
------- ------
Total $11.429 Total $3.794
Cumulative total return as of 7/31/97: +216.89%**
<FN>
*Figures may include short-term capital gains distributions.
**Figures 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
1996 15.40 15.37 1.397 0.656 +12.85
1/1/97--7/31/97 15.37 19.06 0.298 0.081 +26.62
------- ------
Total $13.284 Total $3.390
<PAGE>
Cumulative total return as of 7/31/97: +451.48%**
<FN>
*Figures may include short-term capital gains distributions.
**Figures 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 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
1996 15.33 15.25 1.397 0.679 +12.73
1/1/97--7/31/97 15.25 18.91 0.298 0.079 +26.61
------ ------
Total $3.206 Total $1.012
Cumulative total return as of 7/31/97: +74.04%**
<FN>
*Figures may include short-term capital gains distributions.
**Figures 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
1996 15.79 15.82 1.397 0.783 +13.71
1/1/97--7/31/97 15.82 19.71 0.298 0.095 +27.22
------- ------
Total $3.206 Total $1.132
Cumulative total return as of 7/31/97: +78.89%**
<PAGE>
<FN>
*Figures may include short-term capital gains distributions.
**Figures do not include sales charge; results would be lower if
sales charge was included.
</TABLE>
Average Annual Total Return
% Return Without % Return With
Sales Charge Sales Charge**
Class A Shares*
Year Ended 6/30/97 +21.35% +14.98%
Five Years Ended 6/30/97 +14.10 +12.88
Inception (10/26/88)
through 6/30/97 +13.30 +12.60
[FN]
*Maximum sales charge is 5.25%.
**Assuming maximum sales charge.
% Return % Return
Without CDSC With CDSC**
Class B Shares*
Year Ended 6/30/97 +20.08% +16.08%
Five Years Ended 6/30/97 +12.92 +12.92
Ten Years Ended 6/30/97 +10.39 +10.39
[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 6/30/97 +19.98% +18.98%
Inception (10/21/94)
through 6/30/97 +19.76 +19.76
<PAGE>
[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 6/30/97 +21.04% +14.69%
Inception (10/21/94)
through 6/30/97 +20.96 +18.56
[FN]
*Maximum sales charge is 5.25%.
**Assuming maximum sales charge.
<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 250,000 ++COMPAQ Computer Corp. $ 3,732,102 $ 14,281,250 4.0%
Components 100,000 ++Seagate Technology, Inc. 2,750,475 4,106,250 1.2
Systems 300,000 ++Silicon Graphics, Inc. 11,151,240 7,500,000 2.1
Systems 200,000 ++Sun Microsystems, Inc. 5,396,880 9,137,500 2.6
------------ ------------ ------
23,030,697 35,025,000 9.9
Demographic Trends
Medical Devices 100,000 Biomet, Inc. 1,534,375 1,993,750 0.6
Healthcare 200,000 ++HEALTHSOUTH Corp. 3,537,000 5,300,000 1.5
Healthcare 100,000 ++Living Centers of America, Inc. 3,353,090 3,931,250 1.1
Pollution Technology 550,000 ++Philip Services Corp. 5,122,752 8,181,250 2.3
Insurance 100,000 Torchmark Corp. 4,206,236 7,962,500 2.3
Healthcare 50,000 ++United Dental Care, Inc. 1,448,438 793,750 0.2
------------ ------------ ------
19,201,891 28,162,500 8.0
Developing Foreign Economies
<PAGE>
Food & Beverage 211,600,000 Avipal S.A.--Avicultura e Agropecuaria 884,137 896,892 0.3
Telecommunications 105,000 Compania Anonima Nacional Telefonos de
Venezuela (ADR)* 2,415,000 4,580,625 1.3
Specialty Services 1,000,000 National Mutual Asia Ltd. 940,132 1,059,158 0.3
Oil Refining 12,000,000 ++Petroleo Brasileiro S.A.--Petrobras
(Preferred) 3,695,257 2,969,803 0.9
Holding Company 200,000 ++Quinenco S.A. (ADR)* 3,755,087 3,750,000 1.0
Building Materials 100,000 ++Royal Group Technologies Ltd. 1,047,206 2,720,892 0.8
Telecommunications 463 SK Telecom Co. 533,107 360,999 0.1
Telecommunications 20,000,000 Telecomunicacoes do Rio de
Janiero S.A.--Telerj (Preferred) 3,225,852 3,185,890 0.9
------------ ------------ ------
16,495,778 19,524,259 5.6
Future Retailing
Specialty Retail 200,000 ++Oakley, Inc. 4,725,175 2,375,000 0.7
Specialty Retail 288,900 ++OfficeMax, Inc. 2,872,100 4,044,600 1.1
------------ ------------ ------
7,597,275 6,419,600 1.8
Global Market Expansion
Cosmetics 174,400 Avon Products, Inc. 6,259,222 12,654,900 3.6
Food & Beverage 100,000 ConAgra Inc. 3,826,115 7,031,250 2.0
Machinery 9,800 Kubota Corp. (ADR)* 1,259,888 862,400 0.2
Food & Beverage 160,000 PepsiCo, Inc. 2,644,800 6,130,000 1.7
Electronics 100,000 Philips Electronics N.V. (ADR)* 4,983,486 8,181,250 2.3
------------ ------------ ------
18,973,511 34,859,800 9.8
Healthcare Cost Containment
Pharmaceuticals 133,333 Astra AB (ADR)* 1,781,250 2,433,327 0.7
Pharmaceuticals 100,000 Bristol-Myers Squibb Co. 3,953,500 7,843,750 2.2
Information Services 73,000 ++IDX Systems Corp. 1,579,375 2,591,500 0.7
Pharmaceuticals 50,000 Lilly (Eli) and Company 2,286,050 5,650,000 1.6
Pharmaceuticals 100,900 Merck & Co., Inc. 4,001,062 10,487,294 3.0
Pharmaceuticals 50,000 Novartis AG (ADR)* 1,942,188 4,012,500 1.1
Information Services 300,000 ++Physician Computer Network, Inc. 3,074,250 2,250,000 0.6
Pharmaceuticals 100,800 Schering-Plough Corp. 580,167 5,499,900 1.6
Pharmaceuticals 200,000 ++Sequus Pharmaceuticals, Inc. 2,866,248 1,325,000 0.4
Medical Devices 100,000 United States Surgical Corp. 6,799,013 3,712,500 1.0
Medical Services 100,000 ++Vencor, Inc. 3,194,630 4,031,250 1.1
------------ ------------ ------
32,057,733 49,837,021 14.0
</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>
Industrial Outsourcing
Information Services 50,000 ++Ceridian Corp. $ 1,959,250 $ 2,187,500 0.6%
Systems 50,000 ++Computer Sciences Corporation 3,878,500 4,071,875 1.1
Specialty Services 100,000 Greenwich Air Services Inc. (Class A) 1,113,428 2,850,000 0.8
Specialty Services 100,000 Greenwich Air Services Inc. (Class B) 1,165,198 2,862,500 0.8
Specialty Services 47,028 National Data Corporation 2,127,181 1,910,512 0.5
Specialty Services 250,000 ++Sitel Corporation 3,939,288 3,750,000 1.1
Aerospace & Defense 19,700 ++Triumph Group, Inc. 534,070 586,075 0.2
------------ ------------ ------
14,716,915 18,218,462 5.1
Industrial Renaissance
Aerospace & Defense 50,000 The Boeing Company 2,645,250 2,940,625 0.8
Transportation 75,000 Delta Air Lines, Inc. 5,782,613 6,665,625 1.9
Automotive 100,000 General Motors Corp. 4,190,900 6,187,500 1.7
Information Systems 150,000 International Business Machines Corp. 4,246,375 15,862,500 4.5
------------ ------------ ------
16,865,138 31,656,250 8.9
Multimedia
Broadcasting Services 200,000 Carlton Communications PLC (ADR)* 7,266,875 8,125,000 2.3
Components 150,000 Harman International Industries Inc. 6,836,788 5,962,500 1.7
Information Services 400,000 ++OzEmail, Ltd. (ADR)* 4,632,341 2,650,000 0.7
Cable Television 150,000 ++Tele-Communications Liberty Media
Group (Class A) 2,675,003 3,825,000 1.1
Publishing Services 300,000 ++World Color Press Inc. 5,906,000 8,587,500 2.4
------------ ------------ ------
27,317,007 29,150,000 8.2
Next Generation Technology
Semiconductors 117,600 ++Gasonics International Corp. 1,501,701 2,190,300 0.6
Pollution Technology 400,000 ++Molten Metal Technology, Inc. 6,605,221 2,500,000 0.7
Medical Devices 60,000 ++Neuromedical Systems Inc. 900,000 240,000 0.1
Environmental Equipment 119,400 ++Thermo Ecotek Corp. 1,281,614 1,761,150 0.5
Multi-Industry 230,000 ++Thermo Electron Corp. 4,937,738 7,863,125 2.2
Medical Devices 100,000 ++Thermotrex Corp. 1,586,723 2,281,250 0.7
Components 150,000 ++Voice Control Systems Inc. 834,037 731,250 0.2
------------ ------------ ------
17,647,034 17,567,075 5.0
Strategic Growth Opportunities
<PAGE>
Pharmaceuticals 100,000 American Home Products Corp. 3,875,049 8,243,750 2.3
Leisure & Entertainment 300,000 ++Galoob (Lewis) Toys, Inc. 4,238,645 6,862,500 1.9
Specialty Services 100,000 Household International, Inc. 6,712,565 12,950,000 3.7
Leisure & Entertainment 125,000 Mattel, Inc. 2,232,740 4,343,750 1.3
Retail 88,400 ++Toys 'R' Us, Inc. 2,700,054 3,011,125 0.9
------------ ------------ ------
19,759,053 35,411,125 10.1
Telecommunications
Telecommunications 100,000 ++ADC Telecommunications, Inc. 2,867,500 4,031,250 1.1
Telecommunications 200,000 Alcatel Alsthom Cie Generale
d'Electricite S.A. (ADR)* 5,087,260 5,400,000 1.5
Components 120,000 Andrew Corp. 2,299,683 3,127,500 0.9
Telecommunications 200,000 ++Inter-Tel Inc. 2,612,612 5,100,000 1.5
Components 100,000 Nokia Corp. AB (ADR)* 3,778,500 8,562,500 2.4
------------ ------------ ------
16,645,555 26,221,250 7.4
Total Stocks 230,307,587 332,052,342 93.8
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS (concluded)
<CAPTION>
Face Value Percent of
Amount Short-Term Securities Cost (Note 1a) Net Assets
<S> <C> <S> <C> <C> <C>
Commercial Paper** $ 8,638,000 CSW Credit, Inc., 5.55% due 8/08/1997 $ 8,628,678 $ 8,628,678 2.4%
5,000,000 Falcon Asset Securitization Corp.,
5.57% due 8/29/1997 4,978,339 4,978,339 1.4
15,844,000 General Motors Acceptance Corp., 5.81%
due 8/01/1997 15,844,000 15,844,000 4.5
2,621,000 Goldman Sachs Group, 5.53% due
8/12/1997 2,616,571 2,616,571 0.7
Total Short-Term Securities 32,067,588 32,067,588 9.0
Total Investments $262,375,175 364,119,930 102.8
============
Liabilities in Excess of Other Assets (9,823,384) (2.8)
------------ ------
Net Assets $354,296,546 100.0%
============ ======
<FN>
*American Depositary Receipts (ADR).
**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 .
<PAGE>
See Notes to Financial Statements.
</TABLE>
PORTFOLIO INFORMATION
For the Quarter Ended July 31, 1997
Percent of
Ten Largest Equity Holdings Net Assets
International Business Machines Corp. 4.5%
COMPAQ Computer Corp. 4.0
Household International, Inc. 3.7
Avon Products, Inc. 3.6
Merck & Co., Inc. 3.0
Sun Microsystems, Inc. 2.6
World Color Press Inc. 2.4
Nokia Corp. AB (ADR) 2.4
American Home Products Corp. 2.3
Philips Electronics N.V. (ADR) 2.3
Additions
Alcatel Alsthom Cie Generale d'Electricite S.A. (ADR)
Avipal S.A.--Avicultura e Agropecuaria
Petroleo Brasileiro S.A.--Petrobras (Preferred)
*Polo 'Ralph' Lauren Corp.
Quinenco S.A. (ADR)
Sitel Corporation
Telecomunicacoes do Rio de Janiero S.A.--Telerj
(Preferred)
Toys 'R' Us, Inc.
Deletions
<PAGE>
Affinity Technology Group, Inc.
Deutsche Telekom AG (ADR)
FORE Systems, Inc.
Makita Corp. (ADR)
Metrocall, Inc.
Olsten Corp.
Palmer Wireless, Inc.
*Polo 'Ralph' Lauren Corp.
Portugal Telecom, S.A. (ADR)
PowerTel, Inc. (formerly InterCel, Inc.)
The Procter & Gamble Company
Samsung Electronics Company (GDR)
ThermoLase Corp.
ThermoSpectra Corp.
Vodafone Group PLC (ADR)
[FN]
*Added and deleted in the same quarter.
FINANCIAL INFORMATION
<TABLE>
Statement of Assets and Liabilities as of July 31, 1997
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$262,375,175) (Note 1a) $364,119,930
Cash 373
Receivables:
Securities sold $ 3,943,809
Dividends 301,493
Capital shares sold 105,433 4,350,735
------------
Prepaid registration fees and other assets (Note 1f) 24,255
------------
Total assets 368,495,293
------------
Liabilities: Payables:
Securities purchased 12,892,506
Capital shares redeemed 691,318
Investment adviser (Note 2) 199,648
Distributor (Note 2) 127,547 13,911,019
------------
Accrued expenses and other liabilities 287,728
------------
Total liabilities 14,198,747
------------
Net Assets: Net assets $354,296,546
============
<PAGE>
Net Assets Class A Shares of Common Stock, $0.10 par value, 100,000,000
Consist of: shares authorized $ 84,217
Class B Shares of Common Stock, $0.10 par value, 100,000,000
shares authorized 400,855
Class C Shares of Common Stock, $0.10 par value, 100,000,000
shares authorized 19,065
Class D Shares of Common Stock, $0.10 par value, 100,000,000
shares authorized 1,307,170
Paid-in capital in excess of par 205,939,255
Undistributed investment income--net 191,439
Undistributed realized capital gains on investments and foreign
currency transactions--net 44,609,791
Unrealized appreciation on investments and foreign currency
transactions--net 101,744,754
------------
Net assets $354,296,546
============
Net Asset Value: Class A--Based on net assets of $16,689,585 and 842,170
shares outstanding $ 19.82
============
Class B--Based on net assets of $76,391,079 and 4,008,544
shares outstanding $ 19.06
============
Class C--Based on net assets of $3,605,534 and 190,653
shares outstanding $ 18.91
============
Class D--Based on net assets of $257,610,348 and 13,071,700
shares outstanding $ 19.71
============
See Notes to Financial Statements.
</TABLE>
<TABLE>
FINANCIAL INFORMATION (continued)
<CAPTION>
Statement of Operations for the Six Months Ended July 31, 1997
<S> <S> <C> <C>
Investment Dividends (net of $111,448 foreign withholding tax) $ 2,107,627
Income Interest and discount earned 702,868
(Notes 1d & 1e): Other income 1,512
------------
Total income 2,812,007
------------
<PAGE>
Expenses: Investment advisory fees (Note 2) $ 1,172,827
Account maintenance and distribution fees--Class B (Note 2) 450,098
Account maintenance fees--Class D (Note 2) 290,573
Transfer agent fees--Class D (Note 2) 266,708
Transfer agent fees--Class B (Note 2) 126,737
Printing and shareholder reports 77,716
Registration fees (Note 1f) 40,670
Accounting services (Note 2) 36,985
Transfer agent fees--Class A (Note 2) 36,876
Account maintenance and distribution fees--Class C (Note 2) 32,985
Professional fees 32,244
Custodian fees 29,716
Directors' fees and expenses 10,439
Transfer agent fees--Class C (Note 2) 9,904
Pricing fees 629
Other 5,461
------------
Total expenses 2,620,568
------------
Investment income--net 191,439
------------
Realized & Realized gain (loss) from:
Unrealized Gain Investments--net 44,625,404
(Loss) on Foreign currency transactions--net (11,562) 44,613,842
Investments & ------------
Foreign Currency Change in unrealized appreciation/depreciation on:
Transactions--Net Investments--net 13,608,939
(Notes 1b, 1c, Foreign currency transactions--net 25 13,608,964
1e & 3): ------------ ------------
Net realized and unrealized gain on investments and foreign
currency transactions 58,222,806
------------
Net Increase in Net Assets Resulting from Operations $ 58,414,245
============
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, 1997 Jan. 31, 1997
<S> <S> <C> <C>
Operations: Investment income--net $ 191,439 $ 6,084
Realized gain on investments and foreign currency transactions
--net 44,613,842 52,807,780
Change in unrealized appreciation/depreciation on investments
and foreign currency transactions--net 13,608,964 15,690,009
------------ ------------
Net increase in net assets resulting from operations 58,414,245 68,503,873
------------ ------------
<PAGE>
Distributions to Realized gain on investments--net:
Shareholders Class A (669,210) (5,337,338)
(Note 1g): Class B (1,929,068) (12,797,082)
Class C (140,349) (1,078,464)
Class D (5,146,087) (28,024,409)
------------ ------------
Net decrease in net assets resulting from distributions to
shareholders (7,884,714) (47,237,293)
------------ ------------
Capital Share Net decrease in net assets derived from capital share transactions (87,355,832) (10,906,448)
Transactions ------------ ------------
(Note 4):
Net Assets: Total increase (decrease) in net assets (36,826,301) 10,360,132
Beginning of period 391,122,847 380,762,715
------------ ------------
End of period* $354,296,546 $391,122,847
============ ============
<FN>
*Undistributed investment income--net $ 191,439 $ --
============ ============
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: 1997++ 1997++ 1996++ 1995++ 1994
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 17.16 $ 16.26 $ 13.55 $ 16.39 $ 16.29
Operating -------- -------- -------- -------- --------
Performance: Investment income--net .05 .08 .07 .09 .15
Realized and unrealized gain (loss) on
investments and foreign currency
transactions--net 3.01 3.04 4.19 (1.97) 2.18
-------- -------- -------- -------- --------
Total from investment operations 3.06 3.12 4.26 (1.88) 2.33
-------- -------- -------- -------- --------
Less distributions from realized gain on
investments--net (.40) (2.22) (1.55) (.96) (2.23)
-------- -------- -------- -------- --------
Net asset value, end of period $ 19.82 $ 17.16 $ 16.26 $ 13.55 $ 16.39
======== ======== ======== ======== ========
<PAGE>
Total Investment Based on net asset value per share 17.95%+++ 19.99% 31.82% (11.23%) 15.78%
Return:** ======== ======== ======== ======== ========
Ratios to Average Expenses 1.01%* 1.00% 1.07% .98% .88%
Net Assets: ======== ======== ======== ======== ========
Investment income--net .60%* .46% .44% .59% .95%
======== ======== ======== ======== ========
Supplemental Net assets, end of period (in thousands) $ 16,690 $ 39,605 $ 34,231 $ 8,665 $ 10,942
Data: ======== ======== ======== ======== ========
Portfolio turnover 11.19% 39.96% 67.38% 45.86% 48.63%
======== ======== ======== ======== ========
Average commission rate paid++++ $ .0009 $ .0277 -- -- --
======== ======== ======== ======== ========
<FN>
*Annualized.
**Total investment returns exclude the effects of sales loads.
++Based on average shares outstanding during the period.
++++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. The "Average
Commission Rate Paid" includes commissions paid in foreign
currencies, which have been converted into US dollars using the
prevailing exchange rate on the date of the transaction. Such
conversions may significantly affect the rate shown.
+++Aggregate total investment return.
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION (continued)
<PAGE>
<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: 1997++ 1997++ 1996++ 1995++ 1994
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 16.59 $ 15.79 $ 13.33 $ 16.30 $ 16.28
Operating -------- -------- -------- -------- --------
Performance: Investment loss--net (.04) (.10) (.08) (.06) (.01)
Realized and unrealized gain (loss) on
investments and foreign currency
transactions--net 2.89 2.95 4.09 (1.96) 2.17
-------- -------- -------- -------- --------
Total from investment operations 2.85 2.85 4.01 (2.02) 2.16
-------- -------- -------- -------- --------
Less distributions from realized gain on
investments--net (.38) (2.05) (1.55) (.95) (2.14)
-------- -------- -------- -------- --------
Net asset value, end of period $ 19.06 $ 16.59 $ 15.79 $ 13.33 $ 16.30
======== ======== ======== ======== ========
Total Investment Based on net asset value per share 17.30%+++ 18.80% 30.43% (12.22%) 14.60%
Return:** ======== ======== ======== ======== ========
Ratios to Average Expenses 2.06%* 2.06% 2.13% 1.99% 1.91%
Net Assets: ======== ======== ======== ======== ========
Investment loss--net (.48%)* (.58%) (.55%) (.38%) (.07%)
======== ======== ======== ======== ========
Supplemental Net assets, end of period (in thousands) $ 76,391 $104,828 $112,239 $119,186 $396,424
Data: ======== ======== ======== ======== ========
Portfolio turnover 11.19% 39.96% 67.38% 45.86% 48.63%
======== ======== ======== ======== ========
Average commission rate paid++++ $ .0009 $ .0277 -- -- --
======== ======== ======== ======== ========
<FN>
*Annualized.
**Total investment returns exclude the effects of sales loads.
++Based on average shares outstanding during the period.
++++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. The "Average
Commission Rate Paid" includes commissions paid in foreign
currencies, which have been converted into US dollars using the
prevailing exchange rate on the date of the transaction. Such
conversions may significantly affect the rate shown.
+++Aggregate total investment return.
See Notes to Financial Statements.
</TABLE>
<PAGE>
FINANCIAL INFORMATION (continued)
<TABLE>
Financial Highlights (continued)
<CAPTION>
Class C++++
For the
For the Period
The following per share data and ratios have been derived Six Months For the Oct. 21,
from information provided in the financial statements. Ended Year Ended 1994++ to
July 31, January 31, Jan. 31,
Increase (Decrease) in Net Asset Value: 1997 1997 1996 1995
<S> <S> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 16.47 $ 15.71 $ 13.28 $ 14.08
Operating -------- -------- -------- --------
Performance: Investment loss--net (.04) (.10) (.10) (.04)
Realized and unrealized gain (loss) on investments
and foreign currency transactions--net 2.86 2.94 4.08 (.54)
-------- -------- -------- --------
Total from investment operations 2.82 2.84 3.98 (.58)
-------- -------- -------- --------
Less distributions from realized gain on investments
--net (.38) (2.08) (1.55) (.22)
-------- -------- -------- --------
Net asset value, end of period $ 18.91 $ 16.47 $ 15.71 $ 13.28
======== ======== ======== ========
Total Investment Based on net asset value per share 17.23%+++ 18.80% 30.32% (4.12%)+++
Return:** ======== ======== ======== ========
Ratios to Average Expenses 2.08%* 2.07% 2.14% 2.26%*
Net Assets: ======== ======== ======== ========
Investment loss--net (.47%)* (.61%) (.67%) (.87%)*
======== ======== ======== ========
Supplemental Net assets, end of period (in thousands) $ 3,606 $ 8,430 $ 6,385 $ 80
Data: ======== ======== ======== ========
Portfolio turnover 11.19% 39.96% 67.38% 45.86%
======== ======== ======== ========
Average commissions rate paid+++++ $ .0009 $ .0277 -- --
======== ======== ======== ========
<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. The
"Average Commission Rate Paid" includes commissions paid in
foreign currencies, which have been converted into US
dollars using the prevailing exchange rate on the date of
the transaction. Such conversions may significantly affect
the rate shown.
<PAGE>
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION (concluded)
<TABLE>
Financial Highlights (concluded)
<CAPTION>
Class D++++
For the
For the Period
The following per share data and ratios have been derived Six Months For the Oct. 21,
from information provided in the financial statements. Ended Year Ended 1994++ to
July 31, January 31, Jan. 31,
Increase (Decrease) in Net Asset Value: 1997 1997 1996 1995
<S> <S> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 17.09 $ 16.20 $ 13.54 $ 14.26
Operating -------- -------- -------- --------
Performance: Investment income(loss)--net .02 .04 .03 (.01)
Realized and unrealized gain (loss) on investments
and foreign currency transactions--net 2.99 3.03 4.18 (.49)
-------- -------- -------- --------
Total from investment operations 3.01 3.07 4.21 (.50)
-------- -------- -------- --------
Less distributions from realized gain on investments
--net (.39) (2.18) (1.55) (.22)
-------- -------- -------- --------
Net asset value, end of period $ 19.71 $ 17.09 $ 16.20 $ 13.54
======== ======== ======== ========
Total Investment Based on net asset value per share 17.76%+++ 19.73% 31.47% (3.50%)+++
Return:** ======== ======== ======== ========
Ratios to Average Expenses 1.26%* 1.25% 1.33% 1.43%*
Net Assets: ======== ======== ======== ========
Investment income (loss)--net .28%* .22% .22% (.23%)*
======== ======== ======== ========
Supplemental Net assets, end of period (in thousands) $257,610 $238,260 $227,908 $156,947
Data: ======== ======== ======== ========
Portfolio turnover 11.19% 39.96% 67.38% 45.86%
======== ======== ======== ========
Average commissions rate paid+++++ $ .0009 $ .0277 -- --
======== ======== ======== ========
<PAGE>
<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. The "Average
Commission Rate Paid" includes commissions paid in foreign
currencies, which have been converted into US dollars using the
prevailing exchange rate on the date of the transaction. Such
conversions may significantly affect the rate shown.
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 distribution 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.
(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.
<PAGE>
(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 dates. Dividends from foreign securities where the ex-
dividend date may have passed are subsequently recorded when the
Fund has determined the ex-dividend date.
NOTES TO FINANCIAL STATEMENTS (concluded)
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.
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.
<PAGE>
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 Distribution
Maintenance 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 six months ended July 31, 1997, 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 $194 $ 2,160
Class D $730 $13,063
For the six months ended July 31, 1997, MLPF&S also received
contingent deferred sales charges of $248,280 and $1,813 relating to
transactions in Class B and C Shares, respectively.
In addition, MLPF&S received $12,500 in commissions on the execution
of portfolio security transactions for the Fund for the six months
ended July 31, 1997.
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, MLFDS, MLFD, and/or ML & Co.
<PAGE>
3. Investments:
Purchases and sales of investments, excluding short-term securities,
for the six months ended July 31, 1997 were $38,163,861 and
$124,286,839, respectively.
Net realized and unrealized gains (losses) as of July 31, 1997 were
as follows:
Realized Unrealized
Gains (Losses) Gains (Losses)
Long-term investments $44,625,674 $101,744,755
Short-term investments (270) --
Foreign currency transactions (11,562) (1)
----------- ------------
Total $44,613,842 $101,744,754
=========== ============
As of July 31, 1997, net unrealized appreciation for Federal income
tax purposes aggregated $101,744,755, of which $123,323,560 related
to appreciated securities and $21,578,805 related to depreciated
securities. The aggregate cost of investments at July 31, 1997 for
Federal income tax purposes was $262,375,175.
4. Capital Share Transactions:
Net decrease in net assets derived from capital share transactions
was $87,355,832 and $10,906,448 for the six months ended July 31,
1997 and the year ended January 31, 1997, respectively.
Transactions in capital shares for each class were as follows:
Class A Shares for the Six Months Dollar
Ended July 31, 1997 Shares Amount
Shares sold 1,065,942 $ 18,351,376
Shares issued to shareholders
in reinvestment of
distributions 33,936 636,646
------------- -------------
Total issued 1,099,878 18,988,022
Shares redeemed (2,565,156) (45,673,187)
------------- -------------
Net decrease (1,465,278) $ (26,685,165)
============= =============
Class A Shares for the Year Dollar
Ended January 31, 1997 Shares Amount
<PAGE>
Shares sold 1,845,808 $ 31,115,024
Shares issued to shareholders
in reinvestment of
distributions 305,672 4,989,091
------------- -------------
Total issued 2,151,480 36,104,115
Shares redeemed (1,949,689) (32,436,435)
------------- -------------
Net increase 201,791 $ 3,667,680
============= =============
Class B Shares for the Six Months Dollar
Ended July 31, 1997 Shares Amount
Shares sold 467,243 $ 7,999,207
Shares issued to shareholders
in reinvestment of
distributions 95,239 1,719,067
------------- -------------
Total issued 562,482 9,718,274
Automatic conversion of
shares (183,233) (3,085,241)
Shares redeemed (2,689,184) (46,754,087)
------------- -------------
Net decrease (2,309,935) $ (40,121,054)
============= =============
Class B Shares for the Year Dollar
Ended January 31, 1997 Shares Amount
Shares sold 1,580,584 $ 26,170,965
Shares issued to shareholders
in reinvestment of
distributions 716,413 11,324,876
------------- -------------
Total issued 2,296,997 37,495,841
Automatic conversion of
shares (510,660) (8,450,651)
Shares redeemed (2,575,080) (42,132,286)
------------- -------------
Net decrease (788,743) $ (13,087,096)
============= =============
Class C Shares for the
Six Months Ended Dollar
July 31, 1997 Shares Amount
<PAGE>
Shares sold 118,591 $ 2,013,445
Shares issued to share-
holders in reinvestment of
distributions 7,192 128,873
------------- -------------
Total issued 125,783 2,142,318
Shares redeemed (447,024) (7,726,809)
------------- -------------
Net decrease (321,241) $ (5,584,491)
============= =============
Class C Shares for the Year Dollar
Ended January 31, 1997 Shares Amount
Shares sold 389,112 $ 6,432,736
Shares issued to share-
holders in reinvestment of
distributions 62,177 974,884
------------- -------------
Total issued 451,289 7,407,620
Shares redeemed (345,702) (5,592,847)
------------- -------------
Net increase 105,587 $ 1,814,773
============= =============
Class D Shares for the
Six Months Ended Dollar
July 31, 1997 Shares Amount
Shares sold 179,139 $ 3,152,422
Automatic conversion of
shares 177,574 3,085,241
Shares issued to share-
holders in reinvestment of
distributions 242,443 4,523,982
------------- -------------
Total issued 599,156 10,761,645
Shares redeemed (1,468,515) (25,726,767)
------------- -------------
Net decrease (869,359) $ (14,965,122)
============= =============
Class D Shares for the Year Dollar
Ended January 31, 1997 Shares Amount
<PAGE>
Shares sold 299,900 $ 5,100,435
Automatic conversion of
shares 496,702 8,450,651
Shares issued to share-
holders in reinvestment of
distributions 1,512,537 24,588,964
------------- -------------
Total issued 2,309,139 38,140,050
Shares redeemed (2,438,121) (41,441,855)
------------- -------------
Net decrease (128,982) $ (3,301,805)
============= =============
