MERRILL LYNCH
FUND FOR
TOMORROW, INC.
FUND LOGO
Annual Report
January 31, 1997
This report is not authorized for use as an offer of sale or a
solicitation of an offer to buy shares of the Fund unless
accompanied or preceded by the Fund's current prospectus. Past
performance results shown in this report should not be considered a
representation of future performance. Investment return and
principal value of shares will fluctuate so that shares, when
redeemed, may be worth more or less than their original cost.
Statements and other information herein are as dated and are subject
to change.
<PAGE>
Merrill Lynch
Fund For Tomorrow, Inc.
Box 9011
Princeton, NJ
08543-9011
Printed on post-consumer recycled paper
MERRILL LYNCH FUND FOR TOMORROW, INC.
Concept Sectors
A pie chart depicting Concept Sectors as a Percentage of Net Assets
As of January 31, 1997:
Computer Technologies 8.3%
Demographic Trends 6.6%
Developing Foreign Economies 5.0%
Future Retailing 1.5%
<PAGE>
Global Market Expansion 9.4%
Healthcare Cost Containment 20.3%
Industrial Outsourcing 3.9%
Industrial Renaissance 8.4%
Multimedia 6.3%
Next Generation Technology 6.2%
Strategic Growth Opportunities 6.4%
Telecommunications 9.7%
Cash* 8.0%
[FN]
*Net of other assets less liabilities.
Growth Stock Characteristics as of January 31, 1997
Bar graph depicting Growth Stock Characteristics as of January 31, 1997
% of Equity Holdings:
Emerging Growth 8.6% 9.8%
Established Growth 19.7% 18.1%
Stable Growth 20.4% 23.4%
DEAR SHAREHOLDER
The relatively benign economic environment that prevailed throughout
1996 continued into the new year. Highlighting year-end economic
results were stronger industrial production and greater-than-
expected gross domestic product growth for the final quarter of the
year. Underscoring the moderating growth trend were some signs of
softening in the labor market, and initial indications suggested a
respectable but unremarkable holiday selling season.
<PAGE>
On balance, US economic fundamentals appear to be the most positive
they have been for many years. However, as 1997 begins, the dilemma
facing investors is how long the economic expansion can continue at
a steady, noninflationary pace. At this late stage of the current
economic recovery, investor expectations can quickly change from
positive to negative with the release of surprising economic
results. Therefore, continued reassurance of steady, noninflationary
economic growth would be a very positive development for the stock
and bond markets in the new year.
On the international front, the US dollar continued its strong
advance relative to the yen and the Deutschemark, raising concerns
about the outlook for US trade. In early February, the leading
industrialized nations expressed apparent agreement that it was time
to seek a lower dollar and less volatility in the foreign exchange
markets. It remains to be seen whether these stated intentions will
be acted upon, or if the US dollar continues to rise relative to
other major currencies.
Portfolio Matters
During the quarter ended January 31, 1997, equity markets continued
their upward trend. The US equity market showed some signs of
weakness and retreated for a period, then regained momentum by the
end of the quarter and posted strong gains. Economic indicators
continued to show favorable results with strong corporate profits
and moderate inflation. While current economic indicators remain
positive, recent market volatility highlights investor concerns
about a seemingly mature business cycle and the risks associated
with a lengthy period of rising stock prices.
Domestic markets posted exceptional gains for the quarter ended
January 31, 1997. The unmanaged Standard & Poor's 500 Composite
Index (S&P 500) reported a total return of +12.03%, while the
unmanaged NASDAQ Industrial Index gained 7.65%. Foreign markets, in
general, were weaker, with the unmanaged Morgan Stanley Capital
International Europe, Australia, Far East Index reporting a slight
loss of 1.31%. For the same period, the Fund's Class A, Class B,
Class C and Class D Shares reported total returns of +12.27%,
+12.00%, +11.98%, and +12.20%, respectively. (Results shown do not
reflect sales charges and would be lower if sales charges were
included. For complete performance information, see pages 4--8 of
this report to shareholders.)
Given the thematic approach of investing in long-term trends, we
will continue to maintain a portfolio mix of both small-capitalization
and large-capitalization stocks, but shift weightings and industries
when appropriate. During the January quarter, industries which
outperformed the overall market were a repeat of last quarter's
stronger-performing sectors, specifically the pharmaceutical
and technology sectors. With strong cash flows into the stock
market, investors continued to favor such sectors since they
were liquid and, historically, had predictable earnings
records. These sectors were also two of the areas where we
progressively increased the Fund's weightings. A few of the holdings
in the pharmaceutical area whose share prices rose over 20% in the
January quarter were Eli Lilly and Company, Merck & Co., Inc. and
Bristol-Myers Squibb Co. In the technology area, strong stocks
included Gasonics International Corp. (+156%), Seagate Technology,
Inc. (+54%) and Silicon Graphics, Inc. (+48%).
<PAGE>
As mentioned in our last shareholder letter, we continued to reduce
our weighting in more aggressive, higher-risk holdings during the
January quarter. For the most part, this strategy was beneficial to
the Fund's overall performance since the smaller, less liquid stocks
continued to underperform larger-capitalization stocks which,
historically, is the pattern in the later stages of a business
cycle. Although many of the foreign markets underperformed, the
majority of the Fund's foreign holdings outperformed. Out of the
Fund's 18 foreign stock holdings, 14 showed positive returns. Some
of the stronger performing stocks were Nokia Corp. AB (+44%), Philip
Environmental Inc. (+66%), Samsung Electronics Company (+34%) and
Portugal Telecom, S. A. (+32%).
During the quarter ended January 31, 1997, we added eight new
holdings to the portfolio. One concept emphasized was the long-term
trend to outsource goods and services in areas where companies are
unable to function as efficiently in-house. Two of these companies,
Ceridian Corp. and Computer Sciences Corporation, are in the rapidly
growing information technology services area. Ceridian provides
payroll processing and human resource services to major corporations
and government agencies, and Computer Sciences consults managements
on integration, quality and growth requirements for their technology
needs. Another addition, Triumph Group, Inc., is an outsourcing
company for the airline industry, providing maintenance and service
for the growing commercial aircraft sector. This was also our
rationale for adding The Boeing Company, as demand for aircraft is
extremely strong and Boeing should benefit from major cost savings
with its recent acquisition of McDonnell-Douglas Corporation.
Another addition, United Dental Care, Inc., provides managed care
for dental services, a relatively new extension of health management
organizations. We also invested in two companies in the rapidly
growing foreign telecommunications sector, Deutsche Telekom AG of
Germany, and Compania Anonima Nacional Telefonos de Venezuela, to
participate in the recent trend of worldwide privatization. Tele-
Communications Liberty Media Group was added to the portfolio
because we believe the company will benefit from the global demand
for television programming.
During the January quarter, we eliminated 14 stocks. These stocks
had either reached our price objectives, were considered "early
cyclical" stocks, or were more vulnerable in a market correction as
we shifted toward more defensive holdings. Highlighting some of
these stocks, Tosco Corp. advanced 80% and Tranz Rail Holdings, Ltd.
increased over 30%. We eliminated two of our positions in the
automotive industry, Chrysler Corp. and Ford Motor Co., which
generally perform better during the early stages of a business
cycle. Finally, we eliminated two smaller stocks, Western Wireless
Corp. and CellularVision USA, Inc., since we believe they have lower
earnings visibility and are therefore vulnerable at this time.
<PAGE>
Fiscal Year in Review
The year ended January 31, 1997 was another extraordinary period for
the US stock market. An inordinate number of companies went public,
and a record level of new assets flowed into the stock market. Key
factors contributing to the market's strong performance were an
unusually long business recovery with exceptionally well-contained
inflation, positive consumer sentiment, and companies showing
greater cost controls, technological efficiencies, and strong
earnings.
For the fiscal year ended January 31, 1997, total returns for the
Fund's Class A, Class B, Class C and Class D Shares were +19.99%,
+18.80%, +18.80% and +19.73%, respectively. In comparison, the S&P
500 and the NASDAQ Industrials showed total returns of +26.35% and
+19.54%, respectively. The Fund's performance results were mixed.
Although the Fund performed in-line with the NASDAQ Industrials, it
underperformed the S&P 500 because of its smaller-capitalization
stock holdings. While we have recently reduced our overall exposure,
the Fund will maintain a meaningful weighting in smaller-
capitalization stocks given their significant long-term growth
potential.
Major shifts in concept sector weightings (see page 1) during fiscal
1996 were made in computer technologies, healthcare cost
containment, next generation technology and telecommunications. We
doubled the weighting in computer technologies and increased
healthcare cost containment by over 6 percentage points. They
represent over 20% of the Fund's total assets. These sectors
substantially outperformed the market for the fiscal year and
represented a major portion of the positive returns for the Fund as
a whole.
We substantially lowered the weightings in both the next generation
technology and telecommunications sectors. We eliminated stocks in
the next generation technology sector because we believed they were
vulnerable in the late stage of the economic cycle. With regard to
the telecommunication industry, recent regulatory changes promoted
greater competition over the short term and will create high levels
of uncertainty in relation to the industry's earnings visibility.
However, we still believe that certain segments of the telecommunication
industry remain attractive. The Fund already has benefited from our
investments in the equipment providers, global telecommunications,
and beneficiaries of new technologies that have expanded the market.
<PAGE>
In managing the Fund, one way we seek to reduce the risk of volatile
stocks is by increasing the number of holdings and distributing the
weightings over a broad array of industries, while maintaining a
smaller weighting in individual securities. In addition, as depicted
in the "Growth Stock Characteristics" bar graph on page 1, we
reduced holdings included in the emerging growth sectors, that are
in the very early stages of development, and increased holdings in
more stable growth companies that have longer and more consistent
earnings histories. However, we will continue to diversify the
Fund's holdings among all spectrums of companies in various growth
stages. As in the past, we will continue to focus on important
investment concepts of the future, and review existing concepts to
confirm their continued validity and potential contributions in
meeting our strategy.
In Conclusion
We appreciate your ongoing interest in Merrill Lynch Fund For
Tomorrow, Inc., and we look forward to assisting you with your
financial needs in the months and years ahead.
Sincerely,
(Arthur Zeikel)
Arthur Zeikel
President
(Vincent P. Dileo)
Vincent P. Dileo
Vice President and Portfolio Manager
March 10, 1997
PERFORMANCE DATA
<PAGE>
About Fund Performance
Investors are able to purchase shares of the Fund through the
Merrill Lynch Select Pricing SM System, which offers four pricing
alternatives:
* Class A Shares incur a maximum initial sales charge (front-end
load) of 5.25% and bear no ongoing distribution or account
maintenance fees. Class A Shares are available only to eligible
investors.
* Class B Shares are subject to a maximum contingent deferred sales
charge of 4% if redeemed during the first year, decreasing 1% each
year thereafter to 0% after the fourth year. In addition, Class B
Shares are subject to a distribution fee of 0.75% and an account
maintenance fee of 0.25%. These shares automatically convert to
Class D Shares after approximately 8 years. (There is no initial
sales charge for automatic share conversions.)
* Class C Shares are subject to a distribution fee of 0.75% and an
account maintenance fee of 0.25%. In addition, Class C Shares are
subject to a 1% contingent deferred sales charge if redeemed within
one year of purchase.
* Class D Shares incur a maximum initial sales charge of 5.25% and
an account maintenance fee of 0.25% (but no distribution fee).
None of the past results shown should be considered a representation
of future performance. Investment return and principal value of
shares will fluctuate so that shares, when redeemed, may be worth
more or less than their original cost. Dividends paid to each class
of shares will vary because of the different levels of account
maintenance, distribution and transfer agency fees applicable to
each class, which are deducted from the income available to be paid
to shareholders.
PERFORMANCE DATA (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--1/31/97 15.88 17.16 -- -- + 8.06
------- ------
Total $11.131 Total $3.695
<PAGE>
Cumulative total return as of 1/31/97: +168.67%**
<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
1996 15.40 15.37 1.397 0.656 +12.85
1/1/97--1/31/97 15.37 16.59 -- -- + 7.94
------- ------
Total $12.986 Total $3.309
Cumulative total return as of 1/31/97: +370.13%**
<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>
PERFORMANCE DATA (continued)
<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--1/31/97 15.25 16.47 -- -- + 8.00
------ ------
Total $2.908 Total $0.933
Cumulative total return as of 1/31/97: +48.46%**
<FN>
*Figures may include short-term capital gains distributions.
**Figures assume reinvestment of all dividends and capital gains
distributions at net asset value on the ex-dividend date, and do not
reflect deduction of any sales charge; results would be lower if
sales charge was deducted.
</TABLE>
<TABLE>
Performance Summary--Class D Shares
<CAPTION>
Net Asset Value Capital Gains Dividends
Period Covered Beginning Ending Distributed Paid* % Change**
<S> <C> <C> <C> <C> <C>
10/21/94--12/31/94 $14.26 $13.65 $0.157 $0.059 - 2.71%
1995 13.65 15.79 1.354 0.195 +27.11
1996 15.79 15.82 1.397 0.783 +13.71
1/1/97--1/31/97 15.82 17.09 -- -- + 8.03
------ ------
Total $2.908 Total $1.037
Cumulative total return as of 1/31/97: +51.91%**
<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>
Average Annual Total Return
% Return Without % Return With
Sales Charge Sales Charge**
Class A Shares*
Year Ended 12/31/96 +13.98% + 8.00%
Five Years Ended 12/31/96 + 9.70 + 8.52
Inception (10/26/88)
through 12/31/96 +11.78 +11.04
[FN]
*Maximum sales charge is 5.25%.
**Assuming maximum sales charge.
% Return % Return
Without CDSC With CDSC**
Class B Shares*
Year Ended 12/31/96 +12.85% + 8.87%
Five Years Ended 12/31/96 + 8.58 + 8.58
Ten Years Ended 12/31/96 +10.50 +10.50
[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 12/31/96 +12.73% +11.74%
Inception (10/21/94)
through 12/31/96 +15.60 +15.60
[FN]
*Maximum contingent deferred sales charge is 1% and is reduced to 0%
after 1 year.
**Assuming payment of applicable contingent deferred sales charge.
<PAGE>
% Return Without % Return With
Sales Charge Sales Charge**
Class D Shares*
Year Ended 12/31/96 +13.71% + 7.74%
Inception (10/21/94)
through 12/31/96 +16.80 +13.97
[FN]
*Maximum sales charge is 5.25%.
**Assuming maximum sales charge.
PERFORMANCE DATA (continued)
Total Return Based on a $10,000 Investment
Line graphs depicting the growth of an investment in the Fund's
Class A Shares, Class B Shares, Class C Shares and Class D Shares
compared to growth of an investment in the S&P 500 Index. Beginning
and ending values are:
10/26/88** 1/97
ML Fund For Tomorrow, Inc.++-- $ 9,475 $25,457
Class A Shares*
S&P 500 Index++++ $10,000 $35,648
1/87 1/97
ML Fund For Tomorrow, Inc.++-- $10,000 $26,551
Class B Shares*
S&P 500 Index++++ $10,000 $38,900
10/21/94** 1/97
ML Fund For Tomorrow, Inc.++-- $10,000 $14,846
Class C Shares*
ML Fund For Tomorrow, Inc.++-- $ 9,475 $14,392
Class D Shares*
<PAGE>
S&P 500 Index++++ $10,000 $17,862
[FN]
*Assuming maximum sales charge, transaction costs and other
operating expenses including advisory fees.
**Commencement of Operations.
++ML Fund For Tomorrow, Inc. invests in a quality-oriented portfolio
of securities of companies that the Fund's management believes are
well positioned to benefit from demographic and cultural changes,
primarily as they affect future consumer markets in the United
States and, to a lesser extent, foreign consumer markets. The Fund
invests primarily in common stocks but may invest in convertible
securities, preferred stocks and bonds.
++++This unmanaged broad-based Index is comprised of common stocks.
Past performance is not predictive of future performance.
PERFORMANCE DATA (concluded)
<TABLE>
Recent Performance Results
<CAPTION>
12 Month 3 Month
1/31/97 10/31/96 1/31/96 % Change % Change
<S> <C> <C> <C> <C> <C>
ML Fund For Tomorrow, Inc. Class A Shares* $17.16 $17.27 $16.26 +14.60%(1) + 7.90%(1)
ML Fund For Tomorrow, Inc. Class B Shares* 16.59 16.64 15.79 +14.39(1) + 8.55(1)
ML Fund For Tomorrow, Inc. Class C Shares* 16.47 16.56 15.71 +14.21(1) + 8.35(1)
ML Fund For Tomorrow, Inc. Class D Shares* 17.09 17.18 16.20 +14.59(1) + 8.06(1)
Standard & Poor's 500 Index** 786.16 705.27 636.02 +23.61 +11.47
NASDAQ Industrial Index** 1,159.01 1,076.64 969.55 +19.54 + 7.65
ML Fund For Tomorrow, Inc. Class A Shares--Total Return* +19.99(2) +12.27(3)
ML Fund For Tomorrow, Inc. Class B Shares--Total Return* +18.80(4) +12.00(5)
ML Fund For Tomorrow, Inc. Class C Shares--Total Return* +18.80(6) +11.98(7)
ML Fund For Tomorrow, Inc. Class D Shares--Total Return* +19.73(8) +12.20(9)
Standard & Poor's 500 Index--Total Return** +26.35 +12.03
<PAGE>
<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 $1.397 per share capital
gains distributions.
(2)Percent change includes reinvestment of $0.825 per share ordinary
income dividends and $1.397 per share capital gains distributions.
(3)Percent change includes reinvestment of $0.715 per share ordinary
income dividends and $1.397 per share capital gains distributions.
(4)Percent change includes reinvestment of $0.656 per share ordinary
income dividends and $1.397 per share capital gains distributions.
(5)Percent change includes reinvestment of $0.546 per share ordinary
income dividends and $1.397 per share capital gains distributions.
(6)Percent change includes reinvestment of $0.679 per share ordinary
income dividends and $1.397 per share capital gains distributions.
(7)Percent change includes reinvestment of $0.570 per share ordinary
income dividends and $1.397 per share capital gains distributions.
(8)Percent change includes reinvestment of $0.783 per share ordinary
income dividends and $1.397 per share capital gains distributions.
(9)Percent change includes reinvestment of $0.674 per share ordinary
income dividends and $1.397 per share capital gains distributions.
</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 $ 13,031,250 3.3%
Components 100,000 Seagate Technology, Inc. 2,750,475 5,150,000 1.3
Systems 300,000 ++Silicon Graphics, Inc. 11,151,240 8,212,500 2.1
Systems 200,000 ++Sun Microsystems, Inc. 5,396,880 6,325,000 1.6
------------ ------------ ------
24,744,033 32,718,750 8.3
Demographic Trends
Medical Devices 100,000 Biomet, Inc. 1,534,375 1,550,000 0.4
Healthcare 100,000 ++HEALTHSOUTH Corp. 3,537,000 4,362,500 1.1
Healthcare 100,000 ++Living Centers of America, Inc. 3,353,090 2,900,000 0.7
Pollution Technology 450,000 Philip Environmental Inc. (ADR)* 3,514,252 7,762,500 2.0
Insurance 150,000 Torchmark Corp. 6,152,112 7,762,500 2.0
Healthcare 50,000 ++United Dental Care, Inc. 1,448,438 1,375,000 0.4
------------ ------------ ------
19,539,267 25,712,500 6.6
<PAGE>
Developing Foreign Economies
Telecommunications 2,000,000 CPT Telefonica Del Peru Pacifico S.A. 3,906,300 4,340,909 1.1
Telecommunications 105,000 ++Compania Anonima Nacional Telefonos
de Venezuela (ADR)* 2,415,000 2,966,250 0.8
Telecommunications 463 Korea Mobile Telecommunication Corp. 533,107 524,910 0.2
Specialty Services 1,000,000 National Mutual Asia Ltd. 940,132 961,476 0.2
Telecommunications 150,000 Portugal Telecom, S.A. (ADR)* 3,514,576 5,137,500 1.3
Building Materials 200,000 ++Royal Plastic Group Ltd. 1,866,878 4,009,504 1.0
Electronics 33,034 Samsung Electronics Company (GDR)**++++ 3,280,000 1,531,952 0.4
------------ ------------ ------
16,455,993 19,472,501 5.0
Future Retailing
Specialty Retail 22,000 ++Abercrombie & Fitch Co. 352,000 302,500 0.1
Specialty Retail 200,000 Oakley, Inc. 4,725,175 2,000,000 0.5
Specialty Retail 288,900 OfficeMax, Inc. 2,872,100 3,466,800 0.9
------------ ------------ ------
7,949,275 5,769,300 1.5
Global Market Expansion
Cosmetics 174,400 Avon Products, Inc. 6,259,222 10,943,600 2.8
Food & Beverage 100,000 ConAgra Inc. 3,826,115 5,050,000 1.3
Machinery 10,000 Kubota Corp. (ADR)* 1,285,600 910,000 0.2
Machinery 50,000 Makita Corp. (ADR)* 796,875 656,250 0.2
Food & Beverage 160,000 PepsiCo, Inc. 2,644,800 5,580,000 1.4
Electronics 200,000 ++Philips Electronics N.V. (ADR)* 8,214,486 8,000,000 2.0
Household Products 50,000 The Procter & Gamble Company 4,593,926 5,775,000 1.5
------------ ------------ ------
27,621,024 36,914,850 9.4
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS (continued)
<CAPTION>
Shares Value Percent of
Concept Tomorrow Held Stocks Cost (Note 1a) Net Assets
<S> <C> <S> <C> <C> <C>
Healthcare Cost Containment
<PAGE>
Pharmaceuticals 50,000 Astra AB (ADR)* $ 1,781,250 $ 2,393,750 0.6%
Medical Devices 100,000 ++Boston Scientific Corp. 4,133,851 6,825,000 1.8
Pharmaceuticals 100,000 Bristol-Myers Squibb Co. 7,907,000 12,700,000 3.3
Pharmaceuticals 100,000 Lilly (Eli) and Company 4,572,100 8,712,500 2.2
Pharmaceuticals 100,900 Merck & Co., Inc. 4,001,062 9,156,675 2.3
Pharmaceuticals 50,000 ++Novartis AG (ADR)*(b) 1,942,188 2,843,750 0.7
Information Services 300,000 ++Phamis, Inc. 5,264,378 5,025,000 1.3
Information Services 300,000 ++Physician Computer Network, Inc. 3,074,250 2,475,000 0.6
Pharmaceuticals 274,400 Schering-Plough Corp. 3,180,566 20,751,500 5.3
Pharmaceuticals 100,000 ++Sequus Pharmaceuticals, Inc. 1,734,998 1,337,500 0.4
Medical Devices 100,000 United States Surgical Corp. 6,799,013 4,012,500 1.0
Medical Services 100,000 ++Vencor, Inc. 3,194,630 3,062,500 0.8
------------ ------------ ------
47,585,286 79,295,675 20.3
Industrial Outsourcing
Information Services 50,000 ++Ceridian Corp. 1,959,250 1,887,500 0.5
Systems 50,000 ++Computer Sciences Corporation 3,878,500 3,537,500 0.9
Specialty Services 100,000 Greenwich Air Services Inc. (Class A) 1,113,428 2,475,000 0.6
Specialty Services 100,000 Greenwich Air Services Inc. (Class B) 1,165,198 2,400,000 0.6
Specialty Services 47,028 National Data Corporation (a) 2,127,181 1,928,148 0.5
Specialty Services 150,000 Olsten Corp. 3,190,200 2,643,750 0.7
Aerospace & Defense 18,400 ++Triumph Group, Inc. 498,729 549,700 0.1
------------ ------------ ------
13,932,486 15,421,598 3.9
Industrial Renaissance
Aerospace & Defense 50,000 The Boeing Company 5,287,375 5,356,250 1.4
Transportation 75,000 Delta Air Lines, Inc. 5,782,613 5,925,000 1.5
Automotive 100,000 General Motors Corp. 4,190,900 5,900,000 1.5
Information Systems 100,000 International Business Machines Corp. 5,658,500 15,725,000 4.0
------------ ------------ ------
20,919,388 32,906,250 8.4
Multimedia
Broadcasting Services 200,000 Carlton Communications PLC (ADR)* 7,266,875 9,025,000 2.3
Components 50,000 Harman International Industries Inc. 2,512,038 2,318,750 0.6
Information Services 400,000 ++OzEmail, Ltd. (ADR)* 4,632,341 4,650,000 1.2
Cable Television 150,000 ++Tele-Communications Liberty Media
Group (Class A) 2,675,002 2,831,250 0.7
Publishing Services 300,000 ++World Color Press Inc. 5,906,000 5,925,000 1.5
------------ ------------ ------
22,992,256 24,750,000 6.3
<PAGE>
Next Generation Technology
Electronics 146,500 ++Affinity Technology Group, Inc. 1,391,750 1,043,812 0.3
Semiconductors 182,600 ++Gasonics International Corp. 2,303,368 3,263,975 0.8
Pollution Technology 400,000 ++Molten Metal Technology, Inc. 6,605,221 4,600,000 1.2
Medical Devices 70,000 ++Neuromedical Systems Inc. 1,050,000 761,250 0.2
Environmental Equipment 119,400 ++Thermo Ecotek Corp. 1,281,614 1,835,775 0.5
Multi-Industry 155,000 Thermo Electron Corp. 2,617,778 5,289,375 1.4
Medical Devices 48,000 ++ThermoLase Corp. 1,212,000 666,000 0.2
Medical Devices 100,000 ++ThermoSpectra Corp. 1,547,300 1,475,000 0.4
Medical Devices 100,000 ++Thermotrex Corp. 1,586,723 2,875,000 0.7
Components 250,000 ++Voice Control Systems Inc. 1,446,537 1,718,750 0.4
Electronics 48,200 ++Whittaker Corp. 942,792 566,350 0.1
------------ ------------ ------
21,985,083 24,095,287 6.2
</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 $ 6,337,500 1.6%
Leisure & Entertainment 300,000 ++Galoob (Lewis) Toys, Inc. 4,238,645 5,250,000 1.4
Specialty Services 100,000 Household International, Inc. 6,712,565 9,912,500 2.5
Leisure & Entertainment 125,000 Mattel, Inc. 2,232,740 3,515,625 0.9
------------ ------------ ------
17,058,999 25,015,625 6.4
Telecommunications
Components 100,000 Andrew Corp. 2,973,417 5,725,000 1.5
Telecommunications 30,000 ++Deutsche Telekom AG (ADR)* 566,700 558,750 0.1
Telecommunications 250,000 ++Inter-Tel Inc. 3,075,112 4,125,000 1.1
Wireless Communication 210,000 ++InterCel, Inc. 3,540,000 2,677,500 0.7
Paging Services 305,000 ++Metrocall, Inc. 4,988,845 1,753,750 0.4
Components 249,400 Nokia Corp. AB (ADR)* 9,249,994 16,678,625 4.3
Wireless Communication 200,000 ++Palmer Wireless, Inc. 2,984,487 2,050,000 0.5
Telecommunications 100,000 Vodafone Group PLC (ADR)* 3,643,500 4,300,000 1.1
------------ ------------ ------
31,022,055 37,868,625 9.7
Total Stocks 271,805,145 359,940,961 92.0
<PAGE>
<CAPTION>
Face
Amount Short-Term Securities
Commercial $ 8,000,000 Asset Securitization Cooperative
Paper*** Corp., 5.32% due 3/06/1997 7,960,987 7,960,987 2.0
10,485,000 General Electric Capital Corp.,
5.58% due 2/03/1997 10,481,750 10,481,750 2.7
12,000,000 NYNEX Corporation, 5.35% due
2/10/1997 11,983,950 11,983,950 3.1
Total Short-Term Securities 30,426,687 30,426,687 7.8
Total Investments $302,231,832 390,367,648 99.8
============
Other Assets Less Liabilities 755,199 0.2
------------ ------
Net Assets $391,122,847 100.0%
============ ======
<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.
(a)Formerly CIS Technologies, Inc.
(b)Formerly Sandoz AG.
++Non-income producing security.
++++The security may be offered and resold to "qualified
institutional buyers" under Rule 144A of the Securities Act of 1933.
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION
<TABLE>
Statement of Assets and Liabilities as of January 31, 1997
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$302,231,832) (Note 1a) $390,367,648
Cash 10,903
Receivables:
Securities sold $ 3,840,812
Capital shares sold 468,063
Dividends 210,795 4,519,670
------------
Prepaid registration fees and other assets (Note 1f) 24,255
------------
Total assets 394,922,476
------------
<PAGE>
Liabilities: Payables:
Capital shares redeemed 3,255,574
Investment adviser (Note 2) 212,062
Distributor (Note 2) 144,993 3,612,629
------------
Accrued expenses and other liabilities 187,000
------------
Total liabilities 3,799,629
------------
Net Assets: Net assets $391,122,847
============
Net Assets Class A Shares of Common Stock, $0.10 par value,
Consist of: 100,000,000 shares authorized $ 230,745
Class B Shares of Common Stock, $0.10 par value,
100,000,000 shares authorized 631,848
Class C Shares of Common Stock, $0.10 par value,
100,000,000 shares authorized 51,189
Class D Shares of Common Stock, $0.10 par value,
100,000,000 shares authorized 1,394,106
Paid-in capital in excess of par 292,798,506
Undistributed realized capital gains on investments
and foreign currency transactions--net 7,880,663
Unrealized appreciation on investments and foreign
currency transactions--net 88,135,790
------------
Net assets $391,122,847
============
Net Asset Value: Class A--Based on net assets of $39,604,452 and 2,307,448
shares outstanding $ 17.16
============
Class B--Based on net assets of $104,828,358 and 6,318,479
shares outstanding $ 16.59
============
Class C--Based on net assets of $8,430,331 and 511,894
shares outstanding $ 16.47
============
Class D--Based on net assets of $238,259,706 and
13,941,059 shares outstanding $ 17.09
============
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION (continued)
<TABLE>
Statement of Operations for the Year Ended January 31, 1997
<S> <S> <C> <C>
Investment Dividends (net of $84,174 foreign withholding tax) $ 3,568,754
Income Interest and discount earned 2,106,576
(Notes 1d & 1e): Other income 15,398
------------
Total income 5,690,728
------------
<PAGE>
Expenses: Investment advisory fees (Note 2) $ 2,505,726
Account maintenance and distribution fees--Class B (Note 2) 1,082,188
Account maintenance fees--Class D (Note 2) 576,549
Transfer agent fees--Class D (Note 2) 534,160
Transfer agent fees--Class B (Note 2) 309,756
Printing and shareholder reports 159,276
Custodian fees 119,210
Transfer agent fees--Class A (Note 2) 89,782
Account maintenance and distribution fees--Class C (Note 2) 77,537
Registration fees (Note 1f) 68,859
Professional fees 54,636
Accounting services (Note 2) 51,247
Transfer agent fees--Class C (Note 2) 23,474
Directors' fees and expenses 19,607
Pricing fees 1,837
Other 10,800
------------
Total expenses 5,684,644
------------
Investment income--net 6,084
------------
Realized & Realized gain (loss) from:
Unrealized Gain Investments--net 52,824,203
(Loss) on Foreign currency transactions--net (16,423) 52,807,780
Investments & ------------
Foreign Currency Change in unrealized appreciation/depreciation on:
Transactions--Net Investments--net 15,690,035
(Notes 1b, 1c, Foreign currency transactions--net (26) 15,690,009
1e & 3): ------------ ------------
Net realized and unrealized gain on investments and foreign
currency transactions 68,497,789
------------
Net Increase in Net Assets Resulting from Operations $ 68,503,873
============
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION (continued)
<PAGE>
<TABLE>
Statements of Changes in Net Assets
<CAPTION>
For the Year Ended
January 31,
Increase (Decrease) in Net Assets: 1997 1996
<S> <S> <C> <C>
Operations: Investment income (loss)--net $ 6,084 $ (46,108)
Realized gain on investments and foreign currency transactions
--net 52,807,780 24,540,178
Change in unrealized appreciation/depreciation on investments
and foreign currency transactions--net 15,690,009 57,218,059
------------ ------------
Net increase in net assets resulting from operations 68,503,873 81,712,129
------------ ------------
Distributions to Realized gain on investments--net:
Shareholders Class A (5,337,338) (2,188,438)
(Note 1g): Class B (12,797,082) (9,550,391)
Class C (1,078,464) (338,854)
Class D (28,024,409) (20,640,116)
------------ ------------
Net decrease in net assets resulting from
distributions to shareholders (47,237,293) (32,717,799)
------------ ------------
Capital Share Net increase (decrease) in net assets derived from capital
Transactions share transactions (10,906,448) 46,890,051
(Note 4): ------------ ------------
Net Assets: Total increase in net assets 10,360,132 95,884,381
Beginning of year 380,762,715 284,878,334
------------ ------------
End of year $391,122,847 $380,762,715
============ ============
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION (continued)
<TABLE>
Financial Highlights
<CAPTION>
Class A
<PAGE>
The following per share data and ratios have been derived
from information provided in the financial statements.
For the Year Ended January 31,
Increase (Decrease) in Net Asset Value: 1997++ 1996++ 1995++ 1994 1993
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of year $ 16.26 $ 13.55 $ 16.39 $ 16.29 $ 16.84
Operating ------- ------- ------- ------- -------
Performance: Investment income--net .08 .07 .09 .15 .25
Realized and unrealized gain (loss) on
investments and foreign currency
transactions--net 3.04 4.19 (1.97) 2.18 .49
------- ------- ------- ------- -------
Total from investment operations 3.12 4.26 (1.88) 2.33 .74
------- ------- ------- ------- -------
Less dividends and distributions:
Investment income--net -- -- -- -- (.23)
Realized gain on investments--net (2.22) (1.55) (.96) (2.23) (1.06)
------- ------- ------- ------- -------
Total dividends and distributions (2.22) (1.55) (.96) (2.23) (1.29)
------- ------- ------- ------- -------
Net asset value, end of year $ 17.16 $ 16.26 $ 13.55 $ 16.39 $ 16.29
======= ======= ======= ======= =======
Total Investment Based on net asset value per share 19.99% 31.82% (11.23%) 15.78% 4.79%
Return:* ======= ======= ======= ======= =======
Ratios to Average Expenses 1.00% 1.07% .98% .88% .90%
Net Assets: ======= ======= ======= ======= =======
Investment income--net .46% .44% .59% .95% 1.35%
======= ======= ======= ======= =======
Supplemental Net assets, end of year (in thousands) $39,605 $34,231 $ 8,665 $10,942 $11,394
Data: ======= ======= ======= ======= =======
Portfolio turnover 39.96% 67.38% 45.86% 48.63% 40.58%
======= ======= ======= ======= =======
Average commission rate paid+++ $ .0277 -- -- -- --
======= ======= ======= ======= =======
<FN>
*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 30, 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 (continued)
<TABLE>
Financial Highlights (continued)
<CAPTION>
Class B
The following per share data and ratios have been derived
from information provided in the financial statements.
For the Year Ended January 31,
Increase (Decrease) in Net Asset Value: 1997++ 1996++ 1995++ 1994 1993
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of year $ 15.79 $ 13.33 $ 16.30 $ 16.28 $ 16.82
Operating -------- -------- -------- -------- --------
Performance: Investment income (loss)--net (.10) (.08) (.06) (.01) .06
Realized and unrealized gain (loss) on
investments and foreign currency
transactions--net 2.95 4.09 (1.96) 2.17 .52
-------- -------- -------- -------- --------
Total from investment operations 2.85 4.01 (2.02) 2.16 .58
-------- -------- -------- -------- --------
Less dividends and distributions:
Investment income--net -- -- -- -- (.06)
Realized gain on investments--net (2.05) (1.55) (.95) (2.14) (1.06)
-------- -------- -------- -------- --------
Total dividends and distributions (2.05) (1.55) (.95) (2.14) (1.12)
-------- -------- -------- -------- --------
Net asset value, end of year $ 16.59 $ 15.79 $ 13.33 $ 16.30 $ 16.28
======== ======== ======== ======== ========
Total Investment Based on net asset value per share 18.80% 30.43% (12.22%) 14.60% 3.75%
Return:* ======== ======== ======== ======== ========
Ratios to Average Expenses 2.06% 2.13% 1.99% 1.91% 1.92%
Net Assets: ======== ======== ======== ======== ========
Investment income(loss)--net (.58%) (.55%) (.38%) (.07%) .36%
======== ======== ======== ======== ========
Supplemental Net assets, end of year (in thousands) $104,828 $112,239 $119,186 $396,424 $447,186
Data: ======== ======== ======== ======== ========
Portfolio turnover 39.96% 67.38% 45.86% 48.63% 40.58%
======== ======== ======== ======== ========
Average commission rate paid+++ $ .0277 -- -- -- --
======== ======== ======== ======== ========
<PAGE>
<FN>
*Total investment returns exclude the effect 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.
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION (concluded)
<TABLE>
Financial Highlights (concluded)
<CAPTION>
Class C++++ Class D++++
For the For the
Period Period
The following per share data and ratios have been derived For the Oct. 21, For the Oct. 21,
from information provided in the financial statements. Year Ended 1994++ to Year Ended 1994++ to
January 31, Jan. 31, January 31, Jan. 31,
Increase (Decrease) in Net Asset Value: 1997 1996 1995 1997 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 (.10) (.10) (.04) .04 .03 (.01)
Realized and unrealized gain (loss)
on investments and foreign
currency transactions--net 2.94 4.08 (.54) 3.03 4.18 (.49)
-------- -------- -------- -------- -------- --------
Total from investment operations 2.84 3.98 (.58) 3.07 4.21 (.50)
-------- -------- -------- -------- -------- --------
Less distributions from realized
gain on investments--net (2.08) (1.55) (.22) (2.18) (1.55) (.22)
-------- -------- -------- -------- -------- --------
Net asset value, end of period $ 16.47 $ 15.71 $ 13.28 $ 17.09 $ 16.20 $ 13.54
======== ======== ======== ======== ======== ========
<PAGE>
Total Investment Based on net asset value per share 18.80% 30.32% (4.12%)+++ 19.73% 31.47% (3.50%)+++
Return:** ======== ======== ======== ======== ======== ========
Ratios to Average Expenses 2.07% 2.14% 2.26%* 1.25% 1.33% 1.43%*
Net Assets: ======== ======== ======== ======== ======== ========
Investment income (loss)--net (.61%) (.67%) (.87%)* .22% .22% (.23%)*
======== ======== ======== ======== ======== ========
Supplemental Net assets, end of period
Data: (in thousands) $ 8,430 $ 6,385 $ 80 $238,260 $227,908 $156,947
======== ======== ======== ======== ======== ========
Portfolio turnover 39.96% 67.38% 45.86% 39.96% 67.38% 45.86%
======== ======== ======== ======== ======== ========
Average commissions rate paid+++++ $ .0277 -- -- $ .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.
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. 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.
<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 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. 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. Distributions in excess of net investment income are due
primarily to differing tax treatments for post-October losses.
(h) Reclassification--Generally accepted accounting principles
require that certain components of net assets be adjusted to reflect
permanent differences between financial and tax reporting.
Accordingly, current year's permanent book/tax differences of
$6,084 have been reclassified between undistributed net realized
capital gains and undistributed net investment income. These
reclassifications have no effect on net assets or net asset values
per share.
2. Investment Advisory Agreement and
Transactions with Affiliates:
The Fund has entered into an Investment Advisory Agreement with
Merrill Lynch Asset Management, L.P. ("MLAM"). The general partner
of MLAM is Princeton Services, Inc. ("PSI"), an indirect wholly-
owned subsidiary of Merrill Lynch & Co., Inc. ("ML & Co."), which is
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.
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 year ended January 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 $ 639 $ 7,883
Class D $2,872 $42,759
For the year ended January 31, 1997, MLPF&S also received contingent
deferred sales charges of $261,117 and $5,359 relating to
transactions in Class B and C Shares, respectively.
<PAGE>
In addition, MLPF&S received $4,891 in commissions on the execution
of portfolio security transactions for the Fund for the year ended
January 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.
NOTES TO FINANCIAL STATEMENTS (concluded)
3. Investments:
Purchases and sales of investments, excluding short-term securities,
for the year ended January 31, 1997 were $138,540,853 and
$188,718,249, respectively.
Net realized and unrealized gains (losses) as of January 31, 1997
were as follows:
Realized Unrealized
Gains (Losses) Gains (Losses)
Long-term investments $52,823,313 $ 88,135,816
Short-term investments 890 --
Foreign currency transactions (16,423) (26)
----------- ------------
Total $52,807,780 $ 88,135,790
=========== ============
As of January 31, 1997, net unrealized appreciation for Federal
income tax purposes aggregated $88,135,816, of which $111,308,143
related to appreciated securities and $23,172,327 related to
depreciated securities. The aggregate cost of investments at January
31, 1997 for Federal income tax purposes was $302,231,832.
4. Capital Share Transactions:
Net increase (decrease) in net assets derived from capital share
transactions was $(10,906,448) and $46,890,051 for the years ended
January 31, 1997 and January 31, 1996, respectively.
Transactions in capital shares for each class were as follows:
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 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
Year Ended Dollar
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 B Shares for the
Year Ended Dollar
January 31, 1996 Shares Amount
<PAGE>
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
Year Ended Dollar
January 31, 1997 Shares Amount
Shares sold 389,112 $ 6,432,736
Shares issued to shareholders
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 C Shares for the
Year Ended Dollar
January 31, 1996 Shares Amount
Shares sold 491,734 $ 7,944,948
Shares issued to shareholders
in reinvestment of
distributions 441 6,884
------------ ------------
Total issued 492,175 7,951,832
Shares redeemed (91,881) (1,480,882)
------------ ------------
Net increase 400,294 $ 6,470,950
============ ============
Class 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 shareholders
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)
============ ============
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
============ ============
<AUDIT-REPORT>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders,
Merrill Lynch Fund For Tomorrow, Inc.:
We have audited the accompanying statement of assets and
liabilities, including the schedule of investments, of Merrill Lynch
Fund For Tomorrow, Inc. as of January 31, 1997, the related
statements of operations for the year then ended and changes in net
assets for each of the years in the two-year period then ended, and
the financial highlights for each of the years in the five-year
period then ended. These financial statements and the financial
highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial
statements and the financial highlights based on our audits.
<PAGE>
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial
statements and the financial highlights are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements.
Our procedures included confirmation of securities owned at January
31, 1997, by correspondence with the custodian. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide
a reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights
present fairly, in all material respects, the financial position of
Merrill Lynch Fund For Tomorrow, Inc. as of January 31, 1997, the
results of its operations, the changes in its net assets, and the
financial highlights for the respective stated periods in conformity
with generally accepted accounting principles.
Deloitte & Touche LLP
Princeton, New Jersey
March 10, 1997
</AUDIT-REPORT>
IMPORTANT TAX INFORMATION (unaudited)
<TABLE>
The following information summarizes all per share distributions
paid by Merrill Lynch Fund For Tomorrow, Inc. during its taxable
year ended January 31, 1997:
<CAPTION>
Domestic Interest
Qualifying From Non-Qualifying Total Long-Term
Record Payable Ordinary Federal Ordinary Ordinary Capital
Date Date Income Obligations Income Income Gains
<S> <S> <C> <C> <C> <C> <C>
Class A Shares:
07/02/96 07/11/96 $0.040860 $0.000389 $0.068199 $0.109448 --
12/10/96 12/18/96 $0.121938 -- $0.593241 $0.715179 $1.397424
Class B Shares:
07/02/96 07/11/96 $0.040860 $0.000389 $0.068199 $0.109448 --
12/10/96 12/18/96 $0.093105 -- $0.452965 $0.546070 $1.397424
<PAGE>
Class C Shares:
07/02/96 07/11/96 $0.040860 $0.000389 $0.068199 $0.109448 --
12/10/96 12/18/96 $0.097190 -- $0.472838 $0.570028 $1.397424
Class D Shares:
07/02/96 07/11/96 $0.040860 $0.000389 $0.068199 $0.109448 --
12/10/96 12/18/96 $0.114906 -- $0.559031 $0.673937 $1.397424
The domestic qualifying ordinary income qualifies for the dividends
received deduction for corporations.
The law varies in each state as to whether and what percentage of
dividend income attributable to Federal obligations is exempt from
state income tax. We recommend that you consult your tax adviser to
determine if any portion of the dividends you received is exempt
from state income tax.
Please retain this information for your records.
PORTFOLIO INFORMATION
For the Quarter Ended January 31, 1997
Percent of
Ten Largest Equity Holdings Net Assets
Schering-Plough Corp. 5.3%
Nokia Corp. AB (ADR) 4.3
International Business Machines Corp. 4.0
COMPAQ Computer Corp. 3.3
Bristol-Myers Squibb Co. 3.3
Avon Products, Inc. 2.8
Household International, Inc. 2.5
Merck & Co., Inc. 2.3
Carlton Communications PLC (ADR) 2.3
Lilly (Eli) and Company 2.2
Additions
<PAGE>
The Boeing Company
Ceridian Corp.
Compania Anonima Nacional Telefonos de
Venezuela (ADR)
Computer Sciences Corporation
Deutsche Telekom AG (ADR)
Tele-Communications Liberty Media Group (Class A)
Triumph Group, Inc.
United Dental Care, Inc.
Deletions
Adecco S.A.
CellularVision USA, Inc.
Chrysler Corp.
Ford Motor Co.
Harrah's Entertainment, Inc.
Harvey Nichols PLC
MCI Communications Corp.
Nordstrom Inc.
Patterson Dental Co., Inc.
Samsung Electronics Company (New Shares) (GDR)
Toolex-Alpha N.V. (NY Registered Shares)
Tosco Corp.
Tranz Rail Holdings, Ltd. (ADR)
Western Wireless Corp. (Class A)
OFFICERS AND DIRECTORS
Arthur Zeikel, President and Director
Ronald W. Forbes, Director
Cynthia A.Montgomery, Director
Charles C. Reilly, Director
Kevin A. Ryan, Director
Richard R. West, Director
Terry K. Glenn, Executive Vice President
Norman R. Harvey, Senior Vice President
Donald C. Burke, Vice President
Vincent P. Dileo, Vice President and
Portfolio Manager
Gerald M. Richard, Treasurer
Susan B. Baker, Secretary
Custodian
The Bank of New York
90 Washington Street, 12th Floor
New York, New York 10286
<PAGE>
Transfer Agent
Merrill Lynch Financial Data Services, Inc.
4800 Deer Lake Drive East
Jacksonville, Florida 32246-6484
(800) 637-3863
</TABLE>
