MERRILL LYNCH
FUND FOR
TOMORROW, INC.
[GRAPHIC OMITTED]
STRATEGIC
Performance
Annual Report
January 31, 1998
<PAGE>
MERRILL LYNCH FUND FOR TOMORROW, INC.
Concept Sectors
As a Percentage of Net Assets
As of January 31, 1998
Pie graph depicting Concept Sectors As a Percentage of Net Assets
As of January 31, 1998
Computer Technologies 10.6%
Demographic Trends 5.9%
Developing Foreign Economies 3.6%
Future Retailing 1.0%
Global Market Expansion 10.1%
Healthcare Cost Containment 16.2%
Industrial Outsourcing 3.6%
Industrial Renaissance 8.7%
Multimedia 8.3%
Next Generation Technology 4.4%
Strategic Growth Opportunities 8.8%
Telecommunications 9.0%
Cash* 9.8%
*Net of other assets less liabilities.
Growth Stock Characteristics as of January 31, 1998
Bar graph depicting Growth Stock Characteristics as of January 31, 1998 as a %
of Equity Holdings:
Emerging Growth 3.1% 8.1%
Established Growth 20.8% 18.8%
Stable Growth 24.1% 25.1%
1
<PAGE>
Merrill Lynch Fund For Tomorrow, Inc. January 31, 1998
DEAR SHAREHOLDER
Volatility continued to highlight stock and bond markets worldwide during the
quarter ended January 31, 1998. The initial focus of investor concerns was the
widening financial crisis in Asia. In the wake of a series of currency
devaluations, many emerging economies are facing the challenges of higher
interest rates, slowing economic growth and declining corporate earnings.
Although the announcement of International Monetary Fund (IMF) loan packages to
Thailand, Indonesia and South Korea initially reassured investors, the stringent
terms of the loans and their potential negative impact on these already
beleaguered economies are now being called into question. In Japan, the failure
of several major financial institutions has undermined the prospects for
economic recovery.
As developments in Asia continue to unfold, US equity investors are trying to
gauge the impact of poorer Asian economic prospects on multinational
corporations. Although there have been periods of rising share prices, investor
confidence has not been definitively restored. The US bond market benefited from
a "flight to quality" as investors anticipated slower economic growth, but the
release of stronger-than-expected economic statistics also prompted periods of
declining bond prices.
As 1998 progresses, investors are likely to continue to focus on the prospects
for the US economy within the context of international developments. The
uncertainties created by the ongoing developments in Asia--combined with the
absence of inflationary pressures and the prospect of a balanced Federal
budget--have kept monetary policy "on hold" for the present. It remains to be
seen whether the trends of moderate economic growth and low inflation will
continue, which would make it unlikely that the Federal Reserve Board would
tighten monetary policy early in the new year.
Portfolio Strategy
During the quarter ended January 31, 1998, our investment strategy was
predicated, in part, on the possibility of continued economic volatility in Asia
and other emerging markets. While the Fund's exposure to these regions was
relatively limited, we were primarily concerned that the Asian financial crisis
potentially could have a broader impact on US and European economies and stock
markets. Coupled with a generally more cautious outlook for corporate earnings
as the US economic expansion slows, these concerns guided our investment
activity toward reducing risk and maintaining an above-average representation in
stable growth stocks. While this strategy helped the portfolio perform better
than the unmanaged NASDAQ Industrial Index, which declined 4.41% for the
three-month period ended January 31, 1998, the severe weakness in our Latin
America holdings and selected smaller-capitalization stocks caused the Fund to
underperform the unmanaged Standard & Poor's 500 Composite Index (S&P 500),
which had a total return of +7.62% for the same period. For the January quarter,
Merrill Lynch Fund For Tomorrow, Inc.'s Class A, Class B, Class C and Class D
Shares had total returns of -1.24%, -1.54%, -1.55% and -1.33%, respectively.
(Fund results shown do not reflect sales charges; results would be lower if
sales charges were included. For complete performance information, including
average annual total returns, see pages 5-7 of this report to shareholders.)
For the most part, in response to our more cautious investment strategy, we
eliminated or reduced holdings that appeared to be vulnerable to increased stock
market volatility. This approach resulted in the sale of Petroleo Brasileiro
S.A.--Petrobras, Telecomunicacoes do Rio de Janeiro S.A.--Telerj and a reduction
of Avipal S.A.--Avicultura e Agropecuaria, which largely comprised our Latin
American investments. In other areas of the portfolio, sales were primarily
concentrated among smaller holdings and companies where earnings growth had
become less certain as a result of concerns of a more difficult economic
environment. We also took advantage of the recent strong price appreciation
among larger holdings such as COMPAQ Computer Corp. and International Business
Machines Corp. Partial sales of these issues enabled us to take interim profits
while still maintaining significant weightings in these key long-term positions.
As we have noted in recent shareholder reports, our approach to new positions in
the portfolio is based on taking advantage of buying opportunities when
attractive fundamentals may have been overlooked amidst
2
<PAGE>
Merrill Lynch Fund For Tomorrow, Inc. January 31, 1998
stock market uncertainty. Based on this value-oriented approach, we added Gucci
Group N.V., a rapidly growing global retailer of upscale apparel and
accessories, to the portfolio. Although the company's growth has been
temporarily interrupted in Asia, its longer-term outlook remains excellent and
its recent share price valuation was attractive, in our view. Similarly, price
weakness in Networks Associates, Inc., a leader in network management and
computer security systems, presented us with an opportunity to purchase a
company with the potential for 30%-40% earnings growth at well below recent
share price levels.
Fiscal Year in Review
Throughout the fiscal year ended January 31, 1998, worldwide financial markets
were influenced by a divergence of economic activity among different geographic
regions. While Asia and Japan were showing signs of weakness, most of the
economies in Europe and Latin America were relatively strong. In the United
States, a continuation of unprecedented economic expansion defied most forecasts
of an imminent slowdown. In addition, the absence of widely predicted higher
inflation and interest rates also seemed to bolster stock prices. Accordingly,
despite strength in some selected foreign markets, the US equity markets sharply
outperformed other geographic areas. In general, Merrill Lynch Fund For
Tomorrow, Inc. maintained a moderately aggressive portfolio strategy throughout
the year, with an average invested position of over 95% in common stocks.
Moreover, a below-average weighting in foreign securities relative to the Fund's
recent years helped concentrate the Fund's assets in the more attractive US
stock market.
Despite the strong performance of the US stock market overall, there was a
significant contrast in performance of larger-capitalization stocks and the
smaller-capitalization sectors. This was clearly indicated by the 26.89% gain in
the S&P 500 for the year ended January 31, 1998, compared to the 4.64% rise in
the NASDAQ Industrial Index for the same period. Much of this performance
differential can be attributed to a persistently cautious economic outlook,
which tended to favor larger companies with potentially more stable earnings
growth. Our investment strategy throughout the year reflected this overall stock
market environment, and led to a gradual reduction of holdings within the
emerging growth sectors of the portfolio and an increase of the more stable
growth sectors.
As the fiscal year progressed, we attempted to adjust the structure of the
portfolio according to the rapidly changing economic outlook and in anticipation
of possible future developments in the financial markets. Contrary to general
expectations, we were favorably impressed with the potential for continued
strong earnings growth within the technology sector. Therefore, we continued to
emphasize investments in our computer technology concept and other related
holdings. Some of the outstanding stock price performances achieved in this
group were COMPAQ Computer Corp., +74%; Sun Microsystems, Inc., +52%; Philips
Electronics, N.V., +66%; and International Business Machines Corp., +22%.
However, the greatest contribution to the Fund's overall investment performance
in fiscal 1997 came from investments in the healthcare cost containment concept.
In past years, the Fund has typically overweighted this sector based on its
relatively unique combination of stable earnings growth, excellent long-term
fundamentals and defensive characteristics. With over 20% of net assets in this
concept at the beginning of the year, an average price appreciation among the
Fund's holdings of over 40% for the 12-month period ended January 31, 1998
confirmed the benefits of overweighting this sector.
While the performance achieved by our larger concept sectors provided the major
contribution to the total return of the Fund during the year, there were
disappointments in other sectors. The direct impact of currency problems in Asia
had relatively little direct effect on the Fund because of its limited exposure
to stocks in that region. However, the concern that similar problems might
surface in Latin America caused those equity markets to weaken significantly.
Although representing under 6% of portfolio assets at mid-year, the severe price
correction in most of these holdings had a proportionately larger impact on
overall performance. While the longer-range outlook for the Latin America region
remains attractive, continued near-term uncertainties caused us to reduce the
Fund's exposure. Other disappointments were
3
<PAGE>
Merrill Lynch Fund For Tomorrow, Inc. January 31, 1998
primarily in our next generation technology concept. Because most companies in
this sector inherently require a long-term investment time horizon, the
persistent uncertainty regarding the economic outlook throughout the year tended
to limit investor interest in stocks with lower earnings predictability.
Overall, throughout most of the year, the Fund's investment performance
generally tracked between the unmanaged S&P 500 and the unmanaged NASDAQ
Industrial Index. For the year ended January 31, 1998, the Fund's Class A, Class
B, Class C and Class D Shares had total returns of +12.43%, +11.20%, +11.15% and
+12.07%, respectively.
As we move forward into fiscal 1998, we believe that Merrill Lynch Fund for
Tomorrow, Inc. has significant opportunities to achieve its long-term capital
appreciation objective. The possibility of more stable economic conditions in
emerging markets and continued low inflation with moderate growth in the United
States suggest a generally favorable investment environment. However, our
optimism is somewhat tempered by the increasing difficulty that companies may
have in producing earnings growth comparable to a year ago when the economy was
expanding rapidly. The Fund's current structure, which emphasizes more stable
growth companies, and a current investment strategy emphasizing attractive
valuations, should be especially well suited to a potentially more volatile
stock market in the months ahead.
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,
/s/ Arthur Zeikel
Arthur Zeikel
President
/s/ Vincent P. Dileo
Vincent P. Dileo
Senior Vice President and Portfolio Manager
March 10, 1998
4
<PAGE>
Merrill Lynch Fund For Tomorrow, Inc. January 31, 1998
PERFORMANCE DATA
About Fund Performance
Investors are able to purchase shares of the Fund through the Merrill Lynch
Select PricingSM System, which offers four pricing alternatives:
o Class A Shares incur a maximum initial sales charge (front-end load) of
5.25% and bear no ongoing distribution or account maintenance fees. Class
A Shares are available only to eligible investors.
o Class B Shares are subject to a maximum contingent deferred sales charge
of 4% if redeemed during the first year, decreasing 1% each year
thereafter to 0% after the fourth year. In addition, Class B Shares are
subject to a distribution fee of 0.75% and an account maintenance fee of
0.25%. These shares automatically convert to Class D Shares after
approximately 8 years. (There is no initial sales charge for automatic
share conversions.)
o Class C Shares are subject to a distribution fee of 0.75% and an account
maintenance fee of 0.25%. In addition, Class C Shares are subject to a 1%
contingent deferred sales charge if redeemed within one year of purchase.
o Class D Shares incur a maximum initial sales charge of 5.25% and an
account maintenance fee of 0.25% (but no distribution fee).
None of the past results shown should be considered a representation of future
performance. Figures shown in the "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.
Recent Performance Results
<TABLE>
<CAPTION>
12 Month 3 Month
1/31/98 10/31/97 1/31/97 % Change % Change
=================================================================================================================
<S> <C> <C> <C> <C> <C>
ML Fund For Tomorrow, Inc. Class A Shares* $15.61 $19.13 $17.16 +10.13%(1) -2.76%(2)
- -----------------------------------------------------------------------------------------------------------------
ML Fund For Tomorrow, Inc. Class B Shares* 15.01 18.35 16.59 +10.28(1) -1.92(2)
- -----------------------------------------------------------------------------------------------------------------
ML Fund For Tomorrow, Inc. Class C Shares* 14.94 18.21 16.47 +10.66(1) -1.55(2)
- -----------------------------------------------------------------------------------------------------------------
ML Fund For Tomorrow, Inc. Class D Shares* 15.52 19.01 17.09 +10.05(1) -2.62(2)
- -----------------------------------------------------------------------------------------------------------------
Standard & Poor's 500 Index** 980.28 914.62 786.16 +24.69 +7.18
- -----------------------------------------------------------------------------------------------------------------
NASDAQ Industrial Index** 1,212.74 1,268.69 1,159.01 + 4.64 -4.41
- -----------------------------------------------------------------------------------------------------------------
ML Fund For Tomorrow, Inc. Class A Shares--Total Return* +12.43(3) -1.24(4)
- -----------------------------------------------------------------------------------------------------------------
ML Fund For Tomorrow, Inc. Class B Shares--Total Return* +11.20(5) -1.54(6)
- -----------------------------------------------------------------------------------------------------------------
ML Fund For Tomorrow, Inc. Class C Shares--Total Return* +11.15(7) -1.55(2)+
- -----------------------------------------------------------------------------------------------------------------
ML Fund For Tomorrow, Inc. Class D Shares--Total Return* +12.07(8) -1.33(9)
- -----------------------------------------------------------------------------------------------------------------
Standard & Poor's 500 Index--Total Return** +26.89 +7.62
=================================================================================================================
</TABLE>
* 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.
+ Ordinary income dividend is less than $0.001 per share.
(1) Percent change includes reinvestment of $3.224 per share capital gains
distributions.
(2) Percent change includes reinvestment of $2.926 per share capital gains
distributions.
(3) Percent change includes reinvestment of $0.383 per share ordinary income
dividends and $3.224 per share capital gains distributions.
(4) Percent change includes reinvestment of $0.284 per share ordinary income
dividends and $2.926 per share capital gains distributions.
(5) Percent change includes reinvestment of $0.150 per share ordinary income
dividends and $3.224 per share capital gains distributions.
(6) Percent change includes reinvestment of $0.069 per share ordinary income
dividends and $2.926 per share capital gains distributions.
(7) Percent change includes reinvestment of $0.079 per share ordinary income
dividends and $3.224 per share capital gains distributions.
(8) Percent change includes reinvestment of $0.336 per share ordinary income
dividends and $3.224 per share capital gains distributions.
(9) Percent change includes reinvestment of $0.240 per share ordinary income
dividends and $2.926 per share capital gains distributions.
5
<PAGE>
Merrill Lynch Fund For Tomorrow, Inc. January 31, 1998
PERFORMANCE DATA (continued)
Total Return Based on a $10,000 Investment
A line graph depicting the growth of an investment in the Fund's Class A Shares
compared to growth of an investment in the S&P 500 Index:
10/26/88** 1/98
---------- ----
ML Fund For Tomorrow, Inc.+--
Class A Shares* $ 9,475 $28,625
S&P 500 Index++ $10,000 $45,230
A line graph depicting the growth of an investment in the Fund's Class B Shares
compared to growth of an investment in the S&P 500 Index:
1/88 1/98
---- ----
ML Fund For Tomorrow, Inc.+--
Class B Shares* $10,000 $32,314
S&P 500 Index++ $10,000 $50,873
* 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.
6
<PAGE>
Merrill Lynch Fund For Tomorrow, Inc. January 31, 1998
PERFORMANCE DATA (concluded)
Total Return Based on a $10,000 Investment (concluded)
A line graph depicting the growth of an investment in the Fund's Class C Shares
and Class D Shares compared to growth of an investment in the S&P 500 Index:
10/26/88** 1/98
---------- ----
ML Fund For Tomorrow, Inc.+--
Class C Shares* $10,000 $16,500
ML Fund For Tomorrow, Inc.+--
Class D Shares* $ 9,475 $16,130
S&P 500 Index++ $10,000 $22,663
* 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.
Average Annual Total Return
% Return Without % Return With
Sales Charge Sales Charge**
================================================================================
Class A Shares*
================================================================================
Year Ended 12/31/97 +21.81% +15.41%
- --------------------------------------------------------------------------------
Five Years Ended 12/31/97 +12.77 +11.56
- --------------------------------------------------------------------------------
Inception (10/26/88)
through 12/31/97 +12.83 +12.17
- --------------------------------------------------------------------------------
* Maximum sales charge is 5.25%.
** Assuming maximum sales charge.
================================================================================
% Return % Return
Without CDSC With CDSC**
================================================================================
Class C Shares*
================================================================================
Year Ended 12/31/97 +20.60% +19.61%
- --------------------------------------------------------------------------------
Inception (10/21/94)
through 12/31/97 +17.14 +17.14
- --------------------------------------------------------------------------------
* Maximum contingent deferred sales charge is 1% and is reduced to 0% after 1
year.
** Assuming payment of applicable contingent deferred sales charge.
================================================================================
% Return % Return
Without CDSC With CDSC**
================================================================================
Class B Shares*
================================================================================
Year Ended 12/31/97 +20.59% +16.66%
- --------------------------------------------------------------------------------
Five Years Ended 12/31/97 +11.61 +11.61
- --------------------------------------------------------------------------------
Ten Years Ended 12/31/97 +13.17 +13.17
- --------------------------------------------------------------------------------
* Maximum contingent deferred sales charge is 4% and is reduced to 0% after 4
years.
** Assuming payment of applicable contingent deferred sales charge.
================================================================================
% Return Without % Return With
Sales Charge Sales Charge**
================================================================================
Class D Shares*
================================================================================
Year Ended 12/31/97 +21.53% +15.15%
- --------------------------------------------------------------------------------
Inception (10/21/94)
through 12/31/97 +18.27 +16.29
- --------------------------------------------------------------------------------
* Maximum sales charge is 5.25%.
** Assuming maximum sales charge.
7
<PAGE>
Merrill Lynch Fund For Tomorrow, Inc. January 31, 1998
SCHEDULE OF INVESTMENTS
<TABLE>
<CAPTION>
Shares Value Percent of
Concept Tomorrow Held Stocks Cost (Note 1a) Net Assets
- -------------------------------------------------------------------------------------------------------------------
Computer Technologies
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Personal Computers 400,000 COMPAQ Computer Corp. $ 3,045,990 $ 12,025,000 3.9%
Personal Computers 100,000 +Gateway 2000, Inc. 3,347,740 3,768,750 1.2
Systems 50,000 +Networks Associates, Inc. 2,524,250 2,700,000 0.9
Systems 300,000 +Silicon Graphics, Inc. 11,151,240 4,650,000 1.5
Systems 200,000 +Sun Microsystems, Inc. 5,396,880 9,587,500 3.1
------------ ------------ ------
25,466,100 32,731,250 10.6
- -------------------------------------------------------------------------------------------------------------------
Demographic Trends
- -------------------------------------------------------------------------------------------------------------------
Home Furnishings 50,000 American Woodmark Corporation 1,037,187 1,037,500 0.3
Healthcare 200,000 +HEALTHSOUTH Corp. 3,537,000 4,487,500 1.4
Pollution Technology 550,000 +Philip Services Corp. 5,122,752 4,537,500 1.5
Insurance 200,000 Torchmark Corp. 4,206,236 8,312,500 2.7
------------ ------------ ------
13,903,175 18,375,000 5.9
- -------------------------------------------------------------------------------------------------------------------
Developing Foreign Economies
- -------------------------------------------------------------------------------------------------------------------
Food & Beverage 980,000,000 Avipal S.A.--Avicultura e Agropecuaria 4,130,033 1,658,059 0.5
Telecommunications 105,000 Compania Anonima Nacional Telefonos
de Venezuela (ADR)* 2,415,000 3,858,750 1.3
Specialty Services 1,000,000 National Mutual Asia Ltd. 940,132 840,010 0.3
Holding Company 200,000 +Quinenco S.A. (ADR)* 3,755,087 1,950,000 0.6
Building Materials 100,000 +Royal Group Technologies Ltd. 1,047,206 2,463,729 0.8
Telecommunications 477 SK Telecom Co. (Ordinary) 533,107 250,141 0.1
------------ ------------ ------
12,820,565 11,020,689 3.6
- -------------------------------------------------------------------------------------------------------------------
Future Retailing
- -------------------------------------------------------------------------------------------------------------------
Retail Apparel 40,000 +The Children's Place Retail Stores, Inc. 560,000 290,000 0.1
Specialty Retail 188,900 +OfficeMax, Inc. 2,027,656 2,762,663 0.9
------------ ------------ ------
2,587,656 3,052,663 1.0
- -------------------------------------------------------------------------------------------------------------------
Global Market Expansion
- -------------------------------------------------------------------------------------------------------------------
Cosmetics 174,400 Avon Products, Inc. 6,259,222 10,464,000 3.4
Electrical Equipment 74,760 General Electric Company 2,278,626 5,793,900 1.9
Specialty Retailing 50,000 Gucci Group N.V. (NY Registered Shares) 1,896,750 1,990,625 0.6
Machinery 9,800 Kubota Corp. (ADR)* 1,259,888 588,000 0.2
Food & Beverage 160,000 PepsiCo, Inc. 2,438,212 5,770,000 1.9
Electronics 100,000 Philips Electronics N.V.
(NY Registered Shares) 4,983,486 6,662,500 2.1
------------ ------------ ------
19,116,184 31,269,025 10.1
- -------------------------------------------------------------------------------------------------------------------
Healthcare Cost Containment
- -------------------------------------------------------------------------------------------------------------------
Pharmaceuticals 133,333 Astra AB (ADR)* 1,781,250 2,416,661 0.8
Pharmaceuticals 100,000 Bristol-Myers Squibb Co. 3,953,500 9,968,750 3.2
Pharmaceuticals 100,000 Lilly (Eli) and Company 2,286,050 6,750,000 2.2
Pharmaceuticals 100,900 Merck & Co., Inc. 4,001,062 11,830,525 3.8
Pharmaceuticals 50,000 Novartis AG (ADR)* 1,942,188 4,268,750 1.4
Information Services 300,000 +Physician Computer Network, Inc. 3,074,250 1,237,500 0.4
Pharmaceuticals 100,800 Schering-Plough Corp. 580,167 7,295,400 2.4
Pharmaceuticals 107,500 +Sequus Pharmaceuticals, Inc. 1,263,437 886,875 0.3
Medical Devices 100,000 United States Surgical Corp. 6,799,013 2,856,250 0.9
Medical Services 100,000 +Vencor, Inc. 3,194,630 2,450,000 0.8
------------ ------------ ------
28,875,547 49,960,711 16.2
===================================================================================================================
</TABLE>
<PAGE>
Merrill Lynch Fund For Tomorrow, Inc. January 31, 1998
SCHEDULE OF INVESTMENTS (continued)
<TABLE>
<CAPTION>
Shares Value Percent of
Concept Tomorrow Held Stocks Cost (Note 1a) Net Assets
- -------------------------------------------------------------------------------------------------------------------
Industrial Outsourcing
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Information Services 50,000 +Ceridian Corp. $ 1,959,250 $ 2,265,625 0.7%
Systems 50,000 +Computer Sciences Corporation 3,878,500 4,243,750 1.4
Specialty Services 250,000 +Sitel Corporation 3,939,288 2,265,625 0.7
Computer Software 50,000 +Sterling Commerce, Inc. 1,838,339 1,815,625 0.6
Aerospace & Defense 19,700 +Triumph Group, Inc. 534,070 733,825 0.2
------------ ------------ ------
12,149,447 11,324,450 3.6
- -------------------------------------------------------------------------------------------------------------------
Industrial Renaissance
- -------------------------------------------------------------------------------------------------------------------
Aerospace & Defense 50,000 The Boeing Company 2,645,250 2,378,125 0.7
Transportation 75,000 Delta Air Lines, Inc. 5,782,613 8,559,375 2.8
Automotive 100,000 General Motors Corp. 3,964,542 5,793,750 1.9
Information Systems 100,000 International Business Machines Corp. 2,834,250 9,868,750 3.2
Aerospace & Defense 6,377 Raytheon Company (Class A) (a) 226,358 326,024 0.1
------------ ------------ ------
15,453,013 26,926,024 8.7
- -------------------------------------------------------------------------------------------------------------------
Multimedia
- -------------------------------------------------------------------------------------------------------------------
Broadcasting Services 200,000 Carlton Communications PLC (ADR)* 7,266,875 6,975,000 2.3
Components 150,000 Harman International Industries Inc. 6,836,788 5,868,750 1.9
Information Services 400,000 +OzEmail, Ltd. (ADR)* 4,632,341 3,200,000 1.0
Cable Television 150,000 +Tele-Communications Liberty Media Group
(Series A) 2,675,003 5,371,875 1.8
Publishing Services 150,000 +World Color Press Inc. 3,056,000 4,125,000 1.3
------------ ------------ ------
24,467,007 25,540,625 8.3
- -------------------------------------------------------------------------------------------------------------------
Next Generation Technology
- -------------------------------------------------------------------------------------------------------------------
Pollution Technology 400,000 +Molten Metal Technology, Inc. 6,605,221 150,000 0.0
Environmental Equipment 119,400 +Thermo Ecotek Corp. 1,281,614 2,074,575 0.7
Multi-Industry 230,000 +Thermo Electron Corp. 4,937,738 8,970,000 2.9
Medical Devices 100,000 +Thermotrex Corp. 1,586,723 1,800,000 0.6
Components 150,000 +Voice Control Systems Inc. 834,037 618,750 0.2
------------ ------------ ------
15,245,333 13,613,325 4.4
- -------------------------------------------------------------------------------------------------------------------
Strategic Growth Opportunities
- -------------------------------------------------------------------------------------------------------------------
Pharmaceuticals 100,000 American Home Products Corp. 3,875,049 9,543,750 3.1
Leisure & Entertainment 300,000 +Galoob (Lewis) Toys, Inc. 4,238,645 2,681,250 0.9
Specialty Services 100,000 Household International, Inc. 6,712,565 12,450,000 4.0
Retail 88,400 +Toys `R' Us, Inc. 2,700,054 2,370,225 0.8
------------ ------------ ------
17,526,313 27,045,225 8.8
- -------------------------------------------------------------------------------------------------------------------
Telecommunications
- -------------------------------------------------------------------------------------------------------------------
Telecommunications 100,000 +ADC Telecommunications, Inc. 2,867,500 1,906,250 0.6
Telecommunications 200,000 Alcatel Alsthom Cie Generale
d'Electricite S.A. (ADR)* 5,087,260 5,212,500 1.7
Components 120,000 +Andrew Corp. 2,299,683 3,300,000 1.1
Telecommunications 300,000 Inter-Tel Inc. 2,153,750 7,500,000 2.4
Components 100,000 Nokia Corp. AB (ADR)* 3,778,500 7,600,000 2.5
Telecommunications 100,000 +RSL Communications, Ltd. (Class A) 2,200,000 2,200,000 0.7
------------ ------------ ------
18,386,693 27,718,750 9.0
===================================================================================================================
Total Stocks 205,997,033 278,577,737 90.2
===================================================================================================================
</TABLE>
9
<PAGE>
Merrill Lynch Fund For Tomorrow, Inc. January 31, 1998
SCHEDULE OF INVESTMENTS (concluded)
<TABLE>
<CAPTION>
Face Value Percent of
Amount Short-Term Securities Cost (Note 1a) Net Assets
===================================================================================================================
<S> <C> <C> <C> <C> <C>
Commercial $ 7,000,000 Apreco, Inc., 5.47% due 3/02/1998 $ 6,968,092 $ 6,968,092 2.3%
Paper** 13,978,000 Associates Corp. of North America, 5.61%
due 2/02/1998 13,973,643 13,973,643 4.5
5,000,000 Fleet Funding Corp., 5.50% due 3/02/1998 4,977,083 4,977,083 1.6
===================================================================================================================
Total Short-Term Securities 25,918,818 25,918,818 8.4
===================================================================================================================
Total Investments $231,915,851 304,496,555 98.6
============
Other Assets Less Liabilities 4,322,044 1.4
------------ ------
Net Assets $308,818,599 100.0%
============ ======
===================================================================================================================
</TABLE>
* 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.
(a) Received as a spin-off from General Motors Corp.
Categories of companies shown have not been audited by Deloitte & Touche
LLP.
See Notes to Financial Statements.
10
<PAGE>
Merrill Lynch Fund For Tomorrow, Inc. January 31, 1998
FINANCIAL INFORMATION
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
Statement of Assets and Liabilities as of January 31, 1998
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Assets: Investments, at value (identified cost--$231,915,851) (Note 1a) .. $304,496,555
Cash ............................................................. 234
Receivables:
Securities sold ................................................ $ 5,201,002
Capital shares sold ............................................ 341,806
Dividends ...................................................... 111,562 5,654,370
------------
Prepaid registration fees and other assets (Note 1f) ............. 23,372
------------
Total assets ..................................................... 310,174,531
------------
=================================================================================================================
Liabilities: Payables:
Capital shares redeemed ........................................ 872,200
Investment adviser (Note 2) .................................... 164,843
Distributor (Note 2) ........................................... 100,548 1,137,591
------------
Accrued expenses and other liabilities ........................... 218,341
------------
Total liabilities ................................................ 1,355,932
------------
=================================================================================================================
Net Assets: Net assets ....................................................... $308,818,599
============
=================================================================================================================
Net Assets Class A Shares of Common Stock, $0.10 par value, 100,000,000
Consist of: shares authorized ................................................ $ 86,840
Class B Shares of Common Stock, $0.10 par value, 100,000,000
shares authorized ................................................ 404,029
Class C Shares of Common Stock, $0.10 par value, 100,000,000
shares authorized ................................................ 19,586
Class D Shares of Common Stock, $0.10 par value, 100,000,000
shares authorized ................................................ 1,492,657
Paid-in capital in excess of par ................................. 231,300,803
Undistributed realized capital gains on investments and foreign
currency transactions--net ....................................... 2,933,989
Unrealized appreciation on investments and foreign currency
transactions--net ................................................ 72,580,695
------------
Net assets ....................................................... $308,818,599
============
=================================================================================================================
Net Asset Value: Class A--Based on net assets of $13,551,614 and 868,395 shares
outstanding ...................................................... $ 15.61
============
Class B--Based on net assets of $60,645,938 and 4,040,291 shares
outstanding ...................................................... $ 15.01
============
Class C--Based on net assets of $2,926,135 and 195,858 shares
outstanding ...................................................... $ 14.94
============
Class D--Based on net assets of $231,694,912 and 14,926,567 shares
outstanding ...................................................... $ 15.52
============
=================================================================================================================
</TABLE>
See Notes to Financial Statements.
11
<PAGE>
Merrill Lynch Fund For Tomorrow, Inc. January 31, 1998
FINANCIAL INFORMATION (continued)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
Statement of Operations for the Year Ended January 31, 1998
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Investment Dividends (net of $111,810 foreign withholding tax) ............ $ 3,017,973
Income Interest and discount earned ................................... 1,337,906
(Notes 1d & 1e): ------------
Total income ................................................... 4,355,879
------------
=================================================================================================================
Expenses: Investment advisory fees (Note 2) .............................. $ 2,263,650
Account maintenance and distribution fees--Class B (Note 2) .... 800,509
Account maintenance fees--Class D (Note 2) ..................... 599,540
Transfer agent fees--Class D (Note 2) .......................... 466,112
Transfer agent fees--Class B (Note 2) .......................... 196,321
Printing and shareholder reports ............................... 113,883
Accounting services (Note 2) ................................... 90,076
Registration fees (Note 1f) .................................... 69,810
Custodian fees ................................................. 66,456
Professional fees .............................................. 59,995
Account maintenance and distribution fees--Class C (Note 2) .... 49,658
Transfer agent fees--Class A (Note 2) .......................... 47,598
Directors' fees and expenses ................................... 24,196
Transfer agent fees--Class C (Note 2) .......................... 13,490
Pricing fees ................................................... 1,200
Other .......................................................... 40,230
------------
Total expenses ................................................. 4,902,724
------------
Investment loss--net ........................................... (546,845)
------------
=================================================================================================================
Realized & Realized gain (loss) from:
Unrealized Gain Investments--net ............................................. 57,704,612
(Loss) on Foreign currency transactions--net ........................... (28,936) 57,675,676
Investments & ------------
Foreign Currency Change in unrealized appreciation/depreciation on:
Transactions-- Investments--net ............................................. (15,555,112)
Net (Notes 1b, Foreign currency transactions--net ........................... 17 (15,555,095)
1c, 1e & 3): ------------ ------------
Net realized and unrealized gain on investments and foreign
currency transactions .......................................... 42,120,581
------------
Net Increase in Net Assets Resulting from Operations ........... $ 41,573,736
============
=================================================================================================================
</TABLE>
See Notes to Financial Statements.
12
<PAGE>
Merrill Lynch Fund For Tomorrow, Inc. January 31, 1998
FINANCIAL INFORMATION (continued)
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
For the Year Ended
January 31,
---------------------------
Increase (Decrease) in Net Assets: 1998 1997
=======================================================================================================================
<S> <C> <C> <C>
Operations: Investment income(loss)--net .......................................... $ (546,845) $ 6,084
Realized gain on investments and foreign currency transactions--net ... 57,675,676 52,807,780
Change in unrealized appreciation/depreciation on investments and
foreign currency transactions--net .................................... (15,555,095) 15,690,009
------------ ------------
Net increase in net assets resulting from operations .................. 41,573,736 68,503,873
============ ============
=======================================================================================================================
Distributions to Realized gain on investments--net:
Shareholders Class A ............................................................. (3,096,223) (5,337,338)
(Note 1g): Class B ............................................................. (12,917,948) (12,797,082)
Class C ............................................................. (663,684) (1,078,464)
Class D ............................................................. (45,397,650) (28,024,409)
------------ ------------
Net decrease in net assets resulting from distributions to shareholders (62,075,505) (47,237,293)
============ ============
=======================================================================================================================
Capital Share Net decrease in net assets derived from capital
Transactions share transactions .................................................... (61,802,479) (10,906,448)
(Note 4): ------------ ------------
=======================================================================================================================
Net Assets: Total increase (decrease) in net assets ............................... (82,304,248) 10,360,132
Beginning of year ..................................................... 391,122,847 380,762,715
------------ ------------
End of year ........................................................... $308,818,599 $391,122,847
============ ============
=======================================================================================================================
</TABLE>
See Notes to Financial Statements.
13
<PAGE>
Merrill Lynch Fund For Tomorrow, Inc. January 31, 1998
FINANCIAL INFORMATION (continued)
Financial Highlights
<TABLE>
<CAPTION>
The following per share data and ratios have been derived Class A
from information provided in the financial statements. -----------------------------------------------
For the Year Ended January 31,
-----------------------------------------------
Increase (Decrease) in Net Asset Value: 1998+ 1997+ 1996+ 1995+ 1994
========================================================================================================================
<S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of year ............... $ 17.16 $ 16.26 $ 13.55 $ 16.39 $ 16.29
Operating ------- ------- ------- ------- -------
Performance: Investment income--net ........................... .07 .08 .07 .09 .15
Realized and unrealized gain (loss) on investments
and foreign currency transactions--net ........... 1.99 3.04 4.19 (1.97) 2.18
------- ------- ------- ------- -------
Total from investment operations ................. 2.06 3.12 4.26 (1.88) 2.33
------- ------- ------- ------- -------
Less distributions from realized gain
on investments--net .............................. (3.61) (2.22) (1.55) (.96) (2.23)
------- ------- ------- ------- -------
Net asset value, end of year ..................... $ 15.61 $ 17.16 $ 16.26 $ 13.55 $ 16.39
======= ======= ======= ======= =======
========================================================================================================================
Total Investment Based on net asset price per share ............... 12.43% 19.99% 31.82% (11.23%) 15.78%
Return:* ======= ======= ======= ======= =======
========================================================================================================================
Ratios to Average Expenses ......................................... .99% 1.00% 1.07% .98% .88%
Net Assets: ======= ======= ======= ======= =======
Investment income--net ........................... .40% .46% .44% .59% .95%
======= ======= ======= ======= =======
========================================================================================================================
Supplemental Net assets, end of year (in thousands) ........... $13,552 $39,605 $34,231 $ 8,665 $10,942
Data: ======= ======= ======= ======= =======
Portfolio turnover ............................... 17.63% 39.96% 67.38% 45.86% 48.63%
======= ======= ======= ======= =======
Average commission rate paid++ ................... $ .0003 $ .0277 -- -- --
======= ======= ======= ======= =======
========================================================================================================================
</TABLE>
* Total investment returns exclude the effects of sales
loads.
+ Based on average shares outstanding.
++ 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.
14
<PAGE>
Merrill Lynch Fund For Tomorrow, Inc. January 31, 1998
FINANCIAL INFORMATION (continued)
Financial Highlights (continued)
<TABLE>
<CAPTION>
The following per share data and ratios have been derived Class B
from information provided in the financial statements. ---------------------------------------------------
For the Year Ended January 31,
---------------------------------------------------
Increase (Decrease) in Net Asset Value: 1998+ 1997+ 1996+ 1995+ 1994
============================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of year ........... $ 16.59 $ 15.79 $ 13.33 $ 16.30 $ 16.28
Operating ------- -------- -------- -------- --------
Performance: Investment loss--net ......................... (.13) (.10) (.08) (.06) (.01)
Realized and unrealized gain (loss) on
investments and foreign currency
transactions--net ............................ 1.92 2.95 4.09 (1.96) 2.17
------- -------- -------- -------- --------
Total from investment operations ............. 1.79 2.85 4.01 (2.02) 2.16
------- -------- -------- -------- --------
Less distributions from realized gain
on investments--net .......................... (3.37) (2.05) (1.55) (.95) (2.14)
------- -------- -------- -------- --------
Net asset value, end of year ................. $ 15.01 $ 16.59 $ 15.79 $ 13.33 $ 16.30
======= ======== ======== ======== ========
============================================================================================================================
Total Investment Based on net asset price per share ........... 11.20% 18.80% 30.43% (12.22%) 14.60%
Return:* ======= ======== ======== ======== ========
============================================================================================================================
Ratios to Average Expenses ..................................... 2.03% 2.06% 2.13% 1.99% 1.91%
Net Assets: ======= ======== ======== ======== ========
Investment loss--net ......................... (.74%) (.58%) (.55%) (.38%) (.07%)
======= ======== ======== ======== ========
============================================================================================================================
Supplemental Net assets, end of year (in thousands) ....... $60,646 $104,828 $112,239 $119,186 $396,424
Data: ======= ======== ======== ======== ========
Portfolio turnover ........................... 17.63% 39.96% 67.38% 45.86% 48.63%
======= ======== ======== ======== ========
Average commission rate paid++ ............... $ .0003 $ .0277 -- -- --
======= ======== ======== ======== ========
============================================================================================================================
</TABLE>
* Total investment returns exclude the effects of sales
loads.
+ Based on average shares outstanding.
++ 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.
15
<PAGE>
Merrill Lynch Fund For Tomorrow, Inc. January 31, 1998
FINANCIAL INFORMATION (continued)
Financial Highlights (continued)
<TABLE>
<CAPTION>
Class C++
----------------------------------------
For the
Period
The following per share data and ratios have been derived Oct. 21,
from information provided in the financial statements. For the Year Ended January 31, 1994+ to
------------------------------ Jan. 31,
Increase (Decrease) in Net Asset Value: 1998 1997 1996 1995
================================================================================================================
<S> <C> <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 ............................ (.11) (.10) (.10) (.04)
Realized and unrealized gain (loss) on
investments and foreign currency
transactions--net ............................... 1.88 2.94 4.08 (.54)
------- ------- ------- -------
Total from investment operations ................ 1.77 2.84 3.98 (.58)
------- ------- ------- -------
Less distributions from realized gain
on investments--net ............................. (3.30) (2.08) (1.55) (.22)
------- ------- ------- -------
Net asset value, end of period .................. $ 14.94 $ 16.47 $ 15.71 $ 13.28
======= ======= ======= =======
================================================================================================================
Total Investment Based on net asset value per share .............. 11.15% 18.80% 30.32% (4.12%)+++
Return:** ======= ======= ======= =======
================================================================================================================
Ratios to Average Expenses ........................................ 2.06% 2.07% 2.14% 2.26% *
Net Assets: ======= ======= ======= =======
Investment loss--net ............................ (.68%) (.61%) (.67%) (.87%)*
======= ======= ======= =======
================================================================================================================
Supplemental Net assets, end of period
Data: (in thousands) .................................. $ 2,926 $ 8,430 $ 6,385 $ 80
======= ======= ======= =======
Portfolio turnover .............................. 17.63% 39.96% 67.38% 45.86%
======= ======= ======= =======
Average commission rate paid# ................... $ .0003 $ .0277 -- --
======= ======= ======= =======
================================================================================================================
</TABLE>
* Annualized.
** Total investment returns exclude the effects of sales
loads.
+ Commencement of operations.
++ Based on average shares outstanding.
+++ 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.
16
<PAGE>
Merrill Lynch Fund For Tomorrow, Inc. January 31, 1998
FINANCIAL INFORMATION (concluded)
Financial Highlights (concluded)
<TABLE>
<CAPTION>
Class D++
-----------------------------------------
For the
Period
The following per share data and ratios have been derived Oct. 21,
from information provided in the financial statements. For the Year Ended January 31, 1994+ to
------------------------------ Jan. 31,
Increase (Decrease) in Net Asset Value: 1998 1997 1996 1995
=================================================================================================================
<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 .............. --# .04 .03 (.01)
Realized and unrealized gain (loss) on
investments and foreign currency
transactions--net .......................... 1.99 3.03 4.18 (.49)
-------- -------- -------- --------
Total from investment operations ........... 1.99 3.07 4.21 (.50)
-------- -------- -------- --------
Less distributions from realized gain
on investments--net ........................ (3.56) (2.18) (1.55) (.22)
-------- -------- -------- --------
Net asset value, end of period ............. $ 15.52 $ 17.09 $ 16.20 $ 13.54
======== ======== ======== ========
=================================================================================================================
Total Investment Based on net asset value per share ......... 12.07% 19.73% 31.47% (3.50%)+++
Return:** ======== ======== ======== ========
=================================================================================================================
Ratios to Average Expenses ................................... 1.23% 1.25% 1.33% 1.43% *
Net Assets: ======== ======== ======== ========
Investment income (loss)--net .............. (.01%) .22% .22% (.23%)*
======== ======== ======== ========
=================================================================================================================
Supplemental Net assets, end of period
Data: (in thousands) ............................. $231,695 $238,260 $227,908 $156,947
======== ======== ======== ========
Portfolio turnover ......................... 17.63% 39.96% 67.38% 45.86%
======== ======== ======== ========
Average commission rate paid## ............. $ .0003 $ .0277 -- --
======== ======== ======== ========
=================================================================================================================
</TABLE>
* Annualized.
** Total investment returns exclude the effects of sales
loads.
+ Commencement of operations.
++ Based on average shares outstanding.
+++ Aggregate total investment return.
# Amount is less than $(.01) per share.
## 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.
17
<PAGE>
Merrill Lynch Fund For Tomorrow, Inc. January 31, 1998
NOTES TO FINANCIAL STATEMENTS
<PAGE>
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
PricingSM 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.
(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 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.
o 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 the cost of the closing transaction exceeds the
premium received).
Written options are non-income producing investments.
(c) Foreign currency transactions--Transactions denominated in foreign
currencies are recorded at the exchange rate prevailing when recognized. Assets
and liabilities denominated in foreign currencies are valued at the exchange
rate at the end of the period. Foreign currency transactions are the result of
settling (realized) or valuing (unrealized) assets or liabilities expressed in
foreign currencies into US dollars. Realized and unrealized gains or losses from
investments include the effects of foreign exchange rates on investments.
(d) Income taxes--It is the Fund's policy to comply with the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its taxable income to its shareholders.
Therefore, no Federal income tax provision is required. Under the applicable
foreign tax law, a withholding tax may be imposed on interest, dividends and
capital gains at various rates.
(e) Security transactions and investment income--Security transactions are
recorded on the dates the transactions are entered into (the trade dates).
Dividend income is recorded on the ex-dividend 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
18
<PAGE>
Merrill Lynch Fund For Tomorrow, Inc. January 31, 1998
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.
(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 $546,845 have been reclassified between undistributed
net realized capital gains and accumulated net investment loss. 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.
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 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, 1998, MLFD earned underwriting discounts and
direct commissions and MLPF&S earned dealer concessions on sales of the Fund's
Class A and Class D Shares as follows:
- --------------------------------------------------------------------------------
MLFD MLPF&S
- --------------------------------------------------------------------------------
Class A ..................................... $ 262 $ 3,201
Class D ..................................... $2,297 $35,927
- --------------------------------------------------------------------------------
For the year ended January 31, 1998, MLPF&S also received contingent deferred
sales charges of $286,983 and $2,260 relating to transactions in Class B and C
Shares, respectively.
In addition, MLPF&S received $17,500 in commissions on the execution of
portfolio security transactions for the Fund for the year ended January 31,
1998.
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.
19
<PAGE>
Merrill Lynch Fund For Tomorrow, Inc. January 31, 1998
NOTES TO FINANCIAL STATEMENTS (concluded)
3. Investments:
Purchases and sales of investments, excluding short-term securities, for the
year ended January 31, 1998 were $57,175,449 and $179,839,410, respectively.
Net realized and unrealized gains (losses) as of January 31, 1998 were as
follows:
- --------------------------------------------------------------------------------
Realized Unrealized
Gains (Losses) Gains (Losses)
- --------------------------------------------------------------------------------
Long-term investments .................... $57,704,895 $ 72,580,704
Short-term investments ................... (283) --
Foreign currency transactions ............ (28,936) (9)
----------- ------------
Total .................................... $57,675,676 $ 72,580,695
=========== ============
- --------------------------------------------------------------------------------
As of January 31, 1998, net unrealized appreciation for Federal income tax
purposes aggregated $72,580,704, of which $106,344,675 related to appreciated
securities and $33,763,971 related to depreciated securities. The aggregate
cost of investments at January 31, 1998 for Federal income tax purposes was
$231,915,851.
4. Capital Share Transactions:
Net decrease in net assets derived from capital share transactions was
$61,802,479 and $10,906,448 for the years ended January 31, 1998 and January 31,
1997, respectively.
Transactions in capital shares for each class were as follows:
- --------------------------------------------------------------------------------
Class A Shares for the Year Dollar
Ended January 31, 1998 Shares Amount
- --------------------------------------------------------------------------------
Shares sold .............................. 1,197,905 $ 20,864,302
Shares issued to shareholders
in reinvestment of
distributions ............................ 180,489 2,873,039
---------- ------------
Total issued ............................. 1,378,394 23,737,341
Shares redeemed .......................... (2,817,447) (50,445,255)
---------- ------------
Net decrease ............................. (1,439,053) $(26,707,914)
========== ============
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class A Shares for the Year Dollar
Ended January 31, 1997 Shares Amount
- --------------------------------------------------------------------------------
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 Year Dollar
Ended January 31, 1998 Shares Amount
- --------------------------------------------------------------------------------
Shares sold .............................. 852,979 $ 14,843,653
Shares issued to shareholders
in reinvestment of
distributions ............................ 734,764 11,120,083
---------- ------------
Total issued ............................. 1,587,743 25,963,736
Automatic conversion of
shares ................................... (542,990) (9,274,818)
Shares redeemed .......................... (3,322,941) (57,782,855)
---------- ------------
Net decrease ............................. (2,278,188) $(41,093,937)
========== ============
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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 Year Dollar
Ended January 31, 1998 Shares Amount
- --------------------------------------------------------------------------------
Shares sold .............................. 203,919 $ 3,547,005
Shares issued to shareholders
in reinvestment of
distributions ............................ 39,199 597,135
---------- ------------
Total issued ............................. 243,118 4,144,140
Shares redeemed .......................... (559,154) (9,692,133)
---------- ------------
Net decrease ............................. (316,036) $ (5,547,993)
========== ============
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class C Shares for the Year Dollar
Ended 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
========== ============
- --------------------------------------------------------------------------------
20
<PAGE>
Merrill Lynch Fund For Tomorrow, Inc. January 31, 1998
- --------------------------------------------------------------------------------
Class D Shares for the Year Dollar
Ended January 31, 1998 Shares Amount
- --------------------------------------------------------------------------------
Shares sold .............................. 265,722 $ 4,736,667
Automatic conversion
of shares ................................ 525,220 9,274,818
Shares issued to shareholders
in reinvestment of
distributions ............................ 2,574,802 39,929,189
---------- ------------
Total issued ............................. 3,365,744 53,940,674
Shares redeemed .......................... (2,380,236) (42,393,309)
---------- ------------
Net increase ............................. 985,508 $ 11,547,365
========== ============
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class D Shares for the Year Dollar
Ended January 31, 1997 Shares Amount
- --------------------------------------------------------------------------------
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)
========== ============
- --------------------------------------------------------------------------------
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, 1998, 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.
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, 1998 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, 1998, 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, 1998
21
<PAGE>
Merrill Lynch Fund For Tomorrow, Inc. January 31, 1998
IMPORTANT TAX INFORMATION (unaudited)
The following information summarizes all per share distributions paid by Merrill
Lynch Fund For Tomorrow, Inc. during its taxable year ended January 31, 1998.
<TABLE>
<CAPTION>
==================================================================================================
Domestic
Qualifying Non-Qualifying Total Long-Term
Record Payable Ordinary Ordinary Ordinary Capital
Date Date Income Income Income Gains
==================================================================================================
<S> <C> <C> <C> <C> <C>
Class A Shares:
==================================================================================================
07/01/97 07/10/97 $0.016850 $0.081975 $0.098825 $0.298447
- --------------------------------------------------------------------------------------------------
12/11/97 12/19/97 $0.171895 $0.112163 $0.284058 $2.925730
==================================================================================================
Class B Shares:
==================================================================================================
07/01/97 07/10/97 $0.013828 $0.067275 $0.081103 $0.298447
- --------------------------------------------------------------------------------------------------
12/11/97 12/19/97 $0.041871 $0.027321 $0.069192 $2.925730
==================================================================================================
Class C Shares:
==================================================================================================
07/01/97 07/10/97 $0.013478 $0.065570 $0.079048 $0.298447
- --------------------------------------------------------------------------------------------------
12/11/97 12/19/97 $0.000205 $0.000133 $0.000338 $2.925730
==================================================================================================
Class D Shares:
==================================================================================================
07/01/97 07/10/97 $0.016226 $0.078937 $0.095163 $0.298447
- --------------------------------------------------------------------------------------------------
12/11/97 12/19/97 $0.145487 $0.094931 $0.240418 $2.925730
==================================================================================================
</TABLE>
The domestic qualifying ordinary income qualifies for the dividends received
deduction for corporations.
Please retain this information for your records.
22
<PAGE>
Merrill Lynch Fund For Tomorrow January 31, 1998
PORTFOLIO INFORMATION (unaudited)
For the Quarter Ended January 31, 1998
Percent of
Ten Largest Equity Holdings Net Assets
Household International, Inc. ............... 4.0%
COMPAQ Computer Corp. ....................... 3.9
Merck & Co., Inc. ........................... 3.8
Avon Products, Inc. ......................... 3.4
Bristol-Myers Squibb Co. .................... 3.2
International Business Machines Corp. ....... 3.2
Sun Microsystems, Inc. ...................... 3.1
American Home Products Corp. ................ 3.1
Thermo Electron Corp. ....................... 2.9
Delta Air Lines, Inc. ....................... 2.8
Additions
Gucci Group N.V. (NY Registered Shares)
Networks Associates, Inc.
Deletions
ConAgra Inc.
Living Centers of America, Inc.
National Data Corporation
Petroleo Brasileiro S.A.--Petrobras (Preferred)
Seagate Technology, Inc.
Telecomunicacoes do Rio de Janeiro S.A.--Telerj (Preferred)
Tricon Global Restaurants, Inc.
United Dental Care, Inc.
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
Vincent P. Dileo, Senior Vice President and
Portfolio Manager
Norman R. Harvey, Senior Vice President
Donald C. Burke, Vice President
Gerald M. Richard, Treasurer
Susan B. Baker, Secretary
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
23
<PAGE>
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 #10261--1/98
[LOGO] Printed on post-consumer recycled paper
