AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 28, 1998
Securities Act File No.
Investment Company Act File No. 811-6669
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
________________
FORM N-14
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
________________
/ /PRE-EFFECTIVE AMENDMENT NO. / /POST-EFFECTIVE AMENDMENT NO.
(CHECK APPROPRIATE BOX OR BOXES)
________________
MERRILL LYNCH FUNDAMENTAL GROWTH FUND, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
________________
(609) 282-2800
(AREA CODE AND TELEPHONE NUMBER)
________________
800 SCUDDERS MILL ROAD
PLAINSBORO, NEW JERSEY 08536
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES:
NUMBER, STREET, CITY, STATE, ZIP CODE)
________________
ARTHUR ZEIKEL
MERRILL LYNCH FUNDAMENTAL GROWTH FUND, INC.
800 SCUDDERS MILL ROAD, PLAINSBORO, NEW JERSEY 08536
MAILING ADDRESS: P.O. BOX 9011, PRINCETON, NEW JERSEY 08543-9011
(NAME AND ADDRESS OF AGENT FOR SERVICE)
________________
Copies to:
FRANK P. BRUNO, ESQ. PHILIP L. KIRSTEIN, ESQ.
BROWN & WOOD LLP MERRILL LYNCH ASSET MANAGEMENT, L.P.
ONE WORLD TRADE CENTER 800 SCUDDERS MILL ROAD
NEW YORK, NY 10048-0557 PLAINSBORO, NJ 08536
________________
APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING: As soon as practicable after
the Registration Statement becomes effective under the Securities Act of 1933.
________________
Title of Securities Being Registered: Common Stock, Par Value $.10 per
share.
No filing fee is required because of reliance on Section 24(f) under the
Investment Company Act of 1940, as amended.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
================================================================================
<TABLE>
MERRILL LYNCH FUNDAMENTAL GROWTH FUND, INC.
CROSS REFERENCE SHEET
PURSUANT TO RULE 481(a) UNDER THE SECURITIES ACT OF 1933
<CAPTION>
FORM N-14 PROXY STATEMENT AND
ITEM NO. PROSPECTUS CAPTION
- --------- ------------------------------------------------
<S> <C> <C>
PART A
------
Item 1. Beginning of Registration Statement
and Outside Front Cover Page of
Prospectus.......................... Registration Statement Cover Page; Proxy
Statement and Prospectus Cover Page
Item 2. Beginning and Outside Back Cover Table of Contents
Page of Prospectus..................
Item 3. Fee Table, Synopsis Information and
Risk Factors........................ Summary; Risk Factors and Special Considerations
Item 4. Information about the Transaction... Summary; The Reorganization--Agreement and Plan
of Reorganization
Item 5. Information about the Registrant.... Proxy Statement and Prospectus Cover Page;
Summary; Comparison of the Funds; Additional
Information
Item 6. Information about the Company Being
Acquired............................ Proxy Statement and Prospectus Cover Page;
Summary; Comparison of the Funds; Additional
Information
Item 7. Voting Information.................. Notice of Special Meeting of Stockholders;
Introduction; Summary; Comparison of the Funds;
Information Concerning the Special Meeting;
Additional Information
Item 8. Interest of Certain Persons and Not Applicable
Experts.............................
Item 9. Additional Information Required for Not Applicable
Reoffering by Persons Deemed to be
Underwriters........................
PART B
------
Item 10. Cover Page.......................... Cover Page
Item 11. Table of Contents................... Table of Contents
Item 12. Additional Information about the
Registrant.......................... General Information
Item 13. Additional Information about the
Company Being Acquired.............. General Information
Item 14. Financial Statements................ Financial Statements
PART C
------
Information required to be included in Part C is set forth under the
appropriate Item, so numbered, in Part C to this Registration Statement.
</TABLE>
[Proxy Card Front]
MERRILL LYNCH FUND FOR TOMORROW, INC.
P.O. BOX 9011
PRINCETON, NEW JERSEY 08543-9011
PROXY
This proxy is solicited on behalf of the Board of Directors
The undersigned hereby appoints Arthur Zeikel, Terry K. Glenn and Susan B.
Baker as proxies, each with the power to appoint his or her substitute, and
hereby authorizes each of them to represent and to vote, as designated on the
reverse hereof, all of the shares of common stock of Merrill Lynch Fund For
Tomorrow, Inc. (the "Fund") held of record by the undersigned on August 25,
1998, at a Special Meeting of Stockholders of the Fund to be held on October 13,
1998, or any adjournment thereof.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER HEREIN
DIRECTED BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY
WILL BE VOTED FOR PROPOSAL 1.
(Continued and to be signed on the reverse side)
[Proxy Card Reverse]
1. To approve the Agreement and Plan of Reorganization between Merrill Lynch
Fund For Tomorrow, Inc. and Merrill Lynch Fundamental Growth Fund, Inc.
FOR / / AGAINST / / ABSTAIN / /
2. In the discretion of such proxies, upon such other business as properly may
come before the meeting or any adjournment thereof.
Please sign exactly as name appears hereon. When shares are held
by joint tenants, both should sign. When signing as attorney or
as executor, administrator, trustee or guardian, please give full
title as such. If a corporation, please sign in full corporate
name by president or other authorized officer. If a partnership,
please sign in partnership name by authorized persons.
Dated:_____________________________ __, 1998
X___________________________________________
Signature
X___________________________________________
Signature, if held jointly
PLEASE MARK BOXES /X/ OR [X] IN BLUE OR BLACK INK. SIGN, DATE AND RETURN THE
PROXY CARD PROMPTLY USING THE ENCLOSED ENVELOPE.
MERRILL LYNCH FUND FOR TOMORROW, INC.
P.O. BOX 9011
PRINCETON, NEW JERSEY 08543-9011
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON OCTOBER 13, 1998
TO THE STOCKHOLDERS OF
MERRILL LYNCH FUND FOR TOMORROW, INC.:
NOTICE IS HEREBY GIVEN that a special meeting of stockholders (the
"Meeting") of Merrill Lynch Fund For Tomorrow, Inc. ("Fund For Tomorrow") will
be held at the offices of Merrill Lynch Asset Management, L.P., 800 Scudders
Mill Road, Plainsboro, New Jersey on October 13, 1998 at 9:00 a.m., New York
time, for the following purposes:
(1) To approve or disapprove an Agreement and Plan of Reorganization (the
"Agreement and Plan of Reorganization") providing for the acquisition of
substantially all of the assets of Fund For Tomorrow by Merrill Lynch
Fundamental Growth Fund, Inc. ("Fundamental Growth Fund"), and the assumption of
substantially all of the liabilities of Fund For Tomorrow by Fundamental Growth
Fund, in exchange solely for an equal aggregate value of newly-issued shares of
Fundamental Growth Fund. The Agreement and Plan of Reorganization also provides
for distribution of such shares of Fundamental Growth Fund to stockholders of
Fund For Tomorrow in liquidation of Fund For Tomorrow. A vote in favor of this
proposal will constitute a vote in favor of the liquidation and dissolution of
Fund For Tomorrow and the termination of its registration under the Investment
Company Act of 1940, as amended; and
(2) To transact such other business as properly may come before the Meeting
or any adjournment thereof.
The Board of Directors of Fund For Tomorrow has fixed the close of business
on August 25, 1998 as the record date for the determination of stockholders
entitled to notice of, and to vote at, the Meeting or any adjournment thereof.
A complete list of the stockholders of Fund For Tomorrow entitled to vote
at the Meeting will be available and open to the examination of any stockholders
of Fund For Tomorrow for any purpose germane to the Meeting during ordinary
business hours from and after September 29, 1998 at the offices of Fund For
Tomorrow, 800 Scudders Mill Road, Plainsboro, New Jersey.
You are cordially invited to attend the Meeting. Stockholders who do not
expect to attend the Meeting in person are requested to complete, date and sign
the enclosed form of proxy and return it promptly in the envelope provided for
that purpose. The enclosed proxy is being solicited on behalf of the Board of
Directors of Fund For Tomorrow.
By Order of the Board of Directors,
SUSAN B. BAKER
Secretary
Plainsboro, New Jersey
Dated:_______________________, 1998
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
SUBJECT TO COMPLETION
PRELIMINARY PROXY STATEMENT AND PROSPECTUS DATED JULY 28, 1998
MERRILL LYNCH FUND FOR TOMORROW, INC.
MERRILL LYNCH FUNDAMENTAL GROWTH FUND, INC.
P.O. BOX 9011, PRINCETON, NEW JERSEY 08543-9011
(609) 282-2800
SPECIAL MEETING OF STOCKHOLDERS OF
MERRILL LYNCH FUND FOR TOMORROW, INC.
OCTOBER 13, 1998
This Proxy Statement and Prospectus is furnished in connection with the
solicitation of proxies on behalf of the Board of Directors of Merrill Lynch
Fund For Tomorrow, Inc., a Maryland corporation ("Fund For Tomorrow"), for use
at the Special Meeting of Stockholders of Fund For Tomorrow (the "Meeting")
called to approve or disapprove the proposed reorganization whereby Merrill
Lynch Fundamental Growth Fund, Inc., a Maryland corporation ("Fundamental Growth
Fund"), will acquire substantially all of the assets, and will assume
substantially all of the liabilities, of Fund For Tomorrow, in exchange solely
for an equal aggregate value of newly-issued shares of Fundamental Growth Fund
(the "Reorganization"). Immediately upon the receipt by Fundamental Growth Fund
of the assets of Fund For Tomorrow and the assumption by Fundamental Growth Fund
of the liabilities of Fund For Tomorrow, Fund For Tomorrow will distribute the
shares of Fundamental Growth Fund received in the Reorganization to the
stockholders of Fund For Tomorrow. Thereafter, Fund For Tomorrow will terminate
its registration under the Investment Company Act of 1940, as amended (the
"Investment Company Act"), and will dissolve in accordance with the laws of the
State of Maryland.
Holders of shares of Fund For Tomorrow will receive that class of shares of
Fundamental Growth Fund having the same letter designation (i.e., Class A, Class
B, Class C or Class D) and the same distribution fees, account maintenance fees,
and sales charges (including contingent deferred sales charges ("CDSCs")), if
any (the "Corresponding Shares"), as the shares of Fund For Tomorrow held by
them immediately prior to the Reorganization. The aggregate net asset value of
the Corresponding Shares of Fundamental Growth Fund to be issued to the
stockholders of Fund For Tomorrow will equal the aggregate net asset value of
the outstanding shares of Fund For Tomorrow as set forth in the Agreement and
Plan of Reorganization. Fund For Tomorrow and Fundamental Growth Fund sometimes
are referred to herein collectively as the "Funds" and individually as a "Fund,"
as the context requires. Fundamental Growth Fund following the Reorganization is
sometimes referred to herein as the "Combined Fund."
This Proxy Statement and Prospectus serves as a prospectus of Fundamental
Growth Fund under the Securities Act of 1933, as amended (the "Securities Act"),
in connection with the issuance of shares of Fundamental Growth Fund to Fund For
Tomorrow pursuant to the terms of the Reorganization.
Both Fund For Tomorrow and Fundamental Growth Fund are open-end management
investment companies that seek to provide stockholders with long-term growth of
capital. Fundamental Growth Fund seeks to invest in a diversified portfolio of
equity securities, placing particular emphasis on companies that have exhibited
above-average growth rates in earnings. Fund For Tomorrow invests in a
quality-oriented portfolio of securities, primarily common stock. Using a
thematic approach of investing in long-term trends, management of Fund for
Tomorrow seeks to identify companies whose products and services are believed to
represent attractive investment opportunities. There can be no assurance that,
after the Reorganization, Fundamental Growth Fund will achieve its investment
objective.
The current prospectus relating to Fundamental Growth Fund, dated November
26, 1997 (the "Fundamental Growth Fund Prospectus"), accompanies this Proxy
Statement and Prospectus and is incorporated herein by reference. The
Semi-Annual Report to Shareholders of Fundamental Growth Fund for the six months
ended February 28, 1998 also accompanies this Proxy Statement and Prospectus. A
statement of additional information relating to Fundamental Growth Fund, dated
November 26, 1997 (the "Fundamental Growth Fund Statement"), a prospectus of
Fund For Tomorrow dated April 30, 1998 (the "Fund For Tomorrow Prospectus") and
a statement of additional information relating to Fund For Tomorrow, dated April
30, 1998 (the "Fund For Tomorrow Statement"), have been filed with the
Securities and Exchange Commission (the "Commission"). Such documents may be
obtained, without charge, by writing either Fund For Tomorrow or Fundamental
Growth Fund at the address above, or by calling 1-800-456-4587, ext. 123.
________________
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, NOR HAS THE COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROXY STATEMENT AND PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
________________
This Proxy Statement and Prospectus sets forth concisely the information
about Fundamental Growth Fund that stockholders of Fund For Tomorrow should know
before considering the Reorganization and should be retained for future
reference. Fund For Tomorrow has authorized the solicitation of proxies in
connection with the Reorganization solely on the basis of this Proxy Statement
and Prospectus and the accompanying documents.
A statement of additional information relating to the Reorganization (the
"Statement of Additional Information"), including pro forma financial statements
of Fund For Tomorrow and Fundamental Growth Fund, is on file with the
Commission. It is available from Fundamental Growth Fund without charge, upon
request by calling the toll free telephone number set forth above or by writing
Fundamental Growth Fund at its principal executive offices. The Statement of
Additional Information, dated [ ], 1998 is incorporated by reference into
this Proxy Statement and Prospectus. The Commission maintains a web site
(http://www.sec.gov) that contains the Statement of Additional Information, the
Fundamental Growth Fund Prospectus, the Fund For Tomorrow Prospectus, the
Fundamental Growth Fund Statement, the Fund For Tomorrow Statement, other
material incorporated by reference and other information regarding the Funds.
The address of the principal executive offices of both Fund For Tomorrow
and Fundamental Growth Fund is 800 Scudders Mill Road, Plainsboro, New Jersey
08536, and the telephone number is (609) 282-2800.
________________
THE DATE OF THIS PROXY STATEMENT AND PROSPECTUS IS [ ], 1998.
TABLE OF CONTENTS
PAGE
----
INTRODUCTION..................................................................1
SUMMARY.......................................................................1
THE REORGANIZATION.........................................................1
PRO FORMA FEE TABLE FOR CLASS A AND CLASS B
STOCKHOLDERS OF FUND FOR TOMORROW,
FUNDAMENTAL GROWTH FUND AND THE
COMBINED FUND AS OF JUNE 30, 1998 (UNAUDITED)............................3
PRO FORMA FEE TABLE FOR CLASS C AND CLASS D
STOCKHOLDERS OF FUND FOR TOMORROW,
FUNDAMENTAL GROWTH FUND AND THE
COMBINED FUND AS OF JUNE 30, 1998 (UNAUDITED)............................5
RISK FACTORS AND SPECIAL CONSIDERATIONS......................................15
COMPARISON OF THE FUNDS......................................................18
FINANCIAL HIGHLIGHTS......................................................18
INVESTMENT OBJECTIVES AND POLICIES........................................23
OTHER INVESTMENT POLICIES.................................................24
INVESTMENT RESTRICTIONS...................................................25
MANAGEMENT................................................................25
PURCHASE OF SHARES........................................................27
REDEMPTION OF SHARES......................................................27
PERFORMANCE...............................................................27
SHAREHOLDER RIGHTS........................................................28
DIVIDENDS AND DISTRIBUTIONS...............................................29
TAX INFORMATION...........................................................29
PORTFOLIO TRANSACTIONS....................................................29
PORTFOLIO TURNOVER........................................................29
ADDITIONAL INFORMATION....................................................30
THE REORGANIZATION...........................................................31
GENERAL...................................................................31
PROCEDURE.................................................................31
TERMS OF THE AGREEMENT AND PLAN OF
REORGANIZATION..........................................................32
POTENTIAL BENEFITS TO STOCKHOLDERS AS A
RESULT OF THE REORGANIZATION............................................33
TAX CONSEQUENCES OF THE REORGANIZATION....................................34
CAPITALIZATION............................................................35
INFORMATION CONCERNING THE SPECIAL MEETING...................................36
DATE, TIME AND PLACE OF MEETING...........................................36
SOLICITATION, REVOCATION AND USE OF PROXIES...............................36
RECORD DATE AND OUTSTANDING SHARES........................................37
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT OF FUND FOR TOMORROW AND
FUNDAMENTAL GROWTH FUND.................................................37
VOTING RIGHTS AND REQUIRED VOTE...........................................37
ADDITIONAL INFORMATION.......................................................38
LEGAL PROCEEDINGS............................................................39
LEGAL OPINIONS...............................................................39
EXPERTS......................................................................39
STOCKHOLDER PROPOSALS........................................................40
EXHIBIT I...................................................................I-1
INTRODUCTION
This Proxy Statement and Prospectus is furnished in connection with the
solicitation of proxies on behalf of the Board of Directors of Fund For Tomorrow
for use at the Meeting to be held at the offices of Merrill Lynch Asset
Management, L.P. ("MLAM"), 800 Scudders Mill Road, Plainsboro, New Jersey on
October 13, 1998, at 9:00 a.m., New York time. The mailing address for Fund For
Tomorrow is P.O. Box 9011, Princeton, New Jersey 08543-9011. The approximate
mailing date of this Proxy Statement and Prospectus is ______ __, 1998.
Any person giving a proxy may revoke it at any time prior to its exercise
by executing a superseding proxy, by giving written notice of the revocation to
the Secretary of Fund For Tomorrow at the address indicated above or by voting
in person at the Meeting. All properly executed proxies received prior to the
Meeting will be voted at the Meeting in accordance with the instructions marked
thereon or otherwise as provided therein. Unless instructions to the contrary
are marked, properly executed proxies will be voted "FOR" the proposal to
approve the Agreement and Plan of Reorganization between Fund For Tomorrow and
Fundamental Growth Fund (the "Agreement and Plan of Reorganization").
Approval of the Agreement and Plan of Reorganization will require the
affirmative vote of Fund For Tomorrow stockholders representing a majority of
the total number of votes entitled to be cast thereon. Stockholders will vote as
a single class on the proposal to approve the Agreement and Plan of
Reorganization. See "Information Concerning the Special Meeting."
The Board of Directors of Fund For Tomorrow knows of no business other than
that discussed above that will be presented for consideration at the Meeting. If
any other matter is properly presented, it is the intention of the persons named
in the enclosed proxy to vote in accordance with their best judgment.
SUMMARY
The following is a summary of certain information contained elsewhere in
this Proxy Statement and Prospectus (including documents incorporated by
reference) and is qualified in its entirety by reference to the more complete
information contained in this Proxy Statement and Prospectus and in the
Agreement and Plan of Reorganization, attached hereto as Exhibit I.
In this Proxy Statement and Prospectus, the term "Reorganization" refers
collectively to (i) the acquisition of substantially all of the assets and the
assumption of substantially all of the liabilities of Fund For Tomorrow by
Fundamental Growth Fund in exchange for the Corresponding Shares and the
subsequent distribution of Corresponding Shares of Fundamental Growth Fund to
the stockholders of Fund For Tomorrow; and (ii) the subsequent deregistration
and dissolution of Fund For Tomorrow.
THE REORGANIZATION
At a meeting of the Board of Directors of Fund For Tomorrow held on July
27, 1998, the Board of Directors of Fund For Tomorrow approved a proposal that
Fundamental Growth Fund acquire substantially all of the assets, and assume
substantially all of the liabilities, of Fund For Tomorrow in exchange solely
for shares of Fundamental Growth Fund to be distributed to the stockholders of
Fund For Tomorrow.
Based upon their evaluation of all relevant information, the Directors of
Fund For Tomorrow have determined that the Reorganization will potentially
benefit the stockholders of Fund For Tomorrow. Specifically, after the
Reorganization, Fund For Tomorrow stockholders will remain invested in a
diversified open-end fund, which, like Fund For Tomorrow, seeks long-term growth
of capital. Moreover, since the net assets of Fundamental Growth Fund as of June
30, 1998 were $1,061,566,810 million and will increase by approximately
$311,611,903 million (the net asset value of Fund For Tomorrow as of June 30,
1998) as a result of the Reorganization, Fund For Tomorrow stockholders are
likely to experience certain additional benefits, including without limitation,
lower expenses per share and potential economies of scale. See "Summary--Pro
Forma Fee Tables" and "The Reorganization--Potential Benefits to Stockholders as
a Result of the Reorganization."
The Board of Directors of Fund For Tomorrow, including a majority of the
Directors who are not "interested persons," as defined in the Investment Company
Act, has determined that the Reorganization is in the best interests of Fund For
Tomorrow and that the interests of existing Fund For Tomorrow stockholders will
not be diluted as a result of effecting the Reorganization.
If all of the requisite approvals are obtained, it is anticipated that the
Reorganization will occur as soon as practicable after such approvals, provided
that Fund For Tomorrow and Fundamental Growth Fund have obtained prior to that
time a favorable private letter ruling from the Internal Revenue Service (the
"IRS") concerning the tax consequences of the Reorganization as set forth in the
Agreement and Plan of Reorganization. The Agreement and Plan of Reorganization
may be terminated, and the Reorganization abandoned, whether before or after
approval by the stockholders of Fund For Tomorrow, at any time prior to the
Exchange Date (as defined below), (i) by mutual consent of the Board of
Directors of Fund For Tomorrow and the Board of Directors of Fundamental Growth
Fund; (ii) by the Board of Directors of Fund For Tomorrow if any condition to
Fund For Tomorrow's obligations has not been fulfilled or waived by such Board;
or (iii) by the Board of Directors of Fundamental Growth Fund if any condition
to Fundamental Growth Fund's obligations has not been fulfilled or waived by
such Board.
<TABLE>
PRO FORMA FEE TABLE FOR CLASS A AND CLASS B STOCKHOLDERS OF FUND FOR TOMORROW, FUNDAMENTAL GROWTH FUND
AND THE COMBINED FUND AS OF JUNE 30, 1998 (UNAUDITED)
<CAPTION>
CLASS A SHARES (a)
------------------------------------------------------------------------
ACTUAL
-------------------------------------------------
FUND FOR TOMORROW FUNDAMENTAL GROWTH PRO FORMA COMBINED
FUND
---------------------- --------------------- ----------------------
<S> <C> <C> <C>
STOCKHOLDER TRANSACTION EXPENSES:
Maximum Sales Charge Imposed on
Purchases (as a percentage of offering price).. 5.25%(c) 5.25%(c) 5.25%(c)
Sales Charge Imposed on Dividend
Reinvestments.................................. None None None
Deferred Sales Charge (as a percentage of
original purchase price or redemption
proceeds, whichever is lower).................. None(d) None(d) None(d)
Exchange Fee..................................... None None None
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS):
Investment Advisory Fees(f)...................... 0.65% 0.65% 0.65%
12b-1-Fees(g):
Account Maintenance Fees....................... None None None
Distribution Fees............................. None None None
Other Expenses:
Stockholder Servicing Costs(h)................. 0.15% 0.11% 0.11%
Other.......................................... 0.13% 0.07% 0.06%
----- ----- -----
Total Other Expenses................... 0.28% 0.18% 0.17%
----- ----- -----
Total Fund Operating Expenses.................... 0.93% 0.83% 0.82%
===== ===== =====
(table continued)
CLASS B SHARES (b)
------------------------------------------------------------------------
ACTUAL
-------------------------------------------------
FUND FOR TOMORROW FUNDAMENTAL GROWTH PRO FORMA COMBINED
FUND
---------------------- --------------------- ----------------------
STOCKHOLDER TRANSACTION EXPENSES:
Maximum Sales Charge Imposed on None None None
Purchases (as a percentage of offering price)..
Sales Charge Imposed on Dividend None None None
Reinvestments..................................
Deferred Sales Charge (as a percentage of 4.0% during the first 4.0% during the first 4.0% during the first
original purchase price or redemption year, decreasing 1.0% year, decreasing 1.0% year, decreasing 1.0%
proceeds, whichever is lower).................. annually thereafter to annually thereafter annually thereafter
0.0% after the fourth to 0.0% after the to 0.0% after the
year(e) fourth year(e) fourth year(e)
Exchange Fee..................................... None None None
ANNUAL FUND OPERATING EXPENSES (AS A
PERCENTAGE OF AVERAGE NET ASSETS):
Investment Advisory Fees(f)...................... 0.65% 0.65% 0.65%
12b-1-Fees(g):
Account Maintenance Fees....................... 0.25% 0.25% 0.25%
Distribution Fees............................. 0.75% 0.75% 0.75%
(Class B shares (Class B shares (Class B shares
Other Expenses: convert to Class D convert to Class D convert to Class D
shares automatically shares automatically shares automatically
after approximately after approximately after approximately
eight years and cease eight years and cease eight years and
being subject to being subject to cease being subject
distribution fees) distribution fees) to distribution fees)
Stockholder Servicing Costs(h)................. 0.15% 0.11% 0.11%
Other.......................................... 0.13% 0.07% 0.06%
----- ----- -----
Total Other Expenses................... 0.28% 0.18% 0.17%
----- ----- -----
Total Fund Operating Expenses.................... 1.93% 1.83% 1.82%
===== ===== =====
</TABLE>
- ---------------
(a) Class A shares are sold to a limited group of investors including existing
Class A stockholders, certain retirement plans and participants in certain
fee-based programs. See "Comparison of the Funds--Purchase of Shares."
(b) Class B shares convert to Class D shares automatically approximately eight
years after initial purchase. See "Comparison of the Funds--Purchase of
Shares."
(c) Reduced for Class A purchases of $25,000 and over, and waived for purchases
by certain retirement plans and in connection with certain fee-based
programs. Purchases of $1,000,000 or more may not be subject to an initial
sales charge. See "Comparison of the Funds--Purchase of Shares."
(d) Class A shares are not subject to a CDSC, except that certain purchases of
$1,000,000 or more that are not subject to an initial sales charge may
instead be subject to a CDSC of 1.0% of amounts redeemed within the first
year of purchase. Such CDSC may be waived in connection with certain
fee-based programs.
(e) The CDSC may be modified in connection with certain fee-based programs.
(f) See "Comparison of the Funds--Management."
(g) See "Comparison of the Funds--Purchase of Shares."
(h) See "Comparison of the Funds--Additional Information--Transfer Agent,
Dividend Disbursing Agent and Shareholder Servicing Agent."
<TABLE>
CUMULATIVE EXPENSES PAID ON CLASS A AND CLASS B SHARES FOR THE PERIOD OF:
<CAPTION>
EXAMPLE: CLASS A SHARES CLASS B SHARES
------------------------------------------- -----------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS 1 YEAR 3 YEARS 5 YEARS 10 YEARS*
---------- ---------- --------- ---------- -------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
An investor would pay the following
expenses on a $1,000 investment,
including the maximum sales load of
$52.50 (Class A shares only) and
assuming (1) the Total Fund
Operating Expenses set forth on page
3 for the relevant Fund, (2) a 5%
annual return throughout the periods
and (3) redemption at the end of the
period (including any applicable
CDSC for Class B shares):
Fund For Tomorrow................ $ 61 $ 81 $ 101 $ 161 $ 60 $ 81 $ 104 $ 206*
Fundamental Growth Fund.......... 61 78 96 150 59 78 99 195*
Combined Fund+................... 60 77 96 149 58 77 99 194*
An investor would pay the following
expenses on the same $1,000 in-
vestment assuming no redemption
at the end of the period:
Fund For Tomorrow................ $ 61 $ 81 $ 101 $ 161 $ 20 $ 61 $ 104 $ 206*
Fundamental Growth Fund.......... 61 78 96 150 19 58 99 195*
Combined Fund+................... 60 77 96 149 18 57 99 194*
</TABLE>
- ---------------
* Assumes conversion of Class B shares to Class D shares approximately eight
years after initial purchase.
+ Assuming the Reorganization had taken place on June 30, 1998.
<TABLE>
PRO FORMA FEE TABLE FOR CLASS C AND CLASS D STOCKHOLDERS OF FUND FOR TOMORROW, FUNDAMENTAL GROWTH FUND
AND THE COMBINED FUND AS OF JUNE 30, 1998 (UNAUDITED)
<CAPTION>
CLASS C SHARES CLASS D SHARES
------------------------------------------------ -------------------------------------------
ACTUAL ACTUAL
--------------------------------- ----------------------------
FUND FOR FUNDAMENTAL PRO FORMA FUND FOR FUNDAMENTAL PRO FORMA
TOMORROW GROWTH FUND COMBINED TOMORROW GROWTH FUND COMBINED
---------------- ---------------- -------------- ------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
STOCKHOLDER TRANSACTION EXPENSES:
Maximum Sales Charge Imposed on
Purchases (as a percentage of
offering price)................... None None None 5.25%(a) 5.25%(a) 5.25%(a)
Sales Charge Imposed on
Dividend Reinvestments............ None None None None None None
Deferred Sales Charge
(as a percentage of
original purchase price
or redemption proceeds, 1.0% for 1.0% for 1.0% for
whichever is lower).............. one year(b) one year(b) one year(b) None(c) None(c) None(c)
Exchange Fee........................ None None None None None None
ANNUAL FUND OPERATING EXPENSES (AS A
PERCENTAGE OF AVERAGE NET ASSETS):
Investment Advisory Fees(d)......... 0.65% 0.65% 0.65% 0.65% 0.65% 0.65%
12b-1-Fees(e):
Account Maintenance Fees........ 0.25% 0.25% 0.25% 0.25% 0.25% 0.25%
Distribution Fees............... 0.75% 0.75% 0.75% None None None
Other Expenses:
Stockholder Servicing Costs(f).. 0.15% 0.11% 0.11% 0.15% 0.11% 0.11%
Other........................... 0.13% 0.07% 0.06% 0.13% 0.07% 0.06%
----- ----- ----- ----- ----- -----
Total Other Expenses.. 0.28% 0.18% 0.17% 0.28% 0.18% 0.17%
----- ----- ----- ----- ----- -----
Total Fund Operating Expenses....... 1.93% 1.83% 1.82% 1.18% 1.08% 1.07%
===== ===== ===== ===== ===== =====
</TABLE>
- --------------
(a) Reduced for Class D purchases of $25,000 and over. Like Class A purchases,
certain Class D purchases of $1,000,000 or more may not be subject to an
initial sales charge. See "Comparison of the Funds -- Purchase of Shares."
(b) The CDSC may be waived in connection with certain fee-based programs.
(c) Like Class A shares, Class D shares are not subject to a CDSC, except that
purchases of $1,000,000 or more that are not subject to an initial sales
charge may instead be subject to a CDSC of 1.0% of amounts redeemed within
the first year after purchase. Such CDSC may be waived in connection with
certain fee-based programs.
(d) See "Comparison of the Funds--Management."
(e) See "Comparison of the Funds--Purchase of Shares."
(f) See "Comparison of the Funds--Additional Information--Transfer Agent,
Dividend Disbursing Agent and Shareholder Servicing Agent."
<TABLE>
CUMULATIVE EXPENSES PAID ON CLASS C AND CLASS D SHARES FOR THE PERIOD OF:
<CAPTION>
EXAMPLE: CLASS C SHARES CLASS D SHARES
------------------------------------------- -----------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS 1 YEAR 3 YEARS 5 YEARS 10 YEARS
---------- ---------- --------- ---------- -------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
An investor would pay the following
expenses on a $1,000 investment,
including the maximum sales load
of $52.50 (Class D shares only)
and assuming (1) the Total Fund
Operating Expenses set forth on
page 5 for the relevant Fund, (2)
a 5% annual return throughout the
periods and (3) redemption at the
end of the period (including any
applicable CDSC for Class C
shares):
Fund For Tomorrow.............. $ 30 $ 61 $ 104 $ 225 $ 64 $ 88 $ 114 $ 188
Fundamental Growth Fund........ 29 58 99 215 63 85 109 177
Combined Fund+................. 28 57 99 214 63 85 108 176
An investor would pay the following
expenses on the same $1,000
investment assuming no redemption
at the end of the period:
Fund For Tomorrow.............. $ 20 $ 61 $ 104 $ 225 $ 64 $ 88 $ 114 $ 188
Fundamental Growth Fund........ 19 58 99 215 63 85 109 177
Combined Fund+................. 19 57 99 214 63 85 108 176
</TABLE>
- -------------------------
+ Assuming the Reorganization had taken place on June 30, 1998.
The foregoing Fee Tables are intended to assist investors in understanding
the costs and expenses that a Fund For Tomorrow or Fundamental Growth Fund
stockholder bears directly or indirectly as compared to the costs and expenses
that would be borne by such investors on a pro forma basis taking into account
the Reorganization. The Examples set forth above assume reinvestment of all
dividends and distributions and utilize a 5% annual rate of return as mandated
by Commission regulations. THE EXAMPLES SHOULD NOT BE CONSIDERED A
REPRESENTATION OF PAST OR FUTURE EXPENSES OR ANNUAL RATES OF RETURN, AND ACTUAL
EXPENSES OR ANNUAL RATES OF RETURN MAY BE MORE OR LESS THAN THOSE ASSUMED FOR
PURPOSES OF THE EXAMPLES. See "Summary," "The Reorganization--Potential Benefits
to Stockholders as a Result of the Reorganization," "Comparison of the
Funds--Management," "--Purchase of Shares" and "--Redemption of Shares."
BUSINESS OF FUND FOR TOMORROW Fund For Tomorrow was incorporated under
the laws of the State of Maryland on
October 5, 1983 and commenced operations
on March 5, 1984. Fund For Tomorrow is a
diversified, open-end management
investment company.
As of June 30, 1998, Fund For Tomorrow
had net assets of approximately
$311,611,903.
BUSINESS OF FUNDAMENTAL GROWTH FUND Fundamental Growth Fund was incorporated
under the laws of the State of Maryland
on April 30, 1992, and commenced
operations on December 24, 1992.
Fundamental Growth Fund is a
diversified, open-end management
investment company.
As of June 30, 1998, Fundamental Growth
Fund had net assets of approximately
$1,061,566,810.
COMPARISON OF THE FUNDS Investment Objectives. Both Fund For
Tomorrow and Fundamental Growth Fund
seek to provide stockholders with
long-term growth of capital by investing
primarily in equity securities.
Investment Policies. Fund For Tomorrow
seeks to invest in a quality-oriented
portfolio of securities, primarily
common stock. In pursuing this
objective, Fund For Tomorrow uses a
thematic approach of investing in
long-term trends, seeking to identify
important investment concepts of the
future and reviewing existing concepts
to confirm their validity in meeting the
Fund's objective. As part of this
thematic approach, Fund For Tomorrow
seeks to identify companies whose
products and services are believed to
represent attractive investment
opportunities. It is anticipated that
Fund For Tomorrow will invest primarily
in common stocks of such companies.
However, when Fund For Tomorrow believes
it is advisable to do so, it may invest
in other securities, including, but not
limited to, convertible securities,
preferred stocks and bonds. Fund For
Tomorrow does not presently intend to
purchase bonds rated lower than BBB by
Standard & Poor's ("S&P") or Baa by
Moody's Investors Service, Inc.
("Moody's"). Fund For Tomorrow may
invest in securities issued by large,
medium and small capitalized companies.
Fundamental Growth Fund seeks to invest
in a diversified portfolio of equity
securities placing particular emphasis
on companies that have exhibited
above-average growth rates in earnings,
resulting from a variety of factors
including, but not limited to,
above-average growth rates in sales,
profit margin improvement, proprietary
or niche products or services, leading
market shares, and underlying strong
industry growth. Fundamental Growth Fund
will also emphasize companies having
medium to large stock market
capitalizations ($500 million or more).
Fundamental Growth Fund invests
primarily in common stock, and to a
lesser extent, securities convertible
into common stock and rights to
subscribe for common stock.
Fund For Tomorrow may invest up to 25%
of its assets in the securities of
foreign issuers, including issuers in
foreign countries with smaller capital
markets. Fund For Tomorrow has reserved
the right to invest, temporarily, all or
a portion of its assets in high quality
money market securities (such as U.S.
Treasury bills, bank certificates of
deposit, commercial paper and repurchase
agreements) for purposes of enhancing
liquidity and avoiding the effects of
declining stock prices when it seems
advisable to do so in light of
prevailing market or economic
conditions. The proportion of Fund For
Tomorrow's assets that are invested in
money market securities will vary from
time to time.
Fundamental Growth Fund may invest up to
10% of its total assets in equity
securities of foreign issuers (purchases
of American Depositary Receipts
("ADRs"), however, are not subject to
this restriction). Fundamental Growth
Fund may invest in securities of foreign
issuers in the form of ADRs, European
Depositary Receipts ("EDRs") or other
securities convertible into securities
of foreign issuers. Fundamental Growth
Fund maintains at least 65% of its total
assets invested in equity securities
except during defensive periods.
Fundamental Growth Fund may, as a
defensive measure and to provide for
redemptions, hold other types of
securities, including non-convertible
preferred stocks and debt securities
rated investment grade by a nationally
recognized statistical rating
organization. Fundamental Growth Fund
may invest in government and money
market securities, including repurchase
agreements, or cash, in such proportions
as, in the opinion of management,
prevailing market or economic conditions
warrant.
Fundamental Growth Fund may use certain
techniques to hedge its portfolio or
enhance its return that Fund For
Tomorrow does not use. Specifically,
Fundamental Growth Fund may purchase put
and call options on securities and
securities indices, write put options on
securities and securities indices,
engage in transactions in financial
futures contracts and related options,
and purchase securities on a when issued
or delayed delivery basis. Both Funds
may write covered call options; however,
Fund For Tomorrow may not write covered
call options on underlying securities
having a value exceeding 15% of the
value of its total assets. Fundamental
Growth Fund is not subject to a similar
restriction.
Fundamental Growth Fund and Fund For
Tomorrow are each subject to a
fundamental investment restriction,
which provides that the Fund may borrow
from banks in amounts up to 33-1/3% of
its total assets taken at market value
and may borrow an additional 5% of its
total assets for temporary purposes. As
a non-fundamental restriction,
Fundamental Growth Fund may not borrow
amounts in excess of 20% of its assets,
and then only from banks as a temporary
measure for extraordinary or emergency
purposes. Additionally, Fundamental
Growth Fund will not purchase securities
while borrowings are outstanding. As a
non-fundamental restriction Fund For
Tomorrow may not borrow amounts in
excess of 5% of its assets.
Additionally, neither Fund may pledge
any of its respective assets other than
to secure permitted borrowings. Fund For
Tomorrow's ability to pledge its assets
is further limited and it may not pledge
securities having a value of more than
10% of the Fund's assets to secure
permitted borrowings.
Advisory Fees. The investment adviser
for both Fund For Tomorrow and
Fundamental Growth Fund is MLAM. MLAM is
responsible for the management of each
Fund's investment portfolio and for
providing administrative services to
each Fund.
Lawrence R. Fuller serves as portfolio
manager for each Fund. Mr. Fuller has
served as Portfolio Manager of
Fundamental Growth Fund since its
commencement of operations and of Fund
For Tomorrow since June 1998. Mr. Fuller
was appointed First Vice President of
MLAM in 1997; prior to that he was a
Vice President of MLAM or its
predecessors since 1992.
Pursuant to a separate management
agreement between each Fund and MLAM,
Fundamental Growth Fund pays MLAM a
monthly fee at the annual rate of 0.65%
of the average daily net assets of the
Fund; Fund For Tomorrow pays MLAM 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. If these asset levels were
met, Fund For Tomorrow would pay
advisory fees at a lower rate than
Fundamental Growth Fund. Unlike Fund For
Tomorrow's advisory fee schedule,
Fundamental Growth Fund's advisory fee
schedule does not have any breakpoints.
However, because Fund For Tomorrow's
assets, as of June 30, 1998, were
approximately $311.6 million, the first
breakpoint was not reached and both
Funds had the same effective annual fee
rate of 0.65% of average daily net
assets. Assuming the total net assets
after the Reorganization were
approximately $1.4 billion, the
effective fee rate applicable to the
Combined Fund would be 0.65%. See
"Summary--Pro Forma Fee Tables" and
"Comparison of the Funds--Management."
MLAM has retained Merrill Lynch Asset
Management U.K. Limited ("MLAM U.K.") as
sub-adviser to each of the Funds.
Pursuant to a separate sub-advisory
agreement between MLAM and MLAM U.K.
with respect to each Fund, MLAM pays
MLAM U.K. a fee for providing investment
advisory services to MLAM with respect
to each Fund, in an amount to be
determined from time to time by MLAM and
MLAM U.K. but in no event in excess of
the amount MLAM actually receives for
providing services to each Fund pursuant
to each management agreement.
Class Structure. Each Fund offers four
classes of shares under the Merrill
Lynch Select Pricing4 System. The Class
A, Class B, Class C and Class D shares
issued by Fundamental Growth Fund are
identical in all respects to the Class
A, Class B, Class C and Class D shares
issued by Fund For Tomorrow, except that
they represent ownership interests in a
different investment portfolio. See
"Comparison of the Funds--Purchase of
Shares."
Overall Expense Ratio. The overall
operating expense ratio for Class A
shares as of June 30, 1998 was 0.93% for
Fund For Tomorrow and 0.83% for
Fundamental Growth Fund. If the
Reorganization had taken place on that
date, the overall operating expense
ratio for Class A shares of the Combined
Fund on a pro forma basis would have
been 0.82%.
The foregoing expense ratios are for
Class A shares. Such ratios would differ
for Class B, Class C and Class D shares
as a result of class specific
distribution and account maintenance
expenditures. See "Summary--Pro Forma
Fee Tables."
Purchase of Shares. Shares of
Fundamental Growth Fund are offered
continuously for sale to the public in
substantially the same manner as shares
of Fund For Tomorrow. See "Comparison of
the Funds--Purchase of Shares."
Redemption of Shares. The redemption
procedures for shares of Fundamental
Growth Fund are substantially the same
as the redemption procedures for shares
of Fund For Tomorrow. For purposes of
computing any CDSC that may be payable
upon disposition of Corresponding Shares
of Fundamental Growth Fund acquired by
Fund For Tomorrow stockholders in the
Reorganization, the holding period of
Fund For Tomorrow shares outstanding on
the date the Reorganization takes place
will be "tacked" onto the holding period
of the Corresponding Shares of
Fundamental Growth Fund acquired in the
Reorganization. See "Comparison of the
Funds--Redemption of Shares."
Dividends and Distributions. Fund For
Tomorrow's policies with respect to
dividends and distributions are
substantially the same as those of
Fundamental Growth Fund. See "Comparison
of the Funds--Dividends and
Distributions."
Net Asset Value. Both Fund For Tomorrow
and Fundamental Growth Fund determine
net asset value of each class of shares
once daily 15 minutes after the close of
business on the New York Stock Exchange
(the "NYSE") (generally, 4:00 p.m. New
York time), on each day during which the
NYSE is open for trading. Both Funds
compute net asset value per share in the
same manner. See "Comparison of the
Funds--Additional Information -- Net
Asset Value."
Voting Rights. The corresponding voting
rights of the holders of shares of
common stock of each Fund are
substantially the same. See "The
Reorganization--Comparison of the
Funds--Capital Stock."
Other Significant Considerations.
Stockholder services, including exchange
privileges, available to Fund For
Tomorrow and Fundamental Growth Fund
stockholders are substantially the same.
See "Comparison of the Funds--Additional
Information--Stockholder Services." An
automatic dividend reinvestment plan is
available to stockholders of both Funds.
The plans are identical. See "Comparison
of the Funds--Automatic Dividend
Reinvestment Plan." Other stockholder
services, including the provision of
annual and semi-annual reports, are the
same for both Funds. See "Comparison of
the Funds--Stockholder Services."
TAX CONSIDERATIONS Fund For Tomorrow and Fundamental Growth
Fund jointly have requested a private
letter ruling from the Internal Revenue
Service ("IRS") with respect to the
Reorganization to the effect that, among
other things, neither Fund For Tomorrow
nor Fundamental Growth Fund will
recognize gain or loss on the
transaction, and Fund For Tomorrow
stockholders will not recognize gain or
loss on the exchange of their shares of
Fund For Tomorrow for Corresponding
Shares of Fundamental Growth Fund. The
consummation of the Reorganization is
subject to the receipt of such ruling.
The Reorganization will not affect the
status of Fundamental Growth Fund as a
regulated investment company. See "The
Reorganization--Tax Consequences of the
Reorganization."
RISK FACTORS AND SPECIAL CONSIDERATIONS
Many of the investment risks associated with an investment in Fundamental
Growth Fund are substantially the same as those of Fund For Tomorrow. A
discussion of certain principal differences in risks, as a result of the
differing techniques utilized by the Funds follows.
Investing in Smaller Capitalized Companies. Each Fund may invest in small
capitalization stocks, although Fundamental Growth Fund invests primarily in
medium to large capitalization stocks. Investments in securities of smaller
capitalized companies involve special considerations and risks, including risks
associated with limited product lines, markets or financial and management
resources; risks associated with less frequency and volume of trading of stocks
of smaller capitalized issuers as compared to larger capitalized issuers and the
greater effect of abrupt or erratic price movements on smaller capitalized
issuers; and risks associated with the greater sensitivity of smaller
capitalized issuers to market changes.
Investing on an International Basis. Because up to 10% of Fundamental
Growth Fund's total assets and 25% of Fund For Tomorrow's assets may be invested
in securities of non-U.S. issuers, investors should be aware of certain risk
factors and special considerations relating to international investing, which
may involve risks that are not typically associated with investments in
securities of U.S. issuers, including fluctuations in foreign exchange rates,
future political and economic developments, different legal systems and the
possible imposition of economic sanctions, exchange controls or other foreign
governmental laws or restrictions. Securities prices in different countries are
subject to different economic, financial, political and social factors. Since
both Funds invest in securities denominated or quoted in currencies other than
the U.S. dollar, changes in foreign currency exchange rates will affect the
value of securities in each Fund and the unrealized appreciation or depreciation
of investments. Currencies of certain countries may be volatile and, therefore,
may affect the value of securities denominated in such currencies. In addition,
with respect to certain foreign countries, there is the possibility of
expropriation of assets, confiscatory taxation, difficulty in obtaining or
enforcing a court judgment, economic, political or social instability or
diplomatic developments that could affect investments in those countries.
Moreover, individual foreign economies may differ favorably or unfavorably from
the U.S. economy in such respects as growth of gross domestic product, rates of
inflation, capital reinvestment, resources, self-sufficiency and balance of
payments position. Income and capital gains on securities held by the Funds may
be subject to withholding and other taxes imposed by certain jurisdictions,
which would reduce the return to the respective Fund on those securities. Tax
conventions between certain countries and the United States may reduce or
eliminate such taxes.
As a result of these potential risks, MLAM may determine that,
notwithstanding otherwise favorable investment criteria, it may not be
practicable or appropriate to invest in a particular country. The Funds may
invest in countries in which foreign investors, including MLAM, have had no or
limited prior experience.
Many of the foreign securities held by the Funds will not be registered
with the Commission, nor will the issuers thereof be subject to the reporting
requirements of such agency. Accordingly, there may be less publicly available
information about a foreign issuer than about a U.S. issuer and such foreign
issuers may not be subject to accounting, auditing and financial reporting
standards and requirements comparable to those of U.S. issuers. As a result,
traditional investment measurements, such as price/earnings ratios, as used in
the United States, may not be applicable to certain foreign capital markets.
Foreign issuers, may not be subject to uniform accounting, auditing and
financial reporting standards or to practices and requirements comparable to
those applicable to domestic issuers.
Foreign financial markets, while often growing in trading volume, have, for
the most part, substantially less volume than U.S. markets, and securities of
many foreign companies are less liquid and their prices may be more volatile
than securities of comparable domestic companies. Foreign markets also have
different clearance and settlement procedures, and in certain markets there have
been times when settlements have failed to keep pace with the volume of
securities transactions, making it difficult to conduct such transactions.
Further, satisfactory custodial services for investment securities may not be
available in some countries, which may result in the Funds incurring additional
costs and delays in transporting and custodying such securities outside such
countries. Delays in settlement could result in periods when assets of the Funds
are uninvested and no return is earned thereon. The inability of the Funds to
make intended security purchases due to settlement problems or the risk of
intermediary counterparty failures could cause the Funds to miss attractive
investment opportunities. The inability to dispose of a portfolio security due
to settlement problems could result either in losses to the Funds due to
subsequent declines in the value of such portfolio security or, if a contract to
sell the security has been entered, could result in possible liability to the
purchaser.
There generally is less governmental supervision and regulation of
exchanges, brokers and issuers in foreign countries than there is in the United
States. For example, there may be no comparable provisions under certain foreign
laws to insider trading and similar investor protection securities laws that
apply with respect to securities transactions consummated in the United States.
Further, brokerage commissions and other transaction costs on foreign securities
exchanges generally are higher than in the United States.
Some countries prohibit or impose substantial restrictions on investments
in their capital markets, particularly their equity markets, by foreign entities
such as Fundamental Growth Fund. As illustrations, certain countries require
governmental approval prior to investments by foreign persons, or limit the
amount of investment by foreign persons in a company to only a specific class of
securities that may have less advantageous terms than securities of the company
available for purchase by nationals. Certain countries may restrict investment
opportunities in issuers or industries deemed important to national interests.
In some countries, banks or other financial institutions may constitute a
substantial number of the leading companies or companies with the most actively
traded securities. The Investment Company Act limits a Fund's ability to invest
in any security of an issuer which, in its most recent fiscal year, derived more
than 15% of its revenues from "securities related activities," as defined by the
rules thereunder. These provisions may also restrict a Fund's investments in
certain foreign banks and other financial institutions.
Hedging. Both Funds may write covered call options, however Fund For
Tomorrow is limited to writing covered call options on underlying securities
with a value not to exceed 15% of the value of its total assets. In addition,
Fundamental Growth Fund may utilize certain hedging techniques which Fund For
Tomorrow does not use. See "Investment Objectives and Policies--Hedging
Techniques" herein. Transactions involving options, futures, options on futures
or currencies may involve the loss of an opportunity to profit from a price
movement in the underlying asset beyond certain levels or a price increase on
other portfolio assets (in the case of transactions for hedging purposes) or
expose the Funds to potential losses that exceed the amount originally invested
in such instruments.
Illiquid Securities. Fundamental Growth Fund and Fund For Tomorrow may each
invest up to 15% of their respective total assets in securities that lack an
established secondary trading market or otherwise are considered illiquid.
Liquidity of a security relates to the ability to dispose easily of the security
and the price to be obtained upon disposition of the security, which may be less
than would be obtained for a comparable more liquid security. Investment of a
Fund's assets in illiquid securities may restrict the ability of a Fund to
dispose of its investments in a timely fashion and for a fair price as well as
its ability to take advantage of market opportunities. The risks associated with
illiquidity will be particularly acute in situations in which a Fund's
operations require cash, such as when a Fund redeems shares or pays dividends,
and could result in a Fund borrowing to meet short-term cash requirements or
incurring capital losses on the sale of illiquid investments. Further, issuers
whose securities are not publicly traded are not subject to the disclosure and
other investor protection requirements that would be applicable if their
securities were publicly traded. In making investments in such securities, a
Fund may obtain access to material nonpublic information which may restrict the
Fund's ability to conduct portfolio transactions in such securities. In
addition, each of the Funds may invest in privately placed securities that may
or may not be freely transferable under the laws of the applicable jurisdiction
or due to contractual restrictions on resale.
COMPARISON OF THE FUNDS
FINANCIAL HIGHLIGHTS
Fundamental Growth Fund. The financial information in the table below,
except for the six months ended February 28, 1998, which is unaudited, has been
audited in conjunction with the annual audits of the financial statements by
Ernst & Young LLP, independent auditors.
The following per share data and ratios have been derived from information
provided in the Fundamental Growth Fund's financial statements.
<TABLE>
<CAPTION>
CLASS A++
-------------------------------------------------------
FOR THE SIX FOR THE YEAR FOR THE PERIOD
MONTHS ENDED ENDED OCT. 21, 1994+
FEB. 28, AUGUST 31, TO AUG. 31,
-------------------
1998 1997 1996 1995
------------ -------- -------- ---------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSET VALUE:
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period...... $ 17.37 $ 13.60 $ 11.66 $ 9.99
------------ -------- -------- ---------------
Investment income (loss)--net........ .04 .07 .07 - +++
Realized and unrealized gain
on investments--net.................. 2.38 4.95 2.13 1.98
------------ -------- -------- ---------------
Total from investment operations.......... 2.42 5.02 2.20 1.98
------------ -------- -------- ---------------
Less distributions from realized
gain on investment--net................. (2.34) (1.25) (.26) (.31)
------------ -------- -------- ---------------
Net asset value, end of period............ $ 17.45 $ 17.37 $ 13.60 $ 11.66
============ ======== ======== ===============
TOTAL INVESTMENT RETURN:**
Based on net asset value per share........ 14.65%# 39.24% 19.02% 20.55%#
============ ======== ======== ===============
RATIOS TO AVERAGE NET ASSETS:
Expenses.................................. .86%* .99% 1.12% 1.46%*
============ ======== ======== ===============
Investment income (loss)--net.... .49%* .47% .51% .02%*
============ ======== ======== ===============
SUPPLEMENTAL DATA:
Net assets, end of period (in thousands).. $ 98,908 $ 62,049 $ 47,048 $ 21,288
============ ======== ======== ===============
Portfolio turnover........................ 23.53% 94.38% 82.10% 80.41%
============ ======== ======== ===============
Average commission rate paid##............ $ .0630 $ .0628 $ .0623 -
============ ======== ======== ===============
(table continued)
CLASS B++
-------------------------------------------------------
FOR THE SIX FOR THE YEAR FOR THE PERIOD
MONTHS ENDED ENDED OCT. 21, 1994+
FEB. 28, AUGUST 31, TO AUG. 31,
-------------------
1998 1997 1996 1995
------------ -------- -------- ---------------
INCREASE (DECREASE) IN NET ASSET VALUE:
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period...... $ 16.69 $ 13.14 $ 11.40 $ 9.85
------------ -------- -------- ---------------
Investment income (loss)--net........ (.04) (.09) (.07) (.09)
Realized and unrealized gain
on investments--net.................. 2.26 4.79 2.07 1.95
------------ -------- -------- ---------------
Total from investment operations.......... 2.22 4.70 2.00 1.86
------------ -------- -------- ---------------
Less distributions from realized
gain on investment--net................. (2.24) (1.15) (.26) (.31)
------------ -------- -------- ---------------
Net asset value, end of period............ $ 16.67 $ 16.69 $ 13.14 $ 11.40
============ ======== ======== ===============
TOTAL INVESTMENT RETURN:**
Based on net asset value per share........ 13.97%# 37.95%* 17.68% 19.60%#
============ ======== ======== ===============
RATIOS TO AVERAGE NET ASSETS:
Expenses.................................. 1.88%* 2.02%* 2.16% 2.48%*
============ ======== ======== ===============
Investment income (loss)--net.... (.54)%* (.59)%* (.54)% (.95)%*
============ ======== ======== ===============
SUPPLEMENTAL DATA:
Net assets, end of period (in thousands).. $ 386,248 $216,636 $116,641 $ 63,748
============ ======== ======== ===============
Portfolio turnover........................ 23.53% 94.38% 82.10% 80.41%
============ ======== ======== ===============
Average commission rate paid##............ $ .0630 $ .0628 $ .0623 -
============ ======== ======== ===============
</TABLE>
______________
+ Commencement of operations.
++ Based on average shares outstanding.
+++ Amount is less than $.01 per share.
* Annualized.
** Total investment returns exclude the effects of sales loads.
# 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.
<TABLE>
FUNDAMENTAL GROWTH FUND - FINANCIAL HIGHLIGHTS (CONCLUDED)
<CAPTION>
CLASS C++
---------------------------------------------------------------------
FOR THE FOR THE
SIX PERIOD
MONTHS DEC. 24,
ENDED FOR THE YEAR ENDED 1992+
FEB. 28, AUGUST 31, TO AUG. 31,
---------------------------------------------
1998 1997 1996 1995 1994 1993
--------- --------- --------- --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSET VALUE:
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period............ $ 16.72 $ 13.14 $ 11.40 $ 9.96 $ 9.86 $ 10.00
--------- --------- --------- --------- --------- -----------
Investment income (loss)--net................ (.04) (.09) (.07) (.09) (.05) (.05)
Realized and unrealized gain (loss)
on investments--net........................ 2.27 4.79 2.07 1.84 .15 (.09)
--------- --------- --------- --------- --------- -----------
Total from investment operations................ 2.23 4.70 2.00 1.75 .10 (.14)
--------- --------- --------- --------- --------- -----------
Less distributions from realized gain on
investment--net.............................. (2.21) (1.12) (.26) (.31) - -
--------- --------- --------- --------- --------- -----------
Net asset value, end of period.................. $ 16.74 $ 16.72 $ 13.14 $ 11.40 $ 9.96 $ 9.86
========= ========= ========= ========= ========= ===========
TOTAL INVESTMENT RETURN:**
Based on net asset value per share.............. 13.97%# 37.90% 17.68% 18.28% 1.01% (1.40)%#
========= ========= ========= ========= ========= ===========
RATIOS TO AVERAGE NET ASSETS:
Expenses........................................ 1.88%* 2.02% 2.15% 2.44% 2.35% 2.79%*
========= ========= ========= ========= ========= ===========
Investment income--Net.......................... (.54)%* (.58)% (.57)% (.88)% (.52)% (.83)%*
========= ========= ========= ========= ========= ===========
SUPPLEMENTAL DATA:
Net assets, end of period (in thousands)........ $103,879 $74,732 $54,052 $44,220 $47,263 $45,736
========= ========= ========= ========= ========= ===========
Portfolio turnover.............................. 23.53% 94.38% 82.10% 80.41% 112.68% 64.09%
========= ========= ========= ========= ========= ===========
Average commission rate paid##.................. $ .0630 $ .0628 $ .0623 - - -
========= ========= ========= ========= ========= ===========
(table continued)
CLASS D++
----------------------------------------------------------------------
FOR THE FOR THE
SIX PERIOD
MONTHS DEC. 24,
ENDED FOR THE YEAR ENDED 1992+
FEB. 28, AUGUST 31, TO AUG. 31,
---------------------------------------------
1998 1997 1996 1995 1994 1993
--------- --------- --------- --------- --------- -----------
INCREASE (DECREASE) IN NET ASSET VALUE:
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period............ $ 17.27 $ 13.54 $ 11.64 $ 10.09 $ 9.91 $ 10.00
--------- -------- --------- --------- --------- ---------
Investment income (loss)--net................ (.02) .03 .03 (.01) .03 -
Realized and unrealized gain (loss)
on investments--net........................ 2.36 4.93 2.13 1.87 .15 (.09)
--------- -------- --------- --------- --------- ---------
Total from investment operations................ 2.38 4.96 2.16 1.86 .18 (.09)
--------- -------- --------- --------- --------- ---------
Less distributions from realized gain on
investment--net.............................. (2.32) (1.23) (.26) (.31) - -
--------- -------- --------- --------- --------- ---------
Net asset value, end of period.................. $ 17.33 $ 17.27 $ 13.54 $ 11.64 $ 10.09 $ 9.91
========= ======== ========= ========= ========= =========
TOTAL INVESTMENT RETURN:**
Based on net asset value per share.............. 14.47%# 38.90% 18.70% 19.15% 1.82% (.90)%#
========= ======== ========= ========= ========= =========
RATIOS TO AVERAGE NET ASSETS:
Expenses........................................ 1.11%* 1.24% 1.37% 1.65% 1.58% 2.03%*
========= ======== ========= ========= ========= =========
Investment income--Net.......................... .23%* .17% .24% (.10)% .31% (.04)%*
========= ======== ========= ========= ========= =========
SUPPLEMENTAL DATA:
Net assets, end of period (in thousands)........ $ 88,201 $53,101 $22,892 $13,231 $8,623 $6,930
========= ======== ========= ========= ========= =========
Portfolio turnover.............................. 23.53% 94.38% 82.10% 80.41% 112.68% 64.09%
========= ======== ========= ========= ========= =========
Average commission rate paid##.................. $ .0630 $ .0628 $ .0623 - - -
========= ======== ========= ========= ========= =========
</TABLE>
______________
+ Commencement of operations.
++ Based on average shares outstanding.
* Annualized.
** Total investment returns exclude the effects of sales loads.
# 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.
Fund For Tomorrow. The financial information in the table below has been
audited in conjunction with the annual audits of the financial statements of
Fund For Tomorrow by Deloitte & Touche LLP, independent auditors.
The following per share data and ratios have been derived from information
provided in Fund For Tomorrow's audited Financial Statements:
<TABLE>
<CAPTION>
CLASS A
-----------------------------------------------
FOR THE YEAR ENDED JANUARY 31,
-----------------------------------------------
1998++ 1997++ 1996++ 1995++ 1994
-----------------------------------------------
<S> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSET VALUE:
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.......... $17.16 $ 16.26 $13.55 $16.39 $16.29
------- ------- ------- ------ ------
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 dividends and distributions:
Investment income--net..................... - - - - -
Realized gain on investments--net.......... (3.61) (2.22) (1.55) (.96) (2.23)
------- ------ ------- ------ ------
Total dividends and distributions............. (3.61) (2.22) (1.55) (.96) (2.23)
------- ------- ------- ------ ------
Net asset value, end of period................ $15.61 $ 17.16 $16.26 $13.55 $16.39
------- ------- ------- ------ ------
TOTAL INVESTMENT RETURN:**
Based on net asset value per share............ 12.43% 19.99% 31.82% (11.23)% 15.78%
======= ======= ======= ====== ======
RATIOS TO AVERAGE NET ASSETS:
Expenses*..................................... .99% 1.00% 1.07% .98% .88%
======= ======= ======= ====== ======
Investment income--net*....................... .40% .46% .44% .59% .95%
======= ======= ======= ====== ======
SUPPLEMENTAL DATA:
Net assets, end of period (in thousands)...... $13,552 $39,605 $34,231 $8,665 $10,942
======= ======= ======= ====== =======
Portfolio turnover............................ 17.63% 39.96% 67.38% 45.86% 48.63%
======= ======= ======= ====== =======
Average commission rate paid##................ $.0003 $.0277 - - -
======= ======= ======= ====== =======
(table continued)
CLASS A
------------------------------------------------
FOR THE YEAR ENDED JANUARY 31,
------------------------------------------------
1993 1992 1991 1990 1989+
------------------------------------------------
INCREASE (DECREASE) IN NET ASSET VALUE:
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.......... $16.84 $15.49 $15.26 $14.96 $16.05
------ ------ ------ ------ ------
Investment income--net........................ .25 .36 .41 .30 .08
Realized and unrealized gain (loss)
on investments and foreign currency
transactions--net.......................... .49 3.74 .59 1.45 .43
------ ------ ------ ------ ------
Total from investment operations.............. .74 4.10 1.00 1.75 .51
------ ------ ------ ------ ------
Less dividends and distributions:
Investment income--net..................... (.23) (.35) (.40) (.41) (.13)
Realized gain on investments--net.......... (1.06) (2.40) (.37) (1.04) (1.47)
------ ------ ------ ------ ------
Total dividends and distributions............. (1.29) (2.75) (.77) (1.45) (1.60)
------ ------ ------ ------ ------
Net asset value, end of period................ $16.29 $16.84 $15.49 $15.26 $14.96
------ ------ ------ ------ ------
TOTAL INVESTMENT RETURN:**
Based on net asset value per share............ 4.79% 28.35% 6.64% 10.92% 3.90%#
====== ====== ====== ====== ======
RATIOS TO AVERAGE NET ASSETS:
Expenses*..................................... .90% .95% .96% .89% .91%*
====== ====== ====== ====== ======
Investment income--net*....................... 1.35% 1.81% 2.58% 2.20% 1.87%*
====== ====== ====== ====== ======
SUPPLEMENTAL DATA:
Net assets, end of period (in thousands)...... $11,394 $ 8,846 $5,478 $4,466 $ 476
======= ======= ====== ====== ======
Portfolio turnover............................ 40.58% 48.28% 25.57% 15.23% 10.26%
======= ======= ====== ====== ======
Average commission rate paid##................ - - - - -
======= ======= ====== ====== ======
</TABLE>
______________
* Annualized.
** Total investment returns exclude the effects of sales loads.
+ Class A shares commenced operations on October 26, 1988.
++ 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 U.S.
dollars using the prevailing exchange rate on the date of the transaction.
Such conversions may significantly affect the rate shown.
FUND FOR TOMORROW - FINANCIAL HIGHLIGHTS (CONTINUED)
<TABLE>
<CAPTION>
CLASS B
---------------------------------------------
FOR THE YEAR ENDED JANUARY 31,
---------------------------------------------
1998+ 1997+ 1996+ 1995+ 1994
------- ------- ------ ------ ------
<S> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSET VALUE:
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period......... $16.59 $15.79 $13.33 $16.30 $16.28
------ ------ ------ ------ ------
Investment income (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 dividends and distributions:
Investment income--net.................... - - - - -
Realized gain on investments--net......... (3.37) (2.05) (1.55) (.95) (2.14)
------ ------ ------ ------ ------
Total dividends and distributions............ (3.37) (2.05) (1.55) (.95) (2.14)
------ ------ ------ ------ ------
Net asset value, end of period............... $15.01 $16.59 $15.79 $13.33 $16.30
------ ------ ------ ------ ------
TOTAL INVESTMENT RETURN:*
Based on net asset value per share........... 11.20% 18.80% 30.43% (12.22)% 14.60%
====== ====== ====== ====== ======
RATIOS TO AVERAGE NET ASSETS:
Expenses..................................... 2.03% 2.06% 2.13% 1.99% 1.91%
====== ====== ====== ====== ======
Investment income (loss)--net................ (.74)% (.58)% (.55)% (.38)% (.07)%
====== ====== ====== ====== ======
SUPPLEMENTAL DATA:
Net assets, end of period (in thousands)..... $60,646 $104,828 $112,239 $119,186 $396,424 $
====== ======= ======= ======= =======
Portfolio turnover........................ 17.63% 39.96% 67.38% 45.86% 48.63%
====== ======= ======= ======= =======
Average commission rate paid##............... $.0003 $.0277 - - -
====== ======= ======= ======= =======
(table continued)
CLASS B
-----------------------------------------------
FOR THE YEAR ENDED JANUARY 31,
-----------------------------------------------
1993 1992 1991 1990 1989
------ ------ ------ ------ -------
INCREASE (DECREASE) IN NET ASSET VALUE:
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period......... $16.82 $15.48 $15.24 $14.94 $13.78
------ ------ ------ ------ -------
Investment income (loss)--net................ .06 .14 .24 .21 .20
Realized and unrealized gain (loss)
on investments and foreign currency
transactions--net....................... .52 3.77 .60 1.36 2.72
------ ------ ------ ------ -------
Total from investment operations............. .58 3.91 .84 1.57 2.92
------ ------ ------ ------ -------
Less dividends and distributions:
Investment income--net.................... (.06) (.17) (.23) (.23) (.20)
Realized gain on investments--net......... (1.06) (2.40) (.37) (1.04) (1.56)
------ ------ ------ ------ -------
Total dividends and distributions............ (1.12) (2.57) (.60) (1.27) (1.76)
------ ------ ------ ------ -------
Net asset value, end of period............... $16.28 $16.82 $15.48 $15.24 $14.94
------ ------ ------ ------ -------
TOTAL INVESTMENT RETURN:*
Based on net asset value per share........... 3.75% 26.96% 5.59% 9.77% 22.11%
====== ====== ====== ====== =======
RATIOS TO AVERAGE NET ASSETS:
Expenses..................................... 1.92% 1.98% 2.00% 1.93% 1.96%
====== ====== ====== ====== =======
Investment income (loss)--net................ .36% .83% 1.53% 1.20% 1.18%
====== ====== ====== ====== =======
SUPPLEMENTAL DATA:
Net assets, end of period (in thousands)..... $447,186 $476,106 $442,944 $516,402 $562,899
======= ======= ======= ======= =======
Portfolio turnover........................ 40.58% 48.28% 25.57% 15.23% 10.26%
======= ======= ======= ======= =======
Average commission rate paid##............... - - - - -
======= ======= ======= ======= =======
</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 U.S. dollars using the prevailing exchange rate on the
date of the transaction. Such conversions may significantly affect the
rate shown.
FUND FOR TOMORROW - FINANCIAL HIGHLIGHTS (CONCLUDED)
<TABLE>
<CAPTION>
CLASS C++
--------------------------------------------------
FOR THE PERIOD
OCTOBER 21,
FOR THE YEAR ENDED 1994+ TO
JANUARY 31, JANUARY 31,
----------------------------
1998 1997 1996 1995
------- ------- ------- ------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSET VALUE:
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period......... $ 16.47 $ 15.71 $ 13.28 $ 14.08
------- ------- ------- ---------
Investment income (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
gains 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 RETURN:**
Based on net asset value per share.............. 11.15% 18.80% 30.32% (4.12)%#
======= ======= ======= =========
RATIOS TO AVERAGE NET ASSETS:
Expenses........................................ 2.06% 2.07% 2.14% 2.26%*
======= ======= ======= =========
Investment income (loss)--net................... (.68)% (.61)% (.67)% (.87)%*
======= ======= ======= =========
SUPPLEMENTAL DATA:
Net assets, end of period (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 continued)
CLASS D++
--------------------------------------------------
FOR THE PERIOD
OCTOBER 21,
FOR THE YEAR ENDED 1994+ TO
JANUARY 31, JANUARY 31,
----------------------------
1998 1997 1996 1995
-------- ------- -------- ------------
INCREASE (DECREASE) IN NET ASSET VALUE:
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period......... $ 17.09 $ 16.20 $ 13.54 $ 14.26
-------- ------- -------- -------
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
gains 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 RETURN:**
Based on net asset value per share.............. 12.07% 19.73% 31.47% (3.50)%#
======== ======= ======== ========
RATIOS TO AVERAGE NET ASSETS:
Expenses........................................ 1.23% 1.25% 1.33% 1.43%*
======== ======= ======== =======
Investment income (loss)--net................... (.01) .22% .22% (.23)%*
======== ======= ======== =======
SUPPLEMENTAL DATA:
Net assets, end of period (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.
+++ Amount is less than $(.01) per share.
# 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 U.S. dollars using the prevailing exchange rate on the
date of the transaction. Such conversions may significantly affect the
rate shown.
INVESTMENT OBJECTIVES AND POLICIES
Investment Objectives. The investment objective of Fundamental Growth Fund
and Fund For Tomorrow is to provide stockholders with long-term growth of
capital by investing primarily in equity securities.
Investment Policies Generally. Fundamental Growth Fund seeks to invest in a
diversified portfolio of equity securities placing particular emphasis on
companies that have exhibited above-average growth rates in earnings, resulting
from a variety of factors including, but not limited to, above-average growth
rates in sales, profit margin improvement, proprietary or niche products or
services, leading market shares, and underlying strong industry growth. Fund For
Tomorrow seeks to invest in a quality-oriented portfolio of securities,
primarily common stock. In pursuing this objective, Fund For Tomorrow uses a
thematic approach of investing in long-term trends, seeking to identify
important investment concepts of the future and reviewing existing concepts to
confirm their validity in meeting the Fund's objective. As part of this thematic
approach, Fund For Tomorrow seeks to identify companies whose products and
services are believed to represent attractive investment opportunities.
There can be no assurance that, after the Reorganization, Fundamental
Growth Fund will achieve its investment objective.
Fundamental Growth Fund seeks to invest in a diversified portfolio of
equity securities placing particular emphasis on companies that have exhibited
above-average growth rates in earnings. Emphasis will be given to companies
having stock market capitalizations of $500 million or more. Fundamental Growth
Fund invests primarily in common stock, and to a lesser extent, securities
convertible into common stock and rights to subscribe for common stock.
Fundamental Growth Fund will maintain at least 65% of its total assets invested
in equity securities, except during defensive periods. Fundamental Growth Fund
reserves the right as a defensive measure and to provide for redemptions to hold
other types of securities, including non-convertible preferred stocks and debt
securities rated investment grade by a nationally recognized statistical rating
organization, U.S. Government and money market securities, including repurchase
agreements or cash, in such proportions as, in the opinion of management,
prevailing market or economic conditions warrant.
Fund For Tomorrow invests primarily in common stocks of companies whose
products and services are believed to represent attractive investment
opportunities in accordance with Fund For Tomorrow's thematic approach of
investing in long-term trends. Fund For Tomorrow may invest in securities issued
by companies of any size, without regard to capitalization. When management
deems it advisable to do so, Fund For Tomorrow may invest in securities other
than common stocks, including but not limited to convertible securities,
preferred stocks and bonds. Fund For Tomorrow does not presently intend to
purchase bonds rated lower than BBB by S&P or Baa by Moody's. Fund For Tomorrow
reserves the right to invest, temporarily, all or a portion of its assets in
high quality money market securities for purposes of enhancing liquidity and
avoiding the effects of declining stock prices when it seems advisable to do so
in light of prevailing market or economic conditions. The proportion of Fund For
Tomorrow's assets that is invested in money market securities will vary from
time to time.
MLAM believes that the securities currently held in the Fund For Tomorrow
portfolio are consistent with the investment objectives and policies of
Fundamental Growth Fund and are not prohibited by the investment restrictions of
Fundamental Growth Fund. Fundamental Growth Fund has no plan or intention to
sell or otherwise dispose of any of the assets of Fund For Tomorrow acquired in
the Reorganization, except for dispositions made in the ordinary course of
business.
A more specific comparison of the investment policies of Fund For Tomorrow
and Fundamental Growth Fund follows.
Foreign Securities. Each Fund may invest in foreign securities. Fund For
Tomorrow may invest up to 25% of total assets in securities of foreign issuers,
including issuers in foreign countries with smaller capital markets. Fundamental
Growth may invest up to 10% of its assets in the securities of foreign issuers
(this limitation does not apply to ADRs). See "Risk Factors and Special
Considerations-Investing on an International Basis."
Hedging Techniques. Fundamental Growth Fund may use certain techniques to
hedge its portfolio or enhance its return that Fund For Tomorrow does not use.
Specifically, Fundamental Growth Fund may purchase put and call options on
securities and securities indices, write put options on securities and
securities indices, engage in transactions in financial futures contracts and
related options, and purchase securities on a when issued or delayed delivery
basis. Other than with respect to closing transactions, Fundamental Growth Fund
will only write call or put options that are "covered." Fund For Tomorrow may
write covered call options, however, the underlying securities may not exceed
15% of the value of its total assets. Fundamental Growth Fund is not subject to
a similar restriction. For a more detailed description of hedging instruments
and risks associated with investment therein, see "Investment Objective and
Policies -- Other Investment Policies and Practices" in the Fundamental Growth
Fund Prospectus. Also see "Risk Factors and Special Considerations - Hedging"
herein.
Convertible Securities. Each of the Funds may invest in convertible
securities. A convertible security is a bond, debenture, note, preferred stock
or other security that may be converted into or exchanged for a prescribed
amount of common stock of the same or a different issuer within a particular
period of time at a specified price or formula. A convertible security entitles
the holder to receive interest generally paid or accrued on debt or the dividend
paid on preferred stock until the convertible security matures or is redeemed,
converted or exchanged. Convertible securities have several unique investment
characteristics such as (i) higher yields than common stocks, but lower yields
than comparable nonconvertible securities, (ii) a lesser degree of fluctuation
in value than the underlying stock since they have fixed-income characteristics,
and (iii) the potential for capital appreciation if the market price of the
underlying common stock increases. A convertible security might be subject to
redemption at the option of the issuer at a price established in the convertible
security's governing instrument. If a convertible security held by one of the
Funds is called for redemption, the Fund may be required to permit the issuer to
redeem the security, convert it into the underlying common stock or sell it to a
third party.
OTHER INVESTMENT POLICIES
Both Fund For Tomorrow and Fundamental Growth Fund have adopted certain
other investment policies as set forth below:
Borrowings. Fund For Tomorrow and Fundamental Growth Fund, as a fundamental
restriction, may each borrow amounts not in excess of 33 1/3% of its total
assets from banks. As a non-fundamental restriction, however, Fund For Tomorrow
may not borrow amounts in excess of 5% of the value of the Fund's total assets
and Fundamental Growth Fund may not borrow amounts in excess of 20% of its total
assets. Under the applicable non-fundamental restriction, Fundamental Growth
Fund may borrow only from banks as a temporary measure for extraordinary or
emergency purposes. Additionally, neither Fund may pledge any of its respective
assets other than to secure permitted borrowings. Fund For Tomorrow's ability to
pledge its assets is further limited to pledging securities having a value of
not more than 10% of the Fund's assets to secure permitted borrowings.
Lending of Portfolio Securities. Each Fund may from time to time lend
securities from its portfolio to banks, brokers and other financial institutions
and receive collateral in cash or securities issued or guaranteed by the U.S.
Government.
INVESTMENT RESTRICTIONS
Other than as noted above under "Comparison of the Funds--Investment
Objectives and Policies," Fund For Tomorrow and Fundamental Growth Fund have
identical investment restrictions. See, "Investment Objective and
Policies--Investment Restrictions" in the Fundamental Growth Fund Statement and
"Investment Practices and Restrictions--Investment Restrictions" in the Fund For
Tomorrow Statement.
MANAGEMENT
Directors. The Board of Directors of each of Fundamental Growth Fund and
Fund For Tomorrow consists of six individuals, five of whom are not "interested
persons" as defined in the Investment Company Act. One individual, Arthur
Zeikel, serves on both Boards. After the Reorganization, the Board of Directors
of Fundamental Growth Fund will serve as the Board of Directors of the Combined
Fund. The Directors are responsible for the overall supervision of the operation
of each Fund and perform the various duties imposed on the directors of
investment companies by the Investment Company Act.
The Directors of Fundamental Growth Fund are:
ARTHUR ZEIKEL*--Chairman of the Investment Adviser and Fund Asset
Management, L.P. ("FAM") (which terms as used herein include their corporate
predecessors) since 1997; President of the Investment Adviser and FAM from 1977
to 1997; Chairman of Princeton Services, Inc. ("Princeton Services") since 1997
and Director thereof since 1993; President of Princeton Services from 1993 to
1997; Executive Vice President of Merrill Lynch & Co., Inc. ("ML & Co.") since
1990.
JOE GRILLS--Member of the Committee of Investment of Employee Benefit
Assets of the Financial Executives Institute ("CIEBA") since 1986; Member of
CIEBA's Executive Committee since 1988 and its Chairman from 1991 to 1992;
Assistant Treasurer of International Business Machines Corporation ("IBM") and
Chief Investment Officer of IBM Retirement Funds 1986 to 1993; Member of the
Investment Advisory Committees of the State of New York Common Retirement Fund
and the Howard Hughes Medical Institute; Director, Duke Management Company since
1993; Director, LaSalle Street Fund since 1995; Director, Kimco Realty
Corporation since 1997.
WALTER MINTZ--Special Limited Partner of Cumberland Associates (investment
partnership) since 1982.
ROBERT S. SALOMON, JR.--Principal of STI Management (investment adviser);
Director, The Common Fund; Chairman and CEO of Salomon Brothers Asset Management
Inc. from 1992 to 1995; Chairman of Salomon Brothers equity mutual funds from
1992 to 1995; Director of Stock Research and U.S. Equity Strategist at Salomon
Brothers from 1975 to 1991; Director of The Common Fund.
MELVIN R. SEIDEN--Director of Silbanc Properties, Ltd. (real estate,
investments and consulting) since 1987; Chairman and President of Seiden & de
Cuevas, Inc. (private investment firm) from 1964 to 1987.
STEPHEN B. SWENSRUD--Chairman, Fernwood Advisors (investment adviser) since
1996; Principal, Fernwood Associates (financial consultant) since 1975.
- -------------------
* Interested person, as defined by the Investment Company Act, of each of the
Funds.
Management and Advisory Arrangements. MLAM serves as the investment adviser
for Fund For Tomorrow and as the manager for Fundamental Growth Fund pursuant to
an investment advisory agreement or a management agreement, as the case may be
(each, a "Management Agreement"). Except for different fee structures and
certain other minor differences, the agreements are identical.
Pursuant to the Management Agreement between Fundamental Growth Fund and
MLAM, Fundamental Growth Fund pays MLAM a monthly fee at the annual rate of
0.65% of the average daily net assets of the Fund. Pursuant to the Management
Agreement between Fund For Tomorrow and MLAM, Fund For Tomorrow pays MLAM a
monthly fee based upon the average daily value of the Fund's net assets at the
following annual rates: 0.65% of the average daily net assets not exceeding $750
million; 0.60% of the average daily net assets exceeding $750 million but not
exceeding $1 billion; and 0.55% of the average daily net assets exceeding $1
billion. The pro forma effective fee rate of the Combined Fund would be 0.65%.
MLAM has retained MLAM U.K. as sub-adviser to each of Fund For Tomorrow and
Fundamental Growth Fund. Pursuant to a separate sub-advisory agreement between
MLAM and MLAM U.K. with respect to each Fund, MLAM pays MLAM U.K. a fee for
providing investment advisory services to MLAM with respect to each Fund, in an
amount to be determined from time to time by MLAM and MLAM U.K. but in no event
in excess of the amount MLAM actually receives for providing services to each
Fund pursuant to each Management Agreement. The address of MLAM U.K. is Milton
Gate, 1 Moor Lane, London EC2Y 9HA, England.
After the Reorganization, on a pro forma combined basis as of June 30,
1998, the total operating expenses of Fundamental Growth Fund, as a percent of
net assets, would be less than the current operating expenses for Fund For
Tomorrow. In addition, certain fixed costs, such as costs of printing
stockholder reports and proxy statements, legal expenses, audit fees,
registration fees, mailing costs and other expenses would be spread across a
larger asset base, thereby lowering the expense ratio borne by Fund For Tomorrow
stockholders. MLAM believes that the Reorganization is in the best interest of
both Fundamental Growth Fund and Fund For Tomorrow stockholders. See "The
Reorganization--Potential Benefits to Stockholders as a Result of the
Reorganization" and "Summary--Pro Forma Fee Tables."
PURCHASE OF SHARES
The class structure and purchase and distribution procedures for shares of
Fund For Tomorrow are identical to those of Fundamental Growth Fund. For a
complete discussion of the four classes of shares and the purchase and
distribution procedures related thereto, see "Merrill Lynch Select Pricing4
System" and "Purchase of Shares" in either the Fundamental Growth Fund
Prospectus or the Fund For Tomorrow Prospectus.
REDEMPTION OF SHARES
The procedure for redeeming shares of Fundamental Growth Fund is identical
to the procedure for redeeming shares of Fund For Tomorrow. For purposes of
computing any CDSC that may be payable upon disposition of Corresponding Shares
of Fundamental Growth Fund acquired by Fund For Tomorrow stockholders in the
Reorganization, the holding period of Fund For Tomorrow shares outstanding on
the date the Reorganization takes place will be tacked onto the holding period
of the Corresponding Shares of Fundamental Growth Fund acquired in the
Reorganization.
PERFORMANCE
General. The following tables provide performance information for each
class of shares of Fund For Tomorrow and Fundamental Growth Fund, including and
excluding maximum applicable sales charges, for the periods indicated. Past
performance is not indicative of future performance.
<TABLE>
Fundamental Growth Fund
Average Annual Total Return
<CAPTION>
- -------- -------------------------- -------------------------- -------------------------- ---------------------------
Class A Shares Class B Shares Class C Shares Class D Shares
-------------------------- -------------------------- -------------------------- ---------------------------
Period Without With Sales Without With Sales Without With Sales Without With Sales
Sales Charge*(%) Sales Charge*(%) Sales Charge*(%) Sales Charge*(%)
Charge(%) Charge(%) Charge(%) Charge(%)
- -------- ------------ ------------- ------------ ------------- ------------ ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
10
months
ended
6/30/98+ 26.61 19.96 25.45 21.45 25.48 24.48 26.29 19.66
- -------- ------------ ------------- ------------ ------------- ------------ ------------- ------------- -------------
Year
Ended
8/31/97 39.24 31.93 37.95 33.95 37.90 36.90 38.90 31.61
- -------- ------------ ------------- ------------ ------------- ------------ ------------- ------------- -------------
Inception
**
through
8/31/97 27.37 24.99 26.10 25.65 14.83 14.83 15.73 14.40
- -------- ------------ ------------- ------------ ------------- ------------ ------------- ------------- -------------
</TABLE>
* Assumes the maximum applicable sales charge. The maximum initial sales
charge on Class A and Class D shares is 5.25%. The maximum contingent
deferred sales charge ("CDSC") on Class B shares is 4.0% and is reduced to
0% after four years. Class C shares are subject to a 1.0% CDSC for one
year.
+ Aggregate total returns.
** Class A and Class B shares commenced operations on October 21, 1994. Class
C and Class D shares commenced operations on December 24, 1992.
<TABLE>
Fund For Tomorrow
Average Annual Total Return
<CAPTION>
- --------------- -------------------------- --------------------------- -------------------------- --------------------------
Class A Shares Class B Shares Class C Shares Class D Shares
-------------------------- --------------------------- -------------------------- --------------------------
Period Without With Sales Without With Sales Without With Sales Without With Sales
Sales Charge*(%) Sales Charge*(%) Sales Charge*(%) Sales Charge*(%)
Charge(%) Charge(%) Charge(%) Charge(%)
- --------------- ------------ ------------- ------------ -------------- ------------ ------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
5 months ended
6/30/98+ 13.07 7.13 12.66 8.66 12.58 11.58 13.02 7.08
- --------------- ------------ ------------- ------------ -------------- ------------ ------------- ------------ -------------
Year Ended
1/31/98 12.43 6.53 11.20 7.58 11.15 10.24 12.07 6.19
- --------------- ------------ ------------- ------------ -------------- ------------ ------------- ------------ -------------
Five Years
Ended
1/31/98 12.82 11.61 11.63 11.63 N/A N/A N/A N/A
- --------------- ------------ ------------- ------------ -------------- ------------ ------------- ------------ -------------
Ten years or
inception**
through
1/31/98 12.67 12.02 12.45 12.45 16.50 16.50 17.61 15.70
- --------------- ------------ ------------- ------------ -------------- ------------ ------------- ------------ -------------
</TABLE>
* Assumes the maximum applicable sales charge. The maximum initial sales
charge on Class A and Class D shares is 5.25%. The maximum CDSC on Class B
shares is 4.0% and is reduced to 0% after four years. Class C shares are
subject to a 1.0% CDSC for one year.
** Class A shares commenced operations on October 26, 1988. Performance of
Class B shares is for the ten year period ended January 31, 1998. Class C
and Class D shares commenced operations on October 21, 1994.
+ Aggregate total returns.
SHAREHOLDER RIGHTS
Stockholders of Fundamental Growth Fund are entitled to one vote for each
share held and fractional votes for fractional shares held and will vote on the
election of Directors and any other matter submitted to a stockholder vote.
Fundamental Growth Fund does not intend to hold meetings of stockholders in any
year in which the Investment Company Act does not require stockholders to act
upon any of the following matters: (i) election of Directors; (ii) approval of
an investment advisory agreement; (iii) approval of distribution arrangements;
and (iv) ratification of selection of independent accountants. Voting rights for
Directors are not cumulative. Shares of Fundamental Growth Fund to be issued to
Fund For Tomorrow stockholders in the Reorganization will be fully paid and
non-assessable, will have no preemptive rights, and will have the conversion
rights described in this Prospectus and Proxy Statement and in the Fundamental
Growth Fund Prospectus. Each share of Fundamental Growth Fund common stock is
entitled to participate equally in dividends and distributions declared by the
Fund and in the net assets of the Fund on liquidation or dissolution after
satisfaction of outstanding liabilities, except that Class B, Class C and Class
D shares bear certain additional expenses. Rights attributable to shares of Fund
For Tomorrow are identical to those described above.
DIVIDENDS AND DISTRIBUTIONS
The current policy of Fund For Tomorrow with respect to dividends and
distributions is substantially the same as the policy of Fundamental Growth
Fund. It is each Fund's intention to distribute all of its net investment
income, if any. In addition, each Fund distributes all net realized capital
gains, if any, to stockholders at least annually.
TAX INFORMATION
The tax consequences associated with investment in shares of Fund For
Tomorrow are substantially the same as the tax consequences associated with
investment in shares of Fundamental Growth Fund. See "Additional
Information--Taxes" in the Fundamental Growth Fund Prospectus.
PORTFOLIO TRANSACTIONS
The procedures for engaging in portfolio transactions are generally the
same for both Fund For Tomorrow and Fundamental Growth Fund. For a discussion of
these procedures, see "Investment Objective and Policies--Other Investment
Policies and Practices" in the Fundamental Growth Fund Prospectus and "Portfolio
Transactions and Brokerage" in the Fundamental Growth Fund Statement.
Each Fund may effect portfolio transactions on foreign securities exchanges
and may incur settlement delays on certain of such exchanges. In addition, costs
associated with transactions in foreign securities are generally higher than
such costs associated with transactions in U.S. securities.
PORTFOLIO TURNOVER
Generally, neither Fund For Tomorrow nor Fundamental Growth Fund purchases
securities for short-term trading profits. However, either Fund may dispose of
securities without regard to the time that they have been held when such action,
for defensive or other reasons, appears advisable to MLAM. Neither Fund has any
limit on its rate of portfolio turnover. The portfolio turnover rates for Fund
For Tomorrow for its fiscal years ended January 31, 1998 and 1997 were 17.63%
and 39.96%, respectively. The portfolio turnover rates for Fundamental Growth
Fund for its fiscal years ended August 31, 1997 and 1996 were 94.38% and 82.10%,
respectively. Higher portfolio turnover may contribute to higher transactional
costs and negative tax consequences, such as an increase in capital gain
dividends or in ordinary income dividends of accrued market discount.
ADDITIONAL INFORMATION
Net Asset Value. Both Fund For Tomorrow and Fundamental Growth Fund
determine the net asset value of each class of its shares once daily 15 minutes
after the close of business on the NYSE (generally, 4:00 p.m. New York time), on
each day during which the NYSE is open for trading. Net asset value is computed
by dividing the value of the securities held by the Fund plus any cash or other
assets (including interest and dividends accrued but not yet received) minus all
liabilities (including accrued expenses) by the total number of shares
outstanding at such time.
Stockholder Services. Fundamental Growth Fund offers a number of
stockholder services and investment plans designed to facilitate investment in
shares of the Fund. In addition, U.S. stockholders of each class of shares of
Fundamental Growth Fund have an exchange privilege with certain other
MLAM-advised mutual funds. Stockholder services, including exchange privileges,
available to stockholders of Fund For Tomorrow and Fundamental Growth Fund are
virtually identical. For a description of these services, see "Shareholder
Services" in the Fundamental Growth Fund Prospectus.
Independent Auditors. Currently Ernst & Young LLP serves as the independent
auditors of Fundamental Growth Fund and Deloitte & Touche LLP serves as the
independent auditors of Fund For Tomorrow. If the Reorganization is approved, it
is anticipated that Ernst & Young LLP will serve as the independent auditors of
the Combined Fund. See "Experts."
Custodian. The Chase Manhattan Bank, Global Securities Services ("Chase
Manhattan") acts as custodian of the cash and securities of Fundamental Growth
Fund. The principal business address of Chase Manhattan is Chase MetroTech
Center, 18th Floor, Brooklyn, New York 11245. The Bank of New York ("BONY") acts
as custodian for Fund For Tomorrow. BONY's principal business address is 90
Washington Street, 12th floor, New York, New York 10286. It is presently
anticipated that Chase Manhattan will serve as the custodian of the Combined
Fund.
Transfer Agent, Dividend Disbursing Agent and Shareholder Servicing Agent.
Merrill Lynch Financial Data Services, Inc., 4800 Deer Lake Drive East,
Jacksonville, Florida 32246-6484, serves as the transfer agent, dividend
disbursing agent and shareholder servicing agent with respect to each Fund (the
"Transfer Agent"), at the same fee schedule, pursuant to separate transfer
agency, dividend disbursing agency and shareholder servicing agency agreements
with each of the Funds.
Capital Stock. Fund For Tomorrow has an authorized capital of 400,000,000
shares of common stock, par value $0.10 per share, divided into four classes,
designated Class A, Class B, Class C and Class D common stock, each of which
consists of 100,000,000 shares. Fundamental Growth Fund has an authorized
capital of 400,000,000 shares of common stock, par value $0.10 per share,
divided into four classes, also designated Class A, Class B, Class C and Class D
common stock, each of which consists of 100,000,000 shares. The rights,
preferences and expenses attributable to the Class A, Class B, Class C and Class
D shares of Fund For Tomorrow are identical in all respects to those of the
Class A, Class B, Class C and Class D shares of Fundamental Growth Fund.
Stockholder Inquiries. Stockholder inquiries with respect to Fund For
Tomorrow and Fundamental Growth Fund may be addressed to either Fund by
telephone at (609) 282-2800 or at the address set forth on the cover page of
this Proxy Statement and Prospectus.
THE REORGANIZATION
GENERAL
Under the Agreement and Plan of Reorganization (attached hereto as Exhibit
I), Fundamental Growth Fund will acquire substantially all of the assets, and
will assume substantially all of the liabilities, of Fund For Tomorrow, in
exchange solely for an equal aggregate value of shares to be issued by
Fundamental Growth Fund. Upon receipt by Fund For Tomorrow of such shares, Fund
For Tomorrow will distribute the shares to the holders of shares of Fund For
Tomorrow, as described below.
Generally, the assets transferred by Fund For Tomorrow to Fundamental
Growth Fund will include all investments of Fund For Tomorrow held in its
portfolio as of the Valuation Time (as defined in the Agreement and Plan of
Reorganization) and all other assets of Fund For Tomorrow as of such time.
Fund For Tomorrow will distribute the shares of Fundamental Growth Fund
received by it pro rata to its stockholders in exchange for such stockholders'
proportional interests in Fund For Tomorrow. The shares of Fundamental Growth
Fund received by Fund For Tomorrow stockholders will be of the same class and
have the same aggregate net asset value as each such stockholder's interest in
Fund For Tomorrow as of the Valuation Time (previously defined as the
"Corresponding Shares"). (See, "The Agreement and Plan of
Reorganization--Valuation of Assets and Liabilities" for information concerning
the calculation of net asset value.) The distribution will be accomplished by
opening new accounts on the books of Fundamental Growth Fund in the names of all
stockholders of Fund For Tomorrow, including stockholders holding Fund For
Tomorrow shares in certificate form, and transferring to each stockholder's
account the Corresponding Shares of Fundamental Growth Fund representing such
stockholder's interest previously credited to the account of Fund For Tomorrow.
Stockholders holding Fund For Tomorrow shares in certificate form may receive
certificates representing the Corresponding Shares of Fundamental Growth Fund
credited to their account in respect of such Fund For Tomorrow shares by sending
the certificates to the Transfer Agent accompanied by a written request for such
exchange.
Since the Corresponding Shares of Fundamental Growth Fund would be issued
at net asset value in exchange for the net assets of Fund For Tomorrow having a
value equal to the aggregate net asset value of those shares of Fund For
Tomorrow, the net asset value per share of Fundamental Growth Fund should remain
virtually unchanged solely as a result of the Reorganization. Thus, the
Reorganization should not result in dilution of net asset value of Fundamental
Growth Fund immediately following consummation of the Reorganization. However,
as a result of the Reorganization, a stockholder of Fund For Tomorrow would hold
a smaller percentage of ownership in Fundamental Growth Fund than he or she did
in Fund For Tomorrow prior to the Reorganization.
PROCEDURE
On July 27, 1998, the Board of Directors of Fund For Tomorrow, including
all of the Directors who are not "interested persons," as defined by the
Investment Company Act, approved the Agreement and Plan of Reorganization and
the submission of such Agreement and Plan to Fund For Tomorrow stockholders for
approval. The Board of Directors of Fundamental Growth Fund, including all of
the Directors who are not interested persons, also approved the Agreement and
Plan of Reorganization on July 8, 1998.
If the stockholders of Fund For Tomorrow approve the Reorganization at the
Meeting, all required regulatory approvals are obtained, and certain conditions
are either met or waived, the Reorganization will take place during the fourth
calendar quarter of 1998.
THE BOARD OF DIRECTORS OF FUND FOR TOMORROW RECOMMENDS THAT FUND FOR
TOMORROW STOCKHOLDERS APPROVE THE AGREEMENT AND PLAN OF REORGANIZATION.
TERMS OF THE AGREEMENT AND PLAN OF REORGANIZATION
The following is a summary of the significant terms of the Agreement and
Plan of Reorganization. This summary is qualified in its entirety by reference
to the Agreement and Plan of Reorganization, attached hereto as Exhibit I.
Valuation of Assets and Liabilities. The respective assets of Fund For
Tomorrow and Fundamental Growth Fund will be valued as of the Valuation Time.
The assets in each Fund will be valued according to the procedures set forth
under "Additional Information--Determination of Net Asset Value" in the
Fundamental Growth Fund Prospectus. Purchase orders for Fund For Tomorrow shares
which have not been confirmed as of the Valuation Time will be treated as assets
of Fund For Tomorrow for purposes of the Reorganization; redemption requests
with respect to Fund For Tomorrow shares which have not settled as of the
Valuation Time will be treated as liabilities of Fund For Tomorrow for purposes
of the Reorganization.
Distribution of Fundamental Growth Fund Shares. On the next full business
day following the Valuation Time (the "Exchange Date"), Fundamental Growth Fund
will issue to Fund For Tomorrow a number of shares the aggregate net asset value
of which will equal the aggregate net asset value of shares of Fund For Tomorrow
as of the Valuation Time. Each holder of Fund For Tomorrow shares will receive,
in exchange for his or her proportionate interest in Fund For Tomorrow,
Corresponding Shares of Fundamental Growth Fund of the same class and having the
same aggregate net asset value as the Fund For Tomorrow shares held by such
stockholder as of the Valuation Time.
Expenses. The expenses of the Reorganization that are directly attributable
to each Fund and the conduct of its business will be deducted from the assets of
that Fund as of the Valuation Time. These expenses are expected to include the
expenses incurred in preparing materials to be distributed to each Fund's board,
legal fees incurred in preparing each Fund's board materials, attending each
Fund's board meetings and preparing the minutes, and accounting fees associated
with each Fund's financial statements. The expenses of the Reorganization that
are attributable to the transaction itself, including expenses in connection
with obtaining the IRS private letter ruling, will be borne pro rata by each
Fund according to its net assets as of the Valuation Time. These expenses are
expected to include expenses incurred in connection with the preparation of the
Agreement and Plan of Reorganization and the Registration Statement on Form N-14
(including the Prospectus and Proxy Statement), Commission and other filing fees
and legal and audit fees in connection with the Reorganization.
Required Approvals. Under Fund For Tomorrow's Articles of Incorporation (as
amended to date) and relevant Maryland law, stockholder approval of the
Agreement and Plan of Reorganization requires the affirmative vote of Fund For
Tomorrow stockholders representing a majority of the total number of votes
entitled to be cast thereon.
Deregistration and Dissolution. Following the transfer of the assets and
liabilities of Fund For Tomorrow to Fundamental Growth Fund and the distribution
of Corresponding Shares of Fundamental Growth Fund to Fund For Tomorrow
stockholders, Fund For Tomorrow will terminate its registration under the
Investment Company Act and its incorporation under Maryland law and will
withdraw its authority to do business in any state where it is required to do
so.
Amendments and Conditions. The Agreement and Plan of Reorganization may be
amended at any time prior to the Exchange Date with respect to any of the terms
therein. The obligations of Fund For Tomorrow and Fundamental Growth Fund
pursuant to the Agreement and Plan of Reorganization are subject to various
conditions, including a registration statement on Form N-14 being declared
effective by the Commission, approval of the Reorganization by Fund For Tomorrow
stockholders, a favorable IRS private letter ruling being received as to tax
matters, an opinion of counsel being received as to securities matters and the
continuing accuracy of various representations and warranties of Fund For
Tomorrow and Fundamental Growth Fund being confirmed by the respective parties.
Postponement, Termination. The Agreement and Plan of Reorganization may be
terminated, and the Reorganization abandoned at any time, whether before or
after adoption thereof by the Fund For Tomorrow stockholders, prior to the
Exchange Date or the Exchange Date may be postponed: (i) by mutual consent of
the Boards of Directors of Fund For Tomorrow and Fundamental Growth Fund; (ii)
by the Board of Directors of Fund For Tomorrow if any condition to Fund For
Tomorrow's obligations has not been fulfilled or waived by such Board; or (iii)
by the Board of Directors of Fundamental Growth Fund if any condition to
Fundamental Growth Fund's obligations has not been fulfilled or waived by such
Board.
POTENTIAL BENEFITS TO STOCKHOLDERS AS A RESULT OF THE REORGANIZATION
MLAM and the Board of Directors of Fund For Tomorrow have identified
certain potential benefits to stockholders that are likely to result from the
Reorganization. First, following the Reorganization, Fund For Tomorrow
stockholders will remain invested in a diversified open-end fund that has an
investment objective of long-term capital growth. In addition, Fund For Tomorrow
stockholders are likely to experience certain additional benefits, including
lower expenses per share and potential economies of scale.
Specifically, as described above under "Comparison of the
Funds--Management--Management and Advisory Fees," after the Reorganization, on a
pro forma basis, Fundamental Growth Fund will pay an advisory fee to MLAM at the
same annual rate as currently paid by Fund For Tomorrow and the total operating
expenses of Fundamental Growth Fund after the Reorganization, as a percent of
net assets, would be less than the current operating expenses for Fund For
Tomorrow. See "Summary--Pro Forma Fee Tables." In addition, certain fixed costs,
such as costs of printing stockholder reports and proxy statements, legal
expenses, audit fees, registration fees, mailing costs and other expenses would
be spread across a larger asset base, thereby lowering the expense ratio borne
by Fund For Tomorrow stockholders. To illustrate the potential economies of
scale for Fund For Tomorrow, on June 30, 1998, the total operating expense ratio
for Fund For Tomorrow Class A shares was 0.93% (based on net assets of
approximately $312 million) and the total operating expense ratio for
Fundamental Growth Fund Class A shares was 0.83% (based on net assets of
approximately $1,062 million). If the Reorganization had taken place on that
date, the total operating expense ratio for Fundamental Growth Fund Class A
shares on a pro forma basis would have been 0.82% (based on net assets of
approximately $1.4 billion).
The following table sets forth the net assets of Fund For Tomorrow and the
net assets of Fundamental Growth Fund as of the dates indicated.
FUNDAMENTAL GROWTH FUND FUND FOR TOMORROW
----------------------- -----------------
PERIOD NET ASSETS PERIOD NET ASSETS
- ------ ---------- ------ ----------
As of 8/31/96 $240,632,901 As of 1/31/96 $380,762,715
As of 8/31/97 $406,518,289 As of 1/31/97 $391,122,847
As of 2/28/98 $677,236,436 As of 1/31/98 $308,818,599
As of 6/30/98 $1,061,566,810 As of 6/30/98 $311,611,903
The table illustrates that the net assets of Fundamental Growth Fund, which
commenced operations on December 12, 1992, have experienced substantial
increases over the past several years, while the net assets of Fund For
Tomorrow, which commenced operations on March 5, 1984, have generally decreased.
Were these trends to continue, MLAM anticipates that Fundamental Growth Fund may
experience increasing economies of scale which, as a result, may have the effect
of reducing its overall operating expense ratio, while Fund For Tomorrow may
experience the opposite result, that is, a higher operating expense ratio due to
a continuing reduction in assets. Although there can be no assurance that the
foregoing would in fact occur, MLAM believes that the economies of scale that
may be realized as a result of the Reorganization would be beneficial to Fund
For Tomorrow shareholders.
Based on the foregoing, the Board of Directors of Fund For Tomorrow
concluded that the Reorganization presents no significant risks or costs
(including legal, accounting and administrative costs) that would outweigh the
benefits discussed above.
In approving the Reorganization, the Board of Directors of both Funds
determined that the interests of existing stockholders of both Funds would not
be diluted as a result of the Reorganization.
TAX CONSEQUENCES OF THE REORGANIZATION
General. The Reorganization has been structured with the intention that it
qualify for Federal income tax purposes as a tax-free reorganization under
Section 368(a)(1)(C) of the Code. Fund For Tomorrow and Fundamental Growth Fund
have elected and qualified for the special tax treatment afforded "regulated
investment companies" under the Code, and Fundamental Growth Fund intends to
continue to so qualify after the Reorganization. Fund For Tomorrow and
Fundamental Growth Fund have jointly requested a private letter ruling from the
IRS to the effect that for Federal income tax purposes: (i) the Reorganization,
as described, will constitute a reorganization within the meaning of Section
368(a)(1)(C) of the Code and Fund For Tomorrow and Fundamental Growth Fund will
each be deemed a "party" to the Reorganization within the meaning of Section
368(b); (ii) in accordance with Section 354(a)(1) of the Code, no gain or loss
will be recognized by the stockholders of Fund For Tomorrow upon the receipt of
Corresponding Shares of Fundamental Growth Fund in the Reorganization solely in
exchange for their shares of Fund For Tomorrow; (iii) in accordance with Section
358 of the Code, immediately after the Reorganization, the tax basis of the
Corresponding Shares of Fundamental Growth Fund received by the stockholders of
Fund For Tomorrow in the Reorganization will be equal, in the aggregate, to the
tax basis of the shares of Fund For Tomorrow surrendered in exchange; (iv) in
accordance with Section 1223 of the Code, the holding period of the
Corresponding Shares of Fundamental Growth Fund received by stockholders of Fund
For Tomorrow in the Reorganization will include the holding period of the shares
of Fund For Tomorrow immediately prior to the Reorganization (provided that at
the time of the Reorganization the shares of Fund For Tomorrow were held as
capital assets); (v) in accordance with Section 361(a) of the Code, no gain or
loss will be recognized by Fund For Tomorrow on the asset transfer solely in
exchange for Fundamental Growth Fund shares or on the distribution of
Fundamental Growth Fund shares to Fund For Tomorrow stockholders under Section
361(c)(1); (vi) under Section 1032 of the Code, no gain or loss will be
recognized by Fundamental Growth Fund on the exchange of its shares for Fund For
Tomorrow assets; (vii) in accordance with Section 362(b) of the Code, the tax
basis of the assets of Fund For Tomorrow in the hands of Fundamental Growth Fund
will be the same as the tax basis of such assets in the hands of Fund For
Tomorrow immediately prior to the Reorganization; (viii) in accordance with
Section 1223 of the Code, the holding period of the transferred assets in the
hands of Fundamental Growth Fund will include the holding period of such assets
in the hands of Fund For Tomorrow; and (ix) the taxable year of Fund For
Tomorrow will end on the effective date of the Reorganization and pursuant to
Section 381(a) of the Code and regulations thereunder, Fundamental Growth Fund
will succeed to and take into account certain tax attributes of Fund For
Tomorrow, such as earnings and profits, capital loss carryovers and method of
accounting.
To the extent Fundamental Growth Fund has unrealized capital gains at the
time of the Reorganization, Fund For Tomorrow stockholders may incur taxable
gains in the year that Fundamental Growth Fund realizes and distributes those
gains. This will be true notwithstanding that the unrealized gains were
reflected in the price of Fundamental Growth Fund shares at the time they were
exchanged for assets of Fund For Tomorrow in the Reorganization. Conversely,
stockholders of Fundamental Growth Fund will share in unrealized capital gains
of Fund For Tomorrow after the Reorganization and bear a tax consequence on the
subsequent realization of such gains. Stockholders should consult their tax
advisers regarding the effect of the Reorganization in light of their individual
circumstances. As the foregoing relates only to Federal income tax consequences,
stockholders also should consult their tax advisers as to the foreign, state and
local tax consequences of the Reorganization.
Status as a Regulated Investment Company. Both Fund For Tomorrow and
Fundamental Growth Fund have elected and qualified to be taxed as regulated
investment companies under Sections 851-855 of the Code, and after the
Reorganization, Fundamental Growth Fund intends to continue to operate so as to
qualify as a regulated investment company. Following the liquidation and
dissolution of Fund For Tomorrow and distribution of shares of Fundamental
Growth Fund to Fund For Tomorrow stockholders, Fund For Tomorrow will terminate
its registration under the Investment Company Act and its incorporation under
Maryland law.
CAPITALIZATION
The following table sets forth as of June 30, 1998: (i) the capitalization
of Fund For Tomorrow, (ii) the capitalization of Fundamental Growth Fund and
(iii) the pro forma capitalization of the Combined Fund as adjusted to give
effect to the Reorganization.
PRO FORMA CAPITALIZATION OF FUNDAMENTAL GROWTH FUND, FUND FOR TOMORROW AND
--------------------------------------------------------------------------
COMBINED FUND AS OF JUNE 30, 1998
---------------------------------
FUNDAMENTAL GROWTH FUND
-----------------------
Class A Class B Class C Class D
------- ------- ------- -------
Total Net Assets*: $172,885,564 $604,496,007 $135,909,704 $148,275,535
Shares Outstanding: 8,970,935 32,949,565 7,375,265 7,755,139
Net Asset Value
Per Share: $19.27 $18.35 $18.43 $19.12
FUND FOR TOMORROW
-----------------
Class A Class B Class C Class D
------- ------- ------- -------
Total Net Assets*: $10,819,194 $49,899,908 $1,780,876 $249,111,925
Shares Outstanding: 612,910 2,951,579 105,848 14,201,953
Net Asset Value
Per Share: $17.65 $16.91 $16.82 $17.54
COMBINED FUND
-------------
Class A Class B Class C Class D
------- ------- ------- -------
Total Net Assets*: $183,704,758 $654,395,915 $137,690,580 $397,387,460
Shares Outstanding: 9,533,200 35,661,903 7,471,003 20,783,863
Net Asset Value
Per Share: $19.27 $18.35 $18.43 $19.12
______________
* Total Net Assets and Net Asset Value Per Share include the aggregate value
of Fund For Tomorrow's net assets which would have been transferred to
Fundamental Growth Fund had the Reorganization been consummated on June
30, 1998. The data does not take into account expenses incurred in
connection with the Reorganization or the actual number of shares that
would have been issued. No assurance can be given as to how many shares of
Fundamental Growth Fund the Fund For Tomorrow stockholders will receive on
the date the Reorganization takes place, and the foregoing should not be
relied upon to reflect the number of shares of Fundamental Growth Fund
that actually will be received on or after such date.
INFORMATION CONCERNING THE SPECIAL MEETING
DATE, TIME AND PLACE OF MEETING
The Meeting will be held on October 13, 1998, at the offices of Merrill
Lynch Asset Management, L.P., 800 Scudders Mill Road, Plainsboro, New Jersey at
9:00 a.m., New York time.
SOLICITATION, REVOCATION AND USE OF PROXIES
A stockholder executing and returning a proxy has the power to revoke it at
any time prior to its exercise by executing a superseding proxy or by submitting
a notice of revocation to the Secretary of Fund For Tomorrow. Although mere
attendance at the Meeting will not revoke a proxy, a stockholder present at the
Meeting may withdraw his proxy and vote in person.
All shares represented by properly executed proxies, unless such proxies
previously have been revoked, will be voted at the Meeting in accordance with
the directions on the proxies; if no direction is indicated on a properly
executed proxy, such shares will be voted "FOR" approval of the Agreement and
Plan of Reorganization.
It is not anticipated that any matters other than the adoption of the
Agreement and Plan of Reorganization will be brought before the Meeting. If,
however, any other business properly is brought before the Meeting, proxies will
be voted in accordance with the judgment of the persons designated on such
proxies.
RECORD DATE AND OUTSTANDING SHARES
Only holders of record of shares of Fund For Tomorrow at the close of
business on August 25, 1998 (the "Record Date") are entitled to vote at the
Meeting or any adjournment thereof. At the close of business on the Record Date,
there were ______ shares of Fund For Tomorrow common stock issued and
outstanding and entitled to vote.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF FUND FOR
TOMORROW AND FUNDAMENTAL GROWTH FUND
[To the knowledge of Fund For Tomorrow, as of the Record Date, no person or
entity owned beneficially or of record 5% or more of any class of shares of Fund
For Tomorrow or of all classes of Fund For Tomorrow shares in the aggregate.]
At the Record Date, the Directors and officers of Fund For Tomorrow as a
group (12 persons) owned an aggregate of less than 1% of the outstanding shares
of Fund For Tomorrow and owned an aggregate of less than 1% of the outstanding
shares of common stock of ML & Co.
To the knowledge of Fundamental Growth Fund, as of ________ __, 1998, no
person or entity owned beneficially or of record 5% or more of any class of
shares of Fundamental Growth Fund or of all classes of Fundamental Growth Fund
shares in the aggregate.
As of ________ __, 1998, the Directors and officers of Fundamental Growth
Fund as a group (12 persons) owned an aggregate of less than 1% of the
outstanding shares of Fundamental Growth Fund and owned less than 1% of the
outstanding shares of common stock of ML & Co.
VOTING RIGHTS AND REQUIRED VOTE
For purposes of this Proxy Statement and Prospectus, each share of each
class of Fund For Tomorrow is entitled to one vote. Approval of the Agreement
and Plan of Reorganization requires the affirmative vote of Fund For Tomorrow
stockholders representing a majority of the total votes entitled to be cast
thereon, with all shares voting as a single class.
Under Maryland law, stockholders of a registered open-end investment
company such as Fund For Tomorrow are not entitled to demand the fair value of
their shares upon a transfer of assets and will be bound by the terms of the
Reorganization if approved at the Meeting. However, any stockholder of Fund For
Tomorrow may redeem his or her Fund For Tomorrow shares prior to the
Reorganization.
A quorum for purposes of the Meeting consists of a majority of the shares
entitled to vote at the Meeting, present in person or by proxy. If, by the time
scheduled for the Meeting, a quorum of Fund For Tomorrow's stockholders is not
present or if a quorum is present but sufficient votes in favor of the Agreement
and Plan of Reorganization are not received from the stockholders of Fund For
Tomorrow, the persons named as proxies may propose one or more adjournments of
the Meeting to permit further solicitation of proxies from stockholders. Any
such adjournment will require the affirmative vote of a majority of the shares
of Fund For Tomorrow present in person or by proxy and entitled to vote at the
session of the Meeting to be adjourned. The persons named as proxies will vote
in favor of any such adjournment if they determine that adjournment and
additional solicitation are reasonable and in the interests of the stockholders
of Fund For Tomorrow.
ADDITIONAL INFORMATION
The expenses of preparation, printing and mailing of the enclosed form of
proxy, the accompanying Notice and this Proxy Statement and Prospectus will be
borne by Fundamental Growth Fund and Fund For Tomorrow pro rata according to the
aggregate net assets of each Fund's portfolio on the date of Reorganization.
Such expenses are currently estimated to be $350,000.
Fund For Tomorrow will reimburse banks, brokers and others for their
reasonable expenses in forwarding proxy solicitation materials to the beneficial
owners of shares of Fund For Tomorrow and will reimburse certain persons that
Fund For Tomorrow may employ for their reasonable expenses in assisting in the
solicitation of proxies from such beneficial owners of shares of Fund For
Tomorrow.
In order to obtain the necessary quorum at the Meeting, supplementary
solicitation may be made by mail, telephone, telegraph or personal interview by
officers of Fund For Tomorrow. Fund For Tomorrow and Fundamental Growth Fund
also may hire proxy solicitors at their expense. The Funds have retained [name],
[an affiliate of ML & Co.], with offices at [______________] to aid in the
solicitation of proxies from holders of shares held in nominee or "street" name
at a cost to be borne by [_________] of approximately $ [________], plus
out-of-pocket expenses.
Broker-dealer firms, including Merrill Lynch, holding shares of Fund For
Tomorrow in "street name" for the benefit of their customers and clients will
request the instructions of such customers and clients on how to vote their
shares before the Meeting. Broker-dealer firms, including Merrill Lynch, will
not be permitted to grant voting authority without instructions with respect to
the approval of the Agreement and Plan of Reorganization. Fund For Tomorrow will
include shares held of record by broker-dealers as to which such authority has
been granted in its tabulation of the total number of shares present for
purposes of determining whether the necessary quorum of stockholders exists.
Properly executed proxies that are returned but that are marked "abstain" or
with respect to which a broker-dealer has declined to vote on any proposal
("broker non-votes") will be counted as present for the purposes of determining
a quorum. Since approval of the Agreement and Plan of Reorganization requires
the affirmative vote of stockholders representing a majority of the outstanding
shares of Fund For Tomorrow, abstentions and broker non-votes will have the same
effect as a vote against approval of the Agreement and Plan of Reorganization.
This Proxy Statement and Prospectus does not contain all of the information
set forth in the registration statements and the exhibits relating thereto which
Fund For Tomorrow and Fundamental Growth Fund, respectively, have filed with the
Commission under the Securities Act and the Investment Company Act, to which
reference is hereby made.
Fund For Tomorrow and Fundamental Growth Fund both file reports and other
information with the Commission. Reports, proxy statements, registration
statements and other information filed by Fund For Tomorrow and Fundamental
Growth Fund can be inspected and copied at the public reference facilities of
the Commission in Washington, D.C. and at the New York Regional Office of the
Commission at Seven World Trade Center, New York, New York 10048. Copies of such
materials also can be obtained by mail from the Public Reference Branch, Office
of Consumer Affairs and Information Services, Securities and Exchange
Commission, Washington, D.C. 20549, at prescribed rates. The Commission
maintains a web site (http://www.sec.gov) that contains the Statement of
Additional Information, the Fundamental Growth Fund Prospectus, the Fund For
Tomorrow Prospectus, the Fundamental Growth Fund Statement, the Fund For
Tomorrow Statement, other material incorporated by reference and other
information regarding the Funds.
LEGAL PROCEEDINGS
There are no material legal proceedings to which Fund For Tomorrow or
Fundamental Growth Fund is a party.
LEGAL OPINIONS
Certain legal matters in connection with the Reorganization will be passed
upon for Fund For Tomorrow by Shereff, Friedman, Hoffman & Goodman, LLP, 919
Third Avenue, New York, New York and for Fundamental Growth Fund by Brown & Wood
LLP, One World Trade Center, New York, New York.
EXPERTS
The financial highlights of Fund For Tomorrow included in this Proxy
Statement and Prospectus have been so included in reliance on the report of
Deloitte & Touche LLP, independent auditors, given on their authority as experts
in auditing and accounting. The principal business address of Deloitte & Touche
LLP is 117 Campus Drive, Princeton, New Jersey 08540.
The financial highlights of Fundamental Growth Fund included in this Proxy
Statement and Prospectus have been so included in reliance on the report of
Ernst & Young LLP, independent auditors, given on their authority as experts in
auditing and accounting. The principal business address of Ernst & Young LLP is
202 Carnegie Center, Princeton, New Jersey 08543-5321.
STOCKHOLDER PROPOSALS
A stockholder proposal intended to be presented at any subsequent meeting
of stockholders of Fund For Tomorrow must be received by Fund For Tomorrow in a
reasonable time before the Board of Directors solicitation relating to such
meeting is to be made in order to be considered in Fund For Tomorrow's proxy
statement and form of proxy relating to the meeting.
By Order of the Board of Directors,
Susan B. Baker
Secretary, Merrill Lynch Fund For Tomorrow, Inc.
EXHIBIT I
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (this "Agreement") is made as of
the ___ day of ____________, 1998, by and between MERRILL LYNCH FUND FOR
TOMORROW, INC., a Maryland corporation ("FFT"), and MERRILL LYNCH FUNDAMENTAL
GROWTH FUND, INC., a Maryland corporation ("Fundamental Growth").
PLAN OF REORGANIZATION
----------------------
The reorganization will consist of the acquisition by Fundamental Growth of
substantially all of the assets, and the assumption of substantially all of the
liabilities, of FFT in exchange solely for an equal aggregate value of newly
issued shares of Fundamental Growth's common stock, with a par value of $.10 per
share, and the subsequent distribution of Corresponding Shares (defined below)
of Fundamental Growth to FFT shareholders in exchange for their shares of common
stock of FFT, with a par value of $.10 per share, in liquidation of FFT, all
upon and subject to the terms hereinafter set forth (the "Reorganization").
In the course of the Reorganization, shares of Fundamental Growth will be
distributed to FFT shareholders as follows: each holder of FFT shares will be
entitled to receive the number of shares of that class of shares of Fundamental
Growth having the same letter designation (i.e., Class A, Class B, Class C or
Class D), and the same distribution fees, account maintenance fees and sales
charges (including contingent deferred sales charges), if any ("Corresponding
Shares"), as the shares of FFT owned by such shareholder on the Exchange Date
(as defined in Section 7 of this Agreement). The aggregate net asset value of
the Corresponding Shares of Fundamental Growth to be received by each
shareholder of FFT will equal the aggregate net asset value of the FFT shares
owned by such shareholder on the Exchange Date. In consideration therefor, on
the Exchange Date, Fundamental Growth shall acquire substantially all of the
assets of FFT and assume substantially all of FFT's obligations and liabilities
then existing, whether absolute, accrued, contingent or otherwise. It is
intended that the Reorganization described in this Plan shall be a
reorganization within the meaning of Section 368(a)(1)(C) of the Internal
Revenue Code of 1986, as amended (the "Code"), and any successor provision.
As promptly as practicable after the liquidation of FFT pursuant to the
Reorganization, FFT shall be dissolved in accordance with the laws of the State
of Maryland and will terminate its registration under the Investment Company Act
of 1940, as amended (the "1940 Act").
AGREEMENT
---------
In order to consummate the Reorganization and in consideration of the
premises and the covenants and agreements hereinafter set forth, and intending
to be legally bound, FFT and Fundamental Growth hereby agree as follows:
1. Representations and Warranties of FFT.
-------------------------------------
FFT represents and warrants to, and agrees with, Fundamental Growth that:
(a) FFT is a corporation duly organized, validly existing and in good
standing in conformity with the laws of the State of Maryland, and has the power
to own all of its assets and to carry out this Agreement. FFT has all necessary
Federal, state and local authorizations to carry on its business as it is now
being conducted and to carry out this Agreement.
(b) FFT is duly registered under the 1940 Act as a diversified, open-end
management investment company (File No. 811-3871), and such registration has not
been revoked or rescinded and is in full force and effect. FFT has elected and
qualified for the special tax treatment afforded regulated investment companies
("RICs") under Sections 851-855 of the Code at all times since its inception and
intends to continue to so qualify for its taxable year ending upon the
liquidation of FFT.
(c) As used in this Agreement, the term "Investments" shall mean (i) the
investments of FFT shown on the schedule of its investments as of the Valuation
Time (as defined in Section 3(c) of this Agreement) furnished to Fundamental
Growth, with such additions thereto and deletions therefrom as may have arisen
in the course of FFT's business up to the Valuation Time; and (ii) all other
assets owned by FFT or liabilities incurred as of the Valuation Time.
(d) FFT has full power and authority to enter into and perform its
obligations under this Agreement. The execution, delivery and performance of
this Agreement has been duly authorized by all necessary action of its Board of
Directors, and, subject to receipt of shareholder approval, this Agreement
constitutes a valid and binding contract enforceable in accordance with its
terms, subject to the effects of bankruptcy, insolvency, moratorium, fraudulent
conveyance and similar laws relating to or affecting creditors' rights generally
and court decisions with respect thereto.
(e) Fundamental Growth has been furnished with a statement of assets and
liabilities and a schedule of investments of FFT, each as of January 31, 1998,
said financial statements having been examined by Deloitte & Touche LLP,
independent public accountants. An unaudited statement of assets and liabilities
of FFT and an unaudited schedule of investments of FFT, each as of the Valuation
Time, will be furnished to Fundamental Growth at or prior to the Exchange Date
for the purpose of determining the number of shares of Fundamental Growth to be
issued pursuant to Section 4 of this Agreement; and each will fairly present the
financial position of FFT as of the Valuation Time in conformity with generally
accepted accounting principles applied on a consistent basis.
(f) [Fundamental Growth has been furnished with FFT's Semi-Annual Report to
Shareholders for the six months ended [July 31, 1998], and the unaudited
financial statements appearing therein fairly present the financial position of
FFT as of the respective dates indicated, in conformity with generally accepted
accounting principles applied on a consistent basis.]
(g) Fundamental Growth has been furnished with the prospectus and statement
of additional information of FFT, dated April 30, 1998, and said prospectus and
statement of additional information do not contain any untrue statement of a
material fact or omit to state any material fact necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading.
(h) There are no material legal, administrative or other proceedings
pending or, to the knowledge of FFT, threatened against FFT that assert
liability on the part of FFT or that materially affect its financial condition
or its ability to consummate the Reorganization. FFT is not charged with or, to
the best of its knowledge, threatened with any violation or investigation of any
possible violation of any provisions of any Federal, state or local law or
regulation or administrative ruling relating to any aspect of its business.
(i) There are no material contracts outstanding to which FFT is a party
that have not been disclosed in the N-14 Registration Statement (as defined in
subsection (o) below) or will not otherwise be disclosed to Fundamental Growth
prior to the Valuation Time.
(j) FFT is not a party to or obligated under any provision of its Articles
of Incorporation, as amended, or its by-laws, as amended, or any contract or
other commitment or obligation, and is not subject to any order or decree which
would be violated by its execution of or performance under this Agreement.
(k) FFT has no known liabilities of a material amount, contingent or
otherwise, other than those shown on its statements of assets and liabilities
referred to above, those incurred in the ordinary course of its business as an
investment company since January 31, 1998, and those incurred in connection with
the Reorganization. As of the Valuation Time, FFT will advise Fundamental Growth
in writing of all known liabilities, contingent or otherwise, whether or not
incurred in the ordinary course of business, existing or accrued as of such
time.
(l) FFT has filed, or has obtained extensions to file, all Federal, state
and local tax returns which are required to be filed by it, and has paid or has
obtained extensions to pay, all Federal, state and local taxes shown on said
returns to be due and owing and all assessments received by it, up to and
including the taxable year in which the Exchange Date occurs. All tax
liabilities of FFT have been adequately provided for on its books, and no tax
deficiency or liability of FFT has been asserted and no question with respect
thereto has been raised by the Internal Revenue Service or by any state or local
tax authority for taxes in excess of those already paid, up to and including the
taxable year in which the Exchange Date occurs.
(m) At both the Valuation Time and the Exchange Date, FFT will have full
right, power and authority to sell, assign, transfer and deliver the
Investments. At the Exchange Date, subject only to the delivery of the
Investments as contemplated by this Agreement, FFT will have good and marketable
title to all of the Investments, and Fundamental Growth will acquire all of the
Investments free and clear of any encumbrances, liens or security interests and
without any restrictions upon the transfer thereof (except those imposed by the
Federal or state securities laws and those imperfections of title or
encumbrances as do not materially detract from the value or use of the
Investments or materially affect title thereto).
(n) No consent, approval, authorization or order of any court or
governmental authority is required for the consummation by FFT of the
Reorganization, except such as may be required under the Securities Act of 1933,
as amended (the "1933 Act"), the Securities Exchange Act of 1934, as amended
(the "1934 Act"), and the 1940 Act or state securities laws (which term as used
herein shall include the laws of the District of Columbia and Puerto Rico).
(o) The registration statement filed by Fundamental Growth on Form N-14
relating to the shares of Fundamental Growth to be issued pursuant to this
Agreement, which includes the proxy statement of FFT and the prospectus of
Fundamental Growth with respect to the transaction contemplated herein, and any
supplement or amendment thereto or to the documents therein (as amended, the
"N-14 Registration Statement"), on the effective date of the N-14 Registration
Statement, at the time of the shareholders' meeting referred to in Section 6(a)
of this Agreement and on the Exchange Date, insofar as it relates to FFT (i)
complied or will comply in all material respects with the provisions of the 1933
Act, the 1934 Act and the 1940 Act and the rules and regulations thereunder, and
(ii) did not or will not contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary to make
the statements therein not misleading; and the prospectus included therein did
not or will not contain any untrue statement of a material fact or omit to state
any material fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading; provided, however,
that the representations and warranties in this subsection shall apply only to
statements in or omissions from the N-14 Registration Statement made in reliance
upon and in conformity with information furnished by FFT for use in the N-14
Registration Statement as provided in Section 6(e) of this Agreement.
(p) FFT is authorized to issue 400,000,000 shares of common stock, par
value $.10 per share, divided into four classes, designated Class A, Class B,
Class C and Class D Common Stock, each of which consists of 100,000,000 shares,
each outstanding share of which is fully paid and nonassessable and has full
voting rights.
(q) The books and records of FFT made available to Fundamental Growth
and/or its counsel are substantially true and correct and contain no material
misstatements or omissions with respect to the operations of FFT.
(r) FFT will not sell or otherwise dispose of any of the shares of
Fundamental Growth to be received in the Reorganization, except in distribution
to the shareholders of FFT.
2. Representations and Warranties of Fundamental Growth.
----------------------------------------------------
Fundamental Growth represents and warrants to, and agrees with, FFT that:
(a) Fundamental Growth is a corporation duly organized, validly existing
and in good standing in conformity with the laws of the State of Maryland, and
has the power to own all of its assets and to carry out this Agreement.
Fundamental Growth has all necessary Federal, state and local authorizations to
carry on its business as it is now being conducted and to carry out this
Agreement.
(b) Fundamental Growth is duly registered under the 1940 Act as a
diversified, open-end management investment company (File No. 811-6669), and
such registration has not been revoked or rescinded and is in full force and
effect. Fundamental Growth has elected and qualified for the special tax
treatment afforded RICs under Sections 851-855 of the Code at all times since
its inception and intends to continue to so qualify both until consummation of
the Reorganization and thereafter.
(c) Fundamental Growth has full power and authority to enter into and
perform its obligations under this Agreement. The execution, delivery and
performance of this Agreement has been duly authorized by all necessary action
of its Board of Directors and this Agreement constitutes a valid and binding
contract enforceable in accordance with its terms, subject to the effects of
bankruptcy, insolvency, moratorium, fraudulent conveyance and similar laws
relating to or affecting creditors' rights generally and court decisions with
respect thereto.
(d) FFT has been furnished with a statement of assets and liabilities and a
schedule of investments of Fundamental Growth, each as of August 31, 1997, said
financial statements having been examined by Ernst & Young LLP, independent
public accountants. An unaudited statement of assets and liabilities of
Fundamental Growth and an unaudited schedule of investments of Fundamental
Growth, each as of the Valuation Time, will be furnished to FFT at or prior to
the Exchange Date for the purpose of determining the number of shares of
Fundamental Growth to be issued pursuant to Section 4 of this Agreement; and
each will fairly present the financial position of Fundamental Growth as of the
Valuation Time in conformity with generally accepted accounting principles
applied on a consistent basis.
(e) FFT has been furnished with Fundamental Growth's Semi-Annual Report to
Shareholders for the six months ended February 28, 1998, and the unaudited
financial statements appearing therein fairly present the financial position of
Fundamental Growth as of the respective dates indicated, in conformity with
generally accepted accounting principles applied on a consistent basis.
(f) FFT has been furnished with the prospectus and statement of additional
information of Fundamental Growth, dated November 26, 1997, and said prospectus
and statement of additional information do not contain any untrue statement of a
material fact or omit to state any material fact necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading.
(g) There are no material legal, administrative or other proceedings
pending or, to the knowledge of Fundamental Growth, threatened against
Fundamental Growth that assert liability on the part of Fundamental Growth or
that materially affect its financial condition or its ability to consummate the
Reorganization. Fundamental Growth is not charged with or, to the best of its
knowledge, threatened with any violation or investigation of any possible
violation of any provisions of any Federal, state or local law or regulation or
administrative ruling relating to any aspect of its business.
(h) There are no material contracts outstanding to which Fundamental Growth
is a party that have not been disclosed in the N-14 Registration Statement or
will not otherwise be disclosed to FFT prior to the Valuation Time.
(i) Fundamental Growth is not a party to or obligated under any provision
of its Articles of Incorporation, as amended, or its by-laws, as amended, or any
contract or other commitment or obligation, and is not subject to any order or
decree which would be violated by its execution of or performance under this
Agreement.
(j) Fundamental Growth has no known liabilities of a material amount,
contingent or otherwise, other than those shown on Fundamental Growth's
statements of assets and liabilities referred to above, those incurred in the
ordinary course of its business as an investment company since [February 28,
1998] and those incurred in connection with the Reorganization. As of the
Valuation Time, Fundamental Growth will advise FFT in writing of all known
liabilities, contingent or otherwise, whether or not incurred in the ordinary
course of business, existing or accrued as of such time.
(k) No consent, approval, authorization or order of any court or
governmental authority is required for the consummation by Fundamental Growth of
the Reorganization, except such as may be required under the 1933 Act, the 1934
Act, the 1940 Act or state securities laws.
(l) The N-14 Registration Statement, on its effective date, at the time of
the shareholders' meeting referred to in Section 6(a) of this Agreement and at
the Exchange Date, insofar as it relates to Fundamental Growth (i) complied or
will comply in all material respects with the provisions of the 1933 Act, the
1934 Act and the 1940 Act and the rules and regulations thereunder and (ii) did
not or will not contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary to make the
statements therein not misleading; and the prospectus included therein did not
or will not contain any untrue statement of a material fact or omit to state any
material fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading; provided, however,
that the representations and warranties in this subsection only shall apply to
statements in or omissions from the N-14 Registration Statement made in reliance
upon and in conformity with information furnished by Fundamental Growth for use
in the N-14 Registration Statement as provided in Section 6(e) of this
Agreement.
(m) Fundamental Growth is authorized to issue 400,000,000 shares of common
stock, par value $.10 per share, divided into four classes, designated Class A,
Class B, Class C and Class D Common Stock, each of which consists of 100,000,000
shares, each outstanding share of which is fully paid and nonassessable and has
full voting rights.
(n) The Fundamental Growth shares to be issued to FFT pursuant to this
Agreement will have been duly authorized and, when issued and delivered pursuant
to this Agreement, will be legally and validly issued and will be fully paid and
nonassessable and will have full voting rights, and no shareholder of
Fundamental Growth will have any preemptive right of subscription or purchase in
respect thereof.
(o) At or prior to the Exchange Date, the Fundamental Growth shares to be
transferred to FFT on the Exchange Date will be duly qualified for offering to
the public in all states of the United States in which the sale of shares of
Fundamental Growth presently are qualified, and there are a sufficient number of
such shares registered under the 1933 Act and with each pertinent state
securities commission to permit the transfers contemplated by this Agreement to
be consummated.
(p) At or prior to the Exchange Date, Fundamental Growth will have obtained
any and all regulatory, Director and shareholder approvals necessary to issue
the shares of Fundamental Growth to FFT.
3. The Reorganization.
------------------
(a) Subject to receiving the requisite approval of the shareholders of FFT,
and to the other terms and conditions contained herein, FFT agrees to convey,
transfer and deliver to Fundamental Growth for the benefit of Fundamental
Growth, and Fundamental Growth agrees to acquire from FFT for the benefit of
Fundamental Growth, on the Exchange Date all of the Investments (including
interest accrued as of the Valuation Time on debt instruments) of FFT, and
assume substantially all of the liabilities of FFT, in exchange solely for that
number of shares of Fundamental Growth provided in Section 4 of this Agreement.
Pursuant to this Agreement, as soon as practicable FFT will distribute all
Fundamental Growth shares received by it to its shareholders in exchange for
their corresponding FFT shares. Such distribution shall be accomplished by the
opening of shareholder accounts on the stock ledger records of Fundamental
Growth in the amounts due the shareholders of FFT based on their respective
holdings in FFT as of the Valuation Time.
(b) FFT will pay or cause to be paid to Fundamental Growth any interest it
receives on or after the Exchange Date with respect to the Investments
transferred to Fundamental Growth hereunder.
(c) The Valuation Time shall be 4:00 P.M., New York time, on ___________,
1998, or such earlier or later day and time as may be mutually agreed upon in
writing (the "Valuation Time").
(d) Fundamental Growth will acquire substantially all of the assets of, and
assume substantially all of the known liabilities of, FFT, except that recourse
for such liabilities will be limited to the net assets of FFT acquired by
Fundamental Growth. The known liabilities of FFT as of the Valuation Time shall
be confirmed in writing to Fundamental Growth by FFT pursuant to Section 1(k) of
this Agreement.
(e) Fundamental Growth and FFT will jointly file Articles of Transfer with
the State Department of Assessments and Taxation of Maryland and any such other
instrument as may be required by the State of Maryland to effect the transfer of
Investments of FFT to Fundamental Growth.
(f) FFT will be dissolved following the Exchange Date by filing Articles of
Dissolution with the State Department of Assessments and Taxation of Maryland.
4. Issuance and Valuation of Fundamental Growth Shares in the
----------------------------------------------------------------------
Reorganization.
--------------
Full Fundamental Growth shares, and to the extent necessary, a fractional
Fundamental Growth share, of an aggregate net asset value equal to the net asset
value of the assets of FFT acquired, determined as hereinafter provided, reduced
by the amount of liabilities of FFT assumed by Fundamental Growth, shall be
issued by Fundamental Growth in exchange for such assets of FFT. The net asset
value of each of FFT and Fundamental Growth shall be determined in accordance
with the procedures described in the then current Fundamental Growth prospectus
as of the Valuation Time. Such valuation and determination shall be made by
Fundamental Growth in cooperation with FFT. Fundamental Growth shall issue its
Class A, Class B, Class C and Class D shares to FFT in one certificate or share
deposit receipt registered in the name of FFT. FFT shall distribute
Corresponding Shares of Fundamental Growth to its shareholders by redelivering
such certificate or receipt to Merrill Lynch Financial Data Services, Inc.
5. Payment of Expenses.
-------------------
(a) With respect to expenses incurred in connection with the
Reorganization, (i) Fundamental Growth shall pay all expenses incurred which are
attributable solely to Fundamental Growth and the conduct of its business, (ii)
FFT shall pay all expenses incurred which are attributable solely to FFT and the
conduct of its business, and (iii) FFT and Fundamental Growth shall pay,
subsequent to the Exchange Date and pro rata according to each Fund's net assets
on the Exchange Date, all expenses incurred in connection with the
Reorganization, including, but not limited to, all costs related to the
preparation and distribution of the N-14 Registration Statement. Such fees and
expenses shall include legal and accounting fees, state securities fees (if
any), printing costs, filing fees, portfolio transfer taxes (if any), and any
similar expenses incurred in connection with the Reorganization.
(b) If for any reason the Reorganization is not consummated, no party shall
be liable to any other party for any damages resulting therefrom, including,
without limitation, consequential damages.
6. Covenants of FFT and Fundamental Growth.
---------------------------------------
(a) FFT agrees to call a special meeting of its shareholders as soon as is
practicable after the effective date of the N-14 Registration Statement for the
purpose of considering the Reorganization as described in this Agreement, and it
shall be a condition to the obligations of each of the parties hereto that the
holders of a majority of the shares of FFT issued and outstanding and entitled
to vote thereon, shall have approved this Agreement at such a meeting at or
prior to the Valuation Time.
(b) FFT and Fundamental Growth each covenants to operate its respective
business as presently conducted between the date hereof and the Exchange Date.
(c) FFT agrees that following the consummation of the Reorganization, it
will dissolve in accordance with the laws of the State of Maryland and any other
applicable law, it will not make any distributions of any Fundamental Growth
shares other than to the shareholders of FFT and without first paying or
adequately providing for the payment of all of FFT's liabilities not assumed by
Fundamental Growth, if any, and on and after the Exchange Date it shall not
conduct any business except in connection with its dissolution and
deregistration.
(d) FFT undertakes that if the Reorganization is consummated, it will file
an application pursuant to Section 8(f) of the 1940 Act for an order declaring
that FFT has ceased to be a registered investment company.
(e) Fundamental Growth will file the N-14 Registration Statement with the
Securities and Exchange Commission (the "Commission") and will use its best
efforts to provide that the N-14 Registration Statement becomes effective as
promptly as practicable. FFT and Fundamental Growth agree to cooperate fully
with each other, and each will furnish to the other the information relating to
itself to be set forth in the N-14 Registration Statement as required by the
1933 Act, the 1934 Act, the 1940 Act, and the rules and regulations thereunder
and the state securities or blue sky laws (if applicable).
(f) Fundamental Growth agrees to advise FFT promptly in writing if at any
time prior to the Exchange Date the assets of FFT include any assets which
Fundamental Growth is not permitted, or reasonably believes to be unsuitable for
it, to acquire, including without limitation any security which, prior to its
acquisition by FFT, Fundamental Growth has informed FFT is unsuitable for
Fundamental Growth to acquire. Moreover, Fundamental Growth has no plan or
intention to sell or otherwise dispose of the assets of FFT to be acquired in
the Reorganization, except for dispositions made in the ordinary course of
business.
(g) FFT and Fundamental Growth each agrees that by the Exchange Date all of
its Federal and other tax returns and reports required to be filed on or before
such date shall have been filed and all taxes shown as due on said returns
either have been paid or adequate liability reserves have been provided for the
payment of such taxes. In connection with this covenant, the Funds agree to
cooperate with each other in filing any tax return, amended return or claim for
refund, determining a liability for taxes or a right to a refund of taxes or
participating in or conducting any audit or other proceeding in respect of
taxes. Fundamental Growth agrees to retain for a period of ten (10) years
following the Exchange Date all returns, schedules and work papers and all
material records or other documents relating to tax matters of FFT for its
taxable period first ending after the Exchange Date and for all prior taxable
periods. Any information obtained under this subsection shall be kept
confidential except as otherwise may be necessary in connection with the filing
of returns or claims for refund or in conducting an audit or other proceeding.
After the Exchange Date, FFT shall prepare, or cause its agents to prepare, any
Federal, state or local tax returns, including any Forms 1099, required to be
filed by FFT with respect to FFT's final taxable year ending with its complete
liquidation and for any prior periods or taxable years and further shall cause
such tax returns and Forms 1099 to be duly filed with the appropriate taxing
authorities. Notwithstanding the aforementioned provisions of this subsection,
any expenses incurred by FFT (other than for payment of taxes) in connection
with the preparation and filing of said tax returns and Forms 1099 after the
Exchange Date shall be borne by FFT to the extent such expenses have been
accrued by FFT in the ordinary course without regard to the Reorganization; any
excess expenses shall be borne by Merrill Lynch Asset Management, L.P. ("MLAM")
at the time such tax returns and Forms 1099 are prepared.
(h) FFT agrees to mail to its shareholders of record entitled to vote at
the special meeting of shareholders at which action is to be considered
regarding this Agreement, in sufficient time to comply with requirements as to
notice thereof, a combined Proxy Statement and Prospectus which complies in all
material respects with the applicable provisions of Section 14(a) of the 1934
Act and Section 20(a) of the 1940 Act, and the rules and regulations,
respectively, thereunder.
(i) Following the consummation of the Reorganization, Fundamental Growth
expects to stay in existence and continue its business as an open-end management
investment company registered under the 1940 Act.
7. Exchange Date.
-------------
(a) Delivery of the assets of FFT to be transferred, together with any
other Investments, and the Fundamental Growth shares to be issued, shall be made
at the offices of Shereff, Friedman, Hoffman & Goodman, LLP ("SFHG"), 919 Third
Avenue, New York, New York 10022, at 10:00 A.M. on the next full business day
following the Valuation Time, or at such other place, time and date agreed to by
FFT and Fundamental Growth, the date and time upon which such delivery is to
take place being referred to herein as the "Exchange Date." To the extent that
any Investments, for any reason, are not transferable on the Exchange Date, FFT
shall cause such Investments to be transferred to Fundamental Growth's account
with [Chase Manhattan Bank] at the earliest practicable date thereafter.
(b) FFT will deliver to Fundamental Growth on the Exchange Date
confirmations or other adequate evidence as to the tax basis of each of the
Investments delivered to Fundamental Growth hereunder, certified by Deloitte &
Touche LLP.
(c) As soon as practicable after the close of business on the Exchange
Date, FFT shall deliver to Fundamental Growth a list of the names and addresses
of all of the shareholders of record of FFT on the Exchange Date and the number
of shares of FFT owned by each such shareholder, certified to the best of their
knowledge and belief by the transfer agent for FFT or by its President.
8. FFT Conditions.
--------------
The obligations of FFT hereunder shall be subject to the following
conditions:
(a) That this Agreement shall have been adopted, and the Reorganization
shall have been approved, by the affirmative vote of the holders of a majority
of the shares of FFT, issued and outstanding and entitled to vote thereon,
voting together as a single class, and by the Board of Directors of Fundamental
Growth; and that Fundamental Growth shall have delivered to FFT a copy of the
resolution approving this Agreement adopted by Fundamental Growth's Board of
Directors, certified by the Secretary of Fundamental Growth.
(b) That Fundamental Growth shall have furnished to FFT a statement of
Fundamental Growth's assets and liabilities, with values determined as provided
in Section 4 of this Agreement, together with a schedule of its investments, all
as of the Valuation Time, certified on Fundamental Growth's behalf by its
President (or any Vice President) and its Treasurer, and a certificate signed by
Fundamental Growth's President (or any Vice President) and its Treasurer, dated
as of the Exchange Date, certifying that as of the Valuation Time and as of the
Exchange Date there has been no material adverse change in the financial
position of Fundamental Growth since [February 28, 1998] other than changes in
its portfolio securities since that date or changes in the market value of its
portfolio securities.
(c) That Fundamental Growth shall have furnished to FFT a certificate
signed by Fundamental Growth's President (or any Vice President) and its
Treasurer, dated as of the Exchange Date, certifying that, as of the Valuation
Time and as of the Exchange Date all representations and warranties of
Fundamental Growth made in this Agreement are true and correct in all material
respects with the same effect as if made at and as of such dates, and that
Fundamental Growth has complied with all of the agreements and satisfied all of
the conditions on its part to be performed or satisfied at or prior to each of
such dates.
(d) That there shall not be any material litigation pending with respect to
the matters contemplated by this Agreement.
(e) That FFT shall have received an opinion of Brown & Wood LLP, as counsel
to Fundamental Growth, in form and substance satisfactory to FFT and dated the
Exchange Date, to the effect that (i) Fundamental Growth is a corporation duly
organized, validly existing and in good standing in conformity with the laws of
the State of Maryland; (ii) the Corresponding Shares of Fundamental Growth to be
delivered to FFT shareholders as provided for by this Agreement are duly
authorized and, upon delivery, will be validly issued and outstanding and fully
paid and nonassessable by Fundamental Growth, and no shareholder of Fundamental
Growth has any preemptive right to subscription or purchase in respect thereof
(pursuant to the Articles of Incorporation, as amended, or the by-laws of
Fundamental Growth or, to the best of such counsel's knowledge, otherwise);
(iii) this Agreement has been duly authorized, executed and delivered by
Fundamental Growth, and represents a valid and binding contract, enforceable in
accordance with its terms, subject to the effects of bankruptcy, insolvency,
moratorium, fraudulent conveyance and similar laws relating to or affecting
creditors' rights generally and court decisions with respect thereto; provided,
that such counsel shall express no opinion with respect to the application of
equitable principles in any proceeding, whether at law or in equity; (iv) the
execution and delivery of this Agreement does not, and the consummation of the
Reorganization will not, violate any material provisions of the Articles of
Incorporation, as amended, the by-laws, as amended, of Fundamental Growth or any
agreement (known to such counsel) to which Fundamental Growth is a party or by
which Fundamental Growth is bound, except insofar as the parties have agreed to
amend such provision as a condition precedent to the Reorganization, or Maryland
law; (v) no consent, approval, authorization or order of any United States
Federal court, Maryland state court or governmental authority is required for
the consummation by Fundamental Growth of the Reorganization, except such as
have been obtained under the 1933 Act, the 1934 Act and the 1940 Act and the
published rules and regulations of the Commission thereunder and under Maryland
law and such as may be required under state securities laws; (vi) the N-14
Registration Statement has become effective under the 1933 Act, no stop order
suspending the effectiveness of the N-14 Registration Statement has been issued
and no proceedings for that purpose have been instituted or are pending or
contemplated under the 1933 Act, and the N-14 Registration Statement, and each
amendment or supplement thereto, as of their respective effective dates, appear
on their face to be appropriately responsive in all material respects to the
requirements of the 1933 Act, the 1934 Act and the 1940 Act and the published
rules and regulations of the Commission thereunder; (vii) the descriptions in
the N-14 Registration Statement of statutes, legal and governmental proceedings
and contracts and other documents are accurate and fairly present the
information required to be shown; (viii) such counsel does not know of any
statutes, legal or governmental proceedings or contracts or other documents
related to the Reorganization of a character required to be described in the
N-14 Registration Statement which are not described therein or, if required to
be filed, filed as required; (ix) Fundamental Growth, to the knowledge of such
counsel, is not required to qualify to do business as a foreign corporation in
any jurisdiction except as may be required by state securities or blue sky laws,
and except where Fundamental Growth has so qualified or the failure so to
qualify would not have a material adverse effect on Fundamental Growth or its
shareholders; (x) such counsel does not have actual knowledge of any material
suit, action or legal or administrative proceeding pending or threatened against
Fundamental Growth, the unfavorable outcome of which would materially and
adversely affect Fundamental Growth; and (xi) all corporate actions required to
be taken by Fundamental Growth to authorize this Agreement and to effect the
Reorganization have been duly authorized by all necessary corporate actions on
the part of Fundamental Growth and (xii) such opinion is solely for the benefit
of FFT and its Directors and officers. Such opinion also shall state that (aa)
while such counsel cannot make any representation as to the accuracy or
completeness of statements of fact in the N-14 Registration Statement or any
amendment or supplement thereto, nothing has come to their attention that would
lead them to believe that, on the respective effective dates of the N-14
Registration Statement and any amendment or supplement thereto, (1) the N-14
Registration Statement or any amendment or supplement thereto contained any
untrue statement of a material fact or omitted to state any material fact
required to be stated therein or necessary to make the statements therein not
misleading; and (2) the prospectus included in the N-14 Registration Statement
contained any untrue statement of a material fact or omitted to state any
material fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading; and (bb) such counsel
does not express any opinion or belief as to the financial statements or other
financial or statistical data relating to Fundamental Growth contained or
incorporated by reference in the N-14 Registration Statement. In giving the
opinion set forth above, Brown & Wood LLP may state that it is relying on
certificates of officers of Fundamental Growth with regard to matters of fact
and certain certificates and written statements of governmental officials with
respect to the good standing of Fundamental Growth.
(f) That FFT shall have received a private letter ruling from the Internal
Revenue Service to the effect that for Federal income tax purposes (i) the
transfer of substantially all of the Investments of FFT to Fundamental Growth in
exchange solely for shares of Fundamental Growth and assumption of FFT's
liabilities as provided in this Agreement will constitute a reorganization
within the meaning of Section 368(a)(1)(C) of the Code, and FFT and Fundamental
Growth will each be deemed to be a "party" to the Reorganization within the
meaning of Section 368(b); (ii) in accordance with Section 361(a) of the Code,
no gain or loss will be recognized to FFT as a result of the asset transfer
solely in exchange for Fundamental Growth shares and the assumption of
liabilities or on the distribution of the Fundamental Growth stock to FFT
shareholders under Section 361(c)(1); (iii) under Section 1032 of the Code, no
gain or loss will be recognized to Fundamental Growth on the receipt of assets
of FFT in exchange for Fundamental Growth shares; (iv) in accordance with
Section 354(a)(1) of the Code, no gain or loss will be recognized to the
shareholders of FFT on the receipt of Corresponding Shares of Fundamental Growth
in exchange for their shares of FFT; (v) in accordance with Section 362(b) of
the Code, the tax basis of the FFT assets in the hands of Fundamental Growth
will be the same as the tax basis of such assets in the hands of FFT immediately
prior to the consummation of the Reorganization; (vi) in accordance with Section
358 of the Code, immediately after the Reorganization, the tax basis of the
Corresponding Shares of Fundamental Growth received by the shareholders of FFT
in the Reorganization will be equal, in the aggregate, to the tax basis of the
shares of FFT surrendered in exchange; (vii) in accordance with Section 1223 of
the Code, a shareholder's holding period for the Corresponding Shares of
Fundamental Growth will be determined by including the period for which such
shareholder held the shares of FFT exchanged therefor, provided, that such FFT
shares were held as a capital asset; (viii) in accordance with Section 1223 of
the Code, Fundamental Growth's holding period with respect to the FFT assets
transferred will include the period for which such assets were held by FFT; and
(ix) the taxable year of FFT will end on the effective date of the
Reorganization and pursuant to Section 381(a) of the Code and regulations
thereunder, Fundamental Growth will succeed to and take into account certain tax
attributes of FFT, such as earnings and profits, capital loss carryovers and
method of accounting.
(g) That all proceedings taken by Fundamental Growth and its counsel in
connection with the Reorganization and all documents incidental thereto shall be
satisfactory in form and substance to FFT.
(h) That the N-14 Registration Statement shall have become effective under
the 1933 Act, and no stop order suspending such effectiveness shall have been
instituted or, to the knowledge of Fundamental Growth, contemplated by the
Commission.
(i) That FFT shall have received from Ernst & Young LLP a letter dated as
of the effective date of the N-14 Registration Statement and a similar letter
dated within five days prior to the Exchange Date, in form and substance
satisfactory to FFT, to the effect that (i) they are independent public
accountants with respect to Fundamental Growth within the meaning of the 1933
Act and the applicable published rules and regulations thereunder; (ii) in their
opinion, the financial statements and supplementary information of Fundamental
Growth included or incorporated by reference in the N-14 Registration Statement
and reported on by them comply as to form in all material respects with the
applicable accounting requirements of the 1933 Act and the published rules and
regulations thereunder; and (iii) on the basis of limited procedures agreed upon
by FFT and Fundamental Growth and described in such letter (but not an
examination in accordance with generally accepted auditing standards) consisting
of a reading of any unaudited interim financial statements and unaudited
supplementary information of Fundamental Growth included in the N-14
Registration Statement, and inquiries of certain officials of Fundamental Growth
responsible for financial and accounting matters, nothing came to their
attention that caused them to believe that (a) such unaudited financial
statements and related unaudited supplementary information do not comply as to
form in all material respects with the applicable accounting requirements of the
1933 Act and the published rules and regulations thereunder, (b) such unaudited
financial statements are not fairly presented in conformity with generally
accepted accounting principles, applied on a basis substantially consistent with
that of the audited financial statements, or (c) such unaudited supplementary
information is not fairly stated in all material respects in relation to the
unaudited financial statements taken as a whole; and (iv) on the basis of
limited procedures agreed upon by FFT and Fundamental Growth and described in
such letter (but not an examination in accordance with generally accepted
auditing standards), the information relating to Fundamental Growth appearing in
the N-14 Registration Statement, which information is expressed in dollars (or
percentages derived from such dollars) (with the exception of performance
comparisons, if any), if any, has been obtained from the accounting records of
Fundamental Growth or from schedules prepared by officials of Fundamental Growth
having responsibility for financial and reporting matters and such information
is in agreement with such records, schedules or computations made therefrom.
(j) That the Commission shall not have issued an unfavorable advisory
report under Section 25(b) of the 1940 Act, nor instituted or threatened to
institute any proceeding seeking to enjoin consummation of the Reorganization
under Section 25(c) of the 1940 Act, and no other legal, administrative or other
proceeding shall be instituted or threatened which would materially affect the
financial condition of Fundamental Growth or would prohibit the Reorganization.
(k) That FFT shall have received from the Commission such orders or
interpretations as SFHG, as counsel to FFT, deems reasonably necessary or
desirable under the 1933 Act and the 1940 Act in connection with the
Reorganization, provided, that such counsel shall have requested such orders as
promptly as practicable, and all such orders shall be in full force and effect.
9. Fundamental Growth Conditions.
-----------------------------
The obligations of Fundamental Growth hereunder shall be subject to the
following conditions:
(a) That this Agreement shall have been adopted, and the Reorganization
shall have been approved, by the Board of Directors of FFT and by the
affirmative vote of the holders of a majority of the shares of common stock of
FFT issued and outstanding and entitled to vote thereon, voting together as a
single class; and that FFT shall have delivered to Fundamental Growth a copy of
the resolution approving this Agreement adopted by FFT's Board of Directors, and
a certificate setting forth the vote FFT shareholders obtained, each certified
by the Secretary of FFT.
(b) That FFT shall have furnished to Fundamental Growth a statement of
FFT's assets and liabilities, with values determined as provided in Section 4 of
this Agreement, together with a schedule of investments with their respective
dates of acquisition and tax costs, all as of the Valuation Time, certified on
FFT's behalf by its President (or any Vice President) and its Treasurer, and a
certificate of both such officers, dated the Exchange Date, certifying that as
of the Valuation Time and as of the Exchange Date there has been no material
adverse change in the financial position of FFT since January 31, 1998, other
than changes in the Investments since that date or changes in the market value
of the Investments.
(c) That FFT shall have furnished to Fundamental Growth a certificate
signed by FFT's President (or any Vice President) and its Treasurer, dated the
Exchange Date, certifying that as of the Valuation Time and as of the Exchange
Date all representations and warranties of FFT made in this Agreement are true
and correct in all material respects with the same effect as if made at and as
of such dates and FFT has complied with all of the agreements and satisfied all
of the conditions on its part to be performed or satisfied at or prior to such
dates.
(d) That there shall not be any material litigation pending with respect to
the matters contemplated by this Agreement.
(e) That Fundamental Growth shall have received an opinion of Brown & Wood
LLP, as Maryland counsel to FFT, in form and substance satisfactory to
Fundamental Growth and dated the Exchange Date, to the effect that (i) FFT is a
corporation duly organized, validly existing and in good standing in conformity
with the laws of the State of Maryland; (ii) this Agreement has been duly
authorized, executed and delivered by FFT, and represents a valid and binding
contract, enforceable in accordance with its terms, subject to the effects of
bankruptcy, insolvency, moratorium, fraudulent conveyance and similar laws
relating to or affecting creditors' rights generally and court decisions with
respect thereto, provided, that such counsel shall express no opinion with
respect to the application of equitable principles in any proceeding, whether at
law or in equity; (iii) FFT has the power to sell, assign, transfer and deliver
the assets transferred by it hereunder and, upon consummation of the
Reorganization in accordance with the terms of this Agreement, FFT will have
duly transferred such assets and liabilities in accordance with this Agreement;
(iv) the execution and delivery of this Agreement does not, and the consummation
of the Reorganization will not, violate any material provisions of the Articles
of Incorporation, as amended, the by-laws of FFT, as amended, or Maryland law;
(v) no consent, approval, authorization or order of any Maryland court or
governmental authority is required for the consummation by FFT of the
Reorganization, except such as have been obtained under Maryland law; and (vi)
such opinion is solely for the benefit of Fundamental Growth and its Directors
and officers. In giving the opinion set forth above, Brown & Wood LLP may state
that it is relying on certificates of officers of FFT with regard to matters of
fact and certain certificates and written statements of government officials
with respect to the good standing of FFT.
(f) That Fundamental Growth shall have received an opinion of SFHG, as
counsel to FFT, in form and substance satisfactory to Fundamental Growth and
dated the Exchange Date, to the effect that (i) no consent, approval,
authorization or order of any United States Federal court or governmental
authority is required for the consummation by FFT of the Reorganization, except
such as have been obtained under the 1933 Act, the 1934 Act and the 1940 Act and
the published rules and regulations of the Commission thereunder and such as may
be required under state securities laws; (ii) the proxy statement of FFT
contained in the N-14 Registration Statement, and each amendment or supplement
thereto, as of their respective effective dates, appear on their face to be
appropriately responsive in all material respects to the requirements of the
1934 Act and the 1940 Act and the published rules and regulations of the
Commission thereunder; (iii) the descriptions in the proxy statement of FFT
contained in the N-14 Registration Statement of statutes, legal and governmental
proceedings and contracts and other documents are accurate and fairly present
the information required to be shown; (iv) such counsel does not know of any
statutes, legal or governmental proceedings or contracts or other documents
related to the Reorganization of a character required to be described in the
N-14 Registration Statement which are not described therein or, if required to
be filed, filed as required; (v) the execution and delivery of this Agreement
does not, and the consummation of the Reorganization will not, violate any
material provisions of any agreement (known to such counsel) to which FFT is a
party or by which FFT is bound, except insofar as the parties have agreed to
amend such provision as a condition precedent to the Reorganization; (vi) FFT,
to the knowledge of such counsel, is not required to qualify to do business as a
foreign corporation in any jurisdiction except as may be required by state
securities or blue sky laws, and except where each has so qualified or the
failure so to qualify would not have a material adverse effect on FFT or its
shareholders; (vii) such counsel does not have actual knowledge of any material
suit, action or legal or administrative proceeding pending or threatened against
FFT, the unfavorable outcome of which would materially and adversely affect FFT;
(viii) all corporate actions required to be taken by FFT to authorize this
Agreement and to effect the Reorganization have been duly authorized by all
necessary corporate actions on the part of Fund For Tomorrow; and (ix) such
opinion is solely for the benefit of Fundamental Growth and its Directors and
officers. Such opinion also shall state that (aa) while such counsel cannot make
any representation as to the accuracy or completeness of statements of fact in
the N-14 Registration Statement or any amendment or supplement thereto, nothing
has come to their attention that would lead them to believe that, on the
respective effective dates of the N-14 Registration Statement and any amendment
or supplement thereto, (1) the proxy statement of Fund For Tomorrow contained in
the N-14 Registration Statement or any amendment or supplement thereto contained
any untrue statement of a material fact or omitted to state any material fact
required to be stated therein or necessary to make the statements therein not
misleading; and (2) the proxy statement of Fund For Tomorrow contained in the
N-14 Registration Statement contained any untrue statement of a material fact or
omitted to state any material fact necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading; and
(bb) such counsel does not express any opinion or belief as to the financial
statements or other financial or statistical data relating to FFT contained or
incorporated by reference in the N-14 Registration Statement. In giving the
opinion set forth above, SFHG may state that it is relying on certificates of
officers of FFT with regard to matters of fact and certain certificates and
written statements of governmental officials with respect to the good standing
of FFT and the opinion of Brown & Wood LLP as to matters of Maryland law.
(g) That Fundamental Growth shall have received a private letter ruling
from the Internal Revenue Service with respect to the matters specified in
Section 8(f) of this Agreement.
(h) That all proceedings taken by FFT and its counsel in connection with
the Reorganization and all documents incidental thereto shall be satisfactory in
form and substance to Fundamental Growth.
(i) That the N-14 Registration Statement shall have become effective under
the 1933 Act and no stop order suspending such effectiveness shall have been
instituted or, to the knowledge of FFT, contemplated by the Commission.
(j) That Fundamental Growth shall have received from Deloitte & Touche LLP
a letter dated as of the effective date of the N-14 Registration Statement and a
similar letter dated within five days prior to the Exchange Date, in form and
substance satisfactory to Fundamental Growth, to the effect that (i) they are
independent public accountants with respect to FFT within the meaning of the
1933 Act and the applicable published rules and regulations thereunder; (ii) in
their opinion, the financial statements and supplementary information of FFT
included or incorporated by reference in the N-14 Registration Statement and
reported on by them comply as to form in all material respects with the
applicable accounting requirements of the 1933 Act and the published rules and
regulations thereunder; (iii) on the basis of limited procedures agreed upon by
FFT and Fundamental Growth and described in such letter (but not an examination
in accordance with generally accepted auditing standards) consisting of a
reading of any unaudited interim financial statements and unaudited
supplementary information of FFT included in the N-14 Registration Statement,
and inquiries of certain officials of FFT responsible for financial and
accounting matters, nothing came to their attention that caused them to believe
that (a) such unaudited financial statements and related unaudited supplementary
information do not comply as to form in all material respects with the
applicable accounting requirements of the 1933 Act and the published rules and
regulations thereunder, (b) such unaudited financial statements are not fairly
presented in conformity with generally accepted accounting principles, applied
on a basis substantially consistent with that of the audited financial
statements, or (c) such unaudited supplementary information is not fairly stated
in all material respects in relation to the unaudited financial statements taken
as a whole; and (iv) on the basis of limited procedures agreed upon by
Fundamental Growth and FFT and described in such letter (but not an examination
in accordance with generally accepted auditing standards), the information
relating to FFT appearing in the N-14 Registration Statement, which information
is expressed in dollars (or percentages derived from such dollars) (with the
exception of performance comparisons, if any), if any, has been obtained from
the accounting records of FFT or from schedules prepared by officials of FFT
having responsibility for financial and reporting matters and such information
is in agreement with such records, schedules or computations made therefrom.
(k) That the Commission shall not have issued an unfavorable advisory
report under Section 25(b) of the 1940 Act, nor instituted or threatened to
institute any proceeding seeking to enjoin consummation of the Reorganization
under Section 25(c) of the 1940 Act, and no other legal, administrative or other
proceeding shall be instituted or threatened which would materially affect the
financial condition of FFT or would prohibit the Reorganization.
(l) That Fundamental Growth shall have received from the Commission such
orders or interpretations as Brown & Wood LLP, as counsel to Fundamental Growth,
deems reasonably necessary or desirable under the 1933 Act and the 1940 Act in
connection with the Reorganization, provided, that such counsel shall have
requested such orders as promptly as practicable, and all such orders shall be
in full force and effect.
(m) That the Investments to be transferred to Fundamental Growth shall not
include any assets or liabilities which Fundamental Growth, by reason of charter
limitations or otherwise, may not properly acquire or assume.
(n) That FFT shall have delivered to Fundamental Growth a letter from
Deloitte & Touche LLP, dated the Exchange Date, stating that such firm has
performed a limited review of the Federal, state and local income tax returns of
FFT for the period ended January 31, 1998 (which returns originally were
prepared and filed by FFT), and that based on such limited review, nothing came
to their attention which caused them to believe that such returns did not
properly reflect, in all material respects, the Federal, state and local income
taxes of FFT for the period covered thereby; and that for the period from
February 1, 1998, to and including the Exchange Date and for any taxable year of
FFT ending upon the liquidation of FFT, such firm has performed a limited review
to ascertain the amount of applicable Federal, state and local taxes, and has
determined that either such amount has been paid or reserves established for
payment of such taxes, this review to be based on unaudited financial data; and
that based on such limited review, nothing has come to their attention which
caused them to believe that the taxes paid or reserves set aside for payment of
such taxes were not adequate in all material respects for the satisfaction of
Federal, state and local taxes for the period from February 1, 1998, to and
including the Exchange Date and for any taxable year of FFT ending upon the
liquidation of FFT or that FFT would not continue to qualify as a regulated
investment company for Federal income tax purposes.
(o) That prior to the Exchange Date, FFT shall have declared a dividend or
dividends which, together with all such previous dividends, shall have the
effect of distributing to its shareholders all of its investment company taxable
income for the period from ________________, 199__ to and including the Exchange
Date, if any (computed without regard to any deduction for dividends paid), and
all of its net capital gain, if any, realized for the period from
___________________, 199__ to and including the Exchange Date.
10. Termination, Postponement and Waivers.
-------------------------------------
(a) Notwithstanding anything contained in this Agreement to the contrary,
this Agreement may be terminated and the Reorganization abandoned at any time
(whether before or after adoption thereof by the shareholders of FFT) prior to
the Exchange Date, or the Exchange Date may be postponed, (i) by mutual consent
of the Boards of Directors of FFT and Fundamental Growth; (ii) by the Board of
Directors of FFT if any condition of FFT's obligations set forth in Section 8 of
this Agreement has not been fulfilled or waived by such Board; or (iii) by the
Board of Directors of Fundamental Growth if any condition of Fundamental
Growth's obligations set forth in Section 9 of this Agreement has not been
fulfilled or waived by such Board.
(b) If the transactions contemplated by this Agreement have not been
consummated by _____________, [1998], this Agreement automatically shall
terminate on that date, unless a later date is mutually agreed to by the Boards
of Directors of FFT and Fundamental Growth.
(c) In the event of termination of this Agreement pursuant to the
provisions hereof, the same shall become void and have no further effect, and
there shall not be any liability on the part of either FFT or Fundamental Growth
or persons who are their directors, trustees, officers, agents or shareholders
in respect of this Agreement.
(d) At any time prior to the Exchange Date, any of the terms or conditions
of this Agreement may be waived by the Board of Directors of either FFT or
Fundamental Growth, respectively (whichever is entitled to the benefit thereof),
if, in the judgment of such Board after consultation with its counsel, such
action or waiver will not have a material adverse effect on the benefits
intended under this Agreement to the shareholders of their respective fund, on
behalf of which such action is taken. In addition, the Boards of Directors of
FFT and Fundamental Growth have delegated to MLAM the ability to make
non-material changes to the transaction if it deems it to be in the best
interests of FFT and Fundamental Growth to do so.
(e) The respective representations and warranties contained in Sections 1
and 2 of this Agreement shall expire with, and be terminated by, the
consummation of the Reorganization, and neither FFT nor Fundamental Growth nor
any of their officers, directors or trustees, agents or shareholders shall have
any liability with respect to such representations or warranties after the
Exchange Date. This provision shall not protect any officer, director or
trustee, agent or shareholder of FFT or Fundamental Growth against any liability
to the entity for which that officer, director or trustee, agent or shareholder
so acts or to its shareholders, to which that officer, director or trustee,
agent or shareholder otherwise would be subject by reason of willful
misfeasance, bad faith, gross negligence, or reckless disregard of the duties in
the conduct of such office.
(f) If any order or orders of the Commission with respect to this Agreement
shall be issued prior to the Exchange Date and shall impose any terms or
conditions which are determined by action of the Boards of Directors of FFT and
Fundamental Growth to be acceptable, such terms and conditions shall be binding
as if a part of this Agreement without further vote or approval of the
shareholders of FFT unless such terms and conditions shall result in a change in
the method of computing the number of shares of Fundamental Growth to be issued
to FFT in which event, unless such terms and conditions shall have been included
in the proxy solicitation materials furnished to the shareholders of FFT prior
to the meetings at which the Reorganization shall have been approved, this
Agreement shall not be consummated and shall terminate unless FFT promptly shall
call a special meeting of shareholders at which such conditions so imposed shall
be submitted for approval.
11. Indemnification.
---------------
(a) FFT hereby agrees to indemnify and hold Fundamental Growth harmless
from all loss, liability and expense (including reasonable counsel fees and
expenses in connection with the contest of any claim) which Fundamental Growth
may incur or sustain by reason of the fact that (i) Fundamental Growth shall be
required to pay any corporate obligation of FFT, whether consisting of tax
deficiencies or otherwise, based upon a claim or claims against FFT which were
omitted or not fairly reflected in the financial statements to be delivered to
Fundamental Growth in connection with the Reorganization; (ii) any
representations or warranties made by FFT in this Agreement should prove to be
false or erroneous in any material respect; (iii) any covenant of FFT has been
breached in any material respect; or (iv) any claim is made alleging that (a)
the N-14 Registration Statement included any untrue statement of a material fact
or omitted to state any material fact required to be stated therein or necessary
to make the statements therein not misleading or (b) the Proxy Statement and
Prospectus delivered to the shareholders of FFT and forming a part of the N-14
Registration Statement included any untrue statement of a material fact or
omitted to state any material fact necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading,
except insofar as such claim is based on written information furnished by
Fundamental Growth to FFT.
(b) Fundamental Growth hereby agrees to indemnify and hold FFT harmless
from all loss, liability and expenses (including reasonable counsel fees and
expenses in connection with the contest of any claim) which FFT may incur or
sustain by reason of the fact that (i) any representations or warranties made by
Fundamental Growth in this Agreement should prove false or erroneous in any
material respect, (ii) any covenant of Fundamental Growth has been breached in
any material respect, or (iii) any claim is made alleging that (a) the N-14
Registration Statement included any untrue statement of a material fact or
omitted to state any material fact required to be stated therein or necessary to
make the statements therein, not misleading or (b) the Proxy Statement and
Prospectus delivered to shareholders of FFT and forming a part of the N-14
Registration Statement included any untrue statement of a material fact or
omitted to state any material fact necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading,
except insofar as such claim is based on written information furnished by FFT to
Fundamental Growth.
(c) In the event that any claim is made against Fundamental Growth in
respect of which indemnity may be sought by Fundamental Growth from FFT under
Section 11(a) of this Agreement, or in the event that any claim is made against
FFT in respect of which indemnity may be sought by FFT from Fundamental Growth
under Section 11(b) of this Agreement, then the party seeking indemnification
(the "Indemnified Party"), with reasonable promptness and before payment of such
claim, shall give written notice of such claim to the other party (the
"Indemnifying Party"). If no objection as to the validity of the claim is made
in writing to the Indemnified Party by the Indemnifying Party within thirty (30)
days after the giving of notice hereunder, then the Indemnified Party may pay
such claim and shall be entitled to reimbursement therefor, pursuant to this
Agreement. If, prior to the termination of such thirty-day period, objection in
writing as to the validity of such claim is made to the Indemnified Party, the
Indemnified Party shall withhold payment thereof until the validity of such
claim is established (i) to the satisfaction of the Indemnifying Party, or (ii)
by a final determination of a court of competent jurisdiction, whereupon the
Indemnified Party may pay such claim and shall be entitled to reimbursement
thereof, pursuant to this Agreement, or (iii) with respect to any tax claims,
within seven (7) calendar days following the earlier of (A) an agreement between
FFT and Fundamental Growth that an indemnity amount is payable, (B) an
assessment of a tax by a taxing authority, or (c) a "determination" as defined
in Section 1313(a) of the Code. For purposes of this Section 11, the term
"assessment" shall have the same meaning as used in Chapter 63 of the Code and
Treasury Regulations thereunder, or any comparable provision under the laws of
the appropriate taxing authority. In the event of any objection by the
Indemnifying Party, the Indemnifying Party promptly shall investigate the claim,
and if it is not satisfied with the validity thereof, the Indemnifying Party
shall conduct the defense against such claim. All costs and expenses incurred by
the Indemnifying Party in connection with such investigation and defense of such
claim shall be borne by it. These indemnification provisions are in addition to,
and not in limitation of, any other rights the parties may have under applicable
law.
12. Other Matters.
-------------
(a) Pursuant to Rule 145 under the 1933 Act, and in connection with the
issuance of any shares to any person who at the time of the Reorganization is,
to its knowledge, an affiliate of a party to the Reorganization pursuant to Rule
145(c), Fundamental Growth will cause to be affixed upon the certificate(s)
issued to such person (if any) a legend as follows:
THESE SHARES ARE SUBJECT TO RESTRICTIONS ON TRANSFER UNDER
THE SECURITIES ACT OF 1933 AND MAY NOT BE SOLD OR OTHERWISE
TRANSFERRED EXCEPT TO MERRILL LYNCH FUNDAMENTAL GROWTH FUND,
INC. (OR ITS STATUTORY SUCCESSOR) OR ITS PRINCIPAL
UNDERWRITER UNLESS (I) A REGISTRATION STATEMENT WITH RESPECT
THERETO IS EFFECTIVE UNDER THE SECURITIES ACT OF 1933 OR
(II) IN THE OPINION OF COUNSEL REASONABLY SATISFACTORY TO
THE FUND, SUCH REGISTRATION IS NOT REQUIRED.
and, further, that stop transfer instructions will be issued to Fundamental
Growth's transfer agent with respect to such shares. FFT will provide
Fundamental Growth on the Exchange Date with the name of any FFT shareholder who
is to the knowledge of FFT an affiliate of it on such date.
(b) All covenants, agreements, representations and warranties made under
this Agreement and any certificates delivered pursuant to this Agreement shall
be deemed to have been material and relied upon by each of the parties,
notwithstanding any investigation made by them or on their behalf.
(c) Any notice, report or demand required or permitted by any provision of
this Agreement shall be in writing and shall be made by hand delivery, prepaid
certified mail or overnight service, addressed to FFT or Fundamental Growth, in
either case at 800 Scudders Mill Road, Plainsboro, New Jersey 08536, Attn.:
[Jeffrey M. Peek], President.
(d) This Agreement supersedes all previous correspondence and oral
communications between the parties regarding the Reorganization, constitutes the
only understanding with respect to the Reorganization, may not be changed except
by a letter of agreement signed by each party and shall be governed by and
construed in accordance with the laws of the State of New York applicable to
agreements made and to be performed in said state.
(e) Copies of the Articles of Incorporation, as amended, of FFT and
Fundamental Growth are on file with the Department of Assessments and Taxation
of the State of Maryland and notice is hereby given that this instrument is
executed on behalf of the Directors of each fund.
This Agreement may be executed in any number of counterparts, each of
which, when executed and delivered, shall be deemed to be an original but all
such counterparts together shall constitute but one instrument.
MERRILL LYNCH FUND FOR TOMORROW, INC.
By:___________________________
Attest:
___________________
MERRILL LYNCH FUNDAMENTAL GROWTH
FUND, INC.
By:___________________________
Attest:
___________________
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
SUBJECT TO COMPLETION
PRELIMINARY STATEMENT OF ADDITIONAL INFORMATION DATED JULY 28, 1998
STATEMENT OF ADDITIONAL INFORMATION
MERRILL LYNCH FUND FOR TOMORROW, INC.
MERRILL LYNCH FUNDAMENTAL GROWTH FUND, INC.
P.O. BOX 9011
PRINCETON, NEW JERSEY 08543-9011
(609) 282-2800
This Statement of Additional Information is not a prospectus and should be
read in conjunction with the Proxy Statement and Prospectus of Merrill Lynch
Fund For Tomorrow, Inc. ("Fund For Tomorrow") and Merrill Lynch Fundamental
Growth Fund, Inc. ("Fundamental Growth Fund") dated [ ] __, 1998 (the "Proxy
Statement and Prospectus"), which has been filed with the Securities and
Exchange Commission and can be obtained, without charge, by calling Fundamental
Growth Fund at [1-800-456-4587, ext. 123], or by writing to Fundamental Growth
Fund at the above address. This Statement of Additional Information has been
incorporated by reference into the Proxy Statement and Prospectus.
Further information about Fundamental Growth Fund is contained in and
incorporated by reference to its Prospectus, dated November 24, 1997, and its
Statement of Additional Information, dated November 24, 1997, which are
incorporated by reference into this Statement of Additional Information.
Fundamental Growth Fund's Statement of Additional Information accompanies this
Statement of Additional Information.
Further information about Fund For Tomorrow is contained in and
incorporated by reference to its Prospectus, dated April 30, 1998, and its
Statement of Additional Information, dated April 30, 1998, which are
incorporated by reference into this Statement of Additional Information. Fund
For Tomorrow Statement of Additional Information accompanies this Statement of
Additional Information.
The Commission maintains a web site (http://www.sec.gov) that contains the
prospectus and statement of additional information of each of Fund For Tomorrow
and Fundamental Growth Fund, other material incorporated by reference and other
information regarding Fund For Tomorrow and Fundamental Growth Fund.
The date of this Statement of Additional Information is [ ] ___, 1998.
TABLE OF CONTENTS
General Information.......................................................... 2
Financial Statements......................................................... 2
Pro Forma Combined Schedule of Investments
for Fundamental Growth Fund and Fund For
Tomorrow as of June 30, 1998 (unaudited) ..................................F-1
Pro Forma Combined Statement of Assets and Liabilities
for Fundamental Growth Fund and Fund For Tomorrow
as of June 30, 1998 (unaudited) .............................................F-9
Pro Forma Combined Statement of Operations for
Fundamental Growth Fund and Fund For Tomorrow
as of June 30, 1998 (unaudited) ............................................F-11
GENERAL INFORMATION
The stockholders of Fund For Tomorrow are being asked to approve the
acquisition of substantially all of the assets of Fund For Tomorrow, and the
assumption of substantially all of the liabilities of Fund For Tomorrow by
Fundamental Growth Fund in exchange solely for an equal aggregate value of
shares of Fundamental Growth Fund (the "Reorganization"). Fundamental Growth
Fund is an open-end management investment company organized as a Maryland
corporation. A Special Meeting of Stockholders of Fund For Tomorrow to consider
the Reorganization will be held at 800 Scudders Mill Road, Plainsboro, New
Jersey, on October 13, 1998, at 9:00 a.m., New York time.
For detailed information about the Reorganization, stockholders of Fund For
Tomorrow should refer to the Proxy Statement and Prospectus. For further
information about Fundamental Growth Fund, Fund For Tomorrow stockholders should
refer to Fundamental Growth Fund's Statement of Additional Information, dated
November 24, 1997, which accompanies this Statement of Additional Information
and is incorporated by reference herein. For further information about Fund For
Tomorrow, stockholders should refer to Fund For Tomorrow's Statement of
Additional Information, dated April 30, 1998, which accompanies this Statement
of Additional Information and is incorporated by reference herein.
FINANCIAL STATEMENTS
Pro forma financial statements reflecting consummation of the
Reorganization are included herein.
FUNDAMENTAL GROWTH FUND
Audited financial statements and accompanying notes for the fiscal year
ended August 31, 1997 and the independent auditor's report thereon, dated
October 3, 1997 of Fundamental Growth Fund are incorporated by reference from
Fundamental Growth Fund's Statement of Additional Information, dated November
26, 1997. Unaudited financial statements and accompanying notes for the six
months ended February 28, 1998 for Fundamental Growth Fund are incorporated by
reference from Fundamental Growth Fund's Semi-Annual Report to Shareholders.
FUND FOR TOMORROW
Audited financial statements and accompanying notes for the fiscal year
ended January 31, 1998, and the independent auditor's report thereon, dated
March 10, 1998, of Fund For Tomorrow are incorporated by reference from the Fund
For Tomorrow Statement of Additional Information dated April 30, 1998.
<TABLE>
Combined Schedule of Investments for
Merrill Lynch Fundamental Growth Fund, Inc. and
Merrill Lynch Fund For Tomorrow, Inc.
June 30, 1998 (Unaudited)
<CAPTION>
INDUSTRIES SHARES HELD STOCKS
- ------------------------------------- ----------- ----------------------------------------------------
<S> <C> <C>
Advertising 132,000 Interpublic Group of Companies, Inc.
Banking & Financial 302,500 Banc One Corp.
82,500 BankAmerica Corp.
44,000 Citicorp
220,000 Mellon Bank Corp.
170,500 State Street Boston Corp.
Beverages 295,000 Coca-Cola Company (The)
66,000 Seagram Co., Ltd. (The)
Broadcasting-Radio & Television 220,000 Chancellor Media Corp.
132,000 Clear Channel Communications, Inc.
Broadcast Services 200,000 Carlton Communications PLC (ADR)(a)
Building Materials 100,000 Royal Group Technologies Ltd.
Cable Television 150,000 Tele-Communications Liberty Media Group (Series A)
Chemicals 165,000 duPont (E.I.) de Nemours & Co.
Communication Equipment 363,000 Cisco Systems, Inc.
440,000 FORE Systems, Inc.
170,500 Lucent Technologies, Inc.
220,000 Newbridge Networks Corporation
71,500 Northern Telecom Ltd.
176,000 Telefonakliebolaget LM Ericsson (ADR)(a)
Components 150,000 Harman International Industries Inc.
200,000 Nokia Corp. AB (ADR)(a)
150,000 Voice Control Systems Inc.
Computers 1,368,000 COMPAQ Computer Corp.
148,500 Dell Computer Corporation
110,000 Hewlett-Packard Co.
Conglomerate 200,000 Quinenco S.A (ADR)(a)
Cosmetics 124,400 Avon Products, Inc.
242,000 Gilette Company (The)
22,000 International Flavors & Fragrances Inc.
Electrical Equipment 33,000 Emerson Electric Co.
470,760 General Electric Co.
11,000 Honeywell, Inc.
Electronics 302,500 Intel Corp.
100,000 Phillips Electronics N.V. (NY Registered Shares)
50,000 Sony Corp. (ADR)(a)
110,000 ST Microelectronics (NY Registered Shares)
302,500 Texas Instruments Inc.
Energy 176,000 El Paso Natural Gas Co.
82,500 Enron Corp.
Entertainment 110,000 Viacom, Inc. (Class A)
220,000 Walt Disney Company (The)
Environmental Equipment 118,900 Thermo Ecotex Corp.
Financial Services 38,500 American Express Company
104,500 Federal National Mortgage Assocation
165,000 Franklin Resources, Inc.
198,000 Morgan Stanley, Dean Witter, Discover & Co.
132,000 Travelers Group, Inc.
Food 33,000 ConAgra, Inc.
55,000 Wrigley (Wm.) Jr. Co. (Class B)
Food & Beverage 954,900,000 Avipal S.A. - Avicultura e Agropecuaria
160,000 PepsiCo, Inc.
Food Merchandising 55,000 Albertson's, Inc.
165,000 Meyer (Fred), Inc.
Healthcare 200,000 HEALTHSOUTH Corp.
Home Furnishings 291,500 Ethan Allen Interiors, Inc.
50,000 American Woodmark Corporation
Hotel 132,000 Marriott International, Inc.
Household Products 38,500 Colgate-Palmolive Co.
88,000 Kimberly-Clark Corporation
297,000 Procter & Gamble Co.
220,000 Unilever N.V. (NY Registered Shares)
Information Processing 396,000 First Data Corp.
Information Services 50,000 Ceridian Corp.
400,000 OzEmail, Ltd. (ADR)(a)
Information Systems 100,000 International Business Machines Corp.
Insurance 11,000 Aetna Inc.
121,000 American International Group, Inc.
50,000 Chubb Corp.
200,000 Torchmark Corp.
Internet Software 55,000 America Online, Inc.
Leisure 230,000 Polygram N.V. (NY Registered Shares)
Leisure & Entertainment 300,000 Galoob (Lewis) Toys, Inc.
100,000 Royal Olympic Cruise Lines, Inc.
Medical Services 100,000 Vencor, Inc.
Medical-Technology 137,500 Boston Scientific Corp.
132,000 Guidant Corp.
22,000 Johnson & Johnson
Miscellaneous 7,888 Coram Healthcare Corporation (Warrants)(b)
Multi-Industry 180,000 Thermo Electron Corp.
Oil Services 148,500 Baker Hughes, Inc.
88,000 Diamond Offshore Drilling, Inc.
55,000 Schlumberger Ltd.
Personal Computers 100,000 Gateway 2000, Inc.
Pharmaceuticals 200,000 American Home Products Corp.
33,000 Amgen, Inc.
133,333 Astra AB (ADR)(a)
320,000 Bristol-Myers Squibb Co.
100,000 Lilly (Eli) and Company
199,400 Merck & Co. Inc.
50,000 Novartis AG (ADR)(a)
286,000 Pfizer, Inc.
100,800 Schering-Plough Corp.
Photography 27,500 Eastman Kodak Co.
Pollution Control 22,000 Waste Management Inc.
Pollution Technology 400,000 Molten Metal Technology, Inc.
396,600 Philip Services Corp.
Publishing 44,000 Gannett Co., Inc.
Real Estate Development 100,000 Ventas, Inc.
Restaurant 44,000 McDonald's Corp.
Retail Apparel 40,000 The Children's Place Retail Stores, Inc.
Retail Specialty 357,000 CVS Corporation
187,000 Gap, Inc. (The)
75,000 Petco Animal Supplies, Inc.
770,000 Staples Inc.
341,000 Walgreen Co.
Retail Stores 704,000 Wal-Mart Stores, Inc.
236,500 Federated Department Stores, Inc.
Semiconductor Capital Equipment 352,000 Applied Materials, Inc.
Software - Computer 115,500 Baan Company, N.V. (U.S. Registered Shares)
302,500 Microsoft Corp.
440,000 PeopleSoft, Inc.
165,000 SAP AG (Systeme, Anwendugen, Produkte in der
Datenverarbeitung)(ADR)(a)
50,000 Sterling Commerce, Inc.
Specialty Retail 138,900 OfficeMax, Inc.
Specialty Services 200,000 Household International, Inc.
1,000,000 National Mutual Asia Ltd.
250,000 Sitel Corporation
Systems 100,000 Computer Sciences Corporation
100,000 Genrad, Inc.
75,000 Networks Assocites, Inc.
300,000 Silicon Graphics, Inc.
200,000 Sun Microsystems, Inc.
Telecommunications 100,000 ADC Telecommunications, Inc.
352,000 AT&T Corporation
200,000 Alcatel Alsthom Cie Generale
d'Electricite S.A.(ADR)(a)
300,000 Inter-Tel Inc.
100,000 RSL Communications, Ltd. (Class A)
385,000 Sprint Corporation
242,000 WorldCom. Inc.
Textiles 100,000 Shaw Industries, Inc.
Toys 275,000 Mattel, Inc.
Travel & Lodging 330,000 Carnival Corporation (Class A)
</TABLE>
(table continued)
<TABLE>
<CAPTION>
FUNDAMENTAL FUND FOR PRO FORMA FOR
INDUSTRIES GROWTH TOMORROW COMBINED FUND+
- ------------------------------------- ------------ ----------------------- -----------------
<S> <C> <C> <C>
Advertising $8,010,750 -- $8,010,750
Banking & Financial 16,883,281 -- 16,883,281
7,131,094 -- 7,131,094
6,567,000 -- 6,567,000
15,317,500 -- 15,317,500
11,849,750 -- 11,849,750
------------ -----------------
57,748,625 57,748,625
Beverages 25,222,500 -- 25,222,500
2,701,875 -- 2,701,875
------------ -----------------
27,924,375 27,924,375
Broadcasting-Radio & Television 10,917,500 -- 10,917,500
14,404,500 -- 14,404,500
------------ -----------------
25,322,000 25,322,000
Broadcast Services -- $9,000,000 9,000,000
Building Materials -- 2,891,747 2,891,747
Cable Television -- 5,821,875 5,821,875
Chemicals 12,313,125 -- 12,313,125
Communication Equipment 33,418,688 -- 33,418,688
11,632,500 -- 11,632,500
14,183,469 -- 14,183,469
5,266,250 -- 5,266,250
4,057,625 -- 4,057,625
5,038,000 -- 5,038,000
------------ -----------------
73,596,532 73,596,532
Components -- 5,775,000 5,775,000
-- 14,512,500 14,512,500
-- 487,500 487,500
----------------------- -----------------
20,775,000 20,775,000
Computers 27,467,000 11,350,000 38,817,000
13,773,375 -- 13,773,375
6,586,250 -- 6,586,250
------------ ----------------------- -----------------
47,826,625 11,350,000 59,176,625
Conglomerate -- 1,800,000 1,800,000
Cosmetics -- 9,641,000 9,641,000
13,718,375 -- 13,718,375
955,625 -- 955,625
------------ ----------------------- -----------------
14,674,000 9,641,000 24,315,000
Electrical Equipment 1,992,375 -- 1,992,375
36,036,000 6,803,160 42,839,160
919,188 -- 919,188
------------ ----------------------- -----------------
38,947,563 6,803,160 45,750,723
Electronics 22,403,906 -- 22,403,906
-- 8,500,000 8,500,000
-- 4,303,125 4,303,125
7,686,250 -- 7,686,250
17,639,531 -- 17,639,531
------------ ----------------------- -----------------
47,729,687 12,803,125 60,532,812
Energy 6,732,000 -- 6,732,000
4,460,156 -- 4,460,156
------------ -----------------
11,192,156 11,192,156
Entertainment 6,435,000 -- 6,435,000
23,113,750 -- 23,113,750
------------ -----------------
29,548,750 29,548,750
Environmental Equipment -- 1,857,812 1,857,812
Financial Services 4,389,000 -- 4,389,000
6,348,375 -- 6,348,375
8,910,000 -- 8,910,000
18,092,250 -- 18,092,250
8,002,500 -- 8,002,500
------------ -----------------
45,742,125 45,742,125
Food 1,045,688 -- 1,045,688
5,390,000 -- 5,390,000
------------ -----------------
6,435,688 6,435,688
Food & Beverage -- 1,519,253 1,519,253
-- 6,590,000 6,590,000
----------------------- -----------------
8,109,253 8,109,253
Food Merchandising 2,849,688 -- 2,849,688
7,012,500 -- 7,012,500
------------ -----------------
9,862,188 9,862,188
Healthcare -- 5,337,500 5,337,500
Home Furnishings 14,556,781 -- 14,556,781
-- 1,368,750 1,368,750
------------ ----------------------- -----------------
14,556,781 1,368,750 15,925,531
Hotel 4,273,500 -- 4,273,500
Household Products 3,388,000 -- 3,388,000
4,037,000 -- 4,037,000
27,045,563 -- 27,045,563
17,366,250 -- 17,366,250
------------ -----------------
51,836,813 51,836,813
Information Processing 13,191,750 -- 13,191,750
Information Services -- 2,937,500 2,937,500
-- 9,050,000 9,050,000
----------------------- -----------------
11,987,500 11,987,500
Information Systems -- 11,481,250 11,481,250
Insurance 837,375 -- 837,375
17,666,000 -- 17,666,000
-- 4,018,750 4,018,750
-- 9,150,000 9,150,000
------------ ----------------------- -----------------
18,503,375 13,168,750 31,672,125
Internet Software 5,830,000 -- 5,830,000
Leisure 11,701,250 -- 11,701,250
Leisure & Entertainment -- 3,000,000 3,000,000
-- 1,000,000 1,000,000
----------------------- -----------------
4,000,000 4,000,000
Medical Services -- 725,000 725,000
Medical-Technology 9,848,438 -- 9,848,438
9,413,250 -- 9,413,250
1,622,500 -- 1,622,500
------------ -----------------
20,884,188 20,884,188
Miscellaneous -- -- --
Multi-Industry -- 6,153,750 6,153,750
Oil Services 5,132,531 -- 5,132,531
3,520,000 -- 3,520,000
3,757,187 -- 3,757,187
------------ -----------------
12,409,718 12,049,718
Personal Computers -- 5,062,500 5,062,500
Pharmaceuticals -- 10,350,000 10,350,000
2,157,375 -- 2,157,375
-- 2,733,327 2,733,327
25,286,250 11,493,750 36,780,000
-- 6,606,250 6,606,250
19,861,875 6,807,875 26,669,750
-- 4,150,000 4,150,000
31,084,625 -- 31,084,625
-- 9,235,800 9,235,800
------------ ----------------------- -----------------
78,390,125 51,377,002 129,767,127
Photography 2,009,219 -- 2,009,219
Pollution Control 770,000 -- 770,000
Pollution Technology -- 40,000 40,000
-- 1,635,975 1,635,975
----------------------- -----------------
1,675,975 1,675,975
Publishing 3,126,750 -- 3,126,750
Real Estate Development -- 1,381,250 1,381,250
Restaurant 3,036,000 -- 3,036,000
Retail Apparel -- 390,000 390,000
Retail Specialty 13,900,688 -- 13,900,688
11,523,875 -- 11,523,875
-- 1,495,312 1,495,312
22,281,875 -- 22,281,875
14,087,562 -- 14,087,562
------------ ----------------------- -----------------
61,794,000 1,495,312 63,289,312
Retail Stores 42,768,000 -- 42,768,000
12,726,656 -- 12,726,656
------------ -----------------
55,494,656 55,494,656
Semiconductor Capital Equipment 10,384,000 -- 10,384,000
Software - Computer 4,114,687 -- 4,114,687
32,783,437 -- 32,783,437
20,652,500 -- 20,652,500
37,288,845 -- 37,288,845
-- 2,425,000 2,425,000
------------ ----------------------- -----------------
94,839,469 2,425,000 97,264,469
Specialty Retail -- 2,291,850 2,291,850
Specialty Services -- 9,950,000 9,950,000
-- 638,866 638,866
-- 1,656,250 1,656,250
----------------------- -----------------
12,245,116 12,245,116
Systems -- 6,400,000 6,400,000
-- 1,975,000 1,975,000
-- 3,585,937 3,585,937
-- 3,637,500 3,637,500
-- 8,687,500 8,687,500
----------------------- -----------------
24,285,937 24,285,937
Telecommunications -- 3,650,000 3,650,000
20,108,000 -- 20,108,000
-- 8,137,500 8,137,500
-- 4,800,000 4,800,000
-- 2,975,000 2,975,000
27,142,500 -- 27,142,500
11,691,625 -- 11,691,625
------------ ----------------------- -----------------
58,942,125 19,562,500 78,504,625
Textiles -- 1,762,500 1,762,500
Toys 11,635,937 -- 11,635,937
Travel & Lodging 13,076,250 -- 13,076,250
------------ ----------------------- -----------------
TOTAL STOCKS $1,003,560,095 $269,030,414 $1,272,590,509
============= ======================= =================
</TABLE>
<TABLE>
Combined Schedule of Investments for
Merrill Lynch Fundamental Growth Fund, Inc. and
Merrill Lynch Fund For Tomorrow, Inc.
June 30, 1998 (Unaudited)
<CAPTION>
FACE AMOUNT SHORT-TERM SECURITIES
- ----------------------------------- ----------- -----------------------------------------------
<S> <C> <C>
Commercial Paper* $10,000,000 Atlantic Asset Security Corp., 5.62% due
7/20/1998
12,673,000 CIT Group Holdings Corp., 6.50%
due 7/01/1998
25,000,000 Corporate Asset Funding Corp., 5.55%
due 7/07/1998
10,000,000 Countrywide Home Loan Corp., 5.54%
due 7/07/1998
8,044,000 General Motors Acceptance Corp., 6.50%
due 7/01/1998
7,000,000 International Securitization, 5.57%
due 7/20/1998
15,000,000 Lexington Parker Capital Co. LLC, 5.60%
due 7/17/1998
11,433,000 Variable Funding Capital Corp., 5.58%
due 7/15/1998
14,000,000 Variable Funding Capital Corp., 5.57%
due 7/20/1998
</TABLE>
(table continued)
<TABLE>
<CAPTION>
FUNDAMENTAL FUND FOR PRO FORMA FOR
GROWTH+ TOMORROW+ COMBINED FUND+
- ----------------------------------- -------------------- ------------- ------------------
<S> <C> <C> <C>
Commercial Paper* -- 9,970,339 9,970,339
-- 12,673,000 12,673,000
24,976,875 -- 24,976,875
9,990,767 -- 9,990,767
8,044,000 -- 8,044,000
-- 6,979,422 6,979,422
14,962,667 14,962,667
11,408,190 -- 11,408,190
3,988,241 9,970,603 13,958,844
-------------------- ------------- ------------------
TOTAL SHORT-TERM SECURITY 73,370,740 39,593,364 112,964,104
==================== ============= ==================
Total Investments (Cost $1,125,656,160) $1,076,930,835 $308,623,778 $1,385,554,613
==================== ============= ==================
</TABLE>
______________
+ Value as discussed in Note 1a of Notes to Pro Forma Financial Statements
below.
* 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) American Depositary Receipts.
(b) Warrants entitle the Fund to purchase a predetermined number of shares of
common stock. The purchase price and number of shares are subject to
adjustment under certain conditions until the expiration date and are
non-income producing.
PRO FORMA COMBINED STATEMENT OF ASSETS AND LIABILITIES FOR
MERRILL LYNCH FUNDAMENTAL GROWTH FUND, INC. AND
MERRILL LYNCH FUND FOR TOMORROW, INC.
(UNAUDITED)
The following unaudited Pro Forma Combined Statement of Assets and
Liabilities for Merrill Lynch Fundamental Growth Fund, Inc. ("Fundamental Growth
Fund") and Merrill Lynch Fund For Tomorrow, Inc. ("Fund For Tomorrow") has been
derived from the Statements of Assets and Liabilities of Fundamental Growth Fund
and Fund For Tomorrow as of June 30, 1998, and such information has been
adjusted to give effect to the Reorganization as if the Reorganization had
occurred on June 30, 1998. The Pro Forma Statement of Assets and Liabilities is
presented for informational purposes only and does not purport to be indicative
of the financial condition that would have resulted if the Reorganization had
been consummated on June 30, 1998. The Pro Forma Combined Statement of Assets
and Liabilities should be read in conjunction with the financial statements and
related notes from the audited financial statements of Fundamental Growth Fund
included in its Statement of Additional Information dated November 26, 1997 and
from the Fund For Tomorrow audited financial statements and related notes
included in its Statement of Additional Information dated April 30, 1998.
<TABLE>
<CAPTION>
FUNDAMENTAL FUND FOR ADJUSTMENTS PRO FORMA FOR
GROWTH FUND TOMORROW COMBINED FUND
----------------- ------------- --------------- ----------------
<S> <C> <C> <C> <C>
ASSETS:
Investments, at value*(Note 1a) $1,076,930,835 $308,623,778 $1,385,554,613
Cash 507,407 12,137 519,544
Foreign Cash (Note 1b) -- 10,502 10,502
Receivables:
Capital shares sold 10,229,919 283,864 10,513,783
Securities sold 2,839,000 15,806,020 18,645,020
Dividends 714,365 1,428,206 2,142,571
Deferred organization expenses (Note 1f) 5,077 -- 5,077
Prepaid registrations fees and other assets (Note 1f) 53,503 10,264 63,767
----------------- ------------- -----------------
Total assets 1,091,280,106 326,174,771 1,417,454,877
================= ============= =================
LIABILITIES:
Payables:
Dividends to Shareholders -- -- $58,825,628(1) 58,825,628
Securities purchased 24,462,322 13,883,212 38,345,534
Capital shares redeemed 3,865,802 241,208 4,107,010
Distributor (Note 2) 633,761 92,467 726,228
Investment adviser (Note 2) 547,034 178,808 725,842
Accrued expenses and other liabilities 204,377 167,173 154,450(2) 526,000
----------------- ------------- --------------- -----------------
Total liabilities 29,713,296 14,562,868 58,980,078 103,256,242
================= ============= =============== =================
NET ASSETS:
Net Assets: $1,061,566,810 $311,611,903 ($58,980,078) $1,314,198,635
================= ============= =============== =================
NET ASSETS CONSIST OF:
Class A Common Stock, $0.10 par value, $897,094 61,291 (6,742) 951,643
100,000,000 shares authorized
Class B Common Stock, $0.10 par value, 3,294,957 295,158 (30,873) 3,559,242
100,000,000 shares authorized
Class C Common Stock, $0.10 par value, 737,527 10,585 (1,195) 746,917
100,000,000 share authorized
Class D Common Stock, $0.10 par value, 775,514 1,420,195 (154,202) 2,041,507
100,000,000 shares authorized
Paid-in capital in excess of par 851,888,026 195,074,312 38,562 1,047,000,900
Accumulated investment loss - net (1,430,721) 1,555,413 (124,692) 0
Undistributed realized capital gains on investments
and foreign currency transactions - net 40,331,874 18,369,062 (58,700,936) 0
Unrealized appreciation on investments and foreign
currency transactions - net 165,072,539 94,825,887 259,898,426
================= ============= =============== =================
Net assets $1,061,566,810 $311,611,903 ($58,980,078) $1,314,198,635
</TABLE>
<TABLE>
PRO FORMA COMBINED STATEMENT OF ASSETS AND LIABILITIES FOR
MERRILL LYNCH FUNDAMENTAL GROWTH FUND, INC. AND
MERRILL LYNCH FUND FOR TOMORROW, INC.
(UNAUDITED) (CONCLUDED)
<CAPTION>
FUNDAMENTAL FUND FOR ADJUSTMENTS PRO FORMA FOR
GROWTH FUND TOMORROW COMBINED FUND
----------------- ------------- --------------- ----------------
<S> <C> <C> <C> <C>
NET ASSET VALUE:
Class A:
Net assets $172,885,564 $10,819,194 ($7,047,840) $176,656,918
Shares outstanding 8,970,935 612,910 (67,413) 9,516,432
Net Asset Value $19.27 $17.65 $18.56
Class B:
Net assets $604,496,007 $49,899,908 ($25,415,983) $628,979,932
Shares outstanding 32,949,565 2,951,579 (308,723) 35,592,421
Net Asset Value $18.35 $16.91 $17.67
Class C:
Net Assets $135,909,704 $1,780,876 ($5,109,772) $132,580,808
Shares outstanding 7,375,265 105,848 (11,945) 7,469,168
Net Asset Value $18.43 $16.82 $17.75
Class D:
Net Assets $148,275,535 $249,111,925 ($21,406,483) $375,980,977
Shares outstanding 7,755,139 14,201,953 (1,542,020) 20,415,072
Net Asset Value $19.12 $17.54 $18.42
*identified cost $911,858,296 $213,797,864 $1,125,656,160
</TABLE>
(1) Reflects the payment of undistributed net investment income and
undistributed realized capital gains.
(2) Reflects the charge of estimated Reorganization expenses of $350,000 and
anticipated savings of the Reorganization.
See Notes to Financial Statements.
PRO FORMA COMBINED STATEMENT OF OPERATIONS FOR
MERRILL LYNCH FUNDAMENTAL GROWTH FUND, INC. AND
MERRILL LYNCH FUND FOR TOMORROW, INC.
(UNAUDITED)
The following unaudited Pro Forma Combined Statement of Operations for
Fundamental Growth Fund and Fund For Tomorrow has been derived from the
Statements of Operations of Fundamental Growth Fund and Fund For Tomorrow as of
June 30, 1998, and such information has been adjusted to give effect to the
Reorganization as if the Reorganization had occurred on February 1, 1998. The
Pro Forma Statement of Operations is presented for informational purposes only
and does not purport to be indicative of the financial condition that would have
resulted if the Reorganization had been consummated on February 1, 1998. The Pro
Forma Combined Statement of Operations should be read in conjunction with the
financial statements and related notes from the audited financial statements of
Fundamental Growth Fund included in its Statement of Additional Information
dated November 26, 1997 and from the Fund For Tomorrow audited financial
statements and related notes included in its Statement of Additional Information
dated April 30, 1998.
<TABLE>
<CAPTION>
FUNDAMENTAL FUND FOR ADJUSTMENTS PRO FORMA FOR
GROWTH FUND TOMORROW COMBINED FUND
----------------- ------------- --------------- ----------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME (NOTES 1D & 1A):
Dividends** $2,528,384 $2,791,920 $5,320,304
Interest and discount earned*** 1,955,001 523,182 2,478,183
----------------- ------------- ----------------
Total income 4,483,385 3,315,102 7,798,487
----------------- ------------- ----------------
EXPENSES:
Investment advisory fees 2,143,881 853,232 2,997,113
Account maintenance and distribution fees -
Class B (Note 2) 1,877,715 229,598 2,107,313
Account maintenance and distribution fees -
Class C (Note 2) 471,722 9,878 481,600
Transfer agent fees - Class B 179,238 46,990 226,228
Registration fees (Note 1f) 111,800 32,968 144,768
Account maintenance fees - Class D (Note 2) 35,379 255,676 291,055
Custodian fees 14,377 21,276 35,653
Transfer agent fees - Class C 50,491 2,153 52,644
Transfer agent fees - Class D 35,379 166,433 201,812
Printing and shareholder reports 41,257 44,267 ($39,334)(2) 46,190
Accounting services (Note 2) 26,500 33,558 (67,654)(2) (7,596)
Directors' fees and expenses 13,241 11,440 (23,128)(2) 1,553
Transfer agent fees - Class A (Note 2) 35,954 8,375 44,329
Professional fees 25,120 31,420 (65,434)(2) (8,894)
Amortization of organization expenses 1,665 -
Pricing fees 3 513 516
Other 5,387 7,929 350,000 (1) 363,316
----------------- ------------- --------------- ----------------
Total expenses 5,069,109 1,755,706 154,450 6,977,600
----------------- ------------- --------------- ----------------
Investment income (loss) - net (585,724) 1,559,396 (154,450) 820,887
----------------- ------------- --------------- ----------------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENT & FOREIGN CURRENCY TRANSACTIONS -
NET (NOTES 1B, 1C, 1E & 3):
Realized gain (loss) from:
Investments - net 32,419,078 15,435,072 47,854,150
Foreign currency transactions - net - (4,347) (4,347)
Change in unrealized appreciation/depreciation on:
Investments - net 100,831,744 22,245,210 123,076,954
Foreign currency transactions - net - (18) (18)
Net realized and unrealized gain on investments
and foreign currency transactions 133,250,822 37,675,917 170,926,739
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS $132,665,098 $16,994,450 ($154,450) $48,675,019
================= ============= =============== ================
**Net foreign withholding tax on dividends - $144,463 $144,463
***Net foreign withholding tax on interest - - -
</TABLE>
______________
(1) Reflects the charge for estimated Reorganization expenses of $350,000.
(2) Reflects the anticipated savings of the Reorganization.
MERRILL LYNCH FUNDAMENTAL GROWTH FUND, INC. AND
MERRILL LYNCH FUND FOR TOMORROW, INC.
NOTES TO PRO FORMA FINANCIAL STATEMENTS
(UNAUDITED)
1. SIGNIFICANT ACCOUNTING POLICIES:
Merrill Lynch Fundamental Growth Fund, Inc. (the "Fund") is registered under the
Investment Company Act of 1940 as a diversified, open-end management investment
company. These unaudited financial statements reflect all adjustments which are,
in the opinion of management, necessary to a fair statement of the results for
the interim period presented. All such adjustments are of a normal recurring
nature. The Fund offers four classes of shares under the Merrill Lynch Select
Pricing(Service Mark) 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.
Options purchased 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 bid 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.
- Financial futures contracts - The Fund may purchase or sell financial
futures contracts and options on such futures contracts for the purpose
of hedging the market risk on existing securities or the intended
purchase of securities. Futures contracts are contracts for delayed
delivery of securities at a specific future date and at a specific price
or yield. Upon entering into a contract, the Fund deposits and maintains
as collateral such initial margin as required by the exchange on which
the transaction is effected. Pursuant to the contract, the Fund agrees to
receive from or pay to the broker an amount of cash equal to the daily
fluctuation in value of the contract. Such receipts or payments are known
as variation margin and are recorded by the Fund as unrealized gains or
losses. When the contract is closed, the Fund records a realized gain or
loss equal to the difference between the value of the contract at the
time it was opened and the value at the time it was closed.
- Options - The Fund is authorized to write and purchase call and put
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 value of the option written. When a security is
purchased or sold through an exercise of an option, the related premium
paid (or received) is added to (or deducted from) the basis of the
security acquired or deducted from (or added to) the proceeds 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 premiums received or paid (or gain or loss to the extent
the cost of the closing transaction exceeds the premium paid or
received).
Written and purchased 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.
MERRILL LYNCH FUNDAMENTAL GROWTH FUND, INC. AND
MERRILL LYNCH FUND FOR TOMORROW, INC.
NOTES TO PRO FORMA FINANCIAL STATEMENTS
(UNAUDITED)(CONTINUED)
(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) Deferred organization expenses and prepaid registration fees - Deferred
organization expenses are charged to expense on a straight-line basis over a
five-year period. Prepaid registration fees are charged to expense as the
related shares are issued.
(g) Dividends and distributions - Dividends and distributions paid by the Fund
are recorded on the ex-dividend dates.
2. INVESTMENT ADVISORY AGREEMENT AND TRANSACTIONS WITH AFFILIATES:
The Fund has entered into an Investment Advisory Agreement with Merrill Lynch
Asset Management, L.P. ("MLAM"). The general partner of MLAM is Princeton
Services, Inc. ("PSI"), an indirect wholly-owned subsidiary of Merrill Lynch &
Co., Inc. ("ML & Co."), which is the limited 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 at
the annual rate of 0.65% of the average daily value of the Fund's net assets.
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 Maintenance Fee Distribution 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 period February 1, 1998 to June 30, 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:
Merrill Lynch Fundamental Merrill Lynch Fund
Growth Fund Inc. For Tomorrow, Inc.
- ------------------- -------------------------- ---------------------------------
Class A:
- ------------------- -------------------------- ---------------------------------
MLFD $ 191 $ 106
- ------------------- -------------------------- ---------------------------------
MLPF&S $ 2,396 $ 494
- ------------------- -------------------------- ---------------------------------
Class D:
- ------------------- -------------------------- ---------------------------------
MLFD $ 17,046 $ 540
- ------------------- -------------------------- ---------------------------------
MLPF&S $ 244,378 $ 8,995
- ------------------- -------------------------- ---------------------------------
For the period February 1, 1998 to June 30, 1998, MLPF&S received contingent
deferred sales charges relating to transactions in Class B and Class C shares,
as follows:
Merrill Lynch Fundamental Merrill Lynch Fund
Growth Fund, Inc. For Tomorrow, Inc.
- ------------------- -------------------------- ---------------------------------
Class B $ 276,826 $ 30,134
- ------------------- -------------------------- ---------------------------------
Class C $ 10,517 $ 43
- ------------------- -------------------------- ---------------------------------
[In addition, MLPF&S received $ in commissions on the execution of portfolio
security transactions for the Fund for the period February 1, 1998 to June 30,
1998.]
During the period February 1, 1998 to June 30, 1998 the combined Funds paid
Merrill Lynch Security Pricing Service, an affiliate of MLPF&S, $ [ ] and $ [ ]
for security price quotations to compute the net asset value of Merrill Lynch
Fundamental Growth Fund, Inc. and Merrill Lynch Fund For Tomorrow, Inc.,
respectively.
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.
PART C
OTHER INFORMATION
ITEM 15. INDEMNIFICATION.
Reference is made to Article V of Registrant's Amended and Restated
Articles of Incorporation, Article VI of Registrant's By-Laws, Section 2-418 of
the Maryland General Corporation Law and Section 9 of the Class A, Class B,
Class C and Class D Distribution Agreements.
Article VI of the By-Laws provides that each officer and director of the
Registrant shall be indemnified by the Registrant to the full extent permitted
under the General Laws of the State of Maryland, except that such indemnity
shall not protect any such person against any liability to the Registrant or any
stockholder thereof to which such person would otherwise be subject by reason of
willful misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of his office. Absent a court determination that
an officer or director seeking indemnification was not liable on the merits or
guilty of willful misfeasance, bad faith, gross negligence or reckless disregard
of the duties involved in the conduct of his office, the decision by the
Registrant to indemnify such person must be based upon the reasonable
determination of independent counsel or non-party independent directors, after
review of the facts, that such officer or director is not guilty of willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his office.
Each officer and director of the Registrant claiming indemnification within
the scope of Article VI of the By-Laws shall be entitled to advances from the
Registrant for payment of the reasonable expenses incurred by him in connection
with proceedings to which he is a party in the manner and to the full extent
permitted under the General Laws of the State of Maryland; provided, however,
that the person seeking indemnification shall provide to the Registrant a
written affirmation of his good faith belief that the standard of conduct
necessary for indemnification by the Registrant has been met and a written
undertaking to repay any such advance, if it should ultimately be determined
that the standard of conduct has not been met, and provided further that at
least one of the following additional conditions is met: (a) the person seeking
indemnification shall provide a security in form and amount acceptable to the
Registrant for his undertaking; (b) the Registrant is insured against losses
arising by reason of the advance; (c) a majority of a quorum of non-party
independent directors, or independent legal counsel in a written opinion, shall
determine, based on a review of facts readily available to the Registrant at the
time the advance is proposed to be made, that there is reason to believe that
the person seeking indemnification will ultimately be found to be entitled to
indemnification.
The Registrant may purchase insurance on behalf of an officer or director
protecting such person to the full extent permitted under the General Laws of
the State of Maryland from liability arising from his or her activities as an
officer or director of the Registrant. The Registrant, however, may not purchase
insurance on behalf of any officer or director of the Registrant that protects
or purports to protect such person from liability to the Registrant or to its
stockholders to which such officer or director would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties involved in the conduct of his or her office.
The Registrant may indemnify, make advances or purchase insurance to the
extent provided in Article VI of the By-Laws on behalf of an employee or agent
who is not an officer or director of the Registrant.
In Section 9 of the Class A, Class B, Class C and Class D Distribution
Agreements relating to the securities being offered hereby, the Registrant
agrees to indemnify the Distributor and each person, if any, who controls the
Distributor within the meaning of the Securities Act of 1933 (the "1933 Act"),
against certain types of civil liabilities arising in connection with the
Registration Statement or Prospectus and Statement of Additional Information.
Insofar as indemnification for liabilities arising under the 1933 Act may
be permitted to Directors, officers and controlling persons of the Registrant
and the principal underwriter pursuant to the foregoing provisions or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the 1933 Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a Director, officer, or controlling
person of the Registrant and the principal underwriter in connection with the
successful defense of any action, suit or proceeding) is asserted by such
Director, officer or controlling person or the principal underwriter in
connection with the shares being registered, the Registrant will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the 1933 Act and
will be governed by the final adjudication of such issue.
ITEM 16. EXHIBITS.
1 (a) -- Articles of Incorporation of the Registrant, dated April 29,
1992.(a)
(b) -- Articles of Amendment, dated July 7, 1992, to Articles of
Incorporation of Registrant. (a)
(c) -- Articles of Amendment, dated October 17, 1994, to Articles of
Incorporation of Registrant. (a)
(d) -- Articles of Amendment, dated October 17, 1994, to Articles of
Incorporation of Registrant. (a)
(e) -- Articles Supplementary, dated October 17, 1994, to Articles of
Incorporation of Registrant. (a)
2 -- By-Laws of the Registrant.(a)
3 -- Not Applicable.
4 -- Form of Agreement and Plan of Reorganization between the
Registrant and Merrill Lynch Fund for Tomorrow, Inc. (included in
Exhibit I to the Proxy Statement and Prospectus contained in this
Registration Statement)
5 -- Copies of instruments defining the rights of stockholders,
including the relevant portions of the Articles of Incorporation,
and the By-Laws of the Registrant.(b)
6 (a) -- Management Agreement between Registrant and Merrill Lynch Asset
Management, L.P. (a)
(b) -- Supplement to Management Agreement between Registrant and Merrill
Lynch Asset Management, L.P. (c)
(c) -- Form of Sub-Advisory Agreement between Merrill Lynch Asset
Management, L.P. and Merrill Lynch Asset Management U.K.
Limited. (e)
7 (a) -- Form of Class A Distribution Agreement between Registrant and
Merrill Lynch Funds Distributor, Inc. (including Selected Dealers
Agreement) (c)
(b) -- Form of Class B Distribution Agreement between Registrant and
Merrill Lynch Funds Distributor, Inc. (including Selected Dealers
Agreement) (c)
(c) -- Form of Class C Distribution Agreement between Registrant and
Merrill Lynch Funds Distributor, Inc. (including Selected Dealers
Agreement). (c)
(d) -- Form of Class D Distribution Agreement between Registrant and
Merrill Lunch Funds Distributor, Inc. (including Selected Dealers
Agreement). (c)
8 -- None.
9 -- Custody Agreement between the Registrant and Chase Manhattan
Bank, N.A. (a)
10 (a) -- Form of Class B Distribution Plan and Class B Distribution Plan
Sub-Agreement of Registrant. (c)
(b) -- Form of Class C Distribution Plan and Class C Distribution Plan
Sub-Agreement of Registrant. (c)
(c) -- Form of Class D Distribution Plan and Class D Distribution Plan
Sub-Agreement of Registrant. (c)
(d) -- Merrill Lynch Select Pricing(Service Mark) System Plan pursuant
to Rule 18f-3.(d)
11 -- Opinion and Consent of Brown & Wood LLP, counsel for the
Registrant.(f)
12 -- Private Letter Ruling from the Internal Revenue Service.(f)
13 -- Not applicable.
14 (a) -- Consent of Ernst & Young LLP, independent auditors for
Registrant.(f)
(b) -- Consent of Deloitte & Touche LLP independent auditors for Merrill
Lynch Fund For Tomorrow, Inc.(f)
15 -- Not applicable.
16 -- Power of Attorney (Included on the signature page of this
Registration Statement).
17 (a) -- Prospectus dated November 26, 1997 and Statement of Additional
Information dated November 26, 1997 of the Registrant.(f)
(b) -- Semi-Annual Report to Stockholders of the Registrant for the
six months ended February 28, 1998.(f)
(c) -- Prospectus dated April 30, 1998 and Statement of Additional
Information dated April 30, 1998 of Merrill Lynch Fund For
Tomorrow, Inc.(f)
______________
(a) Filed on December 21, 1995 as an Exhibit to Post-Effective Amendment No. 4
to the Registrant `s Registration Statement on Form N-1A (File No.
33-47875) under the Securities Act of 1933 (the "Registration Statement on
Form N-1A").
(b) Reference is made to Article II, Article IV, Article V (sections 2, 3, 4
and 6), Article VI, Article VII and Article IX of the Registrant's Articles
of Incorporation, previously filed as Exhibit (1) to the Registration
Statement on Form N-1A, and to Article II, Article III (sections 1, 3, 5, 6
and 17), Article VI, Article VII, Article XII, Article XIII and Article XIV
of the Registrant's By-Laws previously filed as Exhibit (2) to the
Registration Statement on Form N-1A.
(c) Filed on October 13, 1994 as an Exhibit to Post-Effective Amendment No. 3
to the Registrant's Registration Statement on Form N-1A.
(d) Incorporated by reference to Post-Effective Amendment No. 13 to the
Registration Statement on Form N-1A of Merrill Lynch New York Municipal
Bond Fund of Merrill Lynch Multi-State Municipal Series Trust filed January
25, 1996.
(e) Filed on December 23, 1996 as an exhibit to Post-Effective Amendment No. 5
to the Registrant's Registration Statement on Form N-1A.
(f) To be filed by amendment.
ITEM 17. UNDERTAKINGS.
(1) The undersigned Registrant agrees that prior to any public
reoffering of the securities registered through use of a
prospectus which is part of this Registration Statement by any
person or party who is deemed to be an underwriter within the
meaning of Rule 145(c) of the Securities Act of 1933, as
amended, the reoffering prospectus will contain information
called for by the applicable registration form for reofferings
by persons who may be deemed underwriters, in addition to the
information called for by other items of the applicable form.
(2) The undersigned Registrant agrees that every prospectus that
is filed under paragraph (1) above will be filed as part of an
amendment to the registration statement and will not be used
until the amendment is effective, and that, in determining any
liability under the Securities Act of 1933, as amended, each
post-effective amendment shall be deemed to be a new
registration statement for the securities offered therein, and
the offering of securities at that time shall be deemed to be
the initial bona fide offering of them.
(3) The Registrant undertakes to file, by post-effective
amendment, a copy of the Internal Revenue Service private
letter ruling applied for, within a reasonable time after
receipt of such ruling.
SIGNATURES
As required by the Securities Act of 1933, this Registration Statement has
been signed on behalf of the Registrant, in the Township of Plainsboro and State
of New Jersey, on the 28th day of July, 1998.
MERRILL LYNCH FUNDAMENTAL GROWTH FUND, INC.
(Registrant)
By /s/ Arthur Zeikel
_________________________________________
(Arthur Zeikel, President)
Each person whose signature appears below hereby authorizes Arthur Zeikel,
Terry K. Glenn and Gerald M. Richard, or any of them, as attorney-in-fact, to
sign on his behalf, individually and in each capacity stated below, any
amendments to this Registration Statement (including post-effective amendments)
and to file the same, with all exhibits thereto, with the Securities and
Exchange Commission.
As required by the Securities Act of 1933, this Registration Statement has
been signed by the following persons in the capacities and on the dates
indicated.
<TABLE>
<CAPTION>
Signatures Title Date
---------- ----- ----
<S> <C> <C>
/s/ Arthur Zeikel President and Director July 28, 1998
- --------------------------------------- (Principal Executive Officer)
(Arthur Zeikel)
/s/ Gerald M. Richard Treasurer (Principal Financial July 28, 1998
- --------------------------------------- and Accounting Officer)
(Gerald M. Richard)
/s/ Joe Grills Director July 28, 1998
- ----------------------------------------
(Joe Grills)
/s/ Walter Mintz Director July 28, 1998
- -----------------------------------------
(Walter Mintz)
/s/ Robert S. Salomon, Jr. Director July 28, 1998
- -----------------------------------------
(Robert S. Salomon, Jr.)
/s/ Melvin R. Seiden Director July 28, 1998
- -----------------------------------------
(Melvin R. Seiden)
Director , 1998
- -----------------------------------------
(Stephen B. Swensrud)
</TABLE>
