MERRILL LYNCH
GROWTH FUND
FUND LOGO
Annual Report
October 31, 1996
This report is not authorized for use as an offer of sale or a
solicitation of an offer to buy shares of the Fund unless
accompanied or preceded by the Fund's current prospectus. Past
performance results shown in this report should not be considered a
representation of future performance. Investment return and
principal value of shares will fluctuate so that shares, when
redeemed, may be worth more or less than their original cost.
Statements and other information herein are as dated and are subject
to change.
<PAGE>
Merrill Lynch
Growth Fund
Box 9011
Princeton, NJ
08543-9011
Printed on post-consumer recycled paper
MERRILL LYNCH GROWTH FUND
DEAR SHAREHOLDER
<PAGE>
Investor perceptions regarding the direction of the US economy
shifted over the course of the three-month period ended October 31,
1996. As the quarter began, concerns of an overheating economy and
spiraling inflation dominated the financial markets as investors
focused on the increasing possibility of monetary policy tightening
by the Federal Reserve Board. However, as it became apparent that
inflationary pressures were still under control--and when the
Federal Reserve Board did not tighten monetary policy at its
September 24 meeting--the investment outlook became more positive.
These developments, coupled with several economic data releases that
showed growth was at or below expectations, helped to assuage
investors' concerns about an overheating economy. Stock and bond
prices improved, with most broad-based stock market averages
reaching historic high levels. However, one factor potentially
overshadowing investor enthusiasm is the possibility that the rate
of growth of corporate profits may have peaked for this economic
cycle.
The US economy clearly has slowed from its strong growth rate during
the first half of 1996. Gross domestic product growth is slowing,
labor-cost pressures are subsiding, consumer confidence is easing,
and commodity prices are dropping. Investors anticipated that
President Clinton's re-election, combined with continued Republican
majorities in the House of Representatives and the Senate, would
prove positive for the nation's budget deficit. As 1996 draws to a
close, investors are likely to continue to focus on the economy.
Evidence of continued growth at a non-inflationary pace would be
positive for the US capital markets.
Fiscal Year in Review
For the 12-month period ended October 31, 1996, Merrill Lynch Growth
Fund's Class A, Class B, Class C and Class D Shares had total
returns of +28.15%, +26.84%, +26.84% and +27.83%, respectively. The
Fund's strong performance for the fiscal year is primarily
attributable to the success of our significant investments in the
energy sector (46.9% of net assets at fiscal year end) as well as
individual stock selection. (Fund results do not reflect sales
charges, and would be lower if sales charges were included. Complete
performance information, including average annual total returns, can
be found on pages 3--6 of this report to shareholders.)
As our long-term investors will recall, the Fund has deployed a
significant portion of its assets in the energy sector with an
initial emphasis on domestic natural gas equities. While the Fund
has been overweighted in energy for some time, during the summer of
1995, we significantly increased our exposure as the fundamentals
for the domestic natural gas market and gas-related equities
appeared poised for a revival. Also, early in the 1996 fiscal year,
the Fund increased its exposure to the oilfield service sector as we
saw increasing evidence that this industry was emerging from a long
and deep secular decline that lasted more than a decade. These
additions to our core energy holdings proved timely, as improving
fundamentals for both oil and natural gas propelled energy shares
higher.
<PAGE>
As we enter the winter heating season, inventory levels for both oil
and natural gas are at historically low levels. Furthermore,
capacity utilization in the oilfield service sector is very high,
which is serving to limit the drilling response to rising commodity
prices. Unlike previous years, there is little surplus capacity in
the oilfield service sector which can be readily deployed to
increase oil and gas production.
While the short-term performance of the Fund's energy holdings will
be influenced by winter temperatures, we remain constructive on the
long-term outlook for this sector. With low commodity inventories
and constrained supply, we believe that the long-term fundamentals
for the Fund's energy holdings are very positive.
Throughout much of the Fund's fiscal year, the Fund's cash position
was approximately 30% of net assets, the result of profit-taking in
many technology investments during fiscal year 1995. While this
significant cash position limited total returns to some degree, the
Fund nonetheless substantially outperformed the broad stock market
averages for the period. For example, the total return of the
unmanaged Standard & Poor's 500 Composite Index was +24.07% for the
12-month period, compared to the +28.15% total return of the Fund's
Class A Shares. This strong relative performance by the Fund is in
no small part a result of our concentrating investments in
relatively few stocks that we believe to have significant long-term
total return potential.
For example, outside of the Fund's core energy holdings, our
investment in Dell Computer Corp., a long-time top-ten holding, was
an important contributor to performance. In the wake of the general
sell-off in technology stocks in early 1996, Dell's shares had
declined significantly following the announcement of a minor
earnings disappointment. At that time, we chose to increase our
investment in Dell, and established a position in Intel Corp. which
was also experiencing significant selling pressure. Since that time,
both holdings have appreciated nicely.
Portfolio Matters
During the October quarter, we eliminated three significant
positions: Autodesk, Inc., Mentor Graphics, Inc. and Yacimientos
Petroliferos Fiscales S.A. (YPF). Although we continue to hold a
positive view for the longer-term prospects for Autodesk, we expect
that the company faces several quarters of disappointing earnings
and revenues, so we chose to close out our position at this time. We
eliminated our investment in Mentor Graphics since the company's
earnings growth never materialized as we had originally expected.
Similarly, YPF did not benefit from the improving environment for
the energy sector as we had anticipated.
<PAGE>
During the October quarter, one of the new investments we added was
RAO Gazprom, the Russian natural gas company. Gazprom controls
approximately one-quarter of the world's gas reserves and accounts
for nearly 8% of Russian GDP. Despite the political and economic
uncertainties that continue to plague Russia, we chose to establish
this small position as we believe the stock is undervalued given its
extensive natural gas reserves. In addition, the company has the
opportunity to benefit from growth outside of Russia, since it is a
very significant supplier of natural gas in Europe.
In Conclusion
At fiscal year-end, the Fund continued to hold a sizable cash
reserve position at 30.4% of net assets. As "bottom up" investors,
we are finding few attractive new investments given the current high
stock market valuations. Therefore, the Fund begins its new fiscal
year more conservatively positioned than has been the case in many
years. Looking ahead, we plan to maintain our investment discipline
and commit cash reserves to new investments very carefully.
We thank you for your investment in Merrill Lynch Growth Fund, and
look forward to continuing to serve your financial needs throughout
the Fund's new fiscal year and beyond.
Sincerely,
(Arthur Zeikel)
Arthur Zeikel
President
(Stephen C. Johnes)
Stephen C. Johnes
Vice President and Portfolio Manager
<PAGE>
December 5, 1996
PERFORMANCE DATA
About Fund Performance
Investors are able to purchase shares of the Fund through the
Merrill Lynch Select Pricing SM System, which offers four pricing
alternatives:
* Class A Shares incur a maximum initial sales charge (front-end
load) of 5.25% and bear no ongoing distribution or account
maintenance fees. Class A Shares are available only to eligible
investors.
* Class B Shares are subject to a maximum contingent deferred sales
charge of 4% if redeemed during the first year, decreasing 1% each
year thereafter to 0% after the fourth year. In addition, Class B
Shares are subject to a distribution fee of 0.75% and an account
maintenance fee of 0.25%. These shares automatically convert to
Class D Shares after approximately 8 years. (There is no initial
sales charge for automatic share conversions.)
* Class C Shares are subject to a distribution fee of 0.75% and an
account maintenance fee of 0.25%. In addition, Class C Shares are
subject to a 1% contingent deferred sales charge if redeemed within
one year of purchase.
* Class D Shares incur a maximum initial sales charge of 5.25% and
an account maintenance fee of 0.25% (but no distribution fee).
None of the past results shown should be considered a representation
of future performance. Investment return and principal value of
shares will fluctuate so that shares, when redeemed, may be worth
more or less than their original cost. Dividends paid to each class
of shares will vary because of the different levels of account
maintenance, distribution and transfer agency fees applicable to
each class, which are deducted from the income available to be paid
to shareholders.
<PAGE>
<TABLE>
Recent Performance Results
<CAPTION>
12 Month 3 Month
10/31/96 7/31/96 10/31/95 % Change % Change
<S> <C> <C> <C> <C> <C>
ML Growth Fund Class A Shares* $26.87 $23.06 $23.13 +25.56%(1) +16.52%
ML Growth Fund Class B Shares* 25.03 21.53 21.60 +25.89(1) +16.26
ML Growth Fund Class C Shares* 24.89 21.42 21.59 +25.29(1) +16.20
ML Growth Fund Class D Shares* 26.79 23.00 23.06 +25.58(1) +16.48
Standard & Poor's 500 Index** 705.27 639.95 581.50 +21.28 +10.21
ML Growth Fund Class A Shares--Total Return* +28.15(2) +16.52
ML Growth Fund Class B Shares--Total Return* +26.84(3) +16.26
ML Growth Fund Class C Shares--Total Return* +26.84(4) +16.20
ML Growth Fund Class D Shares--Total Return* +27.83(5) +16.48
Standard & Poor's 500 Index--Total Return** +24.07 +10.85
<FN>
*Investment results shown do not reflect sales charges; results
shown would be lower if a sales charge was included.
**An unmanaged broad-based index comprised of common stocks. Total
investment returns for unmanaged indexes are based on estimates.
(1)Percent change includes reinvestment of $1.723 per share capital
gains distributions.
(2)Percent change includes reinvestment of $0.482 per share ordinary
income dividends and $1.723 per share capital gains distributions.
(3)Percent change includes reinvestment of $0.164 per share ordinary
income dividends and $1.723 per share capital gains distributions.
(4)Percent change includes reinvestment of $0.268 per share ordinary
income dividends and $1.723 per share capital gains distributions.
(5)Percent change includes reinvestment of $0.418 per share ordinary
income dividends and $1.723 per share capital gains distributions.
</TABLE>
PERFORMANCE DATA (continued)
Total Return Based on a $10,000 Investment
A line graph depicting the growth of an investment in the Fund's
Class A Shares and the S&P 500 Total Return Index. Beginning and
ending values are:
11/28/88** 10/96
ML Growth Fund++--
Class A Shares* $ 9,475 $40,354
S&P 500 Total Return Index++++ $10,000 $33,224
<PAGE>
A line graph depicting the growth of an investment in the Fund's
Class B Shares and the S&P 500 Total Return Index. Beginning and
ending values are:
3/27/87** 10/96
Growth Fund++--
Class B Shares* $10,000 $39,055
S&P 500 Total Return Index++++ $10,000 $31,903
A line graph depicting the growth of an investment in the Fund's
Class C & Class D Shares and the S&P 500 Total Return Index.
Beginning and ending values are:
10/21/94** 10/96
ML Growth Fund++--
Class C Shares* $10,000 $15,979
ML Growth Fund++--
Class D Shares* $ 9,475 $15,380
S&P 500 Total Return Index++++ $10,000 $15,943
[FN]
*Assuming maximum sales charge, transaction costs and other
operating expenses, including advisory fees.
**Commencement of Operations.
++ML Growth Fund invests in a non-diversified portfolio of equity
securities placing principal emphasis on those securities which the
Fund's management believes to be undervalued.
++++This unmanaged broad-based Index is comprised of common stocks.
Past performance is not predictive of future performance.
PERFORMANCE DATA (continued)
Average Annual Total Return
% Return Without % Return With
Sales Charge Sales Charge**
Class A Shares*
Year Ended 9/30/96 +12.98% + 7.05%
Five Years Ended 9/30/96 +19.25 +17.98
Inception (11/28/88)
through 9/30/96 +19.15 +18.34
[FN]
*Maximum sales charge is 5.25%.
**Assuming maximum sales charge.
<PAGE>
% Return % Return
Without CDSC With CDSC**
Class B Shares*
Year Ended 9/30/96 +11.86% + 7.86%
Five Years Ended 9/30/96 +18.05 +18.05
Inception (3/27/87) through 9/30/96 +14.50 +14.50
[FN]
*Maximum contingent deferred sales charge is 4% and is reduced to 0%
after 4 years.
**Assuming payment of applicable contingent deferred sales charge.
% Return % Return
Without CDSC With CDSC**
Class C Shares*
Year Ended 9/30/96 +11.81% +10.81%
Inception (10/21/94)
through 9/30/96 +22.48 +22.48
[FN]
*Maximum contingent deferred sales charge is 1% and is reduced to 0%
after 1 year.
**Assuming payment of applicable contingent deferred sales charge.
% Return Without % Return With
Sales Charge Sales Charge**
Class D Shares*
Year Ended 9/30/96 +12.71% + 6.79%
Inception (10/21/94)
through 9/30/96 +23.45 +20.07
[FN]
*Maximum sales charge is 5.25%.
**Assuming maximum sales charge.
<PAGE>
<TABLE>
Performance Summary--Class A Shares
<CAPTION>
Net Asset Value Capital Gains
Period Covered Beginning Ending Distributed Dividends Paid++ % Change*
<S> <C> <C> <C> <C> <C>
11/28/88--12/31/88 $ 9.61 $ 9.44 $0.257 $0.090 + 1.88%
1989 9.44 12.33 -- 0.211 +32.96
1990 12.33 12.20 0.130 -- + 0.03
1991 12.20 13.95 1.182 0.012 +25.20
1992 13.95 14.88 0.449 -- + 9.97
1993 14.88 17.48 2.122 -- +32.37
1994 17.48 17.49 0.295 -- + 1.77
1995 17.49 21.80 1.723 0.359 +36.82
1/1/96--10/31/96 21.80 26.87 -- 0.124 +23.87
------ ------
Total $6.158 Total $0.796
Cumulative total return as of 10/31/96: +325.88%*
<FN>
++Figures may include short-term capital gains distributions.
*Figures assume reinvestment of all dividends and capital gains
distributions at net asset value on the ex-dividend date, and do not
includesales charge; results would be lower if sales charge was
included.
</TABLE>
PERFORMANCE DATA (concluded)
<TABLE>
Performance Summary--Class B Shares
<CAPTION>
Net Asset Value Capital Gains
Period Covered Beginning Ending Distributed Dividends Paid++ % Change*
<S> <C> <C> <C> <C> <C>
3/27/87--12/31/87 $10.00 $ 8.49 $0.060 $0.187 -12.72%
1988 8.49 9.45 0.257 0.140 +16.04
1989 9.45 12.35 -- 0.084 +31.62
1990 12.35 12.09 0.130 -- - 1.02
1991 12.09 13.65 1.182 0.012 +23.85
1992 13.65 14.39 0.449 -- + 8.79
1993 14.39 16.65 2.122 -- +31.11
1994 16.65 16.47 0.295 -- + 0.72
1995 16.47 20.40 1.723 0.143 +35.45
1/1/96--10/31/96 20.40 25.03 -- 0.021 +22.81
------ ------
Total $6.218 Total $0.587
Cumulative total return as of 10/31/96: +290.55%*
<PAGE>
<FN>
++Figures may include short-term capital gains distributions.
*Figures assume reinvestment of all dividends and capital gains
distributions at net asset value on the ex-dividend date, and do not
reflect deduction of any sales charge; results would be lower if
sales charge was deducted.
</TABLE>
<TABLE>
Performance Summary--Class C Shares
<CAPTION>
Net Asset Value Capital Gains
Period Covered Beginning Ending Distributed Dividends Paid++ % Change*
<S> <C> <C> <C> <C> <C>
10/21/94--12/31/94 $17.45 $16.47 $0.295 -- - 3.90%
1995 16.47 20.30 1.723 $0.239 +35.44
1/1/96--10/31/96 20.30 24.89 -- 0.030 +22.77
------ ------
Total $2.018 Total $0.269
Cumulative total return as of 10/31/96: +59.79%*
<FN>
++Figures may include short-term capital gains distributions.
*Figures assume reinvestment of all dividends and capital gains
distributions at net asset value on the ex-dividend date, and do not
reflect deduction of any sales charge; results would be lower if
sales charge was deducted.
</TABLE>
<TABLE>
Performance Summary--Class D Shares
<CAPTION>
Net Asset Value Capital Gains
Period Covered Beginning Ending Distributed Dividends Paid++ % Change*
<S> <C> <C> <C> <C> <C>
10/21/94--12/31/94 $18.47 $17.47 $0.295 -- - 3.79%
1995 17.47 21.76 1.723 $0.321 +36.52
1/1/96--10/31/96 21.76 26.79 -- 0.097 +23.59
------ ------
Total $2.018 Total $0.418
Cumulative total return as of 10/31/96: +62.34%*
<FN>
++Figures may include short-term capital gains distributions.
*Figures assume reinvestment of all dividends and capital gains
distributions at net asset value on the ex-dividend date, and do not
include sales charge; results would be lower if sales charge was
included.
</TABLE>
<PAGE>
<TABLE>
SCHEDULE OF INVESTMENTS
<CAPTION>
Value Percent of
Industries Shares Held Stocks Cost (Note 1a) Net Assets
<S> <C> <C> <C> <C> <C>
Banking & Financial 1,000,000 Republic New York Corp. $ 44,267,281 $ 76,250,000 1.5%
Services 1,000,000 Safra Republic Holdings S.A. (ADR)* 69,529,500 123,000,000 2.4
-------------- -------------- ------
113,796,781 199,250,000 3.9
Biotechnology 1,000,000 ++Affymetrix, Inc. 16,662,627 18,250,000 0.4
2,296,000 ++CytoTherapeutics, Inc. (b) 15,914,783 20,090,000 0.4
434,500 ++CytoTherapeutics, Inc. (Warrants)
(a)(b) 651,750 965,459 0.0
-------------- -------------- ------
33,229,160 39,305,459 0.8
Computer Software 4,500,000 ++Platinum Technology, Inc. (b) 73,064,254 64,687,500 1.3
Diversified Resource 2,109,000 Arcadian Corp. (b) 47,969,951 51,934,125 1.0
Companies 1,500,000 Freeport-McMoRan Copper & Gold,
Inc. (Class A) 36,449,551 43,500,000 0.8
5,000,000 Freeport-McMoRan Copper & Gold,
Inc. (Class B) 107,984,584 151,875,000 3.0
3,750,000 Freeport-McMoRan, Inc. (b) 114,789,644 119,531,250 2.3
1,050,000 IMC Global, Inc. 37,222,924 39,375,000 0.8
-------------- -------------- ------
344,416,654 406,215,375 7.9
Domestic 2,000,000 Anadarko Petroleum Corp. 83,727,914 127,250,000 2.5
Exploration & 9,000,000 ++Santa Fe Energy Resources, Inc. (b) 83,865,388 128,250,000 2.5
Production 3,450,000 ++Seagull Energy Corp. (b) 72,331,809 74,606,250 1.5
3,000,000 Vastar Resources, Inc. 89,836,252 111,375,000 2.2
-------------- -------------- ------
329,761,363 441,481,250 8.7
Electronic 6,255,000 ++Cirrus Logic, Inc. (b) 69,372,447 118,063,125 2.3
Components 650,000 Intel Corp. 33,466,875 71,337,500 1.4
3,500,000 ++Komag, Inc. (b) 72,539,664 96,250,000 1.9
-------------- -------------- ------
175,378,986 285,650,625 5.6
<PAGE>
Energy Acquisition & 8,000,000 Apache Corp. (b) 232,123,043 284,000,000 5.6
Exploration 2,200,000 Devon Energy Corp. (b) 34,401,130 76,725,000 1.5
1,000,000 Devon Financing Trust ($3.25
Convertible Preferred) (c) 50,000,000 65,000,000 1.3
2,000,000 ++Newfield Exploration Co. (b) 56,598,373 94,500,000 1.8
-------------- -------------- ------
373,122,546 520,225,000 10.2
International 8,000,000 ++Norcen Energy Resources, Ltd. 120,353,892 171,228,279 3.4
Exploration & (Canadian Shares) (b)
Production
International 1,000,000 ++RAO Gazprom (ADR)* 17,865,451 18,750,000 0.3
Integrated
Natural Gas
Natural Gas 3,117,000 ++TransMontaigne Oil Co. (b) 17,143,500 30,390,750 0.6
Gathering & 2,500,000 Western Gas Resources, Inc. (b) 57,319,428 39,687,500 0.8
Transmission -------------- -------------- ------
74,462,928 70,078,250 1.4
Offshore Drilling 7,300,000 ++Ensco International, Inc. (b) 105,639,352 315,725,000 6.2
Companies 16,300,000 ++Global Marine, Inc. (b) 59,126,323 299,512,500 5.9
-------------- -------------- ------
164,765,675 615,237,500 12.1
Oil Refining 4,000,000 Valero Energy Corp. (b) 86,245,282 95,000,000 1.9
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS (continued)
<CAPTION>
Shares Value Percent of
Industries Held Stocks Cost (Note 1a) Net Assets
<S> <C> <C> <C> <C> <C>
Oilfield Services 5,000,000 ++Nabors Industries, Inc. (b) $ 55,701,065 $ 83,125,000 1.6%
1,100,000 Schlumberger Ltd., Inc. 75,504,657 109,037,500 2.2
3,000,000 ++Weatherford Enterra, Inc. (b) 86,669,086 87,000,000 1.7
2,500,000 ++Western Atlas, Inc. 141,174,253 173,437,500 3.4
-------------- -------------- ------
359,049,061 452,600,000 8.9
Personal 2,000,000 ++Dell Computer Corp. 28,144,538 162,750,000 3.2
Computers
Total Stocks 2,293,656,571 3,542,459,238 69.6
Face Amount Short-Term Securities
<PAGE>
Commercial Paper** $20,150,000 Allied-Signal, Inc., 5.25% due
11/05/1996 20,138,246 20,138,246 0.4
60,000,000 American Express Credit Corp.,
5.26% due 12/17/1996 59,596,733 59,596,733 1.1
CSW Credit, Inc.:
37,300,000 5.37% due 11/05/1996 37,277,744 37,277,744 0.7
18,900,000 5.27% due 11/22/1996 18,841,898 18,841,898 0.3
15,000,000 5.27% due 12/06/1996 14,923,146 14,923,146 0.3
CXC Inc.:
40,000,000 5.25% due 11/05/1996 39,976,667 39,976,667 0.8
25,000,000 5.26% due 12/18/1996 24,828,319 24,828,319 0.5
23,000,000 Caterpillar, Inc., 5.25% due
11/14/1996 22,956,396 22,956,396 0.4
Ciesco, L.P.:
36,000,000 5.39% due 11/01/1996 36,000,000 36,000,000 0.7
40,000,000 5.40% due 11/04/1996 39,982,000 39,982,000 0.8
Corporate Asset Funding Co., Inc.:
46,000,000 5.37% due 11/04/1996 45,979,415 45,979,415 0.9
50,000,000 5.32% due 11/06/1996 49,963,055 49,963,055 1.0
60,000,000 Corporate Receivables Corp., 5.43%
due 11/05/1996 59,963,800 59,963,800 1.2
50,000,000 Dean Witter, Discover & Co., 5.28%
due 11/20/1996 49,860,667 49,860,667 1.0
59,187,000 Delaware Funding Corp., 5.25% due
12/13/1996 58,824,480 58,824,480 1.1
50,000,000 Eureka Securitization Inc., 5.40% due
11/08/1996 49,947,500 49,947,500 1.0
36,000,000 Falcon Asset Securitization Corp.,
5.38% due 11/07/1996 35,967,720 35,967,720 0.7
40,000,000 Ford Motor Credit Co., 5.25% due
12/20/1996 39,714,167 39,714,167 0.8
General Motors Acceptance Corp.:
46,058,000 5.56% due 11/01/1996 46,058,000 46,058,000 0.9
50,000,000 5.27% due 12/23/1996 49,619,389 49,619,389 1.0
Goldman Sachs Group, L.P.:
50,000,000 5.30% due 11/14/1996 49,904,305 49,904,305 1.0
50,000,000 5.25% due 11/27/1996 49,810,417 49,810,417 1.0
24,670,000 H.J. Heinz Company, 5.31% due
11/13/1996 24,626,334 24,626,334 0.5
50,000,000 IBM Credit Corp., 5.25% due 12/03/1996 49,766,667 49,766,667 1.0
International Lease Finance Corp.:
50,000,000 5.32% due 11/15/1996 49,896,556 49,896,556 1.0
35,000,000 5.25% due 12/06/1996 34,821,354 34,821,354 0.7
International Securitization Corp.:
50,000,000 5.26% due 11/26/1996 49,817,361 49,817,361 1.0
25,000,000 5.27% due 12/19/1996 24,824,333 24,824,333 0.5
33,000,000 J.P. Morgan & Company, Inc., 5.40%
due 11/08/1996 32,965,350 32,965,350 0.6
Lucent Technologies, Inc.:
15,000,000 5.35% due 11/04/1996 14,993,312 14,993,312 0.3
30,000,000 5.32% due 11/22/1996 29,906,900 29,906,900 0.6
</TABLE>
<PAGE>
<TABLE>
SCHEDULE OF INVESTMENTS (concluded)
<CAPTION>
Face Value Percent of
Amount Short-Term Securities Cost (Note 1a) Net Assets
<S> <C> <C> <C> <C> <C>
Commercial Paper** $27,500,000 PHH Corp., 5.24% due 11/13/1996 $ 27,451,967 $ 27,451,967 0.5%
(concluded) Preferred Receivables Funding Corp.:
20,000,000 5.42% due 11/18/1996 19,948,811 19,948,811 0.4
20,600,000 5.25% due 12/19/1996 20,455,800 20,455,800 0.4
50,000,000 Riverwoods Funding Corp., 5.24% due
11/26/1996 49,818,056 49,818,056 1.0
40,000,000 Shell Oil Co., 5.23% due 11/12/1996 39,936,078 39,936,078 0.8
Three Rivers Funding:
17,450,000 5.41% due 11/12/1996 17,421,154 17,421,154 0.3
32,550,000 5.26% due 11/19/1996 32,464,393 32,464,393 0.6
25,000,000 Transamerica Corporation, 5.24% due
11/07/1996 24,978,167 24,978,167 0.5
20,000,000 US West Communications, Inc., 5.35%
due 11/15/1996 19,958,389 19,958,389 0.4
25,000,000 WCP Funding Inc., 5.33% due 11/05/1996 24,985,194 24,985,194 0.5
36,363,000 Windmill Funding Corp., 5.26% due
12/05/1996 36,182,357 36,182,357 0.7
25,000,000 Xerox Corp., 5.24% due 12/04/1996 24,879,917 24,879,917 0.5
Total Short-Term Securities 1,550,232,514 1,550,232,514 30.4
Total Investments $3,843,889,085 5,092,691,752 100.0
==============
Other Assets Less Liabilities 717,017 0.0
-------------- ------
Net Assets $5,093,408,769 100.0%
============== ======
<FN>
*American Depositary Receipts (ADR).
**Commercial Paper is traded on a discount basis; the interest rates
shown are the discount rates paid at the time of purchase by the
Fund.
(a)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.
(b)Investment in an affiliated company (Note 5).
(c)Restricted security as to resale. The value of the Fund's
investment in restricted securities was approximately $65,000,000,
representing 1.3% of net assets.
<PAGE>
Acquisition Value
Issue Date Cost (Note 1a)
Devon Financing Trust
($3.25 Convertible Preferred) 6/27/1996 $50,000,000 $65,000,000
Total $50,000,000 $65,000,000
=========== ===========
++Non-income producing security.
See Notes to Financial Statements.
</TABLE>
PORTFOLIO INFORMATION
For the Quarter Ended October 31, 1996
Percent of
Ten Largest Equity Holdings Net Assets
Ensco International, Inc. 6.2%
Global Marine, Inc. 5.9
Apache Corp. 5.6
Freeport-McMoRan Copper & Gold, Inc.* 3.8
Western Atlas, Inc. 3.4
Norcen Energy Resources, Ltd. (Canadian Shares) 3.4
Dell Computer Corp. 3.2
Santa Fe Energy Resources, Inc. 2.5
Anadarko Petroleum Corp. 2.5
Safra Republic Holdings S.A. (ADR) 2.4
Additions
Arcadian Corp.
RAO Gazprom (ADR)
Deletions
Autodesk, Inc.
McMoRan Oil & Gas Co.
Mentor Graphics, Inc.
Yacimientos Petroliferos Fiscales S.A. (ADR)
[FN]
*Includes Class A and Class B Shares.
FINANCIAL INFORMATION
<PAGE>
<TABLE>
Statement of Assets and Liabilities as of October 31, 1996
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$3,843,889,085) (Note 1a) $5,092,691,752
Receivables:
Beneficial interest sold $ 12,841,903
Dividends 1,830,900
Securities sold 461,875
Interest 419,643 15,554,321
--------------
Prepaid registration fees and other assets (Note 1f) 105,436
--------------
Total assets 5,108,351,509
--------------
Liabilities: Payables:
Beneficial interest redeemed 7,295,592
Distributor (Note 2) 2,722,964
Investment adviser (Note 2) 2,550,084 12,568,640
--------------
Accrued expenses and other liabilities 2,374,100
--------------
Total liabilities 14,942,740
--------------
Net Assets: Net assets $5,093,408,769
==============
Net Assets Class A Shares of beneficial interest, $0.10 par value,
Consist of: unlimited number of shares authorized $ 3,932,884
Class B Shares of beneficial interest, $0.10 par value,
unlimited number of shares authorized 11,653,163
Class C Shares of beneficial interest, $0.10 par value,
unlimited number of shares authorized 752,063
Class D Shares of beneficial interest, $0.10 par value,
unlimited number of shares authorized 3,481,450
Paid-in capital in excess of par 3,447,809,043
Undistributed investment income--net 9,982,308
Undistributed realized capital gains on investments and
foreign currency transactions--net 366,995,191
Unrealized appreciation on investments--net 1,248,802,667
--------------
Net assets $5,093,408,769
==============
<PAGE>
Net Asset Value: Class A--Based on net assets of $1,056,869,634 and
39,328,841 shares of beneficial interest outstanding $ 26.87
==============
Class B--Based on net assets of $2,916,506,463 and
116,531,634 shares of beneficial interest outstanding $ 25.03
==============
Class C--Based on net assets of $187,221,373 and 7,520,629
shares of beneficial interest outstanding $ 24.89
==============
Class D--Based on net assets of $932,811,299 and 34,814,502
shares of beneficial interest outstanding $ 26.79
==============
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION (continued)
<TABLE>
Statement of Operations for the Year Ended October 31, 1996
<S> <S> <C> <C>
Investment Interest and discount earned $ 54,481,074
Income Dividends (net of $511,304 foreign withholding tax) 29,719,095
(Notes 1d & 1e): --------------
Total income 84,200,169
--------------
Expenses: Investment advisory fees (Note 2) $ 26,198,720
Account maintenance and distribution fees--Class B (Note 2) 23,190,613
Transfer agent fees--Class B (Note 2) 3,889,282
Account maintenance fees--Class D (Note 2) 1,880,370
Account maintenance and distribution fees--Class C (Note 2) 1,311,384
Transfer agent fees--Class A (Note 2) 1,212,346
Transfer agent fees--Class D (Note 2) 1,096,887
Registration fees (Note 1f) 727,957
Printing and shareholder reports 377,462
Transfer agent fees--Class C (Note 2) 241,143
Accounting services (Note 2) 219,719
Custodian fees 171,708
Professional fees 85,921
Trustees' fees and expenses 45,397
Pricing fees 1,398
Other 37,335
--------------
Total expenses before reimbursement 60,687,642
Reimbursement of expenses (Note 2) (1,390,286)
--------------
Total expenses after reimbursement 59,297,356
--------------
Investment income--net 24,902,813
--------------
<PAGE>
Realized & Realized gain (loss) from:
Unrealized Gain Investments--net 367,008,111
(Loss) on Foreign currency transactions--net (12,666) 366,995,445
Investments & --------------
Foreign Currency Change in unrealized appreciation on investments--net 622,793,812
Transactions-- --------------
Net (Notes 1b, 1c, Net realized and unrealized gain on investments and
1e & 3): foreign currency transactions 989,789,257
--------------
Net Increase in Net Assets Resulting from Operations $1,014,692,070
==============
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION (continued)
<TABLE>
Statements of Changes in Net Assets
<CAPTION>
For the Year Ended October 31,
Increase (Decrease) in Net Assets: 1996 1995
<S> <S> <C> <C>
Operations: Investment income--net $ 24,902,813 $ 9,409,014
Realized gain on investments and foreign currency transactions
--net 366,995,445 282,849,493
Change in unrealized appreciation on investments--net 622,793,812 212,145,489
-------------- --------------
Net increase in net assets resulting from operations 1,014,692,070 504,403,996
-------------- --------------
Dividends & Investment income--net:
Distributions to Class A (11,466,384) --
Shareholders Class B (3,656,501) --
(Note 1g): Class C (670,606) --
Class D (8,536,028) --
Realized gain on investments--net:
Class A (54,826,992) (6,083,187)
Class B (168,933,574) (23,093,382)
Class C (7,976,874) (87,568)
Class D (51,112,182) (872,515)
-------------- --------------
Net decrease in net assets resulting from dividends and
distributions to shareholders (307,179,141) (30,136,652)
-------------- --------------
Beneficial Interest Net increase in net assets derived from beneficial
Transactions interest transactions 1,095,437,782 998,495,743
(Note 4): -------------- --------------
<PAGE>
Net Assets: Total increase in net assets 1,802,950,711 1,472,763,087
Beginning of year 3,290,458,058 1,817,694,971
-------------- --------------
End of year* $5,093,408,769 $3,290,458,058
============== ==============
<FN>
*Undistributed investment income--net $ 9,982,308 $ 9,409,014
============== ==============
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION (continued)
<TABLE>
Financial Highlights
<CAPTION>
The following per share data and ratios have been derived Class A
from information provided in the financial statements.
For the Year Ended October 31,
Increase (Decrease) in Net Asset Value: 1996++ 1995++ 1994++ 1993 1992
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of year $ 23.13 $ 19.19 $ 19.22 $ 14.79 $ 15.31
Operating ---------- ---------- ---------- ---------- ----------
Performance: Investment income--net .31 .23 .08 .02 .02
Realized and unrealized gain on
investments and foreign currency
transactions--net 5.63 4.01 2.01 4.86 .65
---------- ---------- ---------- ---------- ----------
Total from investment operations 5.94 4.24 2.09 4.88 .67
---------- ---------- ---------- ---------- ----------
Less dividends and distributions:
Investment income--net (.35) -- -- -- --
Realized gain on investments--net (1.85) (.30) (2.12) (.45) (1.19)
---------- ---------- ---------- ---------- ----------
Total dividends and distributions (2.20) (.30) (2.12) (.45) (1.19)
---------- ---------- ---------- ---------- ----------
Net asset value, end of year $ 26.87 $ 23.13 $ 19.19 $ 19.22 $ 14.79
========== ========== ========== ========== ==========
Total Investment Based on net asset value per share 28.15% 22.60% 12.50% 33.97% 5.77%
Return:* ========== ========== ========== ========== ==========
Ratios to Expenses, net of reimbursement .80% .82% .82% .81% .84%
Average ========== ========== ========== ========== ==========
Net Assets: Expenses .84% .84% .82% .81% .84%
========== ========== ========== ========== ==========
Investment income--net 1.28% 1.10% .44% .29% .28%
========== ========== ========== ========== ==========
<PAGE>
Supplemental Net assets, end of year (in thousands) $1,056,870 $ 670,164 $ 382,077 $ 229,709 $ 138,456
Data: ========== ========== ========== ========== ==========
Portfolio turnover 30.01% 37.42% 4.22% 33.21% 21.20%
========== ========== ========== ========== ==========
Average commission rate paid++++ $ .0539 -- -- -- --
========== ========== ========== ========== ==========
<FN>
*Total investment returns exclude the effects of sales loads.
++Based on average number of shares outstanding during the year.
++++For fiscal years beginning on or after September 1, 1995, the
Fund is required to disclose its average commission rate per share
for purchases and sales of equity securities. The "Average
Commission Rate Paid" includes commissions paid in foreign
currencies, which have been converted into US dollars using the
prevailing exchange rate on the date of the transaction. Such
conversions may materially affect the rate shown.
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION (continued)
<TABLE>
Financial Highlights (continued)
<CAPTION>
The following per share data and ratios have been derived Class B
from information provided in the financial statements.
For the Year Ended October 31,
Increase (Decrease) in Net Asset Value: 1996++ 1995++ 1994++ 1993 1992
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of year $ 21.60 $ 18.12 $ 18.43 $ 14.35 $ 15.03
Operating ---------- ---------- ---------- ---------- ----------
Performance: Investment income (loss)--net .06 .01 (.10) (.11) (.10)
Realized and unrealized gain on
investments and foreign currency
transactions--net 5.26 3.77 1.91 4.64 .61
---------- ---------- ---------- ---------- ----------
Total from investment operations 5.32 3.78 1.81 4.53 .51
---------- ---------- ---------- ---------- ----------
Less dividends and distributions:
Investment income--net (.04) -- -- -- --
Realized gain on investments--net (1.85) (.30) (2.12) (.45) (1.19)
---------- ---------- ---------- ---------- ----------
Total dividends and distributions (1.89) (.30) (2.12) (.45) (1.19)
---------- ---------- ---------- ---------- ----------
Net asset value, end of year $ 25.03 $ 21.60 $ 18.12 $ 18.43 $ 14.35
========== ========== ========== ========== ==========
<PAGE>
Total Investment Based on net asset value per share 26.84% 21.37% 11.41% 32.54% 4.74%
Return:* ========== ========== ========== ========== ==========
Ratios to Average Expenses, net of reimbursement 1.82% 1.84% 1.84% 1.83% 1.87%
Net Assets: ========== ========== ========== ========== ==========
Expenses 1.85% 1.87% 1.84% 1.83% 1.87%
========== ========== ========== ========== ==========
Investment income (loss)--net .26% .04% (.58%) (.78%) (.76%)
========== ========== ========== ========== ==========
Supplemental Net assets, end of year
Data: (in thousands) $2,916,507 $1,920,451 $1,433,051 $1,049,190 $ 758,061
========== ========== ========== ========== ==========
Portfolio turnover 30.01% 37.42% 4.22% 33.21% 21.20%
========== ========== ========== ========== ==========
Average commission rate paid++++ $ .0539 -- -- -- --
========== ========== ========== ========== ==========
<FN>
*Total investment returns exclude the effects of sales loads.
++Based on average number of shares outstanding during the year.
++++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 inforeign
currencies, which have been converted into US dollars using the
prevailing exchange rate on the date of thetransaction. Such
conversions may materially affect the rate shown.
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION (continued)
<TABLE>
Financial Highlights (continued)
<CAPTION>
Class C++++
<PAGE>
For the
Period
The following per share data and ratios have been derived Oct. 21,
from information provided in the financial statements. For the Year 1994++ to
Ended Oct. 31, Oct. 31,
Increase (Decrease) in Net Asset Value: 1996 1995 1994
<S> <S> <C> <C> <C>
Per Share Net asset value, beginning of period $ 21.59 $ 18.12 $ 17.45
Operating ---------- ---------- ----------
Performance: Investment income--net .06 .03 --
Realized and unrealized gain on investments and
foreign currency transactions--net 5.23 3.74 .67
---------- ---------- ----------
Total from investment operations 5.29 3.77 .67
---------- ---------- ----------
Less dividends and distributions:
Investment income--net (.14) -- --
Realized gain on investments--net (1.85) (.30) --
---------- ---------- ----------
Total dividends and distributions (1.99) (.30) --
---------- ---------- ----------
Net asset value, end of period $ 24.89 $ 21.59 $ 18.12
========== ========== ==========
Total Investment Based on net asset value per share 26.84% 21.32% 3.84%+++
Return:** ========== ========== ==========
Ratios to Average Expenses, net of reimbursement 1.84% 1.86% 2.52%*
Net Assets: ========== ========== ==========
Expenses 1.87% 1.89% 2.52%*
========== ========== ==========
Investment income (loss)--net .25% .14% (1.17%)*
========== ========== ==========
Supplemental Net assets, end of period (in thousands) $ 187,221 $ 85,486 $ 1,381
Data: ========== ========== ==========
Portfolio turnover 30.01% 37.42% 4.22%
========== ========== ==========
Average commission rate paid++++++ $ .0539 -- --
========== ========== ==========
<FN>
*Annualized.
**Total investment returns exclude the effects of sales loads.
++Commencement of Operations.
++++Based on average number of shares outstanding during the period.
++++++For fiscal years beginning on or after September 1, 1995, the
Fund is required to disclose its average commission rate per share
for purchases and sales of equity securities. The "Average
Commission Rate Paid" includes commissions paid in foreign
currencies, which have been converted into US dollars using the
prevailing exchange rate on the date of the transaction. Such
conversions may materially affect the rate shown.
+++Aggregate total investment return.
<PAGE>
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION (concluded)
<TABLE>
Financial Highlights (concluded)
<CAPTION>
Class D++++
For the
Period
The following per share data and ratios have been derived Oct. 21,
from information provided in the financial statements. For the Year 1994++ to
Ended Oct. 31, Oct. 31,
Increase (Decrease) in Net Asset Value: 1996 1995 1994
<S> <S> <C> <C> <C>
Per Share Net asset value, beginning of period $ 23.06 $ 19.18 $ 18.47
Operating ---------- ---------- ----------
Performance: Investment income--net .24 .22 --
Realized and unrealized gain on investments and
foreign currency transactions--net 5.63 3.96 .71
---------- ---------- ----------
Total from investment operations 5.87 4.18 .71
---------- ---------- ----------
Less dividends and distributions:
Investment income--net (.29) -- --
Realized gain on investments--net (1.85) (.30) --
---------- ---------- ----------
Total dividends and distributions (2.14) (.30) --
---------- ---------- ----------
Net asset value, end of period $ 26.79 $ 23.06 $ 19.18
========== ========== ==========
Total Investment Based on net asset value per share 27.83% 22.29% 3.84%+++
Return:** ========== ========== ==========
Ratios to Average Expenses, net of reimbursement 1.05% 1.08% 1.77%*
Net Assets: ========== ========== ==========
Expenses 1.08% 1.10% 1.77%*
========== ========== ==========
Investment income (loss)--net 1.03% 1.00% (.54%)*
========== ========== ==========
Supplemental Net assets, end of period (in thousands) $ 932,811 $ 614,357 $ 1,186
Data: ========== ========== ==========
Portfolio turnover 30.01% 37.42% 4.22%
========== ========== ==========
Average commission rate paid++++++ $ .0539 -- --
========== ========== ==========
<PAGE>
<FN>
*Annualized.
**Total investment returns exclude the effects of sales loads.
++Commencement of Operations.
++++Based on average number of shares outstanding during the period.
++++++For fiscal years beginning on or after September 1, 1995, the
Fund is required to disclose its average commission rate per share
for purchases and sales of equity securities. The "Average
Commission Rate Paid" includes commissions paid in foreign
currencies, which have been converted into US dollars using the
prevailing exchange rate on the date of the transaction. Such
conversions may materially affect the rate shown.
+++Aggregate total investment return.
See Notes to Financial Statements.
</TABLE>
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies:
Merrill Lynch Growth Fund (the "Fund") is registered under the
Investment Company Act of 1940 as a non-diversified, open-end
management investment company. The Fund offers four classes of
shares under the Merrill Lynch Select Pricing SM System. Shares of
Class A and Class D are sold with a front-end sales charge. Shares
of Class B and Class C may be subject to a contingent deferred sales
charge. All classes of shares have identical voting, dividend,
liquidation and other rights and the same terms and conditions,
except that Class B, Class C and Class D Shares bear certain
expenses related to the account maintenance of such shares, and
Class B and Class C Shares also bear certain expenses related to the
distribution of such shares. Each class has exclusive voting rights
with respect to matters relating to its account maintenance and
distribution expenditures. The following is a summary of significant
accounting policies followed by the Fund.
(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 Trustees 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 Trustees.
<PAGE>
(b) 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.
(c) 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 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.
* Forward foreign exchange contracts--The Fund is authorized to
enter into forward foreign exchange contracts as a hedge against
either specific transactions or portfolio positions. Such contracts
are not entered on the Fund's records. However, the effect on net
operations is recorded from the date the Fund enters into such
contracts. Premium or discount is amortized over the life of the
contracts.
* Foreign currency options and futures--The Fund may also purchase
or sell listed or over-the-counter foreign currency options, foreign
currency futures and related options on foreign currency futures as
a short or long hedge against possible variations in foreign
exchange rates. Such transactions may be effected with respect to
hedges on non-US dollar denominated securities owned by the Fund,
sold by the Fund but not yet delivered, or committed or anticipated
to be purchased by the Fund.
* Options--The Fund is authorized to purchase and write covered 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 market 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 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
paid or received (or loss or gain to the extent the cost of the
closing transaction is less than or greater than the premium paid or
received).
NOTES TO FINANCIAL STATEMENTS (continued)
<PAGE>
Written and purchased options are non-income producing investments.
* Financial futures contracts--The Fund may purchase or sell
interest rate futures contracts. 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.
(d) Income taxes--It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated
investment companies and to distribute substantially all of its
taxable income to its shareholders. Therefore, no Federal income tax
provision is required. Under the applicable foreign tax law, a
withholding tax may be imposed on interest, dividends and capital
gains at various rates.
(e) Security transactions and investment income--Security
transactions are recorded on the dates the transactions are entered
into (the trade dates). Dividend income is recorded on the ex-
dividend date, except if the ex-dividend date has passed, certain
dividends from foreign securities are recorded as soon as the Fund
is informed of the ex-dividend date. Interest income is recognized
on the accrual basis. Realized gains and losses on security
transactions are determined on the identified cost basis.
(f) Prepaid registration fees--Prepaid registration fees are charged
to expense as the related shares are issued.
(g) Dividends and distributions--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.
<PAGE>
MLAM is responsible for the management of the Fund's portfolio and
provides the necessary personnel, facilities, equipment and certain
other services necessary to the operations of the Fund. For such
services, the Fund is required to pay a monthly fee based upon the
average daily value of the Fund's net assets at an annual rate of
0.65%. As a result of a voluntary waiver of expenses beginning on
December 16, 1994, the Fund will pay 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 on the first $1
billion; 0.625% on the next $500 million; and 0.60% of the average
net assets over $1.5 billion. For the year ended October 31, 1996,
MLAM earned fees of $26,198,720, of which $1,390,286 was voluntarily
waived.
Pursuant to the distribution plans (the "Distribution Plans")
adopted by the Fund in accordance with Rule 12b-1 under the
Investment Company Act of 1940, the Fund pays the Distributor
ongoing account maintenance and distribution fees. The fees are
accrued daily and paid monthly at annual rates based upon the
average daily net assets of the shares as follows:
Account Distribution
Maintenance Fee Fee
Class B 0.25% 0.75%
Class C 0.25% 0.75%
Class D 0.25% --
Pursuant to a sub-agreement with the Distributor, Merrill Lynch,
Pierce, Fenner & Smith Inc. ("MLPF&S"), a subsidiary of ML & Co.,
also provides account maintenance and distribution services to the
Fund. The ongoing account maintenance fee compensates the
Distributor and MLPF&S for providing account maintenance services
to Class B, Class C and Class D shareholders. The ongoing
distribution fee compensates the Distributor and MLPF&S for
providing shareholder and distribution-related services to Class B
and Class C shareholders.
For the year ended October 31, 1996, MLFD earned underwriting
discounts and direct commissions, and MLPF&S earned dealer
concessions on sales of the Fund's Class A and Class D Shares as
follows:
MLFD MLPF&S
Class A $ 13,960 $ 195,140
Class D $100,325 $1,460,167
<PAGE>
For the year ended October 31, 1996, MLPF&S received contingent
deferred sales charges of $2,000,859 and $75,039 relating to
transactions in Class B and Class C Shares, 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 trustees of the Fund are officers and/or
directors of MLAM, PSI, MLPF&S, MLFDS, MLFD, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities,
for the year ended October 31, 1996 were $936,885,742 and
$921,489,691, respectively.
Net realized and unrealized gains (losses) as of October 31, 1996
were as follows:
Realized Unrealized
Gains (Losses) Gains
Long-term investments $367,006,920 $1,248,802,667
Short-term investments 1,191 --
Foreign currency
transactions 74,517 --
Forward foreign exchange
contracts (87,183) --
------------ --------------
Total $366,995,445 $1,248,802,667
============ ==============
As of October 31, 1996, net unrealized appreciation for Federal
income tax purposes aggregated $1,248,802,667, of which
$1,274,811,348 related to appreciated securities and $26,008,681
related to depreciated securities. At October 31, 1996, the
aggregate cost of investments for Federal income tax purposes was
$3,843,889,085.
4. Shares of Beneficial Interest:
Net increase in net assets derived from beneficial interest
transactions was $1,095,437,782 and $998,495,743 for the years ended
October 31, 1996 and October 31, 1995, respectively.
<PAGE>
NOTES TO FINANCIAL STATEMENTS (concluded)
Transactions inshares of beneficial interest for each
class were as follows:
Class A Shares for the Year Dollar
Ended October 31, 1996 Shares Amount
Shares sold 15,856,881 $374,683,538
Shares issued to share-
holders in reinvestment of
dividends and distributions 2,825,668 60,826,440
------------ ------------
Total issued 18,682,549 435,509,978
Shares redeemed (8,325,117) (196,158,604)
------------ ------------
Net increase 10,357,432 $239,351,374
============ ============
Class A Shares for the Year Dollar
Ended October 31, 1995 Shares Amount
Shares sold 14,567,526 $296,704,905
Shares issued to share-
holders in reinvestment of
distributions 317,795 5,475,610
------------ ------------
Total issued 14,885,321 302,180,515
Shares redeemed (5,824,423) (121,604,069)
------------ ------------
Net increase 9,060,898 $180,576,446
============ ============
Class B Shares for the Year Dollar
Ended October 31, 1996 Shares Amount
Shares sold 40,931,339 $899,830,123
Shares issued to shareholders
in reinvestment of dividends
and distributions 7,878,594 157,479,392
------------ -------------
Total issued 48,809,933 1,057,309,515
Automatic conversion of
shares (2,182,558) (47,330,262)
Shares redeemed (19,023,230) (416,714,283)
------------ ------------
Net increase 27,604,145 $593,264,970
============ ============
<PAGE>
Class B Shares for the Year Dollar
Ended October 31, 1995 Shares Amount
Shares sold 45,433,946 $887,607,425
Shares issued to shareholders
in reinvestment of
distributions 1,276,055 20,710,369
------------ ------------
Total issued 46,710,001 908,317,794
Automatic conversion of
shares (22,364,293) (422,714,534)
Shares redeemed (14,507,467) (282,014,523)
------------ ------------
Net increase 9,838,241 $203,588,737
============ ============
Class C Shares for the
Year Ended Dollar
October 31, 1996 Shares Amount
Shares sold 4,661,344 $101,617,191
Shares issued to shareholders
in reinvestment of dividends
and distributions 396,953 7,905,015
------------ ------------
Total issued 5,058,297 109,522,206
Shares redeemed (1,496,367) (32,621,973)
------------ ------------
Net increase 3,561,930 $ 76,900,233
============ ============
Class C Shares for the Year Dollar
Ended October 31, 1995 Shares Amount
Shares sold 4,263,467 $ 85,246,441
Shares issued to shareholders
in reinvestment of
distributions 4,740 76,935
------------ ------------
Total issued 4,268,207 85,323,376
Shares redeemed (385,718) (7,910,688)
------------ ------------
Net increase 3,882,489 $ 77,412,688
============ ============
<PAGE>
Class D Shares for the Year Dollar
Ended October 31, 1996 Shares Amount
Shares sold 8,855,195 $208,171,714
Shares issued to shareholders
in reinvestment of dividends
and distributions 2,450,827 52,562,307
Automatic conversion of
shares 2,042,224 47,330,262
------------ ------------
Total issued 13,348,246 308,064,283
Shares redeemed (5,171,860) (122,143,078)
------------ ------------
Net increase 8,176,386 $185,921,205
============ ============
Class D Shares for the Year Dollar
Ended October 31, 1995 Shares Amount
Shares sold 7,989,658 $166,752,965
Shares issued to shareholders
in reinvestment of
distributions 46,313 797,042
Automatic conversion of
shares 21,033,581 422,714,534
------------ ------------
Total issued 29,069,552 590,264,541
Shares redeemed (2,493,288) (53,346,669)
------------ ------------
Net increase 26,576,264 $536,917,872
============ ============
5. Transactions with Affiliated Companies:
Investment in companies 5% or more of whose outstanding securities
are held by the Fund (such companies are defined as "Affiliated
Companies" in Section 2(a)(3) of the Investment Company Act of 1940)
are as follows:
<PAGE>
<TABLE>
<CAPTION>
Increase Increase Dividend
Industry Affiliate in Shares--Net in Cost--Net Income
<S> <S> <C> <C> <C>
Energy Acquistion & Exploration Apache Corp. 3,000,000 $87,791,921 $1,820,000
Diversified Resource Companies Arcadian Corp. 2,109,000 47,969,951 210,900
Electronic Components Cirrus Logic, Inc. 255,000 5,263,123 ++
Biotechnology CytoTherapeutics,
Inc. 213,000 2,904,158 ++
Biotechnology CytoTherapeutics,
Inc. (Warrants) -- -- ++
Energy Acquisition & Exploration Devon Energy Corp. -- -- 264,000
Offshore Drilling Companies Ensco International,
Inc. 1,300,000 39,449,496 ++
Diversified Resource Companies Freeport-McMoRan,
Inc. -- -- 1,350,000
Offshore Drilling Companies Global Marine, Inc. -- -- ++
Electronic Components Komag, Inc. 2,700,000 48,631,141 ++
Oilfield Services Nabors Industries,
Inc. 5,000,000 55,701,065 ++
Energy Acquisition & Exploration Newfield Exploration
Co. 349,500 10,270,295 ++
International Exploration & Norcen Energy
Production Resources Ltd. 1,025,000 14,483,787 ++
Computer Software Platinum Technology,
Inc. 1,786,248 23,466,337 ++
Domestic Exploration & Production Santa Fe Energy
Resources, Inc. -- -- ++
Domestic Exploration & Production Seagull Energy Corp. 450,000 8,428,812 ++
Natural Gas Gathering & Transmission TransMontaigne
Oil Co. 3,117,000 17,143,500 ++
Oil Refining Valero Energy Corp. -- -- 2,080,000
<PAGE>
Oilfield Services Weatherford Enterra,
Inc. 3,000,000 86,669,086 ++
Natural Gas Gathering & Transmission Western Gas
Resources, Inc. -- -- 500,000
<FN>
++Non-income producing security.
</TABLE>
<AUDIT-REPORT>
INDEPENDENT AUDITORS' REPORT
The Board of Trustees and Shareholders of
Merrill Lynch Growth Fund:
We have audited the accompanying statement of assets and
liabilities, including the schedule of investments, of Merrill Lynch
Growth Fund as of October 31, 1996, the related statements of
operations for the year then ended and changes in net assets for
each of the years in the two-year period then ended, and the
financial highlights for each of the years in the five-year period
then ended. These financial statements and the financial highlights
are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and the
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial
statements and the financial highlights are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements.
Our procedures included confirmation of securities owned at October
31, 1996 by correspondence with the custodian. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide
a reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights
present fairly, in all material respects, the financial position of
Merrill Lynch Growth Fund as of October 31, 1996, the results of its
operations, the changes in its net assets, and the financial
highlights for the respective stated periods in conformity with
generally accepted accounting principles.
<PAGE>
Deloitte & Touche LLP
Princeton, New Jersey
December 6, 1996
</AUDIT-REPORT>
IMPORTANT TAX INFORMATION (unaudited)
<TABLE>
The following information summarizes all per share distributions
paid by Merrill Lynch Growth Fund during its taxable year ended
October 31, 1996:
<CAPTION>
Qualifying Non-Qualifying Total Long-Term
Record Payable Ordinary Ordinary Ordinary Capital
Date Date Income Income Income Gains
<S> <S> <S> <C> <C> <C> <C>
Class A Shares 12/18/95 12/27/95 $0.189741 $0.169222 $0.358963 $1.723171
7/02/96 7/11/96 $0.023080 $0.100449 $0.123529 --
Class B Shares 12/18/95 12/27/95 $0.075777 $0.067582 $0.143359 $1.723171
7/02/96 7/11/96 $0.003948 $0.017184 $0.021132 --
Class C Shares 12/18/95 12/27/95 $0.126202 $0.112555 $0.238757 $1.723171
7/02/96 7/11/96 $0.005520 $0.024022 $0.029542 --
Class D Shares 12/18/95 12/27/95 $0.169889 $0.151517 $0.321406 $1.723171
7/02/96 7/11/96 $0.018051 $0.078561 $0.096612 --
The qualifying ordinary income qualifies for the dividends received
deduction for corporations.
Please retain this information for your records.
</TABLE>
<PAGE>
OFFICERS AND TRUSTEES
Arthur Zeikel, President and Trustee
James H. Bodurtha, Trustee
Herbert I. London, Trustee
Robert R. Martin, Trustee
Joseph L. May, Trustee
Andre F. Perold, Trustee
Terry K. Glenn, Executive Vice President
Norman R. Harvey, Senior Vice President
Donald C. Burke, Vice President
Stephen C. Johnes, Vice President and
Portfolio Manager
Gerald M. Richard, Treasurer
Jerry Weiss, Secretary
Custodian
State Street Bank and Trust Company
One Heritage Drive, P2N
North Quincy, Massachusetts 02171
Transfer Agent
Merrill Lynch Financial Data Services, Inc.
4800 Deer Lake Drive East
Jacksonville, Florida 32246-6484
(800) 637-3863
